Allient : ALNT Q4 24 Teleconference Transcript
ALNT
ALLIENT INC.
FOURTH QUARTER FISCAL YEAR 2024
EARNINGS RESULTS CONFERENCE CALL TRANSCRIPT
MARCH 6, 2025
Table of Contents
Presenters and Participants
2
Presentation
3
Question and Answer
8
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Allient Inc.
Fourth Quarter Fiscal Year 2024 Earnings Results Conference Call
March 6, 2025
Presenters and Participants
PRESENTERS
Richard Warzala
Chairman, President & CEO
James Michaud
CFO & Senior Vice President
Craig Mychajluk
Investor Relations
PARTICIPANTS
Gregory Palm
Craig-Hallum Capital Group LLC, Research Division
Ted Jackson
Northland Securities, Inc., Research Division
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Allient Inc.
Fourth Quarter Fiscal Year 2024 Earnings Results Conference Call
March 6, 2025
Presentation
Operator
Good day, and welcome to the Allient, Inc. Fourth Quarter Fiscal Year 2024 Financial Results Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.
I would now like to turn the conference over to Craig Mychajluk, Investor Relations. Please go ahead.
Craig Mychajluk
Investor Relations
Thank you, and good morning, everyone. We certainly appreciate your time today, as well as your interest in Allient. Joining me on the call are Dick Warzala, our Chairman, President, and CEO; and Jim Michaud, our Chief Financial Officer. Dick and Jim are going to review our fourth quarter and full year 2024 results and provide an update on the company's strategic progress and outlook. After which, we'll open up the line for Q&A. You should have a copy of the financial results that were released yesterday after the market close. If not, you can find it at our website at allient.com, along with the slides that accompany today's discussion. If you're 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'll turn it over to Dick to begin. Dick?
Richard Warzala
Chairman, President & CEO, Allient, Inc.
Thank you, Craig, and welcome, everyone. As we conclude 2024, I want to acknowledge our team's resilience and commitment to execution in what has been a dynamic and, at times, challenging market environment. Despite headwinds in key industrial and vehicle markets, we continue to execute with discipline, driving operational efficiencies and positioning Allient for sustained long-term growth.
In the fourth quarter, we delivered $122 million in revenue, with a sequentially improved gross margin of 31.5%, even as volume remained soft. Importantly, orders increased 15% sequentially, resulting in a book-to-bill ratio of nearly 1, largely driven by strengthening demand in power quality and defense.
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Allient Inc.
Fourth Quarter Fiscal Year 2024 Earnings Results Conference Call
March 6, 2025
For the full year, revenue totaled $530 million, reflecting the anticipated demand softness largely due to inventory rebalancing and customer utilization of excess inventory in the channel. However, we remain focused on financial discipline, generating nearly $42 million in operating cash flow and ended the year with $36 million in cash.
Total debt reached approximately $240 million at the end of the first quarter of 2024 following our acquisition of SNC. Since then, we have been committed to reducing debt, lowering our total by $16 million over the year. On a net debt basis, given our stronger cash position, we are essentially back to where we were at the end of 2023 despite adding SNC.
SNC has progressed as expected. It is a well-established company, and their offerings have complemented our current power quality capabilities. This was our first tuck-in acquisition in support of our power technology pillar, and we are excited about the synergies developing as a result.
A driver of our margin improvement has been our Simplify to Accelerate NOW initiatives, as highlighted on slide 4. This program has been instrumental in refining our organizational structure, reducing redundancies, and optimizing production processes. In 2024, it delivered $10 million in annualized savings, improving our cost structure and overall agility. By simplifying operations, we are enhancing our responsiveness leading to faster time to market, improved customer service, and stronger competitive positioning across key industries. Our goal is to drive an additional $6 million to $7 million in annual savings in 2025.
Building on this momentum, in early February, we announced the expansion of machining capabilities at our Dothan, Alabama facility, an initiative that is expected to support our goal. While there will be some onetime implementation costs, the investment is expected to pay for itself within a year. We anticipate realizing the initial benefits by late 2025, further strengthening our operational efficiency and cost structure. Jim will provide additional details on the associated restructuring charges.
Leveraging advanced machining techniques, our Dothan facility will focus on producing complex, fabricated parts that are strategically aligned with the needs of our key markets and customers. Additionally, we will transition current assembly operations from Dothan, consolidate these capabilities into our facilities in Tulsa, Oklahoma and Reynosa, Mexico, where final assembly, integration, and testing are core competencies. This realignment will sharpen our business focus and optimize our global footprint, enabling us to deliver high-precision system solutions for demanding applications across diverse sectors, including aerospace and defense, medical, and electronic test and assembly equipment. While these transitions involve complexities and require focused execution, we are confident in the long-term efficiencies they will create.
Looking ahead, we are actively identifying new opportunities to drive efficiency, innovation, and growth, ensuring we remain aligned with evolving market conditions and customer demands. By continuously optimizing our operations and making strategic investments, we are strengthening Allient's financial performance, enhancing operational flexibility, and unlocking greater earnings potential. This forward-thinking approach is critical to maintaining our competitive edge and delivering sustained value to our stakeholders.
With that, let me turn it over to Jim for a more in-depth review of the financials.
James Michaud
CFO & Senior Vice President, Allient, Inc.
Thank you, Dick, and good morning, everyone. In the fourth quarter, we reported revenue of $122 million, a decrease from the same period last year, aligning with our expectations. The impact of foreign currency exchange rate fluctuations was nominally unfavorable by $300,000. Our geographic sales mix shifted, with US customers
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Allient Inc.
Fourth Quarter Fiscal Year 2024 Earnings Results Conference Call
March 6, 2025
accounting for 54% of total sales, down from 59% in the fourth quarter of the previous year. The percentages were similar to full year sales mix as well. This change reflects demand challenges, including lower industrial automation sales and softness within our vehicle markets.
Breaking down our results further, let's take a closer look at how each of our key market sectors performed during the fourth quarter.
Aerospace and Defense sales were a bright spot, increasing 20% due to the timing of certain defense and space programs. We are actively pursuing several promising opportunities in the defense sector, which we anticipate will contribute to growth in the future.
Medical market revenue also increased, up 5%, driven by solid demand for surgical instruments and respiratory and breathing equipment.
The sales in Vehicle markets continued to face headwinds, decreasing 46%. This decline was primarily driven by reduced demand for powersports, as the market has struggled to rebound following the surge in demand driven by the pandemic. Additionally, our strategic decision to focus more on margin-enhancing applications contributed to the overall decrease.
Industrial market sales declined 11%, despite a strong performance in power quality sales, particularly to the HVAC and data center markets. We also saw incremental sales from the SNC acquisition. However, these gains were more than offset by reduced demand in industrial automation, primarily due to significant inventory destocking by our largest customer.
Slide 6 illustrates the shift in our revenue mix across markets over the full year period, highlighting the key catalysts driving these changes.
The Industrial sector remained our largest market, contributing 47% of the trailing 12-month sales. This market was primarily driven by strong demand in power quality, as well as growth in vehicle handling and semiconductor equipment. While industrial automation initially benefited from supply chain improvements earlier in the year, sales in this sector slowed significantly as inventory levels have reset across the industry.
In the Vehicle market, we experienced increased demand in commercial automotive, driven by a ramp-up of several new model programs. However, this was offset by shifting recreational spend trends in powersports and softer demand in the agricultural sector.
While we saw stronger sales in surgical products, our Medical market experienced ongoing weakness in medical mobility solutions.
Aerospace and Defense annual sales reflect variability, driven by contract award and government budget cycles, combined with long lead times. That said, defense has seen positive growth, offset by declines within the space industry due to program timing.
Finally, our Distributor channel, while smaller, showed modest growth, representing 5% of total sales over the trailing 12-month period.
As shown on slide 7, gross profit for the quarter was $38.4 million, resulting in a gross margin of 31.5%. Gross margin remained flat year-over-year, despite top line softness and expected margin dilution from our most recent acquisition. The 10 basis points sequential increase in margin was primarily driven by a favorable product mix, as well as the continued implementation of our lean toolkit across the organization. Notably from the low margin point of 29.9% in the second quarter, we have seen a 160-basis-point improvement in gross margin, reflecting a strong sequential recovery.
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Allient Inc.
Fourth Quarter Fiscal Year 2024 Earnings Results Conference Call
March 6, 2025
We have been closely evaluating the potential impact of evolving tariff policies while assessing our options in this highly fluid environment. With manufacturing operations in Canada, Mexico, and China, we recognize tariffs may affect our supply chain, leading to increased costs. As the situation continues to develop, we will consider changes in trade policies through our pricing strategies and continue with operational improvements. We remain confident in our ability to pass most, if not all, of the potential tariff impact on to customers, ensuring operational stability while maintaining the quality and value our markets expect.
Looking ahead, our ongoing simplification initiatives, coupled with the integration of SNC and its added capacity, position us well to drive continued margin improvement over time. Despite current market challenges, we remain focused on improving profitability and driving operational efficiencies.
As highlighted on slide 8, we reported operating income of $6.4 million, resulting in an operating margin of 5.3%, which was an increase of 30 basis points year-over-year and was flat sequentially. In the fourth quarter, we incurred minimal restructuring charges, bringing the full year total to $2 million. These charges were primarily cash-based and largely tied to severance expenses.
As Dick mentioned, our Simplify to Accelerate NOW program is well-underway, and we are actively implementing additional cost-saving measures. During 2025, we are targeting an incremental $6 million to $7 million reduction in annualized costs with initial benefits expected later in the year. Onetime implementation costs of the Dothan initiative are estimated to be approximately $4 million to $5 million and are expected to be substantially incurred in 2025 and are anticipated to produce a full payback within a year.
Slide 9 highlights our bottom-line results, showing continued sequential improvements. For the quarter, net income reached $3 million, translating to earnings per diluted share of $0.18. Adjusted net income was $5.2 million, or $0.31 per diluted share, which excludes noncash amortization of intangible assets, as well as business development, restructuring, and realignment costs.
Our effective tax rate for the quarter was 22.2%. The prior year's fourth quarter tax benefit of $400,000 reflected realization of certain NOLs and R&D credits and incentives. For the full year 2025, we expect our effective tax rate to range between 21% and 23%.
Internally, we use adjusted EBITDA as a key metric to measure our operational performance and progress. Adjusted EBITDA for the quarter was $14.1 million or 11.6% of revenue. We are targeting further improvement in EBITDA margin through our ongoing simplification efforts. Sequentially, our adjusted EBITDA margin rose by 10 basis points, demonstrating the effectiveness of these initiatives.
Turning to cash generation and our balance sheet on slides 10 and 11, we remain disciplined in managing working capital while continuing to invest in strategic priorities. For the full year, cash from operations reached
$41.9 million, reflecting strong working capital efficiencies and noncash adjustments that helped offset lower net income. At year end, cash and cash equivalents increased 13% to $36.1 million, further reinforcing our financial flexibility.
Capital expenditures for the year totaled $9.7 million, compared with $11.6 million last year, as we refined our capital allocation strategy to focus on high-value, high-return projects. In 2025, we anticipate moderate CapEx growth, with spending projected between $10 million and $12 million, aligned with our targeted investment priorities.
Our days sales outstanding increased to 60 days, primarily due to customer mix and timing. Inventory management remains a top priority.
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Allient Inc.
Fourth Quarter Fiscal Year 2024 Earnings Results Conference Call
March 6, 2025
Inventory turns remain flat sequentially at 2.7 times. Throughout 2024, we navigated the impact of extended supplier lead times, receiving inventory for orders placed up to a year earlier. As a result, inventory levels remained elevated, but we are actively aligning stock levels with current demand. Encouragingly, total inventory declined 5% year-over-year and, excluding SNC, was down approximately 11%.
On the debt reduction front, total debt stood at $224 million at year end, reflecting the SNC acquisition. However, we remain committed to deleveraging, reducing debt by $7.2 million in the fourth quarter. Net debt finished the year at $188 million, representing a net debt to capitalization ratio of 41.5%, which was lower than yearend 2023.
To enhance financial flexibility, we amended our 2024 credit facilities in the fourth quarter, securing less restrictive covenants and expanded EBITDA add-backs to support long term planning. Our year end leverage ratio, as defined in our credit agreement, was 3.43 times. Additionally, to mitigate interest rate risk, at the end of the quarter, we entered into a new three-year interest rate swap, hedging $50 million of debt, providing stability amid slowing rate fluctuations. These actions, reducing debt, optimizing capital allocation, and managing financial risk, reinforce our ability to execute our Simplify to Accelerate NOW strategy with discipline.
Looking ahead to 2025, our financial priorities remain clear and focused.
First, we are committed to reducing inventory and strengthening working capital management. We have already made progress in aligning inventory with current demand conditions, and this will remain a key area of focus to further improve cash conversion.
Second, we will continue to drive cost reductions through operational efficiencies. Our Simplify to Accelerate NOW program is in full execution mode, and we are implementing additional initiatives to streamline operations and enhance profitability.
And finally, we are dedicated to reducing debt as we remain disciplined in capital deployment and cash management. We have already begun deleveraging following the SNC acquisition, and we will continue to take strategic actions to strengthen our financial position.
With that, if you advance to slide 12, I will now turn the call back over to Dick.
Richard Warzala
Chairman, President & CEO, Allient, Inc.
Thank you, Jim. The underlying fundamentals of our business remain strong. Fourth quarter order rates demonstrated solid momentum, increasing 15% sequentially. Growth was primarily driven by strength in power quality and defense, while orders also rose 12% year-over-year, benefiting from similar end market tailwinds and contributions from our recent acquisition. Although backlog has declined, due to shifting customer ordering patterns, we remain focused on positioning the business for sustained demand recovery and a normalization of run rates.
Our diversified portfolio is well-aligned with key macro trends, including: data center expansion, electrification, energy efficiency, automation, and the electric hybridization of all types of vehicles, including those in the defense sector.
We are actively engaged in several promising new program opportunities at our newly formed Allient Defense Solutions unit, which we announced at a press release in the fourth quarter of 2024. We are also continuing the strategic realignment within our company to support the significant opportunities available to Allient in the sector, as well in some of our other targeted verticals.
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Allient Inc.
Fourth Quarter Fiscal Year 2024 Earnings Results Conference Call
March 6, 2025
Our outlook is outlined on slide 13. We anticipate a moderated pace of orders across most markets through the first half of 2025, but expect continued strength in areas benefiting from long-term macro trends, particularly data center expansion.
Customer inventory adjustments appear to be nearing completion. As we move forward toward midyear, we expect greater stability and order flow, supporting a strong return to revenue levels that improved operating margins as we capitalize on the emerging growth opportunities.
As part of this open transition, we expect some near-term inefficiencies, including dual production lines and temporary inventory buildup across multiple locations. However, these are necessary steps to ensure a smooth transition and position us for long term operational improvements.
Ultimately, these initiatives reflect our commitment to building a more efficient, agile, and sustainable foundation for future growth. At Allient, we are actively driving innovation and efficiency through targeted investments and strategic realignment. Our focus on operational excellence, exemplified by our Simplify to Accelerate NOW program, ensures we remain agile and competitive in a dynamic environment. By optimizing our cost structure, streamlining operations, leveraging our global footprint, we are strengthening our ability to deliver high-precision solutions that meet the emerging needs of our customers.
I am proud of what we have accomplished this past year and remain optimistic about our path forward. Our strategic initiatives, combined with our team's dedication, position Allient well for the future.
With that, operator, let's open the line for questions.
Question and Answer
Operator
We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Greg Palm with Craig-Hallum Capital Group. Please go ahead.
Gregory Palm
Good morning, everybody. Thanks for taking the questions, and congrats on a better end of the year. Some improved execution for sure. If we could just start at maybe a high level, Dick, just give us a little bit more color on what you're seeing out there across geographies, end markets, anything that you think is worth noting and maybe how that relates to, A, the potential to return to growth for the year, and, B, maybe the cadence of how you think 2025 plays out.
Richard Warzala
Sure. I'll start with geography. I would say to you that North America continues to strengthen. I think what we're looking for there is for the industrial sector to come back to life and get back to normal rates and growth. We do see some challenges continuing in the powersports area. The inventory levels at the dealers seem to be pretty high and so forth, so we don't expect that to return to the COVID days where it just went through the roof here.
As far as Europe goes, I would tell you that, in Europe driven certainly by Germany, they still have some softness, and it's expected to persist through midyear. They have administration change they're going to be going through,
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Allient Inc.
Fourth Quarter Fiscal Year 2024 Earnings Results Conference Call
March 6, 2025
so, depending on what happens there and the policies that we see implemented there, hopefully, they'll also see a return emphasis on automation and growth in the industrial sector as well.
Primarily, for us, it is North America where we see the benefits of the data center expansion, and our capabilities to support that are very encouraging. That's continuing to have some pretty strong tailwinds, and we expect that to continue throughout the year and to be a pretty good beneficiary of that.
In the Defense sector, we created a new business unit, as we announced last year and talked about a little bit here. There are many new programs that we're working on, and we believe we have a product set and a solution set that makes us kind of unique in the space, and it's gaining tremendous traction. We've put resources in that have proven track records of growth and expansion, and we're really emphasizing that this is going to be a strong area for us and opportunities in the future based upon these new programs.
We, in the past, have talked about the munitions and how the inquiries went up based upon the conflicts that were occurring, but we hadn't seen increased demand. Well, we have seen increased demand there. So, the demand is going up, and I think we'll see that demand continuing to expand into the future.
We talk about our Simplify to Accelerate NOW strategy. I think many people relate that to say, well, you're streamlining operations, you're creating operating efficiencies, you're reducing cost, and that's really what's generating the fixed cost reductions that we're going through. But I will tell you, even more so than that is the ability to respond quickly, to get these organizations aligned much closer to customers, so we can support them better and we can move very quickly on.
So, yes, we have the benefit of simplifying or reducing the amount of overhead that sits in some of these silos, but making them more effective by working closely together with our customers, we think, improves our responsiveness to our customers, which ultimately leads to the growth in business.
So, that's pretty quick highlights of the market. I didn't discuss Asia. As you know, that's not a significant part of our business, but it still remains stable.
Gregory Palm
Yes. That makes sense. I'm curious, with Europe specifically, given recent news there, proposed stimulus is almost like a whatever-it-takes moment. I mean, I know that's been a challenging market, Germany specifically, where you have a lot of exposure. It's probably too early to tell now, but do you feel like there could be any green shoots that emerge or is it more of a let's-wait-and-see mode and see how the year shapes up?
Richard Warzala
I would say it's a wait-and-see mode, Greg. I don't think we have enough information. Yes, there's been discussions on their stock, but our feet on the ground in Europe tell us that they're continuing to hold the line on expenditures and looking at operational efficiencies and so forth, and focusing on new product development and programs that they think will kick off. They're still thinking midyear and beyond before we start to realize any of those benefits.
Gregory Palm
Okay. Makes sense. And then, just lastly, you talked a couple of times about data center exposure and some of the strength there. Can you just remind us exactly, from a revenue exposure standpoint and in terms of growth rates, what did you see last year? Any sense on what you're expecting this year and what's the overall opportunity there in that space?
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Allient Inc.
Fourth Quarter Fiscal Year 2024 Earnings Results Conference Call
March 6, 2025
Richard Warzala
Well, I think, certainly from our perspective, one of the advantages that we have that we feel will help us outpace the industry and the growth is that we do have some higher power solutions that are quite unique in the marketplace. That does give us a competitive edge, and I commend the team that made a bet that that's where the market was heading several years ago, and the bet was correct. And so, therefore, we are positioned quite uniquely and have the ability to take advantage of that.
From an overall standpoint, we're looking at pretty significant growth that we've had year-over-year in the 40% range, and while maybe not at those levels, we do expect that that opportunity has the ability to continue well into the future.
Gregory Palm
Okay. All right. I'll leave it there. Best of luck. Thanks.
Operator
And the next question comes from Ted Jackson with Northland Securities. Please go ahead.
Ted Jackson
Thank you. Good morning. Dick, I'd like to talk about both powersports and actually medical as well to start with. If you look at those businesses, I know there's a lot of moving parts underneath the hood, but the medical business seems to have stabilized at around, let's call it, $20 million for the last two years. Is that kind of a base-level run rate? Can you talk a little bit about what's going on underneath the covers? I mean, it just seems to me that that business is based out.
And then, a similar thing with regards to the powersports, which also seems to have kind of based out around $20 million on a run rate basis for the last, call it, two quarters. Is that our way to kind of think about this business? Is that, as these two business lines for you, they're kind of just flatlining along, they've kind of found their floors, and what we have to wait for is those markets to stabilize and turn around? That's my first question.
Richard Warzala
Sure. So, looking at medical first, when we talk about medical, and I've mentioned this before, we look at the applications in a more finite level. Internally, we call them FOAs or field of applications. We look at our medical and basically group them and lump them in two different parts.
One would be medical mobility, and the second would be instrumentation, instrumentation being treatment equipment or surgical robotics and other types of diagnostic equipment, the instrumentation type. And when we talk about the medical mobility and/or patient handling, you're looking at wheelchairs, patient beds, rehab.
We also have other applications in there, for example, respiratory and breathing. During COVID times, obviously, that went way up, and we saw that come back down to levels below what we saw in the past. I think it's kind of leveling out and stabilizing now. And then, we have other applications that are in various different types of pump applications.
So, I would tell you that we are focused on areas that we think will have some continued growth well into the future. Surgical robotics and instrumentation and diagnostic and test equipment, higher end equipment and the innovation that's occurring there, that's not going to go down. That's only going to increase, and as it starts to
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Disclaimer
Allient Inc. published this content on March 12, 2025, and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on March 12, 2025 at 05:24:08.179.