Allient - Earnings Call - Q2 2025

Transcript

Speaker 3

Good morning and welcome to the Allient Inc. Second Quarter Fiscal Year 2025 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the STAR key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press STAR, then 1. Please note, this event is being recorded. I would now like to turn the conference over to Craig Mychajluk, Investor Relations. Please go ahead.

Speaker 0

Yeah, thank you. 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 second quarter 2025 results, provide a strategic update, and share our outlook. We'll then open up 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'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?

Speaker 4

Thank you, Craig, and welcome, everyone. We continue to build momentum in the second quarter, delivering record gross margin, strong profitability, and exceptional cash generation. This performance reflects the consistent execution of our operational priorities and the alignment we are seeing across our markets, organization, and strategic roadmap. Revenue increased 5% sequentially and 3% year-over-year, supported by solid demand in data center infrastructure, defense, and select high-value medical applications. While power sports within the vehicle market remained under pressure, we did see healthy sequential growth from that vertical. It is worth noting that approximately $3 to $4 million of revenue was pulled into the second quarter as customers accelerated shipments due to concerns around supply constraints in heavy rare earth materials.

Gross margin reached a record 33.2%, up 100 basis points sequentially and 330 basis points from a year ago, driven by a favorable mix, higher volumes, and continued improvement in operating discipline. This translated into meaningful EBITDA growth and a significant increase in profitability, with net income up 58% from Q1 and nearly fivefold year-over-year. We also generated $24.5 million in operating cash during the quarter, another record, which enabled us to further reduce debt and strengthen our balance sheet. Our Simplify to Accelerate Now program remains central to our performance, driving efficiency, aligning with evolving customer needs, and enhancing responsiveness across our global operations. The operational foundation we have built is delivering results even in a dynamic external environment, including tariff and material supply challenges, particularly in heavy rare earths, where we are actively managing constraints.

The initiatives we put in place are tracking well, both in terms of cost savings and operational agility. For example, our Dothan restructuring launched as a cornerstone of the 2025 effort is on track and expected to play a meaningful role in achieving the $6 to $7 million in targeted annualized savings this year. Looking ahead, we remain focused on building on this momentum, executing with discipline, scaling the benefits of our transformation initiatives, and advancing toward our long-term financial and strategic objectives. With that, let me turn it over to Jim for a more in-depth review of the financials.

Speaker 0

Thank you, Dick, and good morning, everyone. Let's begin with slide 5. Revenue for the second quarter was $139.6 million, a 3% increase year-over-year and up 5% sequentially. This growth was driven by continued strength in our aerospace and defense programs, industrial markets, especially HVAC and data center infrastructure, and select medical applications. Revenue growth also benefited from a favorable foreign exchange impact of $2.4 million. Sales to U.S. customers accounted for 55% of total revenue, in line with last year. The geographic and end-market diversification of our portfolio remained the key strength. Looking at our market performance, aerospace and defense grew 13%, reflecting program timing and strong execution. We continue to see a healthy pipeline of opportunities in the defense sector and believe this market will remain a solid contributor to growth as we move forward. Medical was up 4%, led by solid demand for surgical instruments.

The industrial market increased 3%, driven by continued strength for HVAC and data center market applications where our power quality solutions are needed. We are also encouraged by early signs of recovery in industrial automation, where demand has been challenged over the past year, given the inventory destocking. We are beginning to see more consistent activity and ordering trends. Vehicle revenue was down 7% due to ongoing softness in power sports, although we did see sequential sales improvement in the vehicle market. Now turning to slide 6 for the composition of our revenue over the trailing 12 months, along with the key catalysts driving these changes. We have seen a meaningful shift in mix, with growth in higher value industrial and aerospace defense solutions helping to offset ongoing pressure in the vehicle market.

This evolution reflects not only external market dynamics, such as softness in recreational spend and volatility in automation, but also our deliberate effort to focus on more resilient, margin-accretive applications. The industrial sector is our largest market and reflects similar impacts as the recent quarter. Aerospace and defense continues to be a growth driver. Meanwhile, our vehicle exposure has been intentionally refined. While near-term demand in power sports remains soft, our proactive repositioning away from lower margin programs is helping to protect profitability. Overall, our revenue mix today is more diversified, more balanced, and better aligned with where we see long-term opportunity, and that puts us in a strong position to manage near-term headwinds while driving sustained performance. On slide 7, we are pleased to report a record gross margin of 33.2%, up 330 basis points from last year and 100 basis points sequentially.

This improvement marks our fourth consecutive quarter of expansion. Key drivers included favorable mix, higher volumes, and ongoing implementation of lean manufacturing disciplines, as well as our Simplify to Accelerate Now program. Slide 8 highlights our operating leverage. Operating income more than doubled to $11.7 million, with operating margin rising 480 basis points year-over-year to 8.4% and improving 180 basis points sequentially. SG&A was 14.7% of sales, down 60 basis points from last year, demonstrating cost discipline despite inflationary and incentive-based pressures. Restructuring and business realignment costs were $1.1 million in the quarter, supporting future margin improvement. Turning to slide 9, net income increased to $5.6 million, or $0.34 per diluted share. On an adjusted basis, net income was $9.5 million, or $0.57 per diluted share, up from $0.46 per share in Q1 and $0.29 per share in the prior year.

Our effective tax rate for Q2 was 23.1%, as we continue to expect our full rate to land between 21% and 23%. As for interest expense, we did see an increase despite lower debt levels. As we discussed last quarter, this was largely due to the expiration of two favorable interest rate swaps late last year, which were replaced at higher prevailing rates. While still competitive in today's market, they are not as favorable as the prior arrangements. Additionally, our amended credit facility carries a modestly higher spread, contributing to the increase. That said, our overall interest burden remains manageable, and our strong cash flow is enabling continuing deleveraging. Adjusted EBITDA increased meaningfully to $20.1 million, or 14.4% of revenue, driving strong conversion on higher volumes and a more favorable mix. This represents margin expansion of 420 basis points year-over-year and 120 basis points sequentially.

Turning to slide 10, we delivered record operating cash flow of $24.5 million in the quarter, up 76% sequentially and nearly three times the level generated in the same period last year. On a year-to-date basis, operating cash flow now stands at $38.4 million, more than double what we achieved in the first half of 2024. This strong performance reflects both profit growth and disciplined working capital execution. Our inventory turns improved to 3.1 times, up from 2.7 at the end of the year. This was driven by tighter demand alignment, better planning, and continued progress under our Simplify to Accelerate Now program. At the same time, our day sales outstanding improved, signaling stronger collections and more efficient conversion of sales into cash. We used a portion of our cash to reduce debt by $20 million in the quarter, bringing us to the balance sheet discussion on slide 11.

We ended Q2 with nearly $50 million in cash and lowered our net debt by $35.8 million year to date, bringing our leverage ratio down to 2.3 times, compared with 3 at the end of last year. Our bank-defined leverage ratio, which excludes certain items like foreign cash, was 2.9 times, well within covenant levels. Capital expenditures were $3.2 million through the first half of the year. We have refined our full-year 2025 capital expenditures outlook to a range of $8 to $10 million, compared with the prior estimate of $10 to $12 million. Overall, we are executing well across all three of our financial priorities for 2025: improving inventory turns and working capital, maintaining cost discipline, and reducing debt. These efforts position us well to continue expanding profitability and create financial flexibility for strategic execution.

With that, if you advance to slide 12, I will now turn the call back over to Dick.

Speaker 4

Thank you, Jim. While our book-to-build ratio was modestly below 1 at 0.97, demand trends remained steady in key sectors like industrial, where our power quality solutions continue to perform well, and in aerospace and defense, where we are seeing continued traction with both legacy and new programs. Backlog ended the quarter at $236.6 million, down slightly from Q1 and prior-year levels, as customers continued to manage through inventory normalization. The majority of our backlog is still expected to convert within three to nine months, which is consistent with historical patterns. Importantly, we are seeing signs that the destocking cycle is largely behind us, especially in the industrial automation end markets. Order activity is becoming more consistent, and quoting volumes are improving in several key verticals, which gives us confidence heading into the second half.

That said, we do expect third-quarter sales to be sequentially lower due to the $3 to $4 million in revenue that was pulled into Q2. While Europe is showing signs of stabilization, the region has not fully recovered, and Q3 is typically a seasonally weaker period in Europe. As we look ahead, our strategy remains unchanged to drive sustainable, profitable growth while delivering lasting value to our customers, employees, and shareholders. We continue to align the business around margin-accretive, technology-forward solutions that meet the evolving needs of our customers in motion, control, and power. The benefits of our Simplify to Accelerate Now program are clearly reflected in our performance through margin expansion, operating leverage, improved working capital, and stronger cash flow. We remain proactive in managing external risks, including tariffs and rare earth supply dynamics.

Our mitigation strategies are proving effective, and we are confident in our ability to protect both supply continuity and profitability. More broadly, we are encouraged by constructive signs across our serve markets, supported by long-term trends in electrification, automation, energy efficiency, and precision control. This includes seeing early signs of recovery in industrial automation and steady momentum in A&D. The operational foundation we have built, the strength of our balance sheet, and the momentum behind our core initiatives positions us well to execute through the second half and to drive long-term value well beyond. With that, operator, let's open the line for questions.

Speaker 3

Certainly. We will now begin the question and answer session. To ask a question, you may press STAR, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, you may press STAR, then 2. Today's first question comes from Greg Palm with Craig-Hallum Capital Group. Please go ahead.

Hey, good morning. Thanks for taking the questions, and congrats on the results.

Speaker 0

Thank you, Greg. Good morning to you.

I just want to maybe understand again kind of what you're seeing out there. It sounds like you know you're feeling good that the destocking is in the rearview mirror. You're starting to maybe see some green shoots in industrial. Aerospace and defense remains strong. You know anything else you want to maybe call out or highlight?

No, I think you've hit the highlights.

aerospace and defense specifically, maybe remind us, number one, what your major exposure areas are and just in terms of visibility to the remainder of the year and even next, where are we at? How strong is the demand?

Sure. Aerospace and defense is certainly in some of the applications that we work on. We do get some good visibility, long-term visibility, and we work on longer-term contracts, and we continue to do that. We are seeing some very positive results. We've made some significant improvements in our operating capabilities, some of the restructuring we've talked about here that's underway that solidifies operations and gives us and provides greater strength within certain facilities. I think that's playing out well. We're meeting with key customers on a regular basis, and I think from a legacy business standpoint and some of the applications we're on, we do see that there is some opportunity to increase volumes and to hopefully expand margins as we've consolidated the operations.

Some of the new applications, you know, with government programs or military programs, there's usually risk, and there's no guarantee that those programs come to fruition. We have seen a few cancellations. We've seen a few programs move to the right. We're seeing other programs moving to the left, meaning accelerating. It's a mixed bag right now. We feel there's a transition going on in terms of the way warfare is going to be fought and the types of vehicles or devices that are going to be needed for that. I do believe that our team is well positioned to capitalize on it as we move forward. There will be some minor bumps along the way, but we feel we're on track and we're in a good position to capitalize on those as they move forward.

Okay, great. Maybe lastly, on the rare earth magnets, which I know we talked about a lot last quarter, on a relative basis, given what's happened in the last month, are you feeling better, worse, the same? What's the risk profile there?

Yeah, our team has worked extremely hard to stay on top of it and engage all of our operations, and I think you know we have a pretty good outlook on what we feel is going to happen. We've seen some improvements, although we have to be very cautious here and say that most of the materials that we're talking about are coming out of China, and there's always a risk that things can change in the short term. We're starting to see some things loosen up, some of the licenses being approved. We still have some exposure. We talked before about the exposure we see potentially for the remainder of the year. There's somewhere between $1 million and $3 million in shipments that could be impacted by it. I would also say to you, because of that, I mentioned that we had some accelerated shipments or pull-ins into Q2.

We believe that was a reflection of the concern on the heavy rare earth and that our customers wanted to get some supply on hand to make sure that they were protected. Those were pull-aheads, and as it was mentioned, that could have an impact on our third-quarter shipments. I also would state that we don't have enough visibility. We don't really know what all of our customers' plans are. While we're saying there could be an impact, we're also realizing that they could also pull ahead again, as long as we had materials to supply that. We emphasize that Q2 was a little higher than what we would have expected based upon the pull-aheads and that Q3 could be impacted because of that.

I would also say to you that we are not 100% sure how our customers are going to react and what they're going to do going forward here, if that's just going to be inventory they're going to hold on hand and just continue the supply on a normalized basis with some safety stock in their possession. Those are things that we're seeing, and that's caused some of that. I think we are encouraged that there are some positive signs ahead. Things are loosening up and starting to get to a more normal state.

Okay, thanks for the call. Best of luck. Thanks.

Thank you, Greg.

Speaker 3

Thank you. The next question is from Ted Jackson with Northland Securities. Please go ahead.

Hey, good morning, and congratulations on a very nice quarter.

Speaker 0

Morning, Ted. Thank you.

I've got a few questions. Going back into the pull forward of revenue, just out of curiosity, within your reported segments, where was most of that pull forward coming from? Your segments like industrial, medical, vehicle, etc.

Yeah, it's two areas that we saw in medical. It's related around the types of materials that are typically used in the high-performance solutions. When we talk about heavy rare earth, that usually means higher performance solutions, and higher performance comes from, let's say, when we look at it from a motor perspective, smaller size but higher energy magnets to produce more power. It's either size constraints that are causing the need to use these higher performance, or it's really truly high performance that the only way to get there is from the use of this type of magnetic material. I would tell you medical, some high-end industrial, and some defense. Also, what I would like to state, and I stated this before, Ted, but allow me to repeat this. Our company has taken an approach, more than 10 years ago. As I said before, we go through these cycles.

It seems like every seven to eight years where magnet prices are under pressure and they get increased 3 to 400%, and you have to work with your customers to get enough material to supply their demand and pass along surcharges based upon those prices. In this case, we were challenged by the fact that we weren't even going to be allowed to receive the material. That became a little bit more stressful for us. Because of this, what's occurred in the past, our company has been very proactive in designing products where possible that don't contain heavy rare earth. We will continue to do so into the future to try to eliminate this risk as much as we possibly can off into the future. We have already and had been for years taking actions to do that, and we have been successful.

The fact of the matter is, as these barriers to trade come in place, it's driving the development of the domestic market, which over the longer term would probably be quite good for you. We'll see how it plays out over the next decade or so. On the magnet supply, I know as all this came in place that you guys were on top of it and smart and did bring in some heavy rare earth, high-end products into inventory to be in front of it. Now, when you look at where you are with that, at what point would it become an issue if, God forbid, the Chinese just stop things again? Do you have enough supply to get you through the remainder of this year? Do you have enough supply that would take you into 2026? I'm not saying that you're going to run out of it.

I'm just saying just kind of understanding what level of safety stock you've put in place at home.

It varies, you know, and there's multiple ways that we would be dealing with that. I'm going to let Jim talk a little bit about some of the things that we've done on the supply chain side and the actions that we've taken to ensure that we have material. I say it varies because if in fact you have noticed that you're just not going to receive it. For example, the Chinese will not ship magnets or heavy rare earth materials to the U.S. for defense applications. The U.S. doesn't want them, and China won't ship them. That's been out there for a while, and it's opened up opportunities domestically, but what that will do is drive pricing, and costs will go up. The government has taken some actions to mitigate it in the future, and we are on board and in the loop with what's happening here.

It's hard to give you a specific timeframe because it'll vary based upon products, the amount of safety stock we have for each, what the supply chain is looking like, our resourcing, and also identifying some redesign opportunities that, worse comes to worse, if you can't get product, then what are the alternatives from a design perspective that we can accelerate through and get approval from customers. Typically, once our products get designed into these types of applications, the redesign and approval process is a very long period of time. Just like we saw during COVID, though, some of those roadblocks are removed because you had no choice but to remove them and to accelerate the process itself. If that occurs, then we may be into that. Our engineering team, rather than focusing on new opportunities and developing opportunities, may be redeployed to work on sustaining and corrective actions.

Like I said, we're in the loop on everything that's occurring. There are some good developments that are going to take time to come online. Maybe, Jim, you want to talk about some of those a bit.

Yeah, I mean, I think you saw an example of that in yesterday's news where, you know, Apple announced that they're making an investment in manufacturing here in the U.S., and part of it had to do with the fact that the government is investing in putting in infrastructure related to our own exploration and in rare earth materials and so forth. I think we're very encouraged by that. We've been in discussions with a lot of suppliers, and, as many are, understanding who's going to be a player, who's going to be able to produce and when. I think we're well in tune with that, and I'm actually very encouraged that some of those opportunities are going to come online sooner than I think any of us expected, and hopefully, we'll participate in that.

You may want to mention here, you went to Washington and talked to the government officials.

Yeah, I did have an opportunity to go to the Department of Commerce and met with several of the individuals involved in trade talks and so forth. It was very informative. As I mentioned, they are obviously helping many companies, not dissimilar to ours, in identifying opportunities to look at alternate sources and where those are and the like. There is a great collaboration, I would tell you, between companies and the Department of Commerce to ensure that companies like ours are being supported and we understand what the alternatives are.

I have two more questions, a quick one, hopefully, in terms of an answer. With all the scuttlebutt and momentum around kind of unmanned vehicles and drones and stuff, just kind of curious what kind of exposure you have, if any, to that market and how much of that is based on commercial versus industrial. Maybe there's nothing even there, but it's just, it's a hot topic right now. I'm just kind of curious. I have one more after that.

Speaker 4

I'll answer it very quickly. It's a hot topic for us as well.

Speaker 0

You guys are.

Speaker 4

We said short, quick. If you wanted a quick answer, I'd give you a quick answer. Yeah, we see it, we see it as you do. There are definitely some opportunities, and we're well positioned to capitalize on some of this. Without getting into a lot of detail on it for competitive reasons, it is something that's on our radar.

Speaker 0

Okay, I'll leave it there. My last question is, as you know, all your efficiency stuff is coming to roost. You're really doing a good job at driving margins, putting that in the business, making the business stand up and deliver cash and deliver return to shareholders. You're deleveraging the business. You've gotten your business down to, for lack of a better term, let's call it targeted leverage ratios. Historically, you've always been acquisitive in terms of just building growth through acquisition. As you're kind of exiting some of these strategic efforts in terms of realigning on the business, restructuring the business, making the business more efficient, getting debt paid down, what's going on on the M&A strategy for you all? How active are you in the pipeline? Are you going to turn it back on? That's my last question.

Speaker 4

Yeah, we really, from an investigation, from a grooming standpoint, from identifying opportunities for us in the marketplace, we never shut it down entirely. What we did do is say it is a time period when we will be establishing communications with certain key opportunities for us in the future that we saw it was a really good strategic fit. We've been doing that. I would say to you that we are not going to stop. We've got some great momentum going in terms of identifying efficiencies and changing the way we do business, and the streamlining will continue. I think we just believe it's a heck of a lot more efficient and it's better and we can do things faster. That's Simplify to Accelerate Now. It's worked its way into the deep bowels and roots of the company. It's not going to change. We're going to keep doing that.

It really is healthy and it aligns very well with our AST initiatives, so our lean toolkit and training and so forth. I would say to you that, yes, we are getting well positioned that we could execute an acquisition and we will certainly be very cautious and careful to make sure everything's lining up properly, that it's a great strategic fit and provides some continued increased value for what we're doing. The value of our recent acquisitions has been, and as we've mentioned, has been in certain technologies and market penetration that we were looking for, as well as accretive to our average gross margins. Anything we do would need to meet those criteria. I would say to you that, yeah, we're looking. We're paying attention to what's going on and we've identified some opportunities that when the time is right, we'll be looking to bring them on.

All right. Again, congratulations on the quarter and I'll step out of line.

Speaker 0

Thank you, Ted.

Speaker 3

Thank you. As a reminder, to ask a question, you may press STAR, then 1. The next question comes from Craig Cosgrove, private investor. Please go ahead. Mr. Cosgrove, your line is open.

Speaker 4

Mr. Cosgrove used to be a Controller for us in one of our operations. I'm guessing maybe by mistake he's followed us very closely and has been a strong supporter since he's left. Maybe he hit the button by mistake.

Speaker 3

Thank you. We'll move on to our next question. It comes from Orin Hirschman with AIGH Investment Partners. Please go ahead.

Hi, congratulations on the results. Just a couple of random questions.

Speaker 0

Thank you, Orin.

In terms of the data center business, just one question. Is the power conditioning more to protect the servers? Is it to protect the cooling equipment? Is it for both? A follow-up on that on the data center side, I don't remember exactly the number I have in front of me, but maybe you almost doubled year over year. Please correct me if I'm wrong. Could the business be up that much this year again? Do you have enough capacity, even if there was enough to meet that type of demand? I won't follow up on that.

Speaker 4

Okay, so the first question you're asking about what the addition of, I think if I understand it correctly, the addition of our equipment, what it does, how it impacts the data center itself. You talked about cooling. Yes, cooling is one of the things that, you know, we're on applications for cooling. I'd say more importantly, it is about the quality of the power and the efficiency that it brings. As we've talked about this in the past where, you know, we have a very high performance and high power solution that we can bring to the marketplace, and we do bring to the marketplace. Any improvements in power quality that you can make are very substantial in terms of a return. Two things there.

Does the customer get that? Is the customer, is their statistic enough to understand that if there's a 1% improvement in that quality of power, how much that means to them?

I can't speak for the customers, but I can, you know, directly for all the customers, but I think they certainly do, understanding that with the demands for power and, you know, the infrastructure that has to go into place, and someone that has a more efficient and more, you know, operation absolutely would probably have an edge.

Part B and C on that question, if I may.

You're talking about the demand and do we have capacity? Yes, we are definitely increasing. As you know, we don't break that out as a specific pathway. We do talk about HVAC, and HVAC is definitely growing for us, and it's in the industrial, under the industrial sector. The capacity, demand is continuing to go up, and we see it continuing out into the future based upon the forecasted growth of data centers and the needs for our type of equipment. We will be doing another expansion in our main facility that produces this type of product. We also have been able to leverage the acquisition we made last year in January with its electromagnetic capabilities in Mexico, as well as in Wisconsin. I think the synergies that we realized were very important and positioned us well to be able to satisfy the demand.

We are and have already invested, and we will continue to invest to increase capacity.

Okay. Two other questions, if I may, just jumping around. Just in terms of the automation side, there were some clear signs of a bounce back. I think it's your largest or one of your largest customers had a positive book-to-build. Just give us some qualitative talk through on what that means for you on the automation side.

Sure. In the past, we gave quite a bit of detail on a specific operating unit and what the impact on our performance was as we went through the supply chain crisis, then as it opened up and how it improved our demand, and how it dropped out again as there was an overstocking situation. We do expect that we have turned the corner there and we're getting to a position of normalization, and that will have a very nice positive effect or impact as we move forward. It is definitely improving and we're expecting to see the results as we move throughout the year, and all signs are in that direction.

Did you see some of that already in this past quarter?

We saw an improvement. We've seen gradual improvement sequentially in Q1 over Q2. We did see improvement, and we're continuing to see more improvement as we move ahead to get us to the point of normalization. Yes, a little bit, but we expect more coming forward.

Okay. My last question, which I think someone else alluded to, just on the munitions side, there have been a number of companies that have indicated that there are capacity constraints. I've even heard of one of the majors, like a Northrop Grumman or a Wattfield, that type of major, offering to pay for capacity expansion for a vendor. I've seen two cases like that recently. I guess my question is, is that business, I'm assuming that business is continuing to ramp for you. Are you capacity constrained there as well?

No. We mentioned the restructuring that we did to consolidate some operations several years ago. I'd say three, four years ago, the main operation for munitions, there are two main operations for us for munitions applications, and those are being consolidated together. We decided to increase our size of our facility and to allow us to grow into it. That has put us in a really good position to, as to answer your question, we are not capacity constrained.

Okay. Are you seeing the same as other vendors in terms of the desire from your customers?

What we've seen, there's certainly in the supply chain side of it, you know, there can be some concern, but we haven't, we've been working on sourcing for a while here when you go back to when the conflicts broke out and then, you know, the initial inquiries on what the projected demand might be. Over time, you know, I don't, Oren, I'm not sure that you had invested in us yet, but we had talked about that, that the inquiry level was quite high, but we hadn't seen any, you know, POs from that to increase the capacity. We now have seen that. We have seen the orders come to fruition, and we now are beginning to ship at higher levels. We were prepared.

We went out and we did quite a bit of work in advance of this because we were getting quotation requests for some significantly higher volumes. We were preparing our supply base as well as preparing ourselves. That is coming to fruition.

Okay, great. Let's see. That's pretty much those are my questions. Thank you so much.

Okay, thank you.

Speaker 3

Thank you. This concludes our question and answer session. I would now like to turn the call back to management for closing remarks.

Speaker 0

Thank you, everyone, for joining us on today's call and for your interest in Allient. As always, please feel free to reach out to us at any time, and we look forward to talking to you all again after our third quarter 2025 results. Have a great day.

Speaker 3

The conference has now concluded. Thank you for your participation. You may now disconnect your lines.