Executive Summary

Q3 2016: Revenue $61.04M and diluted EPS $0.27; gross margin 28.8% and operating margin 8.2%. Year-over-year, EPS declined and margins compressed due to mix and under-absorption; sequentially, revenue and EPS fell versus Q2 2016 as vehicle market softness persisted .
International mix rose: U.S. sales were 56% vs 66% in Q3 2015, reflecting Heidrive’s contribution and European seasonality effects .
Orders/backlog softened sequentially (orders $59.09M; backlog $77.68M) on vehicle weakness and generally soft industrial conditions, though YTD orders were up 9% due to Heidrive .
Debt refinancing post-quarter is a positive catalyst: redeemed 14.5% notes; projected annual interest savings ~~$3.3M pre-tax (~~$2.2M after-tax; ~$0.24 per diluted share); expect a ~$1.0M non-cash charge in Q4 for unamortized fees .

What Went Well and What Went Wrong

What Went Well

Heidrive expansion boosted market position in Aerospace & Defense and Medical; management highlighted “a larger market position” following the acquisition .
Strategic shift toward multi-product motion solutions progressing; CEO: “making excellent progress with our strategic market-based multi-product development solutions” .
Refinancing enhances financial flexibility and lowers interest burden: “eliminating 14.5% senior secured notes and substantially reducing our future interest expense” .

What Went Wrong

Margin pressure: gross margin fell to 28.8% (from 30.8% YoY) due to product mix and under-absorption at certain facilities; operating margin declined to 8.2% .
Vehicle market headwinds: specific applications “are challenged…expected to persist,” contributing to sequential order/backlog declines .
Earnings declined: net income $2.52M vs $4.28M YoY; diluted EPS $0.27 vs $0.46, reflecting higher OpEx (notably E&D and selling expenses, including Heidrive integration) .

Financial Results

Metric	Q3 2015	Q1 2016	Q2 2016	Q3 2016
Revenue ($USD Thousands)	$61,534	$63,675	$65,835	$61,040
Gross Profit ($USD Thousands)	$18,939	$18,277	$19,613	$17,606
Gross Margin (%)	30.8%	28.7%	29.8%	28.8%
Operating Income ($USD Thousands)	$7,031	$4,532	$5,963	$5,025
Operating Margin (%)	11.4%	7.1%	9.1% ()	8.2%
Net Income ($USD Thousands)	$4,278	$2,127	$2,942	$2,520
Diluted EPS ($USD)	$0.46	$0.23	$0.31	$0.27

Segment and regional mix

Company reports one segment; regional sales mix as disclosed:

Regional Mix	Q3 2015	Q1 2016	Q2 2016	Q3 2016
U.S. (% of sales)	66%	55%	55%	56%
International (% of sales)	34%	45%	45%	44%

KPIs

KPI	Q3 2015	Q4 2015	Q1 2016	Q2 2016	Q3 2016
Orders ($USD Thousands)	$55,115	$54,159	$66,391	$68,347	$59,088
Backlog ($USD Thousands)	$67,820	$70,999	$81,704	$80,742	$77,683
Adjusted EBITDA ($USD Thousands)	$9,443	—	$7,383	$8,446	$8,077
E&D Expense ($USD Thousands)	—	—	$4,050	$4,174	$3,961
E&D % of Revenue	—	—	6.4%	6%	6.5%

Actual vs. Estimates (Q3 2016)

Metric	Actual	Consensus
Revenue ($USD Thousands)	$61,040	N/A (S&P Global consensus unavailable)
Diluted EPS ($USD)	$0.27	N/A (S&P Global consensus unavailable)

Note: S&P Global consensus estimate data was unavailable due to access limits; therefore, comparisons to consensus could not be provided.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Effective Tax Rate	FY 2016	—	~32%	Maintained outlook provided
Annual Interest Expense	Ongoing	Higher due to 14.5% notes	Reduced by ~~$3.3M pre-tax (~~$2.2M after-tax; ~$0.24/diluted share)	Raised savings after refinancing
One-time Financing Charge	Q4 2016	—	~$1.0M (unamortized financing costs)	New item
Dividend	Quarterly	$0.025/share	$0.025/share (Q1–Q2 2016 disclosed)	Maintained program

Earnings Call Themes & Trends

Note: A Q3 2016 earnings call transcript was not available via our document tools; themes derived from press releases and 10-Q MD&A.

Topic	Previous Mentions (Q1 & Q2 2016)	Current Period (Q3 2016)	Trend
Multi-product motion solutions	Q1: Wins moved into production; strengthened sales org	Continued progress; well received by customers	Improving
Vehicle market	Q1: Lower sales; softness	Specific applications challenged; expected to persist	Deteriorating
International mix	Q1–Q2: 55% U.S. share; more Europe	U.S. 56%; continued higher international exposure	Stable to slightly improving
Cost structure and E&D	Q1–Q2: Higher E&D to drive solutions (6%+ of rev)	E&D 6.5%; under-absorption in some facilities	Mixed (investment continues; absorption issues)
Debt structure/interest	Q2: High-rate subordinated notes in place	Refinanced; significant interest savings projected	Improving
Industrial demand	Q2: Slow growth environment	Generally soft industrial conditions; EU seasonality	Deteriorating in near term

Management Commentary

“We have gained a larger market position in our Aerospace and Defense and Medical markets because of the addition of Heidrive to our company portfolio.” — Richard S. Warzala, Chairman & CEO
“We recently completed our debt restructuring, eliminating 14.5% senior secured notes and substantially reducing our future interest expense.” — CEO
“The softness in the off road vehicle industry combined with certain customer challenges is unfortunately masking successes with new application wins we have experienced in 2016.” — CEO
“We are making excellent progress with our strategic market-based multi-product development solutions… well received by our customers during the early stages of the product release cycle.” — CEO
Q1 reinforcement: realigned North American sales and saw motion solution wins moving to production .

Q&A Highlights

A Q3 2016 earnings call transcript was not available through our document tools; Q&A highlights and any guidance clarifications could not be retrieved .

Estimates Context

S&P Global consensus estimates for Q3 2016 (EPS and revenue) were unavailable due to access limits; as a result, beat/miss analysis versus Street was not possible. Given the reported margin compression and sequential order/backlog declines, the Street may reassess near-term margin expectations; however, we cannot quantify without consensus data .

Key Takeaways for Investors

Near-term caution: Vehicle market weakness and under-absorption in select facilities pressured margins and EPS; watch sequential orders/backlog for stabilization .
Strategic positives: Heidrive integration is broadening market exposure and supporting multi-product solution strategy; this should underpin medium-term mix and scale benefits .
Balance sheet catalyst: Post-quarter refinancing materially lowers interest expense and improves flexibility; expect a Q4 one-time charge but better run-rate earnings thereafter .
Investment in E&D remains elevated (~6–7% of revenue), supporting pipeline depth; monitor conversion of wins to production to offset vehicle headwinds .
International exposure increased (U.S. 56% vs 66% YoY); consider FX and European seasonality impacts on quarterly volatility .
Dividend program maintained at $0.025 per share (Q1–Q2); no change indicated in Q3 disclosures .
Without consensus data, trading setups should focus on company-specific catalysts (interest savings realization, backlog trends) and confirmation of margin recovery in subsequent quarters .

ALLIENT INC (ALNT)·Q3 2016 Earnings Summary