Q1 2025 Allient Inc Earnings Call

Good day and welcome to the Elliott, Inc. First quarter fiscal year, 'twenty 25 financial results call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.

Operator: 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: 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 one on a touch-tone phone. To withdraw your question, please press star and then two. Please note that this event is being recorded.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone.

To withdraw your question. Please press Star and then two.

Note that this event is being recorded.

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

Speaker Change: I would now like to turn the conference over to Craig Mahalik Investor Relations. Please go ahead.

Speaker Change: Yeah. Thank you and good morning, everyone. We certainly appreciate your time today as well as your interest in alien joining me today are Dirk Rosella, our chairman President and CEO and Jim Michel Our Chief Financial Officer taken Jim will walk you through our first quarter 2025 results provide a strategic update and share our outlook. We will then open up the call.

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

Craig Mychajluk: Joining me today are Dick Warzala, our Chairman, President, CEO, and Jim Michaud, our Chief Financial Officer. Dick and Jim will walk you through our first quarter 2025 results, provide a strategic update, and share our outlook. We will then open up to 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.

Speaker Change: For Q&A 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 <unk> Dot com along with the slides that accompany today's discussion.

Craig Mychajluk: 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.

Speaker Change: If you're reviewing those slides please turn to slide two for the Safe Harbor statement.

Speaker Change: 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.

Speaker Change: The Securities and Exchange Commission you can find these documents on our website or at SEC Gov.

Craig Mychajluk: You can find these documents on our website or at sec.gov.

Craig Mychajluk: 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.

Speaker Change: 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.

Speaker Change: The tables accompanying the earnings release as well as the slides so with that please turn to slide three and I'll turn it over to <expletive> to begin.

Craig Mychajluk: So with that, please turn to slide three, and I'll turn it over to Dick to begin.

Speaker Change: Thank you Craig and welcome everyone.

Richard Warzala: 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 have 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 market. However, our performance this quarter is a clear indicator that our strategy is gaining traction and that our execution is strengthened. We are building a more resilient and responsive company.

Speaker Change: We began tawny twenty-five with solid momentum delivering meaningful sequential growth across revenue margins EBITDA earnings and cash generation.

Speaker Change: These results reflect the operational and strategic discipline, we've instilled across the company and our commitment to driving long term value.

Speaker Change: Even amid a complex external environment.

Speaker Change: As expected year over year comparisons were challenging, particularly due to continued demand softness in the industrial automation and vehicle markets.

Speaker Change: However, our performance this quarter is a clear indicator that our strategy is gaining traction and that our execution is strengthening.

Speaker Change: We are building a more resilient and responsive company.

Richard Warzala: 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 46 cents per share. Our Simplify to Accelerate Now program continues to serve as a cornerstone of this transformation, driving efficiency, improving responsiveness, and positioning us to scale. It is enabling us to realign resources with demand, improve collaboration across functions, and streamline production for both near-term performance and long-term growth. We continue to navigate a dynamic global landscape with focus and agility.

Speaker Change: Revenue increased 9% sequentially and gross margin expanded 70 basis points to 32, 2% driven.

Speaker Change: Driven both by volume and mix improvement.

Speaker Change: Operating margin Rose 130 basis points sequentially, six 6% and adjusted EPS increased nearly 50% from quarter four reaching 46 per share.

Speaker Change: Our simplified to accelerate now program continues to serve as a cornerstone of this transformation driving efficiency and improving responsiveness and positioning us to scale.

Speaker Change: It is enabling us to realign resources with demand.

Speaker Change: Proof collaboration across functions and streamline production for both near term performance and long term growth.

Speaker Change: We continue to navigate a dynamic global landscape with focus and agility.

Richard Warzala: The steps we have taken to reinforce operational flexibility are allowing us to act decisively, whether that means strengthening our supply chain, securing alternate sources of supply, or managing inflationary pressure. In parallel, we have taken deliberate steps to reduce exposure to geopolitical risks, especially around tariffs and rare earth magnet sourcing, which has become more complex due to China's export restrictions on high-performance magnets.

Speaker Change: We have taken to reinforce operational flexibility are allowing us to act decisively whether that means strengthening our supply chain securing alternate sources of supply are managing inflationary pressures.

Speaker Change: In parallel we have taken deliberate steps to reduce exposure to geopolitical risk, especially around tariffs and rare earth magnet sourcing, which has become more complex due to China's export restrictions and high performance magnets.

Richard Warzala: 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.

Speaker Change: I will speak more about our mitigation strap mitigation strategy during my closing remarks.

Speaker Change: Strategically we remained aligned with the growth themes shaping our markets electrification energy efficiency automation and infrastructure investment.

Speaker Change: These are long term trends and we believe Elliot is well positioned to capitalize on that.

James Michaud: With that, let me turn it over to Jim for a more in-depth review of the financials. Thank you, Dick. And good morning, everyone.

Speaker Change: With that let me turn it over to Jim for a more in depth review of the financials.

You <expletive> and good morning, everyone I am starting on slide five first quarter revenue was 132.8 main 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 decrease.

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

Speaker Change: <unk>, $10 8 million or 9%, reflecting solid execution and improving momentum in targeted areas like power quality and defense programs sale.

Speaker Change: Sales to U S customers represented 52% of revenue compared with 58% in Q1 last year with continued contributions from Europe, Canada and Asia Pacific.

James Michaud: Looking 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 are 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 remains 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.

Speaker Change: King down our results further let's take a closer look at how each of our key market sectors performed year over year.

Speaker Change: Aerospace and defense, sorry, 25% increase reflecting timing of key defense and space program deliverables.

Speaker Change: 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.

Speaker Change: Industrial markets were mixed with our power quality solutions for H D. A C and data center infrastructure generating solid growth. However, our total industrial market sales were down largely due to reduced demand in industrial automation.

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

Speaker Change: Vehicle revenue declined 34% inline with expectations, reflecting both continued softness in power sports demand and our intentional shift from lower margin programs as we focus on high value higher.

Speaker Change: Higher value managing enhancing applications aligned with our long term strategy.

James Michaud: Let's move to slide six 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 power quality solutions, as well as growth in material handling and semiconductor equipment.

Speaker Change: Let's move to slide six for the composition of our revenue over the trailing 12 months along with the key catalysts driving these changes.

Speaker Change: The industrial sector is our largest market contributing 47% of the trailing 12 months sales. This market was primarily driven by strong demand for power quality solutions as well as growth in material handling and semiconductor equipment industrial automation sales slowed significantly over the past year.

James Michaud: Industrial automation sales slowed significantly over the past year as inventory levels and new projects have reset across. Similar to the quarter, vehicle demand remained under pressure, particularly due to shifting recreational spend trends in power sports. 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.

Speaker Change: As inventory levels and new projects have reset across the industry.

Speaker Change: Similar to the quarter vehicle demand remained under pressure, particularly due to shifting recreational spend trends in power sports, 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.

Speaker Change: The aerospace and defense growth reflects variability driven by contract award and government budget cycles combined with long lead times.

Speaker Change: Finally, our distributor channel, while smaller showed modest growth representing 5% of total sales over the trailing 12 month period the.

James Michaud: The diversity of our end market 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.

Speaker Change: The diversity of our end market continues to be a foundational strength of the Allianz 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.

James Michaud: 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.

Speaker Change: As shown on slide seven 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.

Speaker Change: Mentation of our lean toolkit across the organization and 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.

James Michaud: 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.

Speaker Change: Moving to slide eight 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 base.

Speaker Change: This points to the total 160 basis point increase the remaining impact was largely reduced operating leverage on lower sales volume.

James Michaud: 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.

Speaker Change: 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.

Speaker Change: As a result operating income for the quarter was $8 8 million with operating margin at six 6% up 130 basis points from Q4.

Speaker Change: Slide nine highlights our bottom line results showing continued sequential improvements I do want to call out that while our debt declined our interest rate interest expense increased approximately 247000 in the quarter. This was primarily driven by higher interest rates.

James Michaud: Slide 9 highlights our bottom line results, showing continued sequential improvements.

James Michaud: I do want to call out that while our debt declined, our interest rate, interest expense increased approximately $247,000 in the quarter. This was primarily driven by higher interest rates. The biggest driver was the expiration of two favorable interest rate swaps in December.

Speaker Change: The biggest driver was the explanation exploration of two favorable interest rates swaps in December they were replaced with a new swap at a higher rate still competitive for the current market, but not as low as before.

James Michaud: They were replaced with a new swap at a higher rate, still competitive for the current market, but not as low as We also saw an increase compared to the prior year, first quarter in the rate we were paying under our credit agreement related to the amendment made last fall. On a positive note, the benchmark interest rate we are tied to SOFR came down year over year, which helped offset some of the. 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.

Speaker Change: We also saw an increase compared to the prior year first quarter and the rates we were paying under our credit agreement related to the amendment made last fall.

Speaker Change: On a positive note the benchmark interest rate, we are tied to sofa came down year over year, which helped offset some of the increase.

Speaker Change: As well as for our results net income was $3.6 million or 21.

Speaker Change: Our diluted share compared with $3 million or 18 cents per diluted share in the prior period adjusted net income rose to $7 6 million or <unk> 46 per share up from 31 cents in Q4 <unk>.

James Michaud: 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.

Speaker Change: Adjusted EBITDA was $17 5 million or 13, 2% of revenue.

Speaker Change: 160 basis points sequentially. These gains reflect our improving mix and the structural efficiencies we have been driving.

James Michaud: 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 2.91 times. This one was down from 3.01 times at the end of December.

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

Speaker Change: 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.

Speaker Change: 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 or.

Speaker Change: Our leverage ratio, which we calculate as net debt divided by trailing 12 month adjusted EBITDA improved to 2.91 times. This was down from three point or one times at the end of December our bank defined leverage ratio, which excludes certain items like foreign cash came in at $3.

James Michaud: Our bank-defined leverage ratio, which excludes certain items like foreign cash, came in at 3.56 times at quarter end.

Speaker Change: Five six times at quarter end, and we will remain.

James Michaud: And we will remain... in full compliance with our debt covenants.

Speaker Change: In full compliance with our debt covenants.

Speaker Change: These results.

James Michaud: 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 in turns improves sequentially from 2.7 at the end of 2024 to 3.1 at March 2025 by reducing inventory levels to try to 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 product availability for customers.

Speaker Change: <unk> are aligned with the three core financial priorities, we have outlined for 2025.

Speaker Change: First inventory management remains a top priority, we continue to drive improvement as our inventory turns improved sequentially from $2 seven at the end of 2024 to 3.1 at March 2025 by reducing inventory levels to try to planning better alignment with customer demand.

Speaker Change: <unk> and focused execution and our supply chain.

Speaker Change: These efforts resulted in freeing up cash and improving cycle efficiency, while still ensuring product availability for customers.

James Michaud: Number two, cost discipline remains embedded in our operations. Through the Simplify to Accelerate Now initiative, and broader lean manufacturing efforts, we continue to identify and remove inefficiencies across the enterprise. These actions are continuing not just to improve profitability. but to better cash conversion as well, whether through lower overhead, streamlined operations or smarter procurement.

Speaker Change: Number two cost discipline remained embedded in our operations due to the simplified to accelerate now initiative and broader lean manufacturing efforts, we continue to identify and remove inefficiencies across the enterprise. These actions are continuing not just to improve profitability.

Speaker Change: But to better cash conversion as well whether through lower overhead streamlined operation or smarter procurement.

James Michaud: Lastly, strengthening our balance sheet by reducing debt is a critical initiative of our financial strategy. The $13.6 million sequential reduction in net debt reflects higher operating cash flow and prudent capital allocation. As we progress through 2025, we expect to continue reducing debt, creating more flexibility for reinvestment and strategic Capital expenditures were $1.1 million for the quarter, and we still anticipate capital spend of $10 to $12 million for the full year 2025.

Speaker Change: Lastly, strengthening our balance sheet by reducing debt is a critical initiative of our financial strategy.

Speaker Change: The $13 6 million sequential reduction in net debt reflects higher operating cash flow and prudent capital allocation.

Speaker Change: As we progress through 2025, we expect to continue reducing debt, creating more flexibility for reinvestment and strategic execution.

Speaker Change: Capital expenditures were $1 1 million for the quarter, and we still anticipate capital spend of $10 million to $12 million for the full year 2025.

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

Speaker Change: With that if you would advance to slide 12, I will now turn the call back over to <expletive>.

Speaker Change: Yes.

Jim Michel: Thank you Jim.

Richard Warzala: Thank you, Jim. We saw solid order momentum across key solution areas in the quarter. Total orders increased 17% sequentially and 13% year over year, primarily driven by strength and HVAC applications for data centers and A&E programs. This translated into a heavy book-to-bill ratio, a healthy book-to-bill ratio of 1.04 times. Backlog was up 3% sequentially. And while we continue to manage through foreign exchange pressures and customer inventory realignment, underlying demand across our core growth areas remains constructive. As we look ahead, our focus is clear, executing on our strategic roadmap with precision and agility. We recognize that the external environment remains fluid.

Jim Michel: We saw solid order momentum across key solution areas in the quarter.

Jim Michel: Total orders increased 17% sequentially and 13% year over year, primarily driven by strength in HVAC applications for data centers and A&D programs.

Jim Michel: This translated into a heavy book to Bill ratio.

Jim Michel: A healthy book to Bill ratio of one point all four types.

Jim Michel: Backlog was up 3% sequentially, while we continue to manage through foreign exchange pressures and customer inventory realignment underlying demand across our core growth areas remains constructive.

Jim Michel: As we look ahead, our focus is clear executing on our strategic roadmap with precision and agility.

Jim Michel: We recognize that the external environment remains fluid geopolitical regulatory and economic uncertainties persist, but Elliot is built for resilience.

Richard Warzala: Geopolitical, regulatory, and economic uncertainties persist, but Allient is built for resilience. Our diverse customer base, global manufacturing footprint, and deep engineering expertise position us to respond decisively and adapt with competence. Our Simplify to Accelerate Now program is playing a central role in enabling operational leverage, aligning our business more closely with evolving customer needs, and positioning us for sustained value creation. For 2025, we are targeting an additional $6 to $7 million in annualized cost reductions with benefits expected to begin materializing later this year. At the same time, we are taking proactive steps to address the shifting global trade environment, specifically evolving tariff policies and the restrictions on magnet exports from China.

Jim Michel: Our diverse customer base global manufacturing footprint, and deep engineering experts expertise position us to respond decisively and adapt with confidence.

Jim Michel: Our simplified to accelerate now program is playing a central role in enabling operational leverage aligning our business more closely with evolving customer needs and positioning us for sustained value creation.

Jim Michel: Our 2025, we are targeting an additional $6 million to $7 million in annualized cost reductions with benefits expected to begin materializing later this year.

Jim Michel: At the same time, we are taking proactive steps to address the shifting global trade environment, specifically evolving tariff policies and the restrictions on magnet exports from China.

Jim Michel: Yeah.

Richard Warzala: Given the mitigation strategies in place and those in progress, we believe our exposure is manageable, although it will require a strong focus from our team.

Jim Michel: Given the mitigation strategies in place and those in progress we believe our exposure is manageable, although it will require a strong focus from our team.

Jim Michel: To provide perspective.

Richard Warzala: to provide perspective. While our annual spend on China-sourced magnets is currently less than $8 million per year, only a small subset, approximately 1.5 million of that, is impacted by the new restrictions due to the heavy, rare-earth material. We have implemented a multi-pronged mitigation strategy that includes partnering with suppliers outside restricted jurisdictions, actively managing export licensing requirements, increasing safety stock to protect against extended lead time. leveraging our global manufacturing footprint to ensure continuity. and most importantly, advancing motor technologies that significantly reduce or eliminate rare earth content without compromising performance. This proactive and disciplined approach not only protects continuity of supply, it strengthens customer trust, particularly in critical and regulated markets.

Jim Michel: While our annual spend on China sourced magnets is currently less than $8 million per year.

Jim Michel: Only a small subset of approximately $1 5 million of that is impacted by the new restrictions due to the heavy rare earth materials.

Jim Michel: We have implemented a multi pronged mitigating mitigation strategy that includes partnering with suppliers outside restricted jurisdictions actively managing export licensing requirements.

Jim Michel: Increasing safety stock to protect against extended lead times.

Jim Michel: Leveraging our global manufacturing footprint to ensure continuity.

Jim Michel: And most importantly, advancing motor technologies that significantly reduce or eliminate rare earths content without compromising performance.

Jim Michel: This proactive and disciplined approach not only protects continuity of supply it strengthens.

Jim Michel: <unk> customer trust, particularly in critical in regulated markets.

Jim Michel: From a tariff perspective, we don't expect a material impact going forward.

Richard Warzala: From a tariff perspective, we don't expect a material impact going forward. In Q1, the effect of evolving tariff policies was minimal. Thanks to our global footprint and prior steps to align local manufacturing with local sales, we estimate that incremental tariff-related costs could be approximately $3 million at the high end for the remainder of the year before any mitigation efforts. These efforts will primarily focus on a combination of passing costs through to customers and supply chain optimization. Across the markets we serve, we are seeing signs that customer inventory adjustments are nearing completion. As we move toward mid-year, we expect to see greater demand stability and improved order flow supported by both emerging growth opportunities and favorable long-term macro trends.

Jim Michel: Q1, the effect of evolving tariff tariff policies was minimal thanks.

Jim Michel: Thanks to our global footprint and prior steps to align local manufacturing with local sales, we estimate that incremental tariff related costs. It would be approximately $3 million at the high end for the remainder of the year before any mitigation efforts.

Jim Michel: These efforts will primarily focus on a combination of passing cost through to customers and supply chain optimization.

Jim Michel: Across the markets. We serve we are seeing signs that customer inventory adjustments are nearing completion.

Jim Michel: As we move towards mid year, we expect to see greater demand stability and improved order flow supported by both emerging growth opportunities and favorable long term macro trends.

Richard Warzala: internally remain steadfast in our operating discipline. focus on cash generation and commitment to debt reduction, all while continuing to invest in the capabilities that define Allient as a long-term partner of choice in motion, controls, and power technology. Our goal is unchanged. Sustainable, profitable growth that delivers value to our customers, our employees, and our shareholders.

Jim Michel: Internally, we remain steadfast at our operating discipline focus on cash generation and commitment to debt reduction all while continuing to invest in the capabilities that define Elliot as a long term partner of choice and motion controls and power technologies. Our goal is unchanged.

Jim Michel: Sustainable profitable growth that delivers value to our customers our employees and our shareholders.

Jim Michel: And with the foundation, we have built into our momentum we are carrying we are confident in our path forward with that operator, let's open the line for questions.

Richard Warzala: And with the foundation we have built and the momentum we are carrying, we are confident in our path forward.

Operator: With that, operator, let's open the line for questions. We will now begin the question-and-answer session.

Jim Michel: Thank you.

Jim Michel: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Operator: To ask a question, you may press star, then 1, on your touch-tone phone.

Operator: If you are using a speakerphone, please pick up your handset before pressing the keys.

Jim Michel: If you are using a speakerphone. Please pick up your handset before pressing the keys if at anytime. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster.

Jim Michel: At this time, we will pause momentarily to assemble our roster.

Speaker Change: And your first question today will come from Greg Palm with Craig Hallum. Please go ahead.

Gregory Palm: And your first question today will come from Craig Palm, with Craig Hallam. Please go ahead. Yeah, good morning. Thanks for taking the questions and congrats on the better results here. Thank you, Greg. Thank you.

Speaker Change: Yeah. Good morning, Thanks for taking the questions and congrats on the better results there.

Speaker Change: Yes.

Greg Palm: Thank you Greg Thank you.

Richard Warzala: I'd love to just start with maybe a little bit more, you know, sort of a picture on the environment, both from a, you know, a demand and supply, and maybe you can weave in a little bit more about tariffs. But are you, you know, what do you see in quarter to date? Any, any change in demand, any hesitancy, just given some of the, you know, the news headlines and the tariffs and all that stuff? Sure. So let's start with demand, Greg, your first question here. And I would tell you that We've seen very positive signs here at the start of the quarter.

Speaker Change: I'd love to just start with maybe a little bit more.

Speaker Change: Do you know sort of a picture on the environment. Both from a you know a demand and supply and maybe you can we've been a little bit more about tariffs, but are you now.

Speaker Change: What are you seeing quarter to date any any change in demand any hesitancy just given some of the you know the news headlines and the tariffs and all that stuff.

Greg Palm: Sure. So let's start with demand Greg Your first question here and I would tell you that.

Speaker Change: We've seen very positive signs here at start of the quarter.

Richard Warzala: Demand is continuing. And, you know, given if it continues in the fashion it is, we will definitely see some incremental growth. Uncertainty with tariffs and agreements. I think, if we're understanding correctly, there's an announcement today between the UK and the US. I think that'll be a positive sign. And as others begin to follow, I think stability will really help us sustain our momentum as we go forward. Tariffs We're working through them. And I think as we've provided numbers out there and our exposure for the rest of the year, and at the high end of about three million dollars, we talked about mitigation strategies, which would be to pass those costs on.

Speaker Change: <unk> is continuing.

Speaker Change: <unk>.

Speaker Change: And given if it continues in the fashion. It is we will definitely see some incremental growth.

Speaker Change: <unk>.

Speaker Change: Uncertainty with tariffs and agreements I think.

Speaker Change: I understand it correctly there was an announcement today between the UK and the U S. I think that'll be a positive sign and as others begin to follow I think stability will really help us sustain.

Speaker Change: Sustained our momentum as we go forward.

Speaker Change: Tariffs.

Speaker Change: We're working through them and I think as we've provided numbers out there and our exposure for the rest of the year and at the high end up about $3 million, we talked about mitigation strategies, which would be the pass those costs on that's our that's our intent and also.

Richard Warzala: That's our, that's our intent. And also looking at alternative sources of supply. We had started a process several years ago to localize supply chains and to build local and we're continuing down that path. We think it's a wise move now and it will continue into the future. With regard to The challenge that we're facing immediately, that is the high rare earth magnets and the content that we have, and that is definitely a focused effort. There are many actions occurring in the supply chain. Some of them are gonna take longer than others to be implemented, but I think our team is doing a great job in understanding what the challenge is there and making sure that we keep our customers supplied many different areas that we're working on there to mitigate.

Speaker Change: Looking at alternative sources of supply.

Speaker Change: We had started a process several years ago to localize supply change then to build local and we're continuing down that path. We think its a wise move now and it will continue into the future.

Speaker Change: With regard to.

Speaker Change: The challenge that we're facing.

Speaker Change: Immediately that is the rare earth.

Speaker Change: Magnets and the content that we have and that is definitely a focused effort there.

There are many actions occurring.

Speaker Change: In the supply chain.

Speaker Change: Some of them are going to take longer than others to be implemented, but I think our team is doing a great job in understanding what the challenges there and making sure that we keep our customers supplied.

Many different.

Speaker Change: Areas that we're working on there to mitigate that so I would tell you that all signs are positive.

Richard Warzala: So I would tell you that all signs are positive. And we're very encouraged about the continuation of our... Simplify to Accelerate now, driving out cost while simplifying our organization and being much more responsive to our customers.

Speaker Change: And we're very encouraged about the.

Speaker Change: The continuation of our.

Speaker Change: Simplify to accelerate now driving out cost, while simplifying our organization and being much more responsive to our customers.

Speaker Change: Oh, you know who knows what.

Richard Warzala: Who knows what ends up happening with trade deals and tariff rates and whatnot, but how do you think you are positioned versus the market, versus some of your competitors? I'm curious, just given your scale, the footprint, the localization efforts that you talked about, is there a chance that you end up winning business in an environment like this? Certainly. And because of our footprint that we already have and some of the opportunities that are presented to us, I think we're in a pretty good position in some cases where we have already resourced and or are producing product in the U.S.

Speaker Change: Ends up happening with trade deals and you know tariff rates and whatnot, but you know how do you think you are positioned.

Speaker Change: Versus the market versus some of your competitors I'm just I'm curious just given your scale you know the footprint. The localization efforts that you talked about I mean is there a chance that you ended up winning business and in an environment like this.

Speaker Change: Certainly.

Speaker Change: And.

Speaker Change: Because of our footprint that we already have in some of the opportunities that are presented to us I think we're in a pretty good position in some cases, where.

Speaker Change: We have already.

Speaker Change: Resource and <unk> are producing product in the U S or North America that puts us in a pretty good position. So we think there are opportunities and we think that that will help drive some growth again theres challenges as well.

Richard Warzala: or North America that puts us in a pretty good position. So we think there are opportunities and we think that that will help drive some growth. Again, there's challenges as well. And we talked about that, but I do think our team is really well focused. I can't speak for our competitors as far as what their actions are. They haven't told me lately what they're doing, but I will say that we focus on what we can do. And I'm confident that our team is really doing everything necessary and what they need to do to make sure that we protect our customers and we continue to drive growth.

Speaker Change: And we talked about that but I do think our team is really well focused I can't speak for our competitors as far as what their actions are they haven't told me lately, what they're doing but I.

Speaker Change: I will say that.

Speaker Change: I will say that we focus on what we can do.

Speaker Change: And I'm confident that our team is really doing everything necessary and what they need to do to make sure that we protect our customers and we continue to drive growth.

Richard Warzala: Yeah, I guess maybe a different way to look at it is are you seeing any more like inbound interest activity from either, you know, current customers with with new applications or even new customers in total? Yes, and new applications, new customers, existing applications where we may have lost Some of the business based upon pricing and foreign content that is now being presented to us again to take another look at. So all of those activities are ongoing right now and there's some, and I won't get into the details of some of them, but there's some pretty exciting ones that are moving very, very fast.

Speaker Change: I guess, maybe a different way to look at it is or are you seeing any more like inbound interest activity from either current customers with with new applications or even new customers in total.

Speaker Change: Yes.

Speaker Change: In new applications, new customers existing applications, where we may have lost.

Speaker Change: Some of the business based upon pricing and foreign content there.

Speaker Change: It is now.

Speaker Change: Well being presented to US again to take another look at so all of those activities are ongoing right now and there are some but I won't get into the details of some of them, but there's some pretty exciting ones that are moving very very fast.

Speaker Change: Okay, Alright, I will I'll leave it there thanks.

Gregory Palm: Okay. All right. I will leave it there. Thanks. Thank you, Greg.

Greg Palm: Thank you Greg.

Speaker Change: Your next question today will come from Gerry Sweeney with Roth Capital. Please go ahead.

Jerry Sweeney: Your next question today will come from Jerry Sweeney with Roth Capital. Please go ahead. Good morning. Thanks for taking my call. I really just want to question, and maybe to just overall strategy. I apologize, I jumped on a test. I on the. To prepare remarks, we talked about the vehicle business and shift away from lower margin. Higher Revenue. higher margin options. Let's just underscore maybe a larger shift that's going to go on in the vehicle space and historically. Some of that business was some of your older, more mature business, lower margins. less systems-oriented, for lack of a better word, but just curious what's going on there over the long So I will say this to you, is that if we go back in time, as we announced the wins that we had in the vehicle markets, and we said that those would replace existing business that we had for, you know, when we acquired a primary supplier to that market, and that we would correct some of the margin challenges that we had, and it has absolutely done that.

Gerry Sweeney: Good morning, Thanks for taking my call.

Gerry Sweeney: Really good question and maybe just.

Speaker Change: Overall strategy as well and I apologize I jumped on late but on.

Gerry Sweeney: On the.

Gerry Sweeney: In the prepared remarks, you talked about the vehicle business and shift away from lower margin sort of higher revenue related work.

Gerry Sweeney: Higher margin opportunities.

Gerry Sweeney: Underscore maybe a larger shift that's going to go on in the vehicle space I mean historically.

Gerry Sweeney: <unk>.

Gerry Sweeney: Some of that business with some of your older more mature business lower margins.

Gerry Sweeney: And.

Gerry Sweeney: Less.

Gerry Sweeney: Maybe systems oriented for lack of a better word, but just curious what's going to what's going on there over the longer term.

Gerry Sweeney: Sure.

Gerry Sweeney: So I will say this to you is that if we go back in time as we announced the wins that we had in the video call markets and we've said that those would replace existing business that we had for you know when we acquired a primary supplier to that.

Gerry Sweeney: Market.

Gerry Sweeney: And that we would correct some of the <unk>.

Gerry Sweeney: Margin challenges that we had and this is absolutely done that so the old business that was not favorable in some cases.

Richard Warzala: So the old business that was not favorable, in some cases, you know, negative margins or profitability have converted to a reasonable return based upon the market we're serving. We also have made a conscious decision in the company and changes have occurred that says we are no longer chasing, you know, high volume automotive applications that we would consider could be or could be considered commoditized. If there's a specialty application that fits what we offer in the margins are acceptable to us, then we will pursue it. But so some of the past investments that we had to make in that marketplace are pretty heavy and they take years before you start to realize any benefit from it.

Gerry Sweeney: Negative margins or profitability at <unk>.

Gerry Sweeney: <unk> two <unk>.

Gerry Sweeney: Reasonable return based upon the market we're serving.

Gerry Sweeney: We also have made a conscious decision in the company and changes have occurred that says we are no longer chasing.

Gerry Sweeney: High volume automotive applications that we would consider could be or could be considered commoditized.

Gerry Sweeney: If theres a specialty application that fits what we offer.

Gerry Sweeney: The margins are acceptable to US then we will pursue it but so some of the past investments that we had to make in that marketplace.

Gerry Sweeney: Pretty heavy and they take years before you start to realize any benefit from it and we're out of it. It's just a decision we made.

Richard Warzala: And we're out. I will say that we're very pleased with our current customer base and the applications that we're on. We believe we bring some specialty capabilities and knowledge there, and that's where we want to focus. That's more us than what the other markets are. Going off of memory, several years ago, I think you won some... programs that sort of ramped up for a couple years. Sweeney, Richard Warzala, Danny Eggerichs, Edward Jackson, Craig Mychajluk, Deborah Pawlowski, I'm hearing what you're saying is programs are going well, running through, but you're going to pursue less of those programs in the future and focus more on...

Gerry Sweeney: And it's done.

Gerry Sweeney: I will say that we're very pleased with our current customer base and.

Gerry Sweeney: <unk>.

Gerry Sweeney: Applications that were on we do believe we bring some.

Gerry Sweeney: Some specialty capabilities and knowledge, there and that's where we want to focus that is more us than what the other markets work.

Gerry Sweeney:

Gerry Sweeney: Going off of memory several years ago, I think he want some yeah.

Gerry Sweeney: Programs that sort of ramped up for a couple of years.

Gerry Sweeney: I think there's more European or eastern European based and they kind of trend down.

Speaker Change: Hearing what you're saying is programs are going well running through but you're going to pursue less of those programs in the future and focus more on what I would say is this yes, so existing programs, where we have we bring something to the table in terms of the value and it's not quite as I said commoditized.

Richard Warzala: Yeah. What I would say is this. So existing programs where, you know, we have, we bring something to the table in terms of the value and it's not, as I said, commoditized. We absolutely will continue to support our customer base and we'll move forward on those and continue to support those as we go forward. What we're not doing anymore is those are long-term high investment. And upfront high investment in terms of design, capital investment, and you've got to be prepared two and three and four years in advance before you start delivering any product and starting to see any return on.

Speaker Change: We absolutely will continue to support our customer base and we will move more will move forward on those and continue to support those as we go forward.

Speaker Change: What we're not doing anymore.

Speaker Change: Those are long term high investment.

Speaker Change: And.

Speaker Change: Front high investment.

Speaker Change: Upfront high investment in terms of design capital investment and you gotta be prepared two and three and four years in advance before you start.

Speaker Change: Delivering any product and starting to see any return on that are.

Richard Warzala: Our business has changed, and the dynamics of our business that has changed, you know, says to us that, look, let's focus our efforts where we truly bring additional value and more value. And it doesn't require that high upfront investment and waiting, you know, long periods of time before you start to see a return and hope. that there aren't any changes that are occurring in that market. And and I think as we've seen over the past, there's always something that disrupts it and always pushes it to the right. But fortunately, you know, I think we're in a good spot right now.

Speaker Change: Our business has changed in the dynamics of our business that has changed.

Speaker Change: It says to us that look let's focus our efforts, where we truly bring additional value in more value and it doesn't require that high upfront investment in waiting long periods of time before you start to see a return and hope.

That there arent any changes that are occurring in that market.

And I think as we've seen over the past there is always something that disrupts it always pushes it to the right, but fortunately.

Speaker Change: I think we're in a good spot right now we've got a good balance of leveraging the capabilities that that brings to us we like the volume because it gives us enough core unit volume to be competitive and to leverage that into some of our other markets that.

Richard Warzala: We've got a good balance. of leveraging the capabilities that that brings to us. We like the volume because it gives us enough core unit volume to be competitive and to leverage that into some of our other markets that the margins can be appreciably higher. So it is correct. I mean, it's a definite shift. It's been going on for the last year and we're really focused on it. I suspect. As that shift continues, I mean, that's going to help Mars. Yes, it's fair. It's fair. I lied.

Speaker Change: The margins can be appreciably higher so it is correct I mean, just a definite shift it's been going on for the last year and we're really focused on it.

Speaker Change: I I suspect.

Speaker Change: As that shift continues I mean, that's I mean, that's that's going to help margins and other returns on assets and things like that is that fair to.

Speaker Change: Yes, it's fair.

Speaker Change: That's fair.

Speaker Change: I lied I had two questions sorry.

Richard Warzala: I had two questions. Sorry. Easy one. Inventory turned 2.7. I think it should be. Inventory was 2.7, you highlighted 3.1. I forget exactly where you were a couple years ago, but the world has certainly changed in terms of supply chain. But what would maybe aspirational target, where do you think you could get to on inventory turns if 3.1? that may be the answer. Well, I think I think we want to continue to obviously improve on the 3.1. I think if you can appreciate what we might pause on is, you know, what steps might we have to take in the supply chain in collaboration with our customers to manage this, you know, the short term noise that, you know, the current geopolitical and trade policies are.

Speaker Change: Easy one.

Speaker Change: Inventory turns.

Speaker Change: Yes.

Speaker Change: [laughter] I think it should be inventory was $2 seven you highlight a 3.1 I forget.

Speaker Change: Exactly where you were a couple of years ago, but the world has certainly changed in terms of supply chain tariffs all that stuff, but what would maybe aspirational target where do you think you could get to on inventory turns if if 3.1 is not that.

Speaker Change: That may be the well I think I think we want to continue to obviously improve on the 3.1 I think as you can appreciate what we might pause on is what steps we have taken the supply chain in collaboration with our customers to manage the short term noise that.

Speaker Change: Current geopolitical and trade policies are so I think well.

Richard Warzala: So I think, you know, we're very well poised to continue to improve that number. But I'm a little bit cautious only because of, you know, we might have to take some steps to make some investment in inventory in collaboration with our customer base in order to just manage the short. Okay, that's fair. I mean, probably low-hanging fruit has been taken. This is, there's probably opportunity, but it takes some planning, maybe a little bit of strategic investment, etc. to move it to the next levels. Right. Okay. Thanks, guys. I appreciate it. And congrats on a nice.

Speaker Change: We're very well poised to continue to improve that number but I'm a little bit cautious only because we might have to take some steps to make some investment in inventory in collaboration with our customer base.

Speaker Change: In order to manage the short term.

Speaker Change: Okay, That's fair I mean.

Speaker Change: Probably low hanging fruit has been taken this is theres probably opportunity, but it takes some planning maybe a little bit of strategic investment et cetera to move it to the next level.

Speaker Change: Right.

Speaker Change: Okay. Thanks, guys I appreciate it and congrats on a nice quarter.

Gerard Sweeney: Thank you, Gerard. Thank you.

Jim Michel: Thank you Gerry thank you.

Operator: If you have a question, please press star and then 1. Please stand by as we poll for questions.

Speaker Change: And if you have a question. Please press star and then one please.

Jim Michel: Please standby as we poll for questions.

Speaker Change: And your next question today will come from Orin Hirschman with AIG H investment partners. Please go ahead.

Oren Hirschman: And your next question today will come from Oren Hirschman with AIGH Investment Partners. Please go ahead. Hi, congratulations on all the progress, especially in a difficult environment. You know, you mentioned some very specific numbers in terms of... on how much you consume of the rare earth elements that go for the magnets or your motors. And you mentioned some of the mitigation. I guess my question is that raw number of 8 million or the million and a half number, what is that translating to? I know it's not exact, you don't have an exact number, but does it translate into $100 million in motors, $50 million in motors?

Speaker Change: Hi, congratulations on all the progress, especially in a difficult environment.

Speaker Change: You mentioned that you weren't very welcome.

Speaker Change: Youre welcome you mentioned, some very specific numbers in terms of.

Speaker Change: How much you consume the rare earth elements that go for the magnets, where your motors and you mentioned some of the mitigation.

Speaker Change: Strategies that you have I guess my question is that one number of $8 million with a million and a half number what does that translate into I know, it's not exactly you can I have an exact number but does it translate into $100 million of motor is $50 million of motors what is the.

Richard Warzala: What is the... What does that little amount of material or maybe not such a small amount of material translate into in terms of having to protect sales? There is a metric that you could give us. Yeah, fair question. I think a couple things just to point out, is that we have the granularity on that because we have a team that's been assigned to that and been doing a great job of making sure that we fully understand what the potential impact may be. We can set priorities in the proper manner, and we can set the mitigation strategies down the road.

Speaker Change: What does that little amount of material or not maybe not such a small amount of material translating to into in terms of having to protect sales.

Speaker Change: If there was a metric airplane if you could give us.

Speaker Change: Yeah Fair question I think a couple of things just to point out.

Speaker Change: Is that we have the granularity.

Speaker Change: On that because we have a team that's been assigned to that been doing a great job.

Speaker Change: Making sure that we fully understand what the potential impact may be we can set priorities in the proper manner and we can set the mitigation strategies down the road. So this is a complete collaboration I mean, it gets back to <unk> and we've had a number of acquisitions. So we have a cigna.

Richard Warzala: So this is a complete collaboration. I mean, it gets back to, and we've had a number of acquisitions, so we have a significant supply base, and some of it, it's fragmented and it's small in some cases. So if we truly take a look at the numbers, I mean, as it spreads across different markets, the value of the magnets within an application can change dramatically. So to give you a number, and I'll give you, let's just call it an average number, so you get a feel for the impact. But typically, and that's typically, and the range can vary a lot, let's say it's 20% of the cost of goods sold could be in magnet cost.

Speaker Change: He can supply base and some of it it's fragmented and it's small in some cases so.

Speaker Change: We truly take a look at the numbers I mean as it spreads across different markets the value of the magnets within an application can change dramatically. So to give you a number and I'll give you lets just call it an average number.

Speaker Change: So you get a feel for the impact, but typically and that's typically and this is kind of the range can vary a lot.

Speaker Change: Let's say, it's 20% of the cost of goods sold could be in magnet cost and if you've got a million and a half that we're talking about you can do the math on that we're talking $758 million in sales.

Richard Warzala: And if you got a million and a half that we're talking about, you can do the math on that. We're talking seven and a half, $8 million in sales at a cost of goods sold level, translate into a gross margin in sales. Without me giving you exact numbers, I think you can do the math and you can kind of figure that out. What's most important, as Richard pointed out, is that the granularity we have... gives us the opportunity now to really go attack. and I just have to compliment our internal teams who've worked hard at this.

Speaker Change: Cost of goods sold level translate into gross margin and sales without me, giving you exact numbers I think you can do the math and you can kind of figure that out.

Speaker Change: What's most important is what you pointed out is that the granularity we have.

Speaker Change: It gives us the opportunity now to really go attack this.

Speaker Change: And I just have to complement our internal teams have worked hard at this.

Speaker Change: This happens unfortunately in my career.

Richard Warzala: Unfortunately, in my career, this happens every six or seven years. We see magnet prices, if you go back in time, there's no secret, China bought the market. And they dropped, the prices dropped drastically. You go back 20 years ago, they dropped. And once China owned the market. We started to increase prices, and they increased them dramatically. And then you had to pay up front. I mean, if you didn't commit to paying up front immediately, you would not have a source of supply. And every six or seven years, we kind of go back through this cycle again.

Speaker Change: This happens every six or seven years we.

Speaker Change: We see.

Speaker Change: Magnet prices. If you go back in time, there's no secret China bought the market.

Speaker Change: And they dropped the prices dropped drastically you'd go back 20 years ago, they dropped drastically.

Speaker Change: Then once trying to own the market they started to increase prices and they increased dramatically and then you had to pay upfront I mean, if you didn't commit to paying upfront immediately you would not have a source of supply and every six or seven years, we kind of go back through this cycle again and that's why.

Richard Warzala: And that's why it's very important for us. We'd already taken mitigation strategies to design those materials out where possible. And or to find other sources of supply. As the prices have increased, it's opened the opportunities for more suppliers around the world. And this time was a little bit different. not was it just a pricing challenge, it became, could you even get them? And a supply challenge with a threat of not supplying magnets. And the magnets, and there are certain selected areas of China that says they will not ship magnets in defense applications to the US.

Speaker Change: It's very important for us we had already taken mitigation strategies to design those materials out where possible. Okay. <unk> I'll find other sources of supply as the prices have increased it's open the opportunities for more suppliers around the world.

Speaker Change: And this time was a little bit different.

Speaker Change: Not was it just a pricing challenge it became could you even get them in a supply challenge with the threat of not supplying magnets.

Speaker Change: And the magnets.

Speaker Change: Selected areas of China says, they will not ship magnets and defense applications to the U S. Okay.

Richard Warzala: I don't want you to think this is just a US issue either. This time, it's applied around the world. So even, you know, our sources, our companies that manufacture product around in other regions besides the US and North America are impacted with this, these tariffs or this, you know, the restriction of shipping. They're further asking for more information. And all companies in our business are facing the same challenge and same concern about wanting to know what the applications are, the end use and show pictures of what we're doing. Well, I don't have a great deal of faith that that's gonna stay within our suppliers and that there may be some reach-in and do that.

Speaker Change: I don't want you to think this is just a U S issue either this time, it's applied around the world.

Speaker Change: So even our sources are companies that manufacture product around in other regions. Besides the U S and North America are are impacted with this these tariffs are these.

Speaker Change: A restriction of shipping.

Speaker Change: There are further asking for more information and all companies in our business are facing the same challenge and same concern about wanting to know what the applications are the end used in show pictures of what we're doing.

Speaker Change: Well I don't have a great deal of faith that that's going to stay within.

Speaker Change: Our suppliers and that there may be some reach in and do that so there's a there's a significant long term risks and theres a reach and now that we're moving fast and will move continue to move fast.

Richard Warzala: So there's a significant long-term risk and there's a reach-in now that we're moving fast and we'll continue to move fast, but the data we have shows us where we have to focus, right? Okay.

Speaker Change: The data we have shows us where we have to focus.

Speaker Change: Got it.

Speaker Change: Okay.

Richard Warzala: And just going back to follow up on the last question, just my second question is just in terms of the recreational vehicles, you know, those type of vehicles, how much of that your business is still involved there roughly from a revenue perspective, if you could say, and does it bottom here? Does it feel like it's bottoming? Is something that you're eventually going to exit? I apologize if I'm not more familiar with the strategy. No, I wouldn't say we so let's let's clarify we call recreational vehicle market and so forth and off road vehicles. I mean, our vehicle market is made up of several, you know, different field of applications, as I would call it.

Speaker Change: And so I'm just going back to follow up on the last question. Just my second question is just in terms of the recreational vehicles.

Speaker Change: Those type of vehicles, how much of that your business is still involved.

Speaker Change: From a revenue perspective, you could say and does it bottom here does it seem like it's bottoming is something that you eventually going to exit.

Speaker Change: I'm not more familiar with the strategy there.

Speaker Change: No I wouldn't say, we so let's let's clarify we call recreational vehicle market and so forth in off road vehicles.

Speaker Change: Our vehicle market is made up of several different field of applications as I would call it.

Richard Warzala: And When we talk about, you know, automotive per se, and you talk about recreation of vehicles, there are two specific areas. In addition to that, we're in buses, we're in trucks, we're in construction, we're in marine, we're in rail, and so forth, okay? So I would say this to you, that the recreational vehicle, which As we talk, as we say that, recreation vehicles also made up of vehicles that are used in the industrial and commercial space. So same vehicles that are same core vehicle is you'll see at the side of the road, you'll see in construction projects, you'll see in large facilities, so on golf courses, etc.

Speaker Change: When we talk about automotive per se and you're talking about a recreational vehicles, though are two specific areas. In addition to that we're in buses where trucks were in construction were in marine and rail and so forth. Okay.

Speaker Change: So I would say this to you that recreational vehicle.

Speaker Change: Which.

Speaker Change: As we talk as we saw.

Speaker Change: Say that recreational vehicles also made up of vehicles that are used in industrial and commercial space. It's the same vehicles that are same core vehicle is youll see at the side of the road Youll see in construction projects you will see in large facilities.

Speaker Change: So on golf courses et cetera. So I would tell you that there is a there was a piece of that that's not consumer based.

Richard Warzala: So I would tell you that there is a piece of that that's not consumer-based. And maybe if I gave you a number of 40 to 50%, that would be pretty accurate. There's also defense applications for that. So we're not We can compete there. We can certainly compete in a level and fair fight. Okay. I'm very confident in our team and we've come up with, we kind of led the changeover from into power steering on those vehicles and we're the innovators and, you know, early and enjoyed the early part of that business. And of course, as it's grown, competitions come in.

Speaker Change: And maybe.

Speaker Change: If I gave you a number of 40% to 50% that would be pretty accurate Theres also defense applications for that so we're not exiting it.

Speaker Change: We can compete there we can certainly compete in a level and fair fight Okay. We have.

Speaker Change: I am very confident in our team and we've come up with we kind of led to the changeover from and into power steering on those vehicles and we were the innovators and early and enjoyed the early part of that business and of course as it's grown competitions come in.

Richard Warzala: So we recognize where we are. And I would just say to you, if, you know, sometimes the circumstances are beyond our control, if a company is willing to accept no profit to buy the business, then we're not. Okay. We're not, we're not in, we're not in the business to just do things for the sake of doing them. We're in the business to make a profit. And I think, you know, as time goes on, especially what we see happening in the market today, I think we have certainly an opportunity to compete in remembering. Half of that business is industrial and commercial, not just consumer.

Speaker Change: We recognize where we are and I would just say to you if.

Speaker Change: Sometimes the circumstances are beyond our control if a company is willing to accept no profit.

Speaker Change: To buy the business then we're not okay.

Speaker Change: We're not we're not in we're not in the business that just do things for the sake of doing them. We're in the business to make a profit and I think as time goes on especially what we see happening in the market today.

Speaker Change: We have certainly an opportunity to compete and remembering.

Speaker Change: Half of that business is industrial and commercial not just consumer base.

Richard Warzala: Does it feel like the consumer part of it is bottomed or is hovering around the bottom? Yeah, you might be better off asking the manufacturers themselves. They do have reports that come out and they talk about their market share and what they see happening. And I think if I can just go ahead and restate some of what we've heard is that there's challenges. I mean, that they're having challenges. And there was an over demand, the demand during COVID that really, you know, peaked. And now people have the vehicles and, you know, consumer spending is a little bit more cautious.

Speaker Change: But does it feel like the consumer part of it.

Speaker Change: It's something around.

Speaker Change: Yes, you might be better off asking the manufacturers themselves. So they do have reports that come out and they talk about their market share and what they see happening and I think if I can just go ahead and restate some of it but what we've heard is that there's challenges I mean.

Speaker Change: They're having challenges and there was an over demand the demand during COVID-19 that really.

Speaker Change: Peaked.

Speaker Change: And now people have the vehicles and consumer spending is a little bit more cautious.

Richard Warzala: And, you know, typically you would see upgrades. And I think if the sentiment about the long-term prospects and the economy and so forth go well, you'll see a return. You'll see it start to come back. But I think that there's, listen to the conference calls, if you will, of the major suppliers in those markets. And I think that's kind of what they're saying. There's caution there, but I think there's optimism as well that we'll come back. Great. Okay, thank you. And thank you.

Speaker Change: Typically you would see upgrades and I think if the sentiment about the long term prospects in the economy and so forth go well, you'll see it return you'll see it start to come back.

Speaker Change: Think that listen to the conference calls if you will of the major suppliers in those markets, but I think that's kind of what youre, saying theres caution there, but I think there's optimism as well that will come back.

Speaker Change: Okay great.

Speaker Change: Okay.

Speaker Change: Okay. Thank you.

Speaker Change: Your next question today will come from Robert Vanvorst with <unk> Capital Management. Please go ahead.

Robert Voorhis: Your next question today will come from Robert Van Voorhis with Vanitas Capital Management. Please go ahead. Hey, good morning, Robert. Great quarter. Appreciate you taking time.

Robert Vanvorst: Hey, good morning, great quarter.

Speaker Change: Great time.

Speaker Change: Just a sort of a quick I would say boring question and maybe it's better for Jim but can you just comment on.

James Michaud: Just a sort of a quick, I would say, boring question, and maybe it's better for Jim, but can you just comment on, you know, as revenue starts to ramp as we're coming out of this period, what kind of operating leverage do we expect? Is there going to be a lot of a lot more investment in SG&A to compensate for that? My assumption is probably not, but I just thought I would ask. Yeah, no, you know, obviously, you know, we're very focused on a simplified Accelerate Now, you know, program, you know, that's going to continue and, you know, into the, you know, very near term.

Speaker Change: As revenue starts to ramp as we're coming out of this period.

Speaker Change: What kind of operating leverage do you expect is there going to be a lot of a lot more investment in SG&A to compensate for that my assumption is probably not but I just thought I would ask yes no.

Speaker Change: Obviously.

We're.

Speaker Change: Very focused on our simplified accelerating now.

Speaker Change: Program.

Speaker Change: That's going to continue in the very near term and so.

James Michaud: And so, you know, our focus is on what we said, you know, we're looking to continue to manage our debt. We'll make strategic investments, as I mentioned before, in inventory where we think it's appropriate. But, you know, our goal is to continue to manage our our cash flow and allocate it appropriately as we, you know, as we see fit during the rest of 2025. Yep. All right. Well, that's it for me. Appreciate it. Keep going. Thank you.

Speaker Change: Our focus is on what we said you know what we're looking to continue to manage our debt we will make strategic investments as I mentioned before our inventory, where we think it's appropriate.

Speaker Change: But our goal is to continue to manage our our cash flow and allocated appropriately as we as we see fit during the rest of 2025.

Yep.

Speaker Change: Alright, well that's it for me appreciate it keep going.

Speaker Change: Thank you.

Speaker Change: Concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.

Operator: concludes our question and answer session.

Richard Warzala: I would like to turn the conference back over to management for any closing Thank you, everyone, for joining us on today's call and for your interest in Allient. We will be participating in the Craig Hallam and then the virtual Northland Growth Conference on June 25th. Otherwise, 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 second quarter 2025 results.

Speaker Change: Thank you everyone for joining us on today's call and for your interest in Elliot.

Speaker Change: We will be participating in the Craig Hallum Institutional Investor Conference on May 28 in Minneapolis, and then the virtual Northland growth conference on June 25th.

Speaker Change: Otherwise 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 second quarter 2025 results. Thank.

Operator: Thank you for your participation and have a great day.

Speaker Change: Thank you for your participation and have a great day.

Speaker Change: Conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: This conference has now concluded. Thank you for attending today's presentation.

Operator: You may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Okay.