Q2 2025 Allient Inc Earnings Call

Good morning and welcome to the alliance Inc. Second quarter fiscal year 2025 Financial results conference call.

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I would now like to turn the conference over to Craig mahalik investor relations. Please go ahead.

Yeah, thank you and good morning everyone. We certainly appreciate your time today as well as your interest in Elliott. Joining me today are dick. Rosella our chairman president and CEO and Jim Michelle. 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, 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 alien.com along with the slides that accompany today is discussion, if you're reviewing those slides, please turn the 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 risk and uncertainty as well as other factors that could cause actual results to differ materially from what is stated on today's call. These residents certainties 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 fcc.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 it's 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. So with that, please turn the slide 3 and I'll turn it over to dick to begin dick.

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 and data center infrastructure, defense and Select high-value Medical applications.

While Powersports 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, and heavy rare earth materials.

Gross margin reached. A record 33.2% up a 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 ibida growth and a significant increase in profitability with net income up. 58% from q1 and nearly 5-fold 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 simplified 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.

Just 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.

Thank you, dick, and good morning everyone.

Let's begin with slide 5 revenue for the second quarter was 139.6 Million 83%, 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 us customers accounted for 55% of total revenue in line with last year the geographic and End Market diversification of our portfolio remained the key strengths

Looking at our market performance Aerospace, and defense grew 13%, reflecting Pro program, timing and strong execution.

We continue to see a healthy pipeline of opportunities. In the Defence 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 increase 3% driven by continued strength for HVAC and Data Center Market applications where our power quality Solutions are needed.

We are also in 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 is down 7%, due to ongoing softness, and Powersports. 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 Catalyst driving these changes.

We have seen a meaningful shift in mix with growth and 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 and recreational spend in volatility and automation, but also, our deliberate effort to focus on more resilient margin accretive applications.

The industrial sector is our largest market in reflect 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 and Power Sports remained 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 a 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 simplified 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 a year over year to 8.4% and approving 180 basis points sequentially.

As GNA 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.

6 cents per share in q1 and 29 cents 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 2 favorable interest rates 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 EVA 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 the slide 10, we delivered record operating cash flow of 24.5 million in the quarter up, 76% sequentially and nearly 3 times the level of generated in the same period last year on a year-to-date basis. Operating cash flow. Now stands at 38.49% 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 simplified to accelerate now initiative.

At the same time, our Day sales outstanding, improved signaling signaling stronger Collections and more efficient conversion of sales Into Cash.

We used a portion of our cash to reduce step 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.

Overall, we are executing well across all 3 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 the slide 12, I will now return the call back over to dick.

Thank you, Jim.

While our book to Bill ratio was modestly below 1 at 0.97.

Command Trends remain 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 end of the quarter at 236.6 million down, slightly from q1 and prior to the levels as customers continue to manage through inventory normalization.

The majority of our backlog is still expected to convert within 3 to 9 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 and markets.

Order activities 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.

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, and electrification, automation, Energy, Efficiency and precision control.

This includes seeing early signs of recover.

And not Industrial Automation and steady. Momentum in AMD

The operational Foundation, we have built the strength of our balance sheet and the amount of 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.

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 speaker-phone please pick up your handset before pressing the keys.

To withdraw your question, you may press star then do.

Today's first question comes from Greg Palm with Craig, Helen Capital group, please go ahead.

Hey good uh good morning. Thanks for taking the question and congrats on the results.

Thank you, Greg. Good morning to you.

So I I just want to

Maybe understand again kind of what you're seeing out there. So it sounds like, you know, you're you're feeling good that the docking is in the rearview mirror. You're starting to maybe see some green shoots in industrial, uh, Andy uh, remains strong. You know, any anything else you want to maybe call out or highlight

No, I think you've hit the highlights.

And and and and specifically what? Maybe remind us number 1, you know, kind of what your major exposure are areas are and just in terms of you know, kind of visibility to the remainder of the year. And even next, you know, we're we're where where are we at? How how strong is the demand?

Sure. Well and D is certainly a um uh in some of the applications that we work on, we do get some good visibility long-term visibility and we work on uh, longer term contracts.

And we continue to do that. Um, so we are seeing some very positive results. We've made some significant, uh, improvements in our operating capabilities. Uh, some of the restructure, we've talked about here that's underway that solidifies operations and gives us and provides a greater strength within certain facilities. I think that's playing out. Well,

Uh, we're meeting with key customers on a regular basis and then then, uh, and I think from a legacy business standpoint, uh, and some of the applications were on. We do see that, uh, there is some opportunity to increase volumes and to, uh, uh, hopefully expand margins as we've Consolidated, the, the operations, some of the new applications, uh, you know, with government programs or military programs. Uh, uh, there's usually risk and there's no guarantee that those programs come to fruition.

We have seen uh a few cancellations uh we've seen a few programs move to the right. We're seeing other programs moving to the left, meaning accelerating. So it's a mixed bag right now. Uh, we feel, you know, there's a transition going on um, in terms of uh the way Warfare is going to be fought and the types of vehicles or devices that are going to be needed for that. And I do believe that, uh, our team is well, positioned to capitalize on it as we move forward. So, you know, 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. And then maybe lastly on the rare earth, magnets, which I, I know we talked about a lot last quarter. I mean, on a relative basis, you know, given what's happened the last, you know, month are, are you feeling better or worse? The same. What's the what's the risk profile there?

and,

And, uh, I think, you know, we have a pretty good outlook. What we feel is going to happen, we've seen some improvements.

um although I just, we have to, we have to be very cautious here and say that uh,

You know, this is uh, most of the materials uh uh that we're talking about are coming out of China. And there's always a risk that things can change in the short term, but we're starting to see some things loosen up some of the licenses being approved. Um, we still have some exposure, uh, we talked before about the exposure, we see potentially for remain to the year there's somewhere between a million and 3 million in shipments that could be impacted by it.

Um, but I would also say to you,

You know, with because of that, we, I mentioned, uh, that we had an accelerated. Some accelerated shipments are pull-ins in the Q2. We believe that, that was 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.

So, uh, those were pull ahed's.

And, you know, as as was mentioned, that that could have an impact on our third quarter shipments. Um, I also would state that there's no, we, we don't have enough visibility, we don't really know what all of our customers are plans are, uh, but you know, so while we're saying, you know, there, there could be an impact or realizing that they could also pull ahead again.

And as long as we had materials to supply that and so I, I we emphasize that Q2 is a little higher than, uh, what we would have expected based upon the pull ahed's and that Q3 could be impacted because of that. Uh, but I would also say Steve 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, you know, inventory, they're going to hold on hand and, uh, and just continue the supply on a normalized basis with, uh, with some Safety stock in their possession. So so those are things that we're seeing and that's caused some of that. And but I think we are encouraged, uh, that there are some positive signs ahead. Things are loosening up and starting to get to a more normal state.

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

Thank you, Greg.

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.

Morning, Ted. Thank you.

Um, I've got a few questions, um, going back into the, um, the poll for of Revenue, just out of curiosity, uh, you know, within your reported segments, where was most of that pull forward coming from, you know, you know your segments like, you know, industrial medical vehicle, Etc.

Yeah, it it's 2 areas that we saw Medical.

Um, and and what, what? I'll it's a related around

The types of materials that are typically used in the high performance solutions. So when we talk about heavy Rare Earth that usually means higher performance solutions in higher performance,

Uh comes from, let's say in this in when we look at Mo, from a motor perspective, uh smaller size, but higher energy, magnets to produce more power. So it's either size constraints that are you know, 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 uh the use of this type of magnetic material. So I would tell you medical some high-end industrial uh and some defense

Now also what I would like to State and I State I stated this before table but I'll just allow me to repeat this.

Our company has taken an approach, you know, more than 10 years ago. As I said before, we go through these cycles.

It seems like every 7 to 8 years where magnet prices are under pressure and they you know they they get increased 3 to 400% and uh you have to, you know, work with your customers to you know get enough material to supply their demand and pass along. Search charges based upon those prices. And this case, we were challenged by the fact that we weren't even going to be allowed to receive the material, so that became a little bit more stressful for us.

Off into the future but we have already, it had been for years, taking actions to do that. And we we have been successful

um,

uh, well that would be great. And then, you know, the fact of the matter is is, you know, 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. So, you know, we'll see how it plays out over the next decade or so um, on the magnet Supply you know I mean I know as all this came in place that you know you guys were on top of it and smart and did bring in, you know, some heavy, you know Earth, you know, high-end product, you know end to inventory to be in front of it. You know when you look at where you are with that I mean at what point would it become an issue if

You know, God forbid, you know, the Chinese just stopped things. Again, I mean, do you have enough Supply to get you through the remainder of this year? Maybe, you know, supplies that would take you into 26? And I'm not saying that you're going to run out of it. I'm just saying it was kind of understanding like, what level of Safety stock. You know, you put in place at La.

Well, it varies, you know, and it's, it's, uh, there 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 in the supply chain side and the actions that we've taken to ensure that we have material but I say it varies because if in fact you have noticed that you're just not going to receive it. And for

for example, the Chinese will not ship magnets or heavy rare earth materials,

To the US.

For defense applications.

Us doesn't want them and China won't ship them. So you know, that's been out there for a while and so it's opened up opportunities to domestically, but what that's what that will do is drive pricing and cost will go up. Uh, so there's the government has taken some actions to mitigate it in the future and we are on board and in, you know, in the loop with what's happening here. So it's just a, it's hard to give you and a specific time frame because it'll vary based upon products. The amount of Safety stock we have for each. Uh, what the supply chain is looking like our resourcing and also, you know, identifying some redesigned opportunities that you know, we're worse comes to worse. If you can't get product and what are the Alternatives, from a design perspective that we can accelerate through and get approval from customers, typically

You know, 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 Co though, uh, some of those roadblocks are removed, uh, because that you had no choice but to remove them and, uh, and to accelerate the process itself, so. So if that occurs then, you know, we may be into that our engineering team, rather than focusing on New Opportunities and developing opportunities.

You know, maybe redeployed to uh, work on sustaining and corrective actions, but uh, like as I said, we've we're in the loop on everything that's occurring. There are some, you know, good developments that are going to take time to come online and 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, um, you know, Apple announced that their, you know, making an investment in manufacturing, here in the US. And part of it had to do with the fact that, um, you know, the government is, you know, investing in putting in infrastructure, uh, related, to our own exploration and, uh, you know, in rare earth materials and so forth. So, I think we're very encouraged by that, you know, we've been in discussions with a, a lot of suppliers and, you know, as many are, um, understanding you know who's going to be a player, uh, you know, who's going to be able to produce and when, uh, so I think we're well in tune with that and I'm actually very encouraged that, um, some of those opportunities are going to come on.

Online, uh, you know, sooner than I think any of us expected, and you know, hopefully we'll participate in.

I have 2 more questions um a quick 1 hopefully in terms of an answer. But you know, with all the, um, you know, scuttlebutt and you know, momentum around kind of, you know, unmanned vehicles and drones and stuff just kind of curious what kind of exposure you have if they need to Market. And you know how much of that is, you know, based on Commercial versus industrial just maybe maybe that's not a thing even there. But it's just it's a it's a Hot Topic right now. I'm just kind of curious and I have 1 more after that.

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

So you guys, are you sound short? You wanted a quick answer. I gave you a quick answer and we see it, we see it as you do. It's there's there's definitely some opportunities and you know, we're well positioned to capitalize on some of this and you know, without getting into a lot of detail on it. Uh,

Uh, for competitive reasons. I mean, it is something that's on our radar.

Okay, I'll leave it there. And then um, my last question is, you know, as you you know, all your efficiency stuff is coming to rules, you're really doing a good job at driving Marge is putting you know, that in the business, you know, making the business, you know, stand up and and deliver cash and you know, deliver return to shareholders your beloved in the business. You've got your business down to, you know,

For lack of a better term. Let's call it, you know, targeted, leverage ratios. Um, it historically, you've always been uh, inquisitive in terms of just, you know,

Building growth through acquisition, as you kind of, you know, exiting some of these, you know, strategic efforts in terms of, um, realignment of the business restructuring, the business making the business more efficient, getting debt paid down. What's going on on the human a strategy for you? Well, how active are you in the pipeline? Um, are you going to turn it back on? That's my last question.

yeah, we really from a an investigation from a grooming standpoint from uh,

You know, identifying opportunities for us in the marketplace, we never shut it down entirely. Um, but what we did do is say it's a time period when we will be.

Establishing Communications with certain key, uh, you know, opportunities that for us in the future that we saw, it was a a really good strategic fit. So we've been doing that and I would say to you that, you know, we are not going to stop. We've got, um, some great momentum going in terms of identifying efficiencies and and and changing the way we do business. Uh and that the streamlining will continue and I think we just believe it's a half of a lot more efficient and it's better and it's we can do things faster. That's, you know, stand simplified to accelerate. Now, you know, it's worked its way into the deep vowels, and roots of the company. It's not going to change. We're going to keep doing that.

It's it, it really is healthy and it aligns very well.

With our as initiatives. So our lean toolkit and training and so forth. So I would say to you that

Yes, we are getting well, positioned that we could execute an acquisition. And, you know, we will certainly be very, you know, cautious and careful to make sure everything's lining up properly that it's a, a great strategic fit and provide some continued increase value for what we're doing. And that the value of our recent acquisitions have been in, as we've mentioned, has been in certain Technologies and Market penetration that we were looking for, as well as a creative to our average gross margin. So anything we do would need to meet those criterias. Uh, but uh, I would say to you that. Yeah. You, you know, we're, we're, we're looking, we're paying attention to what's going on and we've identified some opportunities that in the, when the time is right, we'll be looking to bring them on.

Its on, congratulations to the quarter and I'll step out of line.

Thank you, Ted.

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.

In terms of it. So in terms of the data center business, just 1 question is, is the power conditioning more to protect the servers? Is it protect the, the cooling equipment? Is it for both

And then follow up on that on the data center side, you know, I I don't remember exactly the number. I don't have an in front of me, but maybe you almost doubled, year-over-year, please. Correct me if I'm wrong, you know. 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?

and then I want to follow up on that.

Okay, so the first question you're asking about what the, uh, audition of? I, I think if I understand it correctly, in addition of our equipment, what it does

Uh how it impacts the data center itself. So you talked about cooling, yes cooling is 1 of the things that, you know, we're on applications for cooling, but I'd say more importantly, it is about the quality of the power.

And the efficiency that it brings. So as these uh, we've talked about this in the past where you know, you know we have a very uh, high performance and high power solution that we can bring to the marketplace and we do bring to the marketplace and the at any improvements in power quality that you can make are very substantial in terms of a return. So the 2 things, the customer the customer.

Does the customer get that? Like, are the customers sophisticated enough to understand that if there's a 1% improvement in that quality of power, how much that means to them?

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

And just and just part part B and C on the on that question. If I may

So what what so you are, you're talking about the demand, then do we have capacity? Uh, you know, yes we are definitely increasing. Uh, and as you know, we don't break that out as a specific. Uh, uh,

Uh pathway, we do talk about hbac and hbac is definitely growing for us and it's in the industrial um under the industrial uh sector.

The capacity.

You know, it's a, uh, demand is continuing to go up and we see it, continuing it out of the future based upon the forecasted growth of data centers and the needs for our type of equipment. And we will, you know, be doing it another expansion and our main facility that produces this type of product. Uh, we also have been able to Leverage

Coverage.

The acquisition we made last year in January. Uh, yes with its um electromagnetic capabilities in Mexico, as well as in uh in also uh in Wisconsin. So I think we were well that that the synergies that we realized there were very important and positioned as well to be able to satisfy the demand, but we are and have already invested and we will continue to invest to increase capacity.

Okay, um to other questions, I may, you know just jumping around just in terms of the automation side, you know, there was some some clear signs of a bounce back. I think it's your largest, or 1 of your largest customers. Had a positive book to Bill, Let's give us some some qualitative talk through on what that means for you on the automation side.

Sure.

Uh, we in the past, we gave quite a bit of detail on my specific operating unit and what the impact on our performance was. As we went through supply chain crisis and, uh, and then, as it opened up and how it improved our demand. And how is 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, uh, and that will have a

Uh, a very nice positive effect or impact, as we move forward. So it is definitely improving.

Uh, 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 corner?

We saw it in provement, so we've seen gradual Improvement. Uh, sequentially in q1 over Q2 so, uh, we did see Improvement but we're, we're starting, you know, we're continuing to see more Improvement as we move ahead to get us to the point of normalization. So, yes, a little bit.

We expect more coming forward.

My last question, which I think someone else alluded to just on on the munition side.

You know, they've they've been a number of companies that have indicated that their capacity constrained, you know, I've even heard of of, I've, even heard of a, of a 1 of the majors 1 of the majors. Like, you know, it's like, like a North or common, or a waxwell, that type of major offering to pay for capacity, expansion, for for, for a, for a vendor.

And I've seen 2 cases like that recently, I guess my question is, you know, is that is that business?

I I I'm assuming that business is continuing to ramp for you. Are you capacity constrained there as well?

No.

We uh uh we mentioned the the restructuring that we did to consolidate some operations uh uh several years ago, M know, I'd say 3 or 4 years ago, we the main operation for Munitions. Well there's 2 main operations for us for for Munitions applications and those are being Consolidated together but we

Uh, decided to increase our size of our facility and to allow us to grow into it.

Uh, and that has put us in a really good position to. As to answer your question, we are not capacity, constraint

Okay. How are you seeing the same as Dr vendors in terms of the desire from your? Well, we've seen yeah we what we've seen.

Yeah. So, you know what? We've seen that there, there's certainly in the supply chain side of it, you know, there can be uh.

Some concern, but we haven't. We've been working on sourcing for a while here. When you go back to when the complex broke out and then, you know, the initial inquiries on what the projected demand might be, uh, and over time, you know, um,

I don't or and I I not sure that you you had invested in us yet, but we had talked about that that the, uh, inquiry level.

Was quite high, but we hadn't seen any, you know, fpos 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. And so 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. So, we were preparing our supply base, as well as preparing ourselves, and that is coming to fruition.

Okay, great. Um, let's see. That's pretty much. What was my question. Thank you so much.

Okay, thank you.

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

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.

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