Allient Q1 2025 Earnings Call Transcript

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May 8, 2025
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Operator

Please note that this event is being recorded.

Operator

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

Craig Mychajluk
Managing Director at Alliance Advisors

Thank you and good morning everyone. We certainly appreciate your time today as well as your interest in Alliant. Joining me today are Dick Rizala, our Chairman, President and CEO and Jim Michaud, our Chief Financial Officer. Dick and Jim will walk you through our first quarter twenty twenty five results, provide a strategic update and share our outlook. We will then open up the call for Q and A.

Craig Mychajluk
Managing Director at Alliance Advisors

You should have a copy of the financial results that were released yesterday after the market closed. If not, you can find it on our website at allient.com, along with the slides that accompany today's discussion. If you're reviewing those slides, please turn to Slide two 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 and 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.

Craig Mychajluk
Managing Director at Alliance Advisors

These risks and uncertainties and other factors are discussed in the earnings release as well as with other documents filed by the company with the Securities and Exchange Commission. You can find these documents on our website or at sec.gov. I want to point out as well that during today's call, we will discuss some non GAAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non GAAP to comparable GAAP measures in the tables accompanying the earnings release as well as the slides.

Craig Mychajluk
Managing Director at Alliance Advisors

So with that, please turn to Slide three, and I'll turn it over to Dick to begin. Dick?

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

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

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

We are building a more resilient and responsive company. 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 $0.46 per share. Our Simplify to Accelerate Now program continues to serve as a cornerstone of this transformation, 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.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

We continue to navigate a dynamic global landscape with focus and agility. 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 pressures. 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 and high performance magnets. 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.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

These are long term trends and we believe Alliant is well positioned to capitalize on them. With that, let me turn it over to Jim for a more in-depth review of the financials.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

Thank you, Dick,

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

and good morning everyone. I am starting on slide five. First quarter revenue was $132,800,000 down 9% year over year due to the anticipated demand softness in the vehicle and industrial markets, compounded by an unfavorable $1,800,000 FX impact. On a sequential basis, revenue decreased $10,800,000 or 9%, reflecting solid execution and improving momentum in targeted areas like power quality and defense programs. Sales to U.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

S. Customers represented 52% of revenue compared with 58% in Q1 last year, with continued contributions from Europe, Canada and Asia Pacific. 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 saw 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.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

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. Vehicle revenue declined 34%, in line with expectations, reflecting both continued softness in powersports demand and our intentional shift from lower margin programs as we focus on higher value, managing enhancing applications aligned with our long term strategy. Let's move to slide six for the composition of our revenue over the trailing twelve months, along with the key catalysts driving these changes.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

The industrial sector is our largest market, contributing 47% of the trailing twelve month 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 as inventory levels and new projects have reset across the industry. Similar to the quarter, vehicle demand remained under pressure, particularly due to shifting recreational spend trends in powersports. While we saw stronger sales in surgical related products, our medical market was down 2% on a trailing twelve month basis due to softness in pump related products.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

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 twelve month period. The diversity of our end markets continues to be a foundational strength of the Alliant 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. 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.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

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 two thirty basis points since our low point in Q2 twenty twenty four. Moving to slide eight. On a year over year basis, operating income was down due to lower volume and restructuring charges of $1,500,000 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.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

The remaining impact was largely reduced operating leverage on lower sales volume. 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 $8,800,000 with operating margin at 6.6%, up 130 basis points from Q4. 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 $247,000 in the quarter.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

This was primarily driven by higher interest rates. The biggest driver was the expiration of two favorable interest rate 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. We also saw an increase compared to the prior year first quarter in the rates we are 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 increase.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

As for our results, net income was $3,600,000 or $0.21 per diluted share compared with $3,000,000 or $0.18 per diluted share in the prior period. Adjusted net income rose to $7,600,000 or $0.46 per share, up from $0.31 in Q4. Adjusted EBITDA was $17,500,000 or 13.2% of revenue, up 160 basis points sequentially. These gains reflect our improving mix and the structural efficiencies we have been driving. Turning to cash generation and our balance sheet on slides ten and eleven.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

Operating cash flow was 13,900,000.0 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 $47,800,000 in cash, an increase of 32% since year end '20 '20 '4. As a result, our net debt decreased by 13,600,000 bringing it to $174,400,000 Our leverage ratio, which we calculate as net debt divided by trailing twelve month adjusted EBITDA, improved to 2.91 times. This was down from 3.01 times at the December. Our bank defined leverage ratio, which excludes certain items like foreign cash, came in at 3.56 times at quarter end and we will remain in full compliance with our debt covenants.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

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 turns improve sequentially from 2.7 at the end of twenty twenty four to 3.1 at March 2025 by reducing inventory levels through iterative 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. Number two, cost discipline remains embedded in our operations.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

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. Lastly, strengthening our balance sheet by reducing debt is a critical initiative of our financial strategy. The $13,600,000 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 execution.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

Capital expenditures were $1,100,000 for the quarter, and we still anticipate capital spend of 10,000,000 to $12,000,000 for the full year 2025. With that, if you advance to slide 12, I will now turn the call back over to Dick.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

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 in HVAC applications for data centers and A and D 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.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

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, geopolitical, regulatory and economic uncertainties persist, but Alliant 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 6,000,000 to $7,000,000 in annualized cost reductions with benefits expected to begin materializing later this year.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

At the same time, we are taking proactive steps to address the shifting global trade environment, specifically evolving tariff policies and restrictions on magnet exports from China. 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. To provide perspective, while our annual spend on China sourced magnets is currently less than $8,000,000 per year, only a small subset, approximately $1,500,000 of that is impacted by the new restrictions due to the heavy rare earth materials. 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 times, 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.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

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 $3,000,000 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.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

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. Internally, we remain steadfast in our operating discipline, focused on cash generation and commitment to debt reduction, all while continuing to invest in the capabilities that define Alliant as a long term partner of choice in motion, controls, and power technologies. Our goal is unchanged, sustainable, profitable growth that delivers value to our customers, our employees, and our shareholders. And with the foundation we have built and the momentum we are carrying, we are confident in our path forward. With that operator, let's open the line for questions.

Operator

Thank you. We will now begin the question and answer session. And your first question today will come from Greg Palm with Craig Hallum. Please go ahead.

Greg Palm
Senior Research Analyst at Craig-Hallum Capital Group LLC

Yes. Good morning. Thanks for taking the questions and congrats on the better results here.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

Thank you, Greg.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

Thank you.

Greg Palm
Senior Research Analyst at Craig-Hallum Capital Group LLC

I'd love to just start with maybe a little bit more sort of a picture on the environment, both from a demand and supply and maybe you can weave in a little bit more about tariffs. But are you what do you see in quarter to date? Any change in demand, any hesitancy just given some of the news headlines and the tariffs and all that stuff?

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

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. Demand is continuing, and given if it continues in the fashion it is, we will definitely see some incremental growth. The uncertainty with tariffs and agreements, 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.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

And as others begin to follow, 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 $3,000,000 we talked about mitigation strategies, which would be to pass those costs on, 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.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

With regard to the challenge that we're facing immediately, that is the high rare 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 going to 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 that. 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.

Greg Palm
Senior Research Analyst at Craig-Hallum Capital Group LLC

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, I mean, there a chance that you end up winning business in an environment like this?

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

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 or are producing product in The US 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.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

They haven't told me lately what they're doing, but I will say that I will say that, you know, we focus on what we can do. And and I'm confident that our team is really, you know, doing everything necessary and what they need to do to make sure that we protect our customers and we continue to drive growth.

Greg Palm
Senior Research Analyst at Craig-Hallum Capital Group LLC

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

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

Yes. In 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.

Greg Palm
Senior Research Analyst at Craig-Hallum Capital Group LLC

Okay. All right. I will leave it there. Thanks.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

Thank you, Greg.

Operator

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

Gerry Sweeney
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Good morning. Thanks for taking my call.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

Good morning,

Gerry Sweeney
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

one question, and maybe it fits to just overall strategy as well. And I apologize, I jumped on a touch late. But in the prepared remarks, you talked about the vehicle business and shift away from lower margin, sort of higher revenue related work to higher margin opportunities. Does this underscore maybe a larger shift that's gonna go on in the vehicle space? Historically, some of that business was some of your older, more mature business, lower margins and less maybe systems oriented for lack of a better word.

Gerry Sweeney
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

But just curious what's going on there over the longer term.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

Sure.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

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 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. So the old business that was not favorable, in some cases, negatives, 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 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, and the margins are acceptable to us, then we will pursue it.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

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, and we're out of it. Just a decision we made and and it's done. I will say that we're very pleased with our current customer base and, you know, the applications that we're on. We believe we bring some, you know, some specialty capabilities and knowledge there, and that's where we want to focus. That's more us than what the other markets were.

Gerry Sweeney
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Going off of memory, several years ago, I think you won some programs that sort of ramped up for a couple years. Think they're more European or Eastern European based, and they kind of trend down. 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

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

on Yeah, what I would say is this. Yeah. So existing programs where we bring something to the table in terms of value, and it's not, as I said, commoditized. Yeah. We absolutely will continue to support our customer base, and we'll move move you know, we'll move forward on those and continue to support those as we go forward.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

What we're not doing anymore is those are long term high investment in Upfront high investment. 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 that. 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 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.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

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.

Gerry Sweeney
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

I suspect as that shift continues, mean, that's going to help margins and other returns from assets and things like that. Is that fair to assume?

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

Yes, it's fair. That's fair.

Gerry Sweeney
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

I lied. I had two questions. Sorry. Easy one. Inventory turned point I think it should be.

Gerry Sweeney
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Inventory was 2.7. You highlighted 3.1. I forget 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 3.1 is not that's that may be the answer?

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

Well, 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 to take in the supply chain in collaboration with our customers to manage the short term noise that the current geopolitical and trade policies are. So I think we're very well poised to continue to approve that number, but I'm a little bit cautious only because of 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 term.

Gerry Sweeney
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Okay, that's fair. I mean, probably low hanging fruit has been taken. There's probably opportunity, but it takes some planning, maybe a little bit of strategic investment, etcetera, to to move it to the next levels.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

Right.

Gerry Sweeney
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Got it. Okay. Thanks, guys. I appreciate it. Congrats on a a nice quarter.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

Thank you, Jerry. Thank you.

Operator

And your next question today will come from Oren Hirschman with AIGH Investment Partners. Please go ahead.

Orin Hirschman
Managing Member at Aigh Capital Management

Hi. Congratulations on all the progress especially in a difficult environment. You know, you mentioned some very you're welcome. You mentioned some very specific numbers in terms of how much you consume the rare earth elements that go for the magnets or your motors. And you mentioned some of the mitigation strategies that you have.

Orin Hirschman
Managing Member at Aigh Capital Management

I guess my question is that one number of 8,000,000 or the one point million number, what does that translate into? I know it's not exact you don't have an exact number, but does it translate into $100,000,000 of motors, 50,000,000 of motors? 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, if there is a

Orin Hirschman
Managing Member at Aigh Capital Management

fair question.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

I think a couple of things just to point out is that we have the granularity on that because we have a team that's been assigned to that, 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. So this is a complete collaboration. I mean, it gets back to and we've had a number of acquisitions.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

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 then that's typically, and this can, the range can vary a lot. Let's say it's 20% of the cost of goods sold could be in magnet cost. And if you got a million and a half that we're talking about, you can do the math on that.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

We're talking 7 and a half, 8 million in sales at a cost of goods sold level. Translate into a 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. But what's most important is what you pointed out is that the granularity we have gives us the opportunity now to really go attack this. And I just have to compliment our internal teams who've worked hard at this. This happens, unfortunately, in my career, this happens every six or seven years.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

We see, you know, magnet prices if you go back in time, there's no secret China bought the market, and they dropped, prices dropped drastically, you go back twenty years ago, they dropped drastically. And once China owned the market, they started to increase prices and they increased dramatically, and then you had to pay upfront. I mean, 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 it's very important for us, we'd already taken mitigation strategies to design those materials out where possible, okay, and or to find other sources of supply. As the prices have increased, it's opened the opportunities for more suppliers around the world.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

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 the threat of not supplying magnets. And it's, and the magnets and they've, there are certain selected areas that China has said they will not ship magnets in defense applications to The US. Okay?

Orin Hirschman
Managing Member at Aigh Capital Management

Mhmm.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

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 are 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 going to stay within our suppliers and that there may be some reach in and do that.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

So there's a significant long term risk and there's a reach in now that, you know, we're we're moving fast and we'll move continue to move fast. But the data we have shows us where we have to focus.

Orin Hirschman
Managing Member at Aigh Capital Management

Okay. 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 as something that you're eventually going to exit? Apologize if I'm not more familiar with the strategy there.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

No, I wouldn't say we we we so let's let's clarify what 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. And when we talk about, you know, automotive per se, and you talk about recreational vehicles, those 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?

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

So I would say this to you that the recreational vehicle, which as we talk, you know, as we say that, the 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 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, etcetera. So I would tell you that there is a is a piece of that that's not consumer based. And and maybe, you know, I gave you a number of 40 to 50%, that would be pretty accurate. There's also defense applications for that.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

So we're not exiting it. We can compete there. We can certainly compete in a level and fair fight. Okay? We have a very confident in our team and we've come up with, we we we kind of led the changeover from into power steering on those vehicles and we're the innovators and, you know, early and and enjoyed the early part of that business.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

And of course, as it's grown, competitions come in. 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?

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

We're 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, 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, you know, consumer based.

Orin Hirschman
Managing Member at Aigh Capital Management

But does it feel like the consumer part

Orin Hirschman
Managing Member at Aigh Capital Management

of it bottomed or hovering around bottom?

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

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 peaked.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

And now people have the vehicles and, you know, consumer spending is a little bit more cautious. And, 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.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

And I think that's kind of what they're saying. There's caution there. But I think there's optimism as well that it will come back.

Orin Hirschman
Managing Member at Aigh Capital Management

Great. Okay. Thank you so much.

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

And thank you.

Operator

Your next question today will come from Robert Van Voorhees with Vanatoc Capital Management. Please go ahead.

Robert Van Voorhis
Founder & CEO at Vanatoc Capital Management

Hey. Good morning, Great quarter.

Robert Van Voorhis
Founder & CEO at Vanatoc Capital Management

Appreciate you taking

Robert Van Voorhis
Founder & CEO at Vanatoc Capital Management

time. Just sort of a quick, I would say, boring question and maybe it's better for Jim. But can you just comment on 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 and A to compensate for that? My assumption is probably not, but I just thought I would ask.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

Yes. No, obviously, we're very focused on our Simplify to Accelerate Now program. That's going to continue into the very near term. And our focus is on what we said. We're looking to continue to manage our debt.

James Michaud
James Michaud
Senior VP & Chief Financial Officer at Allient

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.

Robert Van Voorhis
Founder & CEO at Vanatoc Capital Management

Yep. Alright. Well, that's it for me. Appreciate it. Keep going.

Robert Van Voorhis
Founder & CEO at Vanatoc Capital Management

Thank you.

Operator

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

Richard Warzala
Richard Warzala
Chairman, CEO & President at Allient

Thank you everyone for joining us on today's call and for your interest in Alliant. 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 25. 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 twenty twenty five results. Thank you for your participation, and have a great day.

Operator

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
    • Richard Warzala
      Richard Warzala
      Chairman, CEO & President
    • James Michaud
      James Michaud
      Senior VP & Chief Financial Officer
Analysts
    • Craig Mychajluk
      Managing Director at Alliance Advisors
    • Greg Palm
      Senior Research Analyst at Craig-Hallum Capital Group LLC
    • Gerry Sweeney
      Managing Director, Senior Research Analyst at Roth Capital Partners, LLC
    • Orin Hirschman
      Managing Member at Aigh Capital Management
    • Robert Van Voorhis
      Founder & CEO at Vanatoc Capital Management
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Key Takeaways

  • Alliant delivered strong sequential improvements in Q1 2025 with revenue up 9%, gross margin expanding 70 bps to 32.2%, operating margin rising 130 bps to 6.6% and adjusted EPS increasing nearly 50% to $0.46.
  • Year-over-year revenue declined 9% amid softer industrial automation and vehicle markets, while aerospace & defense sales jumped 25% and power quality and defense programs showed solid momentum.
  • The Simplify to Accelerate Now program remains central to the turnaround, aligning resources with demand, streamlining production and targeting $6–7 million in annualized cost savings by year-end.
  • To mitigate geopolitical and supply-chain risks around tariffs and rare-earth magnets (annual spend <$8 million, only $1.5 million affected), Alliant is diversifying suppliers, increasing safety stock, localizing production and advancing low-rare-earth motor technologies.
  • Disciplined financial management drove operating cash flow up 52% to $13.9 million, a $13.6 million reduction in net debt to $174.4 million, improved leverage to 2.91× and inventory turns rising from 2.7 to 3.1.
AI Generated. May Contain Errors.
Earnings Conference Call
Allient Q1 2025
00:00 / 00:00

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