ALLIENT INC Q3 FY2024 earnings call

• Revenue for the quarter was $125 million, down year-over-year, with softness across most served markets. - Gross margin improved by 150 basis points sequentially to 31.4%, operating margin rose by 170 basis points to 5.3%, and adjusted EBITDA margin climbed by 130 basis points to 11.5%. - The Simplify to Accelerate NOW actions are yielding $10 million in annualized savings, with $5 million implemented late in Q2 and the remaining $5 million in progress. - Focus on refining organizational structure, reducing redundancies, optimizing production processes for operational efficiencies and enhanced agility. - Actively identifying further cost rationalization opportunities for 2025 to align with market conditions and customer needs.

Second quarter revenue was $125 million, down 14% year-over-year. The Vehicle markets saw a 38% decline mainly due to power sports demand downturn and focus on margin enhancing applications. Industrial markets decreased by 9% despite gains in power quality sales; medical markets softened except surgical instruments; Aerospace & Defense sales declined due to program timing. The industrial sector remained the largest market contributing 47% of the trailing 12-month sales.

• Anticipates a revenue run rate improvement of a couple of million dollars a month in the coming quarters. - Fourth quarter revenue is expected to be slightly below Q3 level due to year-end seasonality and inventory rebalancing. - Expect uncertainties to decrease by mid-2025 with normalized inventories, potential interest rate stabilization, and consistent order flow, positioning for stronger revenue levels and improved operating margins in the future.

• Inventory rebalancing and customer utilization of excess inventory in the channel. - Impact of macroeconomic factors like higher interest rates, political uncertainties, and election cycle on customer purchasing decisions. - Bankruptcy of a major medical customer impacting medical mobility products. - Program timing issues in Aerospace & Defense affecting sales.

Q: Greg Palm asked about the impact of inventory reductions and normalized revenue level.

A: Richard Warzala said there's an opportunity for a couple of million-dollar a month improvement in run rates, comparing Q3 and expected Q4 and early next year, and mentioned artificial intelligence and data center expansion as positive opportunities.

Q: Ted Jackson asked about the industrial side and vehicle market.

A: Richard Warzala discussed the impact of Rockwell's business on Allient, the timing of revenue recognition related to automation projects, and the mix of vehicle market segments like automotive and power sports offsetting each other. Also talked about inventory reduction in the fourth quarter and the $50 million debt swap rate of 3.32.

Q: Michael McCroskey asked about covenant changes.

A: Richard Warzala and James Michaud discussed the start of covenant changes at the end of Q2, the credit for rationalization efforts and one-time costs, and the cushion provided by the covenants to manage headwinds.

Q: Robert Van Voorhis asked about mix normalization and cost cuts.

A: James Michaud mentioned excitement about the data center space and continued growth there, and that the first $5 million of savings from Simplify to Accelerate NOW happened towards the end of Q2, with the remaining $5 million underway towards the end of Q3.