ALNT - NASDAQ

Good morning, and welcome to the Allient Inc. Second Quarter Fiscal Year 2025 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Craig Mychajluk, Investor Relations. Please go ahead.

Yes. Thank you, and good morning, everyone. We certainly appreciate your time today as well as your interest in Allient. Joining me today are Dick Warzala, our Chairman, President and CEO; and Jim Michaud, 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. 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 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. 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. So with that, please turn to 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 road map. Revenue increased 5% sequentially and 3% year-over-year, supported by solid demand in 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 million to $4 million of revenue was pulled into the second quarter as customers accelerated shipments due to concerns around supply constraints in heavy rare earth materials. Gross margin reached a record 33.2%, up 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 EBITDA growth and a significant increase in profitability with net income up 58% from Q1 and nearly fivefold 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 Simplify 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, including tariff and material supply challenges, 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 [ goals in ] restructuring launched as a cornerstone of the 2025 effort is on track and expected to play a meaningful role in achieving the $6 million 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, a 3% 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 to U.S. customers accounted for 55% of total revenue, in line with last year. The geographic and end market diversification of our portfolio remains a key strength. Looking at our market performance, Aerospace and Defense grew 13%, reflecting program timing and strong execution. We continue to see a healthy pipeline of opportunities in the defense 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 increased 3%, driven by continued strength for HVAC and data center market applications where our power quality solutions are needed. We are also 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 was down 7% due to ongoing softness in 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 catalysts driving these changes. We have seen a meaningful shift in mix with growth in 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 in recreational spend and volatility in automation, but also our deliberate effort to focus on more resilient margin-accretive applications. The industrial sector is our largest market and reflects 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 in powersports remains 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 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 Simplify 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 year-over-year to 8.4% and improving 180 basis points sequentially. SG&A 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. Turning to Slide 9. Net income increased to $5.6 million or $0.34 per diluted share. On an adjusted basis, net income was $9.5 million or $0.57 per diluted share, up from $0.46 per share in Q1 and $0.29 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 rate 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 EBITDA increased meaningful 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 to Slide 10. We delivered record operating cash flow of $24.5 million in the quarter, up 76% sequentially and nearly 3x the level generated in the same period last year. On a year-to-date basis, operating cash flow now stands at $38.4 million, more than double what we achieved in the first half of 2024. This strong performance reflects both profit growth and disciplined working capital execution. Our inventory turns improved to 3.1x, up from 2.7x at the end of the year. This was driven by tighter demand alignment, better planning and continued progress under our Simplify to Accelerate NOW initiative. At the same time, our days sales outstanding improved, signaling stronger collections and more efficient conversion of sales into cash. We used a portion of our cash to reduce debt 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 2.3x compared with 3x at the end of last year. Our bank-defined leverage ratio, which excludes certain items like foreign cash, was 2.9x, 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 million to $10 million compared with the prior estimate of $10 million to $12 million. 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 to Slide 12, I will now turn the call back over to Dick.

Thank you, Jim. While our book-to-bill ratio was modestly below 1 at 0.97, demand 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 ended the quarter at $236.6 million, down slightly from Q1 and prior year 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 end markets. Order activity 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 million 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. We continue to align the business around margin-accretive 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 served markets, supported by long-term trends in electrification, automation, energy efficiency and precision control. This includes seeing early signs of recovery in industrial automation and steady momentum in A&D. The operational foundation we have built, the strength of our balance sheet and the momentum 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.

[Operator Instructions] Today's first question comes from Greg Palm with Craig-Hallum Capital Group.

Congrats on the results. So I just want to maybe understand, again, kind of what you're seeing out there. So it sounds like you're feeling good that the destocking is in the rearview mirror. You're starting to maybe see some green shoots in industrial, A&D remains strong. Anything else you want to maybe call out or highlight?

No, I think you've hit the highlights.

And in A&D specifically, what -- maybe remind us, number one, kind of what your major exposure areas are? And just in terms of kind of visibility to the remainder of the year and even next, where are we at? How strong is the demand?

Sure. Well, A&D, certainly in some of the applications that we work on, we do get some good visibility, long-term visibility, and we work on longer-term contracts. And we continue to do that. So we are seeing some very positive results. We've made some significant improvements in our operating capabilities, some of the restructuring 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. We're meeting with key customers on a regular basis. And I think from a legacy business standpoint, and some of the applications we're on, we do see that there is some opportunity to increase volumes and to hopefully expand margins as we've consolidated the operations. Some of the new applications with government programs or military programs, there's usually risk, and there's no guarantee that those programs come to fruition. We have seen a few cancellations. 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. We feel there's a transition going on in terms of 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 our team is well positioned to capitalize on it as we move forward. So 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 know we talked about a lot last quarter. I mean, on a relative basis, given what's happened in the last month, are you feeling better, worse, the same? What's the risk profile there?

Yes. Our team has worked extremely hard to stay on top of it and engage all of our operations. And I think we have a pretty good outlook what we feel is going to happen. We've seen some improvements, although I just -- we have to be very cautious here and say that this is -- most of the materials 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. We still have some exposure. We talked before about the exposure we see potentially for the remainder of the year, there's somewhere between [ 1 million and 3 million ] in shipments that could be impacted by it. But I would also say to you with -- because of that, I mentioned that we had an accelerated -- some accelerated shipments or pull-ins into Q2. We believe that, that was a 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 those were pull aheads. And as it was mentioned that, that could have an impact on our third quarter shipments I also would state that there's no -- we don't have enough visibility. We don't really know what all of our customers' plans are. So while we're saying there could be an impact, we're also knowing -- we're also realizing that they could also pull ahead again. And as long as we had materials to supply that. And so we emphasize that Q2 was a little higher than what we would have expected based upon the pull aheads and that Q3 could be impacted because of that. But I would also say to you 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 inventory they're going to hold on hand and just continue the supply on a normalized basis with some safety stock in their possession. So those are things that we're seeing, and that's caused some of that. And I think we are encouraged that there are some positive signs ahead things are loosening up and starting to get to a more normal state.

The next question is from Ted Jackson with Northland Securities.

Congratulations on a very nice quarter. I've got a few questions. Going back into the pull forward of revenue, just out of curiosity, within your reported segments, where was most of that pull forward coming from segments like Industrial, Medical, Vehicle, et cetera?

Yes. It's 2 areas that we saw in medical, and what I'll -- it's 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 and higher performance comes from, let's say, when we look at from a motor perspective, smaller size but higher energy magnets to produce more power. So it's either size constraints 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 the use of this type of magnetic material. So I would tell you, medical, some high- end industrial and some defense. Now also what I would like to state, and I stated this before, Tim, but just allow me to repeat this. Our company has taken an approach 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 get increased 300% to 400% and you have to work with your customers to get enough material to supply their demand and pass along surcharges based upon those prices. In 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. Because of this, what's occurred in the past, our company has been very proactive and designing products where possible that don't contain heavy rare earth. And we will continue to do so into the future to try to eliminate this risk as much as we possibly can off into the future. But we have already and have been for years taking actions to do that, and we have been successful.

Well, that would be great. And then the fact of the matter is 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 [ big. ] So we'll see how it plays out over the next decade or so. On the magnet supply, I mean, I know as all this came in place that you guys were on top of it and smart and did bring in some heavy earth high-end products into inventory to be in front of it. When you look at where you are with that, I mean, at what point would it become an issue if God forbid, the Chinese just stopped things again. I mean do you have enough supply to get you through the remainder of this year? I mean do you have supply that will take you into '26. And I'm not saying that you're going to run out of it. I'm just saying just kind of understanding like what level of safety stock you put in place.

Well, it varies, and it's -- 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 on 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, and for example, the Chinese will not ship magnets or heavy rare earth materials to the U.S. for defense applications. U.S. doesn't want them, and China won't ship them. So that's been out there for a while, and it's opened up opportunities domestically, but what that will do is drive pricing and cost will go up. So there's -- the government has taken some actions to mitigate it in the future, and we are on board and in the loop with what's happening here. So it's just -- it's hard to give you a specific time frame because it will vary based upon products, the amount of safety stock we have for each, what the supply chain is looking like, our resourcing and also identifying some redesign opportunities that worse comes to worse, if you can't get product, then what are the alternatives from a design perspective that we can accelerate through and get approval from customers. Typically, 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 COVID, though, some of those roadblocks are removed because you had no choice but to remove and to accelerate the process itself. So if that occurs, then we may be into that and our engineering team rather than focusing on new opportunities and developing opportunities may be redeployed to work on sustaining and corrective actions. But like as I said, we're in the loop on everything that's occurring. There are some good developments, they're going to take time to come online. And maybe, Jim, you want to talk about some of those a bit.

Yes. I mean I think you saw an example of that in yesterday's news where Apple announced that they're making an investment in manufacturing here in the U.S. and part of it had to do with the fact that the government is investing in putting in infrastructure related to our own exploration in rare earth materials and so forth. So I think we're very encouraged by that. We've been in discussions with a lot of suppliers and as many are, understanding who's going to be a player, who's going to be able to produce and when. So I think we're well in tune with that. And I'm actually very encouraged that some of those opportunities are going to come online sooner than I think any of us expected. And hopefully, we'll participate in that.

You may want to mention you went to Washington and talk to the government officials.

Yes. I did have an opportunity to go to the Department of Commerce and met with several of the individuals involved in trade talks and so forth and very, very informative. And as I mentioned, they are obviously helping many companies, not dissimilar to ours in identifying opportunities to look at alternate sources and where those are and the like. So there's a great collaboration, I would tell you, between companies and the Department of Commerce to ensure that companies like ours are being supported, and we understand what the alternatives are.

Great. I have 2 more questions. A quick one, hopefully, in terms of an answer. But with all the scuttlebutt and momentum around kind of unmanned vehicles and drones and stuff, just kind of curious what kind of exposure you have, if any, to the market and how much of that is based on commercial versus industrial? Just maybe there's nothing even there, but it's just -- it's a hot topic right now. I'm just kind of curious, and then I have one more after that.

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

So you guys are...

You said short. You wanted a quick answer, I gave you a quick answer. Yes, we see it as you do. There's definitely some opportunities, and we're well positioned to capitalize on some of this. And without getting into a lot of detail on it for competitive reasons, I mean, it is something that's on our radar.

Okay. I'll leave it there. And then my last question is, as you -- all your efficiency stuff is coming to roost, you're really doing a good job of driving margins, putting that in the -- making the business stand up and deliver cash and deliver return to shareholders. You're deleveraging the business. You've gotten your business down to for lack of a better term, let's call it, targeted leverage ratios. Historically, you've always been acquisitive in terms of just building growth through acquisition. As you're kind of exiting some of these strategic efforts in terms of realignment of the business, restructuring the business, making the business more efficient, getting debt paid down. What's going on, on the M&A strategy for you all? How active are you in the pipeline? Are you going to turn it back on? That's my last question.

Yes. We really -- from an investigation, from a grooming standpoint, from identifying opportunities for us in the marketplace, we never shut it down entirely. But what we did do is say it is a time period when we will be establishing communications with certain key opportunities for us in the future that we saw it was a really good strategic fit. So we've been doing that. And I would say to you that we are not going to stop. We've got some great momentum going in terms of identifying efficiencies and changing the way we do business. And that streamlining will continue. I think we just believe it's a heck of a lot more efficient and it's better and it's -- we can do things faster that's stand, Simplify to Accelerate NOW. It's worked its way into the deep bowels and roots of the company. It's not going to change. We're going to keep doing that. It really is healthy, and it aligns very well with our AST 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 we will certainly be very cautious and careful to make sure everything is lining up properly that it's a great strategic fit and provide some continued increased value for what we're doing. And that the value of our recent acquisitions have been in -- as we mentioned, has been in certain technologies and market penetration that we were looking for as well as accretive to our average gross margin. So anything we do would need to meet those criteria. But I would say to you that, yes, we're looking. We're paying attention to what's going on, and we've identified some opportunities that when the time is right, we'll be looking to bring them on.

[Operator Instructions] The next question comes from [ Craig Cosgrove, ] private investor.

Mr. Cosgrove used to be a controller for us in one of our operations. I'm guessing maybe by mistake. He's followed us very closely and has been a strong supporter since he's left. So maybe he hit the button by mistake.

We'll move on to our next question. It comes from Orin Hirschman with AIGH Investment Partners.

Congratulations on the results. Just a couple of random questions. In terms of the data center business, just one question. Is the power conditioning more to protect the servers? Does it protect the cooling equipment? Is it for both? And then a follow-up on that on the data center side. I don't remember exactly the number I don't have it in front of me, but maybe you almost doubled year-over-year. Please correct me if I'm wrong. 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 I have one follow-up on that.

Okay. So the first question, you're asking about what the addition of -- I think if I understand it correctly, the addition of our equipment, what it does, how it impacts the data center itself. So you talked about cooling. Yes, cooling is one of the things that 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 -- we've talked about this in the past, where we have a very high performance and high-power solution that we can bring to the marketplace and we do bring to the marketplace. And any improvements in power quality that you can make are very substantial in terms of a return. So -- two things there. Yes, cooling...

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

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

And just part B and C on that question, if I may.

So you're talking about the demand and do we have capacity? Yes, we're definitely increasing. And as you know, we don't break that out as a specific [indiscernible]. We do talk about HVAC and HVAC is definitely growing for us, and it's in the industrial -- under the industrial sector. The capacity, it's a -- demand is continuing to go up, and we see it continuing out of the future based upon the forecasted growth of data centers and the needs for our type of equipment. And we will be doing another expansion in our main facility that produces this type of product. We also have been able to leverage the acquisition we made last year in January with its electromagnetic capabilities in Mexico as well as in -- also in Wisconsin. So I think we were -- the synergies that we realized they were very important and positioned us 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. Two other questions, if I may, just jumping around. Just in terms of the automation side, there was some clear signs of a bounce back. I think it's your largest or one of your largest customers had a positive book-to-bill. Just give us some qualitative talk through on what that means for you on the automation side.

Sure. We -- in the past, we gave quite a bit of detail on a specific operating unit and what the impact on our performance was as we went through supply chain crisis and then as it opened up and how it improved our demand and how has 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, and that will have a very nice positive effect or impact as we move forward. So it is definitely improving, 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 quarter?

We saw an improvement. So we've seen gradual improvement sequentially in Q1 over Q2. So we did see improvement, but we're continuing to see more improvement as we move ahead to get us to the point of normalization. So yes, a little bit, but we expect more coming forward.

Okay. My last question, which I think someone else alluded to, just on the munition side, there have been a number of companies that have indicated that they're capacity constrained. I've even heard of one of the majors like Northrop Grumman or Rockwell, that type of major offering to pay for capacity expansion for a vendor. And I've seen 2 cases like that recently. I guess my question is, is that business -- I'm assuming that business is continuing to ramp for you. Are you capacity constrained there as well?

No. We mentioned the restructuring that we did to consolidate some operations several years ago, I'd say, 3, 4 years ago, we -- the main operation for munitions -- well, there's 2 main operations for us for munitions applications, and those are being consolidated together. But we decided to increase our size of our facility and to allow us to grow into it. And that has put us in a really good position to -- to answer your question, we are not capacity constrained.

Okay. Are you seeing the same as other vendors in terms of the desire from your...

What we've seen -- yes. So what we've seen, there's -- certainly in the supply chain side of it, there can be some concern, but we haven't -- we've been working on sourcing for a while here when you go back to when the conflicts broke out and then the initial inquiries on what the projected demand might be. And over time, I don't -- Orin, I'm not sure that you had invested in us yet, but we had talked about that, that the inquiry level was quite high, but we hadn't seen any POs from that to increase the capacity. We not 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.

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.