Allient Inc. (ALNT) Q3 2026 Earnings Call Transcript

Operator: Greetings. Welcome to the Allient Inc. Q3 Fiscal Year 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Craig Mychajluk, Investor Relations. Thank you, Craig. You may begin.

Craig Mychajluk: Thank you. Good morning, everyone. Certainly appreciate your time today, as well as your interest in Allient. On the call today are Dick Warzala, our chairman, president, and CEO, and Jim Michaud, our chief financial officer. Dick and Jim will review our Q3 2026 results, provide a strategic and operational update, and share our outlook. We will then open the lines for your questions. As a reminder, our earnings release and the company's slide presentation are available on our website at allient.com. If you are following along, please turn to slide 2 for our safe harbor statement. During today's call, we may make forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated. These risks and factors are outlined in our SEC filings and in the earnings release. We will also discuss certain 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. With that, please turn to slide 3, and I will turn it over to Dick to begin. Dick.

Dick Warzala: Thank you, Craig, and welcome, everyone. Last quarter, I described our performance as a demonstration of the earnings power of the model. The Q3 took a meaningful step further. We delivered record revenue, record margins, and record orders. It was a breakout quarter across both the P&L and the order book. Revenue increased 18% to a record $164.4 million, and 19% organically. Gross margin expanded 330 basis points to a record 36.6%. Operating margin expanded 480 basis points to a record 13.6%, and net income more than doubled. At the same time, orders reached a record $218 million, and backlog ended the quarter at another record $351.5 million. What I am most pleased with is how those results came together. Higher volume, favorable mix, and continued operational improvements all contributed, and that combination drove strong operating leverage. Operating income increased 83% on 18% revenue growth. That is the kind of conversion we have been working toward, and it reflects years of work to reshape the portfolio, simplify the organization, and change how we operate. Simplify to Accelerate NOW, or STAN, is a part of that story. As I discussed last quarter, STAN is not a single program. It is how we work. It is the mindset and the toolset that allows our team to make decisions faster, remove obstacles, and execute with urgency and ownership. This quarter, it helped us translate stronger demand into improved profitability while continuing to invest in capacity, technology, and productivity. In other words, we are not choosing between growth and margins. We are funding growth and expanding margins at the same time. Demand was strongest in our targeted growth areas. Aerospace and defense grew 36% on strong defense-related demand. Industrial grew 15%, led by industrial automation, including solutions supporting data center and infrastructure. Vehicle was a meaningful contributor as well, which Jim will discuss in more detail. In the Q3, data center and infrastructure-related sales were $21.1 million, or 12.9% of total revenue, up 40% from the prior year period, and up $5 million from the prior quarter. Data center and infrastructure represents approximately 10% of our well-diversified business. Through our Allient Power portfolio, including active and passive harmonic filters, line reactors, and related solutions, we help customers reduce harmonics, protect critical equipment, and maintain clean, reliable power in increasingly compute-dense environments. As power density increases, demands on power quality, reliability, and energy management become more exacting, and that plays directly to our engineering strengths. We have also been investing to support that opportunity. The additional capacity at our Milwaukee operation is now online and supporting our growth. That gives us additional production capacity to serve customers as demand continues to grow. We recognize that power availability, permitting, and community concerns can affect the pace and location of individual data center and infrastructure projects. Those are factors we continue to monitor. Against that backdrop, we continue to see strong growth in that business, and we remain focused on what we can control: differentiated products, disciplined capacity investment, and reliable execution for our customers. Energy management goes beyond data centers. It is becoming increasingly more important in all markets and applications we serve. Regarding our defense vertical, we are focusing on applications where our proven products and solutions create value for our customers, and we are aggressively launching several new products to meet the new and emerging needs of the defense markets. Our proven solutions in other adjacent markets brings critical core unit volume into the equation. Simple translation: we are aligned with the changing paradigm to leverage existing solutions to drive out cost for defense-related solutions. More on this market later. Stepping back, the Q3 reinforced three things: our portfolio is aligned with the right markets, our operating model is becoming more scalable, and demand gives us a positive outlook as we moved into the Q4 and early 2027. With that, I will turn it over to Jim for a more detailed review of the financials.

Jim Michaud: Thank you, Dick, and good morning, everyone. Please turn to slide 4. Q3 revenue increased 18%, or $25.7 million, to $164.4 million. Foreign currency translation was a $900,000 headwind, so on a constant currency basis, revenue grew 19% organically. Sales to U.S. customers represented 57% of revenue, consistent with the prior period, with the balance primarily in Europe, Canada, and Asia Pacific. Looking at the verticals for the quarter, industrial revenue increased 15% to $81.7 million, driven by continued demand for industrial automation and solutions supporting data center and infrastructure and other critical facility applications. Aerospace and defense revenue increased 36% to $25.5 million, reflecting strong defense-related demand for mission-critical platforms and systems, as well as favorable program timing. This marks a continued acceleration from the 16% growth we reported last quarter. Vehicle revenue increased 27% to $27.3 million, primarily reflecting stronger commercial automotive demand. Part of that increase reflects shipments accelerated ahead of a customer's model changeover, so we would not view the full growth rate as a new run rate. Medical revenue was down marginally at 2% to $21.3 million, as higher demand for surgical precision motion applications was more than offset by lower demand for medical mobility applications. Lastly, distribution sales, which are a smaller portion of our business, increased 39%, reflecting broad-based growth across the channel. Turning to slide 5, trailing 12-month revenue reached $600 million, up 13% from the comparable trailing 12-month period a year ago. Industrial represented 49% of revenue and grew 16%, supported by the same automation and infrastructure demand drivers I just discussed for the quarter. Within industrial, trailing 12-month data center and infrastructure-related sales were $62 million, or 10.5% of total sales, up 56%. Vehicle represented 17% of revenue and grew 14%, driven by strength in commercial automotive, truck, and construction applications. Aerospace and defense represented 15% of revenue and grew 10%, reflecting mission-critical defense demand and favorable program timing. Medical represented 14% of revenue and grew 4%, with the same underlying dynamics as the quarter. Distribution represented the remaining 5%. The key takeaway is that our balanced exposure across end markets and geographies continues to support growth, while the mix is moving toward higher value applications in automation, power quality, defense, and precision medical. Please turn to slide 6. Gross profit increased 30% to $60.2 million, and gross margin expanded 330 basis points to a record 36.6%. The drivers were consistent with what we have been discussing: higher volume, favorable mix, and operational improvements under STAN, supported by our lean toolkit, Allient Systematic Tools. As we noted last quarter, mix can be lumpy from period to period, and this quarter benefited from a favorable mix of products and programs. So while we expect some quarter-to-quarter variability, the structural progress of simplification, lean disciplines, footprint optimization, and productivity is building a more scalable margin profile, and we believe that progress is durable. On tariffs, our team continued to do an excellent job managing exposure. Over the past year, we have taken a disciplined approach that includes pricing actions where appropriate, supplier negotiations, sourcing adjustments, strategic buys, and broader supply chain diversification. Those actions have kept tariffs from becoming a significant drag on our results, and our operations remain agile and adjusting to minimize the impact of ongoing trade policy changes. With respect to IEEPA-related tariffs and the refund process established by the Court of International Trade, we are in the process of applying for refunds of tariffs paid. As of September 30th, $651,000 of tariff refunds have been approved, and we have received $273,000 in cash refunds. We continue to pursue the refunds available to us, but to be clear, tariff refunds were not a meaningful driver of the margin improvement this quarter. Moving to slide 7. Operating income increased 83% to $22.3 million, and operating margin expanded 480 basis points to a record 13.6%. Last quarter, we noted our operating margin was the highest in roughly a decade. This quarter, we surpassed the company's prior high. Operating costs and expenses were $37.9 million, compared with $34 million, reflecting higher sales commissions, personnel-related costs, software and IT investments, and sales and marketing activity. As a percentage of revenue, operating costs improved 150 basis points to 23%, demonstrating operating leverage even as we continue to invest in growth. Restructuring and business realignment costs were $15,000 compared with $800,000 in the prior year quarter, reflecting lower costs associated with the Dothan transition and the timing of other STAN actions. We expect full-year restructuring costs of approximately $2 million. Please turn to slide 8. The margin expansion and lower interest expense more than doubled net income. Net income increased 137% to $15.3 million, or $0.91 per diluted share, compared with $6.5 million, or $0.39 per diluted share in the prior year quarter. Adjusted net income increased 82% to $18 million, or $1.07 per diluted share, compared with $9.9 million, or $0.59 per diluted share. Adjusted EBITDA increased 46% to $29.7 million, and adjusted EBITDA margin expanded 340 basis points to a record 18%. Our effective tax rate was 22.2%, consistent with the prior year, and we continue to expect a full-year 2026 tax rate of approximately 21%-23%. Turning to slide 9. Net cash provided by operating activities was $22.1 million for the first nine months of 2026, compared with $43.1 million in the prior year period. The decline primarily reflects higher receivables associated with record revenue and strategic inventory investments to support demand. With backlog up more than $50 million since June, we have deliberately invested in critical materials to protect customer deliveries and supply continuity. Inventory turns were three times in the Q3, compared with 3.2x for full-year 2025. Day sales outstanding were 61 days, compared with 57 days for the full-year 2025, reflecting the timing of record quarterly shipments. Supporting growth and maintaining working capital discipline go hand in hand. Our financial priorities remain unchanged: strengthen working capital management, take out cost, and reduce debt. Turning to capital investment. Capital expenditures were $10.6 million for the first nine months, compared with $5.1 million a year ago, as we invest in capacity, technology, and productivity, including in areas tied to data center and infrastructure power quality and automation. We continue to expect full-year expenditures of $12 million-$15 million. Please turn to slide 10. Total debt was $173.4 million at quarter end, down $7 million from year-end 2025. Net debt was $133.7 million, and net debt to capitalization was 29%. Our leverage ratio improved to 1.49x from 1.82x at year-end, largely driven by higher trailing 12-month adjusted EBITDA. The bank leverage ratio, as defined under our credit agreement, was 1.89x, well within covenant requirements. We ended the quarter with nearly $40 million of cash and $162 million of unused revolver capacity. That gives us meaningful financial flexibility to fund organic growth and pursue value-creating opportunities in a disciplined way. With that, if you advance to slide 11, I will now turn the call back over to Dick.

Dick Warzala: Thank you, Jim. Q3 orders were a record $218.1 million, up 64% year-over-year and 8% sequentially, resulting in a book-to-bill ratio of 1.33 times. This is the second consecutive quarter of record orders, which reflected broad-based demand across key targeted markets, led by industrial and aerospace and defense. The defense side of that demand is encouraging, and the inquiry and quoting activity we have previously discussed is turning into orders. These are custom, mission-critical applications where our engineering depth matters. Backlog reached a record $351.5 million, up 52% year-over-year and 18% from June. Most of that backlog is expected to convert to revenue within 6-12 months, reflecting revised order patterns to ensure critical material availability on a longer-term basis. Turning to slide 12, I will close with three themes. First, proven earnings power. We translated higher revenue into record margins and substantially stronger earnings, demonstrating the leverage in our model. STAN is embedded in how we work, strengthening productivity, cost discipline, and execution. Second, targeted growth vectors. Data center and infrastructure is a growing contributor, now at more than 10% of sales, and we believe it will continue to exhibit future growth as well. Aerospace and defense momentum is building. Our drone and unmanned systems offering is also taking shape. Since we discussed it on our last call, we have moved from building the platform to taking it to market. In August, we introduced the Vyxalon Apex Drone Drive, a next-generation electronic speed controller that combines gallium nitride power technology with advanced field-oriented control. It complements our ever-expanding line of custom gimbal and propulsion motor solutions and our newly launched standard off-the-shelf propulsion motors, with several models slated to be produced both in the U.S.A. and Europe, and designed to meet NDAA-compliant supply chain requirements. What sets Allient apart is that we can supply both, that is, standard and custom motor solutions to meet the exacting needs of our customers. Last month at AUSA, we gave our drone portfolio its first public launch alongside several other products we supply for defense applications. That included live demonstrations of the Vyxalon Apex Drive powering a motor, our deployable drone hangar and storage systems, customized structural composites, self-sealing fuel tank technology, counter-UAS motors and drives, gimbal and remote weapon systems motors, electric steering solutions, including autonomous and steer-by-wire solutions, traction solutions for ground vehicles, and specialty motors and actuators used in a wide variety of defense applications. Our booth and displays this year were quite different and innovative, and we are very honored and proud that Allient Defense was voted Best in Show at the event. When presented by AUSA leadership, it was stated that the award was based on the overall design, presentation, and creativity of the company's exhibit experience. Without revealing everything, not only did the experience generate a buzz at the show, more importantly, the response gave us a strong set of customer opportunities to pursue. Hats off to our entire marketing and support team for thinking outside the box and truly changing the game in presenting Allient to the market. Back to the market, I want to be clear on expectations. We are in the early innings of developing our drone and counter-UAS component sales. But as stated earlier, we differentiate ourselves by providing both off-the-shelf standards and application-specific custom solutions to meet the most demanding requirements. While others may have designs, Allient already produces over 5 million motors annually and has the critical production capabilities and know-how to produce these products at scale. Our focus right now is on driving adoption of our solutions, getting them into customer qualification and design cycles, and building the pipeline. We view revenue contribution as more of a 2027, 2028 objective. What makes us confident is that this builds on decades of engineering and custom mission-critical motion solutions for a wide variety of defense applications while utilizing common technology to strengthen our broader defense, industrial, and commercial offerings. Third, position for 2027. Our record backlog of $351 million provides a positive outlook as we finish out the year and move into 2027. Our near-term priorities are clear: convert backlog, support our internal growth opportunities, and maintain a disciplined approach to investment. Customer schedules, mix, and the trade environment will continue to affect individual quarters. But what gives us confidence is what we control: a stronger operating model, a healthier balance sheet, and a portfolio aligned with long-term secular trends in robotics, automation, electrification, digital infrastructure, defense modernization, energy management, and medical. Before closing, I want to thank our team members around the world. Record results like these are earned on the shop floor, in engineering, and across every function, and they reflect the ownership and urgency that define STAN. We are building momentum with stronger earnings power, and we believe Allient is well-positioned to continue that progress. With that, operator, let's open the line for questions.

Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Max Michaelis with Lake Street Capital Markets. Please proceed with your question.

Max Michaelis: Hey, guys. Thanks for taking my questions, and congrats on the really strong quarter. First question—

Dick Warzala: Thank you, Max.

Max Michaelis: Yeah. Hey, first question from me, it seems like buying behavior has changed over the past 90 days. I mean, is this across all end markets, or should we be thinking more A&D, data center? Help me out with that.

Dick Warzala: Oh, I think we are seeing it everywhere. Demand increases and material availability is driving customers in basically all markets to say, "Hey, let's make sure we have some materials on hand." That also can explain increases in inventory and impacts certainly cash flow. So, it's definitely changed, and we are getting orders out there, getting orders in-house a little earlier so we can secure materials to make sure that their demand for the future is satisfied. That's another reason why we talk about the backlog is going to ship over the next 6-12 months.

Max Michaelis: Okay, that makes sense. Then to the margins, really strong quarter, just even EPS as well. How much of that margin improvement is structural from the things you guys have done in terms of reworking the cost structure of the business versus mix?

Dick Warzala: Well, I would say at this point, what we are seeing is mostly a mix change. The cost structure, we have gone ahead and we have made some structural changes to reduce costs. That is ongoing. But what happens is the earnings power is showing through. It is a mix change as well as we get over those break-even points in our operations, then we are starting to convert the sales at an operating margin, at a variable margin level, not just at a gross profit level, as well as maintaining OpEx. I mean, that certainly has an impact on it. But mix was a, I will say to you, was a pretty significant factor as well.

Max Michaelis: Okay. Last one from me. Outside of A&D and data centers, which seem to be getting all the love these days, obviously just with the high growth rates, we have talked about sort of the wastewater treatment opportunity. I know it is early innings. Anything you can help me out there, especially with the sizable order growth, any from the wastewater, water treatment space?

Dick Warzala: Yeah, and thanks for bringing it up. When we talk about infrastructure, that is certainly one piece of infrastructure we are talking about. That has been a steady growth market for us over the years, and we absolutely see it continuing. Also, as we were discussing in the conference call here, is we do not want it to get lost that energy management and a demand for energy and better quality of power, driving down cost, I mean, that is affecting everything. So, while data centers get all the attention because of the high consumption, that is causing everyone to take a look at energy efficiency and energy management throughout their business. So, I do think that fits well with us as well.

Max Michaelis: Perfect. Thanks.

Dick Warzala: Wastewater treatment plants are good. Wastewater treatment's going to continue to grow in the future as well.

Max Michaelis: Awesome, guys. Thanks for taking my questions.

Dick Warzala: Thank you, Max.

Operator: Our next question is from Tomo Sano with JPMorgan. Please proceed with your question.

Tomo Sano: Hi. Good morning, everyone.

Dick Warzala: Morning, Tomo.

Jim Michaud: Morning, Tomo.

Tomo Sano: Congrats on the quarter. Maybe on some investment and priorities into 2027, with the backlog at the record high level, how are you planning capacities and resource allocations, capital investment into 2027, and how are you balancing growth investments, cash generations, and debt reduction maybe? Thank you.

Dick Warzala: Go ahead, Jim.

Jim Michaud: Yep. Thanks, Tomo. Good question. As you know, we're constantly looking for those right opportunities that we've had to our portfolio where it makes sense, and we think that it can be accretive to our shareholders. You know that we've made some strategic investments, obviously, in light of the trade and supply chain dynamic we're dealing with. Obviously, our inventory's gone up $18 million or $19 million this year. So I would expect that hopefully, as we continue to get demand, we will make investments again in strategic components that are having longer lead times. You heard Dick mention that converting the backlog over 6-12 months is simply because of how orders are coming in and the patterns that we're now seeing with getting components and so forth that might be a little bit more difficult. I would tell you is that we'll continue to manage the debt. I think we're really in a great position, a much stronger balance sheet, and we'll look for those opportunities where we think we can make a difference to our portfolio.

Dick Warzala: Yeah, Tomo, I'll add a little bit to that too. We talked about the expansion in the Milwaukee facility, which you had a chance to visit. That expansion is complete, and they're now beginning to set it up and utilize the space to handle the increased demand. We're also looking at increasing our capacity in Mexico. That's well underway, the plans for that. It's not just add capacity everywhere. I mean, we still are rationalizing our footprint, and we're putting the capacity where it's needed. I would also say to you that we've been investing right along here in capital equipment to support growth in these areas that we've seen and we're experiencing right now, and we'll continue to do that. With the increase in sales, certainly we would expect to see good cash conversion. While we've been investing in inventory throughout the year, I think we'll start to see the returns here as certainly the shipments have increased. So, a good balance. We're very confident that we'll be handling our debt extremely well and holding our costs to spending the money and investing the money where it's supporting major growth opportunities, which we continue to see in all areas of our business. So, that's pretty exciting.

Tomo Sano: Thank you, Dick and Jim. Just one more follow-up on the macro levels and strategic questions. Data centers and defense appear to be pretty important growth markets for Allient. But the following elections, the outlook for defense budgets and policy could shift. But how are you assessing these opportunities and the related policy and demand risks, and then how that affects your pace of the capacity expansions and investments? How are you thinking about diversifying your end markets exposure? You spoke a little bit about in our prepared remarks, but any color appreciated. Thank you.

Dick Warzala: Sure. Let's start with the data center and infrastructure. Max asked the question about wastewater treatment plants. That's infrastructure. You see factory automation. That's not going to go down. That's increasing. People are investing money. We demand, and demand continuing, and these projects for infrastructure projects take years, and they're well underway. So, in the short term, we don't really see an impact at all. We see growth. When I say short term, I'm talking next two to three years, no matter what happens. They can have a moratorium on new data center installation, but those that are already started need to be completed. And demand for AI is not going to go down. The internet demand's not going to go down. The fact that we're in other markets, for example, and we'll talk about defense in a second, but other markets, I mean, we're well diversified, and that's the strength of our portfolio. We consciously set out to ensure that we were a well-diversified company, and it's not going to be boom or bust based upon one secular. I think that's our strength. As these others are getting attention and concern about what may happen, we continued and stayed focused on other markets. We're in semiconductor. We're expanding our reach into that. We're in photonics. We're in life sciences. We're in, as we talked about, robotics of all kinds. We're in medical. That's the strength of our model. We're in vehicles. It's still an area that we have strength in, and we mentioned when we talk about vehicles, it's not just automotive. Matter of fact, automotive is kept to a certain level that we feel allows us the opportunity to get core unit volume and pricing advantages. We're in off-road, agricultural, construction, marine vehicles, all types. I would say to you that diversification is why we feel very confident for the future. Talk about defense. I mentioned AUSA and our exhibit down there. We've never been busier. What was interesting is the number of customers and potential customers outside of the U.S. that were at that show and looking for solutions. Demand is increasing globally. I think one thing that's happened, even where the message is clear, they need to invest, and they are. What that brings is some requirements that they're looking for local production, so production in Europe, for example. We're fortunate that we have operations in Europe. 42% of our business is outside of the U.S., and we have very capable engineering and production facilities in Europe. If we see a decrease in demand in defense, and I'm not so sure we can see it that quickly based on replenishment, based upon the modernization that's occurring and how these conflicts will be fought in the future, it's different. They need different equipment, and we have to stay up with the pace. We don't see it slowing down. We see Europe and Asia in some extent looking at increasing demand and applications. As I said, our booth was busy, not just for U.S. companies, but companies outside the U.S. as well.

Tomo Sano: Great. Thank you for the details, Dick. I love it there. Thank you.

Dick Warzala: Thank you, Tomo.

Operator: Our next question is from Greg Palm with Craig-Hallum Capital Group. Please proceed with your question.

Dick Warzala: Morning, Greg.

Greg Palm: Yeah, thanks. Yeah, good morning. It is a shame you picked a pretty bad day in the market to report, but it is not going to stop me from congratulating you on your best quarter, probably by far, in history. So, pretty amazing to see.

Dick Warzala: Thank you very much. We appreciate it. Thank you.

Greg Palm: I am curious. Maybe we start with, I do not know if you want to lump them together, revenue bookings. I am just curious, is it coming from higher volumes from existing programs versus incremental demand from new customers? It is hard to wrap my head around the, at least on the bookings side, the strength or the absolute level the last couple quarters. Maybe just give us a little bit more insight on what is going on.

Dick Warzala: Sure. I would say to you, as you know, many of the long-term projects that we work on, they take months and years. As we have mentioned, we are primarily custom-engineered products. While we do sell some products off the shelf, 80+% of our business is custom-engineered. So they are long-term design-in cycles. As they are getting converted, you are going through the various steps in getting approved and selling, and turning it into shipments and revenue. Certainly, infrastructure projects have been worked on, and we have mentioned before, and just to repeat it so everyone is on the same page here, we are later in the game. We are later in the stage. When infrastructure projects start, they start clearing the land, they start pouring the concrete, they start laying all the electrical and plumbing needs and so forth. We are basically coming in when equipment is being installed. We are later in the game. Things that have been happening and the excitement that has been out there, and I think sometimes questions, "Why are we seeing it?" I think, yeah, we are seeing it, and it is because we were later in the installation or development process. As far as defense applications, there is replenishment that is going on, and it is not going to stop. There is still a need to refill the pipelines based upon the conflicts that have occurred. There are new applications. For drone applications, you saw it at AUSA. We were showing drone motors and ESCs and drives, but in addition to that, we were showing and exhibiting many of the other things that we do that support the counter-UAS market, the counter-drone market. I have said before that for us, that fits us extremely well. They are not off-the-shelf motors. Drones, the motors were designed as a family, many of the smaller drones, not the larger drones, but the smaller drones. Many people could supply them off the shelf, primarily outside the U.S. As we have moved through time here, yes, we have double-digit applications we are working on, many of them customs, and the counter side of it as well is growing. Tremendous interest in our composites and how we combine them together, our electromechanical actuation. The other thing in the defense markets, which is, I think, going to shorten cycle times and fits directly into what we do really well, we have built commercial and industrial and off-road vehicle markets. As the defense departments are looking today, they do not have four, five, six, seven years to get them developed. They have to use product that is available today. And our proven on-road, off-road products that have been out there, not in quantities for defense equipment, maybe in hundreds or thousands, hundreds of thousands and millions. So we can show them a path to get there faster, get there less expensively, including the design cycle time, the capital requirements, and product cost down the road. But I would tell you that demand is strong, and it has been strong and steady in all of our markets. And again, I'll repeat, the diversification that we intentionally moved toward, I think, will help us. It's helping us now and will help us as we continue forward.

Greg Palm: Yep. Understood. And just from a behavior of your customers' standpoint, I don't know, how are the lead times, and how much is there any concern or risk that some of this is customers that are stocking or getting ahead of normal, just given supply chain? Or maybe this is all just new customers, new programs, stuff that's been in the works, and now it's all basically additive to an existing book that is growing in itself?

Dick Warzala: Yeah. So, a couple things with the customers. I would say to you that as we see in defense replenishment, we've talked about before, that's real. Those are hard, firm orders, and the concerns as you get into some of those programs and in some of the high-performance applications that use critical rare earth materials. That's where we're seeing our customers engaging with us and wanting to ensure that we have a secure supply chain. So, we talk about inventory increases, it's to secure that. So the demand isn't going away. In fact, what we're seeing is that they want to make sure that they can get product, so to secure the materials that have been and may be a problem in the future. So we're not seeing that. You're not seeing pushouts. And I'll be honest and tell you that the demand we're seeing, nothing that we're seeing today is telling us that we're getting double ordering. It's historical levels, new programs coming on board that's in addition to the historical programs, and some of the other replenishment programs that are real, that we're shipping to today and will continue to ship into the future. So, our near-term battles are going to continue to be ensuring that we can secure material to meet customer demands. There's more demand out there than we can take today. And from that standpoint, what's driving that is material availability.

Greg Palm: Yep. Okay. And then, just lastly, you talked a little bit about drones and counter-drone. It was unclear whether you are starting to see or you have seen kind of bookings, orders related to that. It sounds like interest is really high, but where are we in terms of booking orders or recognizing revenue associated with those product lines specifically?

Dick Warzala: Yeah. Great. Yeah. We have, until this past year, starting last year, I would say to you, where we really focused hard on looking at the standard product lines that are used in most of the drones. We had already been working on specialty applications for higher-class drones, the larger drones, the counter-UAS products. But those volumes are not as high. Prices are higher, of course, and they are custom-engineered. They are very sticky. What we are seeing today is customers that we have been working with, they have a need for our entire platform, standard and custom-engineered. This is where I have said that we have got an advantage here. We know how to scale. We have scaled. That is the beauty of it. It is not new to us. When you have got companies coming on board saying, "We have got designs," that is great, but can they deliver? Well, we can deliver, and we can scale. We are starting to see, and what is interesting is even in that market, some of the higher volume demand requirements that require automation, that require capital investment, require a know-how, and that is what we have. So, in our numbers, you are not seeing high growth numbers because of drone demand. You are seeing steady, incremental growth over our past sales into that marketplace. We are just in the very early innings to seeing the growth that is going to occur in not just, as I said, the drone, but the counter-drone activities as well. So, not much in there beyond incremental up to now.

Greg Palm: Okay. All right. Appreciate all the color. Best of luck going forward.

Dick Warzala: Thank you, Greg.

Operator: Our next question is from Ted Jackson with Northland Securities. Please proceed with your question.

Ted Jackson: Thanks. I will echo.

Dick Warzala: Morning, Ted.

Ted Jackson: —everyone else's, but good morning, Dick. I mean, what a fabulous set of results. Congratulations.

Dick Warzala: Thank you.

Ted Jackson: A couple of questions. Some of the more fun ones were all taken, but let's just start off with the vehicle revenue and the pull forward. Can you kind of quantify that and then maybe provide some, like how we should think about where that came from in terms of future periods? Was that a pull forward from the Q4, or was it from the next few quarters? Just kind of help us so we can, you know, triangulate our numbers going forward.

Dick Warzala: Well, I don't want to say something totally opposite to what you said. It's not really a pull forward. Today, we've got certain past dues that if we were delivering the numbers, it would have been even higher, and as a consequence of certain materials and capacity increases here that we're working on. So, what we shipped here in this quarter is not pulled from future demand. The demand's there. We could have shipped more.

Ted Jackson: That was commercial vehicle driven? Is that what you said in the commentary? Is that correct?

Dick Warzala: Across many markets, not just vehicle driven. Yeah, vehicle did grow, and we did have In vehicle, there was a specific case there where we had some increased demand, I would just say a drop-in for increased volume. But in all the other markets, it's pretty normal.

Ted Jackson: Mm-hmm. Okay. It was just I mean, I wrote down in my notes, I thought you had said it was a pull forward or an acceleration of delivery, so I just assumed that it'd come out of future periods in an adjustment.

Dick Warzala: No, if I said that, I said it incorrectly, and I apologize for that. But I would say to you that the real message is that we're not pulling out of future quarters. We're trying to deliver from past quarters still.

Ted Jackson: Well, I'm glad I asked the question then to make sure that was clarified. My next question, Dick, is when you were talking about the demand across the board increasing, and you made a comment that customers also are wanting to build more inventory. I guess where I'm trying to go with that is I know the end market demand is very, very strong, but am I reading that right, that in the current environment, everybody wants to hold a little more inventory just because of the changes, reshoring, difficulties in getting materials? So your customers are building, they're running at higher inventory levels, and you're running at higher inventory levels. If that's correct, at what point do you think that kind of normalizes?

Dick Warzala: Well, there's a couple things occurring. So, they're identifying key components that supply is becoming scarce. So they're looking for us to lock that down. It's not about building more product for them and storing it on a shelf. It is about securing material so we can build product in the future. I don't see our customers taking, especially as our demand's ramping here to production orders that we've had in place and releases against those, the demand that we're seeing and what we're shipping against is real demand, today's demand. I'm not going to say that they're not, in some cases, building their own safety stock and inventory, but typically, they don't tell us that. They want to make sure that they're on the top of the list, and every customer's the same. If you know that they're building a safety stock and you got another customer that's building for current production, they don't care about the other customer. They want to make sure that they're satisfied. So there may be some of that going on, and if it is, it's early on in what's occurring. But it's clearly materials and electronic components again, certain steels again, even insulation for reactors and motors and so forth. We're seeing increased demands there. So it's more about supply side and critical parts that they're working with us to ensure. Magnets is another great example, making sure that we have them on order, we have an access to the supply. That's our inventory increase. I don't sense that our customers are building inventory to any great levels because we keep getting pushed based on the demand that we have.

Ted Jackson: The commentary was really about your need to have—

Dick Warzala: Correct.

Ted Jackson: —a little heavier inventory set to meet your demand and basically ensure that you can deliver the tremendous backlog you have.

Dick Warzala: Correct.

Ted Jackson: Okay. My last question, which is probably a little more for Jim, is just on the G&A line item. It jumped quite a bit sequentially, and I just was curious, what drove that and how would we think about that line item on a go-forward basis?

Jim Michaud: Yeah. I mean, a couple of things, Ted, right? Obviously, with the record sales and the increased sales that we've had over this year in particular, commissions are higher, as you might expect. Our incentive program obviously kicks in, and so our performance has generated. The strong performance is going to result in some higher incentives. What I would also tell you is that, and again, I think a lot of companies are experiencing this, and I said it during my commentary, is that with cyber activity continuing to increase, the cost of subscriptions and monitoring and our investments that we are making to ensure that we were catching, if you will, any activity in the cyber arena, we've made some investments to make sure that our monitoring system is robust and best in class.

Ted Jackson: When we think about it, I mean, given, if we are going to assume you're going to continue to perform at the level you're at, and I would say your backlog and bookings and what you're seeing says that you probably are, that going forward, we would see G&A more into kind of that, like this is more of kind of what we should expect on a quarterly run rate going forward.

Jim Michaud: Yeah. I mean, listen, obviously, as a percentage of revenue, it's down, but obviously, there's more dollars that we're spending and investments that we're making to promote Allient and to promote our product lines and so forth. So yeah, I would say that you're going to see more dollars spent, but again, we're leveraging our overhead.

Ted Jackson: Fair enough. Okay. Hey, again, congratulations on the quarter. Thank you.

Dick Warzala: Thank you very much, Ted.

Operator: Our next question is from Gerry Sweeney with Roth Capital Partners, LLC. Please proceed with your question.

Gerry Sweeney: [crosstalk] Good morning, guys. Thanks. Good morning. I think I'm supposed to talk to you in about five minutes on a follow-up call, so I have one quick question, and we'll see how everything goes. Your debt levels have come down significantly over the last couple years. Cash flow, it feels like things are humming along. What are your thoughts on dipping your toe back into the acquisition pipeline, and where do you think is the best opportunity for Allient to maybe fill in some gaps, et cetera, on that front, if any?

Dick Warzala: Yeah. I would say to you this, that we've seen the market become pretty active this year, and we've been looking, and we've looked at several opportunities. We have continued to remain very disciplined and look for something that would be complementary, would be additive to what we're doing, and continue us on our diversification path. I would tell you that we're active, and we're not going to stop. When the right thing comes along that makes sense and continues to fit the profile that we've established, we will clearly be in a position to do it.

Gerry Sweeney: I appreciate that. I will talk to you in a couple minutes, and thanks for all the detail today. And congratulations.

Dick Warzala: Thank you, Gerry. Thank you.

Operator: There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Dick Warzala: Thank you, everyone, for joining us on today's call and for your interest in Allient. We will be participating in the ROTH Technology Conference in New York City on November 18th, and then the Northland Virtual Growth Conference on December 16th. 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 Q4 2026 results. Have a great day.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.