Allient Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2024

There are 8 speakers on the call.

Operator

Greetings, and welcome to Alliant First Quarter Fiscal Year 20 24 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. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Craig Mychajluk, Investor Relations.

Operator

Thank you. You may begin.

Speaker 1

And good morning, everyone. Your time today as well as your interest in Allian, Inc, are Dick Rizzella, President and CEO and Jackson Trostel, our Corporate Controller. We're going to review our Q1 2024 results and provide an update on the company's strategic progress and outlook, after which we'll open up for Q and A. If not, you can find it at our website at alliant.com, along with the slides that accompany today's discussion. With no slides, please turn to Slide 2 for the Safe Harbor statement.

Speaker 1

If there, we may make forward looking statements on this call during the formal discussion as well as during the Q and A. We will provide a few future events that are subject to uncertainties as well as other factors that could cause actual results to differ materially from what is stated on today's call. Uncertainties and other factors are discussed in the earnings release and documents on our website or atsec.gov. As well, that during today's call, we will discuss some non GAAP measures, which we believe will be useful in evaluating our performance. For the presentation of this additional information in isolation, substitute for results prepared in accordance with GAAP.

Speaker 1

We will provide reconciliations of non GAAP measures in the tables accompanying the earnings release and slides. And I'll turn it over to Dick to begin.

Speaker 2

Thank you, Craig, and welcome, everyone. Before delving into the quarter discussion, I'd like to provide an update on our ongoing search for a new CFO. The process has been productive, yielding a pool of high caliber candidates, and we anticipate welcoming an external candidate on board very soon. Given the timing, Mike graciously agreed to extend his tenure as CFO into the end of June, which will facilitate a smooth transition of his duties. Due to prior planned commitments, Mike couldn't join us on today's call and Jackson Trostel will be filling in for him.

Speaker 2

I would like to take this moment to extend my heartfelt wishes to Mike as he embarks on his retirement. Throughout his tenure, Mike has been an outstanding partner and has played a key role in establishing the framework necessary for us to support the levels of growth we've achieved over the years. Under his leadership, he has also cultivated a strong supporting team, laying a solid foundation for our continued success in the future. I would also like to express gratitude to 2 other individuals for their guidance and support over the years. Jim Dannis, our Director since 2014 has chosen not to stand for reelection resulting in a reduction of our Board size to 6 members after yesterday's annual meeting.

Speaker 2

Jim's steadfast dedication, insightful guidance and invaluable contributions have left an indelible mark on our company's trajectory. Similarly, I extend sincere appreciation to Joe Kabar for his over 12 years of service to Alliant, including as Secretary and Corporate Counsel. Joe has been a constant force over the years and his guidance has been instrumental in supporting our needs as we executed numerous acquisitions and realized excellent organic growth over the years. On behalf of the entire Alliant family, I extend our sincerest thanks to these three individuals for their unwavering commitment and contributions. Now, let's turn our focus to the results.

Speaker 2

The past quarter has been a testament to our resilience and adaptability. Moreover, our commitment to operational excellence and cost management has bolstered our margins and fueled bottom line growth along with strong cash flow generation. Given improved lead times, customer order patterns are normalizing to a pre pandemic environment and excess supply is being taken out of the channel, which has had an impact on our order rates, which I will review later in the presentation. Demand from our end markets was mixed, reflecting the various states of supply normalization within each market with some pockets of weakness in Europe. Our top line came in at nearly $147,000,000 for the quarter.

Speaker 2

On the plus side was our vehicle markets, which continued to benefit from the ramp of automotive programs and industrial markets, which has increased at least double digits for each of the last 12 straight quarters, largely driven by industrial automation projects and power quality solutions. This market has also benefited from the improved supply chain and acquisitions. We reviewed the acquisition of S&C Manufacturing on our last earnings call as we completed the transaction in early January. S&C is a well established company with locations in the U. S, Mexico and China and our offerings are complementary to our current power quality capabilities.

Speaker 2

While SNC has some medical and A and D business, the vast majority of their revenue will show up within our industrial bucket. As a reminder, this was our first tuck in acquisition in support of our power technology pillar, and we are excited about the synergies that are developing as a result. We saw margin expansion across the board with gross margin up 80 basis points, operating margin up 40 basis points and adjusted EBITDA margin up 60 basis points. Overall, net income per diluted share increased 8% to $0.42 a share and on an adjusted basis, net income per share was $0.58 up 5% for the quarter. Stronger earnings combined with improved working capital led to cash generation of $9,200,000 a record level for a Q1.

Speaker 2

With that, let me turn it over to Jackson for a more in-depth review of the financials.

Speaker 3

Good day, Dick. Starting on Slide 4, we highlight our top line. 1st quarter revenue increased 1% or $1,200,000 to $146,700,000 The impact of foreign currency exchange rate fluctuations was favorable $200,000 Sales in our vehicle markets increased 12% during the quarter, driven by the anticipated escalation of certain automotive programs. Partially offsetting this growth was the continued decline in the demand for agricultural vehicles given the softness in Europe stemming from geopolitical tensions, notably the Ukrainian conflict. Industrial markets were up 10%, lifted by recent acquisitions and heightened end market demand within industrial automation, electronics and power quality solutions, particularly those for the HVAC markets.

Speaker 3

A and D sales saw a decline of 22%, primarily attributed to the timing of certain space industry initiatives. We did see an uptick in defense demand throughout the quarter, which helped to offset somewhat mitigate these the impact of this timing. Medical markets also saw a decline primarily due to the persistent softness in medical mobility products and solutions, a trend that has persisted over the past few years. Slide 5 shows the shift in our revenue mix across markets over the trailing 12 months and the catalyst for each change. Industrial maintained its position as our largest market and was 45% of TTM sales, a noteworthy expansion of 500 basis points.

Speaker 3

The robust 25% growth in the industrial vertical mimics the trends from the recent quarter and reflected the improvements in the supply chain environment, which facilitated the delivery of long lead projects. Vehicle market revenue was up 7% on a TTM basis and reflected the same demand drivers as the recent quarter and also included higher demand for powersports. Similarly, aerospace and defense as well as medical sales demand also had similar drivers as the Q1. Lastly, sales through the distribution channel, which are a small component of total sales, were up 4% for the TTM period. As highlighted on Slide 6, gross margin expanded 80 basis points to 32.3% for the quarter on higher volume, favorable mix and pricing, along with the continued emphasis and usage of our lean toolkit throughout the organization.

Speaker 3

These impacts are more than offset elevated raw material costs and remaining supply chain disruptions. Moving to Slide 7 for our operating performance. You will notice we had an increase in engineering and business development costs for the quarter, which largely reflected recent M and A activity. Helping partially offset this was lower general and administrative costs, which were 40 basis points lower as a percentage of sales year over year. Overall, operating income increased 6% to $12,100,000 or 8.2 percent of revenue, a 40 basis point improvement.

Speaker 3

On Slide 8, we present GAAP net income and adjusted net income, which we believe provides a better understanding of our earnings power, inclusive of adjusting for the non cash amortization of intangible assets, which reflects the company's strategy to grow through acquisitions as well as organically. 1st quarter net income increased 9% to $6,900,000 or 0 point $9,500,000 or $0.58 per diluted share. The effective tax rate was 21.8% in the Q1 of 2024. We expect our income tax rate for the full year 2024 to be approximately 21% to 23%. We use adjusted EBITDA as an internal metric and believe it is useful in determining our progress and operating performance.

Speaker 3

Adjusted EBITDA increased 5% to $20,000,000 or 13.7 percent of revenue, up 60 basis points. Slides 9 and 10 offer a snapshot of our cash flow and balance sheet. Notably, we experienced a robust cash generating quarter amounting to $9,200,000 of operating cash flows, marking a significant increase from the $3,600,000 in the prior year's Q1. This achievement is particularly noteworthy considering that the Q1 is traditionally a higher operating cash consumption period. The year over year increase was attributed to elevated net income and enhanced management of working capital.

Speaker 3

Our projections indicate a sustained momentum in driving strong cash flows, aligning with our historical trends. Capital expenditures for the quarter were $3,000,000 and largely focused on new customer projects. We expect 2024 capital expenditures to be in the range of $13,000,000 to 17,000,000 dollars Increase in cash utilized for investing activities during the quarter Q1 of 2024 was primarily attributed to the acquisition of S and C. Additionally, the investing activities for both the 1st quarters of 2024 and 2023 included a deferred payment of $6,250,000 related to a prior acquisition. Inventory turns were 3.0 times and our DSO was at 55 days for the quarter.

Speaker 3

Total debt was approximately $240,000,000 up from year end 2023 due to the SNC acquisition. Debt net of cash was about $209,000,000 or 43.9 percent of net debt to capitalization. Our bank leverage ratio was 2.89 times. Reducing debt remains at the top of our priorities regarding the use of capital. Lastly, we recently extended the maturity of our existing $280,000,000 revolving credit facility for 5 years to 2029.

Speaker 3

Borrowings for the revolving facility bear interest on a sliding scale rate based on leverage of 1.25% to 2.5% over sulfur. In addition, for added flexibility and to lock in favorable rates, entered into a $150,000,000 fixed rate private shelf facility, under which $50,000,000 of borrowings occurred on March 21, 2024. The fixed rate $50,000,000 debt bears interest at 5.96% and will mature in March 2,031. With that, I will now turn the call back over to Dick.

Speaker 2

Thank you, Jackson. Slide 11 shows our orders and backlog levels. As discussed on previous calls, the shift in our backlog reflects ongoing enhancements with our supply chain environment. These improvements have facilitated the shipment of several long lead industrial projects as demand returns to a more normalized pre pandemic level with customer ordering patterns adjusting accordingly as reflected in our book to bill. Year Ahead will undoubtedly pose challenges as we continue to adapt to these evolving dynamics.

Speaker 2

However, this presents an opportunity to optimize our working capital and bolster cash flow. It is also important to stress that there are exciting initiatives on the horizon as we progress through 2024 and we are strategically positioning our organization to capitalize on significant opportunities across our targeted verticals. That leads to the highlighted actions on Slide 12. Our strong commitment to our strategy guides all of our key decisions. With the unveiling of our new strategic model, simplify to accelerate now, we embark on a journey aimed at refining our organizational structure, eliminating redundancies and optimizing our operations.

Speaker 2

In pursuit of sustained earnings growth and increased cash generation, our teams have identified key strategic actions for this year and into 2025. Realigning and rationalizing our footprint represents the largest opportunity, but also the most complex. This includes the consolidation of our brands under the Alliant banner to include our motion, controls and power technologies. By doing so, we ensure a more cohesive approach to foster improved market and customer alignment, enhanced market clarity and focused teams that can better serve our diverse global customers. Our commitment to simplicity extends to customer interactions with dedicated selling units and solution centers, offering specialized expertise and comprehensive system level solutions.

Speaker 2

We must eliminate complexity in processing orders and transactions and focus on speed of play to win new business. As a result, we aim to centralize customer entry points and leverage cutting edge systems to automate processes to reduce transactional costs wherever possible. Internally, we want to foster a common business language facilitated by AST, our lean toolkit, ensuring seamless collaboration across all levels. By defining and supporting the needs of the business as a whole, driving out redundant costs and strengthening our foundation for future growth. And lastly, elevating our pace and reducing our product development time to market is expected to deliver tangible value and stands as a top priority.

Speaker 2

This means reducing the complexity of designs by taking smaller incremental steps and adapting as we move forward. By doing so, we enhance agility, responsiveness and ultimately customer satisfaction. These initiatives are being implemented in phases and some are still being fully vetted. While we expect benefits in 2024, ongoing improvements will be realized over the next 2 plus years and will be offset by certain one time cost to implement. Ultimately, we expect our executed actions to result in a more cost effective leveraging of our resources and to provide us with a $10,000,000 plus $1,000,000 effective improvement in EBITDA over this timeframe as actions are implemented and gain traction.

Speaker 2

We believe our efforts and actions are consistent with and will support our goal of achieving 100 total basis point improvement of annual margin, which will come from a combination of both gross margin expansion and operating expense reduction. During 2023, it's important to note that we enjoyed elevated shipments in certain markets as the supply chain normalized and our customers accepted shipments for orders placed during the height of when lead times were being extended. In 2024, we expect this normalization to have a $30,000,000 to $40,000,000 headwind on our top line, which will be mostly offset by the SNC acquisition. While the SNC acquisition will help offset the top line, it will not fully offset the pull through incremental margin we had enjoyed as a result. Ultimately, the impact of our cost reduction profit enhancing activities will help offset the bottom line pressures that are expected to persist for the near term.

Speaker 2

In support of our strategic goals as a company, we will aggressively and proactively adjust the organization as required to ensure we establish a sound and strong foundation for the future. In closing, I want to reiterate our unwavering enthusiasm and confidence in the trajectory of our company. As we look ahead, we are energized by the myriad of opportunities that lie before us. With a firm commitment to innovation, new product development and operational excellence, we are primed to capitalize on these projects and further elevate our performance over the long term. As we embark on the journey ahead, rest assured that our vision, strategy and determination will continue to drive our success the coming year and beyond.

Speaker 2

With that, operator, let's open the line for questions.

Operator

Thank you. At this time, we'll be conducting a question and answer Our first question comes from Greg Palm with Craig Hallum Capital Group. Please proceed with your question.

Speaker 4

Thanks. Good morning, everyone. Congrats on a lot of progress here in the quarter. So job well done.

Speaker 2

Thank you, Greg.

Speaker 4

I guess starting off with a little bit more kind of color on what you're seeing out there in various end markets, geographies? Is it stable relative to where we were at a couple of months ago? Any notable changes you want to highlight or call out?

Speaker 2

Yes. Well, I would say to you that there's more clarity on what we expect to see here in the coming months ahead. And I think certainly we pay very close attention to the performance of our customers. And as we've seen and are hearing from them, they're expecting that organic growth rates will be down, which certainly would reflect on our organic growth. I mean, the impact would be relatively pretty similar to what we see there.

Speaker 2

So I would say to you that, yes, that there are certain markets that are having some challenges. I do think it's still a part of the normalization of demand as commitments to orders that have been placed months ago are being fulfilled and inventories are full, panels full And now we'll have to see what it when that will start to return to a full normalization, meaning that the consumption is increasing or at least leveling out to the point of where those inventory reserves are being consumed and then replenished. And I'll say that's primarily in the industrial markets, Greg.

Speaker 4

Okay.

Speaker 2

Go ahead. You have a question, go ahead.

Speaker 4

Well, I was just going to ask, do you you mentioned inventory levels. Do you have a sense on where kind of inventory levels are? I mean, I know it varies across customer basis, but just in general and should we just assume that book to bill is going to run below 1 in the near term as a result of what you're saying?

Speaker 2

Yes. It may be below 1 in the near term, but I think we are going to see that that gap is closing. We're starting to we are starting to see some encouraging signs that there is business that is now orders are being released that hadn't been released for a while, which was resulting in the negative book to bill. I would say to you that there's definitely improvement in that area. So there's some encouraging signs coming in the near term.

Speaker 4

Yes, makes sense. And then I guess just lastly, thinking about some of the operational improvements that you're making specifically around the simplify to accelerate now strategy, Do you feel like you got some of that benefit in Q1? Or is that still to come? And can you give us any more color around the timing? I know you mentioned $10,000,000 when it's all said and done, but when should we see that sort of full run rate of cost improvements?

Speaker 2

Okay. For your first question, have we seen any impact of that in the Q1? The answer would be no. When will we start to see it? There has been a very comprehensive review of all our operations, looking at all areas of cost and so forth and expenses.

Speaker 2

And we are working through the details and we've identified certainly some major opportunities for us that will begin very shortly. So I would say to you without providing any more details, it's a complete rationalization of where we are, moving forward on actions that I would have said to you that without COVID, we would have seen some optimization already and the supply chain crisis. So we are beginning to move forward. We part of the process is not just to look at reducing cost, but how can we align much better to service our customers. I think that's key.

Speaker 2

It's critical because we've built the basis of business in different markets and we think we can better service those markets and gain additional market share. So there's opportunities to increase the EBITDA generation, profit generation from improved business levels by leveraging the synergies we have in place. And there's also opportunities by restructuring and realigning to be more focused on markets that we serve and create an expertise that better services our customers. Those will start in Q2 and will continue throughout the year. That's what I would say to you.

Speaker 2

Again, with some of the actions, there will be some one time costs. We'll be very clear on what those are and as we identify and we relay it to the marketplace. But I think that's about as much as I can cover right now without giving you more specifics, which we're still working on.

Speaker 4

Yes, understood. No, that's helpful as it is. All right, we'll leave it there. Thanks.

Speaker 2

Thank you, Greg.

Operator

Our next question is from Gerry Sweeney with Roth Capital Markets. Please proceed with your question.

Speaker 5

Hey, Dick. How are you doing? Thanks for taking my call.

Speaker 2

Good, Jerry. How are you? Good.

Speaker 5

Not quite a repeat of Greg's question, but curious as to demand, how much of it is, I think, order normalization versus maybe fiscal tightening in the U. S. And then certain other countries. I'm not sure if the economy is slowing down. I'm just curious if you would have any thoughts on delineating between the 2?

Speaker 2

Yes, I would say to you that as we've watched the book to bill ratio, we've watched our backlog and look at the markets, both geographic and the vertical markets, it wasn't it really was going to happen. And I think typically as I look at our business and we pay attention to what's happened with our customers, okay, we typically lag that. And where we've seen some reduction in demand for our end customers, we held up. And as we're looking at what their forecast and projections are for the near term, I think we're modeling in that we're going to follow that. But as I said, I wanted to make the point that that gap of the negative book to bill ratio is closing.

Speaker 2

And we've seen some encouraging signs where certain projects and certain where we've expected to begin resuming deliveries on certain projects, it is happening. Europe is still a question mark there, especially Germany, where they're talking about major reductions in demand and so forth throughout the economy. It's that's the one area that we're still watching closely. Although we'll have to say other parts of Europe, we're again starting to see that same trend where the order patterns or delivery, I'll just say shipments patterns are improving. So it's going to be pretty telling here in the next couple of quarters.

Speaker 2

Have we bottomed out? Have we normalized inventories? Are we now starting to supply to real demand, not filling channels and so forth.

Speaker 5

Got it. And I do know that you had spoken about order normalization for some quarters. And it sounds as though it's tracking as expected, but there are some pockets that it's still a little bit of wait and see. Is that a fair summation?

Speaker 2

It is. And again, as I mentioned in the conference call here, the headwind that we faced, I mean, that's it was a real it's a real interesting one because we received orders in multiple year orders where supply chain could not supply key components. And I would I know our customers honored the deliveries when the supply chain opened up, we were able to get components. It certainly elevated the shipments from last year, which were depressed from the prior year and will have an impact into this year as I mentioned. So if we think about that demand and as the questions I can anticipate maybe coming here is we said that we have this headwind of top line and that was incremental top line based upon existing base of business and offset by the acquisition of SNC, which of course comes in as a full company with fully loaded expenses and operating costs and so forth.

Speaker 2

So it's not the same profit generation from an incremental standpoint, right. We've got a full business, we're bringing that same level of business through, but it's that the profits are can't be expected to be the same because of an incremental demand.

Speaker 5

Sure, understood. Just one more for me, then I'll jump in line. Inventories, turnovers, DSOs, what is the target or what would be more of a normalized level? I know it's yet in the slide deck it was 22, 23 and I think 24. But we had COVID and you also have a bunch of acquisitions since that timeframe.

Speaker 5

I'm just curious if you sort of have a target where you want to take that and where sort of working capital is?

Speaker 2

We'll let Jackson answer that.

Speaker 3

Okay. Sure. And I would say it wouldn't be accurate to say we'll revert back to exactly where we were pre COVID because a portion of the business has changed along with our acquisition since then. In the DSO range, I'd say based on our cost customer mix, there should be improvement, but I wouldn't expect it to be below 50 in the near term. And inventory turns, we're driving towards, I'd say, in the 3.5 range at the end of this year into the Q1 of next year, would be our expectation and certainly driving to find opportunities to even exceed that internally where we can.

Speaker 5

Got it. I appreciate it. Thank you very much. Pleasure meeting you, Jackson. Thanks.

Speaker 2

Thank you, Jerry.

Operator

Our next question comes from Ted Jackson with Northland Securities. Please proceed with your question.

Speaker 6

Thanks. Good morning.

Speaker 2

Good morning, Ted.

Speaker 6

Dick, I want to auger into into kind of the efforts you're making with regards to kind of restructuring operations in business. I have a few questions around that. And I want to start with the brand consolidation. So my if I understood you correct, you are going to are you eliminating all the different brands from the various acquisitions and everything is going to Alliant? And then am I understanding that you're going to centralize a lot of operations for that across those businesses?

Speaker 6

And so the reason I ask that is going back into your M and A. In the past, it seemed to me that the strategy for Alliant was to buy great smaller companies that kind of fit within your world, give them the resources to grow their businesses, usually kind of keep the management team in place and really kind of let them run it. And when I listen to what you're doing, and I'm not criticizing it because honestly, I actually approve of it, but is it a change in kind of the strategy? And how do you see that impacting your ability to bring in some of the to bring in acquisitions? Because I would think that for many of your targets, if they can have you own them and they still get to run it, that that's kind of an attractive proposition for them.

Speaker 6

So that's my first question. I have a couple more behind it.

Speaker 2

Sure. There's a lot of questions in that first question, Ted. So let me go ahead and It's sort of a problem here. Yes. All right.

Speaker 2

So first off, the parent company named Alliant. Ted, you started you've joined in as an analyst for us within the last 2 to 3 years. If you go back in time when we began the roll up in the Motion side of the business and how we handled brands under Allied Motion, you will see that we took a logical and approach to changing the names over time. And so there are some that have been fully changed and we're companies with separate names, but smaller, not necessarily they had some brand recognition, but it was a limited customer base. So they were rolled into Allied Motion and basically Allied Motion in a location, for example, Tulsa, Stockholm, Door Direct, etcetera.

Speaker 2

As we move forward, there were certain reasons as we acquired other companies to maintain the individual brands a little longer. We do realize as a company that we want to compete as a company and that's our strength. And by coming out with a new brand, a new name, Alliant, say connecting what matters, leveraging all of our pillars, we've been working hard to identify within the vertical markets and that gets into some of the realignment that I'm talking about we'll discuss further here. The opportunity to bring multiple technologies from the different pillars into the vertical markets as the solution as one company. There's many reasons for doing that.

Speaker 2

But if you don't do that, then what happens is each entity gets treated as an individual company. And if you want to get qualified with larger customers and open up the door for multiple products, it becomes very difficult and very restrictive. They so having a company, not just the name, but a company that has a quality management system, that has an outlook on all of the corporate initiatives that's consistent with what we're portraying as a corporation, which creates an image for a more powerful, more capable company that is going to focus on the verticals that can truly drive growth and provide better support. That's the reason. And it will still be a logical approach.

Speaker 2

It's not an overnight change. But as you'll see, we're introducing the parent at trade shows, we're changing literature, we're changing websites, we're doing all of that work behind the scene, but it's a slower it's a slow migration to ultimately get it to Allian. With regard to the individuals within the companies, you're absolutely correct. One of the first questions I receive at every single acquisition, post acquisition meeting is what's going to happen to our name. And we basically say that we will keep a brand, but for us in order to be more cost effective and how from the operating expense standpoint, we need to merge some of this together in terms of having all these individual entities, having tax returns, having all the reporting that's necessary, the audits that are necessary if you keep these independent.

Speaker 2

We're bringing them together and we're doing that now. So we're putting logical groups of companies together. We're retaining management. We're retaining key individuals. What we're doing though is saying, hey, listen, there's a better way to operate as a combined entity to get the power and the strength of the corporation out there to leverage that and to bring everything we have that is possible to bring a more complete solution into the verticals and satisfy our customers, do it with a higher level of expertise and focus.

Speaker 2

So I see no issue with us acquiring companies and looking at our brand strategy over time, we'll have brands as products, but we'll have a company, one company that will support and service multiple brands, okay, product brands, product lines, not companies. So we can simplify that whole side of our business. I think I've answered all your first question.

Speaker 6

Yes. I mean, you get where I was going with it. It's just it sounds like there is a shift in here. You're going to basically centralize a lot of kind of behind the scenes stuff with regards to like you said, like basically a lot of the stuff in the G and A. I am curious with it, how does it play?

Speaker 6

I mean a lot of the different sort of entities within Alliant had independent standalone sales efforts. Where what are you doing on that front? Or is it too early to ask that question?

Speaker 2

No, that's certainly a fair question. That's one of the things that we leverage very quickly is to we have there isn't one Alliant sales force, there will not be 1 Alliant sales force. So I'll make that very clear. I think while we can leverage many of the products in a solution in certain markets to certain customers, we're still going to have that demand that comes from discrete products to certain customers in certain markets by pillars. So we have that structure is already in place.

Speaker 2

What we're doing is enhancing that. When I say enhancing it, I mean, for example, if we take the defense vehicles, okay. We sit there and we go through our strategy session and we determine, okay, what are we selling into this market, okay? What applications and how many different applications are we servicing within, let's just call it a defense vehicle. And we find that it's very significant and things that maybe the team wasn't aware of, but now we can now we're better prepared to have a customer facing team that's totally knowledgeable of everything we can bring to bear, have the support, the engineering support, application engineering support, and they can reach into the company, take an order from a customer for everything we're going to supply in one time.

Speaker 2

That's where the opportunity really lies. And then if you think about if we maintain the way we did it in the past, these customers are placing individual orders at different locations. They all have to be entered. They all have to be invoiced. They all have to be tracked and so forth and becomes complicated to do business with us.

Speaker 2

It's like dealing with not one company, but multiple companies. And that's the one complaint that we would hear. You're yes, you're calling yourself one name, but you're not acting as one name. And that's part of the change. So from a transactional standpoint, the changes that we're looking at is say, okay, internally getting the IT systems in place that can support a structure, an order comes in, it's placed for an end user part number, let's call it X, and that X has many different components and sub assemblies coming from multiple locations within Alliant.

Speaker 2

We take that order, we drive demand one time throughout the company, we satisfy we ship ultimately ship the product, we invoice once and we have one receivable and we drive the revenue recognition and the profit recognition back into the specific TUs. So it sounds like it is a tremendous duplicative process we have to deal with 1 customer shipping many products with different customer service, facing units facing to the customer and all the transactional processing we have to go through. So that's some of that simplification we're talking about, but it's also a true alignment of the expertise and digging deeper into those applications and supporting it with everything we have available. Okay. So there's work there.

Speaker 2

We talked about systems in order to be able to do this, connecting those systems, not everybody's on the same computer system, but that process continues to move forward. But when that occurs, it really simplifies and it's a transaction that occurs electronically, not manually each time as some of it is today.

Speaker 6

Well, Matt, I think you answered one of my next questions, which was, it sounds like with this reorganization, if you would have processed that there is that you'll be going through a consolidation of kind of back office systems and such? And as I assume this involves like possibly new ERP like a standardized ERP and CRM systems and things along those lines and we are in the process of kind of mapping that out. And I haven't gone through that in my operational days. It's clearly a multiyear project to kind of map that out and get it in place, get it into your solutions. You got to be really careful with it.

Speaker 6

I mean, is that what I'm hearing from you?

Speaker 2

We need to be clear, we've been doing that, okay. That's been ongoing for multiple years now. And we have converted the vast majority of the acquisitions onto a common system, the vast majority. It's the some of the smaller ones I think is where the real benefit is to be derived as we're adding capabilities that didn't even exist. So that process has been ongoing, it's continued.

Speaker 2

So we have a really good team. That was how I started my career in that area. And we have a really good team that from starting its project to executing and getting it implemented is a very short period of time and it's been done successfully over and over and over. So we're not starting now. We're well along the way and we're completing.

Speaker 2

I'll say we're in the final phases of completing the conversion and the cut over to a common system and it won't be all. I do have to be clear, we do operate very well internally here using Hyperion or HFM to consolidate and do create business reports for us, because there are systems that are deeply rooted in certain companies that you just can't rip out. So where we can and we already are well down that path, have been doing it and it's been done successfully and we're I'll call it in the later innings here of where we're at the point of getting close to getting they're never done, but getting close to the point of getting the identified systems up and converted and running as a company.

Speaker 6

Well, I think it's going to be an exciting journey and I've been through some of that stuff before. And I will tell you it's pretty interesting beyond your stuff you're doing to organize the business to be more effective with regards to customer facing. When you get in and you start getting into cost improvements and cost saving stuff, it's much easier to make $1 by saving $1 than it is by going and selling stuff to make $1 if that makes sense to you. And I applaud you for going at it and I look forward to hearing about the progress in the years to come and I'll step out of line. Thanks.

Speaker 2

Sounds great. Thanks, Ted. Yes, and I think just to add to the back end of that is the reasons for doing this is also to establish the foundation for the next level of growth in the company. And we feel that this the time is right. We've had several and many acquisitions.

Speaker 2

We did it at a fast pace. It's a time to bring those together and to establish this really strong base and foundation, so we can move into the next level of growth that we expect within the company. So that's the other important part of this as well. But thanks for all your comments and questions. I appreciate it.

Operator

Our next question comes from Brent Kearney with American Rebirth Opportunity Partners. Please proceed with your question.

Speaker 7

Hi, good morning, Dick and Jackson. Thanks for all the insights you've shared thus far on the call this morning.

Speaker 2

Good morning.

Speaker 7

I had a question on your growing power technology pillar. Can you help us think about either magnitude or potential runway you're seeing some of your solutions there going into the fast evolving data center market as well as your ability to supply that I think the SNC manufacturing acquisition unlocks the TCI business?

Speaker 2

Yes, that's a great question. And you want to talk about one of the exciting opportunity areas for us and highlights, I mean, you've identified it. The combination of TCI and SNC and the opportunity for us with the management teams to look at the true synergies that these combined entities can bring, it's extensive and it's exciting. And you hit it as far as data centers and the ongoing demand and need for that, certainly that's not going away. That will continue to explode over the years ahead.

Speaker 2

So the second thing you asked about or you mentioned was the ability to supply. Certainly, anyone following the industry has seen lead times have extended. They still have supply chain issues in that market for certain materials, which have caused orders that can be placed for 12 or 24 months out still. For us, the expanded footprint that these operations bring together, the Mexican facility that's well established for SNC is that's something that's being leveraged immediately. And it is resulting in our ability to service customers and supply.

Speaker 2

So we were capacity constrained, that's been unleashed and it's happening quickly. And I can only say I compliment the teams in Wisconsin and Mexico and China and so forth for their efforts here to ensure that happens as quickly and efficiently as possible and that's actually happening. So that's a great question. One of the bright spots and bright opportunities for the future, the synergies there are extensive and literally the opportunity to create this one company approach to the market exists with the combination of those 2.

Speaker 7

Excellent. Thanks so much, Dick.

Speaker 2

Thank you, Brad.

Operator

We have reached the end of the question and answer session. I'd now like to turn the call back over to management for closing comments.

Speaker 2

Thank you everyone for joining us on today's call and for your interest in Allian. We will be participating in the Craig Hallum Investor Conference on May 29 in Minneapolis. Otherwise, as always, please feel free to reach out to us at any time, and we look forward to talking with all of you again after our Q2 2024 results. Thank you for your participation and have a great day.

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Earnings Conference Call
Allient Q1 2024
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