Operator:
Good day, and welcome to the Allient Inc. Fourth Quarter Fiscal Year 2025 Financial Results. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Craig Mychajluk, Investor Relations. Please go ahead.

Craig Mychajluk:
Yes, thank you, and good morning, everyone. We certainly appreciate your time today as well as your interest in Allient Inc. On the call today are Richard S. Warzala, our Chairman, President and CEO, and James A. Michaud, our Chief Financial Officer. Rick and Jim will review our fourth quarter and full year 2025 results, provide a strategic and operational update, and share our outlook. We will then open the line for 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 will 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 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 Rick to begin.

Richard S. Warzala:
Thank you, Craig. Welcome, everyone. We entered 2025 with clear priorities: expanding structural margins, strengthening the balance sheet, and positioning the portfolio around durable secular growth drivers. As we close the year, I am pleased to say we made measurable progress on all three. We delivered a strong fourth quarter and, importantly, exited 2025 with improving momentum across the business. The fourth quarter reflected several highlights, but it can be summarized by a few themes: improving industrial demand, disciplined execution across the organization, and structural margin expansion driven by our Simplify to Accelerate Now program. This performance was not only a function of higher volumes; it was operating leverage. It was improved mix. And it was sustained cost discipline translating directly into stronger profitability. We saw improving conditions at our largest vertical, industrial. A significant automation destocking we have discussed throughout the year appears largely behind us, and ordering patterns are returning to more normalized levels. At the same time, demand for our power quality solutions supporting data center infrastructure remains strong. Vehicle performance was stronger than expected in the quarter, primarily tied to commercial automotive production timing. While we do not view that as a structural shift, it contributed to the top line in the period. Medical remained steady and consistent, and aerospace and defense reflected normal program timing dynamics. So what we experienced in Q4 was broad participation across the portfolio. That balance across verticals matters. It reinforces diversification of the model and supports the durability of our results. Equally important, the margin expansion we delivered was not simply volume-driven. It reflected better mix when compared with last year's results, improved cost structure, and continued execution under our Simplify to Accelerate Now initiative. The operational work we have been doing over the past few years is now clearly embedded in the model. Turning to Slide 4, and looking at the full year, 2025 was about strengthening the foundation of the company. We set out a clear objective under our Simplify to Accelerate Now program: reduce complexity, improve throughput, and strengthen margins in a way that is sustainable. We targeted a set of structural savings in the range of $6 million to $7 million for 2025, and while not yet complete, we delivered meaningful progress on that target. These savings are being realized through footprint optimization, where we are consolidating overlapping operations and focusing our resources where we have scale and competitive advantage; accelerated product development, where we streamlined our process and reduced time to market for our offerings; and lean manufacturing disciplines, where we improved standard work and reduced non-value-added time on our shop floors, consistent with best practices that help cut cost while improving quality and reliability. This is a journey and it never ends. One example that speaks to all three is the transition of our Dothan facility. We announced this last year as part of our realignment strategy, with the plan to focus Dothan on advanced fabrication capabilities, including machining. As a result, we transferred assembly work to facilities where we have complementary capabilities. That effort, while still a work in progress, is expected to drive down costs and reduce complexity across our North American footprint. Overall, we delivered record gross margins for the year. We expanded operating income at a rate well ahead of revenue growth. We generated record operating cash flow. And we reduced net debt significantly, bringing leverage down to levels that give us real financial flexibility. The balance sheet today looks very different than it did a year ago. And that matters because it allows us to invest in organic growth, support new program launches, and pursue disciplined capital allocation opportunities from a position of strength. With that, let me turn it over to Jim for a more in-depth review of the results.

James A. Michaud:
Thank you, Rick, and good morning, everyone. Turning to Slide 5, fourth quarter revenue increased 17% year over year to $143.4 million, including 15% organic growth on a constant currency basis. The growth was driven primarily by strengthening industrial demand, particularly automation and power quality applications, as well as increased commercial automotive shipments within the vehicle market. From a geographic perspective, 50% of revenue was generated in the U.S., with the balance coming primarily from Europe, Canada, and Asia Pacific, consistent with our diversified footprint. Let me walk you through performance by major vertical because that is where the real story sits. Industrial revenue increased 24% in the quarter. The primary driver was strengthening automation demand as ordering patterns from our largest automation customer returned to more normalized levels following the extended destocking cycle. In addition, demand for power quality solutions supporting data center infrastructure remained very strong. Those applications continue to benefit from electrification and digital infrastructure investment. Vehicle revenue increased 35%. This was primarily due to increased commercial automotive shipments tied to a transitioning model program. As Rick mentioned, we view this as production schedule timing rather than a new long-term run rate. Construction markets also improved, and power sports conditions appear to have stabilized relative to earlier softness. Medical revenue increased 9%, supported by steady demand for surgical instruments and continued traction in precise motion applications. Aerospace and defense declined 5%, reflecting the lumpy nature of defense and space program shipments along with the previously announced M10 Booker Tank program cancellation. Importantly, underlying defense program activity remains solid. Distribution channel sales increased 11%, although that remains a smaller component of total revenue. Turning to Slide 6, here we show the composition of our revenue over the trailing twelve months, along with the year-over-year change in each market and the key drivers of that change. This slide really highlights something important about how the business has evolved, and what you are seeing in the mix is intentional. Industrial remains our largest vertical, and it is increasingly anchored by higher-value applications: power quality for data center infrastructure, motion solutions tied to automation, and applications aligned with electrification. That is where we have been directing engineering focus and capital. Aerospace and defense continues to represent a meaningful and growing contributor. While quarterly shipments can be lumpy, the underlying program activity and pipeline remains solid, and that vertical provides longer-cycle visibility. Medical remains steady and consistent. Surgical applications continue to be reliable contributors, and our precision motion capabilities position us well in that space. Vehicle, while still important, is a smaller percentage of the mix than it was previously. That is partly market-driven, but it is also strategic. We have intentionally shifted away from lower-margin programs and toward higher-value applications across the portfolio. So when you step back, the mix today is more margin-accretive and better aligned with durable secular growth drivers than it was just a couple of years ago. That evolution matters because it supports the margin expansion and earnings durability we have delivered. On Slide 7, gross margin expanded 90 basis points year over year to 32.4%. The improvement was driven by higher volumes, favorable mix, and operational efficiencies from our Simplify initiative. Sequentially, gross margin moderated largely due to a higher proportion of vehicle revenue, which carries lower relative margins. For the full year, gross margin expanded 150 basis points to a record 32.8%. Turning to Slide 8 and the drivers behind the margin and operating income expansion, what stands out in 2025 is not just the headline results, but how we have achieved them. As Rick outlined, the Simplify to Accelerate Now program was designed to structurally reduce complexity, improve throughput, and strengthen margins. The operating performance you see here is the financial expression of that work. The structural savings we delivered in 2024 and now 2025 are embedded in the business, and they are showing up directly in leverage and operating income expansion. Realignment costs related to these actions during the year are primarily associated with the Dothan transition. The transition to date has been successful not just from a cost perspective, but operationally. We are realizing enhanced manufacturing focus and early elements of the anticipated savings. When you layer these structural improvements with improved volume and mix, the impact on leverage becomes clear. At the operating level, we drove meaningful improvement in expense discipline. We captured upside from higher volumes while at the same time controlling SG&A, allowing operating income to grow significantly faster than revenue. In the fourth quarter, operating income increased 76% to $11.4 million, or 7.9% of revenue. For the full year, operating income increased 46% to $44 million, or 7.9% of revenue. Turning to Slide 9, you can clearly see how the structural margin expansion and disciplined execution translated into meaningful bottom-line growth. Net income for the quarter more than doubled to $6.4 million, or $0.38 per diluted share. Adjusted net income was $9.3 million, or $0.55 per share. Adjusted EBITDA was $19 million, or 13.3% of revenue, up 170 basis points. For the full year, net income was $22 million, or $1.32 per diluted share. Adjusted EBITDA was $76.9 million, or 13.9% of revenue, representing 210 basis points of expansion year over year. Our full-year effective tax rate was 23.3%. For 2026, we expect our tax rate to be between 21% and 23%. Turning to Slide 10, this slide reflects disciplined execution against the three financial priorities we outlined at the beginning of the year. Those priorities were improving working capital and inventory efficiency, taking out structural costs, and reducing debt and strengthening the balance sheet. Starting with cash generation, we delivered record operating cash flow of $56.7 million for the year, up 35% from the prior year. That level of cash conversion reflects both improved profitability and better working capital management. Inventory discipline was a major focus in 2025. Despite navigating automation normalization and rare earth considerations during the year, we improved inventory turns to 3.2 times compared to 2.7 at the end of 2024. That is a meaningful step forward. We tightened planning processes, aligned production more closely with demand signals, and reduced excess inventory that had built up during the prior cycle. Importantly, we did that while maintaining strong customer service levels. On receivables, days sales outstanding improved to 57 days for the year versus 60 last year. That reflects better collections, stronger billing discipline, and improved customer mix. When you combine inventory turns improvement with DSO reduction, you see a structurally better working capital profile. Capital expenditures for 2025 were $7 million, with disciplined, focused investments tied to customer programs and productivity initiatives. For 2026, we expect capital expenditures in the range of $10 million to $12 million, primarily supporting customer programs and growth initiatives. So Slide 10 is really about execution. We said we would improve working capital. We did. We said we would drive structural cost improvements. We did. And we said we would reduce debt. That shows up clearly on the next slide as the balance sheet story is directly connected to the execution we just discussed. Total debt declined to $180.4 million. Net debt declined to $139.7 million, a $48.4 million reduction year over year. Our leverage ratio improved significantly to 1.82 times from 3.01 at the end of 2024. Our bank-defined leverage ratio ended the year at 2.34, comfortably within covenant levels and providing meaningful headroom. The combination of stronger earnings, improved cash conversion, and disciplined CapEx allowed us to materially deleverage in a single year. That is important for two reasons. First, it lowers financial risk and reduces interest burden over time. Second, it creates flexibility to invest in organic growth, support new program launches, and evaluate disciplined capital deployment opportunities from a position of strength. So when you look at Slides 10 and 11 together, they tell a clear story. Operational improvements translated into cash. Cash translated into deleveraging, and deleveraging translated into flexibility. That is the financial flywheel we have been working toward. And with that, if you advance to Slide 12, I will now turn the call back over to Rick.

Richard S. Warzala:
Thank you, Jim. As we move through the fourth quarter, order trends improved. Automation demand is stabilizing, power quality tied to data center infrastructure remains strong, and our aerospace and defense pipeline continues to provide long-term, long-cycle visibility. Orders were up sequentially and year over year; we exited with a book-to-bill ratio slightly above one. That is important as it reflects positive momentum as we enter 2026. Backlog ended the year at approximately $233 million, with the majority expected to convert within three to nine months, consistent with our historical patterns. The visibility we have today supports a constructive start to the year. As we look into 2026, we believe we are positioned to build on that momentum. At the same time, we remain realistic. The macro environment is still uneven across certain end markets. Customer capital spending can move in phases, and policy and tariff considerations remain part of the broader landscape. We continue to monitor developments closely, and we will adjust as needed. With respect to the recent Supreme Court ruling and broader trade policy discussions, we are continuing to evaluate any potential implications. As we have discussed previously, we have taken proactive steps over the past several years to diversify our supply base, localize certain sourcing where appropriate, and manage tariff exposure through pricing and operational adjustments. We remain disciplined in how we evaluate these developments, and we will adjust as needed. What gives us confidence is what we control. We control our cost structure, and it is structurally better than it was a few years ago. We control working capital discipline, and we demonstrated that in 2025. We control capital allocation, and we strengthened the balance sheet meaningfully over the past year. And we continue to align the portfolio around higher-value motion controls and power solutions serving durable secular drivers of electrification, automation, energy efficiency, increased defense spending, and digital infrastructure. These drivers are not short-cycle themes. They represent long-term shifts in how energy is generated and used, how systems are automated, and how infrastructure is built. Allient technologies are directly aligned with those transitions. We exit 2025 with improved margins, stronger cash flow, and a materially stronger balance sheet. That combination provides flexibility and resilience, and it positions us to execute through varying market conditions. We believe we are entering 2026 from a position of strength. We have an excellent opportunity to leverage the foundation we have been building through our Simplify to Accelerate Now initiatives, simplify our organization, drive out cost, and accelerate growth rates well into the future. With that, operator, please open the line for questions.

Operator:
We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Our first question comes from Tomohiko Sano with JPMorgan. Please go ahead.

Tomohiko Sano:
Good morning. Thank you for taking my questions. So while the cyclical macro recovery, such as improving ISM, is expected, Allient has clearly been driving structural growth and margin improvement through initiatives like Simplify to Accelerate Now. Looking ahead to 2026, which do you see as the bigger contributor to growth and margin expansion, external tailwinds or your own self-help measures? Any more color on 2026, please? Thank you.

Richard S. Warzala:
Okay. If I understand your first question, you are looking for what are the seculars that we expect to be generating the largest growth opportunities for us in 2026. Is that correct?

Tomohiko Sano:
Mhmm. I want to get a better sense about cyclical characteristics of the recovery you have seen versus the structural themes you see in 2026.

Richard S. Warzala:
I am sorry. I do not know whether it is our line or your line, but you are breaking up on us, and I am having a hard time picking up some of the comments or questions.

Tomohiko Sano:
I am sorry. Could you talk about 2026 growth of sales driven by cyclical recovery versus structural items? For the revenue side, I wanted to get some color on the margin side as well. Thank you.

Richard S. Warzala:
Okay, I think I have it here now. First off, as we talked about here, as we have been repositioning our business and looking at where we see some of the longer-term drivers, we mentioned data center infrastructure. We do see that continuing. We see, I believe, one of the issues that has been addressed quite a bit over the last few days here has been about the energy side of it and how they are going to generate power, and it seems like some of the companies are stepping up to do that on their own, which I think was a major concern. That does not affect us. We obviously need the power, and as the data center expansion continues, we play a significant role in making sure that power is being delivered efficiently and effectively, and eliminating distortion within the grid and so forth. So I think we do see that opportunity continuing now into 2026 and into the future. Again, it is based upon infrastructure; it is based upon capital projects, and of course those are subject to the developments as the prime contractors and developers determine the right timing for those. As far as aerospace and defense, we have heard, let us call it, defense more than aerospace. That is impacted by many factors, and now, given the war that is going on in Iran right now, I think it is going to take a little bit of time to settle down for us to figure out how that will have an impact on our business, whether it is immediate or long term. That is too soon to call. As far as the other programs go, which we have been very actively involved in, we see some of the key drivers in terms of defense applications, whether it is drones, whether it is missile defense, and so forth. We have been a player in those markets for some time now, and we do see that continuing. One thing that is occurring there is, of course, the requirement for defense products and suppliers to be based in North America or the U.S., and that definitely plays to an advantage for us as we do have a significant manufacturing base and design engineering team in North America. The other areas that we see opportunities, of course, is we do not see medical slowing down. The advent of AI in medical and the use of sophisticated diagnostic tools, and again, some of the key areas that we have been involved in for many years, we continue to participate, and we are excited about that. Automation will come, and automation comes in the form of our normal industrial automation and even in the robotic side of it, sometimes referred to as humanizing and so forth. Again, it is another area we participated in, and we continue to participate in. We see growth and stabilization there. European markets, especially Germany, seem to be remaining a little bit soft, and they are not predicting any growth for 2026. We will see how that shakes out as the year goes along, but the forecast we are getting right now is that the industrial markets in Germany, in fact, may decline this year, which we saw some signs that it was going to improve; the latest information we are getting is that may not be the case. And I think our diversification in many different markets plays well for us, and there is a good balance. We do believe that the industrial sector will continue to grow because we do have automation in that sector, as we call it, and also the data center infrastructure is in there as well. So we do see that continue to grow, and we see defense growing, whether it is timing—as Jim had mentioned, the government canceled the M10 Booker program—and that is a realignment of how they see the priorities on the battlefield going forward and the challenges that are being faced. As far as margins, margins are a big factor based upon mix for us. I can tell you that our focus and emphasis on new applications has been in the markets where the margins are above our average. That has been our focus, will continue to be our focus, and capital spending will align with that. So I think that we are in pretty good shape. Our book-to-bill ratio was improving, and that is one of the things that we pay close attention to to determine whether we have converted some of the opportunities we are working on, and it is showing up in bookings that will later show up in shipments. That is a long-winded answer; I hope I have covered them all. If not, you can ask me to add to that if necessary.

Tomohiko Sano:
Thank you. Very helpful, Rick. Thank you. And just a follow-up on capital allocation. Congrats on leverage improved and strong cash flow generation. How would you prioritize capital allocation for 2026 among organic growth investment, M&A, and shareholder returns, please?

Richard S. Warzala:
Sure. I would say to you that, again, going into 2026, we feel that our pipeline of opportunities is quite strong, and our investments that we make will be to support what we have control over and in hand right now, which is some significant opportunities, and we will need to invest to realize some of those opportunities. So that is going to be the majority of the investment that we see going forward. I would also say to you that we are paying very close attention in terms of the pipeline of acquisitions. We have had certain areas that we will not discuss on the call here that we are paying close attention to, and if the opportunity does arise, we think we are well positioned to take advantage of that and to move forward with it. I think the Simplify to Accelerate Now initiative—I just want to make it clear—we are not done. We had several initiatives that were well underway and executed quite successfully, but certain things were not completed in 2025 that are carrying into 2026, and we will have the discipline to get them done and drive cost out. We also see other opportunities when we look at our infrastructure and our footprint to continue to drive cost out, to become more efficient in the way we do things. So that is not ending; that will continue. It is not like we did a mad push for a couple years and it is all completed. It is not. There is more opportunity ahead of us. And 2026 will not be one where we just sit back and say, okay, let us take a deep breath and look at what we did and move on from here. We are going to be aggressively going after additional opportunities to improve our cost base, and they are there.

Tomohiko Sano:
That is very helpful as well. Thank you very much. That is all from me.

Richard S. Warzala:
Thank you, Tomo.

Operator:
The next question comes from Gregory William Palm with Craig-Hallum. Please go ahead.

Gregory William Palm:
Thanks. Good morning, everybody. Congrats on a good way to finish 2025. I do not remember the last time you actually grew revenues sequentially from Q3 to Q4. Maybe it has happened once or twice, but I understand a little bit was due to some outsized growth in commercial vehicle, which you talked about. But broadly speaking, what else drove the better-than-expected seasonality that you would normally see? And just to be clear, what kind of trends have you seen so far in Q1?

Richard S. Warzala:
Yeah, great question, Greg, because it was abnormal. You are absolutely correct. You have followed us a long time, and as we say, going into Q4, there are always some unknowns. We have seen years where demand was pent up—supply chain crisis, things like that—which caused irregularities in the normal cyclical patterns that we would see during the year. We did in fact have a few pull-ins that we had not anticipated, so it did elevate Q4 sales to a certain extent, one that we mentioned in the commercial vehicle side of it. We do not see that having—that was a one-time surge based upon some demand that had been sitting out there, and we see returning to normal. A couple other areas were a few surprises, and I will not mention in detail what they were. They were pulling in product, and then as we turned the year, we saw that reflected in a little bit lower demand in the first quarter. So there were some offsets there that we are going to have to address and see—it is still early, of course—how that lands. But that is a little bit unusual, and thank you for pointing it out, because there were, I will say, three different drivers of that. One was a one-time, which will reduce to normal, and the other two, we did see a little bit of reduction after they were pulled ahead as we started the year. But nothing that we see that will change normal run rates on an annual basis. It was just unusual.

Gregory William Palm:
Leaving this aside, what type of demand are you seeing right now across your markets? Any change? I know things strengthened as we went through 2025, but any strength? I am just curious as you look at what has occurred over the last week, what kind of risks or even opportunities could that bring about this year?

Richard S. Warzala:
Our order input seems to be coming in quite well, and we saw improvement through the year, and as you mentioned, we watch that very closely because that is obviously an indicator of what we are going to see in terms of converting it into shipments. That is encouraging. We see that continuing to flow in nicely. As far as what has happened in the last week, of course, there is no surprise in saying that on the defense side of the business, we certainly do supply products that are being utilized right now. How that converts into orders—you know, we were also surprised when they were heavily consumed, and we did not see production orders happening as fast as we would have expected, which indicated there was a big stockpile. We think the stockpile had been chewed up. We saw some return to starting to ship again for some defense-related products. So if you just ask for what our gut feel is, there will need to be an increase in certainly some of the products that we deliver to do some replenishment. What the total amount is—the impact—is hard for me to say. But I am sure we will start seeing some of that fairly soon.

Gregory William Palm:
I know you mentioned drones, and that is an opportunity that you have called out a little more recently. Are you able to share with us any traction that you are seeing, just in terms of what the opportunity set might be emerging there?

Richard S. Warzala:
Our company is well regarded and well respected for high-performance solutions, custom engineering, and so forth. I would say our activity in that market had been primarily in that space, and it accelerated. It certainly accelerated as far as the pipeline of opportunities, the prototyping that we are doing, the quoting that we are doing. It also seems to be expanding into the class one or group one, whichever way you want to describe it, devices, and has caught our attention. One of the areas of opportunity for us that we see is that we know how to produce product and buy in. We have one of the benefits that we enjoy based upon having a certain percentage of our business—as we have stated in the past, we try to keep it in the single digits—automotive, is we know how to produce higher-volume solutions cost-competitively with the use of automation. So I see it as very encouraging, and I see it as a real opportunity for us to take our know-how that we have gained and developed over the years and to redeploy it into some of these other areas. While the pricing and the margins may not necessarily be the same as the higher-performance custom engineered products, certainly the volumes do give you the opportunity from a volume standpoint and from an operating margin standpoint to be incremental to our business. So that is an area that we see. The shift to North America has created an increase in inquiries. As I said, we have been in the business in different applications. We see our technology base in electronics and controls and motors and lightweighting and composites definitely gives us an opportunity to expand that. So we are pretty excited about it.

Gregory William Palm:
And I guess just last one. I recall last year you announced the facility expansion where you are doing a bulk of the data center work, and I am curious what the status is of that. Do you feel like you have adequate capacity once it is done to capitalize? What are you seeing in terms of the opportunity set there?

Richard S. Warzala:
Yes. To answer your question, it is coming along extremely well. It will be late second quarter, early third quarter when it is fully operational. Timing could not have been better. That is all I can say. Timing could not have been better. The opportunities we are seeing, and the fact that we had addressed it in advance to expand our capabilities and our footprint, were definitely fortuitous as the demands of the market continue to go up. I think they will start to unfold later in the year. You will start to see some significant increases in volume in that area. And our timing was good.

Gregory William Palm:
Okay. Perfect. Appreciate all the color. Thanks.

Richard S. Warzala:
Thank you, Greg.

Operator:
The next question comes from Matt McAllister with Lake Street Capital Markets. Please go ahead.

Matt McAllister:
Hey, guys. Thanks for taking my questions. I want to go back to the data center opportunity. From your comments here in the Q&A and then prepared remarks, it sounds like it would be safe to say you expect the data center opportunity to accelerate in 2026 over 2025 in terms of growth rate. Is that correct?

James A. Michaud:
Yes, we do.

Richard S. Warzala:
And what I would say to you is that definitely the opportunities are there. As Greg asked in the previous question about the expansion to our facility, our main facility was underway, and last year was approved and is reaching the point of completion. That is critical for us to be able to handle the increased demand that we expect to see. I will say to you that there was an acceleration into last year of some of the products that we produce and accelerated deliveries, and you are going to have to pay close attention to the order input rates and what we see there, because it is not a smooth, incrementally improving business. You can see fairly substantial jumps in opportunities and timing of orders and when the demand and shipments are going to occur. It is not just going to be a straight line. We will see that perhaps in the third and fourth quarters of this year where you will see some ramping.

Matt McAllister:
Is this growth primarily driven by new contract wins with new customers, or is it a mix between expanding wallet share with existing customers?

Richard S. Warzala:
The market itself is expanding, and we have talked in the past about some of our capabilities that put us in a very nice competitive position in the market, and I think that is what is driving it. So it is market expansion, and the technology we have to support and service that is also being recognized and accelerating some of those opportunities for us as well. I do not want to—you are fairly new, and I appreciate you joining us as an analyst. In the past, we talked about an acquisition that we did in Wisconsin that gave us capability and a manufacturing capability and footprint in Mexico. We have been leveraging that to a great extent and helping us accelerate our ability to meet those demands. It has proven to be very helpful for us as we have been addressing some of those. So it has been our capability, our production capability, the expansion that we are doing to continue to improve upon that, as well as our technology, which gives us a nice competitive edge in the marketplace. I am not saying we are alone, but we clearly have product that is recognized as high-performing and very cost effective.

Matt McAllister:
Okay. And then last one for me. With the M10 Booker program coming to an end, is there any other program you can share with us to give us an idea where you expect to head next, or is it something you cannot share?

Richard S. Warzala:
No. I would rather not share. Sure, we could share what defense programs, but as we found out with M10 Booker, that was not a one-year program. That was a six- or seven-year program. If you look at it, there is logic behind what is happening. As the battlefield is transitioning, the utilization of drones, the utilization of missiles, less boots on the ground—Booker was a larger vehicle. It is not going to go away in itself for the need for those larger vehicles and boots on the ground in some applications or some arenas. But we will see a shift towards smaller, more agile, more autonomous vehicles, and we are positioned as well on those. One of the things for us to get the message out—as we have acquired companies in the past, and we looked at more of a fully integrated solution—we provide significant advantages in that we can handle the electrification; we can handle actuation. So we have got motors, we have got controls, we have got drives, we have got I/O, and we have lightweighting composites. Those composites are used quite extensively, and composites are not just for lightweighting. There are other reasons you use lightweighting: structural integrity or improved strength, EMI protection, as well as lightweighting to make them more efficient as you move towards whether it is electric or hybrid vehicles to improve battery life and so forth. I would say that we are in a unique position to be able to offer all of that to some of the prime contractors in addition to one of the things where the Department of War is pushing really hard now—accelerated development. These long design-in cycle times like a six- or seven-year Booker program and then canceling at the end, the speed of play is going to be absolutely critical. If you have products that are already being utilized in other markets that you can leverage, that gives you a competitive advantage. In many cases they are vehicles, and since we have been very strong in the vehicle market with some of our products, we are able to leverage those. So COTS—commercial off-the-shelf—products are critical. We can leverage those, and we can apply engineering and modifications to fit them for purpose, whether it is more ruggedized, more environmental, lighter, higher performance, and so forth. We are very excited about it, and we have made an investment. You have not seen the returns on those investments yet, but we are highly confident that we are positioning ourselves well for the future.

Matt McAllister:
Awesome. Thanks.

Operator:
Again, if you have any questions, please press star then 1. Our next question comes from Ted Jackson with Northland Securities. Please go ahead.

Ted Jackson:
Thanks very much. You guys sound so optimistic; it is infectious. A couple of questions. Dick, on the domestication of work and its drive for you, you have been dancing around that, and this whole thing with DAA—there are two buckets to bringing stuff back into the country. One is the actual manufacturing, and the other is the supply chain. For Allient, the manufacturing bucket is pretty straightforward. Is there work that you need to do on the supply chain to bring anything into compliance within DAA by the time it becomes fully into effect in January?

Richard S. Warzala:
It is a very good question. The answer is there is always going to be work to be done there. There are no quick answers to some of the rare earth minerals and materials that are being utilized in some of the higher-performing products here. You are 100% correct. We have the capacity and the capability to produce in North America. We have got ample capacity, and some of the work that we have been doing over the past few years that we have talked about—facility rationalization—and it is there, and it is to our advantage. We have about 1,200,000 square feet of manufacturing space within the company, and in North America a substantial portion of that. We freed up a significant amount of space that we can redeploy if there is a quick demand and a ramp-up for certain initiatives that may be undertaken. Supply chain is another challenge, and we have been hot and heavy on it and working on it. We have a team that is on it, but I will not tell you that it is completely solved. We are subject to other governments and other policies they may impose. We have been working hard to minimize the impact, to solidify supply chain sources, but some of that ramp-up has not been as quick as we would have liked to have seen it or the government would have liked to have seen it. So there is clearly going to have to be—government is going to have to look at that and really decide—there is a desire and there is a reality, and whether the two meet. I think we will be working through some of that this year. It is an excellent question. It is something that we are on top of. We are doing everything we can possibly do to resource. We already started before some of this had happened. Regionalization of supply chain had nothing to do with tariffs and duties and restrictions. It was more of a logical business decision. So we were pretty well prepared. On the other hand, we cannot control when some of the other factors that come into play could impact us. Jim, do you have anything you want to add to that?

James A. Michaud:
What I would tell you, Ted, and this is just really dovetailing what Rick just mentioned, the Feds are investing billions of dollars in a number of companies here in the U.S., and obviously we have been in contact with all of them. But as Rick just mentioned, it is going to take time for all of the supply chain in and around the rare earths and the processing of materials and so forth to evolve. I do not think it is going to all happen when we hit January 1. But I can tell you we have teams here that are working diligently with a variety of different suppliers, and we are setting the foundation for us to partner with these companies that the government is investing in.

Ted Jackson:
I did want to get into magnets, but let us keep on, and so I am going to jump over here. On the main issue for you on the supply chain side is rare earth around magnets. Everyone has that problem. I have to believe that your government is well aware of that. Do you have any dialogue with the government? Do they understand that at some level you have to be practical, or are you just saying that yourself?

Richard S. Warzala:
As Jim mentioned, we have been in close contact with the government and the key in the government, working hand-in-hand to—and that is why I said to you, at some point in time, there is a desire and there is a push, but there is also reality of the timing when all of this could occur. I can just tell you this: we are hand-in-hand. We are in there. We are working with the identified sources that are being supported and invested in. And we are not letting up on it. We are not stopping there. It is a continuous effort to make sure that we are working all the angles as well as staying very close to the key government officials and activities that are being undertaken right now.

Ted Jackson:
Beyond magnets, is there any other critical components or parts that you have had to go out and resource or need to resource to move into compliance?

Richard S. Warzala:
Yes, to answer your question, there are other components, but they are not as complicated or as difficult to resource. It may be a cost factor more than anything. Something else that does impact that as well. Without getting into all the details of the different components that we are seeing, you are seeing certain supply shortages in pockets of areas, even electronic components. You see some things popping up based upon demand in other areas that are occurring that are stressing the supply chain. But to answer your question, yes, there are other components that are key. If you are talking about motors, for a motor to function—whether it is laminated steel, whether it is bearings—there are alternatives. The alternatives may be more costly, but there are alternatives. Magnets are a little bit unique in themselves, so highlighting the magnet side of it is important. The others are there, but they get impacted based on other factors.

Ted Jackson:
So it sounds like it will just be a topic for discussion every quarter as you progress through it, and you are not the only one. There are so many different companies. I am shifting over to the commercial vehicle market and the fourth quarter. You had like a pig in the python with regards to the fourth quarter. I would ask, one, if you could quantify it a bit to help us realign how our first quarter will look, because you typically have some seasonality from fourth to first, just to make sure that it is helpful for analysts in terms of getting their 2026 numbers done. And then on a more macro level, the commercial vehicle market seems very much on a rebound. You have seen a pickup in freight rates. If you listen to PACCAR and Volvo and all the Class 8 guys, starting in November they saw order activity bookings pick up substantially. It continued through January. I have talked to some of their suppliers. It continued through February. You are going to see a lot of that translate into an improved demand environment probably when we get to the back half of 2026, assuming this continues, and it sets up well for 2027. Can you talk about what things you are supplying into that market and how you see that market playing out as we roll through the year and into 2027?

Richard S. Warzala:
Is your question about what we supply into the commercial automotive, or what do we supply into the truck and construction, or all of them?

Ted Jackson:
All of them. I was trying not to get too granular, but I am always interested in more than this. I am American.

Richard S. Warzala:
What I will say is this. Yes, we did see, and we can echo, that we saw some improvements. When we talk about vehicle—and thanks for bringing it up because many times people have their own definition—our definition of vehicle is commercial automotive, bus, construction, marine, agricultural, truck, and rail. That is what we consider vehicles. We have to continually remind people when we talk about vehicle, and also we do have powersports in there. When we talk about vehicle, do not get too wrapped up in thinking of us as an automotive company. We have mentioned we have a target to keep that in single digits. The major reason for that is it is a long lead-time design-in cycle time, it is very cost competitive, and it is heavily capital intensive. We have chosen to invest our money in other areas. But we did see increases across the board. The impact of the one-time effect of the fourth quarter that you could see going forward, I would tell you about $2.5 million in fourth quarter. As far as the applications go, when you get into agricultural, construction, and so forth, we are in several applications, different types of actuators and so forth. One of the key elements that we are in across the board in vehicles is steering applications. It is agnostic to whether it is gas or electrification, so we can be utilized in each. We are also involved in electrohydraulics for some of the larger vehicles, again primarily in the steering area. We have great expertise in steering, and that is where we focus our efforts not just in vehicle but also in some of the industrial applications as well. Does that help you?

Ted Jackson:
That does. I know we are at the timeline, so I will stop.

Richard S. Warzala:
Okay. Thank you, Ted. Thank you, everyone. I think if there are no more questions, which I believe there are not, operator, can you confirm that?

Operator:
Yes. This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Richard S. Warzala:
Thank you, everyone, for joining us on today's call and for your interest in Allient. We will be participating in the JPMorgan Industrials Conference in Washington, D.C. on March 17. 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 first quarter 2026 results. Have a great day, and that will conclude the call, operator.

Operator:
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.