Good day, and welcome to the Allient third quarter 2022 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Craig Mychajluk of Investor Relations. Please go ahead. Yep, thank you. First off, I just wanted to apologize to everyone for the delay. We had some technical difficulties. We certainly appreciate your time today as well as your interest in Allient Inc. Joining me on the call are Dick Warzala, our Chairman, President, and CEO, and Mike Leach, our Chief Financial Officer. Dick and Mike are gonna review our third quarter 2022 results and provide an update on the company's strategic progress and outlook. After which, we'll open it up for Q&A. You should have a copy of the financial results that were released yesterday after the market closed. If not, you can find it on our website at allient.com along with the slides that accompany today's discussion. If If you're reviewing those slides, please turn to slide two for the safe harbor statement. As you are aware, we may make forward-looking statements on this call during the formal discussion as well as during the Q&A. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated on today's call. These risks and uncertainties and other factors are discussed in the earnings release as well as with other documents filed by the company with the Securities and Exchange Commission. You can find these documents on our website or at sec.gov. I wanna point out as well that during today's call we'll discuss some non-GAAP measures which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release inside. With that, please turn to slide three. I'll turn it over to Dick to begin. Dick? Thank you, Craig, and welcome everyone. We delivered strong results during the third quarter, which demonstrated the power of our strategy as our global teams executed very well in a challenging macro environment. We continued to leverage our diversified end market mix, benefit from new solution offerings, both organically and inorganically, and further developed our One Allient global platform to drive record sales. Third quarter revenue grew 30% to $134.4 million, with strong organic growth of 15% on a constant currency basis. While we have seen broad-based demand across each of our target markets, two were the primary drivers of our growth. Aerospace and defense revenue grew 159% due to incremental demand from acquisitions, defense program timing, and solid organic growth. Revenue from industrial markets was up 39% in the quarter, benefiting from our acquisitions and strong end market demand with industrial automation, pumps, and oil and gas. We continued to strengthen our margin profile despite ongoing macroeconomic, economic headwinds. We delivered gross margin of 32.2%, which represented a 130 basis point increase from the year ago period. Operating income grew 35% to a record $11.7 million, with a margin of 8.7% and adjusted EBITDA margin expanded 80 basis points to 14.8%. While our recent M&A activity is certainly helping, we also equate this performance to our global teams that continue to manage supply chain issues and inflationary pressures on logistics, energy, material, and labor. We achieved adjusted net income per share of $0.60 per share, which was up 22% from 49 cents per share in the prior year period. We continue to have a solid pipeline of opportunities and are encouraged with bookings and order levels from each of our target end markets. The integration of our recently acquired businesses has progressed well. Each have enhanced our value proposition, and we are working hard to maximize the opportunities and realize the full potential of these margin enhancing businesses. With that, let me turn it over to Mike for a more in-depth review of the financials. Mike? Thank you, Dick. As a reminder, our results include the acquisitions completed during the fourth quarter of 2021 and second quarter of 2022. Starting on slide four, we provide some detail regarding our top line. Third quarter revenue increased 30% to $134.4 million, a record level which reflected strong demand in the A&D industrial markets, as Dick discussed, and incremental sales from acquisitions. The unfavorable impact of exchange rate fluctuations on revenue was $7.2 million in the quarter. Excluding FX, revenue was up 37% and organic revenue growth was 15%. Revenue in the vehicle and medical markets each grew 4%. Vehicle market sales growth reflected higher demand from the commercial automotive and trucks, while medical markets have now largely lapped pandemic related sales and are benefiting from the return of elective surgeries and recent acquisitions. The distribution market, while a small component of our total revenue, increased 25% during the quarter. Sales to U.S. customers were 59% of our total, compared with 56% in last year's period, and the balance of sales were to customers primarily in Europe, Canada, and Asia Pacific. The shift in mix continues to reflect the impact of our recent acquisitions that largely sell to the U.S. market. Slide five shows the change in our revenue mix by market on a trailing twelve-month basis. Sales to industrial markets were up 39% and driven by the verticals noted on the slide. Industrial has seen nice growth over the last year and now makes up 38% of our total sales. Our second largest market is vehicle, which contracted 4% as strong truck and agricultural vehicle demand was offset by broad supply chain challenges in other market verticals. Medical market revenue was relatively flat on a TTM basis, reflecting similar impacts as the third quarter. As noted, while acquisitions contribute to the aerospace and defense growth, we are driving solid organic business growth and benefiting from some defense market program timing. As depicted on slide six, our gross profit was 32.2%, up 130 basis points from the year ago period, and down just 20 basis points from our record high achieved last quarter. Higher volume, pricing, and margin accretive acquisitions more than offset continued global supply chain disruptions and rising material and labor costs. Consistent with our stated objectives, you can see the progress we are making in the annualized chart on the right. Moving on to slide seven. Third quarter operating income reached a record $11.7 million or 8.7% of sales, compared with $8.7 million or 8.4% in the year-ago period. Operating costs and expenses as a percent of revenues were 23.5%, up 90 basis points, but largely attributable to our M&A activity with step up amortization expenses, as well as added engineering and development costs that we have not yet fully leveraged. Helping offset the leverage gain on the SG&A line, which decreased 60 basis points to 13.9% of revenue, our lowest level in more than three years. As we have stated, we anticipate growing our margins over the long term with the disciplined execution of our lean toolkit, AST, combined with leveraging higher volume. On slide eight, we present our bottom line and adjusted EBITDA results. Our GAAP net income and diluted EPS have been adjusted for certain items, including amortization of intangible assets related to acquisitions. We believe that adjusted EPS 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. Third quarter adjusted net income was $9.7 million or $0.60 per diluted share. That was an increase of 22% over the adjusted $0.49 per share in the prior year period. The effective tax rate was 27.5% compared with 24.6%, as the prior period included a discrete benefit for an investment tax credit. We expect our income tax for the full year 2022 to be approximately 25%-27% based on changes to the geographic mix. Adjusted EBITDA increased 37% to nearly $20 million or 14.8% of revenue, which was up 80 basis points. We use adjusted EBITDA as an internal metric and believe it is useful in determining our progress and operating performance. Slides nine and 10 provide an overview of our balance sheet and cash flow. Total debt was approximately $232 million at quarter end. During the second quarter, we used about $45 million in cash to complete three acquisitions, net of cash acquired, which was largely funded with debt. The debt increase also reflects the new finance lease that was highlighted during the first quarter of 2022 for manufacturing facility expansion to support continued growth. At the end of the third quarter, debt net of cash was about $212 million or 51.3% of net debt to capitalization. Our bank leverage ratio was approximately 3.75 times. Based on our cash flow projections, we expect to delever over time in a manner that aligns with and is consistent with our historical performance. So far this year, we've utilized $5.8 million of net cash from operations and invested $11 million in capital investments, which largely focused on growth opportunities and new customer projects. As we round out the end of the year and based on the pace of some projects, we've refined and slightly lowered our 2022 CapEx expectations to range between $14 million-$18 million. Inventory turns were 3.1 times in the third quarter, up slightly from our 2021 performance as our teams continue to manage our inventory to meet increasing customer demand, combat sourcing, and lead time challenges. Our DSOs saw a jump to 55 days in the quarter, largely due to timing and mix of customers. With that, I'll now turn the call back over to Dick. Thank you, Mike. Our backlog and bookings remain solid as highlighted on slide 11. Orders were more than $126 million in the quarter, representing a book-to-bill ratio of just under 1x. This level also reflects a noted FX headwind of $7.3 million. Our backlog was up 67% over the prior year period, although we saw a 4% decline from the sequential second quarter, which reflected the loosening of some supply chain constraints. The time to convert the majority of backlog to sales is within the next nine months. While there are still some components with long lead times, generally speaking, we are starting to see some stabilization within our supply chain. Turning to slide 11 for our outlook. We are a stronger company today, and expect to see further benefits as we leverage the full potential of our recent acquisitions. As a reminder, our M&A strategy has delivered approximately $100 million annually of new business to our platform that will be fully realized in 2023, with an incrementally higher margin profile. Equally important, we have created a stronger long-term competitive position across our targeted markets. Specifically, demand is expected to continue at relatively strong current levels across our many industrial end markets. Overall, our vehicle demand has been stable, with the most significant increase of volume occurring in our automotive market. This is an indicator that the supply chain is improving as demand schedules from our customers continue to firm up for 2023. Medical markets have largely lapped the strong pandemic-related levels and should continue to be solid. Aerospace & Defense will be bolstered by our recent acquisitions, and we anticipate further organic growth given our exposure and program participation. As a reminder, in the past, we did experience seasonality and demand, reflecting modest reductions in our fourth quarter shipments. This was primarily due to the typical holiday shutdowns and customer inventory adjustments occurring in December. Now that business conditions seem to be normalizing, we may see some minor seasonality creeping back into the business in Q4. We will continue to innovate and invest in each of our target markets as the various end markets with each offer significant opportunities for long-term growth. While the global outlook may have softened, we continue to remain highly confident in our ability to navigate through these unique challenges. We will stay focused on executing our strategy and serving our customers while continuing to capitalize on opportunities to drive growth and improve our operational execution throughout the company. With that, operator, let's open the line for questions. Thank you. We will now begin the question-and-answer session. To ask a question, you may press star and then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause for a moment to assemble our roster. Our first question today will come from Greg Palm with Craig-Hallum Capital Group. Please go ahead. Hey, good morning, everyone. Thanks for taking the questions. Congrats on the good results, especially in light of some pretty severe FX headwinds. Thank you, Greg. You know, I maybe just start with, you know, kind of a broad, you know, commentary on, you know, the demand landscape. I mean, are you seeing anything out there that gives you caution? I mean, the bookings were still pretty strong. I guess your initial commentary suggests that things are still holding up. Just wanted to maybe dig into that a little bit further. Yeah, I would say to you that they are continuing to be fairly strong. We did see. As we mentioned, there's been, you know, some reduction sequentially quarter-over-quarter. I think all along we've been saying that we would expect that some of that would start to occur as deliveries were getting back to normal, lead times were, you know, becoming more predictable and supply chain was improving. I would suggest to you that all of those are occurring. In light of all of that, we're still seeing, you know, some robust demand going forward here. On the supply chain, specifically, you know, what pain points are still out there? I guess in the past, you've sort of been able to quantify, you know, some of that impact to margins. I mean, has that normalized at this point, or are you still seeing some margin headwinds related to supply chain that could further boost margins from here, assuming they abate? Sure. I would tell you that again, electronic components—they've been the major challenge throughout the company. What's happened with electronic components as you were, you know, the shortage in supply as well as the very long lead times, as well as everyone attempting to get into the pipeline and scooping up parts that were out there caused some very significant PPVs with regard to specific components when you had to go to, you know, secondary markets. We're still seeing some of that, but I would say to you, it's the exception now, where, you know, the floodgates were open and we were battling a significant number, now, and it's not happening as frequently, but it still happens. I do think that, as I mentioned, we're seeing the supply chains improving. We're starting to see reliability of delivery, and we're seeing more signs that, you know, our customers are experiencing the same thing because if they're not getting their components, they're not placing demand for us in the overall assembly. We're starting to see that stabilize. I would say overall, it's definitely improving. It's not just electronic components. You know, at times we're running into specific issues, and I would say to you that, you know, COVID hasn't gone away. We have experienced in a couple instances where there's been an uptick at our suppliers where demand has slowed down. We've also seen where, you know, value decisions have been made by suppliers, meaning that, you know, they're going end-of-life on certain types of commodities or products, and they're giving you notice, you know, long notices, but you're scrambling to find an alternative that could be approved by customers. It hasn't totally gone away, but it's definitely improved. Yeah. Understood. On the margins, the operating leverage has become really impressive, and I think the EBITDA margin was definitely the highest quarterly amount since we've been following the company. Just broadly speaking, as you look ahead, how sustainable is that? I know that's been a focus point, you know, over the years, but it seems like the last couple of quarters you've really sort of broken out to the upside, partly just due to some internal initiatives, but the acquisitions probably helped just given their higher margin in nature, right? Yeah. Well, I'll let Mike speak to that. Yeah. Greg, we definitely have seen that movement. We do think it is sustainable. Obviously part of that is the gross margin expansion, but we are leveraging more effectively, and I think we've been broadcasting all along, right? That would be part of the margin expansion that we've been talking about all along. I would tell you that, you know, we still have a ways to go, we think, in the sense that, you know, we do have backlog that's tied up. Some of the acquisitions are not yet fully being leveraged, that we expect to see at some point in time, just given, you know, pushing additional revenue across. I would caution you, as Dick noted, we do expect to see some level of seasonality in the business return. That was very common in the past, right? That'll ultimately affect, you know, on a singular quarter basis or potentially in Q4, you know, our ability to leverage those costs. Generally speaking, yes, we expect to continue to drive leverage in those over time. Yeah. I think to add on to what Mike said here is that, you know, just to emphasize the fact that we're not where we think we can be. We think there's significant room for continued improvement. how much of that is a by-product of just, you know, volume continuing to increase revenue versus, you know, additional internal initiatives that can help drive further margin improvements on their own? Certainly volume is gonna help that, but we are utilizing, as we've said in the past, our AST tool set to drive out cost. You know, we've been focused on rationalization activities with our manufacturing footprint and are starting to see some gains there. We think there's multiple paths there, excuse me, that we'll leverage. Okay, great. I'll leave it there. Best of luck. Thanks. Thank you, Greg. Again, if you would like to ask a question, please press star and then one. Our next question today is from Gerry Sweeney of Roth Capital. Please go ahead. Hey. Good morning, Dick, Mike. Thanks for taking my call. Morning, Gerry. Morning, Gerry. Question around engineering development acquisitions. You're adding a lot of technology around solutions, and I think that's where you wanna drive the company longer term. Wondering if you could give a little bit of details on how these efforts maybe have changed your positioning. The last, you know, I don't know, couple years you made some series of acquisitions that I think really positioned you well, and just curious how that's driving revenue backlog. You know, how the integration of those acquisitions are going and sort of where this can take you know, one yeah, 12, 18, 24 months out. Sure. Yes. I mean, it definitely was a focus and is a focus within the company, where you saw six acquisitions within the last 12 months. As we mentioned, some of those acquisitions were more technology oriented than versus adding a large revenue base. What's really exciting, Gerry, is that, you know, putting together the plans going forward here in the next year and beyond is when we look at, let's just call it a market specific opportunity, and we look at all of the technology that we can bring to bear in terms of products and/or solutions, it just continues to expand where in the past, we would look at it, we'd say, "Okay, we can put a motor in there, maybe a motor and a gearbox, you know, but not. Maybe some electronics. But now the whole solution set has driven much higher, at a much higher level, where, you know, we're talking in terms of value per solution in a particular application. That's the way we're looking at it. The whole combination, it is very exciting. To see how one team strategy is really pulling together across all the TUs and across all technologies and how that commitment that we made and the investment we made in what we call GET, the Global Engineering Team, to pull it all together. First off, to standardize, establish some platforms, some building blocks that we could utilize and leverage. Secondly, to really come up with leading-edge solutions. We've identified areas of opportunity that we think we can bring, you know, a unique solution to the market that the market may not even see yet or understand yet. In addition to that, existing applications where the incremental or increased value of what we could bring to each unit we're selling is significant. I would tell you that it's definitely an exciting, you know, change in the company. If you went back three, four years ago and looked at the programs or projects we were working on, very exciting, but you look at them again today and you say, "Wow," and it's really incredible. I think having just... What we do is our board does travel to our operations, and we rotate that, and we're very interested in letting our board meet management at the different facilities, also to get their input to what they're doing and have a, you know, one-on-one conversation and get to understand where we're headed. One of the things I can tell you that the board had mentioned is that they could see that culture driven throughout the entire company, no matter what it is, whether it's a corporate support function, whether it's a technology unit itself, or whether it's a, you know, a centralized solution center. It's the same and it's consistent. That's what's really exciting. We've moved. Again, doing six acquisitions, the integration piece became very important and had to be handled quite a bit differently. We do one or two a year. You know, it's quite simple. It just happens naturally. Well, in this case, we had to drive the process. So you've seen a, you know, a substantial uptick in the training side of it. You're starting to see changes that are gonna be made to the website to prepare, you know, ourselves and the market for who is Allient today and who will Allient be in the future. I think it's very exciting. You can think about one of the smaller acquisitions where, let's call it a technology play with a lower level of sales and limited resources to go out there and penetrate the market to generate more opportunities in sales. Well, they get on a training session, and there's 150 people sitting on the other end from within Allient. All of a sudden, you've got, you know, tentacles reaching everywhere, and the excitement is quite high. What we have to do is manage that to ensure that we're focused on the right opportunities as a company. Mm-hmm. You know, it's moved from acquisition to high focus on integration and high focus on making sure that we're picking the right opportunities to really invest the money from a corporate standpoint. There's no shortage of those. That's all I can say. Yeah. It's really exciting times. Yeah. Does this change how you go to market in terms of sales, or is this a gradual process, or just curious how that kind of fits into? Yeah, great question. Yeah. It won't change because we're not, you know, getting anywhere. We're not eliminating, we're not against our custom developments, and most of our work is custom. We have standard platforms that we build off of, that we can leverage, but it really is tailored to an end user or an end customer. That's not gonna change. The way we go to market with that will not change. We've been successful at it, we'll continue. What you do see, and I say it's a very good question because as you get into the higher levels of sophistication in terms of system integration, it's a different skill set necessary. Systems engineering becomes a very, you know, more important part of that process. Program management becomes a more important part of that process, project and program. You do see that we're adding resources in certain places and realignment of Technology Units and our operations to better support that. That's actually, you know, what we're working on internally as we move into 2023 and later this year, all part of the integration process. It's a great question. We have the distribution channel that, you know, has opened up and between TCI and Spectrum with Rockwell Automation and, you know, their automation fair will be there. I know that, you know, there's opportunities for more folks there, not just Rockwell, but others that have been brought to, you know, the systems integrators and the automation companies that we're working with. Also, we have to say it's the higher level systems integration, system engineering and program management that will change how we go to market for those opportunities. It's a great question and that's where you're starting to see as we go through this integration process and everybody becomes familiar as we're laying out those plans moving in the future and we're getting refocused on some significant major opportunities that leverages technology from several, many of our Technology Units. I'm not sure how to ask this question, but if we were to sit here and track, you know, this evolution, and I'm not sure if, again, this is the right way to ask it. If I were to ask you, like, how much component sales were of revenue, let's say, two or three years ago versus component sales versus solution sales today, would that be an adequate or appropriate question to ask to see how you're moving along this transition? Knowing that you're not getting rid of some of that component sales, I don't believe at least. No, absolutely correct. Let's say here's the challenge. Yeah. This is what we're seeing internally. What we called a system sale three years ago or four years ago is something we would call a component sale today, having a motor and a gearbox or gearing. Got it. Okay, yeah. We would have said that was a system sale. A motor, a gearing, and some embedded electronics, we would say that was a system sale. The system sales we're really talking about today are much more sophisticated. There's software development that goes on, there's multi-axis control, there's all kinds of I/O support. There's many, you know, it could be many types of motors. It could be composite materials for light weighting in vehicles. So it's what we call the system before. I, you know, we kind of look at it today and say, "Geez, that's no longer a system." That became a way of life that we had to train our sales force to say, "Hey, you're not just selling a motor, you're selling motor and gearing and feedback, you know, and control or drive electronics." That became a way of life. I would call, in many cases, what we call the system before, perhaps a component today. The real true higher level system integration that becomes a part of either, you know, a machine or a process, it's much more sophisticated and, or much more embedded in the logic and the value of that is much higher. There's some credible know-how that goes in. There's software, you know, there's software development and it really does drive the value. What might have been, let's just say a $1,000 sale can now be a $3,000 sale. A $50,000 sale could be a $100,000 sale and beyond that. That's really what the difference is. To answer your question, if we go back to our original definition, you know, we would tell you that more than 50% of our sales are solution oriented, but really it's approaching more like 60%-70% in the future as we're looking at these major programs that, you know, we're investing in to go after. Got it. With much higher value content in them and much more, you know, sophistication and so forth. Good point. Yeah. Higher, got a higher value. Got it. I appreciate it. I will jump back in line. Thank you. Thank you, Gerry. Ladies and gentlemen, at this time, seeing no further questions, we will conclude the question and answer session. I'd like to turn the conference back over to management for any closing remarks. Yes, thank you everyone for joining us on today's call and for your interest in Allient. I would also like to apologize for the late start, as our hosting company did have some technical difficulties in getting the call initiated. Hopefully that doesn't happen again. For those of you that are interested, we will be participating in person at the Baird Industrial Conference in Chicago next week on Thursday, November tenth. Otherwise, as always, please feel free to reach out to us at any time. We look forward to talking with you all again after our fourth quarter 2022 results. Thank you for your participation, and have a great day. The conference has now concluded, and we thank you for attending today's presentation. You may now disconnect your lines.