Allient Inc. Q2 FY2026 earnings call

• Overall Quarterly Performance

  • Delivered strong top-line growth, record gross margin, and significant earnings increase in Q2 2026
  • Record quarterly bookings of $201.3 million, resulting in a 1.31 book-to-bill ratio, with backlog ending at $298 million, most expected to convert to revenue within 3-9 months, providing strong visibility for H2 2026
  • Net income increased 85% year-over-year to $10.4 million ($0.61 per diluted share); adjusted net income increased 42% to $13.5 million ($0.80 per diluted share); adjusted EBITDA increased 18% to $23.7 million (15.4% of revenue)

• Portfolio Strategy & End Market Alignment

  • Intentionally positioned the portfolio toward higher-value motion, controls, and power applications with deeper engineering content, stronger customer relationships, and more attractive long-term margins, aligned with long-term secular growth drivers
  • Broad-based demand growth across targeted end markets: industrial automation, data center infrastructure, aerospace and defense, and medical applications
  • The Elliott Power portfolio for data centers meets strict IEEE 519 power quality standards, enabling reliable, efficient power for compute-dense AI-focused data center environments
  • Early but promising progress in the drone and unmanned systems market, with a new full line of commercial off-the-shelf (COTS) propulsion motors, electronics, and composite solutions launching in H2 2026, targeting both commercial and defense applications

• Simplify to Accelerate Now (STAN) Operational Initiative

  • STAN is not a short-term cost-cutting program, but a company-wide operational mindset focused on empowering teams with urgency, ownership, and accountability, supported by standardized process tools and digital/AI enabling technology
  • STAN drove improved decision-making, faster execution, and the record Q2 gross margin through better mix, execution, and cost discipline; annualized savings reached $10 million in 2024 and $6 million in 2025, with STAN expected to deliver 5-7 million in annual savings in 2026, and a 2-3 year runway of similar incremental savings going forward

• Financial & Balance Sheet Progress

  • Continued deleveraging: total debt ended Q2 at $173.3 million, down $7.1 million from year-end 2025, with leverage improving to 1.63x and bank covenant leverage at 2.07x
  • Ended the quarter with $42 million in cash and $162 million in unused revolver capacity, supporting strong financial flexibility for investment and strategic opportunities
  • Full-year 2026 capital expenditures are expected to be $12-15 million, focused on expanding capacity for growth areas including data center power quality and automation

Total Q2 2026 revenue was $153.8 million, a 10% increase year-over-year (9% organic constant currency growth, with a $1.3 million favorable foreign currency tailwind). Trailing 12-month segment revenue contribution percentages are as follows:

• Industrial: 49% of total revenue, up from 47% year-over-year. Q2 industrial revenue grew 17% year-over-year, driven by strength in industrial automation and power quality solutions for data center infrastructure. Data center and infrastructure applications specifically generated $16.3 million in Q2 revenue (10.6% of total revenue, up 60% year-over-year), and $57.1 million on a trailing 12-month basis (9.9% of total revenue, up 69% year-over-year).
• Aerospace and Defense: 15% of trailing 12-month revenue. Q2 revenue grew 16% year-over-year, driven by strong defense-related demand and program activity, despite the prior announced MTEM Booker program cancellation.
• Medical: 15% of trailing 12-month revenue. Q2 revenue grew 9% year-over-year on broad-based demand, including surgical robotics and other precision motion applications.
• Vehicle: 17% of trailing 12-month revenue. Q2 revenue declined 7% year-over-year, primarily due to lower power sports demand.
• Distribution: 4% of trailing 12-month revenue.

• Full year 2026 effective tax rate is maintained at 21-23%
• Full year 2026 restructuring and realignment costs are expected to be $2-3 million, with elevated transition costs remaining from the Dothan facility move
• STAN cost savings for 2026 are expected to be $5-7 million, consistent with 2025 levels, with a 2-3 year runway of similar incremental annual savings expected going forward
• Management expects data center revenue to continue growing faster than Alliant's average corporate growth rate, with strong order momentum continuing into the first month of Q3 2026
• Aerospace and defense growth is expected to accelerate from current strong levels, driven by conversion of prior quoting activity into firm orders and new product launches for unmanned systems
• The Dothan facility transition is expected to continue improving throughout 2026, with full normalization of costs and productivity expected as incremental investments are implemented

• Gross margin may experience quarter-to-quarter variability even as structural margin gains build, due to lumpy end market mix shifts
• Tariff-related cost pressure remains elevated, though mitigation actions including pricing adjustments, supplier negotiations, strategic sourcing, and supply chain diversification have reduced exposure to $600,000 in Q2 from higher levels in prior year periods
• The Dothan production line transition experienced unplanned costs and productivity delays that negatively impacted results in prior quarters, and while significant improvement has been made, full remediation and productivity improvements are still ongoing through 2026
• The macroeconomic and trade environment remains dynamic, creating uncertainty that could impact demand and supply chain operations
• Lead time expansion across the supply chain has pulled some order intake forward, which may create variability in future booking levels

Q: Data center revenue grew 60% year-over-year in Q2; how does order growth for this segment compare, and is strength continuing into Q3? / A: Data center order growth is in line with the 60% year-over-year revenue growth seen in the quarter. One month into Q3 2026, strong order intake and shipment momentum for data center solutions is continuing. Management confirmed capacity expansions will be completed by early next quarter, and the company is well-positioned to meet growing demand, with products already tailored for high-power, dense AI data center architectures.

Q: What drove the record Q2 gross margin, and is this an indication of a higher normalized margin as revenue scales? / A: The stronger gross margin reflects a combination of two factors: better operating leverage from higher volume on the current fixed cost base, and continuing mix improvement toward higher-margin, higher-value end markets that the company has been intentionally transitioning into for years. Cost reduction efforts from the STAN initiative are also continuing to deliver incremental savings, and the Dothan transition cost issues that pressured margins in prior quarters have improved significantly. All factors combined point to a sustainably higher structural margin profile going forward.

Q: What is driving the record growth in aerospace and defense, and what is the outlook for this segment? / A: Growth is accelerating because the large volume of quoting and inquiry activity the company saw over the past several quarters is now converting to firm orders, and defense-related demand continues to grow. The upcoming launch of new COTS drone and counter-drone product lines will open additional volume opportunities, with technology developed for this segment also leveraged across other end markets. Management expects aerospace and defense growth to continue accelerating from current strong levels.

Q: What is the long-term opportunity size for data center revenue, and are there adjacent market opportunities? / A: Management declined to give a specific target, but noted that the opportunity can be sized using the disclosed revenue per megawatt range: from ~$2,000 per megawatt for basic line reactors up to over $40,000 per megawatt for complete integrated power quality solutions. Management is comfortable with data center eventually growing to 20-30% of total company revenue if market capture proceeds as expected. Adjacent opportunities exist in other large infrastructure projects including wastewater treatment plants, as well as upgrade and refurbishment work on existing data centers, where Alliant can compete for both new build and retrofit projects.