Allient Inc.

Good day and welcome to the Elion Inc. 4th Quarter Fiscal Year 2024 Financial Results 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, then one on a touchtone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Craig Mahalik, Investor Relations. Please go ahead.

Yeah, thank you and good morning everyone. We certainly appreciate your time today as well as your interest in Elion. Joining me on the call are Dick Rozella, our Chairman, President and CEO, and Jim Michaud, our Chief Financial Officer. Dick and Jim are going and full year 2024 results and provide an update on the company's strategic progress and outlook, after which we'll open up the line 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 alliant.com along with the slides that accompany today's discussion. 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 want to point out as well that during today's call, we'll gap measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release as well as the slides. With that, please turn to slide three and I'll turn it over to Dick to begin.

Dick? Thank you, Craig, and welcome everyone. As we

conclude 2024, I want to acknowledge our team's resilience and commitment to execution in what has been a dynamic and at times challenging market environment. Despite headwinds in key industrial and vehicle markets, we continue to execute with discipline, driving operational efficiencies, and positioning alloys for sustained long-term growth. In the fourth quarter, we delivered $122 million in revenue with a sequentially improved gross margin of 31.5%, even as volume remained soft. Importantly, orders increased 15% sequentially, resulting in a -to-bill ratio of nearly one, largely driven by strengthening demand and power quality and defense. For the whole year, revenue totaled $530 million, reflecting the anticipated demand softness largely due to inventory rebalancing and customer utilization of excess inventory in the channel. However, we remain focused on financial discipline, generating nearly $42 million in operating cash flow and ending the year with $36 million in cash. Total debt reached approximately $240 million at the end of the first quarter of 2024, following our acquisition of SNC. Since then, we have been committed to reducing debt, lowering our total by $16 million over the year. On a net-net basis, given our stronger cash position, we are essentially back to where we were at the end of 2023, despite adding SNC. SNC has progressed as expected. It is a well-established company, and their offerings have complemented our current power quality capabilities. This was our first tuck-in acquisition in support of our power technology pillar, and we are excited about the synergies developing as a result. A driver of our margin improvement has been our Simplify to Accelerate Now initiative, as highlighted on slide 4. This program has been instrumental in refining our organizational structure, reducing redundancies, and optimizing production processes. In 2024, it delivered $10 million in annualized savings, improving our cost structure and overall agility. By simplifying operations, we are enhancing our responsiveness, leading to faster time to market, improved customer service, and stronger competitive positioning across key industries. Our goal is to drive an additional $6 to $7 million in annual savings in 2025. Building on this momentum, in early February, we announced the expansion of machine capabilities at our Dothan, Alabama facility, an initiative that is expected to support our goal. While it will be some one-time implementation costs, the investment is expected to pay for itself within a year. We anticipate realizing the initial benefits by late 2025, further strengthening our operational efficiency and cost structure. Jim will provide additional details on the associated

restructuring changes and charges. Leveraging advanced machining techniques,

our Dothan facility will focus on producing complex fabricated parts that are strategically aligned with the needs of our key markets and customers. Additionally, we will transition current assembly operations from Dothan, consolidate these capabilities into our facilities in Tulsa, Oklahoma, and Reynosa, Mexico, where final assembly, integration, and testing are core competencies. This realignment will sharpen our business focus and optimize our global footprint, enabling us to deliver high precision system solutions for demanding applications across diverse sectors, including aerospace and defense, medical, and electronic test on assembly equipment. While these transitions involve complexities and require focused execution, we are confident in the long-term efficiencies they will create. Looking ahead, we are actively identifying new opportunities to drive efficiency, innovation, and growth, ensuring we remain aligned with evolving market conditions and customer demands. By continuously optimizing our operations and making strategic investments, we are strengthening elite financial performance, enhancing operational flexibility, and unlocking greater earnings potential. This forward-thinking approach is critical to maintaining our competitive edge and delivering sustained value to our stakeholders. With that, let me turn it over to Jim for a

more in-depth review of the financials. Thank you, Dick, and good morning, everyone. In the fourth quarter, we reported revenue of $122 million, a decrease from the same period last year, aligning with our expectations. The impact of foreign currency exchange rate fluctuations was nominally unfavorable by 300,000. Our geographic sales mix shifted, with U.S. customers accounting for 54 percent of total sales, down from 59 percent in the fourth quarter of the previous year. The percentages were similar to full-year sales mix as well. This change reflects demand challenges, including lower industrial automation sales and softness within our vehicle markets. Breaking down our results further, let's take a closer look at how each of our key market sectors performed during the fourth quarter. Aerospace and defense sales were a bright spot, increasing 20 percent due to the timing of certain defense and space programs. We are actively pursuing several promising opportunities in the defense sector, which we anticipate will contribute to growth in the future. Medical market revenue also increased, up 5 percent, driven by solid demand for surgical instruments and respiratory and breathing equipment. The sales and vehicle markets continued to face headwinds, decreasing 46 percent. This decline was primarily driven by reduced demand for power sports, as the market had struggled to rebound following the surge in demand driven by the pandemic. Additionally, our strategic decision to focus more on margin-enhancing applications contributed to the overall decrease. Industrial market sales declined 11 percent, despite a strong performance in power quality sales, particularly to the HVAC and data center markets. We also saw incremental sales from the S&C acquisitions. However, these gains were more than offset by reduced demand in industrial automation, primarily due to significant inventory de-stocking by our largest customers. Slide 6 illustrates the shift in our revenue mix across markets over the full year period, highlighting the key catalysts driving these changes. The industrial sector remained our largest market, contributing 47 percent of the trailing 12-month sales. This market was primarily driven by strong demand in power quality, as well as growth in vehicle handling and semiconductor equipment. While industrial automation initially benefited from supply chain improvements earlier in the year, sales in this sector slowed significantly as inventory levels have reset across the industry. In the vehicle market, we experienced increased demand in commercial automotive, driven by a ramp-up of several new model programs. However, this was offset by shifting recreational spend trends in power sports and software demand in the agricultural sector. While we saw stronger sales in surgical products, our medical market experienced ongoing weakness in medical mobility solutions. Aerospace and increase in sales. The recent sales of our defense annual sales reflect variability driven by contract reward and government budget cycles combined with long lead times. That said, defense has seen positive growth, offset by declines within the space industry due to the impact of the pandemic. As shown on slide seven, gross profit for the quarter was $38.4 million, resulting in a gross margin of 31.5 percent. Gross margin remained flat year over year, despite top-line softness and expected margin dilution from our most recent acquisition. The 10 basis point sequential increase in margin was primarily driven by a favorable product mix, as well as the continued implementation of our lean toolkit across the organization. Notably, from the low margin point of 29.9 percent in the second quarter, we have seen a 160 basis point improvement in gross margin, reflecting a strong sequential recovery. We have been closely evaluating the potential impact of evolving tariff policies, assessing our options in this highly fluid environment. With manufacturing operations in Canada, Mexico and China, we recognize tariffs may affect our supply chain, leading to increased costs. As the situation continues to develop, we will consider changes in trade policies to our pricing strategies and continuous operational improvements. We remain confident in our ability to pass most, if not all, of the potential tariff impact onto customers, ensuring operational stability while maintaining the quality and value our markets expect. Looking ahead, our ongoing supplication initiatives, coupled with the integration of S&C and its added capacity, position us well to drive continued margin improvement over time. Despite current market challenges, we remain focused on improving profitability and driving operational efficiencies. As highlighted on slide 8, we reported operating income of $6.4 million, resulting in an operating margin of 5.3 percent, which was an increase of 30 basis points year over year and was flat sequentially. In the fourth quarter, we incurred minimal restructuring charges, bringing the full year total to $2 million. These charges were primarily cash-based and largely tied to severance expenses. As Dick mentioned, our Simplified to Accelerate Now program is well underway, and we are actively implementing additional cost-saving measures. During 2025, we are targeting an incremental $6 to $7 million reduction in annualized costs, with initial benefits expected later in the year. One-time implementation costs of the DOCIN initiative are estimated to be approximately $4 to $5 million and are expected to be substantially incurred in 2025 and are anticipated to produce a full payback within a year. Slide 9 highlights our bottom-line results, showing continued sequential improvements. For the quarter, net income reached $3 million, translating to earnings per diluted share of $0.18. Adjusted net income was $5.2 million, or $0.31 per diluted share, which excludes non-cash amortization of intangible assets, as well as business development, restructuring, and reliance costs. Our effective tax rate for the quarter was 22.2 percent. The prior year's fourth quarter tax benefit of $400,000 reflected realization of certain NOLs and R&D credits and incentives. For the full year 2025, we expect our effective tax rate to range between 21 and 23 percent. Internally, we used adjusted EBITDA as a key metric to measure our operational performance and progress. Adjusted EBITDA for the quarter was $14.1 million, or 11.6 percent of revenue. We are targeting further improvement in EBITDA margin through our ongoing simplification efforts. Sequentially, our adjusted EBITDA margin rose by 10 basis points, demonstrating the effectiveness of these initiatives. Turning to cash generation and our balance sheet on slides 10 and 11, we remain disciplined in managing working capital while continuing to invest in strategic priorities. For the full year, cash flow operations reached 41.9 million, reflecting strong working capital efficiencies and non-cash adjustments that help offset lower net income. At year end, cash and cash equivalents increased 13 percent to 36.1 million, further reinforcing our financial flexibility. Capital expenditures for the year totaled 9.7 million compared with 11.6 million last year as we refined our capital allocation strategy to focus on high value, high return projects. In 2025, we anticipate moderate capex growth with spending projected between 10 and 12 million aligned with our targeted investment priorities. Our day sales outstanding increased to 60 days, primarily due to customer mix and timing. Inventory management remained a top priority. Inventory turns remained flat sequentially at 2.7 times. Throughout 2024, we navigated the impact of extended supplier lead times, receiving inventory for orders placed up to a year earlier. As a result, inventory levels remained elevated, but we are actively aligning stock levels with current demand. Encouragingly, total inventory declined 5 percent year over year and excluding S&C was down approximately 11 percent. On the debt reduction front, total debt stood at 224 million at year end, reflecting the S&C acquisition. However, we remain committed to deleveraging, reducing debt by 7.2 million in the fourth quarter. Net debt finished the year at 188 million, representing a net debt to capitalization ratio of 41.5 percent, which was lower than year end 2023. To enhance financial flexibility, we amended our 2024 credit facilities in the fourth quarter, securing less restrictive covenants and expanded EBITDA addbacks to support long-term planning. Our year end leverage ratio, as defined in our credit agreement, was 3.43 times. Additionally, to mitigate interest rate risk, at the end of the quarter, we entered into a new three-year interest rate swap, hedging 50 million of debt, providing stability amid slowing rate fluctuations. These actions, reducing debt, optimizing capital allocation, and managing financial risk, reinforce our ability to execute our simplified to accelerate now strategy with discipline. Looking ahead to 2025, our financial priorities remain clear and focused. First, we are committed to reducing inventory and strengthening working capital management. We have already made progress in aligning inventory with current demand conditions, and this will remain a key area of focus to further improve cash conversion. Second, we will continue to drive cost reductions through operational efficiency. Our simplified to accelerate now program is in full execution mode, and we are implementing additional initiatives to streamline operations and enhance profitability. And finally, we are dedicated to reducing debt as we remain disciplined in capital deployment and cash management. We have already begun deleveraging following the S&C acquisition, and we will continue to take strategic actions to strengthen our financial position. With that, if you advance to slide 12, I will now turn the

call back over to Dick. Thank you, Jim. The underlying fundamentals of our business remain strong.

Order rates demonstrated solid momentum, increasing 15% sequentially. Growth was primarily driven by strength and power quality and defense, while orders also rose 12% year over year, benefiting from similar end market tailwinds and contributions from our recent acquisition. Although backlog has declined due to shifting customer ordering patterns, we remain focused on positioning the business for sustained demand recovery and the normalization of run rates. Our diversified portfolio is well aligned with key macro trends, including data center expansion, electrification, energy efficiency, automation, and the electric hybridization of all types of vehicles, including those in the defense sector. We are actively engaged in several promising new program opportunities in our newly formed Elliott Defense Solutions Unit, which we announced at a press release in the fourth quarter of 2024. We are also continuing the strategic realignment within our company to support the significant opportunities available to Elliott in this sector, as well as in some of our other targeted verticals. Our outlook is outlined on slide 13. We anticipate a moderated pace of orders across most markets through the first half of 2025, but expect continued strength in areas benefiting from long-term macro trends, particularly data center expansion. Customer inventory adjustments appear to be nearing completion, and as we move forward toward mid-year, we expect greater stability in order flow, supporting a strong return to revenue levels that improved operating margins as we capitalize on emerging growth opportunities. As part of the doping transition, we expect some near-term inefficiencies, including dual production lines and temporary inventory buildup across multiple locations. However, these are necessary steps to ensure a smooth transition and position us for long-term operational improvements. Ultimately, these initiatives reflect our commitment to building a more efficient, agile, and sustainable foundation for future growth.

At Elliott,

we are actively driving innovation and efficiency through targeted investments and strategic realignment. Our focus on operational excellence, exemplified by our Simplify to Accelerate Now program, ensures we remain agile and competitive in a dynamic environment. By optimizing our cost structure, streamlining operations, leveraging our global footprint, we are strengthening our ability to deliver high-precision solutions that meet the emerging needs of our customers. I am proud of what we have accomplished this past year and remain optimistic about our path forward. Our strategic initiatives, combined with our team's dedication, position Elliott well

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

We will now begin the question and answer session. If you ask a question, you may press star, then one, on your touchtone phone. If at any time your question has been addressed and you would like to withdraw your question, please press star, and then two. Our first question comes from Greg Alm with Craig Hallam Capital Group. Please go ahead.

Hey, good morning everybody. Thanks for taking the questions and congrats on a better end of the year, some improved execution for sure. Thank you, Greg. If we could just start at maybe a high level, Dick, just give us a little bit more color on kind of what you're seeing out there across geographies and markets, anything that you think is worth noting and maybe how that relates to A, sort of the potential to return to growth for the year and maybe the cadence of how you think 2025 plays out.

Sure. Let's start with geography. I would say to you that North America continues to strengthen. I think what we're looking for there is for the industrial sector to come back to life and get back to normal rates and growth. We do see some challenges continuing in the power sports area. The inventory levels at the dealers seem to be pretty high and so forth, so we don't expect that to return to the COVID days where it just went through the roof here. As far as Europe goes, I would tell you that in Europe, driven certainly by Germany, they still have some softness and it's expected to persist into mid-year. They have an administration change they're going to be going through. So, depending on what happens there and the policies that we see implemented there, hopefully that they'll also see some return emphasis on automation and growth in the industrial sector as well. The global and primarily for us it is North America where we see the benefits of the data center expansion and our capabilities to support that are very encouraging. That's continuing to have some pretty strong tailwinds and we expect that to continue throughout the year and to be a pretty good beneficiary of that. Defense sector, the programs that we're working on and so we look at defense, we call it the we created the new business unit as we announced last year and talked about a little bit here. There's many new programs that we're working on and we believe we have a product set and a solution set that makes us kind of unique in the space and it's gaining tremendous traction. We put resources in that have proven track records of growth and expansion and we're really emphasizing that this is going to be a strong area for us and opportunities in the future based upon these new programs. We in the past have talked about the additions and how the inquiries went up based upon the conflicts that were occurring but we haven't seen increased demand. Well, we have seen increased demand there so the demand is going up and I think we'll see that demand continuing to expand into the future here. There's other areas, we talked about our simplify to accelerate now strategy. I think many people relate that to say, well, you're streamlining operations, you're creating operating efficiencies, you're reducing costs and that's really what's generating fixed cost reductions that we're going through. But I will tell you even more so than that is the ability to respond quickly. To get these organizations aligned much closer to customers so that we can support them better and we can move very quickly on. So yes, we have the benefit of simplifying, of reducing the amount of overhead that sits in some of these silos but making them more effective by working closely together with our customers and we think it improves our responsiveness to our customers which ultimately leads to a growth in business. So that's pretty quick highlight of the market. We don't see, I didn't discuss Asia as you know, that's not a significant part of our business but it still remains stable.

Yep, that makes sense. I'm curious, Europe specifically given recent news there, proposed stimulus kind of a, almost like a whatever it takes moment. I mean, I know that's been a challenging market, Germany specifically where you have a lot of exposure but probably too early to tell now but do you feel like there could be any green shoots that emerge or is it more of a let's wait and see mode and see how that kind of the year shapes up?

I would say it's a wait and see mode, Greg. I don't think we have enough information. Yes, there's been discussions and there's talk but in our feet on the ground in Europe tell us that they're continuing to hold the line on expenditures and looking at operational efficiencies and so forth and focusing on new product development and programs that they think will kick off but they're still thinking mid-year and beyond before we start to realize any of those benefits.

Yep, okay, makes sense. And then just lastly, you talked about it a couple of times about data center exposure and some of the strength there. Can you just kind of remind us exactly from like a revenue exposure standpoint and just in terms of growth rates, what did you see last year? Any sense on what you're expecting kind of this year and what's the overall opportunity there in that space?

Yeah, well I think certainly from our perspective one of the advantages that we have that we feel will help us outpace the industry and the growth is that we do have some higher power solutions that are quite unique in the marketplace. That does give us a competitive edge, you know, and I commend the team that made a bet that that's where the market was heading several years ago and the bet was correct and so therefore we are positioned quite uniquely and have the ability to take advantage of that. From an overall standpoint, you know, we're looking at pretty significant growth that we've had year over year in the 40% range and we do expect that that opportunity, maybe not at that level, but has the ability to continue well into the future.

Okay, all right, I'll leave it there. Best of luck. Thanks. Thank you, Greg.

And the next question comes from Ted Jackson with Northland Securities. Please go ahead.

Thanks. Good morning. Good morning.

Dick, I'd like to talk about both power sports and actually medical as well to start with. If you look at those businesses, you know, the medical business, I know there's a lot of moving parts underneath the hood, but the medical business seems to have stabilized it around, you know, let's call it $20 million, you know, for the last two years and when, you know, is that kind of a sort of a base level run rate? Can you just sort of, you know, talk a little bit about what's going on underneath the covers and, you know, I mean, it just seems to me, you know, that that business is based out and then exactly a similar thing with regards to the power sports, which also seems to have kind of based out around $20 million on a run rate basis for the last, you know, call it two quarters, you know, and, you

know,

is that a way to kind of think about this business? Is that these two business lines for you that, you know, they're kind of just sort of flatlining along, they've kind of found their floors and, you know, what we got to wait for is, you know, those markets to stabilize and turn around. That's my first question. So, looking at medical first, I mean, you know, when we talk about medical and I've mentioned this before that we look at the applications in a more finite level internally, we call them FOAs or field of applications and we look at our medical and basically group them and lump them in two different parts. One would be medical mobility and the second would be instrumentation. Instrumentation being, you know, treatment equipment, or surgical robotics and other types of diagnostic equipment, instrumentation type. You know, the other type when we talk about, you know, the medical mobility and or patient handling, you're looking at the wheelchairs, patient beds, rehab, and we also, you know, we have other applications in there that in the past, I mean, for example, respiratory breathing during COVID times, obviously that went way up and we saw that come back down, you know, to levels below what we saw in the past. So, I think it's kind of leveling out now and stabilizing, but then we have other applications that are in various different types of pumps, applications. So, I would tell you that we are focused on areas that we think will have some continued growth well into the future. You know, surgical robotics and instrumentation and diagnostic and test equipment, you know, higher end equipment that in the innovation that's occurring there, that's not going to go down. That's only going to increase and as it starts to expand its reach into the world market, we think that there's definitely some opportunities there and we're investing there. The other markets aren't going down either. I mean, the insulin pumps and the blood, you know, blood pumps and other types of, I'll call it more home care or individual care, you know, I don't think that those are going down. I think, you know, there's definitely going to be a growing market, but maybe not as fast as, and maybe from our standpoint, it doesn't have the same technology that we would see in the higher level robotics and instrumentation markets. As far as respiratory and breathing, I think that will be stable. I don't, you know, unless we have some change that occurs in the environment here, that's probably going to be stable. So we see, you know, for us, our emphasis being on providing the higher and higher level solution, continue to expand in there, expand our reach in there. And as we look at the vertical, we do, as I mentioned to you, we do look at it in two different ways. One is a more competitive, different type of structure for handling and some of the other individual products, consumer type products as well, but the instrumentation and surgical robotics and so forth requiring, continuing to require higher end, faster, better solutions that we think will have some continued growth out into the future. So you asked about, is it stabilized? I think we have some room to return it to the growth level that we haven't seen yet, but that I do think we have growth opportunities there and it's one of the key verticals for us.

PowerSport, do you have the same questions for that?

Yep.

I think it's going to be a challenge. If you take a look at the market, can you take a look at the, you know, the major players in the industry and so forth? I think they're all talking the same way that it's a challenge market. It's also the dynamics of that market have certainly changed over the years. I mean, clearly when we were one of the innovators in power steering, selling at the market, the volume has gone up tremendously. You see, you know, the chains of the retail chain that's being sold in the big box stores and whether it's the sporting goods stores, whether it's in the warehouses, you're seeing that as well as you still have the dealers. And I think there's a squeeze going on. What's the margin potential? And as the vies have gone up, you've seen some competition outside of North America, which claims to be taking some market share. So I do see that into the future as definitely a challenging market and our customers, they've got battles on their hands to retain share, to drive costs out and figure out how to work with the new channels and the cost reductions that they're seeing in their end products. And that's where we have to support them.

Is there

a case to be made that, you know, as you get towards the back part of this year that the business is at least bottom out and then regarding to you, you know, you have a, do you have exposure within that segment to the commercial vehicle market? You know, the outlook for the commercial vehicle market, second half of 25 and through 26 looks very encouraging because of, you know, sort of pre-buy for EPA regulations and such. So when you think about the vehicle segment in aggregate, do those balance each other out or do you think you can actually grow it? You know, I would say to you that we have, there has been an offset that's occurred there for us. I mean, we have had, we do have growth in the commercial vehicle market, but I also want to repeat what I seem to be saying in every one of our conference calls that we look at this market as the opportunity to sell into the automotive or vehicle markets itself and mostly automotive from a volume standpoint gives us some critical mass and core unit volume that we can leverage into other markets, not just other vehicle markets, but also in some other markets within the company. That, you know, in itself, we have enough volume there now where we feel we can take advantage of that and we can leverage that, but it is not for us. In fact, we are looking at and we've already made the decision internally that we want more than niche applications. We're not interested in mainstream. We're not interested in competing with people who will do this thing, you know, to run their businesses at extremely low margins, if any at all. So the challenges are going to be there and fortunately for us, you know, we are positioned at some niche applications. It's grown. It's profitable. And we can leverage that into other areas. It has offset some of the drop that we've seen in the power sports, but not all of it. I mean, power sports, as you know, our biggest customer was in that space, no longer our largest customer. In fact, no longer is in a reporting requirement for us. So that's good and it's bad from the standpoint of we always worked on very diligently on diversifying our business in the other sectors, which we've done. And so the goal wasn't to, you know, to reduce the volume there and grow it everywhere else. The goal was to maintain the volume and grow our business elsewhere. For the most part, we've done that. So there has been some offset, but not enough to cover the power sports drop. Okay.

I've got one

more bigger question than a couple of little tiny ones for Jim. I want to move over to the inventory stuff and your largest customer. You know, so when Rockwell put out their quarterly stuff, they did actually pretty much put a flag in the ground saying that they had seen a lot of their inventory within, you know, the segment, you know, kind of pushed to normal. And so with that in mind, you know, I mean, obviously it's not a -for-one in terms of timing. When you see that business normalizing and you see that turning around, can we talk a little bit about the cadence of that? I mean, is it something that we should see, you know, like, you know, like you'll report first quarter and you'll see, you know, a level of improvement in second quarter, you know, like level improvement in third quarter level improvement in fourth quarter. And, you know, am I reading your guidance right that or your commentary right with regards to, you know, the cadence of the year that you see that the inventories within that channel being normalized by the time we get into say like the third quarter of the year. And then I got two just real quick ones for Jim. Sure. The so what I have to caution everyone on is that the, you know, again, we talk about broader markets when we talk about automotive, we talk about, you know, industrial, we talk about, you know, medical and so forth that, you know, we do focus and I mentioned this to you that we have these FOAs that we feel that we gain some competitive advantage there and then we look to leverage that into any all the opportunities that are out there for the same type of solution. From the industrial automation standpoint, and I can appreciate that, you know, our Rockwell has talked about that they're, they gain momentum and they're kind of cleaning out the channel and getting their inventory levels adjusted. And that is great news. Okay, because we have suffered from that. It was a big headwind for us this year. I would tell you, it was overweighted that it was a situation where, you know, we had a pretty long strong backlog based upon long lead times of component parts, mostly electronic component parts that we had to go out secure Rockwell also, you know, was supporting that effort to get out and get these components secured. And when we got them and we were able to produce, they were taking everything we could produce. But there was something that I would tell you that, you know, must have been off in the planning system because it hit a cliff and it dropped. So it tells me, and just being totally open about it, it tells me that we probably had a higher level of inventory in their channel than some of their other customers might have seen. And that perhaps we would have a longer climb out of the, you know, for as they return to improving automation projects and utilization of our products. So your statement about, are we seeing improvement? The answer is yes. Is it going to continue to improve month after month, quarter after quarter? Yes. When will it return to what we will call a normal state? I will say to you that I don't expect that to occur until later in the year. That's based upon the improving demand that we're seeing and the cadence of that improvement that we're seeing. I'll also caution us that we had a surge last year, a very strong surge, and we talked about a $40 million headwind that we would have coming into the year based upon the surge. So that level of business that we did have last year, we don't see that repeating in the near future. We see that it's going to be, that was pent up demand and it was a surge demand based upon not an inability to get product. And now that's freed up and it's flowing, inventories are being consumed, we will return to some type of normal demand, but it will be below the surge that we saw last year. So that's one of the headwinds that we will face going forward.

Does that answer your question?

It does. Thanks very much. My last two questions, are really kind of short. So the one is with the Dotham restructuring and the cost, we'll just call it $4.5 million, it's going to come through in 2025. Are you going to break that out and how are you going to structure the breakout if you are within your financial statements? So pretty simple, just kind of want to understand how we're going to see it and then any kind of color you can give in terms of when we're going to see it would be helpful as well. And then one more behind that.

I will, well, we don't typically break it out, but what I would tell you is that, you know, it's under, it's well underway, the effort. We know that it's quite candidly, I'd love to be able to tell you that it's going to be rateably, our investments are going to be rateable over the year, but I think it's going to be a little lumpy, Ted, and I would tell you it's probably going to be more towards the back half of the year when we start seeing the greater cost. I mean, we are going to cost in the first half of the year, but I think it's going to be weighted towards the second half.

And you won't even

show that within.

And we, and we, and as you know, we normally put our restructuring and business development.

Okay, just making sure. So we will see it in there, but we'll be able to, you know, you won't call it out individually, but we'll see it in there in terms of the line. I understand what it is.

Yeah.

And then my last question, just to make sure, I think I have the rate down, but what's the, what is the interest rate for your swap that you put in that 60 million? I think I have 3.2. Is that correct?

That sounds about right, but I'll confirm that up for you. Okay.

Okay. That's it for me. Thanks for the patience with my questions.

Thank you, Ted. Okay. Again, if you have a question, please press start and then one. This concludes our question and

answer session. I would like to turn the conference back over to management for any closing remarks.

Well, thank you everyone for joining us on today's and for your interest in alien. We will be participating in the Roth conference on March 17th and data point, California. Otherwise, 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, 2025 results. Thank you for your

participation and have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may after this-