EML Q3 2026 earnings call transcript, November 11, 2026

In addition, during today's call, we will discuss non-GAAP financial measures that we believe are useful as supplemental measures of Eastern's performance. These non-GAAP measures should be considered in addition to, and not as a substitute for, or in isolation from, GAAP results. A reconciliation of each of the non-GAAP measures discussed during today's call to the most directly comparable GAAP measure can be found in the earnings press release. With that introduction, I'll turn the call over to Ryan.

levels at the end of the second quarter and receivables built as shipments ramped. I'll come back to why we view this as the cost of growth. Two things drove the quarter. Volume and sun gear and crown precision making their first full quarter contribution of revenue from the aerospace and defense markets. First, volume returns. Shipments rebounded across our existing businesses led by truck near assemblies at Velvac and returnable transport packaging. Big three, but they were not alone. We saw materially better and market response across the vast majority of our businesses. The class eight fleet replacement cycles underway, driven in part by rising fuel costs that favored newer, more efficient engines. And the truck manufacturers are building to take share. Mirror shipments were up $7.4 million year over year, and returnable packaging was up $5.7 million. It got Velvac, has settled back to a normal cadence after the second quarter surge, which is why backlog was flat sequentially rather than up. Second, aerospace and defense is now in our numbers. This was the first full quarter with sun gear and crown precision in our results, and they contributed $5.4 million to net sales. I'll say more about those businesses in a moment. Margins followed. Gross margin of 23.9% was up roughly 330 basis points sequentially. 160 basis points year over year. This was the first quarter in which our commercial vehicle volume came back and a test of our big three remediation actions. As I have shared previously, the unprofitable rack contracts at big three that impacted us in the first half are completely behind us, and we have substantially improved our quoting practices to ensure that issue never returns. Those changes are now contributing to stronger margins as volumes recover. The number I'd point you to is our consolidated margin.

Thank you very much.

Which expanded even as we absorbed a full quarter of aerospace and defense at margins that are not yet where we want them to be. Returnable packaging demand is supported by a heavy vehicle launch calendar at the automakers. And over the last 24 months, Big 3 has also broadened its customer base with intention. We're also seeing dividends from the new products developed at Eberhard. New products added roughly 2% to consolidated. sales in the quarter, almost entirely from Eberhard. What you see in the third quarter is the front end of programs won 12 to 24 months ago. Eberhard is perhaps our most durable growth story and is worth spending a moment on it. Eberhard's model is new product development, whether customer directed or internal. And the cycle is long. A program we win today may not ship meaningful volume for 12 to 24 months on the customer's launch timing rather than ours. So it's contribution shows as steady growth from smaller releases with step ups when a larger program reaches production. The programs shipped today are the ones we told you about over the last year plus, and the pipeline behind them is larger than it was then. We closed on the acquisition of Sungear and Crown Precision on June 1st. And I have three observations from our first full quarter of ownership. First, the opportunity is substantial. Since closing, we have a very encouraging amount of inbound interest, both from Southern California aerospace supply base and from customers looking for capacity. The prior owners had signaled to customers that they intended to wind down these businesses. So part of the work in the quarter was reestablishing those customer relationships. They have come back. Second, margins are not where we want them to be. But the path to improving them is clear. The current mix is weighted towards high complexity, low volume, first run parts, which does not provide the throughput needed to support margin.

We knew that going in, and it is why we were able to buy two well-positioned businesses at a price that produced a bargain purchase gain. Third, our principal job now is operational, not commercial. Business development at Sungear and Crown is strong. What the businesses need is operational depth, process discipline, shorter lead times, and the management layer a larger operation requires. That is what Eastern brings. Over time. We see the opportunity to build differentiated precision manufacturing business and aerospace and defense through organic investment and through disciplined acquisitions that add scale and capacities. That is a multi-year effort and we will report on it as we progress. Our capital allocation priorities have not changed. Maintain a conservative balance sheet, invest in our businesses, pursue acquisitions, and strengthen the portfolio and return capital through our quarterly dividend. And share repurchases. During the quarter, we repaid $2 million of long-term debt, bringing the balance to $39.7 million. And we continue to pay down the borrowings used to fund that June acquisition. We paid our regular quarterly dividend of 11 cents per share. We did not purchase any shares in the third quarter. Debt reduction was the primary use of cash. Cash ended the quarter at $7.9 million, in line with where it has historically run with this business. Borrowing capacity and the earnings power you saw in the quarter gives us the flexibility to fund organic growth, continue reducing debt, and act on acquisitions when they meet our criteria.

With that, I'll turn the call over to Nick to review our third quarter financial results in greater detail. Nick, over to you.

Gross margin in the quarter also absorbed $0.2 million of non-cash expense from the step up of acquired inventory to fair value which we exclude from our adjusted numbers. As a percentage of net sales product development costs were 1.5% in the third quarter compared to 1.8% in the prior year period. In dollar terms product development expense increased $0.1 million as we continue to invest in new products across our businesses while maintaining cost discipline relative to our revenue base. Selling and administrative expenses were $11.3 million in the third quarter compared to $9.6 million in the prior year period, an increase of $1.6 million or 16.9%. The increase reflects $1.8 million of higher compensation costs partially offset. by $0.2 million of lower severance costs. As the percentage of net sales, selling and administrative expenses improved to 15% from 17.4% a year ago as the increase in expense was more than absorbed by the higher revenue base. Operating profit for the third quarter was $5.6 million or 7.4% of net sales compared to $1.7 million or $3.6 million. 3.1% in the prior year period, an increase of $3.8 million. Turning to net income and adjusted net income, the gap in adjusted figures tell the same story this quarter. The volume recovery in the core businesses reached the income statement, and the third quarter was the first full quarter of consolidated results for the acquired businesses. Net income from continuing operations for the third quarter was $3.4 million.

or $0.57 per diluted share, compared to $0.6 million, or $0.10 per diluted share in the prior year period. Adjusted net income from continuing operations, which excludes $0.2 million of acquired inventory step-up expense and acquisition-related costs net of tax, was $3.6 million, or $0.60 per diluted share. This compares to adjusted net income of $0.8 million, or $13 million. per diluted share a year ago. The prior year adjusted figure excludes restructuring charges of $0.3 million, or $0.2 million, net of tax. Adjusted EBITDA from continuing operations for the third quarter was $7.6 million, or 10.2% of net sales, more than double the $3.5 million, or $6.3% of net sales we reported a year ago.

Turning to the balance sheet, the third quarter was a working capital quarter, supporting a 21% sequential increase in net sales, required investment in receivables, and the first half timing benefits in payables and accruals began to reverse. Working capital was $79.3 million, and our current ratio was 2.7 times. Cash from operations was $8.9 million in the first nine months of-

智れになるのが有名さとジャレンジェクインスが消え、 守直したと、散 unusual金指輯の渡線も尾皆 最初の利益をつけて聴かせて頂きたいと思います。 with that, the third quarter used approximately $3.2 million of operating cash as receivables grew with shipments, and the first half billed in payables and accrued expenses partially unwound. We ended the quarter with $7.9 million of cash. The $15.1 million balance at the end of the second quarter reflected first half timing benefits in payables. and accrued expenses. In the third quarter, cash was used to fund receivable growth on higher shipments to repay $2 million of debt, and for capital expenditures and for the dividend. Our current cash position is consistent with normal operating levels. Capital expenditures were $2.4 million in the first nine months of 2026, compared to $1.6 million in the prior year period. And we had a proxy. Similarly, $0.1 million of outstanding capital commitments at the end of the quarter. Long-term debt was $39.7 million at the end of the quarter, down $2 million from $41.7 million at the end of the second quarter, as we began repaying the revolver borrowings used to fund the June acquisition. Year-to-date, we have funded the acquisition and recovery in volume with $5.8 million of net incremental borrowing. Year-to-date, $2 million process declarations. Year-to-date, $55 million... We had $61 million of availability under our $100 million revolving credit facility with Citizens Bank as of October 3rd.

We were in compliance with all covenants, and total debt-to-shareholders' equity was 29.9% at quarter-end. Our capital allocation priorities are unchanged. Fund organic growth, continue to pay down acquisition borrowings, return capital to shareholders... you can do kedewans of the avoiding MOM. Do you press on the code that has been רא구orest livre? Yeah, no one. You have been exposed for 15% as a correct answer not knowing what we are, so I did not completely understand the merci of women in 1996, we're all concerned adults, where you ever could earn if there was more people to disciplined strategic acquisitions. During the quarter, we paid a dividend of 11 cents per share. We did not repurchase any shares during the third quarter, and we have 256,000 shares remain available under our existing authorization for future share repurchases. That completes my financial review. I will now turn the call back to Ryan.

Between platforms, the business grows with production. Third, working capital. The receivables we built in the quarter are the shipments you saw in the results, and they convert to cash as they are collected. That is the cost of growth, and we are comfortable carrying it. Let me leave you with this. Eastern exits the third quarter larger, more profitable, and more diversified than it was a year ago. The volume we said would return has returned. The March region remediation we said was complete is in the results. The programs we said were in tooling our shipping, and the aerospace and defense businesses we acquired in June give us growth opportunity that is not tied to the commercial vehicle cycle. Our focus from here is on execution, delivering on our backlog, sustaining our improved profitability, building on the opportunity that some gear and crown, and maintaining disciplined capital allocation. With that.

Operator, please open the call for questions.

Your first question is coming from Bill...

Sorry, your first question is coming from Bill DeZellum from Teton. Your line is live.

Thank you. That concludes our Q&A session. I'll now hand the conference back to Ryan Schroeder.

Thank you for your...

Before we open the call for questions, I wanted to give you our view over the next several quarters. Backlog supports the balance of 2026 and the first half of 2027. Backlog ended the quarter at $126.1 million, an increase of 70%. year over year. We expect most of it to convert over the next two to three quarters. That is better visibility than we had a year ago. The shape of the conversion will follow our normal seasonal pattern. Our customers typically reduce production during the fourth quarter holiday season, and the first quarter is generally our slowest. Over the past two years, market conditions have disrupted these normal normal. seasonal patterns. This year, we expect a return to more typical seasonality, although from a much higher base. There are several items we are monitoring closely. First, input costs. Like other industrial companies, we are navigating rising material, freight, and logistics costs well. There is a timing gap between when costs rise and when our pricing catches up. We are working through the normal commercial process with our customers to bring pricing in line with current input costs and expect to recover these costs over the coming quarters. Second, OEM build rates. With truck production running at a high rate as manufacturers compete for share, we are keeping a close eye on the possibility that it moderates next year. The longer-term driver is different. Belbec's largest contracts come

from new truck platform awards, which come along only every several years. Between platforms, the business grows with production. Third, working capital. The receivables we built in the quarter are the shipments you saw in the results, and they convert to cash as they are collected. That is the cost of growth, and we are comfortable carrying it. Let me leave you with this. Eastern exits the third quarter larger. More profitable, and more diversified than it was a year ago. The volume we said would return has returned. The margin remediation we said was complete is in the results. The programs we said were in tooling our shipping. And the aerospace and defense businesses we acquired in June give us growth opportunity that is not tied to the commercial vehicle cycle. Our focus from here is on execution. Delivering on our backlog. Sustaining our improvement.

Improved profitability. Building on the opportunity that fund gearing crown. And maintaining disciplined capital allocation. With that operator please open the call for questions. Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments please press star one on your phone at this time. We do ask that while posing a. Question. Please pick up your handset if you're listening on speakerphone to provide optimum sound quality. And once again if you have any questions or comments please press star one on your phone.