Eastern Company Stock

Good day, everyone. Welcome to The Eastern Company Second Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Vice President and Chief Financial Officer, Nicholas Vlahos. The floor is yours.

Good morning, everyone, and thank you for joining us for a review of The Eastern Company's results for the Second Quarter of 2026. With me on the call is Ryan Schroeder, Chief Executive Officer. The company issued its press release yesterday after market close. If anyone has not yet seen the release, please visit the Investor Information section of the company's website, www.easterncompany.com, where you will find the release under financial news.

Please note that some of the information you'll hear during today's call will consist of forward-looking statements about the company's future financial performance and business prospects including, without limitation, statements regarding revenue, gross margins, operating expenses, other income and expenses, taxes and business outlook. These forward-looking statements are subject to risks and uncertainties that could cause actual results or trends to differ significantly from those projected.

We undertake no obligation to review or update any forward-looking statements to reflect events or circumstances that occur after the call. For more information regarding those risks and uncertainties please refer to risk factors discussed in our SEC filings, including our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q.

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 non-GAAP measure discussed today to the most directly comparable GAAP measure can be found in the earnings press release. With that introduction, I will turn the call over to Ryan.

Thank you, Nick, and good morning, everyone. Welcome to The Eastern Company's Second Quarter 2026 Earnings Conference Call. Following my prepared remarks, Nick will walk through the financial results in greater detail. We will then open the call for your questions. I want to begin with our view of the quarter and the direction of the business as we move into the second half of 2026.

The quarter included several moving pieces, but the sequential improvement in our results and the strength of our order book gives us increasing confidence of the underlying trajectory of the business. Our bottom line results included a onetime bargain purchase gain of approximately $6.5 million associated with the acquisition of Sungear and Crown Precision.

The transactions became effective on June 1, so the quarter includes one month of contribution from those businesses. Net sales from continuing operations were $61.8 million, below the prior year period by 11.9%. On a sequential basis, however, net sales, gross margin and adjusted EBITDA from continuing operations all improved. We believe that this sequential improvement together with the marked increase in our backlog is a better indication of where our business is headed. More in backlog in a moment.

Gross margin increased approximately 60 basis points sequentially even as we absorb the final effect of the below margin rack contract at Big 3. That operating improvement is separate from the bargain purchase gain. The forward indicators strengthened as well. Backlog increased across every business, with the most notable sequential gains at Velvac and Eberhard, where backlog increased by 29% and 19%, respectively, over the quarter.

As we discussed last quarter, Big 3 accepted a block of rack orders at margins below our minimum threshold in an effort to fill capacity during a softer demand period. We addressed the root cause by tightening the quoting process and strengthening the review and accountability around how work is priced and accepted.

That work has now run off, and the margin challenge is completely behind us. New businesses being booked at normal margins and the disciplines we put in place will remain permanent features of the business. Consequently, we saw a meaningful improvement in Big 3's gross margin during the final month of the quarter, with further improvement realized in July.

Backlog also increased positioning the business for a much better performance over the balance of the year. The improvement extends beyond Big 3. The recovery we have been anticipating is now evident in our order book and the demand environment heading into the second half of 2026 is more constructive than it was a year ago. At quarter end, backlog was $126 million, up 45% year-over-year. Roughly half of the increase came from our existing businesses, with the balance coming from the orders added through the new aerospace and defense platform.

We expect the majority of the current backlog to convert to revenue over the balance of the year, providing better second half visibility than we had at this point in 2025. Within the existing portfolio, the largest driver is the recovery of the heavy truck build rates. That is benefiting Velvac and Eberhard, while demand is also improving across several of our other end markets.

At Eberhard, our largest work truck body customers emerging from a prolonged trough. Our new door and actuation program from a customer's next-generation side-by-side ATV also remains on schedule. At Velvac, the team is managing the increase in demand while stabilizing the new ERP system. Importantly, the business continued to ship product and closed the quarter on schedule through that transition.

We are also seeing progress in returnable racks, where Big 3 has broadened its customer base. The combination of improving end markets and a more diversified order book gives us greater confidence as we have entered the second half.

During the quarter, we expanded into the aerospace and defense markets through the acquisition of two precision manufacturers of high-tolerance components. The acquisitions of Crown Precision and Sungear were made at what we believe is an opportune time. These 2 California-based businesses manufacture high tolerance components for commercial aerospace and defense applications.

Both our embedded and long-cycle programs and have exposure to multiyear procurement tailwinds at leading customers. Their customers are signaling a higher output requirements in the coming years creating a meaningful opportunity for us to support that growth. This was a disciplined and opportunistic use of our capital.

These businesses diversify Eastern by adding exposure to different end markets, longer-cycle programs and mission-critical applications. We moved quickly to acquire these high-quality businesses at an attractive valuation. And I want to recognize Nick and his team for executing both transactions quickly and thoughtfully. Our initial priorities are to invest in the people, processes and equipment needed to increase throughput and shortened lead times while maintaining the quality standards these applications require. Our long-term ownership model and operating discipline are well suited for these businesses.

Over time, we see the potential to build a differentiated precision manufacturing platform through both organic investment and disciplined acquisitions. Our capital allocation strategy remains unchanged, maintain a strong balance sheet, invest in our businesses, pursue acquisitions that strengthen the portfolio and return capital through our quarterly dividend and opportunistic share repurchases.

Our liquidity remains strong, giving us the flexibility to support organic growth while continuing to evaluate strategic opportunities. The 2 acquisitions completed during the quarter demonstrate the disciplined approach we intend to maintain. Eastern has now paid a quarterly dividend for 344 consecutive quarters. During the second quarter, we also repurchased 19,529 shares bringing first half repurchases to just over 40,000 shares. As of July 4, 256,000 shares remain available under the current authorization.

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

Thank you, Ryan. Net sales for the second quarter of 2026 decreased 12% to $61.8 million from $70.2 million in the second quarter of 2025. The decrease was driven by lower shipments of truck mirror assemblies, returnable transport packaging and latch and handle assemblies of $5.7 million, $3.4 million and $0.9 million, respectively.

The decrease was partially offset by a $1.7 million increase in aerospace sales from our newly acquired businesses. Our backlog as of July 4, 2026, was $126.2 million, an increase of $39 million or 45% from $87.1 million a year ago and up from $82.2 million at the end of the first quarter.

The increase in backlog reflects broad-based order strength across our legacy businesses layered on top of the acquired aerospace book, and it underpins the momentum we are seeing going into the second half. Specifically, backlog was driven by $19 million of acquired aerospace orders together with higher truck orders for truck mirror assemblies of $11.7 million, returnable transport packaging of $4.7 million and latch and handle assemblies of $3.6 million. Gross margin as a percentage of net sales was $20.6 million or $12.8 million in the second quarter compared to 23.3% or $16.4 million in the prior year period.

The year-over-year decline reflects lower volume across a smaller revenue base with a runoff of below-margin Big 3 Precision contracts Ryan described and tariffs costs on China-sourced products of approximately $1.9 million in the quarter compared to approximately $2.4 million a year ago, most of which we recovered through price.

Those below-margin contracts are now largely behind us. New orders are booking at healthier margins, and we expect gross margin to build as the second half volume comes through. As a percentage of sales, product development costs were consistent with the prior year quarter.

We continue to invest in new products across our businesses while maintaining cost discipline relative to our revenue base. Selling and administrative expenses decreased $2.1 million or 17.5% in the second quarter compared to the prior year period. The decrease was primarily driven by $1.9 million of lower restructuring charges along with lower personnel and amortization costs, partially offset by higher computer expenses.

Operating profit for the second quarter was $1.7 million or 2.7% of net sales compared to $3.1 million or 4.5% in the prior year period. The item that stands out this quarter is a bargain purchase gain. In connection with our acquisition of Sungear and Crown Precision, we recorded a onetime noncash bargain purchase gain of $6.5 million.

Under GAAP, we record the assets we require and the liabilities we assume at their fair values. When the fair value of the net assets acquired exceeds the consideration that we pay, the difference is recognized as a gain. That's what happened here. This game is nonoperating and noncash. We exclude it from our adjusted measures, so it does not obscure the underlying performance of the business.

Other income and expense for the second quarter was $0.1 million of expense compared to $0.1 million of income in the prior year period. Interest expense was $0.6 million in the second quarter, down modestly from the prior year. Income tax expense for the second quarter was $1.9 million compared to $0.5 million in the prior year period. The increase reflects higher pretax income, including the tax effects associated with the acquisition and the bargain purchase gain.

Net income from continuing operations for the second quarter was $5.6 million or $0.94 per diluted share compared to $2 million or $0.33 per diluted share in the prior year period. The GAAP figure includes the $6.5 million onetime noncash bargain purchase I described above. Excluding that gain and other items, we do not view as reflective of ongoing operations, adjusted net income from continuing operations was $0.9 million or $0.15 per diluted share compared to adjusted net income of $3.5 million or $0.57 per diluted share a year ago.

The adjusted figure is a cleaner read on the quarter. It reflects the volume and margin pressure we have discussed, and we expect that pressure to ease as the recovery in our order book reaches the income statement. Adjusted EBITDA from continuing operations for the second quarter was $3.4 million compared to $6.7 million a year ago, a decrease of approximately 49%.

The compression reflects lower volume and margin factors I described, and we expect it to recover as the second half volume and mix improves. Turning to the balance sheet and cash flow. We generated $12 million of cash from operations in the first 6 months, a substantial improvement from $1.9 million a year ago. Total assets were $245 million. We ended the quarter with $15.1 million of cash, inventories of $66 million and accounts receivable of $36.8 million.

On debt and liquidity, long-term debt was $41.7 million at quarter end, up from $33.9 million at year-end, reflecting borrowings to fund the $7.85 million acquisition of Sungear and Crown Precision. We had $59 million of availability under our $100 million revolving credit facility with Citizens Bank as of our filing date, and we are in compliance with all covenants.

That capacity gives us the flexibility to fund organic growth and to continue pursuing disciplined strategic acquisitions. Our capital allocation priorities are unchanged. We continue to deploy capital with discipline. During the quarter, we paid a dividend of $0.11 per share. We repurchased 19,000 shares under our existing authorization with 256,000 shares remaining available, and we invested $1.5 million in capital expenditures across the first half of the year.

That completes my financial review. I will now turn the call back to Ryan.

Thank you, Nick. Before we open the call for questions, I want to leave you with one takeaway. Eastern enters the second half of 2026 in a significantly stronger position than it began the year. Our order book provides improved visibility. Our margin trajectory is moving in the right direction and our new aerospace and defense platform expands our long-term growth opportunity.

Our job now is to execute, convert the backlog into profitable shipments make the investments that support organic growth and remain disciplined as we evaluate additional opportunities.

With that, operator, please open the line for questions.

[Operator Instructions] Your first question is coming from Jake Patterson with Talanta Investment Group.

I've got a couple. I don't know if you can see how many people are in queue or not. I know last time, there's no one on here, so I was hoping to run through a few of these. But just curious, I know, obviously, the truck builds being a pretty big driver of the business, and those are set to improve about 26% or so second half run rate versus first, but even second quarter builds were up like 24% versus first quarter and your guys' revenue was kind of down a little -- or I mean, obviously, up a little bit sequentially.

But kind of just curious like as we think about builds accelerating, kind of how that flows through the P&L because I know you guys kind of deal with customer inventory and their order rates and whatnot. So kind of just curious, can you kind of frame expectations for level of revenue increase you can maybe expect second half given what's going on in the end markets?

Yes. So from a truck build rate standpoint, we are feeling that in both of those 2 businesses, but most notably within Velvac Eberhard as well. So we expect it to continue to trend upwards a bit. And as we work through the second quarter, certainly, we saw the improvement in the top line for those customers, most notably PACCAR and DP&A improve fairly significantly as you had noted.

So we felt that most notably in June, and we expect that in July, and we expect that to continue for the remainder of the year and well into 2027.

Got you. Okay. And then too, I know you guys mentioned on your call last quarter that a lot of your customers are adding capacity. I was kind of curious how we should maybe think about that if you guys are going to have like a higher revenue per build, I guess, you could look at it like that. But I was curious if that was implying like any maybe upside to where you guys have historically been within that Class 8 heavy truck market?

Yes. We're expecting a very strong second half, no doubt about it. And last quarter, when we spoke about it, we mainly spoke about the impending increase. And then over the quarter, that transitioned to firm orders. So that is a major driver to the significant increase in our order backlog. And our backlog on our legacy business increased something like 26% from the beginning of the quarter to the end of the quarter, and that's primarily resulting from -- or coming from that heavy truck build increase as well as some of the other major end markets that have been quite soft in the first half of this year and really the second half of last year.

Okay. And then too, I know you guys mentioned in the Q and on the call about the tariff cost paid, $5 million year-to-date versus $3 million in first half last year. I was curious like -- I know you said you recovered that with pricing, but has that pricing flowed through the P&L yet? Or is that to be recovered in future quarters?

It's mostly flowed through the P&L. I mean we were able to capture that for those pricing increases needed pretty live and accurate. And then when tariffs changed here a couple of months ago, our prices with our customers reduce some. So we really -- we as much as we'd love to hold on to all of that, we really have for our major customers, that tariffs are impacting them significantly.

We manage those prices as tariffs have changed in a live manner throughout. So it's currently -- there's certainly going to be some that's coming in future quarters, but it's mostly been close to within 30 days of the change in tariffs.

Okay. I mean the reason I ask that, I guess, because you're looking at gross margins here compared to your fiscal '24 period, you're kind of running at mid-20s, we're down to 20.8%. And now you have this acquisition that looks like it's going to be a drag on gross margin just based on that one month, if you quarterize it, I suppose, it's like a 5% gross margin.

So kind of just -- I know, obviously, volume is a huge driver of margin expansion, but just kind of trying to get an idea of like the magnitude of the increase we should see off these kind of trough levels, but obviously, you've got some other moving parts in there. So I'm just curious, maybe if you could touch on -- if you can frame any expectations around the magnitude of the margin increase or kind of maybe some expectations on this acquisition margin and maybe what the plan is there to get them up to profitability?

Yes. So there is a bit of a mix impact to our gross margins, setting aside the acquisition, I'll come back to that here in a second, but there is a bit of a mix impact where some of our -- some of the tighter margin businesses but more. That being said, we feel strongly that the volume benefit that we're going to get from those products being up is going to outweigh the negative gross margin impact. So we feel confident that, that's going to be a favorable -- it's going to be a win in the whole scheme of things once it all comes out in the wash.

As it pertains to the acquisition, yes, there's there's some pricing work that's going to need to happen there. And then there's some cost improvement, really operational improvements that we feel are going to bring that business along nicely. That being said, so maybe in the short term, it weighs a little bit on our overall gross margin. But by nature of the size of that business, it's not overly material from my standpoint. Nick, I don't know if you have more to add beyond that, but that's sort of my take would be it's not overly material.

I agree with you, Ryan. Yes, it looks like I mean like 120 basis points, give or take. So not a huge deal, but I mean, I'm looking at your April '26 investor presentation. What we look for in M&A 15% plus EBITDA margin, EBITDA earnings, demonstrating history profitability. obviously, there's not not a huge portion of the business, but I was kind of surprised to see a profitless aerospace company being acquired.

So maybe like strategically, I know they have some future business that is supposed to ramp. I saw in the Q, their backlog is like $19 million. So obviously, it's not in there yet, but it's kind of surprised to see us. I don't know if you can maybe touch on how you view growth opportunities there, cross-selling synergies or just anything to kind of frame what the strategy is?

Yes. So our overall thesis is that there is a massive need in the Tier 2 aerospace market in terms of suppliers that currently exist within that market. There's a multitude of suppliers that maybe not all of them, I'm not trying to paint too broad of a picture here. But supply chain shortages and challenges are the bottleneck, the sole bottleneck for aerospace and defense markets.

The demand significantly outweighs the ability to supply and it mainly falls upon the Tier 2 segment Tier 2 or Tier 3 segment and their inability to supply. We think we bring an operating scheme and long-term view that uniquely positions us to acquire and improve businesses very similar to Crown and Sungear.

So this is -- hopefully, it's us step 1 and 2 of many, but we believe we can significantly grow our business as a whole, diversify Eastern. We love the truck segment, but diversify us away from the truck segment some while at the same time bringing long-term shareholder value from this acquisition and hopefully others to combat fit within this Aerospace and Defense segment.

Got you. Okay. I mean is there anything you can share like customer base or maybe like were they profitable at all in any of the last fiscal years? Or is this going to be kind of a longer-term runway to profitability?

No, they're going to be profitable. They're going to be profitable this year. They were profitable for the first half of this year after taking some pricing action last year, and we think there's more to be done there, and we intend for this acquisition to be accretive to our overall efforts this year. So this -- yes, there's going to be long-term things to do to improve it further, but we intend for this to be accretive now.

Okay. Cool. I don't know if there's anybody else behind me. I can squeeze one more, if I can. So I think last time you talked in March, I believe the model launch schedule for '27 was supposed to be kind of higher than historical levels. I know '25 was pretty low. It sounds like '26 is expected to be low. Just kind of curious maybe if you guys have any insight on kind of how '26 has looked from a changeover perspective and that impact on your packaging business and then maybe kind of some outlook for second half and if '27 is still expected to be pretty solid on that front?

Yes, '26 is going to be significantly better than '27. We're seeing that in our active backlog. And I'm sorry, '26 significantly better than '25 and '27 is going to be even higher than that. So there's a number of high-value automotive model launches that are well underway right now. And for Big 3, our -- at least as it pertains to our rack business, our backlog is pretty well full through almost the remainder of the year. There might be a little bit of room in the fourth quarter, but we've filled up significantly based on those model launches. So it's pretty much coming to fruition as we had spoken about in past quarters.

Okay. Cool. And I think you guys said you had to kind of win those on a project-by-project basis. So it sounds like you've had some success there.

Yes.

Your next question is coming from Mike Hughes.

Just a couple of follow-ups on the acquisitions. I know it's only one month, so maybe it's not representative, but taking the one month on a quarterly basis, about $5 million a quarter in revenue. Is that a good run rate?

I would hope it's going to be a little more than that. I mean it would be maybe $5 million and maybe $6 million a quarter or even a little bit above that is where we would hope for it to be. The first month out of the whole was a bit soft. So we think it's going to be -- has the potential, the 2 of them combined to be close to $20 million a year or something of that nature.

Okay. And then the gross margins were effectively breakeven for that 1-month period. Was there an inventory step-up on the acquisitions, meaning it was taken at the market level? And if so, I would assume that, that would carry forward until you burn through the revenue -- I'm sorry, the inventory that was acquired. Is that right? Or?

So yes, that is correct.

That is correct, yes.

Okay. So that will -- if you're doing a little more than $5 million a quarter in revenue, and it operates at roughly gross margin of around breakeven for a -- it's going to be a few quarters before we see a more reasonable level of gross margin out of that business. Is that fair?

That's correct. It's [indiscernible]. You got it exactly, right.

Okay. And what would be a targeted gross margin for that business.

Ryan, do you want me to address that one?

Nick, maybe you have this more in front of you. Yes. Yes, go ahead.

Yes. I think our targeted gross margin over time is going to be in a 20% to 30% range. There is actions that we have to do to improve some of the throughput process to get us there. And then we'll also be taking pricing actions as necessary as well.

Okay. And their backlog, what is their total backlog at this point?

It's just over $18 million.

And will you burn through most of that over the next few quarters, meaning the pricing could start to kick in, in '27? Or is there a carryover into '27 of that backlog that's going to be at a lower margin?

We're hopeful, it probably half of that is going to be suitable for '26. I would -- I don't believe we are going -- I can say we're not going -- for some of the products that are in the backlog and priced inappropriately, we're going to deal with those now and not wait for the next order to come. it's not going to be massive, but there's a few of these projects that we need to deal with in a sooner period of time. That being said, the vast majority of the backlog is priced at appropriate and healthy levels.

And these are prices that the previous owners had gotten across the line and subsequently received orders at the new prices. So the backlog is priced differently than I'd say the business has historically performed. And as we go further and deeper into the backlog, we'll see those margin -- the margin targets Nick referenced become more of a reality and not just because of additional pricing and go gets we need to do right now, but from prices that have been realized in the latter part of last year.

Okay. And then on material cost inflation, what did you see in the quarter on a year-over-year basis? And then I believe you're on a LIFO basis for the vast majority of your business. Is that correct?

Ryan, do you want me to take that one?

Go ahead Nick?

So the material cost increases was minimal, a couple of percent. And I'm sorry, what was the second half of your question that you had, Mike.

You're on LIFO for most of your business. Is that correct? .

So only one of our businesses is on LIFO. That's our Eberhard business. The newer businesses do not have -- are not on LIFO.

Okay. Okay. And then just last question. I think on the last call, you mentioned an ERP implementation in one of your business lines. Can you just update us on how that's going and if there are any additional plans for other divisions for ERP rollouts?

Yes. Thanks, Mike. Yes, I touched on it quickly. So I know it was a very quick touch in my prepared statements, but we did go live in the ERP changeover at Velvac, and we did that April 1. There's still some things that we're working through, but I'm happy to report we're taking, making and shipping orders. We're -- the business has been able to close each month and the quarter on time.

So I'm not going to say it's without any issues to still be resolved, but I'll say that the team has done a nice job getting it to where it's at. And we expect it to be completely normalized and not something we're going to even be talking about within this quarter. So it's -- we're getting there. It's -- I know it's one of the toughest things to go and do and we've been able to get that across the line. And no, we don't have any other ERP upgrades or changes on the docket for any of the businesses, including the 2 that we just acquired.

Okay. And I did have 1 last question for you, actually. Do you have a tariff refund amount, rough -- maybe a ballpark number?

No, it's not overly significant at this point in time that each of the businesses is mostly Eberhard and Velvac, that are working through that. So -- right now, it's not anything overly significant and they're still working on that. We might have more to report in that regard at the next quarter presentation.

There appear to be no further questions in queue at this time. I would now like to turn the floor back over to Ryan Schroeder for closing remarks.

Thank you, and thank you, everyone, for joining us today. We are encouraged by the direction of the business and is focused on translating that momentum into stronger financial performance and long-term shareholder value. Thank you for your continued support of The Eastern. Please reach out to Nick or I if you have any additional questions. We look forward to updating you next quarter. Thank you, and goodbye.

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.

Good morning, and welcome to The Eastern Company First Quarter Fiscal Year 2026 Earnings Call.

[Operator Instructions]

Please note, this conference is being recorded. I will now turn the conference over to your host, Marianne Barr, Treasurer of The Eastern Company. Marianne, the floor is yours.

Good morning, and thank you, everyone, for joining us this morning for a review of The Eastern Company's results for the first quarter of 2026. With me on the call are Ryan Schroeder, Chief Executive Officer; and Nicholas Vlahos, Chief Financial Officer.

The company issued its earnings press release yesterday after market close. If anyone has not yet seen the release, please visit the Investors Information section of the company's website, www.easterncompany.com, where you will find the release under Financial News. Please note that some of the information you will hear during today's call will consist of forward-looking statements about the company's future financial performance and business prospects, including, without limitation, statements regarding revenue, gross margins, operating expenses, other income and expenses, taxes and business outlook. These forward-looking statements are subject to risks and uncertainties that could cause actual results or trends to differ significantly from those projected in these forward-looking statements.

We undertake no obligation to review or update any forward-looking statements to reflect events or circumstances that occur after the call. For more information regarding these risks and uncertainties, please refer to risk factors discussed in our SEC filings including Form 10-K filed with the SEC on March 3, 2026 for the fiscal year 2025. 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.

Thank you, Marianne, and good morning, everyone. Welcome to The Eastern Company's First Quarter 2026 Earnings Conference Call. Following my prepared remarks, Nick will walk through the financial results in detail, after which we'll open the line for questions. I want to start this morning with our headline view of our Q1 performance and the lens through which we are managing the business as we move into the second quarter and look ahead to the balance of 2026. This was a quarter with positives and negatives.

On the positive side, net sales of $59.7 million improved sequentially from the fourth quarter by 4%. The sequential improvement reflects improved order execution and an improving demand environment. Notably, the sequential improvement was achieved despite continued softness in our returnable dunnage businesses, which weighed on the year-over-year comparison. We also experienced a one-time de-stocking action by a customer of Eberhard. Strengthening order conversion drove sequential backlog growth to $82.2 million for the second consecutive quarter, continuing the recovery from the trough we reported in the third quarter of 2025. Order rates strengthened across virtually all of our segments. The underlying demand recovery we identified coming out of Q4 is intact and is showing early signs of broadening. And we delivered a $5.4 million year-over-year improvement in cash flow from operations, reversing a use of cash in the first quarter of 2025.

On the other side of the ledger, an operating issue within our returnable racks businesses, which resides within Big 3 Precision, pressured consolidated gross margin and net income for the quarter. Consequently, we reported Q1 adjusted gross -- adjusted EBITDA of $3 million compared with $4.6 million in both the first and fourth quarters of 2025. Excluding the Big 3 impact, EBITDA across the rest of the portfolio was broadly in line with prior quarter and prior year periods. Our Q1 performance reflects 3 principal dynamics, and I want to walk through each in turn, beginning with the operating issue at Big 3.

In Q1, our Big 3 business recorded a below-plan operating performance. I want to be clear about what happened, what we've done about it and the time frame over which the financial impact will work through our income statement. Within Big 3, to fill plant capacity against a prolonged period of soft demand, our racks team quoted orders in the fourth quarter, which were discovered to be below our margin thresholds. Having identified and addressed the root cause of the below-plan performance, we have tightened the quoting processes, adjusted the delegation of authority and installed a cross-functional review process that improves accountability. We have determined that the financial impact is contained to the first half of 2026, while the effective contracts run off.

We are honoring our commitments to customers who receive these contracts preserving the relationship that matters to the long-term value of this business. In fact, we continue to see backlog in this business grow. And despite this operational snap-through, our operational turnaround is on track.

Turning to demand -- to the demand environment, we are seeing improvements across virtually all of our business segments. The market signals are encouraging. Backlog grew sequentially for the second consecutive quarter, reflecting strengthening order conversion across the portfolio. We are seeing building order momentum at both Eberhard and Velvac. Notably, at Velvac, that activity is supported by an early-stage recovery in heavy-duty truck build rates at our major OEMs, several of which have been adding capacity in their own plants. We also are seeing customers commit to orders for the second half of 2026, which gives us better visibility than we had at this point a year ago.

Taken together, the demand environment heading into the remainder of 2026 is more constructive than it was in the second half of 2025. The trajectory of the order book and our customer engagement is moving in the direction that have been described for several quarters. That said, the macro backdrop continues to require active monitoring, and we are managing the business with appropriate caution as the recovery solidifies. Our operational and commercial work in Q1 included positioning each business to win more business, fulfill it profitably and capture operating leverage as demand recovers. Doing so ahead of new program launches scheduled across the second and third quarters. We believe these are the right investments at the right point in the cycle.

At Eberhard, we are applying lean principles to compress lead times and reduce inventory with no material capital required. The result is a more responsive footprint for both existing products and new program launches. Most significant of those launches is a new door actuation program for a customer's next-generation side-by-side ATV that is ramping up across the second and third quarters of this year.

At Big 3, alongside corrective measures taken -- we have taken, we are making capacity investments designed to deliver operating leverage. This includes automation and robotics that expand welding throughput without adding headcount and enabling lights out and weekend production. At Velvac, we went live on a new ERP system on the first day of the second quarter. The new platform is expected to support more efficient order management, inventory visibility and financial flows processes as Velvac continues to capture the recovery underway in the heavy-duty truck market.

We are into week 6 of this major initiative. And while it is not a finished project just yet, we are taking, making, and shipping orders and have been able to successfully close the month of April.

And now moving on to the balance sheet and capital allocation. De-leveraging the balance sheet remained a clear priority. In Q1, we continued to reduce debt, continued our regular quarterly dividend, repurchased shares under the authorized program and generated meaningful cash from operations. Strengthening the balance sheet gives us the capacity to absorb periods of operational pressure like the one we are reporting today without compromising the businesses or our strategic plan. It also preserves our optionality on M&A, allowing us to move on opportunities when they meet our criteria. I'll now turn the call over to Nick to review our financial results for the first quarter. Nick, over to you.

Thanks, Ryan. Beginning with net sales for the first quarter of 2026, net sales decreased approximately 6% to $59.7 million from $63.3 million in the first quarter of 2025, due primarily to decreased shipments resulting from lower order volume of returnable transport packaging products. The decrease was partially offset by increased sales of truck mirror assemblies. Our backlog as of April 4, 2026, was $82.2 million, down approximately 8% from $85.9 million a year ago primarily reflecting softer order activity in returnable transport packaging. Notably, backlog increased modestly on a sequential basis from $81.1 million at fiscal year-end.

Gross margin as a percentage of net sales for the first quarter of 2026 was 20% or $11.9 million compared to 22.4% or $14.2 million in the first quarter of 2025. This decrease reflects a decline in volumes on existing products, which spread manufacturing costs across a smaller revenue base and below planned operating performance at Big 3, as Ryan detailed. These factors were partially offset by new product contributions and price increases on existing products.

As a percentage of net sales, product development costs were 1.7% in the first quarter of 2026 compared to 1.8% in the prior period. This reflects continued investment in new products across our business units while maintaining cost discipline relative to our revenue base. Selling and administrative expenses for the first quarter of 2026 decreased $0.3 million or 2.8% to $9.6 million compared to $9.8 million in the first quarter of 2025. The decrease was driven by lower compensation and related charges and lower commission charges that were partially offset by higher legal and professional expenses. Operating profit for the first quarter of 2026 was $1.3 million or 2.2% of net sales compared to $3.2 million or 5.1% of net sales in the prior year period.

Other income and expense for the first quarter of 2026 was $13,000 of income compared to $200,000 of expense in the prior period. Interest expense in the first quarter of 2026 was $528,000, a modest decline from interest expense of $617,000 in the same period in the prior year. Net income from continuing operations for the first quarter was $0.6 million or $0.11 per diluted share compared to $1.9 million or $0.31 per diluted share in the prior year period.

Turning to adjusted EBITDA. First quarter 2026 adjusted EBITDA from continuing operations was $3 million or 5% of net sales compared to $4.6 million or 7.3% of net sales in the prior year period. The 230 basis point margin compression reflects 2 factors listed in order of magnitude. The most significant driver was Big 3's below planned operating performance and lower volume in returnable transport packaging.

Turning to the balance sheet. I want to highlight several dynamics that underscore our financial stability and the continued progress we are making on our capital structure priorities. Total assets at the end of the first quarter were $217 million, essentially flat compared to $216.7 million at fiscal year-end. On working capital, we ended the quarter at $71.3 million compared to $66.1 million in the prior year period with a current ratio of 3.5x.

Inventory declined $3.3 million to $53.1 million, representing approximately a 5.9% reduction from year-end. Accounts receivables were $32.6 million, up modestly from $30.1 million at year-end. On debt and leverage, we continue to reduce our long-term debt, ending the quarter with a balance of $33 million at quarter end. Our total debt-to-equity ratio improved 26.6%, down substantially from 34.3% at the end of first quarter of 2025.

We remain comfortably within all of our covenants under our Citizens Bank credit agreement, and we have $67 million of availability on our $100 million revolving facility that provides us with significant financial flexibility as we look ahead. Cash generated from operations in the quarter was $3.5 million, a strong reversal from the $1.9 million usage in the prior year first quarter. Capital expenditures were $0.9 million. Consistent with our capital allocation policy, we repurchased approximately 21,000 shares during the quarter. To summarize, our strengthening balance sheet and borrowing capacity gives us the flexibility to fund organic growth and selectively pursue disciplined M&A pipeline. That completes my financial review. I'll now turn the call back to Ryan. Ryan?

Thanks, Nick. Before we open the line to questions, I want to leave you a couple of key takeaways. Our corporate strategy is unchanged, and we are staying the course. We continue to de-leverage and strengthen the balance sheet, the commercial orientation of our businesses remain focused on an organic growth mindset. We are investing in the people, processes and programs to support that orientation and our pipeline of potential acquisition targets is filling, and we are well positioned to move decisively when the right opportunity meets our criteria. With that, I'll open it up for questions.

[Operator Instructions]

There are no further questions at this time. I would like to turn the floor back over to Ryan Schroeder for closing comments.

Thank you for attending our call today, and I would like to thank you for your continued support in Eastern. Please reach out to me or Nick, if you have any additional questions. We look forward to updating you in the next quarter.

Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time, and have a wonderful day. We thank you for your participation.

Good morning and welcome to the Eastern Company Fourth Quarter Fiscal Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Marianne Barr, Treasurer and Corporate Secretary at the Eastern Company. Marianne, the floor is yours.

Good morning, and thank you, everyone, for joining us this morning for a review of the Eastern Company's results for the fourth quarter and full year 2025. With me on the call are Ryan Schroeder, Chief Executive Officer; and Nicholas Vlahos, Chief Financial Officer. The company issued its earnings press release yesterday after market close. If anyone has not yet seen the release, please visit the Investor Information section of the company's website, www.easterncompany.com, where you will find the release under Financial News.

Please note that some of the information you will hear during today's call will consist of forward-looking statements about the company's future financial performance and business prospects, including, without limitation, statements regarding revenue, gross margins, operating expenses, other income and expenses, taxes and business outlook. These forward-looking statements are subject to risks and uncertainties and that could cause actual results or trends to differ significantly from those projected in these forward-looking statements.

We undertake no obligation to review or update any forward-looking statements to reflect events or circumstances that occur after the call. For more information regarding these risks and uncertainties, please refer to risk factors discussed in our SEC filings including Form 10-K filed with the SEC on March 3, 2026, for the fiscal year 2025. 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 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.

Thanks, Marianne. 2025 is a year defined by 2 things: challenging end markets, particularly heavy truck and automotive and significant operational progress that positions us well for the future. Our primary end markets remained under pressure throughout most of the year though we began to see early signs of stabilization in November and December. At the same time, we were navigating tariff impacts and broader macro uncertainties.

As a result, our financial performance reflects both the difficult environment and the actions we took to respond decisively. For the full year, revenue was $249 million, down 9% year-over-year. Adjusted EBITDA was $19.4 million, representing a 7.8% margin compared to $26.3 million or 9.6% margin last year. Importantly, the performance represents roughly a 7% margin on reduced operating scale, which we view as a commendable outcome given the revenue pressure.

Encouragingly, the fourth quarter showed sequential improvement. Revenue increased 4% from the third quarter, rising from $55.3 million to $57.5 million. Adjusted EBITDA improved by $1.1 million sequentially. That reflects a 50% margin on the incremental revenue from Q3, clear evidence that our cost actions are working and flowing through to the bottom line as volumes stabilized.

While we couldn't control when the markets would turn, we made sure that 2025 would be the year we prepared Eastern to win going forward. Here's what we did. In 2025, we made the decisive structural changes to Eastern's cost base, portfolio and operating model. As a result, Eastern is leaner, more focused and better positioned with a solid foundation for its next chapter of growth. First, we lowered our cost structure. We reduced our cost base, generating approximately $4 million in annual savings from restarting a footprint optimization initiatives. At the same time, we strengthened leadership. We hired Zach Gorney to lead Everhard, promoted Emilio refile to lead Big 3 and added 2 strong commercial leaders to drive growth in both of those businesses.

Second, we streamlined the portfolio. We divested the underperforming Centrilium mold division of Big3, a business that was a drag on earnings. This allowed us to concentrate capital and management attention on our high conviction core businesses. Third, we address tariffs head on. We neutralized approximately $10 million of tariff exposure offsetting substantially all of the impact through pricing actions and supply chain cost reductions. We are also building more flexible and resilient supply chains, giving customers multiple sourcing options, both domestic and offshore, so we can pivot as the trade environment evolves.

Fourth, we invested in future revenue. We executed a commercial realignment to strengthen our go-to-market capabilities going into 2026, expanding new customer relationships and targeting new end markets. We maintained our investment in product development throughout 2025 with output that will become increasingly visible in '26 and beyond. Notably, our Asia business grew 25% year-over-year, following the deployment of dedicated sales resources in the region, a geography where we see opportunity for incremental profitable growth going into the future.

Fifth, we strengthened the balance sheet. We enhanced financial flexibility by refinancing our credit facility. The incremental capital supports organic growth, provides a buffer against macro uncertainty and positions us to act decisively when the right M&A opportunity arises. Finally, we demonstrated capital discipline. We reduced debt by $8.7 million returned $2.7 million to shareholders and repurchased approximately 153,000 shares or about 2.5% of shares outstanding. Our operating model demonstrated resilience. A9% revenue decline resulted in only a 20 basis point of gross margin erosion in the fourth quarter. Sequential financial improvement and momentum in our sales funnel suggest the third quarter represented the trough.

To summarize, we exited 2025 with a leaner cost structure, a more efficient operational footprint, a stronger balance sheet and a leadership team that is action-oriented and focused on results. 2025 was the year we built the foundation.

I'll now turn the call over to Nick to review our fourth quarter and full year financial results in more detail. Nick, over to you.

Thanks, Ryan. Before I review the company's financial results from continuing operations for the fourth quarter and full year 2025, please note that fiscal year 2025 was a 53-week year with the fourth quarter spanning 14 weeks compared to 13 weeks in the prior year period. Beginning with net sales in the fourth quarter of 2025, net sales decreased 13.7% to $57.5 million from $66.7 million in the fourth quarter of 2024.

This was due to lower shipments of returnable transport packaging products and truck mirror assemblies. For the full year 2025, net sales decreased 9% to $249 million from $272.8 million in 2024, also due to lower shipments of returnable transport packaging products and truck mirror assemblies. Our backlog as of January 3, 2026, was $81.1 million, a decrease of 10% or about or 8 million from $89.1 million as of December 28, 2024. The decrease was primarily driven by lower orders for returnable transport packaging products.

Gross margin as a percentage of sales for the fourth quarter of 2025 was 22.8% compared to 23% in the fourth quarter of 2024. This decrease was primarily due to higher material costs on lower sales volumes. For the full year of 2025, gross margin as a percentage of sales was 22.9% compared to 24.7% in 2024. The decline was attributable to the same factors. As a percentage of net sales, product development costs were 1.6% in the fourth quarter of 2025 compared to 1.7% in the prior period.

For the full year 2025 and 2024, product development costs as a percentage of net sales were 1.6% and 1.8%, respectively. Our investment in new products remains disciplined relative to the revenue base during the year. Selling and administrative expenses in the fourth quarter of 2025 decreased $1.2 million or 10.5% compared to the fourth quarter of 2024.

The decrease was driven by lower commissions, legal fees and personnel-related costs. For the full year, selling and administrative expenses were essentially flat versus 2024, and though 2025 included $2.5 million of restructuring charges primarily related to the reduction in force in the second quarter and facility cost actions. Operating profit for the fourth quarter of 2025 was $2.2 million or 3.8% of net sales compared to $3 million or 4.5% of net sales in the prior year period.

Other income and expense for the fourth quarter of 2025 was $0.2 million of expense compared to $0.3 million of expense in the prior period. For the full year 2025, other expense was $0.5 million compared to $0.4 million of expense in 2024, an increase of $0.1 million. The increase was driven primarily by a onetime $0.5 million write-off of unamortized deferred financing fees associated with the termination of our prior TD Bank agreement recorded in the fourth quarter of 2025 in connection with our refinancing into a new $100 million 5-year revolving credit facility with Citizens Bank, partially offset this charge was a recovery of employment tax credits during the year.

Interest expense in the fourth quarter of 2025 was $0.7 million, unchanged from the same period in the prior year. For the full year, interest expense was $2.7 million, essentially flat with $2.7 million recorded in fiscal 2024. Net income from continuing operations for the fourth quarter of 2025 was $1.2 million or $0.19 per diluted share compared to $1.6 million or $0.26 per diluted share for the same period in 2024. For the full year 2025, net income from continuing operations decreased 57% to $6 million or $0.98 per diluted share compared to $13.2 million or $2.13 per diluted share for 2024.

Turning to our balance sheet. During the fourth quarter, we financed our credit facility. In October, we entered into a new $100 million 5-year revolving credit facility with Citizens Bank, which supports our long-term growth and enhances our financial flexibility. As of March 3, 2026, we had $66 million of availability under the Citizens facility. At the end of Q4 2025, our senior net leverage ratio was 1.35:1 compared to 1.4:1 at the end of the third quarter of 2025 and and 1.23:1 at the end of 2024. During the year, we returned $2.7 million to shareholders through dividends. We also repurchased approximately 153,000 shares or about $3.7 million of common stock under the repurchase program authorized by our Board in April 2025. That completes my financial review.

I'll now turn the call back to Ryan.

Thanks, Nick. So turning to 2026 after spending 2025 doing the structural work, we entered the year with a leaner cost base, a strengthening commercial pipeline and end market conditions that while still evolving are moving in the right direction. The leading indicators we monitor most closely, including order flow, particularly in November and December, OEM production signals and the depth and quality of our opportunity funnel are pointing in a more favorable direction than they were a year ago. We remain disciplined in our outlook, but we are cautiously optimistic that we are entering a more constructive demand environment.

M&A continues to be an important component of our long-term value creation strategy. We are actively evaluating opportunities that meet our strategic and financial criteria, and the pipeline of potential transactions has grown meaningfully over the past year. That said, our approach remains highly disciplined. We are focused on targets that are strategically aligned and immediately accretive. We'll update shareholders when there is something meaningful to share.

Before opening the call for questions, I'd like to briefly address the Board and governance matters. In 2025, we welcomed Chan Galvao to our Board. Chan brings significant experience that is highly relevant to our end markets and long-term strategy. Earlier this week, we announced that Charlie Henry and Mike Marty will not stand for reelection. I want to sincerely thank both Charlie and Mike for their years of service and meaningful contributions to Eastern.

We also use this opportunity to thoughtfully reduce the size of the board, improving agility and decision-making effectiveness. In parallel, we conducted a careful review of our corporate bylaws and implemented several updates designed to enhance shareholder alignment and governance transparency. We'll provide additional details in our upcoming proxy filing.

With that, operator, please open the line for questions.

[Operator Instructions] Okay. I'm not seeing any questions in the queue at the moment. No, there are no questions at the moment, Ryan.

Well, thank you, Jenny, and thank you, everyone, for joining us today. To close, 2025 was the year that we built the foundation. We took decisive action to lower costs, strengthen our portfolio, reinforce our balance sheet and invest for future growth all while navigating a challenging market environment. As we enter 2026, we do so as a leaner, more focused and more resilient organization. Early indicators are encouraging. Our commercial pipeline is strengthening, and our operating model has demonstrated its ability to perform across cycles. We remain disciplined, focused on execution and committed to delivering long-term value for our shareholders.

With that, I'd like to say thank you for your continued support in Eastern, and we look forward to updating you next quarter.

Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time, and have a wonderful day. We thank you for your participation.

Greetings. Welcome to The Eastern Company Third Quarter Fiscal Year 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Marianne Barr, Treasurer at The Eastern Company. You may begin.

Good morning, and thank you, everyone, for joining us this morning for a review of -- The Eastern Company's results for the third quarter of 2025. With me on the call are Ryan Schroeder, Chief Executive Officer; and Nicholas Vlahos, Chief Financial Officer. The company issued an earnings press release yesterday after the market closed. If anyone has not yet seen the release, please visit the Investors section of the company's website, www.easterncompany.com, where you will find the release under Financial News.

Please note that some of the information you will hear during today's call will consist of forward-looking statements about the company's future financial performance and business prospects, including, without limitation, statements regarding revenue, gross margin, operating expenses, other income and expenses, taxes and business outlook. These forward-looking statements are subject to risks and uncertainties that could cause actual results or trends to differ significantly from those projected in these forward-looking statements. We undertake no obligation to review or update any forward-looking statements to reflect events or circumstances that occur after the call. For more information regarding these risks and uncertainties, please refer to risk factors discussed in our SEC filings, including our Form 10-K for the fiscal year 2024 filed with the SEC on March 11, 2025, and our Form 10-Q filed with the SEC on November 4, 2025.

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.

Thanks, Marianne. Good morning to everyone on the call, and thank you for your interest in The Eastern Company. Overall, it was a disappointing quarter from a results standpoint. Revenue from continuing operations for Q3 was $55.3 million, down 22% from Q3 of the prior year, and EBITDA was $3.5 million for the quarter that made earnings per share of $0.10. Our disappointing performance is primarily attributed to the pullback in 2 key end markets, specifically Class 8 truck and automotive. We saw OE truck production in the quarter down 36%. This included summer shutdowns at the beginning of the quarter and a number of days removed from customer schedules towards the end of the quarter. The returnable packaging portion of our business is very heavily influenced by the North American automotive market. More specifically, the number of vehicle model changes impact our sales. And with the pullback of many new EV models, we saw a reduction of new projects in the quarter, specifically with 13 less platform launches in 2025 that led to a reduction of 34% the prior year.

We have had success diversifying still within automotive, but outside of our historically large customer as well as within military and heavy equipment producers. We did see the slowing in both of these markets coming and made significant proactive changes to our structure over the preceding 2 quarters to optimize our workforce and align resources with current market conditions. Among other things, we reduced the size of our SG&A, reorganized our Big 3 operational footprint and sold an underperforming business unit.

All in, these actions led to a savings of $1.8 million within the quarter. Furthermore, we have taken steps to enhance product innovation, expand into new end markets and both deepen and diversify our customer relationships to position us to capture emerging opportunities, reduce volatility and support sustainable long-term performance.

Turning to our balance sheet. We have repurchased approximately 118,000 shares through the end of the third quarter. This represents almost 2% of our outstanding shares and demonstrates our ongoing commitment to allocating capital to benefit our shareholders. We also reduced debt by $7 million and entered into a new $100 million revolving credit facility with Citizens Bank that provides us with additional flexibility to enhance our priorities, including continued investments into long-term growth initiatives and potential M&A opportunities.

Given the proactive steps we have taken and our historically strong balance sheet, we are confident that Eastern Company is well equipped to weather the cyclical market downturn and to capitalize on opportunities when our markets return to healthier positions. With that, I'll hand it over to Nick to dig a little deeper into the quarter. Nick?

Thanks, Ryan. I'll focus my review today on the company's financial results from continuing operations for the third quarter of 2025. Net sales in the third quarter of 2025 decreased 22% to $55.3 million from $71.3 million in last year's third quarter. The decline was primarily due to decreased sales of returnable transport packaging products and truck mirror assemblies of $9.9 million and $6.4 million, respectively. Our backlog as of September 27, 2025, decreased $23.6 million or 24% to $74.3 million from $97.2 million as of September 28, 2024, driven by decreased orders for returnable transport packaging products of $15.2 million, latch and handle assemblies of $4.7 million and truck and mirror assemblies of $3.6 million.

Gross margin as a percentage of net sales was 22.3% for the third quarter of 2025 compared to 25.5% for the prior year period. The decrease was primarily due to an increase in raw material costs incurred as we transition from customer-provided material to in-house sourcing on a mirror project as well as the impact of reduced volumes. As a percentage of net sales, product development costs were $1.6 million or 1.6% for the first 9 months of 2025 compared to 1.8% for the 2024 period.

Selling, general and administrative expenses decreased $0.7 million or 6.5% in the third quarter of 2025 compared to the last year's period. The decrease was primarily due to $1.1 million of lower compensation charges, offset by restructuring charges of $0.3 million. Other expenses increased $0.1 million in the third quarter of 2025 compared to the same period in 2024. The increase was the result of lower lease income. Net income from continuing operations for the third quarter of 2025 was $0.6 million or $0.10 per diluted share compared to net income of $4.7 million or $0.75 per diluted share for the 2024 period.

Now turning to a non-GAAP measure. Adjusted net income from continuing operations for the third quarter of 2025 was $0.8 million or $0.13 per diluted share compared to net income of $4.7 million or $0.75 per diluted share for the prior year period. At the end of Q3 2025, our senior net leverage ratio was 1.64 compared to 1.23: 1 at the end of 2024. In addition, we paid dividends of $0.7 million in this year's third quarter.

Subsequent to the quarter close, we entered into a new $100 million revolving credit facility with Citizens Bank. As of September 27, 2025, inventories totaled $56.8 million or $1.6 million, up from the end of 2024. During the third quarter of 2025, we repurchased 36,413 shares of common stock under the share repurchase program Eastern's Board authorized in April 2025. To date, we have repurchased 118,000 shares or approximately 2% of our outstanding stock. This completes my financial review. I'll now turn the call back over to Ryan.

Thanks, Nick. Clearly, it's been a challenging macroeconomic environment in the heavy-duty truck and automotive segments, as you've certainly heard from other industry participants during this earnings season. Trucks are getting older, and we are well into a freight recession. It really is only a matter of time until trucks -- market begins to bounce back. We are seeing some marginal improvements in Q4 already, but we'll have to see where it goes from there.

On the positive side, Eastern's new leadership team is fully in place and operating full speed ahead. Together, we have successfully implemented a much needed restructuring and plant closure program. Through cost containment and operational improvements and even with the reduced volume, we're making our operations more efficient and profitable. We're also staying nimble and close to our customers to mitigate the effect of changing dynamics on our businesses.

Given this, I believe we are very well positioned for success going forward. Lastly, we are looking for acquisition opportunities that fit our size and strategic criteria, taking a very disciplined and opportunistic approach as we evaluate companies. With that, operator, I'll open it up for questions.

[Operator Instructions] And the first question today is coming from [ Garvit Bhandari from Singular Research. ]

So a few questions from my side. This is Garvit from Singular Research. Firstly, on the gross margins, you have seen contractions during this quarter. So is it temporary? Or should we expect structurally lower margins going forward as well?

Yes. There certainly was a mix element associated to the gross margin reduction within the quarter, especially comparing to the third quarter of prior year. So I'd say, in general, it's -- I won't call it a one-off, but I think the trend definitely leans towards improved gross margins in the future back towards maybe the norm that we've seen in the past. But Nick, maybe you want to expand upon that...

Yes. So the gross margins were impacted by reduced volumes. So as we expect the volumes to come back to a normal state in the future, we will see the gross margins impacting as well.

Okay. Okay. Understood. And then on the overall demand side, you have indicated that you're seeing some recovery, but if you can just throw some more light on -- is it -- are you seeing early signs of recovery in the heavy-duty truck market? Or do you expect volumes to bounce back in the coming quarter and going into FY '26? Is that something that we should sort of take forward from your comments?

Yes. So I'll take this one, Nick. I think we certainly have seen some bounce back in the fourth quarter. That being said, we haven't seen volumes begin to return to the more historical norms. We certainly watch this very closely, as I'm sure you do as well. Right now, the truck industry, the heavy truck industry is forecasting some recovery next year. We're seeing some in the fourth quarter here. We're not sure if that's transitory associated with some of the changes in tariffs or not, but we are seeing some limited additional volume in the fourth quarter.

Right now, forecast that we've received show a soft first half of 2026. That's what we're planning for and then some incremental improvements towards the end of 2026. That being said, we frankly don't know. We are well positioned to react as our customers need us to. We're ready to ramp up. And if things are going to remain difficultly slow for the next few months, we are positioned -- we have positioned our factories to operate in that mean as well. That being said, yes, we've seen some limited volume improvements here in October, and we're expecting that through November, and we'll kind of see what happens in December and then in the beginning part of the year.

Okay. Got it. And then on the -- I think last quarter, you had mentioned about the USPS vehicle program, before contract that you had won from the government. Is there any update on that? How are you seeing the revenues ramping up there?

Yes. That program certainly has been a bright spot. I know we've spoken about that many quarters in the past. I left that out of this note just because it has ramped up nicely. It's been an important part of our overall business. And for Eberhard, it's this last quarter actually that Oshkosh became our largest customer for the quarter, recognizing -- it's not going to stay that way, but it's become an important part of our overall business, and it's been a nice project for us that has taken a while for it to come to fruition, but we're in full production. It's going to run full through next year, and we'll see as the contract continues, how long that one will run, but it's been a nice one for us for sure.

Okay. So is it possible for you to quantify the revenue contribution from the program and any -- and would we see a material impact on revenues in FY '26 as well from this program?

In terms of specific revenue on that, I would probably pause to be overly specific on that, just not to reveal too much in a public setting. I'm certainly happy to answer some questions for you offline as it pertains to that. If you take Eberhard though, as an important business within Eastern, Eberhard has enjoyed some good volumes with the -- on that U.S. Postal Service program, but at the same time, have another important market segment for them is the Class 8 truck market. And when you think of truck market, specifically the sleeper cab portion of the truck market, the levers and latches and locks and things of that nature, are an important part of Eberhard's business. That has obviously been a slow segment for us, as we've spoken about in these prepared remarks, but also in the past, we've seen that slow down. We expect that to bounce back in the future just as the truck market will bounce back. But for Eberhard's specifically, the Postal Service program has been a nice offset to the softness of the truck market.

Okay. Okay. Understood. And then lastly, on the Big 3, has there been any increase in the pace of model refresh cycles? Have you seen pace increasing? Or has it slowed down further? And if so, are you seeing any impact on the order flow there?

Yes. It slowed -- it has been a very slow quarter. Really, we've had 2 material impacts to our business within the quarter from a negative standpoint. One was the truck market and then the other was the automotive model changes. So that part of our market in the third quarter of our business has been significantly negatively impacted. If you look back, really the number of models launched this year is at a historical low for a very long time going back.

And for that reason, we are forecasting and already seeing an increase in model launches for next year and beginning right now. We're a number of months ahead of the actual launch is where we tend to be impacted favorably. And we're already starting to see specific to Big 3, our backlog improve there. So more to come, certainly more to come with that, and we'll have to see where it goes. But the sort of change in direction from EVs in this year certainly impacted the total launches, and we've had to make some adjustments accordingly for that. But yes, we are expecting that to improve some next year, and we'll be prepared for that as it comes.

[Operator Instructions] And there were no other questions at this time. I would now like to hand the call back to Ryan Schroeder for closing remarks.

I'd just like to say thanks again for joining this morning. It clearly has been a very challenging quarter, but the company is in great shape looking forward. I look forward to giving you an update after the fourth quarter. And if you need any additional information in the meantime, please reach out to us. And with that, I will end the call. Thank you very much.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.