Columbus McKinnon Corporation

Greetings. Welcome to Columbus McKinnon's third quarter fiscal year 2020 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Deborah Pulaski, Investor Relations for Columbus McKinnon. Thank you. You may begin.

Thanks, Sherry, and good morning, everyone. We certainly appreciate your time today and your interest in Columbus McKinnon. Here with me are Rick Fleming, our Chairman and Interim CEO. As you are likely aware, Rick was appointed Interim CEO effective January 10 with the departure of our former CEO, Mark Morelli, who is now the CEO of Vontir. Also here with us is Greg Rustowicz, our Chief Financial Officer. You should have a copy of the third quarter fiscal 2020 financial results, which we released this morning before the market. and if not, you can access the release as well as the slides that will accompany our conversation today at our website cmworks.com. If you'll turn to slide two in the deck, I will first review the safe harbor statement. You should be aware that we may make some forward-looking statements during the formal discussions as well as during the Q&A session. 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 here today. These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed with Securities and Exchange Commission. These documents can be found on the website or at www.sec.gov. During today's call, we will also discuss some non-GAAP financial measures. We believe those will be useful in evaluating our performance. You should not consider the presentation of additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliation of non-GATT measures with comparable GATT measures in the tables that accompany today's release and the slides for your information. So with that, if you would turn to slide three, I will turn it over to Rick to begin.

Rick? Thank you, Deb. I'm pleased to be joining all of you today. Let me take a moment to introduce myself. I've been with Pumice McKinnon as a director for almost two decades, so I'm quite familiar with the company, its products, and its markets. Before my retirement from USG Corporation in 2012, I was its Executive Vice President and Chief Financial Officer. USG had about $3.2 billion in revenues at that time. I was USG's CFO for about 18 years, and I was an employee of the company, or its Siri Masonite Corporation, for approximately 38 years. So most of my career has been spent in the building material and construction industry. I'm currently a director of Boise Cascade Company, which is listed on the New York Stock Exchange, as well as OE Holdings, a private company. While my role as the interim CEO of Columbus McKinnon was not expected, I'm honored to be leading this team while we were conducting our search for a new CEO. These are exciting times at Columbus McKinnon. We have a solid, motivated leadership team at the helm, we are delivering on our promises, and we have excellent momentum with our blueprint for growth strategy. In short, our future is bright. With that, let's turn to our review of the quarter. We have deployed our blueprint for growth strategy for about three years and the solid results of our third quarter demonstrate its continued effectiveness. Margins expanded and earnings and return on invested capital increased despite the headwinds related to the contraction of the industrial market. Even though we experienced lower volume, we achieved our 11th consecutive quarter of year-over-year margin expansion with our gross margins increasing 20 basis points to 34%. The looted earnings per share were 63 cents and adjusted earnings per share grew 5% to 64 cents. Earnings growth was driven by our 80-20 process, which contributed approximately $5.7 million to operating income. As a reminder, contributions from 80-20 are not only reflected in our cost structure, but also in our top line with strategic pricing and our priority customer account program. With the 80-20 process, we have been able to offset industrial market headwinds and continue to invest in our growth initiatives. Our strategy plus great execution by the team in order to achieve our financial targets. Adjusted EBITDA margin expanded 100 basis points to 15.2% for the quarter and 16.1% year to date. ROIC also improved by 140 basis points to 11.9%. The third quarter also demonstrated our ability to generate substantial cash flow over the cycles. In total, we generated $32.4 million in cash from operations during Q3, and as Greg will discuss, we have raised our expected free cash flow target for the year to $75 million to $80 million. We have used this cash to further reduce debt. Our leverage ratio is now just 1.3 times adjusted EBITDA, which is well ahead of our target. So our balance sheet provides excellent financial flexibility to pursue our blueprint for growth strategy to strengthen our earnings power and to continue to transform our business model. Now turning to slide four, I'll discuss in more detail the progress we're making on phase two of our strategy. As noted, the simplification of our business with 80-20 contributed approximately $5.7 million in operating income during the quarter. And although we have been deploying the 80-20 process for several years, we still have quite a bit of runway left and a long list of projects to further strengthen our earnings power. We have realized approximately $14.8 million in contributions to operating income year-to-date, and we are very confident that we will achieve our goal of $18 million for fiscal 20. While it is sometimes difficult to see the impact of 80-20 on the face of the income statement due to the many factors that affect the P&L, its contributions can be seen in our margin performance and ability to manage through headwinds. We believe that our performance has measurably improved over where we would have been historically. Our blueprint for growth strategy has arrived us with strategic direction and focus, while ePath, which is our operating business system that incorporates 80-20, has arrived us with the tools and discipline to execute well. As a result, during the third quarter, we were able to offset much of the impact of lower volume and under-absorption in our factories, while continuing to realign our costs to focus on growth through our product development activities, new marketing programs, and our investment in our digital initiatives. So, progress continues to be made on the transformation of our earnings profile. Now, turning to slide five, I'll cover in more detail some of our investments in organic growth to ramp the growth engine. In December, we announced that we have formed a controls and automation center of excellence that is dedicated to globally expanding our automation product and service portfolio. The center combines our skills as lifting specialists with the technology of our Magnetek brand that enables smart movement to create solutions that solve our customers' high-value problems. With the creation of the center, we can leverage these capabilities across more customers and markets. Of note, the center will have both testing facilities and the ability to provide our customers with hands-on experience with our solutions. We're also launching new products such as our Intel Crane systems, which incorporates controls that can provide up to 30% improvements in productivity for critical applications. In addition, our addressable market has been expanded by the certification in the U.S. of our explosion-proof hoists and related products, The increased lifting capacity gained with the Stahl brand of wire rope hoists and the unique offerings of our Magnetek drives and controls. Also, it's important to note that not all new products are digital. We are bringing innovation to our manual industrial products as well. The utility lever hoist that we will be launching this summer has an integrated safety brake that eliminates the requirement for manual installation of chain safety stops. If you can imagine being a lineman working dozens of feet in the air, Replacing transmission lines, you'll appreciate the safety features that our new tool provides. With that, I'll now turn it over to Greg to review our financial results in greater detail.