Columbus McKinnon Corporation

Greetings. Welcome to the Columbus McKinnon Fourth Quarter Fiscal Year 2020 Financial Results. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note that this conference is being recorded. At this time, I'll turn the conference over to Deborah Pulaski, Investor Relations for Columbus McKinnon. Ms. Pulaski, you may now begin.

Thanks, Rob, 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, and Greg Rustowicz, our Chief Financial Officer. Also joining us today are our President and CEO-elect David Wilson. You should have a copy of the fourth quarter fiscal 2020 financial results, which we released this morning before the market. If not, you can access the release as well as the slides that will accompany our conversation today at our website, www.columbusmckinnon.com. After our formal presentation, we will be opening the line for Q&A. We kindly ask that you ask only one question with a follow-up question, and then please get back into queue to allow for a continuous flow and adequate time. 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 our website or at 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-GAAP measures with comparable GAAP measures in the tables that accompany today's release and the slides for your information. So with that, if you turn to slide three, I will turn it over to Rick to begin.

Rick? Thank you, Deb. Good morning to all of you. Thank you for joining us today. As Deb mentioned, we have a special guest today. During our last earnings call, I shared with you that we hope to identify and hire a new CEO by June of this year. So I'm extraordinarily pleased that even with the challenges of COVID-19, we were able to achieve this target and hire our candidate of choice, David Wilson. As we announced on May 14th, David joins us from FlowServe Corporation, where he was the president of the pumps division. Effective on June 1st, he will be our new president and chief executive officer and a director of the company. You will hear from David before we open the Q&A session. Now let's turn to slide three. Before we discuss our results for the quarter, I'd like to briefly update you on COVID-19 and its impact on Clemens McKinnon. During these unprecedented times, our response to this pandemic has been guided by our core values, with the preeminent values being the health and safety of our employees, the trust of our customers, and business continuity. In early March, we established a COVID-19 task force which rolled out a communication process to keep our locations continuously informed. We quickly implemented stringent processes to reduce the spread of the virus with the goal of ensuring the safety, health, and well-being of our employees and their family. We seamlessly transitioned over 1,000 employees to a remote work environment. We also implemented the appropriate processes and took the necessary steps to be an essential business and critical supplier so that we could serve our customers while manufacturing in a safe environment that protected our employees. As a result of these actions, I'm pleased to report that all of our manufacturing facilities have been able to remain open except Mexico, which was closed until recently due to government restrictions, and our Brighton, Michigan facility, which was impacted by the shutdown of the auto industry. Regarding business continuity, it was clear to us that the sudden and significant downturn in the demand for our products required swift action. We also knew that cash generation and liquidity preservation will be critical given the lack of visibility regarding the duration of the pandemic. So we rapidly took the necessary actions to align our operations to the significant decline in market demand that we were experiencing. We quickly implemented furloughs, layoffs, and short work weeks. We also developed a plan to reduce inventories while continuing to focus on strong on-time delivery performance. Also, we suspended merit increases and bonuses for the first half of fiscal year 21. and importantly, given the successful execution of our blueprint for growth strategy and the discipline provided by our business operating system, EPAS, we entered this crisis with significant financial strength. Due to our record cash generation during fiscal 2020, we had almost $200 million of liquidity on March 31st, which consisted of $114 million of cash on hand and $84 million available on our revolver. Further, our strong cash generation during the year allowed us to pay down our debt by $51 million, leaving us with a leverage ratio of just 1.1 times. Given the COVID-19 recession, we elected to pay only the minimum debt service of $1.1 million in Q4 to reserve cash, and we will likely continue at this level during the remainder of the pandemic. Lastly, our solid financial position enables us to continue to selectively invest in growth initiatives even during this slowdown. I will cover some of these initiatives following Greg's discussion of our financial results. Turning to slide four, I will now discuss our near-term and long-term objectives. For the near-term, our goals are to continue to generate positive cash flow and operating income. Our blueprint for growth strategy is key to our ability to achieve these goals. In addition to the cost reductions taken to address the COVID-19 recession, we are continuing our focus on the 80-20 process and operational excellence. In fact, we are ahead of schedule regarding the closing of our Lisbon, Ohio facility. We expect to have this shutdown completed by July and continue to expect about $5 million in annualized savings. Given our positive cash flow and our confidence in our financial strength, we also expect to maintain our dividend during this recession. For the long term, our objective is still to become the market leader in safe and productive motion control products and solutions for our customers. We recognize that our future growth requires continued investment in technology and new products, building and retaining our enterprise talent pool, and advancing phase three of our blueprint for growth strategy. David joins us at an opportune time to drive the portfolio optimization and M&A efforts of phase three of our blueprint for growth strategy. Let's now turn to the results of our fiscal 24th quarter and the year that ended March 31st. Please turn to slide five. The success of our strategy was demonstrated throughout the year as we expanded margins and achieved many of our financial goals, even as the industrial markets were slowing. Despite the falloff in demand in the latter half of March, we had a record adjusted gross margin of 36.1% in Q4. For the year, net income was nearly $60 million, and our adjusted EBITDA margin expanded 60 basis points to 15.7%, Further, the return on invested capital improved to 11.5%. As you can see on slide six, we had record cash flow from operations and record free cash flow in fiscal year 20. This performance was facilitated by strong working capital management, as indicated by working capital to sales ratio of 14.5%, a 200 basis point improvement over our third fiscal quarter of this year. Turning to slide seven, I will now update you on the progress we are making with our 80-20 process. Not only did we outperform our original goal of a $12 million contribution to operating income in fiscal year 20, we also exceeded our updated goal of $18 million. As you can see, 8020 contributed $20.4 million to operating income during the year. Most of this contribution was realized in the gross profit line. As previously noted, it also includes the $2 million in savings realized from the closure of the Salem, Ohio facility at the end of fiscal 2019. We achieved this performance despite the $10 million reduction in sales that occurred in the latter half of March due to COVID-19. In fact, we were on track to achieve our previous revenue guidance for the quarter were it not for the pandemic. We expect to continue to realize contributions from 80-20 in fiscal 21, although it will be difficult to quantify these amounts until we have more visibility regarding the shape of the recovery. The 80-20 process remains a key element of our operating discipline and will continue to be so under David's leadership. With that, I'll now turn it over to Greg to review our financial results in greater detail. Greg?