Columbus McKinnon Corporation

Good day and welcome to the Columbus McKinnon Corporation first quarter fiscal year 2022 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Deborah Pawlowski, Investor Relations for Columbus McKinnon. Please go ahead.

Thanks, Carrie, and good morning, everyone. We certainly appreciate your time today and your interest in Columbus McKinnon. Joining me are David Wilson, our President and CEO, and Greg Rustwitz, our Chief Financial Officer. You should have a copy of the first quarter fiscal 2022 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, columbusmckinnon.com. After our formal presentation, we will be opening the lines for Q&A. We kindly ask that you ask only one question with a follow-up question, and please get back in queue to allow for 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 you 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 these will be useful in evaluating our performance. You should not consider the presentation of additional information in isolation or in 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 will turn to slide three, and we'll turn it over to David to begin. David?

Thanks, Deb, and hello, everyone. We have a lot of good things to discuss today. We started fiscal 2022 on an exciting note with the closing of Dorner, the largest acquisition in the company's history. Our Blueprint for Growth 2.0 strategy has clearly defined our path forward, and the Columbus McKinnon Business System, or CMBS as we refer to it, is driving our execution. We delivered 24% organic growth in the quarter with record adjusted gross margin. And we ended the quarter with record backlog, as all of our markets are demonstrating strong demand. We acquired Dorner on April 7th, and its performance in the quarter exceeded our expectations. Dorner adds precision conveying systems, expanding our intelligent motion solutions for material handling. Additionally, it serves markets with secular trends that are demonstrating strength, such as e-commerce, food processing, and life sciences. We had sales of about 213 million in the quarter, including 34 million from Dorner. Lifting revenue, which represents our organic or legacy business, was 179 million, and we are trending toward our pre-pandemic quarterly sales levels of around 200 to 210 million. We are optimistic about current trends, customer demand, and our market position. Demand came from all markets, but was especially encouraging in the heavy industrial, offshore oil and gas production, e-commerce, and entertainment markets. We believe that we are gaining ground as these markets recover with our recently launched products, including our integrated crane kits, utility lever hoist, aqua guard, and edge roller technology conveyors, as well as the expansion of our Compass CPQ tool. I should note that our sales performance in the quarter would have been approximately 5 to 10 million better had it not been for challenges within the supply chain and labor shortages. It's been a constant battle to match available components, such as motors and electrical components, with production schedules to produce complete orders and service our ongoing demand. This has required us to juggle resources, balance loads, and manage our production lines with a high degree of agility. Fortunately, we're making progress with our recruiting efforts, and we are systematically building select inventory and committed supplier capacity to buffer further impacts in the supply chain. Despite these challenges, our first quarter margins improved nicely. Dorner's accretive margin profile elevated gross margins by 80 basis points to a record adjusted gross margin of 36.3%. Adjusted operating margin was 11.1%. a full point higher than the trailing fourth quarter. And adjusted EBITDA margin expanded 210 basis points to 16% compared with the fourth quarter. We have many initiatives underway to drive our 2.0 strategy and deliver outsized growth. To ensure that we execute successfully, we are enhancing CMBS, establishing enterprise-wide standards and discipline for processes, accountability, and scalability. Turning to slide four, I'm pleased to report that we published our inaugural corporate social responsibility report in June. This was an extensive enterprise initiative that prioritized the material factors that were most relevant to both our business and our stakeholders. We organized our report in compliance with GRI core standards and aligned our priorities with the relevant UN sustainable development goals. We have established metrics around several key factors such as employee health and safety, training and leadership development, and diversity and inclusion. We have also identified environmental sustainability targets around energy consumption, emissions, and waste reduction. We've established green teams at each global operation and are encouraged with the level of engagement within the organization. These initiatives and metrics are integrated into our business at every level. You can see our priorities by category on this slide, and I hope you take the time to review our report, which can be found on the homepage of our website. Turning to slide five, we announced earlier this week the launch of IntelliConnect Mobile Plus, which further advances our Intelli product offerings with even greater intelligence and information management for our customers. IntelliConnect Mobile Plus provides an intelligent solution that targets the secular drivers of automation, digitization, and the Internet of Things. A direct, secured Wi-Fi connection between your mobile device and our products provides access to the tracking and data feature sets that enable informed decision-making regarding production processes and maintenance requirements. This offering will increase our direct-to-end user access, improve the customer experience, and drive pull-through equipment and aftermarket revenue for Columbus McKinnon. The capabilities of our intelligent products for lifting also apply to conveying. We are sharing our technology, talents, and skills across the organization to identify further opportunities to create compelling offerings for our customers. Looking more broadly, new products introduced by Columbus McKinnon within the last three years, or our N-3 revenue for the quarter, grew 19%. year over year. With that, I'll hand it over to Greg.

Greg? Thank you, David. Good morning, everyone. On slide six, net sales in the first quarter were $213.5 million, up 53.5% from a year ago, which was the quarter most heavily impacted by the pandemic. This sales level was near the midpoint of our guidance for first quarter revenue of approximately $212 to $217 million. While we continue to see demand improve sequentially, Like many other industrial companies, we experienced supply chain delays, which impacted revenue levels in the quarter. This was also the first quarter that the Dorner acquisition is included in our results. As David mentioned, Dorner exceeded our expectations, delivering over $34 million of revenue in a truncated quarter, given that we closed the acquisition on April 7th. Looking at our sales bridge, sales volume was up $31 million, or 22.5%. We also realized positive pricing as we saw year-over-year pricing improve by 1.4%. Foreign currency remains a tailwind and increased sales by 5% or 6.9 million. Let me provide a little color on sales by region. For the first quarter, we saw sales volume increase in the U.S. by nearly 28%. We realized 90 basis points of pricing. As a reminder, we have not yet benefited from the second price increase that we announced the last week of June, as many of our shipments in the quarter were sitting in backlog at the start of the quarter. Outside of the U.S., sales volume was up approximately 16%, and pricing was up 2%. By region, sales volume was up 51% in Canada, up 39% in Latin America, up 12% in EMEA, and up 7% in APAC. We are monitoring inflationary pressures globally and have announced additional price increases in the US and Canada effective in August. In addition, we are looking at additional surcharges in Europe later in the quarter. On slide seven, we saw our gross margin improve sequentially to 34.7%, which compares with 34.4% in the fiscal fourth quarter. We achieved a record adjusted gross margin of 36.3%. This quarter, we incurred $3 million of inventory step-up expense and $500,000 of acquisition, deal, and integration costs that hit cost of sales. As part of purchase accounting, we valued Dorner assets and liabilities at fair market value. The $3 million of inventory step-up expense represents the difference between the fair market value of Dorner's inventory and the actual inventoryable cost. This amount is then expensed based on inventory turns which was all recognized in our first quarter and won't impact future quarters. Overall, Dorner was 80 basis points accretive to adjusted gross margin this quarter. In addition to Dorner, adjusted gross margins reflected the operating leverage from higher sales volumes, which led to favorable year-over-year productivity in our factories. This was partially offset by the negative impact of supply chain challenges. We are still benefiting from our 80-20 process, which contributed approximately 1.3 million incremental year-over-year gross profit expansion in the quarter, largely from factory closure savings. We are focused on product line simplification this year and are making good progress with SKU and component reductions. Unfortunately, this part of the 80-20 process takes longer to realize benefits, but will pay dividends over a longer horizon. Let's now review the quarter's gross profit bridge. First quarter gross profit of $74.1 million was up $29.3 million compared with the prior year. This was driven by several factors. First, Dorner contributed $14 million of gross profit. Sales volume added $11.6 million to gross profit compared to a year ago. We also saw positive productivity net of other cost changes of $2.9 million, despite some supply chain challenges that I referenced. Foreign currency translation added $2.4 million to gross profit. Pricing net of raw material inflation was positive $700,000, which was offset by higher tariffs on products coming from China of $1 million. In the prior year quarter, we had factory closure and business realignment costs, which did not repeat. This quarter, we incurred $500,000 of acquisition integration costs and inventory step-up expense of $3 million. And, as I previously mentioned, the inventory step-up expense will not reoccur in the future. As shown on slide 8, RSG&A costs were $57.2 million in the quarter, or 26.8% of sales. Included in this total were $8.7 million of Dorner acquisition-related costs and $600,000 of business realignment costs, which we have included as pro forma items in our adjusted operating income, adjusted EBITDA, and adjusted EPS calculations. Excluding these one-time costs, RSG&A costs would have been 47.9 million or 22.4% of sales. I would point out that this number also has an incremental 5.9 million of RSG&A costs from the Dorner acquisition. This means that Legacy Columbus McKinnon incurred 42 million of RSG&A costs, which was comparable to 42.3 million recorded in Q4, excluding acquisition deal costs and business realignment costs incurred before. For the fiscal second quarter, we are increasing our Q2 estimate for RSG&A to $52 million, which includes the full impact of the Dorner acquisition. This includes additional investments in strategic growth initiatives, as well as higher variable selling costs, which reflect a higher level of sales in Q2 compared to Q1. Turning to slide nine, adjusted operating income was 23.6 million. Adjusted operating margin was 11.1% of sales, up 750 basis points from the prior year. This margin expansion is driven by the operating leverage in the business, incremental pricing, and the Dorner acquisition. At current FX rates, we expect total amortization expense of 6.3 million per quarter with Dorner. As you can see on slide 10, We recorded a gap loss per diluted share for the quarter of 27 cents. Adjusted earnings per diluted share were 69 cents, which were up substantially from 17 cents per share in the prior year and up 9 cents per share sequentially. I want to highlight that for this quarter and going forward, we are adding back amortization expense from the income statement on a tax-affected basis to our adjusted earnings per diluted share calculation. In Q1, this added 18 cents to adjusted earnings per diluted share. All periods on this chart have been restated for this. We feel that this is a better indicator of the true cash earnings performance of the company as we intend to be programmatic with our M&A strategy. On a GAAP basis, we recorded the cost of debt refinancing this quarter of $14.8 million, an acquisition deal, and integration costs of $9.2 million. We also had the inventory step-up expense that I previously discussed. With the new financing that we completed in May, we expect interest expense of approximately $4.7 million in the second quarter, and our diluted shares outstanding our anticipated average 29 million shares in the second quarter as well. Our tax rate on a GAAP basis is expected to be in a range of 21% to 23%. and we will continue to use 22% as our tax rate for non-GAAP adjusted earnings per share. On slide 11, our adjusted EBITDA margin continues to increase and was 13.7% on a trailing 12-month basis. In the first quarter with Dorner, adjusted EBITDA margin was 16%. Dorner was accretive to our adjusted EBITDA margin by 190 basis points. Our return on invested capital also continues to improve and was 7.8% in Q1, which slightly exceeded our current WAC. We continue to target a 19% EBITDA margin and expect our ROIC to be double digits in fiscal year 23, excluding the impact of future acquisitions. We remain highly confident that our strategy will enable us to drive profitable growth and achieve these objectives. Moving to slide 12, we used $11 million of free cash flow this quarter, which included a cash outflow of $10.9 million related to acquisition deal costs, which were paid in the quarter. As sales have increased, we have also increased our working capital investment by approximately $26 million, which included additional investments in inventory to meet rising demand. Our working capital as a percent of sales was 12.5% of sales, which was in line with what we were expecting. CapEx was $3.6 million in the quarter. We expect CapEx of $20 to $25 million for the full year. Turning to slide 13, as we discussed in May, we refinanced the capital structure post-Dorner acquisition, which included a bridge loan, an equity offering, and a new term loan B. The new $450 million term loan B carries an interest rate of LIBOR plus 275 basis points with a 50 basis point LIBOR floor. This gives us a low-cost, flexible capital structure that will serve us well for the coming years. As of June 30th, on a pro forma basis, which includes Dorner's June LTM adjusted EBITDA but excludes expected cost synergies, our net leverage ratio was approximately 3.0 times. We expect to hit our target leverage ratio of two times within two years, excluding any additional acquisitions. Finally, our liquidity, which includes our cash on hand and revolver availability, remains strong and was approximately $170 million at the end of June. Please advance to slide 14, and I will turn it back over to David.

Terrific. Thanks, Greg. As we mentioned, we've had strong demand across all of our markets. And Columbus McKinnon's book-to-bill ratio was a solid 1.17 in the quarter. Dorner contributed $36 million in orders and had backlog of $40.5 million at the end of the quarter. Lifting Solutions had 2.4% sequential growth in the quarter, driven by 5% growth in our short cycle business, while the project business, which tends to be lumpy, was flat compared with the trailing fourth quarter. This sequential organic growth in our first quarter is noteworthy given the typical seasonality of our business. Our fiscal fourth quarter tends to be boosted by the combination of orders being placed ahead of price increases, promotional sales, and the availability of new customer budgets. This quarter's increase bucks this historical trend and demonstrates the momentum of the economic recovery. We achieved record backlog of $247 million at the end of the quarter, including Dorner. Excluding the acquisition, we had a record organic backlog of $207 million. We're pleased with this progress and the foundation this provides as we advance through fiscal 2022. Approximately $140 million of our backlog is available to ship in the second fiscal quarter. Turning to slide 15, we're expecting sales to range between 225 and 230 million for the second quarter. At the midpoint of this range, this is about a 7% sequential increase over the first quarter. Demand across all markets, as I noted earlier, is strong. In heavy processing applications, such as steel production, demand for retrofit, modernization, and new capacity projects is strong, and quote activity is gaining momentum. In the pulp and paper market, where equipment capacity has been heavily utilized, we're now seeing requests for upgrades and repair parts. Offshore oil and gas projects are also coming back to life. Our explosion protected stall products are particularly well suited for these applications. We provide unique solutions that address special lifting requirements and help to solve challenging engineering problems. We also provide industrial products for drilling platforms and have seen a nice improvement in demand there. We saw a resurgence in the entertainment market as many COVID restrictions have been lifted, opening up traveling concerts, sporting events, and festivals. This market, which was coming off of a dead standstill, had the biggest resurgence for us. Conveying solutions had some notable Q1 wins in e-commerce, food processing, and life sciences. Demand for our unique conveying solution for autonomous mobile robots has grown, and we see even further potential in the e-commerce space. We also had strong demand in food services and life sciences. We want a large order from a frozen food company to provide a specialty conveying solution that automates processes, increases uptime, and improves product flow. We were also awarded a large life science project where our precision conveyors are embedded into equipment that is used for blood analysis. In fact, all of Dorner's markets are demonstrating strength. As I mentioned, while demand has been strong, we continue to carefully navigate the challenges associated with the global supply chain and U.S. staffing shortages. This is requiring a great deal of agility on everyone's part as we respond with as much flexibility as possible to meet increasing demand. I'm proud of how our team is rising to this set of challenges. We remain highly focused on Columbus McKinnon's organic growth and acquisitive development and are advancing several projects aligned with our core growth framework and acquisition pipeline. With that, Kerry, we can open up the line for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. We do ask that you limit yourself to one question with one follow up. You may then rejoin the queue with additional questions. The first question will be from Matt Somerville with DA Davidson. Please go ahead.

Hi there. This is Will Jellison on for Matt Somerville this morning. Hey, Will. Good morning. Good morning. First question is just a quick follow-up on the supply chain you already spoke about. Could you provide a little bit more color about the way freight played into the constraints and what potentially you could do to counter those?

Yeah, sure. We've seen significant cost increases associated with freight charges, and we have been navigating that, I think, relatively successfully. We've been securing containers, I guess, in a more normal fashion over the last couple of months as the container position around the world has seemed to have stabilized, and so that's been helpful. We're also making sure that we're routing containers through the right to make sure that where there's congestion, we're avoiding that congestion. But with the freight price or cost increases, as well as material cost increases in this inflationary environment, we've been working hard to make sure, as we have historically, to offset those costs with appropriate price increases. And we feel like we've been effective at positioning ourselves to ensure that as we go throughout the year, we're able to offset the cost that we've seen.

All righty, great. And then a quick follow-up to that, sticking on supply chain constraints. With your recruiting efforts for new talent, do you expect that your labor costs could be any meaningfully higher from things like higher wages or benefits that that new labor pool might demand? Mm-hmm.

Yeah, I mean, obviously the labor markets have been pretty tight and we've been working to attract and retain the best talent and we feel like we've got a great team and we're attracting and developing great new talent within the organization. To do that, we've made sure that our market, our pay is market competitive. We did have an annual merit increase that we implemented this year that was part of our budget planning process and part of what's factored into the way that we've been managing and communicating about the business. But the current environment is one that's challenging, and we've had to provide appropriate incentives for people to join, but nothing that materially affects the compensation or labor costs within our business.

That's great. Thank you. I'll get back in queue. Great. Thanks, Will.

The next question is from Chris Howe of Barrington Research.

Hey, Chris. Good morning. Good morning, David. Good morning, Greg. Another question on that supply chain. You mentioned the $5 million to $10 million that could have been better if we excluded some of the constraints that you experienced this quarter. If we think about that in the context of some of the continuing challenges in this market, I would assume that that 5 to 10 million still sits as potential revenue further down the line as this environment starts to loosen. So perhaps this could lead to top line potential if we look a little bit further down the road past this pressured environment.

Yes, yes, for sure. I mean, as you saw with our record backlog, we've got a substantial position in our backlog, a nice position in short term as well as long term as we've communicated the split. The 5 to 10 that could have been better, certainly we were gunning to do better than what we did and wanted to exceed that top line position. We're pleased with where we ended up and we think that you're right. We've got that 5 to 10 still in the backlog ready to go and it will go. as we manage through material availability and the constraints that are out there. We do have a number of actions that are underway in our supply chain and with our vendors to make sure that we secure capacity for materials, whether it's in actual parts or blanket order secured capacity over a period of time. And we are increasing inventory in select areas to make sure that for more standard products, less specific engineered-to-order products, we have the available materials to meet the rising demand. But we're encouraged with the progress that we're making, although challenged, like most are in this environment, to make sure that we're getting materials in that we need specific for the demand that's coming in. And as I indicated in my prepared remarks, it's been a constant challenge to remain agile and shift resources and keep up with what has been very encouraging rising demand. And Greg, I don't know if there's anything else you'd add to that.

Yeah, I would, Chris, the $5 to $10 million is going to shift this quarter. And as we've added inventory to the system, we've added on a cash basis $11 million more inventory. That will start to alleviate demand. you know, some of the supply chain challenges we've had as we've locked up additional capacity. But having said that, I think, you know, it's going to be another quarter or so while this plays itself out.

I have many follow-ups, but we'll stick with one. I think that points to the long-term sustainability and the growth that you see in the underlying business. David mentioned in some of the prepared remarks about that 19% target. and the gross margin potential that you see in the business. So in thinking in line with this target, that points to the potential perhaps to go beyond this target as we look at the company more on a run rate basis. There seems to be good margin potential there, especially when considering the other initiatives that you have, such as product line simplification that will flow through later down the line.

Yeah, exactly, Chris. I understand completely, and we have a 19% target that had been previously communicated. We're obviously very focused on making sure that we achieve that, and we've committed to get there, and we're communicating a level of confidence around our ability to get there. We believe that the earnings potential of the business goes beyond that, And we're certainly focused on taking it to that next level. There are a number of opportunities within the business as it relates to continued growth opportunity as well as improved leverage on that growth. So we remain encouraged and positive about where that endpoint is or that next level is, I should say. I think you're thinking about the business the right way. Greg, what would you add to that?

Yeah, so Chris, if you recall, the 19% EBITDA margin target was based on legacy Columbus McKinnon. And this quarter, Dorner was 190 basis points accretive. So as we continue to recover from a COVID environment, there is that potential. And so the 19% with Dorner is actually going to accelerate a year from what we had previously thought. with the downturn with COVID, this year being a recovery year, next year being kind of back to pre-COVID levels. So absolutely, there's upside potential to the 19%. That's great.

I'll hop back in the queue. Thanks for taking my question.

Great.

Thank you, Chris. The next question is from John Tanwantang of EJS Securities.

Hi. Good morning. It's Lucas for John. You guys answered most of my specific questions, very detailed presentation. Appreciate that and thank you and congrats on the quarter. I guess just one big picture question from me. In terms of from a strategic standpoint, are you looking at more M&A or is debt pay down the immediate priority? Kind of how are you thinking about that in the balance sheet at the moment?

Right. So we're remaining actively attentive to what's happening in the markets, making sure that we're keeping our ear to the ground and staying engaged around attractive opportunities for Columbus McKinnon to continue to grow through acquisition. But we're also very acutely focused on ensuring that we deliver. And we have an expectation that we'll be able to do that rapidly. And so knowing that deals take a little bit of time to develop, We obviously want to make sure that we're in the mix when the right opportunities present themselves. And we're going to be disciplined and thoughtful and strategic about where we invest. But we do intend, as has been indicated in our prepared remarks, to be programmatic with the work we do to develop and grow the company.

Very helpful. Thanks.

Yeah, Lucas, just to add on. So the pro forma net leverage ratio today is three times. And that includes a full 12 months of donor results. And on a financial covenant basis, which is what we report to the banks, it's actually going to be below the three times. So, you know, there's – because I think of the equity offering that we did, that basically gives us the ability to get back in the market sooner. And so, you know, I wouldn't – You know, size obviously matters, right, from an M&A perspective. So I think we're well positioned today to do bolt-downs without any trouble at all.

Right. And I would just add one quick comment to that. As I mentioned, the Dorner deal is going incredibly well. They have a terrific management team. They have the opportunity to participate. They do participate in great markets and the opportunity to expand their participation in those markets. And we're really encouraged by developments and potential there. And so we're mindful of making sure we execute well with what we've done. And so I want to be careful to make sure that it's clear. We're focused on what's right in front of us and execution, but we're also maintaining our focus on executing the Blueprint for Growth 2.0 strategy that we've developed, which is an ambitious one.

Perfect. Thanks very much. Great. Thank you, Lucas.

The next question is from Michael McGinn of Wells Fargo.

Hey, good morning, everybody. Nice quarter.

Hey, Michael. Thank you.

So I wanted to switch to the cash flow. Last quarter, we saw the step up in CapEx with the addition of Dorner and that being a private equity run business, presumably with a nice wish list of investment items. Is there any update on the low hanging fruit to improve Dorner throughput and maybe how that ties into your overall synergy assumptions?

Yeah, so from a CapEx perspective, I'll take that one. You know, we're anticipating $20 to $25 million for Columbus McKinnon, and I think $3 to $4 million with Dorner, and that's about, you know, close to their historical level, maybe a little bit higher. But in general, it's what I would call an asset-like business. There is some CNC machining, but it's mostly assembling, and we have actually gotten additional space for them because their business is is growing so rapidly, and we're also in the process of adding to a second shift to take advantage of what's in front of them. So CapEx-wise, I think the 20 to 25 million is a good number to use going forward, and I would say that there isn't really a large capital project that they brought forward as soon as the ownership changed hands.

Yeah, I mean, we've said we want to invest in growth, right? And there are opportunities for us to make select investments, targeted investments that are appropriate in terms of size to, you know, continue to invest and scale the business. And we feel that there are many synergies between the businesses that will enable growth that are outside of specific, you know, one-time CapEx, let's say, investments. Gotcha.

So switching gears here, going back to one of your end markets, which is food processing, David, one of your predecessor firms received an outside bid and food processing was highlighted as a key growth area. Was wondering where Columbus operates best within the food space, meat, poultry, seafood, et cetera. And when you see bids like this in the market, how does that make you think about your own company's valuation prospects?

Right. Well, we're thrilled with the markets we've entered with this acquisition. We feel like we're playing in some very attractive and fast-growing secular markets, which was an objective of the acquisition, and as we pivot Columbus McKinnon to participate in those more attractive, higher-growth markets. We participate in the markets you just mentioned, seafood, meat, poultry, with the products we produce, baked goods. Baked bakeries. Yeah. And so, you know, we participate in those and others, life science markets that are very attractive, e-commerce markets that are very attractive, and then the general automation space more broadly. So we feel like we're well positioned. We feel like there is a lot of value out there for us to develop and create for Columbus McKinnon. And, you know, we're executing on that strategy I mentioned and feel like the runway is pretty long for us.

Great. Appreciate the time. You bet. Thank you.

The next question comes from Greg Palm of Craig Hallam Capital Group. Please go ahead.

Yeah, thanks. Good morning to everybody. So just following up on the, I guess, the revenue constraints in the quarter, was that specific to the core Columbus business or was Dorner included in that as well as some level of constraint?

Yeah. Yeah. I would say it's a bit of a mix. You know, obviously, we have a larger business within Columbus McKinnon. And so on a ratio basis, more of that would be skewed towards the Columbus McKinnon portfolio, but it's a mix. And, you know, we are working collaboratively on all fronts to make sure that we're removing the constraints that exist in the current supply chain challenge.

Okay. And you mentioned that Dorner did exceed your expectations. I mean, is there a a certain end market or application that you think is driving the outsized growth and would sort of be curious to get your sense on how autonomous robots, that opportunity is sort of progressing.

Yeah, for sure. So it's a, you know, there's a story kind of within each of those end markets. And as I said in my prepared remarks, we're particularly encouraged by developments in the e-commerce, life sciences, and food processing space, where we receive notable wins in those orders. And when we're talking to customers in that space, there's a pipeline of very interesting and attractive opportunities that lie ahead. And so as we continue to gain traction and build our reference install base, that obviously grows aftermarket opportunities as well, and it grows the opportunity to to leverage those very strong references to continue to build that part of the business with other customers that compete in those areas. So we're excited, and we really feel good about developments in those specific markets. And that's, I guess, in sum, the areas where they saw the most opportunity in the quarter.

Okay, good. All right, makes sense. Thanks. Best of luck going forward. You bet. Thanks, Greg.

The next question is a follow-up from Chris Howe of Barrington Research.

I just wanted to sneak one in here before the call is up. I had a question about Dorner, some of which was highlighted in your previous comments there with the question from Greg. As we think about the outperformance of Dorner versus your expectations in the quarter, and as we think about this environment, It seems like the pandemic is having a slightly longer tail than we expected with the Delta variant. Can you comment or give context around this environment? Should we see it continue? Perhaps some of these secular trends, like in e-commerce, is deepening its penetration within this environment, or is it rather taking market share in this environment that's benefiting Dorner?

Mm-hmm. Mm-hmm.

Yeah, it's an interesting thing to consider. I would say that we are, you know, we're continuing to see strong demand. And I think that the macro developments in the market associated with the pandemic have had an impact on future impacts, you know, future use of e-commerce as an example. And I think that, you know, we're going to see mega trends that will continue to drive a push in that direction, you know, that whether the tail is longer or is truncated, I think those are here to stay, and that's going to be positive for us. We're also doing a lot of work around our NPD initiatives, and that's both within the core business and within Dorner. And we're excited about the progress that we're making relative to the new product launches and the share we're gaining with the launches that we've put in place. And so we've been focused on innovation and on making sure that we can develop products that will compete effectively in the market. And we're pleased that, as I mentioned in my prepared remarks, we've grown 19% with our N-3 revenue in the first quarter. Yeah.

Yeah, which is inclusive of Dorner. Yeah, so I guess another way to think about it too, Chris, is that the Dorner end markets are growing 6% to 8%, and Dorner is well outpacing. And if we go back to a year ago, even though we didn't own them, on a year-over-year basis, their sales are up 50%. Now, granted, they had a bit of an impact due to COVID, but that's very, very strong growth, 50% growth year-over-year. Right.

That's great. Thank you for the color. You bet. Thanks, Chris.

The next question is a follow-up from Michael McGinn of Wells Fargo.

Hey, Michael. Thanks for sneaking me in again. So, I want to just add some numbers and a finer point to the gross margin conversation and the price cost. So, if I'm looking at the DACA, Pricing net of material cost inflation was a $700K benefit versus the total pricing on the top line was $2 million. So the flow through was 35%, which is a touch below your blended gross margin. Is that number, realizing that the price increases happen later in the quarter and you haven't seen the full benefit, is that conversion rate going to ramp? or stay the same or decline as some costs and labor constraints begin to creep into the business?

Oh, it's absolutely going to ramp. So the $2 million of price and the price net of inflation of 700,000 implies 1.3 million of raw material inflation. And as you know, we typically raise prices in the U.S. in the core business in the March timeframe. So we take a lot of orders pre-price increase. Now, we did have some stocking orders we talked about in the last call in the neighborhood of just under $10 million in the US. And so we had backlog in the quarter at old prices. And then on top of it, as I talked about in my prepared remarks, we had another price increase that was implemented at the end of June. And none of that is reflected in the sales in the quarter to any extent. And now we've got another price increase that's effective in August. So absolutely, price increases are going to ramp going forward in the amount of price that we see. But I would say it's going to be, just given this last price increase, it's really going to be the December quarter where we see the full impact. Because we don't, for a newer backlog, we don't reprice it. CHRIS TILLERY- Yeah, the October to December quarter.

Got it. Understood. Appreciate the time.

You bet. Thanks, Michael.

And this concludes our question and answer session. I would now like to turn the conference back over to Mr. Wilson for any closing remarks.

Great. Thank you very much. I appreciate it, Kerry. Thank you for your time today to everyone. We're pleased with our start to fiscal 2022, and we're seeing strong demand across all of our markets. Backlogs at record levels. and we are decisively navigating the challenges associated with supply chain constraints and labor shortages. Margins are expanding with improving volume, the addition of Dorner, and as we focus on achieving operational excellence through CMBS. Finally, the Dorner acquisition is exceeding expectations, and we are pursuing opportunities to expand this platform further. I hope you're as excited as I am about Columbus McKinnon's positive momentum and the long-term value creation potential that we have, and I hope you all have a terrific day. Thank you.

Thank you. The conference is now concluded. Thank you all for attending today's presentation. You may now disconnect your lines. Have a great day.