Columbus McKinnon Corporation

Greetings and welcome to the Columbus McKinnon Corporation second quarter fiscal year 2023 financial results conference call. At this time, our participants are on a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Deborah Pulaski. Please proceed.

Thank you, LaTanya, and good morning, everyone. We certainly appreciate your time today and your interest in Columbus McKinnon. Joining me on the call are David Wilson, our president and CEO, and Greg Rustowitz, our chief financial officer. You should have a copy of the second quarter fiscal 23 financial results, which we released this morning. And if not, you can access the release, as well as the slides that will accompany our conversation today, on our website at columbusmckinnon.com. After our formal presentation, we will open the line for Q&A. So if you'll turn to slide two in the deck, I'll 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 by the company with Securities and Exchange Commission. You can find those documents 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. However, you should not consider the presentation of this 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 gap measures in the tables that accompany today's release and slides. So with that, please advance to slide three, and I'll turn the call over to David to begin.

David? Thank you, Deb, and good morning, everyone. Our second quarter results demonstrate the success of our efforts to drive growth, strengthen earnings power, and generate cash. On a constant currency basis, revenue of $232 million was up 8.5% year over year, driven by strong pricing power and the contribution of GARVI, our conveying solutions bolt-on acquisition. Notably, we had record operating income in the first quarter, or excuse me, in the second quarter, driven by nearly 40% operating leverage, reflecting the early benefits of our regional realignment. As a result, even as we faced headwinds, we reported record adjusted EBITDA margin of 16.8% in the quarter. which is another solid proof point of progress toward our longer-term financial objectives. We also effectively converted earnings into cash in the quarter, as cash from operations was $17.3 million, and we used that to further reduce debt. As I mentioned last quarter, our new structure is creating an environment of improved collaboration across product teams within the Americas, EMEA, and APAC. We are seeing some early signs of success on this front. One example is a project where we were awarded a crane system that was sold in conjunction with a major rail project. Our integrated sales team was able to readily recognize this opportunity and capture the order, whereas under our prior structure, we would not have had this visibility. I also believe we are now able to move more quickly with improvements in our customer engagement practices. We recently completed our first enterprise-wide Customer Net Promoter Score, or NPS, survey and are advancing initiatives to improve the quality, consistency, and rigor of our customer performance and communications. I'll speak more to orders and backlog later in this presentation, but we'll note here that we are encouraged with the strength of quotation levels, even as orders declined in the period. Water activity ahead of our June price increase and extended customer project execution cycles were the drivers of this sequential decline. We expect to see continued opportunities within our target markets driven by megatrends of automation and digitization, energy and environmental infrastructure investments, and the regionalization of manufacturing. Slide four provides a dashboard that highlights the progress we're making in relation to key strategic objectives as we strive to achieve our financial targets for fiscal 2027. As you know, we're unlocking the potential of Columbus McKinnon through the execution of CMBS and our core growth framework. CMBS underpins our strategic framework by providing a playbook for standard work and scalable processes with an emphasis on being market-led, customer-centric, and operationally excellent. Within CMBS, are 10 core competency areas where we are working to excel and that will enable scalable, sustainable performance as we deliver on our plan. The advances we are making toward achieving $1.5 billion in revenue and 21% EBITDA margin by fiscal 27 are our proof points, and there are several initiatives that underpin these results. I think it's important for us to share a summary of the progress we're making in relationship to a selection of these objectives. Our recent regional reorganization is enabling us to better leverage our intelligent motion solutions across customers, industries, and geographies, and is improving our global market position. We drove 7.5% year-to-date growth on a constant currency basis as we focused on areas where we can capture growth through cycles. You will recall from our investor day that we are targeting a 5% CAGR for our organic business, and with acquisitions, a 10% CAGR over the strategic planning period. We are also executing to improve the vitality and customer relevance of our product portfolio. A specific KPI we monitor to measure progress in this area is our NPD N-3 revenue. This is the percentage of revenue that is driven by new products introduced within the last three years, net of any cannibalization that can occur from new product introductions. We have practically doubled this metric as a percent of sales since fiscal 2019, and it has grown more than five times since fiscal 17. Not all is perfect, however. The complexity of our previous organizational structure and product portfolio, combined with persisting supply chain delays, has resulted in delivery and communications challenges that have negatively impacted our customers' experience. As I stated earlier, we recently completed our first enterprise-wide Customer Net Promoter Score, or NPS, survey, and we are advancing initiatives that will improve our company's responsiveness, delivery, and communications with our customers. Shifting to bottom line measures, we're expanding margins and we are driving cash generation. Gross margin improved to 36.5% on a trailing 12 month basis, a new 12 month record for the company. Our business realignment actions are both reducing the complexity of our enterprise while also improving our cost structure. This program is simplifying our go-to-market approach and takes out approximately 6.8 million of costs on an annualized basis with a little under a year payback. As I already mentioned, we reported record operating income and adjusted EBITDA margin in the quarter. We are delivering on our transformation strategy and are pleased with the progress we are making. Looking to slide five, you can see the specific progress we're making on gross margin. To achieve our fiscal 27 goals, we will need to approach the 40% gross margin level. For the first half of fiscal 23, gross margin was 37.4%, and we are narrowing that gap to 40%. If you review our investor day deck from June, you'll find the bridges that provide the details on how we expect to achieve our goals. Execution requires a combination of volume, strategic pricing, simplification of our product lines, reduction in overhead costs, and well-timed acquisitions that are accretive to margin. Slide six depicts the transformation that Columbus McKinnon is undergoing. We are striving to be the global leader in intelligent motion solutions for material handling, leveraging our technologies in areas that are benefiting from the persistent trends of automation, productivity, and supply chain regionalization. Within this opportunity set, While all of our businesses will continue to grow, we believe our specialty conveying linear motion and automation solutions will grow at the fastest rates. This is expected to result in a mix shift over time to our higher margin businesses that are serving less cyclical markets such as life sciences and food and beverage. Our disciplined and thoughtful acquisition strategy is also focused on the faster growing product categories. In fact, the benefit of adding our specialty conveying platform was clearly demonstrated this quarter. Our strategic move to acquire Dorner enabled us to acquire Garvey in December of last year. And this quarter, Garvey contributed $9 million in revenue at 50% gross margin rates. This was driven by a project for the EV market that was specific to the management and flow of battery cells in the customer's production process. While we have generally been benefiting from the expansion of production lines for electric vehicles, this precision conveyance application is more specific to the underlying growth in the electric vehicle battery production. The specialty conveying platform has been a game changer for Columbus McKinnon and is central to our transformation. With that, let me turn it over to Greg to review the financials in greater detail.