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spk01: Good morning and welcome to Columbus-McKinnon first quarter fiscal 2025 earnings conference call. My name is Srevenju and I will be your conference operator today. As a reminder, this call is being recorded. I would now like to turn the conference over to Kristi Moser, Vice President of Invest Relations.
spk00: Thank you. Good morning and welcome everyone to Columbus-McKinnon first quarter fiscal 25 earnings conference call. The earnings release and presentation are available for download on our investor relations website at .cmtl.com. On the call with me today are David Wilson, our President and Chief Executive Officer, and Greg Rustowitz, our Chief Financial Officer. In a moment, David and Greg will walk you through our financial and operating performance for the quarter. Before we begin our remarks, please let me remind you that we have our safe harbor statement on slide two. During the course of this call, management may make forward-looking statements in regards to our current plans, beliefs, and expectations. These statements are not guarantees for future performance and are subject to a number of risks and uncertainties and other factors that can cause actual results and events to differ materially from the results and events contemplated by these forward-looking statements. I'd also like to remind you that management will refer to certain non-GAAP financial measures. You can find reconciliations of the most directly comparable GAAP financial measures on the company's investor relations website and in its filings with the Securities and Exchange Commission. Please see our earnings release and our filings with the Securities and Exchange Commission for more information. Today's prepared remarks will be followed by a question and answer session. With that, I'll turn the call over to David.
spk05: Thank you, Kristy, and good morning, everyone. Columbus McKinnon delivered a solid quarter to start the fiscal year, achieving 2% sales growth, which was at the midpoint of our guidance range, and adjusted EPS of 62 cents, which was at the top end of our guidance range. Areas of strength included precision conveyance and lifting, which were up 10% and 3% respectively. Short-cycle sales remained healthy, and the project business was up mid-single digits. Adjusted gross margin expanded by 110 basis points year over year to 38%, a record first quarter and the second highest quarterly result in company history, as we remained focused on performance improvement and 80-20. And we delivered adjusted EBITDA margin of 15.6%, even as we absorbed 1.2 million of unique costs related to launching regional strategic partner conferences in Europe and the Americas that are aligned with our commercial and customer experience initiatives. These results are underpinned by the hard work and continued execution by our 3,600 Columbus McKinnon team members as we navigate a dynamic macroeconomic environment and leverage commercial initiatives to advance in vertical markets that are experiencing secular growth and benefiting from megatrends. We are growing, generating cash with normal seasonality, and accelerating debt repayment. These actions are adding capacity to reinvest in our growth framework. We have multiple levers to drive more scale and further enhance our position as a leader in intelligent motion solutions for material handling with a carefully curated offering for our customers. We believe that increasing scale will become a compounding advantage as we execute our strategy over time. Advancing to slide 4, we delivered -single-digit order growth across most areas of our business, with the exception of our crane automation business, where we saw softness and our lapping a strong prior year comparable period. Precision conveyance orders were up 5% driven by new customer wins in the electrification space. For the remainder of our business, our order funnel remains healthy across both the short cycle categories and our project business. Short cycle orders were up 3% in the quarter driven by share gains resulting from our customer experience initiatives. In the project business, orders were down 5% in the quarter driven by order timing and the softness in crane automation that I just referenced. Overall, our project funnel remains healthy, reflecting our customer-centric focus, targeted end market growth initiatives, channel diversification efforts, and recent new customer engagements. On a -to-date basis through last week, orders were up double digits year over year driven by strength and precision conveyance, particularly at Montratec. While we are not immune to the impacts related to current macroeconomic conditions, including higher for longer interest rates, or indecision related to the rapidly evolving political landscape than the upcoming US election, we continue to remain focused on what we can control, executing on our commercial, operational, and financial initiatives. With this as our focus, we continue to be cautiously optimistic about our near-term prospects and our full year outlook. Backlog in the quarter increased 4% driven by the phasing of our long-term backlog and the addition of new project wins. While not in a straight line, we continue to expect backlog to further normalize from current levels over time as we improve lead times and customers adjust their ordering behaviors. On slide 5, you can see that our priorities remain consistent as we execute on the most important initiatives that will enable us to achieve our growth and financial performance objectives. Specifically, we remain focused on enhancing customer experience and further differentiating our value proposition, driving operational excellence through the business, and executing on footprint simplification plans that facilitate meaningful gross margin expansion. In fact, earlier this week, we announced that we are consolidating our North American Linear Motion Facility into our Manufacturing Center of Excellence in Monterey, Mexico. This 146,000 square foot facility is expected to cease operations at the end of the second quarter and completely wind down by the end of the third quarter. Through lean manufacturing techniques and the use of improved manufacturing technologies, we expect to have utilized just 50 to 60% of our Monterey facility's 165,000 square feet following this action as we ramp production. This is an important next step along our 80-20 foot simplification path to deliver 200 basis points of gross margin improvement by fiscal year 27. These strategic initiatives, in combination with our commercial priorities, enable us to deliver profitable growth focused on strategically advantaged end markets. In addition to positioning ourselves to benefit from megatrends such as near-shoring, increasing defense spending, and growth in e-commerce, we are investing to become a leader in targeted vertical markets. Two particular areas of focus and recent success include electrification or battery production, which is a market growing at a CAGR that is north of 30% and is expected to hit $550 billion in 2030. In fact, over 200 battery factories are planned to be constructed in the next six years to support mobility, electrical capacity storage, and more. We are establishing a leadership position in the space by providing -for-purpose advantaged solutions for battery producers, and most recently we won a $9 million order from Entrotech's asynchronous conveyance solutions from Volkswagen-backed PowerCo as they invest in factory automation solutions for their gigafactory production needs. We see a long and attractive runway of solutions that we can deliver for this customer and others over time as our precision conveyance team is quickly building a reputation as a leader in intelligent motion solutions for the electrification and battery production markets. Another area of focus is the life sciences vertical. Here we have had great success enabling pharmaceutical manufacturers to quickly ramp production and meet rapidly growing demand. This was done most notably during the pandemic as global pharmaceutical companies launched COVID-19 vaccines. Looking ahead, there are several rapidly growing demand areas including weight loss injectables and related products that are struggling to keep up with rapidly growing demand and we are well positioned to participate in this growth. Overall, we're encouraged by the progress we're making and the potential of our business as we advance our strategy and execute on our prioritized initiatives. We are delivering impactful improvements across the business and remain in the early innings in terms of the value these initiatives will deliver over time. Powered by our strategy and our position as a market leading provider of intelligent motion solutions for material handling, we are delivering attractive outcomes and improving financial performance. We remain confident in our ability to increase scale, compound growth and deliver shareholder value over time. With that, I'll turn the call over to Greg to take us through the financial results.
spk04: Thank you, David. Good morning, everyone. Turning to slide six, we delivered first quarter net sales of $239.7 million up 2% from the prior year period. This was in line with the guidance we provided last quarter of low single digit growth. We delivered 2.1 million of organic growth or .9% with realized pricing gains more than offsetting a slight volume decline. Montratec revenue in April and May contributed 2.7 million to sales or .1% of the increase. As the acquisition date was May 31st, beginning in June, the results are no longer included as acquired revenue. As a reminder, Montratec revenue has variability from period to period given the project nature of the business. Foreign currency translation was unfavorable this quarter by 600,000 or 0.2%. Sales growth in the quarter was largely driven by precision conveyance, which was up 10% from the prior year. As David discussed, we are encouraged with our pipeline of opportunities for this platform as we have significant opportunities on the horizon with both our U.S. precision conveyance business as well as Montratec. Our project business also contributed to sales growth in the quarter as it was up 4% driven by strength in our Stahl branded product with sales into the oil and gas vertical. Offsetting this growth was our short cycle business, which was down 2%, although I would point out that short cycle orders were up 3% in the quarter as we advance customer experience initiatives and capture market share. In the U.S., sales were up slightly in the quarter with price offsetting lower volume as we benefited in the prior year from backlog reduction. Outside of the U.S., sales increased by 5% on a constant currency basis. This was primarily the result of Montratec acquired revenue and organic growth, which contributed 3% and 2% of sales growth respectively. On slide 7, gross profit increased 2.4 million or .7% versus the prior year driven primarily by pricing, favorable sales mix, and Montratec acquired gross profit even as we absorbed 1.8 million of Monterey Mexico startup costs and business realignment costs. We recorded a gross margin of .1% in the first quarter, up 30 basis points versus the prior year. On an adjusted basis, gross margin was 38% of 110 basis points year over year. Moving to slide 8, RSG&A expense in the quarter increased 2.1 million to $60.4 million. This was driven primarily by the acquisition, which added 1.7 million of acquired costs in the quarter. RSG&A expense also included 1.9 million of Monterey Mexico factory startup costs and 500,000 of business realignment costs. We also incurred 1.2 million of costs related to our strategic partner conferences in both the U.S. and Europe, which were not held in the prior year. Turning to slide 9, we generated operating income of 21.1 million in the quarter, down 1% to the prior year, impacted by the factory startup costs, business realignment costs, and the strategic partner conference costs that I just mentioned. Adjusted operating income was 25.7 million, roughly flat to the prior year. On slide 10, we recorded GAAP earnings per diluted share for the quarter of 30 cents, down 2 cents versus the prior year. Impacting GAAP EPS were the previously mentioned new factory startup costs in Monterey Mexico and business realignment costs. Together, these items impacted GAAP EPS by 11 cents per share. Adjusted earnings per diluted share of 62 cents was flat to the prior year, with a higher amortization expense add back and lower interest expense offsetting other -the-line items. On slide 11, our adjusted EBITDA increased 2% year over year in the first quarter, and adjusted EBITDA margin of .6% was in line with the prior year. This included the impact of the strategic partner conferences, which impacted our EBITDA margin by 50 basis points. Moving to slide 12, free cash flow improved 7.1 million from the prior year. Negative free cash flow of 15.4 million in the first quarter reflected normal working capital seasonality in our business. Cap ex in the quarter was approximately 5 million, comparable with the prior year. Free cash flow conversion for the quarter on a trailing 12-month basis was a strong 108%. Turning to slide 13, our total debt was down 4% for March 31 levels. We paid down 20 million of debt in the quarter, and are increasing our expected debt repayment in fiscal 25 from 50 million to 60 million. Our net leverage ratio was 2.6 times on a financial covenant basis, down 0.3 times year over year, and we expect our net leverage ratio to end the current fiscal year at approximately 2 times. As a reminder, we repriced our term loan B in March, lowering our cost of debt. We expect this to generate approximately 2.5 million of interest expense savings in fiscal year 25. Slide 14 provides our guidance for fiscal year 25 and the second quarter. Our guidance considers the improvements we are driving throughout the business, our visibility into the funnel, and our solid performance in the first quarter despite a softer macroeconomic backdrop. We have also built into our forecast for the second quarter the expected impact of consolidating our North American linear motion production into our Center of Excellence in Monterey, Mexico. With that in mind, we are issuing the following guidance. In the second quarter, we expect sales growth to be down low to mid single digits from the prior year, and adjusted EPS growth to be down mid single digits year over year. We are also anticipating several one-time costs related to the factory closure, including 2 to 4 million of expected cash restructuring costs and 4 to 5 million of non-cash asset impairment costs related to the consolidation. This is an important step on our 80-20 journey with our overall footprint simplification plan expected to deliver 200 basis points of gross margin improvement by fiscal 27. For the full year, we are reaffirming our fiscal 2025 guidance of low single digit sales growth year over year, mid to high single digit growth and adjusted EPS, caffbacks in a range of 20 million to 30 million, which includes 8 million related to our footprint simplification initiative, and we expect our net leverage ratio to end fiscal 25 at approximately 2 times. Operator, we are now ready to take questions.
spk01: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, please restrict yourself to one question and one follow-on. One moment please while we poll for questions. The first question comes from the line of James Kirby with JP Malden Chase. Please go ahead.
spk06: Hey, good morning guys. Just wanted to start with the second quarter guidance in the context of the full year guidance. Is it safe to say that the second quarter will be the lowest point of the year or is it too early to tell kind of what the back half holds?
spk05: No, that's what we expect.
spk06: Got it. I guess off the same question, you mentioned the monitoring benefit from pricing. What is embedded in the second half of the year? I assume we take another step down maybe next quarter in 2Q, but is there anything in the back half of the year that gives you confidence that pricing might return to strength?
spk05: I would say, James, that we have a position of strength as it relates to pricing typically and that we do outpace inflationary costs with our price adjustments. I don't believe we're in a position of weakness relative to pricing. I just think that the point that we're making is that pricing has moderated in terms of the impact relative to the lower inflationary environment that we're in. While I don't expect pricing to have a material impact on the second half of the year, we believe that it will be outpacing the impact of any inflationary pressures that we would see.
spk04: And James, I would just add that in our North American lifting business, our price increases took effect in the month of June, and so there's backlogs still priced at old pricing. So we do expect pricing, as we alluded to at the end of the fourth quarter, to moderate as inflation has come down, but we would expect it to be in that 1 to 2% range for the year. So we would see it modestly higher going forward as the price increases take effect.
spk02: Got it. In any sense, I appreciate it, Greg. Thanks.
spk01: Thank you. Next question comes from the line of Matt Summable with D.A. Davidson. Please go ahead.
spk07: Yeah, a couple questions. So I guess first, with the second quarter dynamic, I guess maybe you weren't sure when, which quarter this was going to happen 90 days ago, but I guess why not kind of get out in front and articulate that, you know, the second quarter was going to be a little bit of an air pocket on the move. And then similarly, that implies a pretty big and uncharacteristically big second half of the year. So help us get comfortable that the full year guide on the bottom line is still achievable.
spk05: Yeah, absolutely, Matt. Fair enough. And in terms of the timing, we're managing the business. We have employees that we need to be sensitive to. Obviously, we can't get out ahead of that with that communication and articulate that detail until we're ready to do it. It has implications on notifications that we need to make relative to the WARN Act and other related filings. So, you know, we communicate that when we're ready to do so. We've been very clear about the fact that we're marching towards a multi action plan that results in 200 basis points of expansion. And so the second half of the year now obviously has a ramp relative to the first half, but it's well within the range of what we think is achievable. It's a six percent growth with a modest gross margin expansion. And we have, as we indicated in our previous discussions, an elevated backlog and order rates that we think will support that outcome. And so as we expect backlog to moderate or normalize over the balance of the year and the order rates that we referenced in our prepared remarks earlier, we think that we'll be positioned to execute on that plan
spk04: for the rest of the year. And Matt, just to add on from an EPS perspective, we will benefit from interest expense savings as we've repriced our term loan D back in March. And we've been very aggressive in paying down debt. We would also expect incremental gross margin expansion. We do expect that by the fourth quarter, we should start to benefit from the facility consolidation that we announced today. And, you know, all so we feel very confident with our guidance overall.
spk07: As I think about the second quarter, can you maybe articulate what the top and bottom line impact, the stuff you can't non-gap out associated with this move? Is there a way to parse out the financial impact on the P&L in the quarter from this? I'm just going to generally, generically call it sort of disruption, if you will.
spk04: Yeah, so it's really a top line issue for us, Matt, you know, from a duplicate cost, from a moving cost, restructuring cost, all of those costs, asset impairments, and we've laid out a number of those in the 8K that was filed this morning. Those will all get adjusted out. And it's really the top line impact as, you know, with just disruption from a facility where, you know, people were notified very recently that their jobs are going to end here. And so that's going to have an impact potentially on productivity and on our ability to maintain our typical delivery performance. And we're obviously going to try to do better on that, but it's just, you know, we would expect, and I guess we're being prudent with the idea that there is going to be some amount of disruption.
spk02: Got it. Thanks, Greg.
spk01: Thank you. Next question comes from the line of Steve Farazani with Sidoti & Company. Please go ahead.
spk03: Hey, good morning, everyone. This is Kyle May on for Steve. Just wondering if you could talk about any updates on cross-selling of new acquisitions and if you found traction for the Monatrack outside of its previous core markets.
spk05: Yeah, absolutely. So, Kyle, good morning. We've had good success at training our workforce around the world to represent the broader precision conveyance portfolio. And we've been building a nice pipeline of opportunities beyond geographies that that business has serviced as well as we expect to as we go forward. And so we've got a funnel of opportunities that are quoted and active that is around $5 million in the U.S. right now for that product line. We did close an opportunity with a prescription fulfillment service provided that we communicated last quarter that was a nice large order. And it's one of several that could come that are not included in the number that I just gave you that could come over time. And so we're broadening their reach into areas from a footprint perspective and market perspective that go beyond where they've been able to play. And most recently, what we're really excited about is that we've really begun to demonstrate our specific application advantages related to the battery production market with Montratec. And so that led to the power core that we referenced in the prepared remarks. And there's a nice runway of opportunity for those expansion investments that they'll be making over time as well as others
spk02: related to that very attractive end market. Got it. That's helpful. And my next question,
spk03: cash conversions topped 100% for the last four quarters. Is that something that you can maintain at or above 100%?
spk04: We think we can, Kyle. And it's because we are a capex-like company. And we, just with the cash generation capability of the company, we should be 100% and north
spk02: of 100%. Okay, great. Thanks for the time. Thanks, Kyle.
spk01: Thank you. Next question comes from the line of John Tan Van Tang with CJS Securities. Please go ahead.
spk08: Hi, good morning. Thank you for taking my questions. Greg, I was wondering if you could give a little bit more specificity as to the revenue impact from the move in Q2. Also, were there any pull-ins in the Q1 to the extent you anticipated the move? And how much do you think is pushing out the Q3 and beyond? I guess what I'm trying to get at is what the normalized runway is expected to be, assuming things go as planned.
spk04: Yeah, so, John, we would expect that there will be some disruption. We've put a lot of effort into planning for this. But nonetheless, we do think there is going to be some impact. It's, you know, in the order of magnitude of probably a couple million dollars, we would expect.
spk08: Okay. And do you expect that pent-up demand, I guess, to be served in Q3 pretty quickly, or does that customer go away, I guess, to a different provider if they can't get it?
spk05: No, John, this is David. We'd expect that to be made up for in Q3, or at worst case, in Q4 and come back in the year. And we obviously are maintaining a close proximity to our customers and communicating with them related to these changes and ensuring that we have the right kind of service levels with all the pre-planning work that we've done, both in Mexico and at our existing facility. This is prudent as we plan and think about the impact that could come from these moves. We're confident in the plan that we're executing, but obviously we have to be sensitive to the fact that there could be some disruption in the period. And then there's a level of backlog phasing that impacts the revenue profile of the second quarter based on the order rates and the timing of orders that came in in the first quarter. And so our project backlog phasing has an impact on the top line in the second quarter as well as we're advancing through this quarter.
spk08: Got it. That's helpful. My second question, I think you had previously talked about, you know, you're booked a bill likely to be below one for the year just as you burned off backlog. You know, it was above one this quarter. It looks like it's going to be above one in Q2 with the revenue down and the orders to date being better. Just wondering how you're thinking about the rest of the year beyond that and if there's anything that's different from what you expected. We
spk05: remain really encouraged with the funnel of activity that we're managing and the opportunities that we think are realistic for us to close on. We're obviously maintaining a focus, as I said in my prepared remarks, on what we can control. So we're executing on our commercial initiatives and our customer experience initiatives. We feel like that is resulting in some attractive opportunities and thus far we've had a level of success with that. We remain encouraged but we're maintaining the guidance that we set at the beginning of the year and as I said earlier, we remain cautiously optimistic to achieve those.
spk08: Okay. Great. Thank you guys.
spk01: Thanks, John. Thank you. Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Mr. Wilson for closing comments.
spk05: Thank you everyone for joining us today. Our team continues to execute our strategic plan, improve our customer's experience and make significant progress on our simplification initiatives. I'd like to extend my personal thanks to our entire team for the dedication and the relentless execution that enabled us to begin Fiscal 25 with strong results. In our first quarter, we delivered year over year sales growth, expanded gross margin, secured new customer wins, increased backlog with a book to bill ratio in excess of one, and accelerated debt repayment. We also announced the continuation of our footprint simplification plan and the consolidation of our North American Linear Motion Facility into our Monterey, Mexico Manufacturing Center of Excellence. This is an important next step along our journey to deliver 200 basis points of gross margin expansion by fiscal year 27. Finally, our team remains focused on the prioritized initiatives that will enable us to achieve our growth and financial performance objectives. We're encouraged by the pipeline of opportunities we see in our funnel, continue to be optimistic about our prospects and are reiterating our full year guidance. Thanks for investing your time with us today. As always, please reach out to Christy if you have any questions.
spk01: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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