Columbus McKinnon Corporation

Good morning and welcome to Columbus McKinnon's first quarter fiscal 2026 earnings conference call. My name is Marissa and I will be your conference operator for today. As a reminder, this call is being recorded. I would now like to turn the conference over to Kristi Moser, Vice President of Investor Relations and Treasurer.

Thank you and welcome everyone to our call. On today's call, we will be covering our first quarter fiscal 2026 financial and operational results. On the call we've made 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. The earnings release and presentation to supplement today's call are available for download on our investor relations website at .cmcl.com. 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 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. We 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. We respectfully ask that you limit yourself to one question and one follow-up question. With that, I'll turn the call over to David.

Thank you, Christine. Good morning, everyone. In the first quarter, we delivered results that were in line with expectations as the quarter progressed largely as anticipated. We delivered another quarter of orders growth with orders up 2% -over-year to a total of $259 million. This was driven by 8% growth in project-related orders and particular strength in EMEA. Order performance also improved throughout the course of the quarter, peaking in June. Short cycle orders were down 4% in the quarter as surcharges and price increases were implemented and the markets digested the impact of tariffs. Our backlog is now up $67 million or 23% versus the prior year to $360 million as longer cycle project orders associated with our targeted commercial initiatives are more than offsetting recent softness within short cycle markets. As we've discussed previously, short cycle orders remain more sensitive to channel dynamics impacted by policy uncertainty and an evolving macroeconomic landscape. Over time, we anticipate this demand will stabilize and that attractive opportunities from industry megatrends like nearshoring, scarcity of labor, and infrastructure investments will emerge. But we anticipate the next few quarters may remain choppy. While macro uncertainty remains, we continue to see strength in vertical end markets where we've been building a leadership position like battery production, e-commerce, food and beverage, aerospace, oil and gas, and rail projects. Additionally, we are focused on strength in orders related to the Department of Defense in the U.S. as well as increased defense investments globally. We are also starting to see potential benefits from end markets heavily impacted by tariffs like steel and heavy equipment to maximize the productivity of their existing U.S. facilities. While there is a lot in the news about announced production investments and expansions, it's still early days for many of those investments. Given our products are late in the investment cycle for new production, we expect that customer requests for these projects will serve as a tailwind over time. P1 sales came in modestly ahead of expectations and down 2% from the prior year driven by a 3% decline in short cycle sales largely as a result of the previously mentioned tariff environment and a slower than expected macro recovery in Germany. As we projected last quarter, tariffs were a headwind to operating profit and margins with a $4.2 million impact to gross profit and a 180 basis point impact to gross margin in the first quarter. We continue to expect tariffs to be a $10 million headwind to operating profit impacting margins and adjusted EPS in the first half of the year. We are targeting the achievement of tariff cost neutrality by the second half of fiscal 2026 as our mitigation actions including price adjustments take greater effect as we progress throughout the course of the year. We also expect to achieve margin neutrality over time, but that will likely occur in fiscal 2027 as we work through our backlog. Our Q1 SG&A was down 5% excluding $8 million of keto Crosby related expenses and approximately $1 million of other non-core adjustments as we manage expenses to offset volume and mixed pressure. As a result, we delivered adjusted EPS that was slightly ahead of expectations and we are reaffirming guidance for the full year. I would like to thank our entire Columbus McKinnon team for all that they are doing to advance our business on behalf of our customers and our shareholders. Despite what has been a volatile start to the year in light of an evolving tariff policy and macroeconomic landscape, our team has remained focused on execution, providing our customers with the best experience possible while managing costs with discipline, implementing mitigation actions and advancing acquisition preparedness. We remain enthusiastic about the pending keto Crosby acquisition which we expect to scale our business, expand customer capabilities, enable synergies and over time accelerate our intelligent motion strategy. As we announced at the end of May, we received a second request related to our final regulatory approval requirement. This request was consistent with expectations and is a fairly standard step in the regulatory review process. While the exact timing remains uncertain, we continue to anticipate deal closure by the end of the calendar year. I will now turn the call over to Greg to take you through the details of our first quarter financial results and guidance.

Thank you, David, and good morning, everyone. As David shared, the quarter unfolded largely as expected. We delivered results slightly ahead of expectations due to the ever-changing tariff policies which delayed implementation of certain tariffs from the first quarter to the second quarter. We delivered sales of $235.9 million, down 2% from the prior year, attributed to a 3% decrease in short-cycle sales. Project-related sales were unchanged from the prior year despite 8% growth in orders as the timing of orders are expected to benefit the remainder of fiscal year 26 and beyond. Sales volume was down 9 million, including an impact of approximately 3 million in the U.S. from lower book and bill orders as the market adjusted to tariff surcharges. Volume was also lower in Europe due to project timing in our lifting business. Overall, we benefited from price increases year over year and implemented an additional price increase in the U.S. effective July 10th, which will be realized over the next few quarters. FX was a tailwind in the quarter of 3 million as well. Gross profit of $77.2 million decreased $11.8 million versus the prior year on a gap basis, impacted by lower sales volume and mix and $4.2 million of tariff-related impacts. On a gap basis, our gross margin was .7% and on an adjusted basis, our gross margin was 34.3%. Adjusted gross margin contracted 370 basis points year over year, largely due to the previously discussed impact of tariffs as well as the impact of lower volume on our factory absorption and an unfavorable sales mix. With the dynamic environment that we find ourselves in, we managed RSG&A expenses appropriately. While RSG&A expense increased 3.7 million to 64.1 million on a gap basis, this included $8.1 million in acquisition-related costs from the pending Keto Crosby acquisition and $1.1 million in business realignment costs, which have less than a one-year payback. Excluding these items, adjusted RSG&A was down 3.1 million to 54.8 million. As a percentage of sales, adjusted RSG&A improved 90 basis points to 23.2%. As a result, we generated operating income of $5.5 million in the quarter on a gap basis and adjusted operating income of $18.5 million. Adjusted operating margin was .8% in the quarter. Adjusted EBITDA was $30.8 million in Q1 with an adjusted EBITDA margin of 13%. We recorded a gap loss per diluted share for the quarter of 7 cents and adjusted earnings per share of 50 cents. Adjusted earnings per diluted share decreased 12 cents versus the prior year, almost entirely due to an unfavorable 11-cent tariff-related impact. Pre-cash flow was a use of cash of $21.4 million in the quarter, reflecting the normal working capital seasonality of our business as well as several unique items, including $4.1 million of acquisition-related cash payments, $3.1 million of higher cash taxes largely related to the timing of tax payments resulting from Hurricane Helene, federal tax relief, as well as $3 million of tariff payments. Finally, we are reaffirming our guidance for fiscal 2026 of net sales growth of flat to slightly up year over year and adjusted EPS growth also flat to slightly up year over year. As we discussed last quarter, tariffs will negatively impact earnings in the first half of our fiscal year as we work to offset this impact with additional price increases and supply chain modifications. We continue to expect that this will impact our adjusted EPS guidance by 20 to 30 cents in the first half of fiscal 2026. However, we do anticipate achieving gross profit dollar neutrality on tariffs by the second half of fiscal 2026, with actions underway to achieve margin neutrality in fiscal 2027. Also, please note that our guidance does not include any financial results from the pending acquisition of Keto Crosby. We remain enthusiastic about the pending acquisition of Keto Crosby and our ability to achieve our stated long-term objectives. While we continue to navigate an uncertain macro environment, we remain focused on our controllables, including operational execution, cost control, and driving our commercial initiatives. Operator, we are now ready to take questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to remove your hand from the queue, please press star followed by two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question.

Our first question comes

from Matt Somerville with DA Davidson. Please go ahead.

Thanks. Morning. A couple of questions. With respect to the gross margin performance in the quarter, the down 370, that was a bit more punitive than we would have been modeling. Maybe it was just our model was off. But can you help parse out that 370 and what we should be thinking about gross margin cadence from here relative to kind of normal seasonality with 34.3, kind of being the jump off point? And then I will follow up.

Hey, Matt. Good morning. It's David. Let me take a start at that. And if Greg wants to add, he certainly can. We obviously saw 180 basis points of erosion at the gross margin line tied to tariffs as we cited in the prepared remarks. Additionally, from a mixed perspective, we had a lower volume of some higher margin products. Notably, automation-related shipments. And then at the same time, the linear motion products that we're providing out of our Monterey, Mexico location, volume there is ramping. But from a volume weighted perspective, the mix was off given a reduction in some of those higher margin products. And then we had a higher volume of some lower margin products. Notably, the rail business showed strength in the period. In addition, we had a higher volume of some lower margin hoist products that were shipped out of our Wadesboro facility. And so the combination of mix, the tariff impact, and then lower volume, as you know, in the period, our sales were down between 2% and 3% year over year. And so the compare there is what would have driven that margin

comparison.

Got it. And then is a

follow-up. Well, not necessarily a follow-up. Sort of the tail end of that question is how do gross margins kind of, using 34.3 as a jump-off point, how should we think about the cadence as we move through the year also bearing in mind seasonal factors? And then I have a follow-up.

Yeah, sure. So we have confidence in our ability to expand margins in the business. We do anticipate, as we said, that the first half will be muted by the tariff impact that we expect to continue into the second quarter. And, you know, as we are driving initiatives that enable growth in targeted areas and as we are executing to ramp volumes and facilities that we've been investing in, we believe that we'll see margin support in the shipment of those products as we progress throughout the year. Obviously, with a consideration for the third quarter where we would typically see a bit of a negative impact on margins given the number of shipping days versus the previous periods and the absorption requirements during that period.

Yeah, and Matt, as you know, our fourth quarter is typically our seasonally strongest. And in the fourth quarter, we tend to have our factories running very hard and we'll have much better absorption than we did this quarter.

Got it. Just as a follow-up, can you maybe talk about more detail around what you're seeing specifically from an order backlog sort of standpoint in areas like EV battery, in areas like e-commerce?

Yes. So we have a really attractive funnel of opportunities in those areas. As mentioned in the prepared remarks, battery production, e-commerce, food and beverage, and aerospace have presented promising opportunities. The defense industries, both here and abroad, are gaining momentum. Steel and heavy equipment have been really positive and those areas have been impacted pretty heavily by tariffs. And so we're seeing investments that are really beginning to show green shoots there in terms of quoting opportunities. The specifics of projects, given the competitive nature of those, I don't want to get into names and specific projects, but I will say that we're encouraged by the funnel in e-commerce, in battery. And in a number of the targeted industries I just spoke of, we did take a very large oil and gas order in the second quarter for the Middle East that was very encouraging. While utilities are flat right now, we're entering the hurricane season and we expect that to pick up, to provide a tailwind to some of our short cycle business activity. And when we talk battery, it's not just battery, there's battery and electronics opportunities that are pretty attractive as we think about some of the newer parts of our portfolio and potential growth opportunities there.

Thanks Dave. You bet. Thanks Matt.

Your next question comes from John Tanwen Tang with CJS. Please go ahead.

Hi, this is Will and for John. Congrats on the beat and the order strength. Can you dive a little deeper into the 1.1 times book to bill and maybe break out how much of that is coming from price increases and how much is coming from ongoing demand strength?

Yeah, Will, good morning. Happy to do that. So obviously encouraged by the funnel and the continued book to bill strength at 1.1. Order of growth year over year is about 2% and I would say that somewhere on the order of about 1% of that might be from price. Obviously we have price increases that go into effect towards the end of a quarter. And as those phase into the new quarter, there's obviously a stickiness that takes hold and then the translation of that into the backlog. And we think that we probably got about 1% of that 2

% from price.

Thank you. Sorry,

most of the increase is in long-term backlog and a lot of that is project related. So it is new projects, so high volume related.

Thank you. And then can you provide an update on KetoCrossB acquisition and where you expect leverage to be post-close? Have there been any surprises, either negative or positive in the process?

Yeah, let me start and ask Greg to take the question on the leverage part of it. But the acquisition is advancing in terms of preparedness for close. We've received all of our regulatory approvals, but one final approval. As I mentioned, we had a second request from the Department of Justice related to our HSR approval, which was anticipated in a pretty standard part of the process. We're working constructively through that process and are anticipating that we'll be in a position to close that transaction by the end of the year. We are working in parallel to obviously make sure that we're ready day one for a successful integration. And so we're gearing up with organizational adjustments and analysis and planning around those integration elements and the ability to support those with an executive led integration management office and a governance structure around that that involves both the senior leadership team as well as our board to ensure that we execute well as you know, deals that are done succeed because of successful integration. And we're making sure that we're prepared to deliver on the targets that we've set out for the deal. And we'll be measuring ourselves on a weekly, monthly and quarterly basis in terms of our ability to track to those and reporting out on those on a quarterly basis to you in these calls, tracking savings, synergies more broadly, and debt repayment. And that might be a good place for me to hand off to Greg and ask him to talk about the leverage position and plans from there.

Yeah, hey, well, so when we originally announced the deal, we anticipated that our net leverage would be about 4.8 times at close. And obviously with the impact of tariffs, you know, in our case, roughly 10 million and certainly Keto Crosby is also having an impact from tariffs that will impact EBITDA. We now expect it to be roughly five times

at close. So not materially different.

Thank you very much.

Your next question comes from Steve Farazani with Sudoti. Please go ahead.

Morning, David. Morning, Greg. Appreciate the detail on the call. So I'm going to ask, and I know you noted the project orders you're picking up. A lot of those are long term projects. Trying to get a sense of how much of that is in fiscal 26 guidance. How much of that's really going to be an impact next year? And how much of that's multi-year?

Yeah, happy to answer, Steve. Good morning. So we believe that between 70 and 80% of our current backlog is actionable in this year. And the balance of it would extend beyond that time frame. And so obviously we continue to work with customers on the delivery schedules and there can be shifts both out of the year and into the year based on the way that their site readiness is progressing. And we're working to see if we can level load that backlog as well, because as you can imagine, projects can be lumpy based on their delivery dates. And you'd like to be in a position to level load, improve operational efficiency, and leverage capacity for level loading. So we're working to try to do that with those orders. And where we can, and we've been successful at striking revenue recognition support for over time accounting treatment, we've done that. And so about 70 to 80% will phase into this year of the $360 million in backlog that we have. And the balance will come out of the year. And we're working to move as much of that into the periods that we can leverage to be more level loaded as possible.

Yeah. So just to give a little more color on that, Steve. So of the remaining 20% that David referenced as being out of this fiscal year, the vast majority of that is fiscal 27, where we do have multi-year deliveries would typically be in our rail business, where we could have some projects that we take today that are for two years from now.

Okay. So all of the battery, EV battery contracts you have are expected to be completed within the next 18 months, essentially.

Yeah, those battery, yes. So that would be over the course of this year and next with the volume that we have in backlog. And those contracts are agreed to on a percentage of completion basis. And so those are over time revenue recognition contracts.

Got it. Okay. If I could get one more. For the most

part. I mean, there are exceptions to that with individual products, but certainly the battery related ones have been.

Perfect. If I could just get in, I didn't, and you gave a lot of numbers. I didn't hear if you had updated CAPEX guidance for this year and how you think that's going to affect, how you think about cashflow knowing that Q1 is always the seasonally weakest quarter.

Yeah. So we expect, so that will be in our 10Q that's filed later today. And it's in roughly the 20 to $25

million range.

And do you have any thoughts on cashflow this year?

Yeah. So cashflow is going to be a little difficult to predict just given the amount of deal costs and when the deal closes. And so obviously, you know, in the first quarter, David referenced or I referenced that we've got, we had about $4 million of deal costs that got paid. And, you know, just to give maybe some additional color, we expect that over the next couple of quarters, it could be another $3 million each quarter. And, you know, once again, we were targeting the close by the end of the calendar year. And once the deal closes, there will be a whole nother level of financing costs and some other, you know, M&A costs that will have to be paid as well. So, you know, we do expect from a free cashflow perspective that we will improve our working capital and, you know, certainly with our EBITDA, but the big unknown is going to be, you know, the exact timing of all these deal costs, which a big chunk of it is going to be dependent on when the deal actually closes.

Fair enough. Thanks, David. Thanks, Greg. Thanks, Steve.

Your next question comes from James Kirby with JPMorgan. Please go ahead.

Hey, good morning, guys. I know you guys didn't give formal two-queue guidance, but maybe just for a top line, are you expecting kind of the 2% down in one queue to be improved in two-queue or is two-queue going to be a low point kind of in the year for top line sequential growth?

Yeah. So, Q2, we would typically anticipate a progression to the positive from Q1. And, you know, as we look at the book to build that's growing and our efforts to level load that production throughout the balance of the year, we would anticipate that we'd see progress as we enter Q2. And, you know, in addition, as you know, we've implemented price increases that should have an impact in a more meaningful way as we go through the balance of the year. And so without, you know, giving a definitive guidance answer to that, James, what I would say is that we do anticipate a progression from Q1 to Q2 from a revenue perspective.

Got it. That's helpful. To be positive. Got it. No, no, that's good color. And then just for my second question, you know, you mentioned that the price or charge went to place July 10th, I believe. You know, is there another plan coming up or is that dependent on tariff developments to happen, you know, with China and Europe?

Yeah, I think we're going to continue to monitor how things develop and obviously will be agile and responsive. We believe that what we've done to date accommodates the current assessment of impact to our business and the appropriate pricing actions. We've been thoughtful and surgical with the way that we've put those price increases in place, looking at it from an 80-20 perspective and making sure that we're moving the business forward in the direction that we're trying to accomplish strategically. But, you know, we believe we've taken the action we need to take given all the information we know today. And as we learn more, we'll be responsive if there's a need for further adjustments.

Yeah. And just to reiterate what we said on the call earlier, that we do expect to be profit neutral by the October 1st timeframe.

Got it. Thanks for the questions.

Thank you, James.

Thank you so much. That concludes the Q&A section of this earnings call. I will now turn the call back over to Mr. Wilson for closing remarks.

Great. Thank you, Marissa, and thank you to all for joining us today. Our business remains healthy, supported by a record backlog that has increased 23% year over year and an encouraging funnel of demand with strong quotation activity across our targeted end markets. We delivered results that were slightly ahead of expectations with continued order growth and tariff impacts in line with our expectations. While navigating through geopolitical and trade policy uncertainty, our team remains focused on meeting customers' needs and delivering long-term value to our shareholders. Within the business, we are focused on what we can control, operating effectively, managing the business with agility, and executing our strategic plan. As you would expect, we are diligently assessing and managing costs and we're implementing mitigation strategies to offset the impact of tariffs. Remaining flexible to capitalize on upside opportunities and deliver attractive growth, and we continue to advance our strategic plan framework. We continue to make progress towards the closing of Keto Crosby and anticipate completion towards the end of this year. We remain highly enthusiastic about our combination, which we believe will enable us to deliver a superior customer value across a broader set of geographies, generate enhanced financial results, and create long-term value for our shareholders. Thanks for investing your time with us today. As always, please reach out to Christy if you have any questions. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.