Greetings and welcome to the Columbus McKinnon fourth quarter and full fiscal year 2015 financial results conference call. At this time all participants are in a listen-only mode until the question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to Deborah Pawlowski, Investor Relations. Thank you. Please go ahead.

Thank you, Brenda and good morning, everyone. Welcome to Columbus McKinnon's financial results conference call. We certainly appreciate your time today and your interest in Columbus McKinnon. On the call here with me today are Tim Tevens, our President and CEO and Greg Rustowicz, our Chief Financial Officer. Tim and Greg are going to review the results for the quarter and the year and give an update on the company's outlook and strategic progress. You should have a copy of the financial results that were released earlier this morning before the market and if not, you can access those at the company's website, www.cmworks.com. At the Investor Relations section of the website, you can also find the slides that are going to accompany the discussion that Tim and Greg will be having today. Let me start by having you turn to slide two where you will find our Safe Harbor statement. As you are aware, we may make some forward-looking statements during the formal discussions as well as during the question-and-answer 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 the Securities and Exchange Commission. The documents can be found on our website or at sec.gov. With that you can turn to slide three and I will turn the call over to Tim. Tim?

Thanks, Deb. As Deb said, page three, we just want to remind you of our long-term objectives including growing to be a $1 billion business with about a third of our revenue in developing markets and two-thirds in developed markets, along with the $200 million to $300 million in acquisitions and a steady stream of new products, a 12% to 14% operating margin and a strong working capital level and a very strong overall balance sheet. We continue to focus on resources and energy on acquiring companies that strategically add market presence and product breadth and help us grow around the world and achieve these results. The fourth quarter results will have STB in it, which is a company we acquired at the end of 2014. Page four provides the highlights of the fourth quarter of fiscal 2015. First of all, the things we want to point out is, there is a lot of moving parts, a lot of moving pieces in this quarter and we need to help you better understand the results. We do not normally adjust our results, but this quarter is imperative that we do. The STB acquisition and corresponding purchase accounting effects of currency translation, the bond refinancing costs and a facility consolidation in Europe, all are somewhat unique to the quarter. We did have sales of $148.9 million that were negatively impacted by the weak Euro and lower volume from oil and gas markets and stocking orders not repeating. We did seem to have a ramp up as the quarter progressed, however. STB contributed $3.6 million of revenue and is gaining traction as we roll out their products to our global sales force. Adjusted gross margin continued to improve up 31.6%, which is the 18th consecutive quarter year-over-year increase. Adjusted operating income of $15.1…

Thank you, Tim and good morning, everyone. On slide eight, our fourth quarter adjusted gross profit margin increased 30 basis points to 31.6% from 31.3% in the prior year. Adjusted gross profit decreased $3.3 million or 6.5%. We are adjusting gross profit for two items, the European facility consolidation costs of $1.2 million and the inventory step-up expense related to the STB acquisition in the amount of $400,000. The reconciliation for adjusted gross profit is included on page 20 of this presentation. Adjusted for these two items, this quarter represented the 18th consecutive quarter of year-over-year gross margin improvement. On a GAAP basis, gross profit decreased by $4.8 million this quarter compared to the prior year. Sales volume and mix was the largest contributor to this decrease negatively impacting gross profit by $3.6 million. Foreign currency translation was the next biggest factor negatively impacting gross profit by $2.1 million. The European facility consolidation costs and the acquisition inventory step-up expense previously mentioned together accounted for $1.6 million of lower gross profit. Productivity, net of other manufacturing costs, was negative this quarter by $800,000. Partially offsetting these negative factors were two positives. Price, net of material cost inflation, added $2.2 million to gross profit and the Unified and STB acquisitions contributed $1.2 million to gross profit. As shown on slide nine, total SG&A expense was essentially flat this quarter compared with the year ago. Selling expense was lower than the prior year by $1.4 million and represented 11.7% of sales this quarter, unchanged from the prior year. Acquisitions added $300,000 to selling expense in the quarter. The European facility consolidation also added $300,000 to selling costs. Favorable foreign currency translation lowered selling cost by $1.4 million. G&A expense increased $1.1 million from the prior year and represented 9.8% of sales this…

Thanks, Greg. Let's take a moment and take a look at how we are for 2016 on page 17 of your deck. We do expect to continue to grow our share in target markets and create value by integrating the recent acquisitions we made in the past year or so. We will also continue to see good results in Asia-Pacific and currency will be short-term headwind as we proceed through 2016. We would expect positive operating margin trend line to continue through fiscal 2016 and our debt refinancing activities will create value worth of $7.6 million interest savings in 2016. The new ERP system that we are installing are creating efficiencies for our company. Our backlog is consistent and we would expect it to be so throughout the fiscal year as well. We are seeing what appears to be sustainable activities in the marketplace. The European economy seems to be more active. Asia-Pacific, our presence there is generating some very good results and we will expand into Southeast Asia in fiscal 2016. Our new products will continue at pace and bear fruit for the company and the recent acquisitions will add value to our company going forward. We also see a more robust pipeline of potential acquisitions and we hope to be able to execute some in the very near future. And with that, Brenda, let me turn it over to you to open it up for questions.

[Operator Instructions]. Our first question comes from the line of Mike Shlisky with Global Hunter Securities. Please go ahead with your question.

Good morning, guys.

Hi, Mike. Good morning.

We just want to verify, very broadly speaking here, if you take the interest savings alone, that's 15% to 16% earnings growth in the bag already for 2016. Beyond that growth, can you maybe tell us, excluding the interest savings, do you expect to grow your overall earnings in fiscal 2016?

Yes. So we would expect our operating income to continue to grow and approach and get into that 10% area that we have been talking now for a while.

Also on that STB here as well, you kind of mentioned that -- can you just give some color as to how it's growing as far as the bringing the STB products through the U.S., what's your plan is now and what your long-term plan is to sell STB stuff here and has the current Euro rate helped you at all with getting that going?

Sure. Our plans really are unchanged. When we bought STB in December 2014, it's really to take their large hook product offering, which Columbus McKinnon does not offer today. We would brand it Columbus McKinnon and sell it into broadly the Americas. So think about North America as well as South America where we think the market is the strongest for these kinds of large hooks. That project is well underway. They are producing product for our market here in the States as well as South America with the CM brand on it. We will be stocking those products in our warehouses in the region, in the Americas and we would expect to continue to grow their revenue through 2016. Of course, as you might imagine, they really don't need any additional capital or fixed cost investment in their facility. So that added volume is very helpful to their profitability. And then you mentioned the Euro, Mike. That's one thing that we continue to see we can hear and obviously from a cost advantage standpoint, that's helpful to be manufacturing in that part of the world and selling into this part of the world.

All right. Super. I will leave it there. Thanks so much.

Thank you, Mike.

Our next question comes from the line of Jason Ursaner with CJS Securities. Please go ahead with your question.

Good morning, Tim. Good morning, Greg.

Good morning, Jason.

Just first on the U.S. volume decline of 6.5%. The magnitude was a little bit surprising given that industrial capacity utilization numbers are holding pretty flat and usually you talk about that business arriving by a quarter or two. So would most of that volume primarily be from the oil and gas market vertical?

Let me give you an estimate there. From looking at our product portfolio and the explosion proof products that we sell in the oil and gas, probably around half of it can be pointed to oil and gas business being depleted. We really haven't seen strong bookings in a while. And that is on a global basis, by the way. The other half, I would say, is in the U.S. in particular, we saw very strong stocking orders last year fourth quarter that did not seem to repeat this fourth quarter. And in studying that a little bit, it looked to us to be the channel is rectifying some inventory that might be there. So I would expect that our first quarter of 2015 would be reasonably strong given the fact that the stocking orders did not repeat in the fourth quarter.

Okay. And the oil and gas market in particular, you have previously talked about exposure there to that vertical in the 15% range or so. Is that still what you are thinking given what you are seeing in the explosion proof business?

Yes. I think it's around 10% actually, just to give you a sense of magnitude, historically. So you think about 10% in your mind, but the difficulty that we have is putting our arms around that number exactly, because we sell certain products that go right into that market, which we could put our hands on and know exactly what that volume is and that much of our product goes through industrial distribution, catalog houses, cranebuilders, that support oil and gas activities. We don't necessarily know if that product ends up there directly, but we suspect there is about this 10% area that would be exceeded overtime as oil and gas stops their activities in the drilling activities.

Got it. So if they contributed about half in terms of order of magnitude, is that down 40%, 50% in that vertical? And then I guess the more important question, obviously it's a pretty abrupt pause in capital spending from those customers, but is it likely to be more temporary in nature as you start to reach price equilibrium? And when you talk about ramping throughout the quarter, did you see any of that in either the SKUs you sell directly to that vertical or maybe just more qualitatively some of these supporting channels?

So let me talk to that one first before I talk about volume. The ramping was not oil and gas related because we did not see any of those orders repeat. So think about that as driving up completely oil and gas.

Okay.

Not a 100% true, but generally true. And in the quarter, as we think about the quarter, it was down several million dollars directly related to oil and gas that did not repeat that we can identify. We have to estimate what other general industrial kinds of customers would buy and support that industry, but we don't know that exactly. But the ramp wasn't oil and gas. The ramp was all general industry.

Right. And there much more in March than the other two months?

It ramped very low January. Our booking rate was exceptionally low. February was better. And March was more normal.

That's globally or any specific by region there?

That's U.S. in particular.

Okay. I will jump back in the queue and let some others have a chance. Thanks.

Thank you. Our next question comes from the line of John Dunn with BB&T Capital. Please go ahead with your question.

Hi, good morning.

Hi, John.

Maybe just touching on the European consolidation charges. You mentioned a little over $0.5 million that you expect in the first quarter. Can you quantify any charges beyond Q1 in fiscal 2016? And also can you quantify any of the savings you expect as a result of these consolidation efforts?

Sure, John. I will take that question. So the facility and all the charges should be done by the end of the first quarter of fiscal 2016. And I think I mentioned that it would be another $600,000, of which $400,000 is going to be in cost of goods sold and $200,000 would be in SG&A. And typically when we do these sort of consolidations, so this would be similar. We would expect it to have about a two-year payback. So total cost are going to be in the neighborhood of $2.3 million at the current Euro exchange rate and we would expect a two-year payback on that.

Actually, Greg, that's helpful. And then switching to the CapEx forecast the fiscal 2016. You have guided in the range of $18 million to $22 million. Can you provide any color on what's driving that increase versus 2015, that would be helpful, maybe geographically or any additional detail there would helpful.

Well, I think the 2015 was $17 million, change, Greg?

Correct. So it is very close to the $18 million to $22 million. And I would say we have got a number of projects that are a little more sizable than we typically have had that are going to be very significant productivity projects. Our Lexington facility has a couple of projects that will be very positive for us and then there is some other ones as well. So it's mostly productivity related projects.

And I think Greg, that the ERP system continues at the same rate.

Yes. And this past year, it was around $3.4 million.

Okay. Great. Thanks, guys. I will hop back in the queue.

Thank you. Our next question comes from the line of Gary Farber with CL King. Please go ahead with your questions.

Yes. Thank you. Just two questions. You mentioned on the call that the pipeline for acquisitions was more robust and I am wondering what's driving that? And then can you also just give an update on what you are thinking is for depreciation and amortization in fiscal 2016?

Sure, Gary. So let me take the acquisition pipeline question and then Greg will talk about D&A in a moment there. I don't know if [indiscernible] was driving at other than, we have assigned one of our executives to oversee this and work directly with the markets with our businesses around the world. And he has done a nice job of uncovering some opportunities that previously, we haven't uncovered. So there seems to be more interest in speaking with us and thinking about transition. Most of these are privately held companies and a couple of them I think of have succession planning issues. And then they are of reasonable size too, I would tell you. And then there is some that I think are just thinking about like the last two we moved on, the Unified one and the STB one, where the owner is faced with to grow, he needs to make significant investments globally in the sales force and penetrating new markets, which is a big step for many of these companies. They would like to partner with us to take advantage of the presence we already have there. So that's kind of the logic we are seeing coming at us.

Are more of these product expansions or geographic expansions for you?

Yes. Both.

Both. Okay. And then just on the D&A, if we can get some thoughts on for next year?

Yes. So just to maybe set where we are today, so in fiscal 2015 our depreciation and amortization was $14.6 million. We would expect that number to be in the $16 million range.

Okay. Thank you.

Our next question comes from the line of Joe Mondillo with Sidoti & Company. Please go ahead with your question.

Hi, guys. Good morning.

Good morning.

So it sounds like you are going to see about $1 million benefit from the consolidation this year. Combined with that and if you could expand maybe on the productivity improvements that you talk about, it sounds like you are talking about maybe more than a normal year? So could you expand that? And then just combine with the benefits of the consolidation facilities, could you talk a little kind of benefit those two things will provide this year on a cost basis?

I think you are right. It's going to be around $1 million of benefit from the consolidation. You have got to give it a little bit of leeway in terms of how it exactly spreads over the year. But I think if you fast forward to the end of fiscal 2016, you will see about.

Yes, that will be sort of the run rate, but really the closure will be done by the end of June. So I would say, three quarters of the savings would head in fiscal 2016.

Okay. And then in terms of the, you mentioned your Lexington facility and whatever else you have planned regarding productivity improvements. How much savings, what kind of opportunities are there? Are they bigger than normal year? Can you quantify what potential cost benefits it will provide?

I don't have that number in front of me, Joe, but I would suspect that it is normal productivity in the several million dollars area range. I think that those projects are being installed this year and it takes a while to run that equipment out and get it to the level that's acceptable to all of us. And I would think that, from that standpoint, we would see a lot from those projects in 2016 but we would really expect to see some benefits in 2017.

Yes. So by the fourth quarter of fiscal 2016, most of those larger pieces of equipment will be installed. But once again, there is nothing that is more than $2 million. There is several $2 million pieces of equipment. So there are a lot of projects.

It will pickup in 2017.

Okay. And then in regard to the pricing benefit that you have seen to your gross margin. One, can you talk to what your raw materials and components costs are trending? And well for first, could you answer that first and then I will follow-up?

They remain flat, Joe. Really no significant change at all.

Okay.

So we expect minimal inflation, unless something happens in 2016 that we don't foresee.

Okay. So I guess just follow up that I would have is that your organic demand, especially in this past March quarter, but you also saw a negative 2% volume in the December quarter. I am just wondering what your thoughts are on pricing going forward? Would you be opt to not increase pricing as much as you have then or just your thoughts on that?

Well, I think our pricing would still be in that 1% to 1.5% area. I don't foresee that changing very much at this point.

A lot of that price has already been implemented. The U.S. implemented price increases in end of February, early March timeframe. So we would expect pricing to be at a similar level throughout fiscal 2015.

Okay. So for you to maybe keep pricing flat, the environment would have to just get a lot worse for that scenario to happen?

I would think so, right.

Okay. I will jump back in the queue. Thanks.

[Operator Instructions]. Our next question comes from the line of Jason Ursaner with CJS Securities. Please go ahead with your question.

Thanks for taking the follow-up. Just following up on Joe's questions at the end, you mentioned U.S. at the end of February or early March. I always thought that was usually in April. So just wondering if that maybe impacted some of the timing of the stocking orders?

No. In the last couple of years, our price increases were effective mid-March timeframe. So we would always get a little bit of a pre-buy before the end of the quarter. But this timing was maybe just a week or two earlier than normal or premature.

Okay. And you mentioned pretty severe inflation, the pricing has been pretty great for you just directly to gross margin. Was that dynamic impacting any ability to take price in terms of that 1%, 1.5%?

No. I am not sure I follow your question.

In terms of the push back from customers or distributors, anything like that?

No. It's always a negotiations, as you might imagine, but no, generally that's not a problem. There is other costs that are inflating at us though that are not material cost. And Joe's question was material cost. So think about healthcare. Healthcare continues to grow up that mid-single digits, I think 5% or 6% they had in the last year. That's still a big number for Columbus McKinnon. It's something that we have to offset as well. And also general salary increases. So you know that inflation is among the biggest. And I don't think it is going to go away.

Got it. And just a reminder for the full-year in the U.S., the heavy OEM market, what was that on a year-to-year basis for the whole year and then also the rigging activity, just as we think about a base for both of those moving into next year?

Rigging was off quite nicely. Let me see here.

Is it still below where it has been before the 3:1 consolidation?

Correct. Still below the pre-consolidated levels. We are getting closer, maybe even halfway up the ramp, if you will. And you asked about heavy OEM. That still remains very depressed and three years in a row of very low activity.

Okay. So it didn't contribute negatively in 2015 into much, but it was still at a pretty low level.

Right, yes. It has not come back.

Okay. And G&A, the $1 million from professional services pension, bad debt, what if any of that is temporary versus ongoing?

Well, the bad debt, I would say, is subject to the -- we basically set our reserves based on an aging schedule. And we feel pretty good that we are actually going to be able to collect a lot of those receivables in the future, which will reverse the impact of that. And on the pension front, it really had to do with the decline in the discount rate in Europe where the discount rate was essentially half of what it was a year earlier. And so to the extent interest rates rise in the future, that will actually become a positive factor going forward. But not in this fiscal year.

Okay. And SG&A use, the $32 million to $34 million is an all-in range for next year?

It is and that's with the STB acquisition and that's at current exchange rates of roughly around 1.10 on the Euro.

Okay. All right. I appreciate it, guys.

Thank you. Our next question comes from the line of Peter Van Roden with Spitfire Capital. Please go ahead with your question.

Hi, guys.

Hi, Peter.

Just following up from the last question. There was a pretty big profit impact between the $32 million of run rate SG&A and $34 million of run rate SG&A. Can you help us gauge where it will end up given the different opportunities that you guys see?

We think it is going to fall into that range. We understand your point, but we think we have given an appropriate range for people to understand where we think it's going to come in.

Okay. And then just if you guys can [indiscernible] your crystal ball, how do you think about organic growth. I understand that you are going to get some growth from the STB acquisition this year. How are you thinking about organic growth for each of the geographic regions for fiscal 2016?

Yes. It does feel that Europe, EMEA in particular will grow. We have seen substantial growth in this past quarter. I am not sure it will be that high, but Europe does seem to be consistently off the bottom now. The South African mines that we service, the strike is over, they are back to work, there is a lot more activity there. I don't think that they are at maximum activity just yet, because clearly price still seem to depressed but they are back to work after a six months hiatus. So that region seems reasonably good organically. Asia-Pacific is just all of our investments that we are making in there in our localization of product and our manufacturing plant expansion we just finished this past year ago now and they are ramping up very nicely across the Chinese market, but now spreading into places like India and Thailand and Singapore, where we didn't really have a strong presence. So that expansion should go on quite nicely. I would expect them to grow organically. And then Latin America, Brazil is not good part of the world today. Our biggest customer Petrobras has pulled in their spending and they are trying to figure out [indiscernible] drill holes. So we don't think that's going to happen in the foreseeable future. We think that's going to be [remainder trust] if not minimally in the recession. Mexico seems to be okay. I think Central America and Mexico, reasonable kind of organic growth and our team seems buoyed by it. I think the U.S. is going to be flat. We are certainly introducing some new products, but we are offsetting some of these oil and gas headwinds that we are faced with in America and we are also are faced with this heavy OEM customer base which doesn't seem to want to spend on capital just yet. So those are two big headwinds that we are going to face this year and work like heck to try to offset it with other growth initiatives in the United States.

Great. That was really helpful. Thanks, guys.

Thank you.

Our next question comes from the line of Joe Mondillo with Sidoti & Company. Please go ahead with your question.

Hi, guys. Just a couple of follow-up questions, if you will. In terms of the strength that you are seeing in Europe, just wondering what sort of sectors or where do you see that's driving that? What gives you, I guess, maybe the confidence that that's sustainable? And your monthly numbers, revenue and sales improving on a month-to-month basis? So just any comments on what you are seeing there?

There are two areas in particular. And this started, I would say, last winter, call it late fall, winter, where we started to see increases in volume, particularly in Germany and particularly, general industrial in Germany, so broad-based kind of users of our equipment, lifting equipment in Germany. Parts of the world like France are not nearly as robust. U.K. seems to be strong. And so those two markets, I would say, would be okay for us and a trend line in a positive direction, which makes us feel like it is off the bottom and heading back to more normal levels. The other area that we didn't talk about is the rail and road business where we sell lifting systems, actuator lifting systems, for that business and we did book three orders this past quarter. It won't effect 2016, because they are tied to a construction cycle project and they will hit in 2017, but those three orders made us feel a little better about at least some activity, some activities that we are winning are more than our fair share of that part of the world as well.

Joe, I just want to add on to Time's comments. We talked about it on slide seven in the quarter, sales outside of the U.S., if you adjust for foreign currency and put it on the same basis as year ago, we saw some price increases in Asia-Pacific, EMEA and Latin America, up almost 9.2% Latin America, 12.1% in the EMEA and 24% in Asia-Pacific.

Just one headwind, just to remind everyone, is that currency rate of the Euro to the dollar a year ago for Q1 and Q2 is probably going to be much higher than it was than it will be today. So we will still have the currency headwind, but what we are speaking about is the actual volume of units that we are selling and the activity in the marketplace that creates Euros is much better than it was a year today on a same currency basis.

So just to that point that you just made, do you have any idea or thoughts on, is there a big benefit that they are seeing because of a depressed currency and if currency sort of flat lines going forward, is there a temporary positive in the European market because of the competitive advantage that they are seeing on a currency basis, but if it flat lines, six or nine months from now, the strength that they are seeing maybe not that sustainable?

I can't measure that exactly what the business and the -- go to market there for distribution. But I can tell you that there is a lot more activity. It certainly could be their export market out of Germany is much more robust. Our people seem to think it is a combination of the two.

Okay. In terms of Asia-Pac's strength that you are seeing, it's 20% plus. First off, how much does Asia-Pac make up of your business now? And is that 20% plus, is that a sustainable growth rate that we can think about?

Yes. Well, we like to think that and our team thinks that. They were probably doing the math. If you think about high double-digits, let's say high teens than the low 20s that's kind of what our target is and that's about 4%, 5% of our revenue today, 4% of revenue today. So it’s not a [indiscernible], but a very small base, but growing very rapidly.

Okay. And is that growth accelerated growth from say a year ago and is that because of your lower cost proposition that you have been able to make with the new facilities, now that you are producing the products in the region?

You got it. That's exactly the reason.

Okay. And then just lastly the backlog. I was wondering if you could provide the backlog excluding STB at the end of the quarter?

I don't have that number handy, Joe.

Okay. I will follow-up then. And the long-term backlog, that's supposed to hit not in this quarter, but quarters out? That seem larger than it has been as a percent of the total. Is that correct?

Those are the rail and road projects I just mentioned, Joe, that I --

Okay.

But we are due out in 2017. I think that's the most of them in there.

Okay. And is there really anything that we can extrapolate from that, in regards to an improving economy?

I would say that maybe there is more municipal money that's being let because they have to repair their trains and people hit their backs up against the wall, even though they don't want to spend the money, they have to. Otherwise they shut down the train systems. So I think that that's kind of where we are at right now, but I would say that backlog is not a very good indicator of our future. It just isn't. We need to book more than 50% of our revenue in the same quarter we are going to recognize the revenue. So it's current activity which really drives this.

Great. Okay. Thanks.

Thanks, Joe.

Thank you. This concludes today's question-and-answer session. I would like to turn the floor back to management for closing remarks.

Thanks, everyone. We do look forward to fiscal 2016 with optimism and our actions taken in fiscal 2015 should be very beneficial to our company. Our business is performing well, even in this slow growth world, but with lower debt and interest expense, some good acquisitions and product development results and the expansion of our business into growing markets, we believe that the future is bright for Columbus McKinnon. We have a very strong balance sheet. We plan to acquire value creating acquisitions and invest in our business to grow organically as well. And I do want to thank all of our people around the world for their dedication to excellence in making our company stronger and a market-leading organization. As always, we also appreciate your time. Thanks very much.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.