Good morning. Welcome to Columbus McKinnon’s Full Year and Fourth Quarter Fiscal 2024 Earnings Conference Call. My name is Sherry. 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 Kristy Moser, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome everyone to Columbus McKinnon's fourth quarter and full year 2024 earnings conference call. The earnings release and presentation are available for download on our Investor Relations website and at investors.cmco.com. On the call with me today are David Wilson, our President and Chief Executive Officer, and Greg Rustowicz, 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 2. 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 of 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, let me turn it over to David.

Thank you, Kristy, and good morning, everyone. Fiscal 2024 was another record year for Columbus McKinnon as we grew sales by 8% to over $1 billion for the first time in our history and expanded adjusted EBITDA margins by 60 basis points to our highest level ever or 16.4%. We expanded gross margin, benefited from leverage on our growth and remain focused on performance improvement through the Columbus McKinnon Business System and 80/20 actions. In fact, it was a record year for sales, gross profit, gross margin, operating profit and adjusted EBITDA margin. These results are a testament to the effectiveness of our strategy, solid execution by our global CMCO associates and the growing impact of our transformation. We delivered high single to double-digit sales growth across each area of our business, including automation, precision conveyance, lifting and linear motion in the year. This sales came from both our project and short cycle businesses. With healthier supply chain dynamics and improved operating performance, we delivered in areas that are most important to our customers. Over the past year, we improved our on-time delivery 12% and reduced our past due backlog by 73% from its peak, which is now back to normalized pre-COVID levels. Importantly, this translates to an improved customer experience and we expect that to be a tailwind to our business, as we increase our share of wallet with existing customers and grow with new customers. For example, in our North American hoists business, where we experienced the greatest supply chain challenges, current lead times have improved by approximately 50%, since early fiscal '24 and we improved on time delivery to those reduced lead times by 30% within the year. These improvements and others position us to continue to build on our Net Promoter Score following a 25 point…

Thank you, David. Good morning, everyone. Turning to Slide 8, we delivered record net sales in the fourth quarter of $265.5 million, up 5% from the prior year period. This was in line with the guidance we provided last quarter, which speaks to the strong execution from the team. We realized pricing gains of $5.7 million or 2.3%, while volume was flat. The Montratec acquisition contributed $4.9 million to sales or 1.9% of the increase. As a reminder, Montratec has variability from period-to-period, given the project nature of the business. Foreign currency translation was a benefit this quarter of $1.3 million or 0.5%. Sales growth in the quarter was largely driven by precision conveyance, which was up 23% overall and 9% excluding Montratec. As David discussed, our pipeline of opportunities remains healthy for this platform and we saw a strong order growth of 25% in Q4 and 13% excluding the impact of the Montratec acquisition. Our lifting platform also contributed to sales growth in the quarter, as it was up 4%, driven by strength in our project business. In the U.S., sales increased 3.7%, driven by both volume and price, primarily in our precision conveyance platform as just referenced. Outside of the U.S., sales increased by 5.8%. This was primarily the result of Montratec revenue and the favorable benefit of FX, as we saw slight volume declines that were offset by pricing gains. On Slide 9, gross profit increased $3.1 million or 3.4% versus the prior year, driven primarily by favorable sales mix even as we absorb $2.8 million of Monterrey, Mexico start-up costs and factory consolidation costs in Europe with the Jülich Germany consolidation. We recorded gross margin of 35.5% in the fourth quarter. On an adjusted basis, gross margin was 36.6%, up 70 basis points year-over-year, which is…

[Operator Instructions] Our first question is from Matt Summerville with D. A. Davidson.

Thanks. Couple of questions. Could you maybe talk about order cadence as you progress through the fiscal fourth quarter and what you've seen from an incoming order rate standpoint in April and May? Are you seeing anything in your more, cold -- canary end markets that are giving you maybe a little bit of pause, given your commentary utilizing the word prudent several times? I have a follow-up.

Yes. Thanks, Matt. Good morning. As it relates to Q4, our progression was an increasing order rate throughout the quarter. We saw a strong February and a strong March finishing at $258 million of orders for the quarter. As we entered this quarter, we had a pretty solid April followed by a slightly softer May and we really don't have too many notable concerns relative to the quarter's run rate of orders, at this point. Our channel inventory levels are at targeted levels. The demand and inquiry levels remain encouraging. But as we've identified, although, we're optimistic, we're cautiously optimistic, given the broader macro-economic uncertainties and we're taking a prudent view towards our full year guide.

Just as a follow-up, Greg, in your prepared remarks, you talked about, I don't want to call them one-time items, but you talked about a couple of headwinds maybe that hit adjusted gross margin in the quarter. Could you quantify the magnitude of that headwind? Going back and reviewing the transcript from the third quarter, you seemed pretty confident in your ability to hit 38% adjusted gross margin. You came in at 36.6%. I'm just trying to understand what would have maybe closed that gap, if you will.

Yes. Thanks, Matt. Essentially both of those items were about $4 million of margin impact. It had to do once again with Montratec volumes being lower and absorption being off. But also, there was a the project that I mentioned, where we weren't able to pass-through the cost increase for one of the components that they don't normally buy, but it was needed for this project. As I mentioned, we addressed that. In the U.S. lifting business, it had to do with some clean-up items that once again, we don't -- it's not something that we accept and we've made changes from a people and a process perspective to deal with this.

Our next question is from Stephen Ferazani with Sidoti & Company.

Good morning, David. Good morning, Greg. I just want to follow-up the last question because when I think about your guidance, that EPS improvement for fiscal '25 on low single-digit revenue growth, it looks like you get there just on lower interest expense. You are not assuming any further gross margin improvement or RSG&A reduction? Because that sort of gets you there just with the $5 million interest expense reduction.

Good morning, Steve. This is David. I think that, that would get us to the low end of the guide. Yes, we do expect to expand gross margins. We have our overall goal to get to 40% in the next several years. We continue to look at our cost structure. We do have our merit increases that are going to take effect in July on the RSG&A side. Once again, we're continuing to work that part of the equation as well to increase our ability to scale our costs, but also to look at, where we might have the ability to reduce that cost going forward. But once again our guidance is meant to be a prudent look at where things sit today.

Are you expecting any benefits near-term from the Mexico and Germany facility consolidation, or is that longer-term?

I'll start out at least with the German piece of it. That consolidation was for a very small facility that came with the Dorner acquisition in Jülich Germany. The savings, there was a little bit of savings in this past fiscal year not much to speak about. But the savings are very immaterial going forward, just given the size of it. But we think that, having that now under our Wuppertal factory will give us much more control and visibility and I think the ability to make sure we've got the right inventory and that we're able to drive volume. David, do you want to address Mexico?

Yes. I would add that Jülich, Germany facility consolidation is the former Dorner manufacturing location in Germany that we consolidated into our Wuppertal distribution center for the broader European organization. For Montratec, sorry, for the Monterey facility, we are going to be in a transition year this year, as we probably have a period of duplicative costs and then some benefits as we go forward. It's going to be a bit lumpy. If there is a benefit, it will be back-end loaded. I would say that the majority of our 200 basis points of margin expansion that we anticipate from this overall project is largely backend loaded in our strategic planning period. We'll talk more about that as it's appropriate, but that is the rough phasing that I would like you thinking about.

To the top-line growth you're expecting, four to five quarters book-to-bill spend under one. You converted about $30 million. You reduced backlog by about $30 million this year. To get to low single digit growth, are you expecting further backlog reduction beyond $30 million next year to get you there? I guess just to add on to that question, what do you consider normalized backlog now?

Right. Our backlog, if you look at historical terms pre-COVID in our lifting business is about $80 million below where it is today, $80 million to $90 million below where it would be today. That is at a time when orders were placed more frequently and through COVID and with the longer lead times we experienced in the wake of COVID, we had customers that would place orders earlier and with longer lead times. That leads to an elevated backlog that you carry. We think there's maybe $50 million of backlog there that might be above what might be a new normalized level with new ordering patterns, if demand remains as it has been over the last two quarters. If you look at Q4 orders and you look at Q3 orders and annualize that, that's roughly a $980 million run rate. Probably at the midpoint of our guide, you would say that, we would be needing to draw down about $50 million of backlog, given flat order performance. We are obviously encouraged with the demand in the pipeline, but we remain cautiously optimistic given the macroeconomic environment.

Just to add on, the team has done a tremendous job of reducing past due backlog over the past year. We're down about $18 million versus a year ago and even in this quarter, we're down about $7.5 million. Essentially we're back to a more normal level and no longer an issue for us. The combination of those things really drives a focus on customer experience and picking up more market share opportunity with our customers, which we're laser focused on. Our assumptions don't assume a diminishing demand. It's just the timing of that demand given some of the macroeconomic uncertainty.

That's really helpful. Thanks David. Thanks Greg.

Our next question is from Walt Liptak with Seaport Research. Please proceed. Walt, please check and see if your line is muted. We will come back to Walt. Our next question will be from Jon Tanwanteng.

Good morning. Thank you for taking my questions. I guess if we could dive a little bit more into Montratec and what happened in the quarter, did you push out some of the deliveries and revenue recognition there coming back maybe in a later quarter, number one? And number two, I guess, the parts that you couldn't pass-through on the pricing. Is that something that's going to be an issue going forward, or is that just a one-time issue on the contract that was involved there?

Yes. Good morning, John. We did see some revenue recognition timing adjustments in the quarter, as we bring them into the fold on our policies and approach. The impact of this project was a one-time impact, a large project for a major European auto manufacturer, where the team had agreed to provide some robotics equipment, which was third-party supplied in addition to the core components of the portfolio. The pricing that was established for that was under, where the cost was and it was something that, this is a pre-acquisition contract and it was something that we have appropriately circled and addressed, both from a process and from a people standpoint of taking corrective action to ensure that that's behind us.

How did Montratec during the year compared to expectations, I guess, when you bought it? Does that I guess the rev rec mean that your next quarter should be a little bit stronger just from Montratec than you probably would have expected?

The year very much in line, John. They delivered $32.6 million for the 10 months that we own them. If you annualize that, that's a $39 million rate. If you think about what we bought, we bought a $30 million business that we said was going to grow 30% per year. We're very much on $40 million clip, even with this lighter quarter in the fourth quarter. Their gross margins were at 42.4% for the fiscal year, including those 10 months, as we mentioned. This is very much a business that is performing at a level that's in line with our expectations for the first 10 months of ownership. It is a bit lumpy, given the phasing of projects in the pipeline and we're really encouraged with the demand potential for that business, as we unlock its exposure globally with our reach. We are accessing some really attractive markets that have great potential. We feel good about the business. We feel good about its trajectory. There are some periodic impacts here that we're experienced here in this quarter. I anticipate that the next quarter will be similar in margin, sorry, similar in revenue, but improved in terms of margin.

Just to add on Jon and just a reminder to folks on the call. We bought Montratec May 31st, last year. So we have two more months and then we'll be anniversarying the Montratec acquisition. And so, when we break out acquisition sales in the upcoming quarter, it will only be for the two months and the rest of the Montratec revenue that's delivered in June will be part of our normal price volume and mix calculations. If you think about it, the $32.6 million of sales that David referenced for Montratec, that's in only 10 months of ownership under Columbus McKinnon. Really excited about their progress.

Got it. Thank you. Greg, if I could sneak in one more. Just the components of the revenue guidance for this coming year. Can you just break down what you are implying there between price and volume and whatever else is left at Montratec for those two months?

Yes. We would expect, as David mentioned, the acquisition piece of it to be relatively comparable to this past quarter. We have John and as we've talked about in past quarters, we do expect pricing to normalize. Our material cost inflation has now come in quite a bit. For the most part, we're just seeing a little bit of carryover inflation from price increases that our vendors pass-through back in fiscal '24. Pricing once again is going to be a more normal level and we would expect that volume with, just taking a prudent approach with all the uncertainty that's out there that, volume is going to be relatively flat to maybe up a little bit.

Our last question will be from Walter Liptak with Seaport Research.

Hi, thanks. Can you hear me now guys?

Yes. Yes, we can. Good morning, Walt.

I wonder, you talked a little bit about the conveyance order growth and it seems like 13% order growth is a pretty good start, pretty good visibility for the year. Can you provide maybe a little bit more detail, what are you seeing from the funnel the quoting environment, et cetera?

Yes. The funnel is really encouraging. In the U.S., we have roughly a $33 million funnel of active engineered or quotes that excludes the build to order opportunities that we typically see come into the business on an ordinary course. It's full of attractive opportunities across pharma, e-commerce, electrification, food and bev. We're seeing that funnel increase in its size and activity around project discussions increase as well. We do have in the rear view mirror a slowdown that we saw in the packaging industry as well as in the robotics space that impacted the business over the last 18 months, in addition to the challenges that we saw from a demand perspective in e-commerce. What we're seeing generally is that, those overhangs are alleviating and that the funnel is advancing. We're encouraged by the funnel and the opportunities are attractive in those industries that I mentioned.

Maybe Walt just to add on, we were very excited about the fact that we just won an order for a Montratec system in the U.S. to a Dorner customer that's very sizable with the potential for several more.

Yes. This is Express Scripts and it's an opportunity that has multiple lines associated with it.

Okay, great. Thanks for pointing that out. In your prepared comments, you alluded to some, I don't know, if it's strategic work that you're doing with the conveyor part of the business, the Dorner and Garvey businesses maybe Montratec. I wonder if you can help us understand that, if that's correct and if you can understand what's going on, on the selling strategies to keep this order growth going?

Yes. Of course, Walter. If you recall when we purchased the companies, we talked about the global reach that we could achieve through the total organization of Columbus McKinnon. We've really worked to integrate the Garvey and the Dorner selling organizations and they're largely selling both portfolios at this point. As we think about adding Montratec and the reach of that organization to the mix, now we have a large European team that can help us to bring product both from North America to Europe and now the European team can leverage the North American channels that we have. As Greg just highlighted capturing the opportunities that we see in North America. We also have a growing presence in Asia with the opportunity to sell this product through our Southeast Asian hub. As you know, we have a manufacturing facility for Dorner that is in Malaysia and we have a pretty well-established presence commercially to sell that product and now bringing the Montratec and Garvey portfolio into that mix is something we expect to leverage. We've done some good work, not only from a channel reach standpoint, but also from a product and technology integration standpoint. We were recently at a show with customers in Europe, where we are demonstrating the interconnectability of Dorner and Montratec solutions to solve very application-specific problems that exist in fast growing markets and our customers were pretty excited about it. I think there's a lot of opportunities for us to leverage those technologies across the landscape and unlock the potential of this precision conveyance portfolio.

Thanks for that. That sounds great. If we just switch gears to the cautious outlook that you talked about, I think you referenced macro, but I wonder if you can be more specific. Is it Europe macro, is it U.S. macro? What are you seeing in Europe and/or here?

We've seen a stabilization and in fact a slight improvement in the macro in Europe over the last three months. That's a recent trend. But as you look at the general position globally sustained higher interest rates and the risk of continued inflation, the global geopolitical landscape and some uncertainty around that, the election cycle and potential uncertainty around that, we thought it was prudent for us as we look at the potential for disruptions to demand pattern associated with that environment to take a prudent view on our outlook for the year.

Thank you. This will conclude the question-and-answer session of the earnings call. I will now turn the call back over to Mr. Wilson for closing remarks.

Great. Thank you, Sherry, and thank you to all on the call for joining us today. Our team is executing our strategic plan, improving our customers' experience and making significant progress on our simplification initiatives. I'd like to extend my personal thanks to our entire team for their dedication and relentless execution that enabled us to deliver record results in fiscal year 2024. Our high single-digit sales growth and mid-teens adjusted operating income growth in a dynamic environment throughout the year, offer meaningful proof points that highlight the power of our transformation. While we are taking a prudent view regarding guidance for fiscal 2025, we remain highly confident in our potential over the longer term. Our deliberately curated portfolio of businesses generate significant cash flow, which enables us to reinvest in our business and delever the balance sheet, unlocking further cash flow potential as we invest in businesses with attractive cash-on-cash returns. Powered by our attractive and improving financial performance and our position as a market leader with improving scale and compounding growth, we remain confident in our ability to deliver shareholder value over time. Thanks for investing your time with us today. As always, please reach out to Kristy, if you have any questions.

Thank you. This concludes today's conference call. You may now disconnect.