Good morning, and welcome to Columbus McKinnon's Second Quarter Fiscal 2025 Earnings Conference Call. My name is Eric, 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 Kristine Moser, Vice President of Investor Relations and Treasurer.

Thank you, and welcome to Columbus McKinnon's second quarter fiscal 2025 earnings conference call. The earnings release and presentation to supplement today's call are available for download on our Investor Relations website 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 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. We respectfully ask that you limit yourself to one question and one follow-up. With that, I'll turn the call over to David.

Thank you, Kristine, and good morning, everyone. Before we begin, I know we've all been attentive to the impact that Hurricanes Helene and Milton have had on communities across the Southeast region of the United States. Given CMCO's footprint across this region, this hits particularly close to home for us. In the wake of these storms, Columbus McKinnon has taken a variety of actions to care for our team members, our customers and the communities that have been impacted. I'd like to thank our team members and our partners who rallied and assisted with these efforts to provide equipment and aid in support of our neighbors. In some areas there remains a long road to recovery ahead and we will continue to partner with our teams to assist with the recovery efforts that are underway. Now shifting to the quarter. In Q2, orders increased 16% year-over-year with a book-to-bill ratio of 1.08 as we continue to gain traction with our commercial, vertical market and customer experience initiatives. As expected, sales were down year-over-year driven by our linear motion factory move to Monterrey, Mexico, the phasing of automation project backlog and the timing of EMEA project revenue. In addition, at the end of Q2, the impact of Hurricane Helene resulted in a plant closure and productivity disruptions at several locations that pushed shipments out of Q2. Despite this impact, sales were in line with guidance. Profitability in the quarter was impacted by a few unique items that we previously discussed, including a $23 million non-cash pension settlement; $12 million of costs related to the closure of our linear motion facility, $7 million of which were non-cash; and $4 million of start-up costs related to the move of production to Monterrey, Mexico. Given these impacts and mix dynamics margins were lower than…

Thank you, David. Good morning everyone. We delivered second quarter net sales of $242.3 million, in line with the guidance we gave even with the impact of Hurricane Helene on our factories in the Southeast at the end of the month, which impacted revenue by about $3 million to $4 million. Sales were down 6% year-over-year, primarily driven by the volume impacts of Hurricane Helene, the move of our linear motion factory to Monterrey, Mexico, and the timing of project backlog globally. US sales were down 9%, given that most of the unique items in the quarter were in the US, while EMEA and APAC were only down 3%, driven by the timing of project backlog. As David discussed, project orders were up 33%, while short-cycle orders remained stable in the quarter as we advance customer experience initiatives, win new customers and capture market share even in a challenging market environment. We are encouraged with our sales funnel, and we have significant opportunities on the horizon across all of our platforms with particular strength in precision conveyance. Our gross profit decreased $25.2 million versus the prior year on a GAAP basis, impacted by $12.9 million of expenses for the closure of our Charlotte facility and the ramp-up of our Monterrey, Mexico facility. This includes $6.8 million of non-cash asset impairment charges. The remainder of the decline was due to lower sales volume and mix. On a GAAP basis, our gross margin was 30.9% and on an adjusted basis, our gross margin was 36.3%, driven by the lower volumes and unfavorable mix. Our mix was unfavorable due to lower sales of our higher-margin businesses compared to a year ago, specifically lower sales of Montratec, lower sales in the US and the factories impacted by Hurricane Helene and the mix within our…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Jonathan Tanwanteng from CJS Securities. Please go ahead.

Hi, guys. It's actually Charlie Strauzer on for John. Just a couple of quick questions, if I could. Any chance we can get a little bit more quantification of the impact of the hurricanes in Q2? And are there any lingering issues heading into Q3?

Yes, sure. Did you say Charlie? I couldn't quite hear the name when you...

Yes, Charlie Strauzer. I'm sorry.

Hi, Charlie. Good morning. Okay. So, yes, the hurricane resulted in the closure of our Damascus, Virginia facility for about five days and disrupted several other facilities in the Southeast that we operate. And while we incurred no property damage, sales shifted into the first week of October. And while it's difficult to gauge the exact impact across our full footprint, given the nature of the storm, the impact of the closure in Damascus was approximately $2 million of delayed sales, and we estimate the balance of the impact across multiple facilities to be about that same amount. And so, in total, we saw about $4 million worth of disruption associated with the hurricane. And the EPS impact of that $4 million of sales would have been about $0.03 a share.

Great. That's helpful. Thank you. And just a follow-up, if I could. Industrial and especially EU, German end markets are weakening. Where are you seeing kind of offsetting strength?

Yes. So that's true. German markets are soft at the moment, and there's concerns about those that you see in the markets. We've done a great job of working, I think, across multiple markets in the European and Middle Eastern geographies to generate opportunities for the business with our total portfolio. And I think the team there continues to do a nice job in that environment. We've seen great opportunities in the battery production space specifically, and then, in oil and gas. I'd note those as two specific markets as we think about Europe notably. More broadly, for the markets across the world, we see defense and ag as being strong. We also see aerospace remaining strong with further potential. And the utility markets in the U.S. have seen an uptick with recent hurricane activities.

Great. Thank you.

You’re welcome.

Our next question comes from the line of Matt Summerville with D.A. Davidson. Please go ahead.

Yes. Thanks. David, you obviously quantified just now the impact on revenue and EPS with respect to the hurricane. But can you guys maybe parse out what sort of impact you would have had on the top line? Is it related to the manufacturing relocation of Mexico, the timing you talk about with respect to kind of some things moving around from a project standpoint? And specifically on the project side, what pushed into fiscal 2026? I just want to make sure I'm clear on that. Then I have a follow-up.

Sure. Yes. So, as you think about that linear motion footprint consolidation, we were impacted by sales of approximately $4 million there, and that remained in backlog and is expected to ship in Q3. Now, this is roughly in line with the expectations we had as we entered the quarter and communicated in our Q1 results. I think the team did a nice job executing throughout the transition. We shipped our last order out of Charlotte in August, and all production from then forward was manufactured and shipped from the new facility. So the team in Monterrey is up and running. They're doing a great job at scaling and building momentum around that transition and they're focused specifically on more mechanical actuation and the engineered to order capabilities that we need to make sure we bring to full scale in this quarter. And so, we expect a quarter this period, that will be more or less in line with where previous production levels had been, but that $4 million is what moved out of the quarter associated with the linear motion move. And then more broadly, we saw -- if you recall, in the Q1 call, we talked about automation orders being down in Q1, and that led to less backlog to ship in this quarter. And so, automation impacted the shift by about $5 million, let's say. Precision conveyance was about $3 million. And linear motion, more broadly in Europe, was about $3 million.

Got it. And then you mentioned PowerCo earlier. It sounds like you got nine in Q1 another nine in Q2 another 10 in Q3. What ultimately -- as you look over the next two to three years, what could that aggregate opportunity ultimately look like for you guys between those three factories in terms of orders and therefore ultimately revenue if things sort of break your way if you will?

Right. So we've characterized the opportunity as a nine-figure opportunity. So you should be thinking about it in terms of north of $100 million of opportunity on the orders and sales side. And there's a whole lot of additional customer activity as you think about this market specifically and the opportunity for us given our application-specific and advantaged process technology to support that manufacturing process.

Got it. Thank you, guys.

Thanks, Matt.

Our next question comes from the line of Steve Ferazani with Sidoti. Please go ahead.

Good morning, Dave. Good morning, Greg. Appreciate the detail on the call. I want to ask about the 3Q guide, because you talk about $4 million still in backlog because of the relocation of Monterrey and then $4 million pushing out because of hurricane disruption. Given that additional revenue -- and I know 3Q is your seasonally slowest, -- is there any negatives in 3Q? Because I would have expected your 3Q guide to be a little bit better given the amount of revenue that pushed into that quarter.

Yeah. Steve exactly and certainly anticipated this question and understands the nature of the question. It's really related to the mix of backlog that we have to work with as we enter the quarter. Nothing more broadly happening there, it's simply the fact that we have received a number of very attractive orders and our backlog is now more heavily weighted towards project activity that simply phases in the backlog into Q4 and then into 2026, fiscal 2026. And so our short-cycle business has been stable. And that's been encouraging despite the uncertainty in the macroeconomic backdrop and awareness that we have that there's a level of pressure around destocking with national distributors and some of the private equity-backed distributors out there that are focused on working capital and managing that in a more precise way. And so that action along with the macroeconomic uncertainty has led to some pressure in the short-cycle space but we've been stable there. And so there's nothing really that's happening. It's just a matter of how the activity phases in the backlog the project business that is.

Yeah. Steve, I'll add one other point on the linear motion production in Monterrey. So we will ship the past due backlog that we had as of the end of September, but the team is ramping up to speed. We've hired 100 employees since March roughly 50 in Q2. So they'll get to a full run rate but we don't anticipate that they'll be able to maintain above what a full run rate is to catch up on the revenue.

Right. So a full run rate plus that, not going to be achievable in this quarter.

So some of that $4 million could push into Q4?

Not that specific $4 million, but …

Right.

…$4 million in the aggregate, right.

It would just mean other stuff would push out. Okay.

Correct.

Correct.

And I want to ask about the gross margin. I know that obviously there was a lot of noise which you covered in the quarter and you talked about mix. But when you look at what's in backlog and now you probably have a sense of directionally margins. Do you get back to where you were before this quarter? Can you get higher based on what you're seeing in backlog right now and the pricing of it?

Yeah. Of course, we certainly are focused on the longer-term objectives we have as a business to get to that plus or minus 40% in gross margin. And we have mix contributors in this quarter that were tied to some of the volume push-outs in the quarter that I talked about in automation, and some of the higher-margin portions of a business that I referred to earlier. We also had lower volume as you know year-over-year. So the combination of lower fixed cost absorption tied to the volume reduction and the mix shift really led to that margin outcome in the quarter. And we had anticipated a large percentage of that given the way we're forecasting the business and that translated into the guide that we gave. And as we work through this quarter, we expect to continue to see improvement from that level. And over the long-term, we expect to deliver improvements that take us to that targeted level over time.

Thanks, David. Thanks, Greg.

Thanks, Steve.

Our next question comes from the line of Walt Liptak with Seaport Research. Please go ahead.

Hey, thanks. Good morning, everyone. Thanks for the detail about the Monterrey ramp and things like that. I wonder if you could just help us understand a little bit about – we've done a lot. Maybe just review what we've done so far in Monterrey. And what's the next step? Is it – do we have something left to do in 2025? Or is it now we look to 2026 for the next phase?

Yes. So Walt, so what we've done to date is back in January we announced that we had the new facility up in Monterrey. So it's been in the planning phase and early execution phase really since – before June of 2022. So it's been a while because this is a very complex project that we've got. And so to date, we started in the January time frame and consolidated a small lifting facility that we already had in Mexico. So the Charlotte linear motion consolidation was the next one, which took place here – really we announced it in July. August was a bit of a messy transition. And as David mentioned we're out of it in September and going forward. But our plans all along expected that there could be more consolidation that would take place over time. And as we talked about in our June Investor Day, we expect in total this to result in roughly 200 basis points of gross margin improvement coming from this. And we're working to obviously, ramp up what we already have and are thinking through what our next steps would be which in terms of planning.

Okay, great. And then just switching gears over to the short-cycle business. You characterized it as stable. I wonder if you can provide a little bit more detail. Was it stable across the board in the geographic regions? And I guess we're mostly focused on US but did you see anything getting a little bit better some of our industrial companies are starting to see some improvement here just kind of in the recent months in the US?

Yes. So I'd say largely stable as I indicated across the business. And where we saw pockets of weakness, it was related to some of the destocking pressures that I mentioned earlier with the national and more consolidated channel partners. And I would say that that was true primarily in the United States. And then in Europe, where we have a lifting distribution portion of our business, there's been some pressure there on order rates for that portion of our short-cycle business.

Okay. And then...

And through the first few weeks of October, though, I would say that orders are up across the short-cycle segment by mid-single digits. So stability in the second quarter and encouraging performance as we think about where we are so far in Q3.

Yes and Walt just to add on what we typically see in our fiscal third quarter ending in December is we do see the channel manage inventory levels as they typically do at the end of their most of them have fiscal year-ends of 12/31 and they might have bank lines that they need to report on. So that's a typical phenomenon we would see. And also certainly with the election uncertainty, I think there's been a little bit of reluctance from a channel perspective to add inventory. But we think once that uncertainty clears up then we should see a rebound again.

Okay, great. And then I think in the prepared remarks you just talked about e-commerce. And I wonder if you could provide some more detail about do you've got a new e-commerce customer or an existing one that sounds like it's ramping. Can you talk about that and what the funnel might look like around precision conveyance and e-commerce?

Sure, absolutely. And so, we're really excited about developments in that particular vertical market. We have both existing and new customers that are expanding their activity in the space. And so we see quotations and order activity up in that particular vertical market. Early in this quarter, we just mentioned in the prepared remarks, we took an order a multi-order opportunity related to sorting processes for existing warehouses within an existing customer environment that translates across the entire footprint of their investment for warehousing space. And so, really good opportunity that we're excited about being selected for and that will deliver over the next couple of quarters. And it's the beginning of what we think is going to be a nice run of new investment across that space with existing and new customers for the company.

Yes. And just to reiterate what Dave said on the call, Walt, is we saw outstanding order growth in precision conveyance up 42% year-over-year and orders in really all three of the recent acquisitions were up 20% plus. So, we couldn't be happier about the performance from an order perspective.

Okay, great. And it sounds like some of those e-commerce orders you've just gotten first phases of what should be a much larger funnel. Is that the way we should read it?

Yes.

Okay, great. Thank you.

Our final question comes from the line of James Kirby with JPMorgan. Please go ahead.

Good morning guys. Thanks for the question here. I just wanted to clarify -- I guess if you take out the hurricane impact, is that really the driver of the top line guide down? Or are there other moving parts in the back half of the year to consider there?

No, it's a combination of the hurricane and then the backlog phasing going into the second quarter. And we had guided down from Q1 -- or we didn't have a guide for Q2 at that point, but we guided Q2 at a level that was lower than prior year deliberately knowing that we had the backlog phasing that we mentioned and then we had the move to Monterrey incorporated. And so those were the two big drivers outside of the hurricane impact.

Okay. That's helpful. Thanks. And then my second question, just with montratec, I know it's kind of grouped into your other conveyance segment now. But it seems to be growing well above I guess what you were pacing for when you made that acquisition. Is that the right way to think about it? And I guess -- and I believe you were asked this last quarter, but is that really -- do you think that's because of the integration across the portfolio? Or are there other macro factors there impacting that?

Yes. And when we think about the precision conveyance platform within the company, we really think about just as that. It's a combination of select technologies that are market-leading in their own right, whether it's belted precision conveyance, flexible conveyance, accumulation technology or asynchronous conveyance with the montratec acquisition and we're offering a comprehensive solution that becomes advantaged because of the combination of those technologies in many cases for certain applications. And so, yes, montratec is doing incredibly well. The other businesses are doing well as Greg just referenced with order rates up above 20% across all of the segments of that platform from a product perspective. And then, with montratec specifically that asynchronous conveyance, the footprint that it's advantaged with it's a smaller footprint product. It's highly efficient from an energy consumption perspective. It's precise. It's fast. It has a heavy payload. And it's something that is gaining traction in multiple markets, but most notably, the battery production space and the combination of the team's inroads into key areas and the Columbus McKinnon backing and the way we came together as a company with our balance sheet and we've added capacity for that business within the first year of ownership that really allows us to scale, has positioned us to be nicely advantaged. I'd also say that the integration across our geographies bringing teams together that can really sell that product more broadly represent it more broadly is helping too.

And James what we did -- what we said when we bought montratec was that we expect it to double revenue in a three-year period of time from roughly $30 million to $60 million. And so we think we're on track.

Right. Okay. No, it sounds good. I appreciate the color, guys. Thanks.

You bet. Thank you.

Our last question comes from the line of Steve Ferazani with Sidoti. Please go ahead.

Thanks, guys. I just had a quick follow-up on capital allocation. You did highlight that the modest share repurchases in 2Q and already in 3Q. Given that second half of the year is typically stronger for cash flow generation easily covers those $30 million you've guided for in debt repayments any thoughts on becoming a more aggressive repurchaser? I know that's a Board decision, but if you could comment on that?

Yes. So we see it as an appropriate tool in our toolbox on capital allocation. Certainly with interest rates falling now we model the impact of share repurchases versus debt paydown. And with falling rates and with where the stock price has been we feel that it's an excellent opportunity to buy our stock back. But having said that with to your point our expected cash flow in the second half of the year we do anticipate being able to repay down an additional $30 million of debt and still hitting the $60 million guidance number that we've previously spoken about.

Good. Thanks, Dave.

Thanks, Steve.

This concludes the question-and-answer session. I will now turn the call back over to Mr. Wilson for closing remarks. Please go ahead.

Thank you, Eric and thank you everyone for joining us today. Our team continues to execute our strategic initiatives, improve our customers' experience and make significant progress on our simplification initiatives. We delivered on our guidance in the second quarter adjusted for the impact of Helene and delivered one of our highest order growth quarters ever with outsized performance in precision conveyance which will be a tailwind to margins in fiscal 2026. I'd like to extend my personal thanks to our entire team for their dedication and their relentless execution both delivering the quarter and in an evolving environment including a natural disaster and positioning us to exit the year with strong performance and line of sight to a solid growth in fiscal 2026. Given long-term megatrends, I could not be more excited about Columbus McKinnon's future. With customers dealing with scarcity of labor issues the need to improve productivity and ensuring continuous uptime, we believe there is no one better positioned to help them automate and streamline their material handling needs with our intelligent motion solutions with a unique mix of proprietary technology. As companies embrace AI to optimize efficiency and productivity in their facilities we are positioning ourselves to be the connective tissue that links the digital and physical worlds by precisely positioning materials to enable fully automated intralogistics. Additionally, as interest rates decline and we move past the election cycle there are many economists that are calling for a potential release of pent-up investment demand. While we remain focused on execution of our strategy today, we're simultaneously positioning ourselves to take advantage of opportunities that arise as technology evolves and we see favorable windows in the macroeconomic landscape. This coupled with an encouraging pipeline of opportunities and the large multi-order projects we've been specified for give us confidence in a strong exit to the year and beyond. Thanks for investing your time with us today. As always please reach out to Kristy if you have further questions.

Ladies and gentlemen that concludes today's call. Thank you all for joining and you may now disconnect.