Greetings, and welcome to the Columbus McKinnon Corporation First Quarter Fiscal Year 2020 Financial Results. A question-and-answer session will follow the formal presentation. It is now my pleasure to introduce your host Deborah Pawlowski, Investor Relations for Columbus McKinnon. Thank you. Ms. Pawlowski, you may begin.

Thanks, Doug, and good morning everyone. We certainly appreciate your time today and your interest in Columbus McKinnon. Joining me on the call are Mark Morelli, our President and CEO and Greg Rustowicz, our Chief Financial Officer. You should have a copy of our first quarter fiscal 2020 financial results, which we released this morning before the market. And if not, you can access the release as well as the slides that will accompany our conversation today at our website cmworks.com. If you'll turn to slide two in the deck, I will first review the safe harbor statement. As you are aware, we may make some forward-looking statements during the formal discussions as well as during the Q&A 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. These documents can be found on our website or at sec.gov. During today's call, we will also discuss some non-GAAP financial measures. We believe those will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and the slides for your information. So with that, if you would turn to Slide 3, I will turn it over to Mark to begin. Mark?

Thanks, Deb, and good morning everyone. The first quarter of fiscal '20 is further evidence that our Blueprint for Growth strategy is expanding margins and driving earnings power. Net income for the quarter was up 141%. On an adjusted basis, earnings per diluted share was up nearly 10%. Margin expansion continued to drive earnings growth. This validates the effectiveness of our Blueprint for Growth strategy and the deployment of our business operating system which we call EPAS, or Earnings Power Acceleration. EPAS provides tools we use to execute our plan. Since implementing EPAS in 2017, we've consistently expanded margins and ROIC. In fact, we achieved a record adjusted EBITDA margin of 16.7% this past quarter, surpassing last year's previous record by 100 basis points. We made solid progress on ROIC as well, which reached 11.5%. We had record gross margin, up 10 basis points from the prior record last year, as pricing more than offset tariffs and inflation. Contributing to the improvement was $500,000 in savings from the consolidation of our Ohio facility. The simplification of our business with Phase II of the Blueprint for Growth strategy is reducing our cost structure and improving our operating leverage. We had outstanding operating leverage for the quarter as adjusted operating income increased on a lower revenue base due to divestitures. After adjusting for divestitures and changes in foreign currency exchange rates, operating margin expanded 140 basis points to more than 13%. Looking at Slide 4, we're doubling down on Phase II of our strategy this year. This phase is focused on simplifying the business, operational excellence, and ramping the growth engine. Our efforts continue to deliver results and we believe there is significant runway for further improvement. Simplifying our business continues to drive earnings growth. In fact, $3.4 million in operating profit in the quarter came from the 80:20 process, an important tool in our operating system to help us simplify the business. There was also $1 million of RSG&A savings delivered by our more streamlined organizational structure. Additionally, operating margin increased by 30 basis points as a result of the divestitures identified during our simplification process. On the operational excellence side, our better cost discipline is improving our cost structure. During the quarter, we realized a 150 basis point reduction in RSG&A as a percentage of sales, and the combination of simplification and operational excellence is driving our efforts to reduce our operating footprint. In addition to divesting non-core businesses, we're able to consolidate into one facility in Ohio. As I mentioned earlier, this provided $500,000 in savings in the quarter, and we're on track to achieve $2 million in savings this fiscal year. We're also moving forward with the consolidation of our footprint in China that we announced at our Investor Day in June. We expect this to cost about $1.5 million and have about a one-year payback. We're encouraged by the progress we're making in ramping our growth engine as well. I've met recently with several of our key accounts. Both Columbus McKinnon and our customers are seeing mutual growth opportunities, and our engagement is paying off. Several accounts in the U.S. and the Middle East are realizing strong growth as they penetrate new markets. Product innovation is also ramping our growth engine and expanding addressable markets. Through product innovation that focuses on safety and productivity, we expand our markets and increase our opportunities to grow at higher margins. Let me give you a couple examples. We expect to accelerate sales of our new wire rope hoist platform with the recent launch of crane kits. Customers can now use our online configurator, which we call Compass, to enter basic design parameters and configure a standard crane package. For many customers, a basic industrial crane fits their needs, and our online system now allows them to get the crane design, quoted, and delivered quickly and easily with all components included. This allows our customers to be more productive as it reduces their engineering effort and shortens lead times for delivery and installation. We're also expanding our addressable market and enhancing our position as a lifting specialist by launching a new offering of an explosion-proof crane. Our STAHL brand is a leader in explosion-proof cranes and now has certification in the US, allowing us to compete more effectively in the LNG and petrochemical industries. Smart movement is a key element of our growth strategy. We're the sole provider of a Magnetek brand four-quadrant digital DC drive that improves safety and incorporates diagnostics. This digital drive is an ideal solution for older cranes that have DC motors and upgrades them to a digital system. This retrofit to existing cranes allows for many features of a modern crane, offering greater productivity and safety. This drive is helping us to grow with retrofits in the steel and waste-to-energy market segment. With that, let me turn it over to Greg to cover our financial results. Greg?

Thank you, Mark. Good morning, everyone. On Slide 5, net sales in the first quarter were $212.7 million. As you know, we completed three divestitures last fiscal year, which reduced sales in the quarter by $11.1 million. Foreign currency continues to be a headwind, which also reduced our sales by $5.1 million compared to the prior year. We expect the headwind to continue in our fiscal second quarter. At today's foreign exchange rates, the headwind will be about 1%. Adjusted for FX and the divestitures, we saw good organic growth of 1.8%. Our pricing power was evident as we saw pricing improve by 1.8%. This included some of the benefits from our 80/20 Process. Sales volume was up 10 basis points. We saw good growth from our project businesses but a slowdown in our short cycle businesses with sell-through distribution. We think the channel is managing inventory levels, given the uncertain macroeconomic environment. We saw solid growth in the quarter, particularly in the U.S. where sales increased by $2.8 million or 2.5% adjusted for divestitures. Sales outside the U.S. were up $1.1 million or 1.1% adjusting for the effects of the divestitures and foreign currency translation. We think that organic growth of approximately 2% in the quarter was good performance given the macroeconomic uncertainty and simplification efforts that eliminate bad revenue. This reflects the progress we continue to make with customer responsiveness and ramping the growth engine. We believe we are growing share in key markets and executing well. On Slide 6, we achieved a record gross margin of 35.5% in the quarter. This is a 10 basis point expansion in gross margin from a year ago, and this is our 9th consecutive quarter of year-over-year margin expansion. As Mark mentioned earlier, the 80/20 Process was accretive to gross margins. In addition, our pricing, which has an 80/20 element to it, is more than covering raw material inflation and tariffs. We feel that Phase II of our strategy still has a lot of runway to further improve gross margins going forward. Let's now review the quarter's gross profit bridge. First-quarter gross profit of $75.6 million decreased by $4 million compared to the prior year. This was largely a result of foreign currency translation, the divestitures, and sales mix. We did see growth from a profit expansion from pricing, net of material cost inflation and productivity. Pricing, net of material cost inflation, contributed $2.5 million and productivity contributed $200,000 of gross profit. Tariffs had a negative impact of $600,000 in the first quarter. In fiscal '20, with current tariff schedules, we expect tariffs will have about a $3 million negative impact on gross profit. We are actively working to mitigate this headwind. I will also point out that we incurred $500,000 of costs for the Ohio plant consolidation. This project is now complete and we expect to benefit by approximately $2 million in overhead cost savings in fiscal '20. Foreign currency translation reduced gross profit by $1.6 million this quarter. The three divestitures negatively impacted gross profit by $1.8 million, and sales volume and mix was negative $2.8 million as we had lower volumes in certain of our project businesses and a higher level of rail projects this quarter. As shown on Slide 7, RSG&A was $45.1 million in the quarter or 21.2% of sales. This is a reduction in RSG&A of $6 million and an improvement of 150 basis points as a percent of sales from the previous year. The prior year first quarter included pro forma costs totaling $1.6 million, and the divestitures reduced RSG&A by $1.1 million. In addition, FX was a benefit in the current year of approximately $1.1 million. The remaining reduction in RSG&A is a result of the simplification part of our strategy, where we reduced SG&A by $1 million a year ago. We are also exercising good cost discipline as we look to drive our earnings power. We are forecasting our second quarter RSG&A to be about $46 million. Turning to Slide 8, normalizing for the divestitures, adjusted income from operations grew 8.7% to $28.1 million or 13.2% of sales, a 140 basis point improvement over the prior year. Our adjusted operating leverage in the quarter was strong as Mark discussed, which reflects our ability to execute on our strategy to drive earnings power. Phase II of our Blueprint strategy, which includes simplification, operational excellence, and ramping the growth engine are all contributing to driving our earnings power. As you can see on Slide 9, GAAP earnings per diluted share for the quarter was $0.78. Adjusted earnings per diluted share was $0.81 compared with $0.74 in the previous year, an increase of $0.07 per share or about 9%. On a GAAP basis, our effective tax rate for the quarter was 22%. We expect the full-year tax rate to be approximately 22% to 23% in fiscal '20. On Slide 10, we continue to expand our adjusted EBITDA margin. For the quarter, our adjusted EBITDA margin was a record 16.7%, an increase of 100 basis points over last year. We also continue to make progress on driving our ROIC higher and are now at 11.5%. As a reminder, our Blueprint for Growth strategy goal is to achieve a 19% adjusted EBITDA margin in fiscal '22 and achieve an adjusted ROIC in the mid-teens. Moving to Slide 11, net cash from operating activities for the year was a use of $2.2 million compared to a source of $8.1 million in the prior year. This was related to timing issues. We decided to fund our annual US pension contribution in Q1 in the amount of $7 million, whereas last year we funded this over the year. In addition, we paid out $12 million of annual incentive plan payments in Q1. Regarding CapEx, our guidance for CapEx for fiscal '20 is expected to be approximately $20 million for the year. We still expect our free cash flow to be in the range of $70 million to $75 million for fiscal '20. Turning to Slide 12, our total debt was approximately $291 million and our net debt was approximately $235 million at the end of this quarter. Our net debt-to-net total capitalization is now below 35%. We repaid $10 million of debt in the first quarter and have reduced our term loan debt by nearly $145 million since acquiring STAHL in January of 2017. We made excellent progress de-levering and have achieved a net debt-to-adjusted EBITDA ratio of 1.77 times, which is below our targeted net leverage ratio of 2 times. From a capital allocation perspective, our plan is to use our free cash flow to continue to de-lever our balance sheet. We expect to repay $65 million of debt in fiscal '20. Please turn to Slide 13, and I will turn it back over to Mark.

Thanks, Greg. Let me wrap up by giving you some color around our market. We're confident in our strategy and our ability to execute by leveraging the tools in our operating system. We're also seeing increased potential by expanding our target markets through greater traction as a lifting specialist and innovating to enable smart movement. The result is a better business model with growth potential and improved operating leverage. Despite some of the market weakness, we're also encouraged by growth opportunities we are seeing in specific markets. We see good demand from segments such as steel, oil and gas, aerospace, waste to energy, hydropower, defense, and government-funded infrastructure. Major utilities and grid system providers are inspecting their power grids and gearing up for the storm season. The entertainment segment is growing. We have won some large orders as the touring business is strong and permanent installs are growing. We're expanding our offerings with automation-ready products and incorporating a built-in load sensor for enhanced safety. Also, our opportunity with automotive looks encouraging. OEMs are investing to compete by designing and building new models of trucks, SUVs, and electric vehicles in North America. Model changeover is what drives demand for our products. While recent industrial market weakness is well reported, we remain confident in our strategy. We expect revenue to be unchanged to slightly improved over last year's second quarter, adjusted for divestitures and foreign currency translation at current rates. Last year's second quarter revenue was approximately $206 million. We are confident that our Blueprint for Growth strategy will continue to deliver stronger earnings power for the quarter and the fiscal year. Simplification and operational excellence will drive margin expansion and operating leverage. With that, Doug, would you please open the call for questions?

Thank you. Our first question comes from the line of Jon Tanwanteng with CJS Securities. Please proceed with your question.

Looking at backlogs are down slightly year-over-year, what's giving you the confidence in the growth in Q2? And second, can you talk about the quality and mix of orders in the backlog from a margin perspective?

So there's two dynamics that are happening that we talked a little bit about in our Investor Day in June that I can also elaborate on today. The first is a dynamic related to our short cycle business, and this is really the historic Columbus McKinnon business that you might think of. What we see there is some of the folks that we sell to don't want to take as much inventory as they did last year, and as a consequence, that short cycle business has depth. It really hit a bottom in April. It moderated in May with some improvement, and June and July, actually, mostly in North America. However, we do see the short cycle business in Europe also particularly impacted with the weakness in Europe. However, the total for the short-cycle business is trending up, so we're encouraged by that. The second dynamic that's important to report on is that of our longer cycle or project business that is mostly related to the newer acquisitions we've done over the last couple of years. This is mostly some of the timing issues related to project. So we still see the project business as being quite strong in some of the segments that I spoke about. It's steel, oil and gas, power. These segments are strong. Projects are good. There's good returns, and as a consequence, these projects are continuing to go, and we see very good quoting activity as well. But we do see timing issues related to that business, and as a consequence, the timing is what you're seeing in some of the numbers. In particular, what's impacting our timing is the rail business. The rail business has a pretty lumpy impact. So far, we've actually seen some order intake in July for the rail business, about $1.7 million of orders came in in July. This is related to orders in Germany, the Czech Republic, and China. So hopefully, that describes some of the dynamics we're seeing there.

And just a comment on the expected margin in the backlog that you have right now?

Greg, do you want to comment on the backlog margins?

Sure. So the margins in the backlog are probably going to be a little higher than they would historically be because of the backlog; a reduction of about $7 million of it was in our rail business. But as Mark said, we just picked up some orders here in July, and that tends to be a little bit of a lower gross margin than the corporate average. But good operating income, because it has lower RSG&A.

And then you made a nice reduction in your RSG&A; you have pretty good guidance for this current quarter. How much more room is there in RSG&A to go down? How much of it is in the 80/20 Plan?

So I think there's two aspects. Certainly, 80/20 is predominantly hitting the gross margins. But over time, the simplification of our business also structurally reduces our operating footprint, and this clearly will have a benefit of our overall spend. So I think what we're giving is responsible guidance for this next quarter, and more to come as we make further traction on our simplification processes.

Our next question comes from the line of Greg Palm with Craig-Hallum Capital Group. Please proceed with your question.

Good morning, and thanks for taking the questions here. I guess, just following up on the comments on the macro, thinking back on what you said when you reported your fiscal year-end results in Analyst Day shortly thereafter, it seems like maybe you saw the macro slowdown a little bit more maybe during that time frame or since then based on the organic growth rate guidance for the September quarter. So I'm just curious, is it more of a one-quarter timing around inventory sell-in or is it just across the board? Maybe you can just help us reconcile those items a little bit more.

Sure. Let me go back to some of the commentary on the short cycle business. I think in North America in particular, we saw a really drop a lot in April with some recovery through May, and certainly, we're seeing some upticks in order intakes in July. It's hard to say why that soft patch occurred. It may have been some of the inventory correction issues where folks are a little bit hesitant given the macroeconomic conditions and concerns on tariffs, but we do see that moderating, and we are encouraged by some of the, like I said, the short cycle upticks recently. Whereas Europe, that industrial capacity is off; I think that yields more softness in Europe right now. We hope to offset that with some of the strength that I spoke about in our earnings call messages in some of the deployment on areas of strength. We are definitely seeing areas of strength. So it's important that we work to mind those opportunities and get some of our growth out of that. So we are actually pretty encouraged by what we're seeing, and there is nothing that we're seeing that would indicate it would derail our strategy at all. We're very focused on our strategy. We are very confident that our strategy is right for these market conditions. So I would say, generally speaking, we're pretty encouraged for the visibility that we have.

Curious, if you have any data or comment on what you think the overall market is growing. It seems like over the past two to four quarters, the market share gains have been accelerating. Just curious to get your thoughts on that, and what your expectations are going forward as well.

I think we have seen some market share gains over the last two years, some of our initiatives on strengthening the core, and some of the deployment in these growth areas. As you can hear from the remarks on this call, we continue to innovate, and I think we're capturing some market segment growth as well. I think we are encouraged by what we've been doing and the traction we've been getting. The overall market, I think there is some data that's written on these. We don't spend a ton of time on what is occurring there because I think what we really focus on is our opportunities to gain share, our opportunities to grow. We do know that Konecranes reported on July 25, and they have an industrial equipment market segment that saw orders decline about 3.5% at the constant currency basis. So I think we feel pretty good about the traction we're getting and the direction we're headed in.

And I guess just last one for me. Greg, I think you had mentioned last quarter about the goal or target in terms of operating income growth in the double digits this year versus last. I mean, in light of a little bit more slowdown in the macro, is that something you still think is achievable or not?

Yes, we actually do because remember the whole strategy is predicated on internal improvements, and we said that we can drive double-digit earnings growth in a low sales growth environment, and that's what we're seeing right now.

And I guess that would probably inherently imply that gross margins tick up from what they were in Q1, even as maybe the sales level comes down a little bit. Is that the right way to think about things?

I think long term that's the right way to think about it. There are seasonal impacts on our gross margin percentages, as you know. But we continue to work hard to improve our factories and our productivity in our factories. We got really good pricing this year so far at 1.8%. But we think we've got a handle on inflation, and that for the most part has been tamed this year with what we're seeing on that front is really a carryover impact from last year. So we would expect for the year to have higher margins than we did a year ago, and we're seeing that now.

Our next question comes from the line of Walter Liptak with Seaport Global. Please proceed with your question.

Hi, this is Steven Friedberg filling in for Walt. So I want to talk about, first, cost. I know you guys mentioned you're positive in Q1. But I was hoping you could provide some color on fiscal 2020 and see how the cadence plays out and if there are any surcharges rolling off.

Sure. So for pricing, as I just mentioned, we got about 1.8% price in the quarter. That did include some benefit from 80/20, and we would expect that pricing level to essentially hold for the rest of the year. Most of our price increases have already been announced and implemented. Our standard price increases have been announced and implemented, and that's done by essentially April 1. So we're pretty confident that pricing is going to be at about this 1.8% level.

And then turning to cash flow. I know it was weak in the quarter, and you guys commented $12 million for the incentive plan. I guess, can you talk about the rationale of prepaying that $12 million, as well as the cadence for fiscal 2020?

Let me just clarify something. The $12 million is the annual incentive plan payment, which was actually a larger payment than we've historically had, largely because we had such a great year last year, and that is always paid in June. So that wasn't a timing issue. The timing issue was really on the US pension plan contributions where we paid $7 million in the first quarter, and we chose to do that using some of the proceeds from our divestitures the year before, and we earmarked that for this payment. So we chose to pay it early. You do get some benefit from it, and you get the expected return on asset percentage, which will help EPS a little bit on it. But it was really our decision from a timing perspective that it made sense for us rather than have the cash sit in the bank.

And the cadence of cash flow throughout the year.

Yes, it's definitely going to improve, because if you think about it, there were $20 million of cash outflows in Q1 that are not going to repeat in Q2, Q3, or Q4.

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

Just regarding, I guess, Blueprint for Growth, 80/20, just wanted to make sure I understand what your expectations are regarding cost. You mentioned the $10 million, and that's maintained from prior. And I was under the understanding that about $2 million is going to come from that Chinese facility, but is that more fiscal '21? Is there anything else in this bucket of restructuring or improvements that we should expect?

In terms of what we expect from 80/20 this year, we're expecting about $10 million of incremental operating income, and that's on top of the $8.5 million that we had last year. So in terms of the consolidations, those are not specifically called out as part of the 80/20 $10 million. So as we mentioned, we expect the Ohio plant closure is already completed. That's going to be $2 million of savings for the year; $500,000 was already achieved in Q1. We talked about that on the call already, and then for our China consolidation from two into one, that is underway now, and we don't expect it to have a material impact on our operating income this year, but it will be mostly next year because it will take us into our fiscal fourth quarter to have that completed.

And then SG&A, the $46 million for the second quarter, is any of that lowering from the first quarter related to more rail projects that require less SG&A? Or is that more so related to mostly just you guys' 80/20 in cost reductions, etc.? And then how should we think about that for the second half of the year?

The $46 million is comparable to our Q1 run rate of $45.1 million. As we plan for the upcoming quarter, we anticipate reaching closer to a $46 million level. We will indeed be investing more in new product development, which will be a crucial driver of our growth moving forward. As for the second half of the year, we have yet to provide guidance, as it depends on several factors. So, we should probably maintain our Q2 guidance for now.

Mark, I wanted to ask about the growth factors you presented at the Investor Day: R&D, Compass, kit cranes, engineered products, and similar initiatives. I understand you may have started to see some benefits, but it seems we're still in the early stages. When should we expect to see more significant impacts and benefits from these initiatives?

I think you're right. I think it's early innings for ramping the growth engine. But I think we are beginning to see some of that trickling in now. I think we're encouraged on variable speed. We're encouraged by what we're seeing from some of our commentary today through some of the operating leverage that we're getting from these new products at higher margins; we're really encouraged by it. So I would think that we should start seeing greater traction as we progress through this fiscal year. As you know, getting some of the things out through product development can take a bit of time, but I'm making pretty regular updates on our earnings calls on our launches, and some of the progress we're making, and I think this is going to be accretive through this fiscal year.

And then last question, Greg. Just on the tax rate, is 20% a normal tax rate at this point or is it still 25?

So we have lowered where we think our effective tax rate is going to be from the 25% we talked about at the Investor Day to 22% to 23%. We think that with the current mix of earnings that we're anticipating, that that's a pretty good range of where to go. It is lower. As a 331 company, we have to do very detailed effective tax rate calculations as of the end of the fiscal year, which those have been completed. And so, now that we have additional information, we think the 22% to 23% rate is the right rate for this fiscal year.

There are no further questions in the queue. I'd like to hand the call back to management for closing comments.

Great. Thanks, Doug. Thanks for joining us on today's call. We appreciate your interest in Columbus McKinnon. Have a nice day.