Columbus Mckinnon Corp (CMCO) Q1 2027 Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to the Columbus McKinnon First Quarter 2027 Earnings Teleconference and Webcast. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press Store 0 for the operator. I would now like to turn the conference call over to Christy Moser, VP Investor Relations and Treasurer. Please go ahead.

Thank you, and welcome, everyone, to our call. On today's call, we will be covering our first quarter fiscal 2027 financial and operational results. On the call with me today are David Wilson, our President and Chief Executive Officer, and John Linker, our Chief Financial Officer. Welcome, John. In a moment, John and David will walk you through our financial and operating performance for the quarter. The earnings release and presentation to supplement today's call are available for download on our Investor Relations website at investors.cmco.com. 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 like to remind you that management will refer to certain non-GAAP financial measures. You can find reconciliations to 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. Also on today's call, we will make references to pro forma metrics which adjust for both the Keto-Crosby acquisition and the divestiture of the legacy Columbus McKinnon U.S. power chain hoist and chain operations as if each transaction had been completed prior to the beginning of the prior year period to improve the comparability of results across time spans. 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, Christy, and good morning, everyone. We are off to a strong start in fiscal 2027. Q1 was our first full quarter operating as a combined company following the Keto-Crosby acquisition, and the team delivered a solid ability and cash fraud-based growth across all platforms. And these initiatives are improving our competitiveness and strengthening our foundation for sustainable growth. Volumes are building in the Americas and Asia-Pacific, while EMEA remains soft in PMI and industrial production. Our end market exposure is diversified, and we're seeing particular strength in targeted verticals, including defense, e-commerce, as well as the broader automation and general industrial market. We are also seeing increased activity in oil and gas, some of which is related to the commotive demand has been spotty, and general industrial demand in pockets of Amir remains soft, as previously shared. Proposition and business initiatives are driving market share gains in targeted segments. We continue to see elevated input costs in the supply chain environment. Even so, our supply chain has remained resilient, and we've been effective in implementing pricing actions to offset unavoidable inflationary pressure. We've demonstrated consistent pricing discipline, and we remain confident that we're required. Adjusted EBITDA of $111 million increased 242% with adjusted EBITDA margin of tax of the acquisition and divestiture in the prior year period. Q1 adjusted EBITDA margins expanded. Adjusted EPS grew $0.11 to $0.61 from the prior year period on an as-reported basis. and we delivered positive Q1 free cash flow for the first time in six years versus what has been a test to reduce debt allocation priority execution favorable demand dynamics and housing global team members for their dedication and start to the year today we are raising our sales adjusted EBITDA and adjusted EPS outlooks for fiscal 2027. We will talk you through those details shortly of unique business by the opportunities in this market and focused on delivering to our near-term commitments while positioning the company for long-term success, particularly in the U.S., and a healthy backlog position as well. On the integration front, teams together and aligning people, organization is operating effectively as one team, and we are moving quickly to capture synergies. We've executed initiatives that we target for the year, and these early wins reinforce are potentially exceeding, our synergy targets will be weighted towards SG&A, driven by organizational realignment, the elimination of duplicate third-party spend. As previously shared, we also see significant additive to organic growth, technology, and sales processes. But we continue to believe revenue synergies will be a meaningful tail, and our value creation opportunities remain largely within our control. Integration plans can reduce debt, unlocking substantial long-term value for all stakeholders. I'm pleased to introduce you to our next expertise in global industrial manufacturing and a consistent and begin contributing meaningfully in our value creation strategy.

Before we get into our results, I'd like to take a moment to share some initial observations, financial officer, and I'm pleased to be participating in my first earnings call at Columbus McKinnon. Over the last several weeks, I've had the opportunity to meet with our leaders and board, engage with employees across the organization, facilities, and gain a deeper understanding of our strategy and culture. What has impressed me the most are talented and engaged people and an unrelenting focus throughout the organization. Observations reinforce my confidence in the company's existing strategy, disciplined operating approach, and long-term value creation potential. The business are strong, execute on our priority, and free cash flow generation. Our capital allocation priorities remain unchanged on debt reduction and forward to engaging with many of you in the investment community in the coming months. Turning to the quarter, we delivered strong Q1 results reflecting disciplined execution. Results reflect the first full quarter following the close of the Keto-Crosby acquisition on February 3rd and the divestiture of our U.S. power chain hoist and chain operations on March 4th. about our results and outlook today, I will touch on the impact of the acquisition as well as the performance of our legacy business. We'll be focused on maximizing the performance of the consolidated business, and as a result, comparability of the legacy companies will be 568.1 million, increased 309.6 million, or 120% from the prior year, largely driven by the benefit of the Keto-Crosby acquisition. Normalizing for the acquisition and divestiture, broad-based across platforms, with particular strength in the Americas. EMEA orders declined year-over-year due to geopolitical, as well as a tough comp from strong orders in EMEA's rail business in the prior year. On the legacy CMCO side, U.S. orders grew in the cycle-lifting process in the first quarter. We delivered net sales of $5 million, which increased 295% or 125% from the prior year. currency translation. Sales growth was broad-based, with high single-digit percentage growth in the legacy Keto-Crosby low-teens growth in the legacy CMCO portfolio for both the acquisition and Americas, with growth in both volume and pricing. EMEA grew sales as we executed on our backlog and took advantage of temporarily opened shipping lanes in the Middle East at the end of the quarter. On a pro forma basis, project short-cycle sales increased 9%, turning to near-normal levels, but remain slightly below historical averages. On the pricing side, the strongest realization is the price increases implemented in fiscal 2026 to offset inflation and tariffs. We've taken additional pricing actions across the combined business in multiple regions to offset inflation, and we expect the benefits of pricing in $46.3 million increased $69 million or 89% versus the prior year on a gap basis, reflecting the Keto-Crosby acquisition, partially offset by the $55.2 inventory step-up expense, the impact of the divestiture, and inflation in COGS. On a GAAP basis, our gross margin was 27.5%, and on an adjusted basis, our gross margin was 38.1%. Adjusted gross margin, which removes the impact of the inventory step-up and acquisition integration costs, improved 380 basis points. SG&A expenses increased $64.5 million to $128.6 million on a GAAP basis due to the addition of Keto-Crosby, partially offset by cost-saving synergies. Acquisition integration costs increased by 57.1 million to 21.1%. Increased 78.9 million, or 242%, with an adjusted EBITDA margin of 21.0%. Adjusted EBITDA margin expanded 720 basis points year over year. Net loss in the quarter was $88.4 million, or $2.05. The loss was primarily due to the non-cash was $30.5 million, or $0.61 a share, up $0.11 from the prior year, primarily driven by operator share count due to the inclusion of the common shares issuable upon conversion of the preferred share, including deal costs in the prior year. For the non-cash capital was a use of cash in the quarter, as is typical for us in Q1. However, the use of cash was approximately $20 million better than the paid-down 18-point leverage ratio by 0.2 times to 4.9 times. It continues to be our priority for capital allocation. Our total liquidity remains strong at $567.1 million, $98.468.7 million of availability on foreign exchange movements, impacting both sales and adjusted EBITDA, as well as continued near-term demand. Our increased outlook for fiscal 2027 is net adjusted EBITDA of $405 million to adjusted EPS of $1.90 assumptions around interest, our normalized effective tax rate, and adjusted diluted share count. While we don't guide regarding the shape of the year, first, we do not expect the cost benefits recognized in Q1 to continue through the rest of the year. We expect Q2 to be the low point for the year in sales and adjusted EBITDA. Following Q2, we expect margins to secure half of the year as we realize the benefits of synergies, operational efficiencies, and encouraged by our recent results and progress on our integration. And I believe in our ability to deliver as a scaled provider. Our strategy will unlock multiple avenues of our margin profile and generate significant free cash flow to fund debt reduction. Operator, we're now ready to take questions.

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, you may press SPAR1 on your telephone keypad. Should you wish to withdraw your question, you may press star 2. Once again, that is star 1 should you wish to ask a question. Your first question is from Matt Somerville from DA Davidson. Your line is now open.

Yes, thank you. A couple questions. First, I realize there may be a little bit of sensitivity here, but is there any way to frame up how we should be thinking about these sort of nonrecurring or one-time benefits you had in the quarter, either the impact to gross margin, the impact to EBITDA, I would assume none of what you enjoyed in the quarter was contemplated in your guidance. So maybe ultimately the question could be, you know, how much of the guide raised is really driven by those factors. And bearing that in mind, it'd be great to get some help as to how gross margins cadenced relative to that low-pointing Q2 building through the rest of the year?

And then I have a follow-up. Thanks, Matt. Good morning. This is John speaking. Sure, I'll put some cuts we saw in the quarter. Some of that was indeed IEPA refunds that came in very late in the quarter or known at the time of our last call. But there's also some other moving pieces in the material cost line this quarter. There were some other puts and takes and reserves. All that did net to a benefit in the quarter. We're not going to disclose benefit related to the tariff-free funds, as we feel that's commercially sensitive, but with margins, about 300 basis points year over year, so normalizing for the acquisition and divestiture. And so if you exclude at MQ1, expanded EBITDA margins about in the quarter. So we're calling it about 200 basis points of the 300 was related to this one time or the benefit specific, and we don't expect any more benefit from that and the rest of In terms of, there were some other pieces of your question there, in terms of the cadence of the year. Do you want to comment on that?

You know, additionally, as we think about the guide and the raise, items driving the guidance raise include the fact that demand has been more, you know, encouraging than we originally anticipated when we gave the guidance. We saw really strong short cycle demand through the end of the quarter. We also had the benefit in Q1 of the temporary opening of the Strait of Hormuz, which really helped us to move more product into the Middle East. and stepped up our results in the quarter, and that, you know, obviously we want to translate that into our full year view. We are benefiting from improved execution, and really for the first time since the closing of the acquisition got to see the benefits of synergy realization coming through in the P&L, and so that increased visibility gave us increased confidence in the way that we thought about our guide going forward. And then finally, as John said, those material cost benefits that were specific to the quarter weren't anticipated when we originally provided the guidance. And as we think about Q2 through Q4 and the progression with gross margins, just simply given the phasing of the backlog as we think about composition and the period going forward, Q2 will be the low point for the year. And we anticipate that margins will benefit as we go through the balance of the year from synergy improvements, synergy realization, both on the cost of goods line as well as an SG&A. And again, this year, it'll be largely an SG&A benefit for the business. And then the benefits of pricing actions that we've put in place. And so a combination of those items and improved operational execution should result in a ramp as we go throughout the balance of the year in gross margins with that low point being Q2.

Yeah, yes, that's helpful. Just as a follow-up, maybe just talk a little bit more on how short cycle orders may be cadenced throughout the quarter, what you're seeing in July now that it's essentially in the books, and then how much price benefit we should expect you guys to see this year.

Thank you. thanks matt yeah so as as far as the progression of short cycle orders we did see an uptick in short cycle demand as we progressed throughout the quarter and so demand on the short cycle side of the business was increasing as we went throughout the quarter we did have some price increases that went into effect towards the end of the quarter and we think there was some buying ahead of those price increases which is a very normal phenomenon nothing that's outside of the normal range when you have a price increase, but that did drive incremental demand in the latter part of the quarter. On a quarter-to-date basis, we are seeing demand in short-cycle business up in the low single digits on a quarter-to-date basis so far this quarter. And then as it relates to pricing and we think about pricing as we go forward through the balance of the year, we would anticipate that, you know, we'll be lapping some price benefits that we were getting last year because we weren't, you know, we're seeing the late stage benefits of those year-over-year increases. But now that we're lapping those, those increases on a year-over-year basis go away and then, you know, new increases are coming into effect. I would say that we would anticipate that they will progress as we move throughout the year. But, you know, putting a frame around that right now is not something that we're prepared to do. And I would anticipate for the year we'll still see something on the 1% to 2% price.

Thank you.

And our next question is from John 1010 from CJS Securities. Your line is not open.

Hi, this is Will and for John. Can you quantify or add some more color around the synergy realization you saw in the quarter and if your targets and speed of realization are increasing?

Yeah, so we made good progress on a number of fronts, organizational alignment, bringing the teams together, getting really focused on a common set of organizational values and mission and vision, driving cultural alignment. We also had good work that was done in the early stages of contract harmonization and third-party cost savings. We're gaining traction on key initiatives that are maybe a little longer in terms of implementation timeframe, but will have meaningful impacts over time. And as I said, really, for the first, we're closing our first full quarter together. We're able to really see those benefits. It's one thing to action a synergy, and it's another thing to really see the financial benefits flowing through and how things are flowing through. We'll be able to potentially outpace, but we're not increasing our guidance at this point tied to synergy realization. Our current guidance would reflect what we would be prepared to offer in terms of what we'll see from those improved benefits. But certainly, our view of this is increasing in confidence as we think about our multi-year plans and what we'll deliver over time.

And I'll just add that, you know, in terms of what we saw in the quarter year progresses, most benefiting SG&A. And so you can see that in some of the numbers I referenced in my remarks in terms of the year-over-year nice benefit on SG&A. And then we expect to pick up steam as the execution continues and benefit later in the year and future years.

That is very helpful. Thank you. And then just one more. You had some push-outs last quarter in the precision conveyance business. Did that revenue come in Q1 and what's the expectation going forward?

Right. Now, the project-related delays that we mentioned at the end of last quarter did not materialize in shipments that we saw coming through in this quarter. And so those projects remain in backlog and are still opportunities for us as we advance throughout this year and into next.

Thank you. Thank you.

And our next question is from James Kirby from J.P. Morgan. Your line is open.

Hey, good morning, guys. Thanks for the time. Just starting on the free cash flow side, clearly a step up over what the seasonal Q1 is. Can you just maybe talk about the working capital driver there, if that is sustainable, and maybe if you could reconfirm the deleveraging timeline, which was, I believe, under four by the end of year two?

Yes. Confirming that, we still feel very good about the deleveraging profile of the business in terms of what we expect to see in the next few quarters and into fiscal 28. And yes, we continue to stay by fiscal 28. In the quarter itself, we did see some efficiencies on working capital year over year. I'd say most of that was on the inventory side. I still see opportunity on the DSO, DPO side, that's more to come as opposed to in the numbers. I'd say CapEx was maybe a little lighter than our original expectations for the quarter, and that helped the cash flow a bit. And then, obviously, the benefit of some of these material costs that I referenced that benefited the P&L, some of that did flow through to cash as well, given that there was some refund activity in the quarter.

Thanks, John. That's helpful. And then just looking at The standalone businesses, it looks like Columbus McKinnon grew, you know, low double-digit sales. Aikido, from my math, grew high single digits. Is that consistent with where you guys saw the businesses operating, you know, let's call it a quarter, two quarters ago, when you guys were contemplating kind of synergies here? And is that more macro-driven, or is there an operational improvement embedded in where you guys are operating at these levels right now?

Thanks, James. As you look back at the history of both companies, neither company was growing on a combined basis or an individual basis at those same rates as we look back a couple of quarters or into the last couple of years. I do believe that the combination of our two businesses provides us with opportunities as we're looking at both cross-selling as well as market share opportunities, increasing share of wallet through better customer service, more streamlined approach. And so I think there is an embedded value that the combination of the two businesses can realize. And I would say that our, you know, high degree of focus, as we've talked about in the past, is on customer experience and improving operational performance to support our customer outcomes. And we've remained both focused on our customers from our operations perspective, but also from a customer-facing resources perspective, doing everything we can to make sure that we're being responsive and being supportive and limiting the disruption on that front. And I think that that is starting to pay dividends. And we're encouraged by the demand environment that we're in right now and notably in the Americas and in Asia with some continued softness in Europe. And we're hopeful that, you know, as the Middle East settles out, things will start to improve there and we'll have even more opportunity across the global landscape.

Got it.

Thank you. Thank you, ladies and gentlemen.

Once again, that is star one, should you wish to ask a question. And your next question is from Steve Farazzani from Zidoti. Your line is open.

Morning, David. Welcome, John. There's a lot of math here I'm trying to work through, David, and that's not my strong point. When I think about the 21% EBITDA margin, and you said you got about 100 basis points specific to the quarter, so that puts it around 20%. If I take the midpoint of your adjusted EBITDA and sales guidance for the year, you're guiding for a full year at 19.5%. But you've talked about the price increases, the synergy realization. Why would it be lower full year?

Steve, as John, I'll jump in. I think your math is pretty good so far. So you're right. I mean, the midpoint of the guide is 19.5%. And then we We were at 21 in Q1, so that would imply the year to go, the rest of year is below that. So I think the math at the midpoint is around 18.9% for the rest of the year. There are some moving pieces in there. There's some FX that I mentioned early in the call relative to our last guide that it's order of magnitude, about 30 basis points of headwind that we see for each quarter for the rest of the year relative to our last outlook. I'd say also the EMEA piece that we called out early in the call that, you know, the orders were down year over year in Q1. And so in Q2, we expect to see some sales softness in EMEA, which, you know, have deleveraging on margin and unabsorbed overhead there. So you got a little bit of pressure. Of course, as we mentioned, we got hopefully some pricing upside coming in the back half of the year. And in general, I'd say we flowed through some of the benefits from the cost from Q1 into the full year guide. We hope that there's upside in all of this. And at this point in the year, we feel like we had a good quarter. And we want to wait and see how things progress a little bit. And hopefully there'll be some upside to what we're talking about from a margin standpoint.

Got it. That's helpful. Helpful that you restated your net leverage target. I'm just trying to think about as you've gotten a better handle on the Keto Crosby assets that you've acquired, when you're looking at them now, are there any portion of that that maybe you want to ramp up investments that might drive higher capex as a percentage of sales above traditional because you think some of those assets maybe are underinvested or there's improvements you can make?

Yeah, it's a good question, Steve. Good morning. And in terms of the investment profile, I would say that we still think that we're within our CapEx outlook for the year as we think about our CapEx spend, as we anticipate progression throughout the balance of the year. As John said, we were slightly underspent in the first quarter. And as we think about the balance of the year, we think we're within the guide. I do think there are productivity improvement opportunities in the portfolio, and opportunities continue to expand margins, increase the efficiency of our operations and our execution, particularly as we look at product lines that are specifically targeted for growth. And when I think about the entirety of the portfolio that we have within the Keto Crosby business, there are a few really attractive areas that we see sustainable growth opportunities for. And the lifting hardware part of the business is an area where we have two sides to that portfolio, one that's a legacy Columbus McKinnon portfolio and one that is a Keto Crosby portfolio. The synergy value of them operating more seamlessly in alignment, and the capacity opportunities and automation opportunities around that business could be areas where we may want to put some capex and drive.

Great. Thanks, David. Thanks, John. Thank you.

That concludes our question and answer session for today. I will now hand the call back over to Mr. Wilson for the closing remarks.

Thank you, Jenny, and we appreciate everyone joining us today. We're all at first quarter and are pleased with the early stage progress as we advance the integration of Columbus McKinnon and Keto Crosby. Our positive start to the year and the traction we were gaining with targeted commercial, operational, and synergy realization initiatives enabled us to raise our full-year guidance, progress in targeted areas, and remain focused on what we can control, unlocking margin expansion through identified growth opportunities and synergy realization, and generating significant cash flow to reduce debt. With improved scale, we are a stronger ability to create value for our customers and shareholders. Thank you again for your time and interest in Columbus McKinnon. As always, please reach out to our investor relations team with...

Thank you, ladies and gentlemen. That concludes our question and answer session for today and also a conference call. Thank you all for joining. You may now disconnect your line.