COLUMBUS MCKINNON CORP Q1 2027 earnings call

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 two. 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 Kito 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, Kristy, 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 Kito Crosby acquisition, the team delivered a solid performance across orders, sales, profitability, and cash flow. Pro forma sales grew 10% with broad-based growth across all platforms. We continue to advance our strategic priorities, operational excellence, commercial effectiveness, and customer experience, 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 softer in the near term, consistent with what we're seeing in PMI and industrial production data.

Our end market exposure is diversified, we're seeing particular strength in targeted verticals, including defense, infrastructure, energy, e-commerce, data center, shipbuilding, electrification, and pharma, as well as the broader automation and general industrial markets in North America. We are also seeing increased activity in oil and gas, some of which is related to the conflict in the Middle East. Automotive demand has been spotty general industrial demand in pockets of EMEA remains soft as previously shared. Our scaled platform, enhanced customer value proposition, business initiatives are driving market share gains in targeted segments. This growth is also supported by ongoing commercial initiatives early revenue synergy wins. We continue to see elevated input costs given the macroeconomic and supply chain environment. Our supply chain has remained resilient, we've been effective in implementing pricing actions to offset unavoidable inflationary pressure.

Over the long term, we've demonstrated consistent pricing discipline, we remain confident in our ability to secure price where required. Adjusted EBITDA of $111.5 Million increased 242% with adjusted EBITDA margin of 21%. When normalizing for the impacts of the acquisition and divestiture in the prior year period, Q1 adjusted EBITDA margins expanded approximately 300 basis points. Adjusted EPS grew $0.11 to $0.61 from the prior year period on an as-reported basis. We delivered positive Q1 free cash flow for the first time in six years versus what has been a typical seasonal cash outflow, enabling us to reduce debt in the quarter, our top capital allocation priority. These results exceeded our expectations, driven by strong execution, favorable demand dynamics, some cost benefits specific to the quarter.

I want to thank our more than 7,000 global team members for their dedication disciplined execution throughout the quarter. Given our strong start to the year, today we are raising our sales, adjusted EBITDA, adjusted EPS outlooks for fiscal 2027. We will talk you through those details shortly. Overall, we're pleased with the quarter with how the team has remained nimble in the face of unique business conditions. We also remain encouraged by the opportunities in this market focused on delivering to our near-term commitments while positioning the company for long-term success. Underlying demand signals, particularly in the U.S., support the durability of our momentum. Strong order growth a healthy backlog position as well. Our outlook continues to reflect a level of uncertainty given the environment in EMEA.

On the integration front, we are making meaningful progress, bringing our teams together and aligning people, processes, and systems. Although we are still early in the journey, the combined organization is operating effectively as one team, and we are moving quickly to capture synergies. We have executed initiatives that should position us to outperform our synergy target for the year, and these early wins reinforce our conviction for achieving and potentially exceeding our $70 million net annual run rate cost synergy target over time. First-year cost synergies will be weighted towards SG&A, driven by organizational realignment, the removal of redundancies, the elimination of duplicate third-party spend, and contract harmonization. As previously shared, we also see significant potential for future cost of goods sold synergies. We are advancing plans to capture revenue synergies, and early wins give us confidence that this will be additive to organic growth.

Fully realizing the opportunity will take time as we align resources and integrate technology and sales processes. We continue to believe revenue synergies will be a meaningful tailwind over time. We are demonstrating our ability to execute effectively, and our value creation opportunities remain largely within our control. We are advancing our integration plans and building momentum to deliver sustained organic growth, capture synergies, generate cash, and reduce debt, unlocking substantial long-term value for all stakeholders. Now, I'm pleased to introduce you to our new Chief Financial Officer, John Linker, who joined the company earlier this month. John is a proven leader with extensive financial leadership experience, expertise in global industrial manufacturing environments, and a consistent track record of delivering impactful results with a focus on profitable growth, operational performance, and successful integrations.

Since joining a few weeks ago, John quickly immersed himself in our business and began contributing meaningfully. We're excited to have John on board as we continue executing our value creation strategy on behalf of our shareholders, customers, and employees. With that, I'll turn the call over to John to walk us through our first quarter results.

Thank you, David, and good morning, everyone. Before we get into our results, I'd like to take a moment to share some initial observations. I'm thrilled to join the company as Chief 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, spend time in our manufacturing facilities, and gain a deeper understanding of our strategy and culture. What has impressed me the most is the strength of our platform, our talented and engaged people, and an unrelenting focus on our customers that is visible throughout the organization. While I'm still very early in my tenure, my initial observations reinforce my confidence in the company's existing strategy, disciplined operating approach, and long-term value creation potential.

The fundamentals of the business are strong, and I believe we are well-positioned to execute on our priorities and deliver sustainable growth, margin expansion, and free cash flow generation. Our capital allocation priorities remain unchanged, with a near-term focus on debt reduction and deleveraging. I look forward to engaging with many of you in the investment community in the coming months and building strong relationships over time. Turning to the quarter, we delivered strong Q1 results reflecting disciplined execution. Results reflect the first full quarter following the close of the Kito Crosby acquisition on February third and the divestiture of our U.S. power chain hoist and chain operations on March fourth. As I talk about our results and outlook today, I will touch on the impact of the acquisition as well as the performance of our legacy business.

Please note that as we further integrate and realize synergies, we'll be focused on maximizing the performance of the consolidated business, and as a result, comparability of the legacy companies will become less relevant. Orders of $568.1 million increased $309.6 million or 120% from the prior year, largely driven by the benefit of the Kito Crosby acquisition. Normalizing for the acquisition and divestiture, pro forma orders growth was approximately 9% and was broad-based across platforms, with particular strength in the Americas as well as in APAC. EMEA orders declined year-over-year due to geopolitical and macroeconomic uncertainty, 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 low teens, driven by strength in automation and short-cycle lifting products. Backlog grew 4% sequentially due to strong orders with a book-to-bill of 1.1x in the first quarter. We delivered net sales of $531.5 million, which increased $295.5 million or 125% from the prior year. Driven by the acquisition of Kito Crosby, volume, pricing, and favorable currency translation, partially offset by the divestiture. Sales growth was broad-based, with high single-digit percentage growth in the legacy Kito Crosby portfolio and low teens growth in the legacy CMCO portfolio. Normalizing for both the acquisition and divestiture, pro forma sales growth was 10%. Sales growth was strongest in the Americas, with growth in both volume and pricing.

EMEA grew sales as we executed on our backlog and took advantage of temporarily open shipping lanes in the Middle East at the end of the quarter. On a pro forma basis, project-related sales increased 12%, and short cycle sales increased 9%, with benefits from both pricing and volume growth from a favorable demand environment. Channel inventory levels are healthy, returning to near normal levels, but remain slightly below historical averages. On the pricing side, the strongest realization was in the Americas through the price increases implemented in fiscal 2026 to offset inflation and tariffs. We've recently taken additional pricing actions across the combined business in multiple regions to offset inflation, and we expect the benefits of pricing to ramp up in the second half of the year.

Gross profit of $146.3 million increased $69 million or 89% versus the prior year on a GAAP basis, reflecting the Kito Crosby acquisition, pricing, and volume, as well as benefits to material costs specific to the quarter, partially offset by the $55.2 million non-cash 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 year-over-year. Our SG&A expenses increased $64.5 million to $128.6 million on a GAAP basis due to the addition of Kito Crosby, higher integration costs, and increased incentive compensation expense, partially offset by cost-saving synergies. Adjusted RSG&A, which excludes acquisition integration costs and other one-time expenses, increased by $57.1 million to $111.9 million.

As a percentage of sales, adjusted RSG&A declined 220 basis points to 21.1%, driven by scale benefits from the acquisition and cost synergy realization. Adjusted EBITDA of $111.5 million 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 per share on a GAAP basis. The loss was primarily due to the non-cash inventory step-up amortization, interest expense, and integration costs. Adjusted net income was $30.5 million or $0.61 a share, up $0.11 from the prior year, primarily driven by operating profit increases already discussed, partially offset by higher interest expense and a higher share count due to the inclusion of the common shares issuable upon conversion of the preferred shares.

Free cash flow excluding deal costs in the quarter was $32.4 million, up $49.7 million from the prior year, reflecting higher operating profit, partially offset by higher cash interest. Normalizing for the non-cash inventory step-up adjustment, working 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 first quarter last year. We paid down $18.4 million in debt in the quarter and reduced our credit agreement net leverage ratio by 0.2x to 4.9x. Debt reduction continues to be our priority for capital allocation. Our total liquidity remains strong at $567.1 million, consisting of $98.4 million of cash and cash equivalents and $468.7 million of availability on our revolving credit facility. Given our strong Q1 results and increasing confidence in the year, we are raising our outlook for fiscal 2027.

Our revised guidance also reflects unfavorable foreign exchange movements impacting both sales and adjusted EBITDA, as well as continued near-term demand headwinds in EMEA. Our increased outlook for fiscal 2027 is net sales of $2.09 billion-$2.15 billion, adjusted EBITDA of $405 million-$420 million, and adjusted EPS of $1.90-$2.10 per share. There have been no changes to our outlook assumptions around interest expense, amortization, depreciation, our normalized effective tax rate, and adjusted diluted share count. While we don't guide on a quarterly basis, I will call out a few points 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. Additionally, based on our backlog and the phasing of our project orders, we expect Q2 to be the low point for the year in sales and adjusted EBITDA.

Following Q2, we expect margins to sequentially improve through the second half of the year as we realize the benefits of synergies, operational efficiencies, and pricing. I am encouraged by our recent results and progress on our integration, and I believe in our ability to deliver both customer and shareholder value as a scaled provider of intelligent motion solutions. Our strategy will unlock multiple avenues of growth, improve our margin profile, and generate significant free cash flow to fund debt reduction. Operator, we're now ready to take questions.