Q4 2020 Earnings Call
The next available conference specialist will be with you momentarily.
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Welcome to the Vivek Comfort Center next available comfort specialist will be with you momentarily.
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Morning, It's your conference operator can be personally, namely.
First name David last name Brown.
And what company do you report.
IRA.
I are a oh I am I R.
Hi E rate.
Yeah, He our AG, Thank you and which Congress would you like listen show.
In Columbus Mckinnon.
And then you search on either.
Thank you.
So with that if you turn to slide three I will turn it over to return to begin right.
Thank you Dan good morning to all of you. Thank you for joining us today.
As Jeff mentioned, we have a special guests today.
Our last earnings call I shared with you.
Hope to identify and hire a new CEO by June of this year.
So I'm extraordinarily pleased that even with the challenges of cold at 19.
We were able to achieve this target and higher or candidate of choice David Wilson.
As we announced that May 14th David joins Us from closer Corporation.
Are you as the president of the pumps Division.
Effective on June Onest, you'll be our new President and Chief Executive Officer at a director of the company.
We'll hear from David before we open the culinary session.
Now, let's turn to slide three.
Before we discuss the results for the quarter I'd like to briefly update you on cobot 19, and its impact on Columbus Mckinnon.
During these unprecedented times our response to this pandemic.
That's been guided by our core values with the preeminent values being the health and safety of our employees.
Trust of our customers and business continuity.
Early March we established a covert 19 task force, which rolled out communication process to keep our locations continuously informed.
We quickly implemented stringent processes to reduce the spread of the virus with the goal of ensuring the safety health and wellbeing of our employees and their family.
We seamlessly transition over 1000 employees to erode work environment.
We also implemented the appropriate processes and took necessary steps to being a central business and critical supplier. So that we could serve our customers, while manufacturing and safe environment that protected our employees.
As a result these actions I'm pleased to report that all of our manufacturing facilities have been able to remain open except Mexico, which was closed until recently due to government restrictions and our Brian Michigan facility, which was impacted by the shutdown of the auto industry.
Regarding business continuity it was clear to us at the sudden and significant downturn in the demand for our products required Swift action.
We also knew that cash generation and liquidity preservation will be critical given the lack of visibility regarding the duration of the pandemic.
So we rapidly took the necessary actions to align our operations to the significant decline in market demand that we're experiencing.
We quickly implemented furloughs layoffs in short work weeks. We also developed the plan to reduce inventories or the contained to focus on strong on time delivery performance.
Also we suspended merit increases and bonuses for the first half of fiscal year 21.
And importantly, given the successful execution of our blueprint for growth strategy and the discipline provided by our business operating system Ipass. We entered this crisis with significant financial strength.
Due to a record cash generation during fiscal 2020.
We had almost $200 million of liquidity on March 30, Onest, which consisted of $114 million in cash on hand, and $84 million available on our revolver.
Further our strong cash generation during the year allowed us to pay down our debt by $51 million, leaving us with a leverage ratio of just 1.1 times.
Given the coded 19 recession, we elected to pay only the minimum debt service of 1.1 million in Q4 to preserve cash and we will likely continue with this level during the remainder of the pandemic.
Lastly, our solid financial position enables us to continue to selectively investing growth initiatives, even during the slowdown.
I will cover cover some of these initiatives following gregs discussion of our financial results.
Turning to slide four I will now discuss our near term and long term objectives.
For the near term our goals are to continue to generate positive cash flow and operating income.
Blueprint for growth strategy is key to our ability to achieve these goals. In addition to the cost reductions taken to address the cobot 19 recession.
We are continuing our focus on the 80 20 process and operational excellence. In fact, we are ahead of schedule regarding the closing of our lives in Ohio facility. We expect to have the shutdown completed by July and continue to expect about $5 million an annualized savings.
Given our positive cash flow and our confidence in our financial strength. We also expect to maintain our dividend during this recession.
For the long term our objective is still become the market leader and safe and productive motion control products and solutions for our customers.
We recognized that our future growth requires continued investment in technology and new products.
Building and retaining our enterprise talent pool, and advancing phase three of our blueprint for growth strategy.
David joins us at an opportune time to drive the portfolio optimization and M&A efforts of phase three of our blueprint for growth strategy.
Now turn to the results of our fiscal 2004th quarter and the year that ended March 30, Onest. Please turn to slide five.
The success of our strategy was demonstrated throughout the year as we expanded margins and achieved many of our financial goals, even as the industrial markets were slowly.
Despite the falloff in demand in the latter half of March we had a record adjusted gross margin of 36.1% in Q4.
For the year net income was nearly $60 million in our adjusted EBITDA margin expanded 60 basis points to 15.7% further the return on invested capital improved to 11.5%.
As you can see on slide six we had record cash flow from operations and record free cash flow in fiscal year 20. This performance was accelerated by strong working capital management as indicated by working capital to sales ratio of 14.5%, a 200 basis point improvement over our third fiscal quarter of this year.
Turning to slide seven I'll now update you on the progress we are making with our 80 20 process.
Not only do we outperform our original goal of a $12 million contribution to operating income in fiscal year 20.
We also exceeded our updated goal of $18 million as you can see a 20 contributed $20.4 million to operating income during the year. Most his contribution was realized in the gross profit line.
As previously noted it also includes a $2 million in savings realized from the closure of the sale of Ohio facility at the end of fiscal 2019.
We achieved this performance despite the $10 million reduction in sales that occurred in the latter half of March due to Cobot 19 defense. We were on track to achieve our previous revenue guidance for the quarter, we're not for the pandemic.
We expect to continue to realize contributions from 80 20 in fiscal 21, although it will be difficult to quantify these amounts until we have more visibility regarding the shape of the recovery.
80, 20 process remains a key element of our operating discipline and we'll continue to be so under Davids leadership.
With that I'll now turn over to Greg to review, our financial results in greater detail right.
Thank you Rick good morning, everyone.
On slide eight net sales in the fourth quarter were $189.5 million clearly cobot 19 impacted our business results in the quarter, we were tracking towards our 200 million dollar topline, let's order rates for our short cycle business declined the second half in March.
We estimate that volumes were negatively impacted by about 10 million in the quarter all occurring in the second half in March when countries began to lock down.
Later on the call Rick will further discuss the cobot 19 impact that we're seeing today.
As you know we completed three divestitures last fiscal year, which reduced sales this quarter by 4.8 million compared to last year.
Volume declined by approximately 23 million or 10.8%.
Our volume was down our pricing power was evident as if as we saw year over year pricing improved by 1.3%.
About three quarters of this pricing was a result of EUR 80, 20 strategic pricing initiatives.
Foreign currency also continued as a headwind and reduced our sales by 2.3 million.
Let me provide a little color on sales by region.
For the fourth quarter, we saw sales volume decline in the us by 13.1%.
This was partially offset by price increases of 1.3%.
Sales outside of the us were down 9% adjusting for the effects of divestitures solid price improvement of 1.4%, partially offset a volume decline of 8%.
Sales volume was down in all international regions by mid to high single digits as a result of posted 19.
Turning to orders and backlog both are short cycle and project based businesses were impacted similarly by cobot 19.
Adjusted for divestitures in the impact of foreign currencies orders were down year over year by 11.3%.
Sequentially, we did see orders improve approximately 10% in both our short cycle and project based businesses.
As a result backlog grew by 45% to 131 million from 125 million at the end of December.
It's important to note that quoting activity continues at pre cobot 19 levels, but our sense is that many projects are being delayed especially in the U.S.
While there is much and certainly globally on the effects of cobot 19 in the shape of the recovery. We believe that we have bottomed out in April and encouragingly. There are signs that our customers and channel partners are getting back to work globally.
As an essential business all of our factories are operating today, we stand ready to flush production volumes BASF up at the appropriate time.
Our strong market position in leading brands continue to serve us well, especially since like these we continue to focus on customer responsiveness and on time delivery as a channel has been reducing inventory levels and this will be more important than ever.
On slide nine our gross margin was 34.9% in the quarter.
On an adjusted basis, eliminating the effects of factory closure costs and business realignment costs.
We achieved a record adjusted gross margin for the quarter of 36.1%.
For the fiscal year as Rick mentioned earlier, we achieved a record GAAP gross margin of 35%. We clearly benefited from the 80 20 process, which drove 5.5 million of gross profit expansion in the quarter and 20.4 million in the fiscal year through strategic pricing indirect overhead reductions and.
Certain volume gains at our targeted accounts.
This benefit more than offset the impact of the divestitures lower sales volumes and lower fixed cost absorption in our factories due to lower sales levels in conjunction with significant inventory reductions that we are undertaking to drive free cash flow.
Let's now review the quarters gross profit bridge fourth quarter gross profit of 66.2 million was down 8.9 million compared to the prior year adjusted for the divestitures. We did see gross profit expansion from pricing net of material cost inflation and tariffs were lower than the prior year, because we imported less Chinese brought.
Correct.
We incurred 1.3 million of onetime costs for the factory closures in Ohio in China, which was the same amount as the prior year. So this did not have an impact on the gross profit bridge foreign currency translation reduced gross profit by 800000.
Productivity net of other cost changes was negative 1.6 million.
About half of this negative variance was related to higher workers compensation costs incurred in the quarter related to three old claims.
As shown on slide 10, Rs DNA was 46.3 million in the quarter or 24.4% of sales.
Our us United was 2.7 million lower than the previous year.
Reduction in our rest DNA was due to several factors divestitures reduced our rest United by 400000, and we benefited from FX translation of approximately 600000.
In addition, we lowered our RSU nay caused by 3.9 million, which was partially offset by 2.2 million of additional cost for the CEO search higher bad debt accruals in business realignment costs.
With the current Coven 19 pandemic, we've taken quick and decisive actions to reduce our Rs gionee costs and in the coming quarters. We have eliminated merit increases foregone bonus accruals reduced headcount and significantly reduced travel to name a few.
We will monitor market demand and we'll add back resources. When the timing is right. We will however continue to invest in select growth initiatives as Rick will discuss further taking all of this into account. We're forecasting Q1 521, our SGN a of approximately $39 million.
Turning to slide 11, adjusted operating income was 20.2 million.
Adjusted operating margin was 10.7% of sales and 80 basis point declined from the prior year to driver of this decline was the impact that cobot 19 had on our sales volume.
Decremental operating leverage in the quarter was a negative 17%, which is significantly better than what we saw in the 2009 timeframe.
For the year, our adjusted operating income declined $2 million on lower revenue of $67 million, yet adjusted operating margin expanded 70 basis points to 12.1%.
This represents a decremental margin of 3%, which is outstanding performance considering the circumstances.
Our blueprint for growth strategy, and specifically, our 80 20 process and operational excellence initiatives helped to drive this margin expansion.
As you can see on slide 10, GAAP earnings per diluted share for the quarter was 39 cents adjusted earnings per diluted share was 58 cents compared with 69 cents in the previous year, a decrease of 11 cents per share about 16% for the full year adjusted EPS was $2.78 per share an increase.
Of 1.5%.
We expect fiscal 20 ones full year tax rate to be approximately 21% to 22%.
On slide 13, we continue to expand our adjusted EBITDA margin for the year. Our adjusted EBITDA margin was 15.7% an increase of 60 basis points from last year. Our return on invested capital was a solid 11 in the half percent an increase of 30 basis points from last year, our blueprint for growth.
Financial goals of 19% EBITDA margin in mid teen ROI see remain unchanged. However, the shape of the recovery curve from Cobot 19 will determine when we are able to achieve these goals.
We continue to utilize our 80 20 process to drive efficiencies. So that when the recovery comes we will be able to accelerate our growth and further strengthen our margin profile.
Moving to slide 14, you've heard me say many times that one of the hallmarks of Columbus Mckinnon is its ability to generate cash throughout the business cycle.
Net cash from operating activities for the quarter was 36.5 million, which was a year over year increase of 10.8 million or 42%.
For fiscal year 20, we generated a record 97.4 million of free cash flow. This represents about a 45% increase in free cash flow. We were clearly ahead of the curve and reducing our working capital needs heading into the pandemic. We took rapid actions reserve and generate cash we drove our working capital as a percent.
Sales to 14.5%, which contributed to the record free cash flow.
Going forward, we believe we still have opportunities to reduce our inventory levels. Further. In addition, we will manage capex to $5 million in the first half of the year and we'll reassess our capex in the second half of the year based on current economic conditions.
Turning to slide 15, our total debt at the end of the quarter was approximately $251 million in our net debt was $137 million our net debt to net total capitalization is now approximately 23%.
We repaid the minimum required debt in Q4 of 1 million and plan to pay the minimum required debt in fiscal 21.
We have made excellent progress de levering and have achieved a net debt to adjusted EBITDA leverage ratio of 1.1 times, which provides us the financial flexibility to whether the current pandemic.
We have a flexible capital structure, which is covenant light, which means our financial covenant is only tested if we have outstanding outstanding borrowings against our revolver.
Subsequent to March 31, we did drop 25 million on our revolver for liquidity in working capital purposes.
While demonstrating that we have a supportive bank group led by JP Morgan.
Please turn to slide 16, and I will turn it back over to Rick.
Thank you Greg.
I will now discuss some of the select strategic initiatives that we are continuing to find even during this slowdown.
Our transformation into industrial Technology company requires a strong digital platform and we are continuing to invest in this area.
Digital platform project has been underway for the last two years and is a critical underpinning of our strategy.
If you've not been through our website lately at www Dot com as we could end dot com and for this audience investors Dotcom as began dotcom I encourage you to check it out.
Our new digital platform provides a unified and comprehensive presentation of all of our brands.
Further enables our customers have a seamless integrated digital experience, where they can use our configurator communicate with the appropriate support staff and by our products.
This slide shows the home page from the website and into picks and operator controlling our equipment from a computer.
As part of this effort, we have developed a product information management system or Pam.
Which is a single digital assets that contains a comprehensive product catalog.
Tim feeds the website, our configurator, which has noticed compass and our ecommerce capabilities is also a critical tool that will support our channel partners.
And an essential element of our transformation into industrial technology company.
Other critical factor in our transformation its continued development of new products.
Shown on slide 17, our product advancements that we are making in automation and simplification for cranes solutions customers. These branded solutions create safer work environments for our customers are protecting the health and safety of their employees.
For example in telling protect is a further evolution of our no fly zone solution.
This now offered with a single zone using limits switches or a multi zone configuration that addresses eight different zones using laser positioning.
This product that easy programming control that is driven by app that can be used on laptops cell phones and tablets. Most importantly, intel protected they standardize offering versus an engineered to order solution and this reduces its lead time from roughly seven weeks to just seven days.
Another automation solution that addresses both productivity and safety is our crane kit, which we have continued to enhance and expand in terms of lifting capacity and product features such as explosion protection.
Ran covers and stainless steel control panels. Additionally, that is low displays and rail fleets to provide a more complete product offering.
Importantly, we have also enhance our crank it.
Plug and play this makes the crane easier and quicker to install and eliminates areas that can occur during assembly and wiring.
We are excited about the advancements that we are making with our products and the opportunity to grow this revenue stream as such even during this downturn, we're continuing to find ways to solve our customers' high value problems through product design and development.
If you are now turning to slide 18, I will provide some details our outlook and then introduced David.
The near shutdown of the Americas in Europe and April resulted in a 37% drop in orders compared to April of last year, our orders that sense stabilize and even affirmed a bit during may.
At this demand levels, we now expect that our first quarter revenue will be in the range for about a $130 million $240 million. However, even at these low revenue levels, we expect to achieve our near term goals of generating positive operating income and cash flow.
As mentioned to conserve cash we plan to make only the minimum required debt payments during this downturn.
However, it should be noted that we reduced debt by nearly $186 million over the last three years due to our strong cash flow and this gives us considerable financial flexibility.
Given this financial flexibility in our confidence in our ability to generate positive cash flow, we expect to maintain our dividend at its current level.
Regarding our other long term priorities, we will continue to invest in select strategic growth initiatives and in our phase three M&A research and out reach albeit at a more measured pace through the pandemic and importantly, we will continue to execute our blueprint for growth strategy with its focus on operational excellence and wrapping the growth engine.
Out it's my pleasure to turn the call over to David well to our president and CEO elect but first I want to tell you why we're so excited that he'll be joining us shortly during the search process, David became our candidate of choice because of its proven success with operational excellence and customer centric commercial growth.
Substantial international business development skills, and a demonstrated track record for delivering results and most importantly, he has strong leadership skills and proven track record of driving performance culture is even higher levels.
Given his background leadership capabilities passion for excellence and as cultural fit with Columbus Mckinnon. The board unanimously decided that David J. Wilson to be our next president and CEO and we are delighted that he will be joining us on June 1st So with that I will now welcome David David.
Thank you Rick and good morning, everyone. It's a pleasure and honor to have the occasion to address we today, even before on the officially Onboarded Columbus Mckinnon.
First allow me to introduce myself and then I will tell you I am very enthusiastic about having the opportunity to lead see MTO.
I will be joining the company on the first in June after I finish the transition of my responsibility the closer Corporation, a leading fluid motion and control products and services company with approximately 4 billion in revenue.
I joined closer back in September of 2017. Since then low service has been undergoing a transformation and as part of that effort. We consolidated two divisions into the pumps division.
I've been the president of the pumps division since it was formed in July of 2018.
Prior to closer I was president of the industrial segment and SPX flow, which was spun out of SPX Corporation in September of 2015.
Combined I was with SPX and the spinoff for nearly 20 years at SPX I served as president for a number of their industrial technology flow control automotive and food and beverage equipment businesses.
Many of which were similar in size or larger than Columbus Mckinnon.
And these roles I was responsible for defining the strategic vision for the businesses developing growth initiative implementing business simplification processing and restructuring as well as leading acquisition and portfolio management strategies.
I also have quite a bit of international experience, having spent the better part of the decade living and working abroad in both Asia and Europe.
I began my career as an engineer for polar incorporation and advance quickly into manufacturing and product development leadership roles.
I am in electrical engineer by education and I'm originally from the northeast as is my wife, My family and I are sincerely looking forward to our move to Buffalo.
You may be wondering what attracted me to this opportunity at Columbus Mckinnon.
First I was impressed with Columbus Mckinnon than industry leadership. This is clearly demonstrated by the company is well known brands and strong customer relationships.
In addition, Columbus Mckinnon has a logical foundation for growth strategy with its focus on smart movement and being lifting specialists.
Finally, I believe there are tremendous opportunities to grow Columbus, Mckinnon and by advancing our motion control technologies with new product development and acquisition that expand our addressable markets and target growth trends.
For these reasons I was truly drawn for this opportunity Im also impressed with the effectiveness of the blueprint for growth strategy, which defines direction provides for accountability and has clearly improved the earnings power of the company Im looking forward to working with the team to advance Columbus, Mckinnon, 80, 20 process and operational excellence initiatives.
I'm also excited about the three of the strategy.
Well, we're currently an unprecedented times given the pandemic.
I've seen that the team has acted quickly to adjust to the current market environment. While also pursuing the select strategic initiatives that Rick discussed.
I look forward to working with our team to navigate through this period and leading the development of a stronger more sustainable growth platform centered around market segmentation innovative product development and acquisition.
Initially I will be getting to know the global team and operating cadence.
Then as restrictions lift I plan to get out to meet customers and in the midst of all that hope to have the opportunity to meet some of you even if only virtually for now.
In closing I'd like to add that I've had very much enjoyed my interactions with the Columbus Mckinnon board throughout the recruiting process Im impressed by how intelligent thoughtful and engage in each of them as individually and how align they are collectively.
I am truly looking forward to partnering with them as a member of the board of directors.
On that note I'd like to extend the big Thank you to Rick and the other members of the board for this opportunity I'm ready to build upon the solid foundation that the team has established and take Columbus Mckinnon to the next level I will turn it back to net revenue.
Thanks, David Operator, we can now open the call for questions.
Thank you will now be conducting a question and answer session. If you wanted to ask a question. Please press star one on your telephone keypad and a confirmation total indicate your line is in the question Q.
You mean press star to feel like to move your question from the Q.
Participants that are using speaker equipment, maybe necessary to pick up for handset before pressing the star Heath.
In the interest of time until management East Hoss will ask questions. Please ask one primary question and one follow up question. You. We then returned to the queue for additional questions.
One only fully poll for questions.
Thanks.
Thank you.
Two questions from the line of Chris how with Barrington. Please proceed with your question.
First off congratulations David and I look forward to meeting you in the not too distant future.
Thank you Chris.
Just starting off.
Looking big picture as we look at your current liquidity position a 1.1 times.
And 1.1 times leverage ratio in combination with the overall balance sheet position.
And the current environment that we still sit in.
How should we think about.
The impact this has on the timing of your phase two initiatives in combination.
With.
Page three which is on the horizon understanding there might be some delay.
Given the uncertain optics that we're currently in.
Perhaps you can comment on that and then I have one follow up.
Okay.
Yes, Chris Hi, it's Greg how are you.
Yes.
So as you know and as you follow we're in great shape from a capital structure perspective, and well below our our covenant level three times and just to remind you again that the covenant test only comes into play if we were to draw off of our revolver. So I think we're going to continue to pursue.
The phase two operational excellence.
Homes as well is 80 20 and regarding phase three we're still doing a lot of pre work to get ready for that but I think we've just got to be responsible in this current timeframe until we know that.
Things have stabilized and it makes sense to move forward with potential acquisitions and I think this also gives David time to get onboard and and learned the business I understand it better and help set the strategic direction for the company.
Great.
That's helpful. And then following up on that has there been any change or material shift in what you're seeing as far as.
The backlog of opportunities that would be viable for phase three as companies similar to your size or smaller are stressed.
During this time and as they come out of this pandemic environment.
Chris.
I would simply say that as we do our work on phase three.
Today, we have not seen any major change and parties guideline as to consider strategic initiatives.
The pandemic is still kind of fresh in their minds and people are kind of working through it.
But I assure you that we have continued our research we've had some.
Outreach, albeit at a more measured pace as I've indicated because of the of the pandemic.
And Doug and a lot of the heavy lifting on strategy will of course continue at particularly as David joins us and helps us through that strategic analysis. So.
I don't want you think that is not top of mind with us, but the pandemic does provide some constraints such as travel and and certainly due diligence in this market right now.
Okay.
Thank you for taking my questions I'll hop back in Q.
Thank you.
Our next questions from the line of Joe Mondello with Sidoti and company. Please proceed with your question.
Hi, everyone. Good morning, Hope you all doing well.
First question just related to the Rs DNA guidance that you provided for the first quarter I was just a little surprise given that you're sort of revenue guidance is calling for sales down around 35, 37%.
Year over year. The Rs DNA guidance is just about 12% year over year decline. So I'm just curious why.
I would not decline a little more given the revenue guide.
Yes, So I think Joe this is Greg. So clearly there is a piece of our selling costs that truly are variable and we have taken out a significant amount of cost in the IRS gene a line mostly in the in the selling energy in a in particular, but it's you know its.
By its nature, it's going to have more fixed costs in it than you might see in the manufacturing area. Our gross profit area. So we have.
Made.
Taken substantial head count reductions as a company overall and we've also implemented short work as Rick mentioned Weve eliminated merit increases foregone bonuses in the first half of the year.
Can travel to virtually zero.
Professional services for the most part been eliminated so as we looked at our cost structure. We've we've taken an aggressive approach to reducing all costs to protect liquidity and profitability of the company, but I think just by its nature estimates can have a little bit higher proportion of fixed costs in it.
Okay and my follow up would be could you provide an update on sort of at this point in terms of your visibility what you see for cost savings for fiscal 2001, I believe you are sort of calling out about a 13 $14 million.
On one of the prior calls could you just update us on what you foresee in terms of 80 20 further cost cuts facility closures et cetera.
Yes so.
In terms of.
Actions, we've taken on an annualized basis, it's about $36 million of cost and that saw the the items that I mentioned before.
And I would say, though that we are going to flex up when volume does start to return. So I wouldn't look at it as you know that our cost base is going to be down 36 million for the entire year, but it's really running at about a 9 million dollar quarter rates.
And regarding 80 20, we do have as Rick mentioned on the call the Lisbon, Ohio facility.
We will be completely shut down by July so, we'll get three quarters of the benefit of that which is a $5 million annualized benefit we have a little bit of a carryover from our consolidation in China, which is about three quarters of a million dollars. So in total we should see about 5 million from factory consolidations, we are continuing.
I mean to develop plans for further consolidations, but we're not ready at this point in time to announce any further consolidations and it's a little bit hard right now with the travel restrictions as well.
And if you don't mind I just wanted to follow up really quite too. So we're clear the $9 million per quarter $36 million, that's not incremental correct. That's what you've already sort of realized been taken out of the business.
No thats incremental in the quarter additional actions.
So thats part of the real.
Yes, just to be clear so remember our typical RSU ne is about a $45 million run rate. So dropping down to 39 is in the quarter is $6 million of the $9 million.
Hits in that line and then the other $3 million would be more or less direct and indirect costs in cost of goods sold.
Okay got it thanks, Thanks for taking my questions.
Next question from the line of Mike Shlisky with turning company. Please proceed with your question.
Good morning body and David will continue.
Thank you Mike.
So I am I hearing allows companies as they kind of reopened our founding at least some of the machines were not designed for as well.
A follow up questions shutdowns for lobbies companies out there. So some machines were broken corroded or otherwise out of service after that timeframe.
So in the first phone calls that they made were to some of their suppliers of Scott for equipment tied to repair or just to name a new one.
I was kind of curious I know it's early it's just some.
Sorry, just now coming back but have you seen that happen at any customers on the calling you on the first phase thing.
Things just are not working here can you can come in and then.
The system.
Yes.
Mike This is Rick Fleming.
Clearly as as companies come back on industry is a good example, we are seeing more quoting activity, we're seeing more orders.
But in all fairness I'd say right now is showing up necessarily an actual shipments yet although things in may certainly were better than April turning to affirm and stabilizes it that way I characterize it and it looks like as June it.
Opens up more in terms the economy that will have.
A higher level of activity, but it's still early days is the best way for me to put it. The anecdotal evidence is good we are stabilizing is trying to move up but the bottom line hasn't yet shown up other than the tactic as I'd say, we're getting a lot more quoting activity. The other thing thats kind of interesting I notice we're not seeing.
Projects being canceled that were.
In many industries committed capex.
Steel for example, as it is a good area.
We've also had a number of project probably not going on gas that we're committed to it seem like you're going forward, they maybe a little bit delayed, but we havent seen outright cancellations to a high degree yet so.
We're feeling that things are starting to get a little bit better, but I don't want to overstated right now.
Okay.
My follow up was just on the pricing outlook.
I guess can you give us don't view as to your near term outlook on that part of your.
Our business model.
I'd imagine youre not trying to chase a lot of pricing in this environment might not be worth that given what could be somewhat short downturn, but just your thoughts on the pricing.
Yes, so we typically do announced price increases in the us in the March timeframe, we did pull that up a little bit. So we would expect you're right. The market right now is not all that receptive to price increases, but nonetheless, I would expect it we will see positive price increases as it.
Enterprise.
In the upcoming quarters. So we're not seeing price declines, which I think is a good thing and there should be some incremental pricing that we see it might not be to the level that weve.
I have seen this past year, which is around 1.3%.
But it should still remain positive year over year.
Got it okay. Thank you I'll pass it along.
Our next questions from the line of Jon Tanwanteng with CJS. Please proceed with your question.
Hey, good morning, guys, Dave Congrats on the appointment.
My first one for you I know a little bit early and you still need to.
Take more time to peak on that.
Well, maybe coming on board looking at it would assess that advised what's helping out as most immediate opportunity or or challenge for you personally as we prepare for post pandemic world.
Thanks for the question then I appreciate the opportunity to two to talk to.
I guess im pretty excited about the fact that Columbus mckinnon than the industry leader and well as well known global brands and a strong set of customer relationships and as you have seen the company has made significant progress with the phase one in phase two initiatives they've implemented over the past few years executing on the blueprint for growth strategy.
Okay.
Just decide a few examples progress in establishing the mission vision and values driven performance culture, the discipline and rigor with which the team has implemented its business operating system, including the implementation of the 20 process.
And then the resulting gross margin expansion and reduce debt levels that enabled the company deliver return with a lower risk profile and so.
I believe the Columbus Mckinnon is in the early stages of a significant transformational agenda.
And I am truly energized by the opportunities that lie ahead, we must.
Advanced the company's blueprint for growth strategy and advanced the performance differentiation that will be enabled through true operational excellence.
And in parallel we need to pivot hard towards growth, both organic and acquisitive and I believe there are many attractive AVOD avenues for us to pursue.
Clearly we're in unprecedented times than we need to focus on first things first and the team has demonstrated their ability to be agile and to respond rapidly in this pandemic environment safeguarding employees complying with CDC federal state and local requirements and adjusting new market levels, but.
Confident we can get through this and I'm truly excited about becoming a leading global industrial technology company.
Got it thank you for that.
Okay.
Greg I was just trying to get a sense of what's quarter may end up being the trial for you as as it stands now.
What are your client holographic too about the third calendar quarter, they've had a planning for steady ramp back up or is it maybe maybe at the second debt we're way that maybe in the car. They are you planning for.
Just scenario at all and what would you do in that case, yes, so as Rick mentioned.
We would expect clearly with things for me enough in May and.
Countries getting back to work in Germany. For example, all the automotive manufacturers are back working in the United States are now opening up so I my personal sense and I'll ask script to comment on this as well that I would expect that our first fiscal quarter is going to be the.
The toughest quarter for us and that we should start to see things returning to normal, but having said that my personal belief is until there's a vaccine it's going to be a year before do we see year over year growth that while things will improve there and they're not going to be above this current year, which was really an outstanding year for us from a from a.
Company perspective, maybe Rick you'd you'd like to comment as well, yes. Thanks, Greg Let me just set the table little bit regarding trends and then then we can talk about.
The outlook, but just to give you flavor for.
Period of March and April we've given you some aggregate numbers, but one way I look at his sequentially and.
March quarters upward industrial business, which is our short cycle business to a high degree.
Basically came in at 88% February.
And then April was 70% of March that gives you a sense of the dramatic drop that we had mirrored.
Pretty much a lot of the statistics that you've seen from.
Indexes like the supply chain index.
But having said that may has firmed and.
We havent closed the books, yet obviously on may but it may even be up a bit.
And we're starting to see some interesting trends on on orders.
Got a large automation division order recently for the Army Corps of engineers.
Surprisingly enough header.
433000 rail order came that came in.
825000 for radio controls for Chevron project. So as I mentioned the project business continues to seem to be active.
And now as Greg alluded to we're starting to see.
Sections, the economy come back our entertainment vertical has been really radio silent since the pandemic and now you're securing talk Las Vegas at least starting to come back. So there are some early signs that things could get better to Greg's point I think the first quarter of our new fiscal year will be definitely that I think.
For low point, and we're hopeful that we're going to come back, but I do have to tell you that in this kind of environment you got to be really prepared to be nimble.
And so a lot of it as Sarah scenario planning. So we have kind of a view that we will be kind of working toward and hopefully on both on a recovery, but if it doesn't we're prepared to take the action necessary to deal with whatever comes our way so.
Got the base case, you've got the.
Level two actions that you can go to they're all prevented and we have been thinking a lot about them and obviously, David will be helping us with that but we have say another layer of earnings actions and cash actions that we can implement if necessary, but we're hoping that we've seen the worst and we're hoping that we start to come out of this.
I think Greg also summarized it well we have a collective view that this pandemic is not going to be behind us.
In any way shape or form until we get a vaccine. So all that we might have some recovery, it's going to be sluggish and it's probably going to be an elongated type that you recovery as opposed to.
Any sort of be.
I hope that's helpful.
Hey, Thank you for much I wanted to touch on one more point you mentioned a breakeven revenue level in your press release I'm wondering what did that include in terms of cost reductions I use from 80 to one you're caught the temporary stuff that you're doing.
Is there more cost reductions after that and ended the to breakeven become the borrowers that kind of the trough level in central Paul.
Thank.
EBIT margins to be at the worst.
Yes, okay.
Okay, Great now let me take this one so.
Yes, so the breakeven level, we felt that it was important that people understand the.
The magnitude of the cost savings actions that we have taken so thats with everything that has been implemented to date and so if for example orders were to take another decline from current levels. There are certainly more actions that we could take they would be very painful for sure but they are we know what we would.
Do.
So I think what the takeaway is with the revenue guidance that we've given and given the breakeven we would expect positive operating income, but the one thing you do have to remember is that we do have to carry about $3 million of interest expense.
So if you're if you're looking at it from a net income perspective, thats got to be factored into your your calculus on it but once again at the current.
$125 million level with the actions we've taken to date, we believe we would be breakeven or slightly better from a adjusted operating income perspective.
And that takes into account all the 80 20 that we've done last year the benefits of the Lisbon consolidation all the additional actions we've taken.
But there would be more taken if need be.
Thank you.
Our next questions from the line of Walter Liptak from Seaport Global. Please proceed with your question.
[music].
Hi, good morning, Congratulations statement on new job.
Thank you welcome.
My question.
About the the revenue guidance the 130 to 140.
It looks to me like the midpoint of 135 is down about 37%.
And so I just wanted to.
We get a better idea you talked a couple of times about what firming up means.
Does that mean that we've kind of taking the step down and we're not at a kind of stable level like on a week to week basis.
Or in the first couple of weeks I Wonder if you can compare the first couple of weeks of may be too.
What you're seeing now in the last few weeks of many.
And get a better idea about the affirming that's going on.
Yes so.
Well, let me start with that and so we clearly have seen may levels.
From as Rick said, which means that they are equal to or slightly better now we do have variability day to day in orders and so that's a part of.
Of tests, we take into account, but when I look at like the average order rates through Friday of last week. They are slightly better than they were for the whole month of April.
Okay, and I Wonder if you could talk a little bit about.
The.
The trends in distribution versus projects because it sounds like there's some projects.
That might be skewing, the number a little bit and.
If you can help us.
Think about your distribution business, how big is that now as a percentage of revenue.
And if there was destocking that was going on that I guess should come to an end at some point.
Yes. So so when we look at April orders, we were more impacted on our short cycle business down probably over 40% projects not quite as bad maybe in the 30% range.
We do as Rick said, we are still getting large projects. We just won a large project in Saudi Arabia, which is over almost for going to half million euros. So that's a nice order that we will get.
And be able to fill in the latter half of the year. So I would say that projects, it's still down double digits, maybe not quite to the same extend is what we're seeing in or short cycle business and in terms of your question on distribution about 62% roughly goes through distribution in the channel is being very very.
Care careful about adding inventory.
And the one part of the channel that's doing really well are the specialty distributors, which are the most season the fastenals.
Where they've got a lot of MRO activity in their open in their supplying lots of different pieces or MRO products to their customers.
So that channel seems to be more active for us.
Okay, Great and maybe last one for me just be geographic you guys have a lot of.
Business in Europe, but think about a third and you've got some Asia business. So wonder if theres any trends going now down there we're out there.
And what I'm thinking up is it seems like China Asia is maybe ahead of the curve with opening back up for business followed by Europe and then the U.S. later or are you seeing any trends.
Geographically.
This is Rick and yes, China is starting to come back.
They're not even the entertainment business is coming back a little bit in China, So, but it's relatively small as a part of the company, but we are seeing positive trends in that in that area less so in Japan right now just to give you a flavor for the fact that not all countries in the region around the same time horizon right now.
As it relates recovery.
In Germany as Greg mentioned is just starting to open up the autos are coming back we're starting to have.
Factories have more activity.
Commerce is is trying to move ahead from an youre standstill, so that seems to be improving and in that part of the world as well and then Latin America I would say in Brazil, just totally shut down right now.
So nothing going on.
Don in that area and Mexico just.
Barely coming back right now so it's it's a situation where it really does vary by region and you asked is probably one of those areas. It a little more active right now in addition to Europe.
And child.
Your next question is from the line of.
Slumped quake Paul Farrell. Please proceed with your question.
Hi guidance is Danny or John for Greg Palm, Congratulations and welcome to David.
Thank you Dan.
Yeah, I guess as we're looking at kind of the startup opening back up the economy and getting passed this pandemic are you seeing or planning on seeing any increased interest for automation, our smart sensor technologies anything like that.
We are very excited about the prospect for our new automation Division and we are seeing interest.
[music].
Right now we've been booking about $1 million, a month up until lately and that in that area with the new division that we farmed so we feel pretty good about the opportunities and particularly effective automation.
Probably going to be a mega trend in the new post call that economy, particularly in the warehouse area. So we see some pretty pretty good reasons to want to consider that is the area for future growth as well as new products.
So the answer yes.
A lot of that by the only as good oriented toward making sure that facility, so large health and safety.
So durations and automation adds in that area to health and safety.
Yeah, Thanks, a lot of science.
I guess and then just won.
Any update on the competitive landscape given this this unusual time in the market.
Yes, so I'll take that one Danny so.
Clearly our competition has been affected by coveted like we have and both of our main international competitors, they're both public companies. They both have websites, where you can take a look at different things I know in the case of kroner cranes they've taken dramatic.
Actions in Finland, where they have a very large workforce to move to short work weeks and lay people off so I think everybody is rightsizing their businesses to the volume.
Levels, but I would say that we could probably take a look on their web sites and get more information.
All right that's it for me thanks, guys.
Thanks.
Thank you.
As a reminder, you mean for star one to ask a question.
At this time ill turn the floor by two or for any closing comment.
Well. Thank you. Thank you for joining us today.
We look forward to reporting our first quarter fiscal year 21 in July and we hope that we have greater clarity regarding the economic outlook at that time.
In the meantime, stay safe and be well and thank you.
Thank you everyone. This will conclude today's conference you may disconnect your lines at the site. Thank you for your participation.