Q3 2021 Columbus McKinnon Corp Earnings Call
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Yeah.
Greetings and welcome to the Columbus Mckinnon Corp, third quarter fiscal year 2021 Foundry Research results conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded on.
Now I'll turn the conference over to your host Deborah Pawlowski Investor Relations for Columbus Mckinnon, you may begin.
Thanks, Jamie and good morning, everyone.
Certainly appreciate your price day in your interest from Columbus Mckinnon, joining me on the call on David Wilson, Our President and CEO and Greg rest with our Chief Financial Officer you.
You should have a copy of the third quarter of fiscal 2021 financial results, which we released this morning before the market. If not you can access the release as well as the slides will accompany our conversations day on our website at Www Dot Columbus Mckinnon Dot com.
After our formal presentation, we will be opening the line for Q&A. We kindly ask that you ask one question with a follow up question and then get back on queue to allow for continuous flow and adequate time.
If you'll turn to slide two in the deck I will review the Safe Harbor statement, you should be aware that we may make some forward looking statements during the formal discussions as well as during the Q&A session. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today.
Risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed with Securities and Exchange Commission based.
These documents can be found on our website or at SEC Gov.
During today's call. We will also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance you should not consider the presentation of additional information in isolation or as a substitute for results prepared in accordance with GAAP.
We have provided reconciliation of non-GAAP measures with comparable GAAP measures on the tables that accompany today's beliefs on fly for your information.
With that if you'll turn it on slide three I will turn it over to David to begin David Great. Thank you, Dan and good morning, everyone.
These are certainly interesting times and I'm very proud of the way the Columbus Mckinnon team continues to rise to the challenges presented by the pandemic.
We have continued to lead with health and safety at the forefront for these dynamic times.
Even as global infection rates accelerated in December the December quarter, we were able to exceed our revenue targets grow our daily order rates and meet our customers' requirements.
Through all of this we have been evolving our blueprint for growth strategy to blueprint for growth 2.0.
Our Columbus Mckinnon business system or C. M. B S is developing to provide the underpinnings for the discipline processes and core competencies necessary to scale our business.
We believe that core elements of <unk> MBS are enabling us to drive results today as we address challenges such as labor availability supply chain shortages and delayed freight schedules.
<unk> talk more about our strategy and see MBS in a moment, but let's hit on the highlights of the quarter first.
Sales of $165 $6 5 million surpassed our expectations, even as we dealt with the staffing supply chain and logistics challenges associated with rising rates of COVID-19 infections and.
In fact, we are ahead of plan for our organic growth initiatives involving new product and solutions development geographic expansion and advancing compass, our online see PQ or configure price quote tool that speeds up our channel partners' ability to design and quote our equipment.
We are forecasting new product revenue.
Find has revenue from products introduced within the last three years to be up 24% year over year in fiscal 2021.
As a percentage of sales our new product revenue has grown nearly 200 basis points.
Gross margin was 33, 2%, which we will we're pleased with given the typical impacts of under absorption in the December quarter, and the incremental costs associated with labor availability and supply chain expediting fees.
Our suppliers similarly face staffing impacts associated with the pandemic.
In addition, we had to overcome increased freight costs due to capacity constraints in our global shipping channels.
Despite all of this adjusted operating income was $11 2 million and GAAP earnings were 27 per share or <unk> 26 per share when normalized for the tax rate in our fiscal third quarter.
As Greg likes to say, a hallmark of Columbus Mckinnon is our ability to generate cash through all cycles.
I believe this is true.
And we are also getting better at it as.
As we drive operational excellence through see MBS I expect that we will advance this capability even further.
We generated approximately $22 million in free cash in the quarter.
And have more than sufficient financial flexibility to put our capital to work for growth both organically and through acquisitions.
Notably our backlog is up 4% sequentially, continuing an encouraging trend of recovery.
If you will now turn to slide four I would like to introduce more about the evolution of our blueprint for growth strategy to version 2.0.
To execute this strategy, we are building the Columbus Mckinnon business system or as I said previously see MBS see MBS leverages the foundational elements of EPS.
And expands upon them with a broader set of core competencies key processes and tools that establish a stronger enterprise foundation, and a Columbus mckinnon way for enabling growth and creating scalability.
This provides the infrastructure that enables the core growth framework of our blueprint for growth two point out strategy.
The key principles of <unk> MBS are rooted in being market led customer centric and operationally excellent with our people and values at the center of all that we do.
This requires somewhat of a shift from where we have been as a company.
We are altering our orientation and perspective to be more outside in focused.
Being market, leading customer centric means when he wants to establish a deeper and more institutionalized understanding of the markets. We serve the competitive landscape, we engage in and the opportunities that strategic Adjacencies provide.
This perspective sharpens, our insight into what drives our customers' behaviors.
Why they buy what they buy and how they buy.
We are improving our knowledge of how we are perceived enabling us to align internally to improve our customers' experience.
With <unk> as the foundation, we can execute the core growth framework of our blueprint for growth two point out strategy.
The framework defines for parallel paths for Columbus Mckinnon is growth and provides clear organic and strategic initiatives focused on strengthening our core.
Growing our core expanding our core and re imagining our core.
This is how we will pivot to growth both organic and acquisitive.
Strengthening the core is a foundational path focused on initiatives that will strengthen competencies and improve our competitive position within our existing share of the Sam.
Our serviceable addressable market.
Initiatives include further developing commercial and product management competencies and improving our digital front end.
Growing the core is a path that is focused on taking greater market share both organically and through acquisitions within the markets. We currently serve or again our Sam.
We are making progress on this path with product localization, new product development and advancements in automation and aftermarket support for our distributors.
Expanding the core is a path that is focused on improved channel access and geographic expansion.
Here, we are talking about expanding beyond our Sam into the broader total addressable market or Tam.
This will involve building out our presence both geographically and in new verticals occur.
Our current example is the hygienic markets, we are targeting with evolved products and solutions. This will also be achieved through organic and acquisitive growth.
Re imagining the core is a more transformational path that we think our current Tam and target strategic growth.
On that.
As we think more broadly about material handling and increasing trends in intelligent motion not.
Not just lifting but solutions for how materials move throughout customer environments. There are some count compelling ideas that emerge.
This growth can be achieved organically through innovative approaches and the application of Columbus, Mckinnon technologies and markets that extend beyond today's Tam as well as through strategic development.
We have detailed plans underpinning each of the paths of our core growth framework, we look forward to discussing these in greater detail when we host our strategy briefing.
And our first quarter of fiscal 2022.
Please turn to slide five and I'll speak to the current success of one of our key Columbus Mckinnon business system tools. The 80 20 process.
While the results of this process are volume dependent we are nonetheless, reaping incremental benefits even during the recession created by the pandemic year.
Year to date, we have generated $9 million in contributions to operating income, resulting from strategic pricing initiatives, the consolidation of facilities and customer simplification.
In addition to our continued focus on these areas.
Primary areas of emphasis going forward is on product line simplification.
If you would now turn to slide six you will see that we are continuing to recover from the low point in the first quarter of fiscal 2021.
Both our short cycle and project businesses demonstrated growth over the second quarter.
As we have noted previously the third quarter is typically our weakest quarter due to seasonality and fewer workdays.
We are certainly encouraged that the landscape appears to be improving overall.
I will now turn the call over to Greg to discuss our Q3 performance in further detail Greg.
Thank you David good morning, everyone.
On slide seven net sales in the third quarter were $166 $5 million down 16, 5% from a year ago.
As David noted the sales level exceeded the upper end of our prior guidance for third quarter revenue of approximately $150 million to $160 million.
Demand was impacted by the COVID-19 induced recession compared with the prior year, but encouragingly. The GAAP continues to improve sequentially compared with the trailing quarters as markets recover.
Looking at our sales bridge sales volume was down approximately $38 million or 19%. However, we did realize positive pricing as we saw year over year pricing improved by 1% of which about 60% was related to our 80 20 process.
Foreign currency remains a tailwind it increased sales by one five per cent or $3 million.
Let me provide a little color on sales by region for.
For the third quarter, we saw sales volume decline in the U S by approximately 20%.
This was partially offset by price improvement of 80 basis points.
Outside of the U S sales volume was down approximately 18%, which was partially offset by price increases of one 1% and favorable foreign currency translation of three 3%.
By region sales volume was down 11% in Canada, and APAC and down 20% in Latin America and EMEA.
On slide eight given our seasonality and fewer production days in the quarter. Our gross margin was 33, 2%, which compares with 34% last year. We feel that this is good performance given the 16, 5% reduction in revenue, we experience as well as COVID-19 pandemic challenges with <unk>.
<unk> supply chain and freight.
We have improved our mix of businesses and have benefited from our 80 20 process and operational excellence initiatives.
The 80 20 process contributed approximately $3 $5 million of incremental year over year gross profit expansion in the quarter through strategic pricing indirect overhead reductions and factory closures.
Let's now review the quarter's gross profit bridge third quarter gross profit of 55 million was down $12 6 million compared with the prior year.
This was driven by a $12 8 million reduction in gross profit due to lower sales volumes. We did see gross profit expansion from pricing and we experienced no material cost inflation in the quarter.
Foreign currency translation increased gross profit by $1 1 million.
Tariffs were lower than the prior year as we imported less Chinese product.
Factory closure costs were lower this quarter by 400000.
We experienced negative productivity net of other cost changes of $3 1 million largely due to COVID-19 related labor inefficiencies and incremental costs associated with the consolidation of product lines in our factories during the pandemic.
Covid presented challenges in the quarter as we dealt with labor availability issues in our factories caused by shortages of personnel due to positive cases are close contact tracing which required quarantine.
Our supply chain also struggled with this challenge and to meet customer demand, we experienced more expediting fees in.
In addition freight carriers have also been impacted and we are seeing higher costs and longer transit times.
As shown on slide nine our SG&A costs were $41 7 million in the quarter or 25, one percentage of sales.
Our SG&A costs were $2 million lower than the previous year I would like to point out that the prior year benefited from a $2 million adjustment to stock compensation, resulting from the resignation of our former CEO.
Adjusting for this onetime benefit in the previous year the reduction year over year was $4 million.
This improved level of our SG&A was due to several factors, we had lower selling costs of $4 3 million, resulting from cost saving measures, including lower head count and limited travel.
G&A costs were flat with the prior year, if you exclude the stock compensation adjustment that I just covered.
Also included in G&A for this quarter was approximately $2 million of costs associated with advancing our growth strategy as we discussed on our last earnings call.
We also continued to invest in R&D to drive organic growth. So those costs were up 400000.
FX translation added approximately 600000 to our SG&A costs.
As we discussed last quarter, our SG&A cost increased sequentially by $4 7 million. This was due to the addition of second half incentive compensation accruals growth investments and the costs related to returning to work, including bringing back certain employees from short work weeks in Europe and additional travel.
These costs will continue and slightly increase as volumes improve as a result, we are keeping our Q4 FY 'twenty, one our SG&A cost guidance at $43 million, which is $2 million per quarter below our fiscal 'twenty run rate of $45 million.
Turning to slide 10, adjusted operating income was $11 2 million.
<unk> operating margin was six seven percentage of sales of 490 basis point decline from the prior year. The driver of this decline was the impact that COVID-19 had on our sales volume decremental.
Decremental adjusted operating leverage year to date was 33%, which is significantly better than what we saw during the great recession of 2009, when we experienced decremental operating leverage of 38%.
Our blueprint for growth 2.0 strategy and specifically, our 80 20 tools and operational excellence initiatives have improved our business model and better enable us to execute at higher levels of performance in all economic scenarios.
As you can see on slide 11, we recorded GAAP income per diluted share for the quarter of 27.
We expect FY 'twenty, one full year tax rate to be a benefit of approximately 2% to 4%, which is resulting from the pension settlement expense related to the termination on one of our U S pension plans, which created a pre tax loss in the U S.
On slide 12, our adjusted EBITDA margin on a trailing 12 month basis declined to 12% because of COVID-19 are.
Our return on invested capital of six 6% was similarly impacted.
We continue to target at 19% EBITDA margins and ROIC in the mid teens, but the timing for the achievement of these objectives has been delayed by the pandemic.
We do remain highly confident that our strategy will enable us to drive profitable growth and achieved these objectives.
Moving to slide 13, we generated $21 $9 million of free cash flow this quarter and an impressive $66 million year to date.
We took rapid actions to preserve and generate cash and utilize our business system to focus on working capital reductions our working capital as a percentage of sales improved to 13, 3%, which was a significant contributor to our free cash flow improvement.
We drove our day sales outstanding or DSO performance down to 51, five days and improved our days payable outstanding to 46 days.
Inventory turns also improved to three nine turns we expect capex of $4 million to $6 million in the fiscal fourth quarter and this would result in capex of approximately $10 million to $12 million for the full year.
Turning to slide 14.
Our total debt at the end of the quarter was approximately $250 million and our net debt was approximately $62 million or.
Our net debt to net total capitalization is now approximately 11%.
We have made excellent progress delevering.
Jan have achieved a net debt to adjusted EBITDA leverage ratio of less than eight times, which provides us financial flexibility to weather the current pandemic and invest in growth initiatives, we have a flexible capital structure, which is covenant light. This means our financial covenant is only tested if we have outstanding borrowings.
Against our revolver.
October we repaid the $25 million of outstanding borrowings on our revolver that we initially drew in April so the covenant was not tested at December 31.
We also extended the maturity date of our revolver to August of 2023, which gives us a stable capital structure for almost the next three years.
Finally, our liquidity, which includes our cash on hand, and revolver availability remained strong and has increased to approximately $271 million.
We expect to use our capital for growth, both organic and through acquisitions.
Please turn to slide 15, and I will turn it back over to David.
Thanks, Greg orders were $169 million in the quarter down slightly from the trailing second quarter due to seasonality and three fewer working days.
On an early orders per day basis rates actually increased sequentially by two 5%.
During the quarter, we had some interesting project wins that drive sustainability.
These included clean energy applications in both wind and hydro power as well as supporting a manufacturer of infrastructure systems for sustainable water flow management.
We had several wins in the transportation industry as we are supporting the significant global efforts to develop new production lines for electric vehicles.
We are also seeing new demand driven by shifts to new technologies, such as electric and hydrogen powered public transit systems.
Other highlights include the energy market, where we were selected to provide crane systems for an LNG project in Mozambique, as well as our natural gas power plant in Thailand.
In other areas of growth benefiting from the pandemic is packaging where we.
We have won a number of smaller projects to provide lifting equipment to manufacturers of folio used in the food industry.
The defense industry is strong across all of our businesses. For example, we received an initial order for automated linear actuators used in our missile launch system in the quarter.
We expect this to lead to further opportunities over the next several years.
Finally through the first 15 days of January our daily order rates are up eight 5% versus the average in Q3.
And as I noted earlier, our backlog remains above pre COVID-19 levels.
These trends are encouraging.
Please turn to page 16, and I'll discuss our outlook for the fourth quarter and our perspective as we advance into the new calendar year.
Our backlog order trends and customer inputs provide confidence as we enter the final quarter of our fiscal year.
We expect revenue in the fourth quarter to be in the range of $175 million to $180 million and we have approximately 50% of this level of available on our backlog now.
We remain cautious nonetheless as infection rates remain elevated.
While we only have direct visibility into the current quarter. Our strategy is focused on the longer term.
Our financial goals are unchanged, we are working towards 19% EBITDA margin and mid teen ROIC targets, but first we need to get back to pre COVID-19 sales levels.
Given our organic growth initiatives and economic forecasts, we expect to be back to pre COVID-19 quarterly sale sales levels by this time next year.
With the Columbus Mckinnon business system, we are building an organization and competencies that can scale as we pivot our efforts to growth.
Have also been actively developing our acquisition pipeline and anticipate that we will demonstrate progress in fiscal 2022.
Importantly, we are making great strides as we establish the metrics and performance targets relevant to Columbus Mckinnon sustainability efforts.
We are driving the path forward.
Developing our first corporate social responsibility report, which we expect to publish in fiscal 2022.
This is an important joint journey for US you can stay abreast of our progress via our website under about us.
With that operator, we'll open the lines for questions.
And at this time, we will be conducting a question and answer session.
You'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue from participants using speaker equipment. It may be necessary to pick up on your handset before pressing star keys.
Participants are only limited to one question and one follow up question.
One moment, please while we poll for questions.
And our first question is from Mike Zaremski with <unk>. Please proceed with your question.
Hello, Good morning.
Hi, good morning.
Good morning.
I guess I wanted to start off you had mentioned there was some issues with.
The freight markets are freight conditions.
Supply as well as your supply chain in general.
Have any of those begun to improve at all here in the first in the first calendar quarter of the year.
I guess, what I'd say is we're seeing rising rates of infections.
Globally, and we've had some impacts in terms of the expediting that's been required to make sure that we're moving materials the way that we've needed to and we were able to overcome them and exceed targets in Q3 as we just reported as we're entering Q4, I'd say that things remain in the same state.
We're working very successfully with our strategic partners in the supply chain.
And.
I think we're in a position where we're where.
We're not anticipating significant changes as we progress through the fourth quarter from what we saw in the third quarter.
Okay, great. Thanks for the color there.
And maybe secondly.
Yeah.
I am curious.
Yeah.
Sorry, Yes, I'm curious.
Comments on Youre still on track eventually as you get to that 19% EBITDA margin level.
The encouraging but you've also it seems like you've expanded or.
Matured what.
The program originally got you to kind of set these goals and it seems like it's got a lot more aggressive or a lot more expensive since the original blueprint for growth came out. So I'm kind of curious is there any room to go past, 19%, if what youre doing ends up being successful over a period of time or.
It's kind of 19, the core to expect even with all these new goals.
On new strategies here.
I guess the way I'd answer that Mike is that and we've talked about this in the past, where we're very focused on that target and making sure that we achieve that target, but we are working very hard on a number of initiatives that are making Columbus, mckinnon, a better and stronger business and anticipate that over time as we scale that we can.
<unk> moved beyond those targets and so that's not where we would stop but that's certainly the target that we have right on progress.
Okay that makes sense I'll pass along thanks, Alright, Thank you Mike.
And our next question is from Greg Palm with Craig Hallum Capital Group. Please proceed with your question.
Yeah. Thanks, good morning, everyone.
It certainly feels like the recovery has strengthened a little bit more than kind of how we were all expecting if you're a few months back I mean, you gave some good color on <unk> and.
And market conditions in certain verticals, where youre seeing some success I'm. Just curious is it do you feel like it's being led more by by short cycle or projects and in water inventory channels are inventory levels like in the channel at this point I mean, how much of this is sort of real demand versus restocking on the channel.
Right right I would say I'll start with the last question inventory on the channel remains at a very low level.
So I don't believe that what we're seeing here is representative of an increase in stocking levels, but in the third quarter. We saw short cycle and project orders increase in terms of our sales delivery on the order of five 5% to PS So five 5% five 6% respectively and.
That that was pretty consistent across the board I guess as we think about order rates in the quarter.
Our short cycle order rates were.
Just checking a note here.
Short cycle.
<unk> was.
It was down about 2% and projects were down about 3%.
In absolute terms from an orders perspective.
So.
No real material difference as it relates to those two.
Types of business, but we are seeing order inquiries and engagement relating to project activity, increasing quite a bit we're having very active discussions with our customers related to projects that are gaining more traction in an activity that had previously but some of them had been on hold and other.
Our new activities that are coming forward.
Okay.
Helpful commentary and then as it relates to gross margins didn't hear any commentary on input costs and I'm just curious whether the rise of increasing steel lately. If that's expected to have some sort of impact how should we think about gross margins in the near term.
Yes.
<unk>.
Do you want me to take that David Yes, Greg would you take that.
Sure so in.
In terms of the fourth quarter, we're anticipating inflation raw material inflation to remain muted. We don't expect there to be a significant increase in really to date, our raw material inflation has been close to zero. We do however think that as we move into our next fiscal year that inflation is definitely going.
It become more of a headwind we certainly have seen some very modest steel prices. So far a lot of our contracts are locked in so it's just not as much of an issue for us here on the short term, but clearly there's going to be pressure, we think as we head into our fiscal 'twenty two raw material inflation.
Okay. So just just to clarify it's just more of a byproduct of timing. So the fixed contracts may need to get I guess renegotiated based on this level of steel at some point is that the way to think about it.
Yes, we would expect there to be some additional inflation.
You have to be determined but we also.
Yeah.
Energies that we implement and have been implementing to offset it.
<unk> increases.
The force our suppliers to kind of give us the details on kind of what their share prices should cost versus just kind of accepting across the board increases.
We look to add different suppliers and <unk>.
<unk> sources, if necessary and we also have a big focus on material productivity and cost savings projects. So there's a number of things we're doing and expect to do to offset any inflation, we would see in fiscal 'twenty, two but clearly what we're all seeing and reading about is going to be.
Bill.
Yep, Okay makes sense all right. Thanks for the color good luck going forward. Thanks, Greg.
And our next question is from Matt Summerville with D. A Davidson. Please proceed with your question.
Hi, David dragging down this is off the menu on for Matt I have two quick questions.
First if you could speak to the action ability with respect to your M&A pipeline and how the funnel of activity has developed there.
Sure sure. So I think the M&A markets are becoming active again, we're clearly focused on refining our criteria on making sure that we're focused on as we've talked about in the past our future.
More focused on intelligent motion solutions. So we're building out on M&A process as part of <unk>, we have an active development pipeline.
And as you would imagine we're evaluating opportunities and those opportunities are at varying stages in terms of their action ability.
But as I mentioned, we anticipate in our plan would be to be active in the fiscal 'twenty two period.
And I'll just add on Austin that clearly from a balance sheet perspective, we've got lots of dry powder available.
Yeah definitely thank you for the color there.
Second question, just real quick you touched on the highlights youre seeing across some of the end markets. The positives I was wondering if maybe you could elaborate on on the areas, where you're still seeing challenges.
Sure Yeah, well clearly the entertainment market is the one that stands out right entertainment is a market that given the inability to gather it is having an impact on live shows and those are basically nonexistent at this time. We're touring shows there are some live shows with venue.
Locations, but our entertainment business has been impacted the most we're seeing some green shoots start to emerge as people have been doing renovations on locations and gearing up for a recovery, but its still at a very low level.
We're also seeing that the oil and gas and chemical markers Mark markets are down compared to last year.
Okay. Thank you.
And our next question is from Chris Howe Barrington Research. Please proceed with your question.
Good morning, David and Greg.
Morning, Chris.
Good morning.
I wanted to.
Follow up on some of your comments in regards to order rates you had mentioned some of the positives in Q3 as it relates to clean energy electric vehicle production et cetera.
With the incoming administration.
With president Biden and potential.
Things on the horizon any potential.
Upside.
We could potentially see impacting some areas of the business.
First and foremost perhaps electric vehicle production.
On some of the other areas.
Sure as I mentioned, there continues to be investment in that area and we're benefiting from that investment as we provide solutions that assist in establishing those production lines for global electronic vehicle on electric vehicle production I would also anticipate that with a push towards more of an energy transition to <unk>.
<unk> energy the work that we're doing in support of wind and hydro power and.
Other sustainability areas could see benefits from from stimulus or.
Tenants that might exist to help support that.
Those would be my initial thoughts as it relates to potential investments.
Yes, and just to add on I would also expect that there will be stimulus.
<unk> on infrastructure spend.
The question that certainly help us going forward.
Okay great.
Just a follow up question.
Perhaps you can talk more about automate automation solutions and driving the growth engine as we get to.
Our run rate normal.
At this point.
Next year and kind of what your expectations are for that piece of the business as it develops.
I'm sure as it develops there'll be a good incremental impacts.
On the margin line.
Sure Yes.
As the world shifts more towards <unk>.
Focus on increasing safety uptime and productivity through automation technologies that are now available through the solutions that we provide.
As well as on a defensive posture trying to position their own enterprises against the risks of a second wave of pandemic or the need for social distancing.
We're well situated to grow along with that trend to more automation in place clearly customers want to make sure that they are limiting risks as well as improving productivity and we think that those solutions continue to expand in importance as customers deploy their capital.
That coupled with re shoring with.
Growth in terms of order fulfillment requirements. So I think I think we're we're going to see a trend that will help us further as we advance and clearly those are higher value solutions for our customers.
Thanks for taking my questions.
Thanks, Chris.
And our next question is from John <unk> with CGS Securities. Please proceed with your question.
Hi, Good morning, gentlemen, thanks for taking my questions on a nice quarter.
I just wanted a little bit more clarity on the recovery commentary you've made it a year out from here.
You did $215 million ish in revenue both Q3, and Q4 2019 is that the bogey that we're looking at and maybe to follow up on that what kind of EBITDA margins do you expect that that level given all the continuous improvements in cost and efficiency in all of that in the past to yourself.
Yeah, I mean, I think that when we talk about our level of orders that is kind of a normal run rate. We think in the order of maybe $200 million to $210 million.
Is the way that we think about a normal run rate for the business.
And we are anticipating based on our own internal forecast as well as the economic recoveries that are being forecasted that we would be at that rate as we head into the same quarter next year.
So obviously, there's some forecasting going on there, but that's what we're anticipating at this stage and clearly with the work that we've been doing with the business to make the company stronger to address our SG&A costs as well as to continue to continue to improve our cost of goods sold position, we anticipate that we would have.
EBITDA margins that would be improved from the rates that we were experiencing when we were.
Last that those run rates, Greg is there anything that you'd want to add to that yeah. Thanks. So just to level set everyone on the call. So we were about 15, 7% adjusted EBITDA margin.
In fiscal 'twenty I would expect that we're at least.
150 basis points north of that with all of the improvements that we've made so clearly progressing towards the 19% EBITDA margin, but.
Certainly.
This upcoming fiscal year is still going to be a year of recovery for us.
Got it that's really great color. Thank you and then just one more thing I heard you mentioned.
Gross profit bridge, you said that there is some I think there was a headwind associated with the product simplification could you talk about that a little bit. It was it just the ramp up process or is there something that's going on on that how do we should think about.
No it wasn't with product line simplification with the consolidation.
So the consolidation of the factory in Ohio.
Certainly had some challenges.
Is trying to do that in the midst of a pandemic.
So that's really what I was referring to.
Got it so is it a little bit over costs are a little behind schedule, maybe a little both just trying to figure out what that was.
Yes, I would say.
With some of the challenges we've had not only.
You know I would say.
Implicit the Columbus, Mckinnon, but certainly with the supply chain for the.
Some of the components and the product that was transferred over we've had challenges we incurred.
Expediting fees to get product components into our facility.
That is that took over the bulk of the the product line that got moved.
Got it understood. Thank you.
Thanks, John.
And our next question is from Walter Liptak with Seaport Global. Please proceed with your question.
Alright, Thanks, good morning, everybody.
Good morning Walt.
Wanted to do a couple of follow ups. One on the last question that you talked about with the $200 million to $210 million of orders.
And I just want to make sure I understand this.
You're.
You're thinking that when you get back to that level of orders. The operating you should get about 150 basis points of margin is that right.
Yes, yes, probably you know somewhere between 100 150.
Okay.
And then you guys were doing 80, 20, so I would imagine that on top of that there's going to be some benefits from 80 20 or is that leverage and.
And 80 20 projects.
Yes, that's already included.
It's really everything we've done to date.
Gotten us to where we've gotten two plus what we have planned going forward.
Okay, Okay and last quarter.
Through that recovery periods, so just up through the point at which we get to those run rates again, and so that's the point, but those then.
Years that follow.
There is additional opportunity.
Right you guys talked about doing product line simplification Pls and.
In the future I Wonder have you have you started on that and is that in some of in that 100 150 basis points of margin.
Yes, our progress through to that point is included in that number and then there is work that continues beyond that.
And that's why I think we've talked about this in the past so product line simplification was really the one.
Tool in our 80 20 that we think has a lot of room yet to advance.
Columbus Mckinnon is a relatively complex company, we have a lot of different skews and we think that there will be a big advantage to simplify our product line in our portfolio, but that one will take time, but we utilize the strategy deployment process as well and that is one of the top two items.
That we're pushing this over the next year to 18 months.
Okay got it.
Okay. Thank you for that and then I wanted to ask you about the.
The incoming order rates.
Okay.
I think you said that the daily order rates were up to catch that reached 15% no otherwise 15 days day, eight 5% versus Q.
Personally sit and wishful thinking.
No okay.
The first 15 business days of January.
8%.
Days Kevin.
Yeah.
Okay.
Is that because of project work.
Beginning to come through do you think or is it are you seeing it in the channel as well.
Actually split.
Probably about $55 45 in terms of run rate versus projects so projects represent portion.
And in the quarterly run rate is a portion in actually.
I was looking at the wrong number here apologies.
About 13% project, driven and about 4%.
<unk> driven the one was pretty hidden there so I was.
I was I was quoting a wrong number was four 4% quarterly run rate and 13% project, averaging the eight and a half.
Okay. Okay.
We're still on the project work as is.
As significant I Wonder if you have if you took all those different things.
All of those different projects that you're working on and clean energy and EPS and defense in LNG and things.
What size of an opportunity is that.
Yes, I mean, it's something that obviously there are big drivers around the demand there and and things are moving.
Way that is.
That isn't increasing our activities and so our typical rail or transit project is theres a shift to more public transportation driven by electric vehicles or hydrogen powered vehicles is on the order of 1 million to $3 million, let's say in terms of range and those are for roof working.
Platforms for high speed train maintenance or bus station maintenance work and then as we think about orders that might be more in line with.
The typical.
Sure.
Automotive vehicle related activities, we're seeing orders that are in the $1 million on a half year range on a year to date basis. So I think there is there is an acceleration of that but it's not it's not enormous if you will.
Okay. Okay. Okay. Good quarter guys. Thank you. Thank you thanks Paul.
And again as a reminder, if you have on your questions. You May press star one to enter the queue. Our next question is from Christopher Keller with Luna sales. Please proceed with your question.
Good morning, Thanks for taking my question regarding your future M&A.
Decisions do you have any debt leverage ratio policy that you would be seeing.
King to abide by.
We download on outlet, Greg Greg takes it on one.
Sure so.
Maybe the best thing is to look at kind of history and when we.
Bob stall.
Temporarily we flexed, our our leverage ratio up to was about three seven times leverage, but we had a pretty clear line of sight on being able to delever quickly, which we clearly did on a very short period of time, where most people would say we're under levered today.
Our overall target in general has to be about two times Levered, we would flex up if need be.
Maybe do a stall sort of a level, but clearly with the understanding that we have the ability and would be able to very quickly delever.
Okay, great. Thanks, and then.
Last question as well.
Regarding your sustainability initiatives. Thank you very much for.
Proactively addressing that on your slide deck.
Was wondering if you could give us some sense of what you think the material risk factors are for the environmental social and governance pillars or your general sustainability risk factors nothing detailed I know I recognize youre going to come out with something on that later.
Just trying to understand what you think the kind of the key key risks are and how you can go about addressing that thank you.
Sure Thanks, Chris as we focus on.
Sustainability and our overall approach there we've been really working to drive opportunities that are both quick hit opportunities and then more longer term.
Strategic opportunities that were addressing and we've brought on on board a full time resources help us to organize around that and we've got a tremendous amount of enterprise engagement around our approach we've been able to get some information out about the company and about our policies and about our approach that I think have helped.
US to drive some improvements in.
Our assessments as it relates to the social.
And governance scores associated with ESG and as you look at our environmental scores that we haven't seen as much of a progression there in terms of the outside agencies assessments and ratings, but we have been very focused on driving improvements in those areas and I think have a pretty good story to tell it's just a matter of tally.
And so we're working to make sure that we have that material available we've established.
Our baseline measurements and targets for improvement and we're driving a lot of work around site green team initiatives that drive improvements across the overall.
The overall organization and so I feel like we're making great progress I would say that's our our most material area of opportunity and overall I think we're in a pretty good position, it's more a matter of getting the information communicated and being in a position to leverage the momentum that we've built up in the <unk>.
<unk>, we have across the whole enterprise to drive.
Drive those improvements.
Okay. Thanks, very much that's all from me.
Eric.
Thank you.
And we have reached the end of the question and answer session and I'll now turn the call over to David Wilson for closing remarks.
Great. Thank you <unk> and thank you everyone for joining us today.
Our agile management team and the tools of CMV asks are driving solid operating results in a difficult environment, we're realizing sequential growth generating cash and delivering better than we have historically in downturns.
The improving landscape is encouraging and importantly, we are making the pivot to growth with the evolution of our strategy to blueprint for growth to point out.
We're looking forward to talking with you soon about our progress stay well and have a great day.
Thank you very much.
This.
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Okay.