Q1 2022 Columbus McKinnon Corp Earnings Call
[music].
Good day and welcome to the Columbus Mckinnon Corporation first quarter fiscal year 2020.
Natural results conference call all participants will be in listen only mode share do you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero. After today's presentation there'll be an opportunity to ask questions basket questioning and my press Star then 1 on your Touchtone phone withdraw your question. Please.
Press Star then 2 please note this event is being recorded and.
And I like to turn the conference over to Deborah Pawlowski Investor Relations for Columbus Mckinnon. Please go ahead.
Thanks, Carrie and good morning, everyone.
And we appreciate your time today, and your interest and Columbus Mckinnon Joe.
Joining me are David Wilson, our president and CEO and.
And lastly, our Chief Financial Officer, you should have a copy of the first quarter fiscal 2020, 2 and financial results, which we released this morning before the market. If not you can access the beliefs and close the slides that will accompany our conversation today and our website Columbus Mckinnon Dot com.
After our formal.
Presentation, we will be opening the line for Q&A, we kindly ask that you ask only 1 question with a follow up question and please get back in queue to allow for continuous flow and adequate time.
If you'll turn to slide 2 in the deck I will first review the Safe Harbor statement, you should be aware of and May make some forward looking statements during the formal discussions as well as during.
For the Q&A session. These statements apply to future events and are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors and provided in earnings release as well as with other documents filed with Securities and Exchange Commission.
These documents can be found on our website.
<unk> for SEC Gov during.
During today's call. We will also discuss and 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 reconciliations of non-GAAP.
Comparable GAAP measures and the tables that accompany today's release and slides for your information.
So if that if you will turn to slide 3 alternatives and things to begin David.
Thanks, Deb and Hello, everyone. We have a lot of good things to discuss today, we started fiscal 2022 on and exciting note with the closing of.
Dorner, the largest acquisition and the company's history.
Our blueprint for growth 2 point out strategy is clearly defined our path forward and the Columbus Mckinnon business system for <unk> as we referred to it is driving our execution we.
We delivered 24% organic growth and the quarter with record adjusted gross.
Margin and we ended the quarter with record backlog as all of our markets are demonstrating strong demand.
We acquired Doner on April 7 and its performance and the quarter exceeded our expectations due under adds precision conveying systems, expanding our intelligent motion solutions for material handling.
Additionally, it serves markets with secular trends that are demonstrating strength, such as e-commerce food processing and life Sciences.
We had sales of about $213 million and the quarter, including $34 million from dorner.
Lifting revenue, which represents our organic or legacy.
And this was $179 million and we are trending toward our pre pandemic quarterly sales levels of around $200 million to $210 million. We are optimistic about current trends customer demand and our market position.
And demand came from all markets, but was especially encouraging and the heavy industrial.
<unk> offshore oil and gas production E Commerce and entertainment markets.
We believe that we are gaining ground as these markets recover with our recently launched products, including our integrated Crane kits utility lever hoist Aqua guard and edge roller technology conveyors as well as the expansion.
Spansion of our Compass CPU tool.
And I should note that our sales performance and the quarter would've been approximately $5 million to $10 million better had it not been for challenges within the supply chain and labor shortages, it's been a constant battle to match available components, such as motors and electrical components with production.
Duction schedules to produce complete orders and service our ongoing demand.
This has required us to juggle resources balanced loads and manage our production lines with a high degree of agility for.
Fortunately, we're making progress with our recruiting efforts and we are systematically building select inventory and committed supplier capacity.
<unk> to buffer further impacts and the supply chain.
Despite these challenges our first quarter margins improved nicely.
Joiners accretive margin profile elevated gross margins by 80 basis points to a record adjusted gross margin of 36.
And 3%.
Adjusted operating.
And was 11, 1%.
A full point higher than the trailing fourth quarter and adjusted EBITDA margin expanded 210 basis points to 16% compared with the fourth quarter.
We have many initiatives underway to drive or to point out strategy and deliver outsized growth to ensure.
Sure that we execute successfully we are enhancing <unk> MBS, establishing enterprise wide standards and discipline for processes accountability and scalability.
Turning to slide 4.
I'm pleased to report that we published our inaugural corporate social responsibility report in June this.
Mark extensive enterprise initiatives and prioritize the material factors that we're most relevant to both our business and our stakeholders. We organized a report and compliance with <unk> core standards and align our priorities with the relevant UN sustainable development goals.
We have established metrics around several.
And several key factors, such as employee health and safety and training.
Training and leadership development and elite diversity and inclusion.
We have also identified environmental sustainability targets around energy consumption and emissions and waste reduction.
We've established green teams at each global operation.
Operations and are encouraged with the level of engagement within the organization. These initiatives and metrics are integrated into our business at every level.
You can see our priorities by category on this slide and I Hope you take the time to review our report, which can be found on the homepage of our website.
Turning.
To slide 5.
We announced earlier this week the launch of and Tele connect mobile plus which further advances our intel's product offerings with even greater intelligence and information management for our customers and.
And tele connect mobile plus provides and intelligence solution that targets the secular drivers of automation.
Amortization and the Internet of things.
A direct secured Wi Fi connection between your mobile device and our products provides access to the tracking and data feature sets and enable informed decision, making regarding production processes and maintenance requirements.
This offering will increase our direct to end user access.
<unk> improved.
<unk> improved the customer experience and drive pull through equipment and aftermarket revenue for Columbus Mckinnon.
The capabilities of our intelligent products for lifting also apply to convey and we are sharing our technology talents and skills across the organization to identify further opportunities to.
Create compelling offerings for our customers.
Looking more broadly new products introduced by Columbus Mckinnon within the last 3 years or our and -3 revenue for the quarter grew 19% year over year.
With that I'll hand, it over to Greg.
Thank you David and good morning, everyone.
On slide 6 net sales and the first quarter were $213.5 million up 53, 5% from a year ago, which was the quarter most heavily impacted by the pandemic.
This sales level was near the midpoint of our guidance for first quarter revenue of approximately $212 million to $217 million.
While we continue to.
And improve sequentially like many other industrial companies, we experienced supply chain delays, which impacted revenue levels and the quarter.
This was also the first quarter that the <unk> acquisition is included in our results and.
As David mentioned dorner exceeded our expectations delivering over $34 million of revenue and a truncated.
<unk> quarter, given that we closed the acquisition on April 7th.
Looking at our sales bridge sales volume was up $31 million or 22, 5%. We also realized positive pricing as we saw year over year pricing improved by 1.4%.
Foreign currency remains a tailwind and increased sales.
See the 5% or $6.9 million.
Let me provide a little color on sales by region for.
For the first quarter, we saw sales volume increase and the U S by nearly 28%.
We realized 90 basis points of pricing.
As a reminder, we have not yet benefited from the second price increase that we announced.
The last week of June as many of our shipments and the quarter were sitting in backlog at the start of the quarter.
Outside of the U S sales volume was up approximately 16% and pricing was up 2% by.
By region sales volume was up 51% and Canada up 39% and Latin America.
And up 12% and EMEA and up 7% and APAC.
We are monitoring and inflationary pressures globally and have announced additional price increases and the U S and Canada effective in August and.
In addition, we are looking at additional surcharges in Europe later in the quarter.
On slide 7 we.
We saw our gross margin improved sequentially to 34, 7%, which compares with 34, 4% and the fiscal fourth quarter, we achieved.
Our record adjusted gross margin of 36, 3% this quarter, we incurred $3 million of inventory step up expense.
And 500000 of acquisition deal and integration costs that hit cost of sales.
As part of purchase accounting, we value dorner assets and liabilities at fair market value the $3 million of inventory step up expense represents the difference between the fair market value of <unk> inventory and the actual inventory.
<unk> cost.
This amount is then expenses based on inventory turns which was all recognized and our first quarter and wont impact future quarters.
Overall, dorner was 80 basis points accretive to adjusted gross margin. This quarter and addition to dorner adjusted gross margins reflected the op.
Operating leverage from higher sales volumes, which led to favorable year over year productivity and our factories.
This was partially offset by the negative impact of supply chain challenges.
We are still benefiting from our 80.20 process, which contributed approximately $1.3 million incremental year over year gross profit.
Profit expansion and the quarter largely from factory closure savings.
We are focused on product line simplification this year and are making good progress with SKU and component reductions.
Unfortunately, this part of the 80.20 process takes longer to realize benefits, but will pay dividends over a longer horizon.
Let's now review the quarter's gross profit bridge first quarter gross profit of $74.1 million was up $29.3 million compared with the prior year.
This was driven by several factors for.
First dorner contributed $14 million of gross profit.
Sales volume added $11.6 million and gross profit compared to a year.
We also saw positive productivity net of other cost changes of $2.9 million. Despite some supply chain challenges that I referenced.
Foreign currency translation added $2.4 million and gross profit.
Pricing net of raw material inflation was positive 700000, which was offset by higher tariffs on.
Year ago, coming from China of $1 million and the prior year quarter, we had factory closure and business realignment costs, which did not repeat.
This quarter, we incurred 500000 of acquisition integration costs.
And inventory step up expense of $3 million.
And as I previously mentioned inventory step up.
Products since we will not reoccur in the future.
As shown on slide 8 our SG&A costs were $57.2 million and the quarter or 26, 8% of sales.
Included in this total were $8.7 million of Dorner acquisition related costs, and 600000 of business realignment costs, which we have included.
<unk> pro forma items and our adjusted operating income adjusted EBITDA and adjusted EPS calculations.
Excluding these 1 time costs, our SG&A costs would have been $47.9 million or 22.4 percentage of sales.
I would point out that this number also has an incremental $5.9 million.
And of our SG&A costs from the Dorner acquisition.
This means that legacy Columbus, Mckinnon incurred $42 million of our SG&A costs, which was comparable to $42.3 million recorded in Q4.
Excluding acquisition deal costs and business realignment costs incurred for.
For the fiscal second quarter, we are increasing our Q2 estimate for our SG&A to $52 million, which includes the full impact of the donor acquisition.
This includes additional investments and strategic growth initiatives as well as higher variable selling costs, which reflect a higher level of sales in Q.
Compared to Q1.
Turning to slide 9 adjusted operating income was $23.6 million.
Adjusted operating margin was 11, 1% of sales up 750 basis points from the prior year.
This margin expansion is driven by the operating leverage and the business incremental <unk>.
Pricing and the Dorner acquisition and.
And at current FX rates, we expect total amortization expense of $6.3 million per quarter with dorner.
As you can see on slide 10, we recorded a GAAP loss per diluted share for the quarter of 2007.
Adjusted earnings per diluted share were <unk> 69.
Q2s, which were up substantially from <unk> 17 per share and the prior year and up <unk> <unk> per share sequentially.
I want to highlight that for this quarter and going forward, we are adding back amortization expense from the income statement on a tax effected basis to our adjusted earnings per diluted share calculation.
And Q1.
This added 18 to adjusted earnings per diluted share.
All periods on this chart have been restated for this and we feel that this is a better indicator of the true cash earnings performance of the company as we intend to be programmatic with our M&A strategy.
On a GAAP basis, we recorded the cost of debt refinancing.
<unk> order of $14.8 million and acquisition deal and integration cost of $9.2 million.
We also had the inventory step up expense that I previously discussed with the new financing that we completed in May we expect interest expense of approximately $4.7 million and our second quarter and our diluted shares outstanding.
Outstanding and our anticipated average 29 million shares and the second quarter as well.
Our tax rate on a GAAP basis is expected to be and a range of 21% to 23% and we will continue to use 22% is our tax rate for our non-GAAP adjusted earnings per share.
Okay.
On slide 11.
Our adjusted EBITDA margin continues to increase and was 13, 7% on a trailing 12 month basis.
And the first quarter with Dorner adjusted EBITDA margin was 16%.
The order was accretive to our adjusted EBITDA margin by 190 basis points.
Our return on invested capital.
And also continues to improve and was 7.8% and Q1, which slightly exceeded our current WAC.
We continue to target a 19% EBITDA margin and expect our ROIC to be double digits and fiscal year 'twenty 3 excluding the impact of future acquisitions.
We remain highly comps.
And yet that our strategy will enable us to drive profitable growth and achieve these objectives.
Moving to slide 12, we used $11 million of free cash flow this quarter, which included a cash outflow of $10.9 million related to acquisition deal costs, which were paid and the quarter and.
Sales.
And have increased we have also increased our working capital investment by approximately $26 million.
Which included additional investments and inventory to meet rising demand.
Our working capital as a percentage of sales was 12, 5% of sales, which was in line with what we were expecting.
Capex was $3.6 million.
And in the quarter.
We expect capex of $20 million to $25 million for the full year.
Turning to slide 13, as we discussed and May we refinance the capital structure post store and our acquisition, which included a bridge loan and equity offering and a new term loan b, the new 450 million.
Term loan B carries an interest rate of LIBOR, plus 275 basis points with a 50 basis point LIBOR floor.
And this gives us a low cost flexible capital structure that will serve us well for the coming years.
As of June 30 on a pro forma basis, which includes dorner and June LTE.
<unk> adjusted EBITDA, but excludes expected cost synergies our net leverage ratio was approximately 3 point all times.
We expect to hit our target leverage ratio of 2 times within 2 years, excluding any additional acquisitions and.
Finally, our liquidity, which includes our cash on hand and <unk>.
<unk> ability remained strong and was approximately $170 million at the end of June.
Please advance to slide 14, and I will turn it back over to David terrific. Thanks, Greg as.
As we mentioned we've had strong demand across all of our markets and Columbus Mckinnon is book to Bill ratio was a solid.
<unk> 107 in the quarter Duaner contributed $36 million and orders and had backlog of $40.5 million at the end of the quarter.
Lifting solutions had 2.4% sequential growth and the quarter, driven by 5% growth and our short cycle business, while the project business, which tends to be lumpy was flat.
<unk> flat compared with the trailing fourth quarter.
This sequential organic growth is our first quarter and our first quarter is noteworthy given the typical seasonality of our business our fiscal fourth quarter tends to be boosted by the combination of orders being placed ahead of price increases promotional sales and the availability of new.
Customer budgets this quarter's increase box this historical trend and demonstrates the momentum of the economic recovery.
We achieved record backlog of $247 million at the end of the quarter, including Dorner, excluding the acquisition, we had a record organic backlog of 207 million.
We're pleased with this progress and the foundation and this provides as we advance through fiscal 2022.
Approximately $140 million of our backlog is available to ship and the second fiscal quarter.
Turning to slide 15, we are expecting sales to range between 225.
$5 and $230 million for the second quarter.
At the midpoint of this range. This is about a 7% sequential increase over the first quarter.
Demand across all markets as I noted earlier is strong.
And heavy processing applications, such as steel production demand for retrofit Mark.
Patient and new capacity projects is strong and quote activity is gaining momentum and.
And the pulp and paper market, where equipment capacity has been heavily utilized we're now seeing requests for upgrades and repair parts.
Offshore oil and gas projects are also coming back to life.
Our explosion protected stalled.
<unk> products are particularly well suited for these applications, we provide unique solutions that address special lifting requirements and helped to solve challenging engineering problems. We also provide industrial products for drilling platforms and have seen a nice improvement in demand there.
We saw resurgence and the entertainment.
And as many COVID-19 restrictions have been lifted opening up traveling concerts sporting events and festivals this market, which was coming off of a dead standstill had the biggest resurgence for us.
Conveying solutions had some notable Q1 wins and e-commerce food processing and life Sciences.
Mark and and for our unique conveying solution for autonomous mobile robots has grown and we see even further potential in the E Commerce space.
We also had strong demand and food services and life Sciences, we won a large order from a frozen food company to provide a specialty conveying solution that automates.
<unk> processes increases uptime and improves product flow.
We're also awarded a large life science project, where our precision convey and conveyors are embedded into equipment that is used for blood analysis.
In fact, all of <unk> markets are demonstrating strength.
Automates as I mentioned, while demand has been strong we continue to carefully navigate the challenges associated with the global supply chain and use staffing shortages. This is requiring a great deal of agility on everyone's part as we respond with as much flexibility as possible to meet increasing demand.
I'm proud of how our team is rising to this.
Set of challenges.
We remain highly focused on Columbus, Mckinnon is organic growth and acquisitive development and are advancing several projects aligned with our core growth framework and acquisition pipeline.
With that Kerry we can open up the line for questions.
Thank you we will now begin the question and answers.
Sure.
To ask a question you May Press Star then 1 on your Touchtone phone.
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First question will be from Matt Summerville with D. A Davidson. Please go ahead.
Hi, there this is will jealous and on for Matt Summerville. This morning.
Hey, good morning.
Morning.
First question is just a quick follow up on the supply chain you already spoke about could you provide.
And with more color about.
The way freight played into the constraints and what potentially you could do to come.
Counter those.
Yes sure so.
We've seen significant cost increases associated with freight charges.
And we have been navigating that.
Thanks relatively successfully.
And then securing containers.
I guess and a more normal fashion over the last couple of months is that the container position around the world has seemed to have stabilized and so thats been helpful. We're also making sure that we're routing containers through the rate courts to make sure that.
A little bit and congestion, we're avoiding that congestion.
But with.
With the freight price or cost increases as well as material cost inflation increases and this inflationary environment, we've been working hard to make sure as we as we have historically to offset those costs with appropriate price increases.
And we feel like we've been effective and positioning ourselves to ensure that as we go throughout the year, we were able to offset the costs that we've seen.
Okay.
Alright, Great and then quick.
Quick follow up to that sticking on supply chain constraints with your with your recruiting.
Efforts.
And for new talent and do you expect that your labor costs could be any meaningfully higher.
And things like higher wages or benefits that that new labour pull might might demand mhm, yes.
Yes, I mean, obviously the labor markets have been pretty tight and we've been working to attract and retain the best talent and we feel.
And a great team and we're attracting and developing great new talent within the organization to do that we've made sure that our market. Our pay is market competitive we did have and annual merit increase that we implemented this year that was part of our budget planning process and part of what's factored into the way that we've.
Like we've been managing and communicating about the business.
The.
The current environment is 1 that's challenging and we've had to provide appropriate incentives for people to join but nothing that materially affects the compensation or labor costs within our business.
Yes.
That's great. Thank you I'll get back in queue.
Great. Thanks, Paul.
The next question is from Chris Howe.
Arrington research.
Hey, Chris Good morning morning, Hey, Good morning, David Good morning, Greg.
Another question on that supply chain.
You mentioned and the $5 million to $10 million.
And better.
And if we exclude some of the constraints that you experienced.
This quarter if.
If we think about that in the context of some of the continuing challenges in this market I would assume that that $5 million to $10 million.
And still sits as potential.
Revenue further down the line.
And as this environment starts to loosen so perhaps this could lead to.
Top line potential if we look a little bit further down the road.
Past this.
Pressures and funding.
Yes, yes for sure I mean, as you saw with our record backlog we've.
It could have a substantial position and our backlog a nice position and short term as well as long term as we've communicated the split.
And the 5 to 10 that could have been better certainly we were gunning to do better than what we wanted to exceed that top line position, we're pleased with where we ended up and.
Got out that Youre right, we've got that 5 to 10 still and the backlog ready to go and it it will go.
As we manage through material availability and the constraints that are out there.
We do have a number of actions that are underway and our supply chain and with our vendors to make sure that we secure capacity.
The city.
And for materials, whether it's in actual parts or.
Blanket order secured capacity over a period of time and.
And we are increasing inventory and select areas to make sure that for more standard products less specific engineered to order products we have.
And we think of our materials to meet the rising demand but.
We're encouraged with the progress that we're making although challenged like most are in this environment to make sure that we're getting materials in.
And that we need specific for the demand that's coming in and as I indicated in my prepared remarks, it's been a constant.
The allowance to remain agile and shift resources.
And and keep up with what has been very encouraging rising demand and.
And Greg I don't know, if there's anything else you'd add to that.
Chris the $5 million to $10 million is going to ship this quarter and as we've added inventory to the system we've added.
And our cash basis $11 million more inventory that will start to alleviate some of the supply chain challenges, we've had and as we've locked up additional capacity.
But having said that I think it's going to be another quarter. So while this plays itself out.
Okay great.
And I have many.
And but we will stick with 1.
I think that points to the long term sustainability and the growth that you see and the underlying business.
David mentioned and some of the prepared remarks about that 19% target.
And the gross margin potential that you see and the business so and thinking.
And he fell in line with this target that points to the potential perhaps to go beyond this target as we look at the company more on a run rate basis.
And there seems to be good margin potential there, especially when considering.
The other initiatives that you have such as product line simplification.
And that will flow through later down the line.
Yes.
Exactly Chris I I understand completely and.
We have and 19% target that had been previously communicated we're obviously very focused on making sure that we achieve that and we've.
Cash and then to get there and we're communicating and level of confidence around our ability to get there.
We believe that the earnings potential of the business goes beyond that and we're certainly focused on taking it to that next level. There are a number of opportunities within the business as it relates to continued growth opportunity as well as.
Committed leverage on that growth.
We remain encouraged and positive about where that endpoint is.
Or that.
That next level as I should say and.
I think youre thinking about the business the right way, Greg what would you add yes, so Chris if you recall the 19% EBITDA margin target was based on.
And the legacy Columbus Mckinnon, and this quarter was 190 basis points accretive so as we continue to recover from Covid.
Environment, there is that potential and so the 19% with dorner is actually going to accelerate a year from what we had previously.
<unk> thought with the downturn with Covid this year being a recovery year next year being kind of back to pre COVID-19 levels. So absolutely there is upside potential for the 19%.
That's great.
Hop back in the queue. Thanks for taking my questions great. Thank you Chris.
Next question is from John <unk>.
J S Securities.
Okay.
Hi, Good morning, Lucas for John.
You guys answered most of my specific questions very detailed presentation and I appreciate that and thank you and congrats on a quarter.
And I guess, just 1 big picture question for me in.
In terms of from a strategic standpoint are you looking at more M&A or is debt pay down the immediate priority kind of how are you thinking about that and the balance sheet at the moment right. So we are remaining actively attentive to what's happening and the markets, making sure that we're keeping our ear to the ground and staying engaged.
Around attractive opportunities for Columbus Mckinnon to continue to grow through acquisition, but we're also very acutely focused on ensuring that we delever and we have.
Expectations, and we'll be able to do that rapidly and so knowing that deals take a little bit of time to develop we obviously want to make sure that.
<unk> and the mix when the right opportunities present themselves and we're going to be disciplined and thoughtful and strategic about where we invest but we do intend as has been indicated and are our prepared remarks to be programmatic with the work, we do to develop and grow the company.
Yes, it's very helpful.
Yes, Lucas to stay out on so the pro forma net leverage ratio today is 3 times and that includes a full 12 months of door and our results and on our financial Covenant basis, which is what we report to the banks, it's actually going to be below the 3 times.
So there is.
Because I think.
We're an equity offering that we did that basically gives us the ability to get in the back and the market sooner and.
And so.
Good.
And size, obviously matters right from an M&A perspective, so I think we're well positioned today to do bolt ons without any trouble at all right and I would just add 1 quick comment.
Think of the as I mentioned and the Dorner deal is.
Going incredibly well they have a terrific management team they have the opportunity to participate they do participate in great markets and the opportunity to expand their participation in those markets and we're really encouraged by developments and potential there and so we're mindful of making.
Sure, we execute well with what we've done and so I want to be careful to make sure that it's clear we're focused on what's right in front of us and execution, but we're also maintaining our focus on executing the blueprint for growth 2 point on strategy that we've developed which is an ambitious 1.
Perfect. Thanks.
Very much.
Okay, great. Thank you Lucas.
The next question is for Michael Mcginn of Wells Fargo.
Okay.
Hey, good morning, everybody nice quarter and.
Michael Thank you.
So I wanted to switch to the cash flow last quarter, we saw the step up and Capex.
Additionally, dorner and that being a.
Private equity run business, presumably with a nice wishlist of investment items.
Is there any update on the low hanging fruit to improve dorner throughput and maybe how that ties into your overall synergy assumptions.
Yes.
Ex with a capex perspective, I'll take that 1.
And we're anticipating $20 to $25 million for Columbus, Mckinnon, and I think $3 million to $4 million with dorner and that's about it.
Close to their historical level, maybe a little bit higher but in general, it's what I would call and asset light business. There is some.
CNC machining, but it's mostly.
<unk> and we have actually gotten additional space for them because their businesses.
And is growing so rapidly and we're also and the process of adding to a second shift to take advantage of the what's in front of them. So capex.
Capex wise.
I think the $20 million to $25 million is a good number to use going forward and.
And I would say that there isn't really.
A large capital project that they brought forward.
As soon as the ownership changed hands.
Yes, I mean, we've.
We've said, we want to invest and growth right and there are opportunities for us to make select investments targeted investments that are appropriate in terms of size and to continue to.
Invest and scale the business and.
We feel that there are many synergies between the businesses that will enable growth that are outside.
Specific.
And 1 time Capex, let's say investments.
Yes.
Gotcha.
So switching gears here going back to 1 of your end markets, which is food processing, David 1 of your predecessor firms received and outside bid and fluid process.
Losses thing was highlighted as a key growth area.
And I was wondering where Columbus operates bass and within the food space meat, poultry seafood et cetera, and when you see bid like this and the market how does that make you think about your own company's valuation prospects.
Right well, we're thrilled with the markets we've entered with.
With this acquisition, we feel like we're playing and some very attractive and fast growing secular markets, which was an objective of the acquisition and as we pivot Columbus Mckinnon.
And to participate and those more attractive higher growth markets.
And participate in the markets, you just mentioned seafood and poultry.
With the products, we produce bake good bakeries, yeah and.
So.
And we participate in those and others for life Science markets that are very attractive E. Commerce markets that are very attractive and and the general automation space more broadly. So we feel like we're well positioned we feel like there is a lot of value out there for.
3 develop and create for Columbus Mckinnon.
And we're executing on that strategy I mentioned and feel like the runway is pretty long for us.
Great I appreciate the time.
You bet. Thank you.
The next question comes from Greg Palm of Craig Hallum Capital Group.
For us to please go ahead.
Yeah, Thanks and.
Good morning to everybody. So just following up on the I guess the <unk>.
Revenue constraints in the quarter was that specific to the court Columbus business or was dorner included and that as well as some level of constraints.
Great.
And I would say, it's a bit of a mix.
Obviously, we have a larger business within Columbus, Mckinnon, and so on a ratio basis more of that would be skewed towards the Columbus, Mckinnon and portfolio, but it's a mix and.
And we are working collaboratively on all fronts to make sure that we're moving.
Yeah strength that exist and the current supply chain challenge.
Okay, and you mentioned that garner did exceed your expectations. I mean is there are a certain and market or application that you think is driving the outsized growth and it would sort of be curious to get your sense on how autonomous robots.
And that opportunity and sort of progressing.
Yeah for sure so it's a.
You know Theres, a story and kind of within each of those end markets.
And as I said in my prepared remarks, we're particularly encouraged by developments and the.
E Commerce life Sciences, and food processing space, where we received notice.
<unk> and <unk> wins, and those orders and when we talk we're talking.
And to customers and that space. There is a pipeline of very interesting and attractive opportunities that lie ahead, and so as we continue to gain traction and build our reference installed base that obviously grows aftermarket.
Market opportunities as well and it grows the opportunity to.
And to leverage those very strong references to continue to build that part of the business with other customers that compete in those areas. So we're excited.
And we really feel.
Good about developments in those specific.
<unk>.
And that's the I guess and some the.
The areas, where they saw the most opportunity and the quarter.
Okay. Good alright makes sense. Thanks best of luck going forward you bet. Thanks, Greg.
The next question is a follow up from Chris Howe Barrington Research.
Mark I just wanted to sneak 1 in here.
Before the call is up.
I had a question about <unk> some of which was highlighted in your previous comments there.
A question for Greg.
As we think about the outperformance of Jordan and versus your expectations in the quarter.
And as we think about this environment. It seems like the pandemic is having a slightly longer tailed and we expected with the delta variants can.
Can you comment or give context around this environment should we see it.
Continue perhaps some of these secular trends.
And e-commerce.
Is deepening its penetration.
Within this environment or is it rather taking market share in this environment, that's benefiting doner.
Mhm.
Yes, it's an interesting thing to consider I would say that we are.
Yes.
It's like we're continuing to see strong demand and I think that the macro developments and the market associated with the pandemic have had an impact on future impacts future future use of E. Commerce as an example, and I think that we're going to see.
Mega trends that will continue to drive a push in that direction.
That whether whether the tail is longer or is truncated I think those are here to stay and thats going to be positive for this for US. We're also doing a lot of work around our NPD initiatives.
Initiatives and that's both within the core business and within Dorner and we're excited about the progress that we're making relative to the new product launches and the share we're gaining with.
The launches that we've put in place and so we've been focused on innovation and on making sure that we can develop products that will compete effectively.
And we're pleased that as I mentioned in my prepared remarks, where we've grown 19% with our and -3.
Revenue and the first quarter.
Okay.
Yes, which is inclusive of garner, yes, so I guess another way to think about it too.
Chris is that the door.
And markets are growing 6% to 8%.
And garner as well outpacing and and if we go back to a year ago on a even though we didn't own them on a year over year basis their sales are up 50%.
Granted there was they had a bit of a <unk>.
Impact due to COVID-19, but that's very very strong growth.
50% growth year over year right.
That's great. Thank you for the color.
You bet Thanks, Chris.
The next question is a follow up for Michael Mcginn of Wells Fargo.
Alright, Thanks, Mark Thanks for Sneaking me, Hey, Thanks for sneaking me and again.
So I want to just add some numbers and a finer points of the gross margin conversation and the price cost. So if I'm looking at the deck.
Pricing net of material cost inflation was a 700 K benefit versus the total pricing on the top line was $2 million, so the rate and the flow through.
35%, which is.
A touch below your blended gross margin.
And this number is that number.
And realizing that the price increases happened later in the quarter and you haven't seen the full benefit is that is that conversion rate going to ramp.
For status.
It was 3 aim or decline as some costs and labor constraints begin to creep into the business.
It's absolutely going to ramp so so the $2 million of price and the price net of inflation and a 700000 implies $1.3 million of raw material inflation and.
And as you know, we typically raise prices.
And the U S and the core business in the March timeframe.
So we take a lot of orders pre price increase now we did have some stocking orders, we talked about and the last call and the neighborhood of just under $10 million and the U S and so we had backlog in the quarter.
<unk> at old prices, and then on top of it as I talked about and my prepared remarks, we had another price increase that was implemented at the end of June and none of that is reflected and the sales and the quarter to any extent.
And now we've got another price increase that's effective in August.
So absolutely price increases are going to ramp going forward and the amount of price that we see.
But I would say, it's going to be just given this last price increase thats really going to be for December quarter, where we see the full impact because we don't.
For newer backlog, we don't re.
Yes October to December quarter right.
And.
Got it understood I appreciate the time.
Thanks, Michael.
And this concludes our question and answer session I would now like to turn the conference back over to Mr. Wilson for any closing remarks.
Great. Thank you very much I appreciate it Terry.
Thank you for your time today to everyone. We're pleased with our start to fiscal 2020, 2 and we're seeing strong demand across all of our markets backlogs at record levels and we are decisively navigating the challenges associated with supply chain constraints and labor shortages.
<unk> margins are expanding with improving volume. The addition of dorner and as we focus on achieving operational excellence through <unk> MBS.
Finally, the donor acquisition is exceeding expectations and we are pursuing opportunities to expand this platform further.
I hope you're as excited as volume about Columbus, Mckinnon has positive momentum and the long.
Long term value creation potential that we have and I hope you all have a terrific day. Thank you.
Thank you for the conference is now concluded. Thank you all for attending today's presentation. You may now disconnect your lines have a great day.
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