Q1 2023 Columbus McKinnon Corp Earnings Call
[music].
Greetings and welcome to Columbus, Mckinnon Corp, first quarter fiscal year, 'twenty 'twenty three financial results conference call.
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A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
I'd now like to turn the conference over to your host Deborah Pawlowski. Please proceed.
Thank you Claudia and good morning, everyone. We certainly appreciate your time today and your interest in Columbus Mckinnon. Joining me here are David Wilson, our president and CEO and Greg rest of what's our Chief Financial Officer.
Should have a copy of the first quarter of fiscal 'twenty three financial results, which we released this morning, and if not you can access the release as well as the slides that will accompany our conversation today on our website at Columbus Mckinnon Dot com.
After our formal presentation, we will open the line for Q&A, if you'll turn to slide two in the deck I'll 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 result.
To differ materially from what is stated here today. These.
These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed with Securities and Exchange Commission. So you can find those documents 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. However, you should not consider the presentation of this 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 in the tables.
Accompany today's release and slides.
So with that please advance to slide three and I'll turn the call over to David to begin David. Thank you Deb and good morning, everyone. We continue to execute our strategy to drive growth and stronger earnings power and have started fiscal 'twenty three delivering on each of these objectives.
The team is executing well and driving improvements in the business. Despite the challenges presented in this hyper inflationary environment that also continues to be plagued by ongoing supply chain constraints.
Sales grew six 5% to $220 million on a constant currency basis, and we achieved record gross margin in the quarter 37, 5% both on a GAAP and a non-GAAP basis.
At our Investor Day in June we discussed that we recently realigned our business under two leaders that have geographic oversight.
Terry Shatter bird now leads the Americas and Appall Chin to poly now leads our EMEA and APAC.
This realignment has created go to market and cost synergies for C. M. C O and is strengthening collaboration within our businesses.
And with our customers.
While delivering productivity benefits. This approach while only launched in May contributed to this quarter's adjusted EBITDA of 15, 9%.
Demand remains strong in the Americas and across EMEA, driving orders to $267 million in the quarter.
Notably this was an increase over Q4s record level on a constant currency basis, and as orders running at over $1 billion annualized rate.
This is another indication of the early successes that are resulting from our business realignment.
Strong demand and continued vendor capacity constraints led to a book to bill ratio of greater than one point too in the quarter and we ended Q1 with a very robust $352 million in backlog another record.
We continue to control what we can control and are making good progress with our transformation.
At this stage, we are delivering results that are in line with the trajectory, we would expect to be on given the broader macro environment.
Our confidence in our strategy and ability to achieve our long term financial targets.
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Please turn to slide four.
I want to remind you that we are executing our strategic plan that unlocks C. M C O as potential through a structured disciplined business system and our core growth framework that drives market leadership.
We expect this combination to produce a transformed enterprise that delivers growth with top tier financial performance, which we believe will result in outsized shareholder value creation.
Turning to slide five I'll highlight our efforts to bridge to our targeted adjusted gross margin of approximately 40%.
As I pointed out gross margin this quarter reached 37, 5% a new record for Columbus Mckinnon.
And we achieved that while implementing a new ERP system in our largest manufacturing facility. While also continuing to address significant supply chain constraints.
We're executing on plans that will reduce overhead through factories simplification and provide both material and labor productivity enhancements.
These include sizable gains from 80 20 simplification.
Both at the factory footprint and product line levels as well as from value added engineering.
We're also delivering growth for the strategic initiatives, we have defined within our core growth framework.
This growth enables C M C O to scale and better leverage fixed factory costs.
In addition, we're increasing our competency within our pricing disciplines.
And our pricing for the value we deliver to customers.
This can be seen in our recent results.
Finally, our acquisition strategy is expected to be accretive to margins.
If you'll please advance to slide five I'll turn the call over to Greg to review, our financial performance in the quarter, Greg. Thank you David Good morning, everyone.
On slide six net sales in the first quarter were $223 million up six 5% from the prior year period on a constant currency basis and within the guidance, we provided last quarter.
As we have discussed for the past year ongoing supply chain challenges continue to impact our ability to meet customer demand.
This challenge resulted in an estimated $25 million of delayed shipments in the first quarter about $10 million higher than we have been experiencing but on a relative basis about the same percentage of total backlog.
The shortages are primarily in drives and controls and motors with drives and controls directly impacted by the chip shortages.
Looking at our sales bridge pricing was a major driver of our growth up $9 6 million or four 5%. The Garvey acquisition added eight and a half million dollars of growth, we did see volumes declined 2% or $4 3 million.
While the demand is there as I noted we are still constrained by material shortages, preventing us from getting more volume out the door.
The decline in volume can also be attributed to the ERP implementation at our largest operation in Germany that we discussed on the last call.
This impacted volume in the quarter about $11 million or five 5% as the team worked through the learning curve of a new ERP system.
The environment is now stable and this should not be a headwind going forward.
Foreign currency was a headwind that reduced sales by 7 million or three 3% of sales.
Let me provide a little color on sales by region for the first quarter. The U S improved pricing by five 1% sales.
Sales volumes were flat for the reasons I noted earlier.
Outside of the U S pricing improved by three 6%.
Sales volume was down approximately 5% as volume decreased approximately 8% in Europe , primarily due to the ERP implementation and 15% in APAC due to the impact that the pandemic is having in that region of the world.
Offsetting these declines were volume increases of 21% in Latin America, and 5% in Canada.
As David stated earlier, our order rates remain robust and annualized to over $1 billion level.
We have record backlog and expect that when supply chain improve we will see even stronger topline growth.
On slide seven we achieved record gross margin of 37, 5%. This was up 280 basis points from the prior year.
On an adjusted basis gross margin was higher by 120 basis points as we benefited from incremental pricing, a favorable mix and favorable onetime inventory adjustments, which more than offset the negative impact on absorption from the ERP system implementation in Germany.
Overall, our precision conveyance businesses were 100 basis points accretive to our adjusted gross margin this quarter.
Let me point out a few highlights in our gross profit bridge.
First quarter gross profit increased $8 5 million compared with the prior year and was driven by several factors.
Garvey acquisition provided $3 1 million of gross profit.
Pricing net of material inflation added $3 1 million of gross profit as we have successfully passed through material inflation increases.
Verbal mixed added 1 million in the prior year quarter. We also had $3 5 million of acquisition inventory step up expense and integration costs associated with the dorner acquisition, which did not repeat foreign.
Foreign currency translation reduced gross profit by two and a half million dollars.
As shown on slide eight our SG&A costs were $53 2 million in the quarter or 24, 1% of sales.
Our SG&A expense included $1 7 million of business realignment costs and were $51 4 million. Excluding these costs. This was lower than the guidance given last quarter, principally due to lower stock compensation expense as equity prices declined throughout the quarter and we adjusted our FY 'twenty one.
L tip grant to its expected performance payout.
Compared with the prior year, our SG&A costs were lower by $4 million.
This was due to $8 7 million of acquisition and deal and integration costs incurred in the prior year related to the dorner acquisition well.
While foreign currency translation lowered our SG&A costs by $1 $6 million.
One point for <unk> 4 million of incremental <unk> G&A costs were incurred related to the Garvey acquisition.
For the fiscal second quarter, we expect our SG&A expense to range between $54 $55 million, which reflects the timing of our July 1st Merit increases offset by measures we are taking to control costs.
Turning to slide nine operating income in the quarter was $22 8 million and adjusted operating income was $24 6 million.
Adjusted operating margin was 11, 1% of sales equivalent to the prior year and down slightly from the trailing quarter as we had less scale for our SG&A costs as a percent of sales due to the lower sequential sales volumes.
As you can see on slide 10, we recorded GAAP earnings per diluted share for the quarter of 29.
Our tax rate on a GAAP basis was 52% in the quarter. This reflects two discreet items that increased the tax rate by 27 points.
The rate was unfavorably impacted 15 points due to a settlement for income tax assessments related to tax periods prior to our acquisition of stall in accordance with the tax indemnification clause of the share purchase agreement, we received full reimbursement from stalls prior owner, which was recorded as a guess.
<unk> and other income during the quarter.
The tax rate was also unfavorably impacted by 12 points due to the recording of a U S state tax valuation allowance for.
For the full year the tax rate is expected to be between 29 and 30% with these discrete items.
Adjusted earnings per diluted share of <unk> 69.
It was equivalent to the prior year period as a reminder, we add back amortization expense on a tax affected basis to our adjusted earnings per diluted share calculation.
With rising interest rates interest expense is expected to increase to $6 8 million in the second quarter weighted average diluted shares outstanding were approximately $29 million and we will continue to use 22% as our pro forma tax rate when calculating non-GAAP adjusted earnings per share.
On slide 11, our adjusted EBITDA margin for the quarter was 15, 9% and our trailing 12 month EBITDA margin was 15, 4%.
The garbage acquisition was accretive to adjusted EBITA margin in the quarter by 20 basis points.
Our trailing 12 month return on invested capital was six 8%.
We are targeting $1 5 billion in revenue with a 21% EBITDA margin is covered at our recent investor day.
We have a detailed plan to achieve these objectives over the next five years.
I've been executing our strategy to drive long term shareholder value.
Moving to slide 12, we had negative free cash flow of approximately $14 million in the first quarter. This includes cash outflows from operating activities of $11 million and capex of $3 million.
The negative free cash flow was anticipated and reflects the timing of our annual bonus payments for fiscal year 'twenty, two as well as incremental investments in inventory to meet future demand and less in supply chain impacts we.
We expect capital expenditures of $25 million to $30 million in fiscal 2023, as we invest in our factories to enable the next leg of our margin expansion initiatives.
Yes.
Turning to slide 13, we have a strong and flexible capital structure comprised of a term loan b, which requires $5 2 million of required payments annually.
And he has an excellent flow sweep depending on total leverage.
We down $10 million of debt in the quarter.
And expect to pay $40 million for the entire fiscal year.
The term loan B are 60% hedged with interest rate swaps that blend to a swap rate of approximately 2.08%.
As of June 30 on a pro forma basis, which includes <unk> LTM adjusted EBITDA, but excludes expected cost synergies. Our net leverage ratio was two nine times, we have a strong history of de levering after acquisitions and plan to prioritize debt repayment as part of our capital.
Allocation, along with bolt on acquisitions at a reasonable price.
Finally, our liquidity, which includes our cash on hand, and revolver availability remained strong and was approximately $168 million at the end of June .
Please advance to slide 14, and I will turn it back over to David.
Thanks, Craig.
As you can see on slide 14, we had another quarter of strong order performance with orders up 11% on a constant currency basis, notably our average daily order rate, which typically declines in the first quarter held steady with the trailing fourth quarter we.
We do believe we benefited from advanced stocking orders ahead of the most recent price increases that we implemented.
This quarter's order growth once again outpaced sales and our backlog grew to a near record a new record level of $352 million.
Long term backlog, which is expected to ship beyond the second quarter was up 20% sequentially to 163 million short term backlog was up 9% sequentially and represents approximately 54% of total backlog.
If you'd please turn to slide 15, you will see that we expect sales in the second quarter to be in the range of $230 million to $240 million.
This range is inclusive of an estimated $12 million year over year FX headwind.
While our backlog and market demand remained robust vendor capacity continues to affect material availability.
Even with these headwinds our sales guidance range reflects a mid single digit year over year organic growth rate at the midpoint.
We continue to see significant demand in all markets and are encouraged by the traction we're gaining with our organic growth initiatives. We're also encouraged by early signs of commercial and operational improvements, resulting from our recently implemented business realignment.
Finally, if you please turn to slide 16, I wanted to remind everyone that we're moving beyond the blueprint and targeting top tier financial performance over our five year strategic planning period.
We're executing to our strategy to transform Columbus Mckinnon into a global intelligent motion solutions enterprise.
As we enter Q2, we continue to control what we can control and are working to positively impact the things that we can't directly control.
We're making very good progress with our transformation and are delivering results that are in line with the trajectory we would expect to be on at this point given the broader macro environment.
And as I said earlier, our confidence both in our strategy and our ability to achieve our long term financial targets remains high.
With that Claudia we can open up the call for questions.
Thank you very much at this time, we will be conducting a question and answer session.
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One moment, please while we poll for questions.
The first question comes from Matt Summerville through D. A Davidson. Please proceed Matt.
Good morning. This is Jonathan on for Matt Summerville today, a couple of questions here. The first one is about quarters I'm wondering what kind of dollar contribution from orders that you see from Dorner and Garvey This quarter and then bigger picture I'd Love an update on what kind of synergies you're seeing from those two businesses together.
Gather.
I'm thinking about that first synergies you saw in fiscal third quarter that $700000 order on on ready to eat packaged foods, just wondering if there's anything similar to that happening.
Hey, good morning, Nice to have you on this morning, we do not disclose.
Individual line of business activity and can want to continue to maintain that position, but as I think about order activity in general our orders were up 11% year over year on a constant currency basis, and just to provide a little more color on splits we had EMEA orders up 12% and I.
No I mean as an area of concern for a number of.
And so you know it was a bright spot as we think about that so really really pleased with order activity across the board, we're seeing demand across all of our end market.
And we are encouraged by trends around quotation activity in general and that's true for all of our lines of business.
Understood, Okay, and then to your second question.
I think I caught it but you broke up a little bit there you were asking about the projects that we had last quarter, where there was a level of concern around the execution of the project and some cost impact associated with that no. We did not see anything like that continue in this quarter our actions to continue to execute on see MBS and drive the right kind of project management.
<unk> in our business is leading to I think the right kind of performance when we deliver on projects.
Okay.
Alright.
I must admit spoken at what I was wondering about was.
Any kind of.
Check that.
That question answered my follow up though is I want to pivot to talking about freight and logistics because I know that was a little bit of a challenge last quarter. I was wondering how pricing stood relative to some of those pricing headwinds you saw in freight and logistics during the period right I'll start and if Greg wants to add on.
Please do Greg.
Cost period over period from Q4 to Q1 were down $3 $2 million.
And we're really pleased with the work we've done around pricing as I mentioned, we think we are becoming more disciplined as it relates to pricing for the value. We delivered and we did have a price increase that went into effect in March and then a second price increase that just went into effect at the end of June .
And we think that we are.
Well positioned with the increases we put in place the.
The quarter execution of backlog.
As always a bit lumpy, we've got projects that are in the backlog or even short cycle business. That's in the backlog that sits at pre price increase levels and as that phases through this coming quarter there'll be some.
Timing differences between when those orders are received when pricing increases went into effect and when they shift, but we believe our price cost ratio is going to continue to expand as we advance throughout the year.
Understood Thanks for taking more questions.
Thanks, Paul.
Thank you. The next question comes from Chris Howe from Barrington. Please proceed.
Good morning, David Good morning, Greg.
Good morning, Chris Good morning, Chris.
I just wanted to dive further into the record gross margin in the quarter of 37, and a half a percent on it.
Adjusted basis, if we think about that percentage.
In the different buckets that you mentioned the favorable mix.
And the other factors that contributed to that performance.
This remained relatively consistent.
Through through the first month.
The second quarter in other words do you expect to maintain this level into the second quarter.
Given that it is a record.
Yeah. So great question, Chris So as David just mentioned, we did see lower freight costs in the quarter about by about $3 2 million sequentially compared to Q4's level and Thats really broken into two pieces, you've got inbound and you got outbound freight on the outbound freight we did take action to recover more of our outbound freight so as a percent of <unk>.
<unk>, we saw our outbound freight costs declined by about 1% on the inbound side. That's a function of the materials that are coming in as well as the cost of materials coming in and we did bring in a little bit less materials from.
Asia, which did lowered somewhat but nonetheless, we were down 3 million. We did also experienced some favorable.
Inventory adjustments with the conversion to our new ERP platform, which that gets amortized out over one inventory turn but offsetting that was the fact that we did see.
Fairly low fixed cost absorption in the quarter and the German facility, which is our largest facility. So net net when you put it all together, Chris We think we would expect similar gross margins.
To this in Q2, but albeit a little bit lower just because of some of the onetime favorable benefits that we did experience.
Okay, that's very helpful and.
See where I want it shipped with this follow up question.
I guess can you talk more about the delayed shipments are $25 million $10 million higher thank.
Thank you had an extra million of ERP.
Impact 10 versus 11 so.
As we think about Q2.
And some of the delayed shipments from Q1.
How should we think about that you got some of these shipments back here in the second quarter already.
Are you anticipating kind of that $25 million again just to be conservative.
Yes, where we're hoping to narrow that Chris. We obviously are working every day to shift to customer demand and work within the supply chain to get things flowing the way that we would expect them to there are some capacity constraints that we're dealing with primarily driven by chip sets or Ics that are coming from the far east that go into the products that we.
As well as into the the motor.
Sub assemblies that we ultimately shipped with our products and so that's really the crux of our supply chain challenge is really driven by a motor delivery and electronic components and drives.
Drives and controls and so that's that's the lion's share of the impact as we flow through the balance of this quarter.
We think things are starting we're seeing indications that things are starting to loosen but.
We've seen other challenges pop up as well and where we are we're anticipating that things are going to be.
Similar but on an improving trend as we advance through the quarter.
Okay. Thanks for taking my question, so I'll hop back in queue for others.
Great. Thanks, Chris.
Thank you. The next question comes from Jon <unk> from CJS Securities. Please proceed journey.
Hi, good morning, nice quarter guys.
Thanks, John and Greg I think that.
Great.
Greg I think you made the comment that you expect growth to improve as supply improves.
Are your customers telling you.
In terms of their outlooks and the potential for any kind of recession, which.
Some places where we're starting to see.
China I'm not sure I got your question could you repeat please.
Yes, you you said you expect growth to improve as supply improves.
You know that that would imply that you expect demand to continue being strong for the next foreseeable future I was just wondering if your customers are telling you the same thing that they expect.
They are on demand to be strong for that same time period.
John This is David I would say, we are really seeing strong indication that orders are going to continue to be robust we've got.
A leading.
Leading indicator with quotation activity, that's trending up across the business. We've got input from our customers. We've got input from our sales channel or our own sales leaders that would suggest the same and so we're encouraged that that demand remains robust we are watching all the leading indicators that everyones looking at.
As it relates to recession in fact, we've updated our recession playbook and made sure that it's well understood across the enterprise so that as we watch those leading indicators, we're ready to take action swiftly and decisively should we need to.
But at this point, we don't see indications that that's that's necessary certainly not at this point.
Okay great.
And then second what is your appetite for acquisitions today I know you use cash in the quarter do you expect that to reverse as we go forward.
Is that a priority for cash flows or is it more paying down debt at this point.
How does that sort of against the pipeline that you're seeing.
We have really a great pipeline of opportunities that we continue to have discussions with the other parties on we are.
<unk> very disciplined about the way that we're thinking about deploying our capital in this environment and candidly as I've said numerous times on these calls we're laser focused on execution. So we are applying our resources in a way that are focused on executing to meet our organic commitments within the business, but with a mindset that we are going to be programmatic M&A.
Overtime, and so you don't start and stop discussions and pipeline and so forth and we've got some really interesting nice.
Right sized opportunities that could be really interesting opportunities for Columbus Mckinnon and for our investors as we go forward and think about that pipeline and just to add John on to David's comments, clearly with rising interest rates and where our stock prices today, we're truly looking at.
OLT on opportunities, which are going to be much smaller and.
Purchase price matters, and so we're going to continue to be very disciplined in how we evaluate opportunities in.
And how quickly we can delever, if we were to buy a bolt on <unk> yeah absolutely.
Okay, Great and one final one if I could your gross margins are about two or three quarters ahead of where I thought you would be.
Does that imply you might get to that EBITDA margin target of 19%, maybe a little bit faster than expected sometime in this fiscal year.
Yes, I would say John that we've been we've talked.
In the past about getting to that 19% and requires a gross margin of 39% to 40%.
So at 37, 5%, we did have the one time good guys I mentioned, but we should start to see similar, albeit smaller or a little bit lower gross margins in the upcoming quarter, but nonetheless, that's another call. It 300 basis, two to 300 basis points from where we are so that's with two quarters to go that's a pretty significant increase.
So I would say that we're going to continue to make progress.
And.
There's still a lot of uncertainty, especially with what's going on in Europe with.
Energy supply the Ukraine situation, so hard to say today, where we're actually going to finish the year.
With gross margins.
Fair enough. Thank you very much John I would just John let me just add quickly to that.
As you think about the path to getting to that outcome. We've got as we've said we said at our Investor Day, We've got a backlog of $352 million as we start to see that flow through and get better fixed cost leverage in our factories and you think about the price increases we've already put in place and then you think about the SG&A.
We're taking out as we gain scale through the shipment of that backlog that is the key to getting to that 19% and so we're controlling what we can control we're executing our management plan to get to those levels and as the market supports the supply chain supports the exit.
Houston of that backlog at rates that enable that scale will will deliver those margins.
Got it thanks.
You bet.
Thank you ladies and gentlemen, just another reminder, if you'd like to ask a question. Please Chris Scott been one if you'd like to ask a question. Please press star.
And then the next question comes from Steve <unk>.
Incidentally Keith go ahead, Steve.
Good morning, David point, Greg.
I wanted to ask I wanted to ask a little bit about cash flow.
A little bit your expectation restructuring caused its cash flow I'm trying to think of how quickly that working capital comes down even as your volume goes up obviously youre carrying much higher inventory levels right now how can we think about that.
So the easiest way to think about it Steve as you know overall, our working capital as a percent of sales. So we were elevated at 19, 9%.
This quarter, largely driven by the incremental $22 million of inventory that we added to the system has supply chain start to improve we will start working that balance down we would expect revenue to increase as well. So we still are targeting roughly the mid teens, 15% 16%.
<unk> is working cap as a percent of sales and that is going to be a big driver of the free cash flow and we did have the one time items, which we have every first quarter last year in the first quarter, we had negative free cash flow as well. So it wasn't unexpected we budgeted for that to happen.
And we do think we're going to end up.
With a nice free cash flow balance at the end of the year.
Is there a certain level of cash you need on the balance sheet for operations I'm, just thinking about the timing the $10 million of debt repayments.
Comfortable you are right now so we need about $40 million to $50 million.
Ideally.
The bulk of it in the U S. Because the interest and the principal is paid out of the U S.
And.
Today, we're carrying $86 million I think was the reported balance at the end of the quarter, but sometimes a <unk>.
Big Slog multiple millions of dollars come in on the last day of the quarter. So there's not much you can do we have to make our decision on how much that we're going to repay a couple of days prior to the end of the quarter.
We're confident and comfortable that we can get to the $40 million number this year.
Of total.
Cash flow our principal repayments.
Okay.
And then just one last one on and you've previewed that R&D would be going up I just wanted to ask a little bit about where the R&D focus is and how product development efforts are going and how much that contributes to.
The margin improvement beyond just obviously, having dorner and garvey.
Yeah.
Sure Steve So we're very focused on our core growth framework and strategic growth initiatives are driving within that framework.
Development is a key area of focus so we've invested in.
Building that team building, our competencies around product development doing the market outreach and customer voice of the customer work in advance of that and making sure that we're driving next generation platform products that enable pls or it's an 80 20 principle focused on product line simplification and so as we drive product line simplification across.
The portfolio, we're able to offer better fit for purpose more modern designed product that actually enables access to a broader set of markets because we can modularize the design and offer a <unk>.
Product thats fit for use in Asia as well as Latin America. In addition to our European and American markets. So, we're really focusing attention in those areas and I'm really pleased with the work that we're doing we've been able to outpace growth expectations.
As we wrapped up the fiscal 'twenty two period with those new product investments and.
We're investing to ensure that that continues in fiscal 'twenty three.
Great. Thanks, David Thanks, Greg.
You bet.
Thanks, Steve.
Sure.
Thank you. The next question comes from Patrick Baumann from Jpmorgan. Please proceed Patrick.
Thanks for taking my questions.
First the first one is on the orders number what do you think it was the impact of.
Yes.
Buying ahead of price increases and then also in the 11% that you booked this quarter should I just assume that the price reflected in that was similar to the price you booked in the revenue line, which is about 5%.
Yeah. So so when we look at orders by month.
April May June we saw about a $10 million increase in the month of June from May levels.
That was really related to I would say people buying in advance of the June price increase yeah. That's a good way to summarize it Greg I think you do see for standard products that are.
Stockel items demand that has increased as we went into the latter part of the quarter in advance of that price increase that was gone up I think thats, a reasonable way to summarize.
And then on the pricing.
I was just I was just trying to understand the price increase in the orders is that about 5%, which is kind of like what youre seeing in the revenue line from price.
Yes, we implemented our price increase in March and we had price that was in the backlog that fall. They came carried over from prior year price increases that.
Longer cycle shipments.
But it's difficult as you think about phasing of shipments to directly attribute.
The price that was in each one of those in aggregate.
I'm going to let Greg comment a little further because I know you have some better so yeah.
So Pat we saw in the quarter four 5%.
Pricing and because of the way, we calculate pricing hits on a like SKU for SKU basis.
Because about half of our business is project related it's really doubled when we went out with essentially 10% price increases that's right yeah.
And we will realize that on half of the business because the other half has.
The pricing is embedded in the configuration errors, we can update those real time for cost changes in.
Margin expectations and so that's also quoted two so it tends to be more of a competitive situation, but for our standard product, it's up 10% essentially.
Understood. So the pricing that you are in reality realizing in your revenue is probably greater than the amount that's reported through the <unk>.
Through the revenue line as you guys reported a part of your business.
Yes, because in order to measure price its an exact SKU by SKU basis I sold the SKU last year at this price I sold it this year at this price what's that Delta times, the number of about 50% of the business, yes that fits that profile.
Got it that's helpful. And then did you say at the beginning which end markets, you're seeing improving demand still and are there any that you're seeing demand for.
All off a little bit have you commented specifically on end markets I guess.
E. Commerce is one that has that is obviously.
Under the microscope, a little bit, but I'm sure you are.
Seeing increases in other end markets like oil and gas et cetera, just curious if you could give any color on the vertical markets.
We have seen.
The other the vertical markets more generally doing well so as you think about our broader end markets I would say a general statement would be we see demand being robust across all as I think about notable markets with increases I think about utilities I think defense I think about entertainment.
Energy.
As I as I think about it.
Your comment around E. Commerce, we've made good inroads with new ecommerce customers, we're continuing to invest in the future of that landscape.
But notably there is a large customer that has shifted priorities and that's resulting in a re phasing of their demand in the current environment.
Helpful.
And then if I could squeeze one more in did you say what.
What drove positive mix in the first quarter, what exactly that was I might've missed that at the beginning I never I apologize if you're repeating yourself.
Yes, no we didn't disclose it but it's going to be.
More of our high value added hoist products I would say as opposed to our forged products.
Yeah, and I would add is it's products that are typically shorter cycle standard products that have attractive margin profiles, where we saw an increase in mix in.
In the first quarter.
Yeah.
Legacy.
And then the other part two as our rail business, which has lower gross margins, but a lot lower SG&A. We had less volume. There is we did have some projects that got delayed because of COVID-19.
Got it very helpful. Thanks, Thanks, so much for the time I appreciate it.
Thanks, Matt.
Thank you. The next question is a question from British pounds Food Bank Ken. Please proceed.
Okay.
Okay.
Follow up on just a brief comment that was made.
Yes.
Some of the prepared remarks, and Q&A just about the backlog.
Mentioned the different phases of pricing.
Some backlog, having more recent pricing some having relatively older pricing can you talk about the maturation of this backlog as we think about John's question about gross margin.
Mhm.
$39, 40% level as this matures over time, what type of opportunity does this open up the gross margin in other words.
There's likely a higher gross margin.
Underneath the numbers.
We move forward.
In this environment.
Yeah.
We believe that's the case based on the moves we've made as we've advanced over the last 12 months.
And the backlog phases.
As you can see we've got a backlog that is.
From a short term perspective are pretty healthy at 180 $889 million of the 351, so that represents 54% of the total backlog and that's expected to ship really over the next quarter.
And so that's the short term backlog that should have the benefit of the March price increase but only partially would have the benefit of any increases thereafter, and then as we think about that longer term backlog at $163 million that would have a phasing of pricing.
Just on.
The way that we increased price both in the fourth quarter of last year and then through this first half of the calendar year. So our belief is exactly what you said that as you move forward the pricing impact improves.
And that that starts to give us an opportunity to expand price to cost ratios and expand gross margins.
Great. Thanks for taking my question.
Thanks, Chris.
Thank you. The next question is another follow up as well from churn can maintain from CJS Securities. Please proceed Tony.
Hi, Thanks for the follow up and I apologize. If you said this before but can you just clarify did you mention where gross margins will be directionally in Q2.
Yes, we did we said that there'll be similar but likely to be a little bit lower.
Got it thanks, Greg.
Thank you. The next question is also find out from Matt Summerville from D. A Davidson. Please proceed ma'am.
This is bill Jellison again, thanks for taking the follow up I was wondering with the $3 million Capex spend in the fiscal first quarter trending below which you would need to spend to reach that 25 to 30 target to make those plant improvements.
Just wondering if that was a reflection of our normal business cadence you would expect given your plans or if you're also seeing supply chain challenges.
And capital equipment as well.
It's a it's a fair question will I would say that it's more of the former at this stage, we are planning to execute on some meaningful investments to increase productivity and to drive the next leg of margin expansion as Greg indicated and so those investments are a bit lumpy and they.
Phase later in the in the fiscal year and so.
Not worried about the $3 million trend versus the overall annual target.
But we but.
Think following up on the second part of your question on your point.
We are planning for.
Longer lead times associated with capital spending and the delivery of that equipment and there will be deposits on a number of these large capital projects that will have to make.
Yeah.
Understood. Thank you.
You bet. Thanks Bill.
Okay.
Thank you ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to David Wilson for closing remarks. Thank you.
Thank you Claudia.
The first quarter was a strong start to fiscal 2023, as we advance our strategic transformation.
We delivered terrific results, including record gross margin robust order intake and 112% growth in operating income.
We remain laser focused on execution and improving our customers' experience. We're taking further actions to improve the business and our performance while executing to address increasing customer demand.
We are truly creating a better more scalable and more profitable business model as we evolve into the global leader in intelligent motion solutions for material handling.
Thank you for your time today, we appreciate your interest in Columbus Mckinnon have a great day everyone.
Thank you. This concludes today's conference you may disconnect. Your lines at this time and thank you very much for your participation.
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