Q2 2024 Columbus McKinnon Corp Earnings Call
Operator: Greetings and welcome to Columbus McKinnon's second quarter fiscal year 2024 financial results.
At this time, all participants are in a listen-only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce Deborah Pawlowski, Investor Relations. Thank you, you may begin.
Deborah K. Pawlowski: Thank you Doug and good morning everyone. We certainly appreciate your time today and your interest in Columbus McKinnon.
Joining me here for our financial results conference call are David Wilson, our President and CEO, and Greg Rustowicz, our Chief Financial Officer.
You should have a copy of our second quarter fiscal year 2024 financial results, which we released earlier this morning. There are also slides that will accompany our conversation today. Both the slides and the release are available on our website at investors.cmco.com.
There are also slides that will accompany our conversation today, both the slides and the release are available on our website at investors Dot C. M C O dot com.
David and Greg are going to provide their formal remarks, after which we will open the line for questions.
But right now if you'll just 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 discussion 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.
These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed by the company with the Securities and Exchange Commission. You can find these 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've provided reconciliation of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides. So with that, please advance to slide three and I will turn the call over to David to begin. David?
David J. Wilson: Thank you Deb and good morning everyone.
David Thank you Deb and good morning, everyone our.
Our second quarter results are a testament to the progress our team is making as an organization as we transform Columbus McKinnon into a higher growth, less cyclical enterprise with stronger earnings power.
Together, we took a meaningful step forward in terms of performance in the quarter, establishing several new records. While we are pleased with the results we're delivering, we're more encouraged with the progress we're making and by the potential of our business as we advance the strategic transformation of Columbus McKinnon.
We are pleased with the results we're delivering we're more encouraged with the progress, we're making and by the potential of our business that we had as we advanced the strategic transformation of Columbus Mckinnon.
The team remains highly focused on executing our strategic plan and achieving the objectives we have established for the business.
Sales in Q2 were $258 million and at the high end of our guidance. This included $9.5 million for Mantra Tech. We are very pleased with the early performance of our Mantra Tech acquisition and the broader momentum that we are building within our precision conveyance platform.
We are very pleased with the early performance of our mantra check acquisition and the broader momentum that we are building within our precision convenience platform.
We also achieved record gross margin in the quarter. Our 38.7% represents a 120 basis point improvement over our previous record, which was established in the first quarter of last year.
Our revenue and gross margin performance in the quarter translated to record operating income and adjusted EBITDA. Our adjusted EBITDA of 17.7% represents a 90 basis point improvement over our previous record, which was established in the same period last year.
We also remained focused on reducing our interest rate exposure and are accelerating debt repayment. Greg will speak to this further, but have upped our plans to reduce debt by an additional $10 million within the year bringing our total debt reduction to $50 million in 2024.
Greg will speak to this further.
But we have upped our plans to reduce debt by an additional $10 million within the year, bringing our total debt reduction to $50 million in fiscal 2024.
Year-to-date, we paid down $25 million, and our net debt leverage ratio now sits at 2.7 times and we see it dropping to approximately 2.3 times by the fiscal year end.
And our net debt leverage ratio now sits at two seven times and we see it dropping to approximately 2.3 times by the fiscal year end.
If you'll turn to slide four, you'll see the progress we're making toward our gross margin expectations and the effectiveness of the work we're doing within the company to enable stronger earnings power.
We believe the performance we achieved in the quarter is underpinned by sustainable improvements and reflects the effectiveness of our strategy as we advance the operating and strategic initiatives referenced on this page.
The operating and strategic initiatives referenced on this page.
We remain highly focused on improving our customers' experience and our progress has been validated by recent improvements in our net promoter score.
Being customer led is a foundational component of the Columbus McKinnon business system or see CMBS, which is driving continuous improvement, discipline, communication and accountability within our business. 80/20 analysis, decision making, and actions are unlocking further value within our CMBS framework and we are currently focused on product line simplification.
80, 20 analysis decision, making and actions are unlocking further value within our C. MBS framework and we are currently focused on product line simplification.
Beyond optimizing financial performance, this will result in improved product offerings, stronger market positioning, and the further simplification of our factory footprint.
In the period, we saw improvements in capacity planning, material costs, direct labor productivity, factory overhead rates, and pricing.
The acquisition of Mantra Tech served as a strategic lever for gross margin performance as well and added 70 basis points in the quarter. We are energized by the momentum we're building within the organization and are highly encouraged with the pipeline of opportunities we are seeing in a variety of end markets.
We are energized by the momentum we're building within the organization and are highly encouraged with the pipeline of opportunities. We are seeing in a variety of end markets.
Given our progress, we now expect gross margin to expand approximately 150 basis points year over year. This is up from our previous expectation of 50 to 100 basis points of improvement in fiscal '24.
I'll now turn the presentation over to Greg to review our results in greater detail.
Gregory P. Rustowicz: Thank you David. Good morning everyone.
Turning to slide five, we delivered record sales in the second quarter of $258.4 million, up 9.1% from the prior year period on a constant currency basis. This was at the high end of the guidance we provided last quarter. In addition, we grew sales sequentially by 10%.
Nine 1% from the prior year period on a constant currency basis.
This was at the high end of the guidance, we provided last quarter in.
In addition, we grew sales sequentially by 10%.
On a year-over-year basis, we realized pricing gains of $10.6 million or 4.6%, which was in line with what we were anticipating. We were quite pleased with the Mantra Tech acquisition, which added $9.5 million of sales.
We were quite pleased with the mantra took the acquisition, which added $9 $5 million of sales.
Volume increased by $1 million or 0.4%. Foreign currency translation was a benefit this quarter of $5.6 million or 2.4%.
Foreign currency translation was a benefit this quarter of $5 6 million or two 4%.
Let me provide a little color on sales by region. For the second quarter, sales grew in the US by 3.9% compared with the prior year. The increase reflected 3.5% of price improvement. Mantra Tech added 30 basis points of revenue in the US and sales volume was slightly up 10 basis points.
For the second quarter sales grew in the U S by three 9% compared with the prior year. The increase reflected a three 5% of price improvement.
The increase reflected a three 5% of price improvement.
Mantra Tech added 30 basis points of revenue in the US and sales volume was slightly up 10 basis points.
Volume was up in our automation business as it benefited from strong megatrends, but was down in our precision conveyance business due to the timing of projects, which reflects the market slowdown we saw in the second half of last year.
Outside of the US, sales increased by 23%. The Mantra Tech acquisition added 9.9% of growth. Pricing improved by 6.1% and sales volume increased by 0.9%.
In EMEA, our largest region outside of the US, we saw volume declined by approximately 2% or $1.1 million. This was largely project related. The pipeline of opportunities remains solid, but we are experiencing delays with quote to orders.
Sales volume increased in APAC by a strong 46%. Keep in mind however, APAC represents just 6% of total sales. Within APAC, we benefited from strong sales in Malaysia, Singapore, and Taiwan, especially in the energy, utility, and transportation verticals.
Volume declined by approximately 1% in Latin America, and in Canada, which is about 4% of total revenue, we saw volume decline by 24%.
On slide six, we recorded record gross margin of 38.7% in the second quarter, which is 190 basis point increase sequentially. As David pointed out, we are quite pleased with the progression we have made with gross margin expansion and believe we have a path to achieve 40% plus gross margins by fiscal year '27.
fiscal year '27.
Gross profit increased $13.7 million or 16% versus the prior year. This was driven by several factors, which you can see on the table. The largest items driving gross profit expansion were pricing, net of material, manufacturing cost changes, including material inflation, which added $5.7 million and the Mantra Tech acquisition, which contributed $5.5 million to gross profit.
The largest items driving gross profit expansion were pricing, net of material, manufacturing cost changes, including material inflation, which added $5.7 million and the Mantra Tech acquisition, which contributed $5.5 million to gross profit.
Mantra Tech was accretive to gross margins by 70 basis points this quarter with an overall gross margin of 57%.
Let me remind you that our fiscal third quarter is a seasonally softer quarter. With less shipping days, given the holiday season, we would expect approximately a 100 basis point reduction in gross margin sequentially from this quarter's gross margin.
With less shipping days given the holiday season, we would expect approximately 100 basis point reduction in gross margin sequentially from this quarter's gross margin.
Moving to slide seven, our SG&A expense was $59.1 million in the quarter or 22.9% of sales. This included 800,000 of pro forma adjustments primarily related to the Mantra Tech acquisition with the remainder related to our headquarters relocation, business realignment costs, and a warehouse consolidation. Excluding these pro forma adjustments, our SG&A as a percent of sales was 22.6%.
Our SG&A expense was $59 1 million in the quarter or 22, 9% of sales. This included 800000 of pro forma adjustments primarily related to the mantra Tech acquisition with the remainder related to our headquarters relocation business realignment costs and a warehouse consolidation.
Excluding these pro forma adjustments, our SG&A as a percent of sales was 22.6%.
Sequentially, our SG&A costs were higher by 800,000 as we had a full quarter of Mantra Tech costs which added $2.6 million. We also recorded higher stock compensation costs of $1.3 million. Both items were partially offset by lower Mantra Tech acquisition deal and integration costs and headquarters relocation cost compared with the first quarter of fiscal '24.
Patient cost compared with the first quarter of fiscal 'twenty four.
Compared with the prior year, our SG&A costs were higher by $6.6 million. Mantra Tech accounted for $3.3 million of the increase. The remainder of the increase was in G&A, which was elevated by higher incentive compensation and stock compensation expense.
We also increased our investment in R&D by $1 million, helping to offset these expenses were lower business realignment costs of $1.1 million.
For the third quarter, we expect our SG&A expense of approximately $58 million.
Turning to slide eight, we generated record operating income of $33.4 million in the quarter or 12.9% of sales. This represented an increase of $6 million or 22% over last year's second quarter.
We generated record operating income of $33 4 million in the quarter or 12, 9% of sales. This represented an increase of $6 million or 22% over last year's second quarter.
This represented an increase of $6 million or 22% over last year's second quarter.
Adjusted operating income was also a record at $34.1 million or 13.2% of sales. On an adjusted basis, operating income grew $5.5 million or 19%. This record performance demonstrates the success of our strategy and is another proof point in our transformation journey.
On an adjusted basis operating income grew $5 5 million or 19%. This record performance demonstrates the success of our strategy and is another proof point in our transformation journey.
This record performance demonstrates the success of our strategy and is another proof point in our transformation journey.
As you can see on slide nine, we recorded GAAP earnings per diluted share for the quarter of 55 cents, up six versus the prior year. Our tax rate on a GAAP basis was 24%. For the year, we expect our tax rate to be approximately 25%.
For the year, we expect our tax rate to be approximately 25%.
Adjusted earnings per diluted share of 76 cents was up three cents from the prior year as higher adjusted operating income more than offset the negative impact of higher interest expense and the increased tax rate year over year.
For modeling purposes, interest expense is expected to be about $10 million in the third quarter, down slightly from the $10.2 million we recorded this quarter as interest rates stabilized and we accelerate our debt reduction plans.
On slide 10, we achieved record adjusted EBITDA margin this quarter of 17.7%, demonstrating the earnings power of the company. This step change improvement gets us closer to our stated goal of 21% EBITDA margin in fiscal year '27.
The step change improvement gets us closer to our stated goal of 21% EBITA margin in fiscal year 'twenty seven.
With this quarter's record performance, our trailing 12-month adjusted EBITDA is now $156.1 million, which represents an adjusted EBITDA margin of 16%.
Which represents an adjusted EBITDA margin of 16% we.
We believe that while variable from quarter to quarter, our EBITDA margin in Q2 is sustainable given the underlying improvements in the business.
Our return on invested capital improved 20 basis points to 6.8% from Q1. Our goal remains to get to a double digit ROIC over our planning horizon.
Moving to slide 11, quarterly free cash flow was $11.7 million in the second quarter. This includes cash provided by operating activities of $16.7 million and Capex of $5 million.
Working capital was a use of cash in the quarter of $12.2 million. We would expect this to improve over the remainder of the year as our working capital levels continue to normalize. We anticipate that Capex will range between $30 million to $40 million in fiscal year '24 as we are continuing to make investments in a lower cost center of excellence to simplify our factory footprint as well as increase capacity, productivity, and throughput. For fiscal 2024, we expect free cash flow conversion will range between 90% and 100%.
<unk> of excellence to simplify our factory footprint as well as increased capacity productivity and throughput. For fiscal 2024, we expect free cash flow conversion will range between 90% and 100%.
For fiscal 2024, we expect free cash flow conversion will range between 90% and 100%.
Turning to slide 12, our capital structure is improving as our net debt leverage ratio is now 2.7 times on a financial covenant basis, which is down from 2.9 times that we reported last quarter. As we have previously discussed, we have a covenant light credit agreement. With no revolver borrowings outstanding at quarter end, our financial covenant is not tested.
We are also accelerating our debt reduction plans as we paid down $15 million of debt this quarter. We are now planning to pay down $50 million of debt this fiscal year, up from $40 million.
We expect our net leverage ratio to improve to approximately 2.3 times by the end of this fiscal year. This once again demonstrates our ability to delever quickly after an acquisition.
Please advance to slide 13, and I will turn it back over to David.
David J. Wilson: Thanks Greg. Orders were up 2% year-over-year in the quarter driven by strength in the Americas. In EMEA, while we began to see signs of moderating demand in Germany, demand in the Middle East remained robust and the region held up reasonably well, despite the broader economic and geopolitical headwinds.
Precision conveyance orders were up 11% in the quarter and our lifting business was up 7% year-over-year. Overall, short cycle orders increased a robust 11% compared with last year. Project orders slowed however in the quarter, but visibility to project order opportunities improved throughout the quarter. We remain encouraged by the overall quotation and order pipeline for our business.
Overall short cycle orders increased a robust 11% compared with last year project orders slowed however, in the quarter, but visibility to project order opportunities improved throughout the quarter. We remain encouraged by the overall quotation and order pipeline for our business.
While we would caution that the first month of a quarter does not necessarily define a trend, we have realized double-digit order growth in the first month of this quarter versus the same period last quarter.
Our backlog remains quite healthy at $318 million. During the quarter, we reduced our past due backlog by 28% and we're beginning to see backlog normalize as lead times and deliveries. Our orders and backlog levels continue to support our revenue expectations for the year.
Yeah.
Our orders and backlog levels continue to support our revenue expectations for the year.
Please turn to slide 14, where I will summarize our outlook for the business.
Notwithstanding a global backdrop of macroeconomic and geopolitical uncertainties, our outlook for the business remains encouraging as we are benefiting from participation in more secular growth markets in several megatrends, including significant fiscal investments in infrastructure and defense, the near shoring of manufacturing capacity, automation, and the scarcity of labor resources, energy conservation and electrification.
Our outlook for the business remains encouraging as we are benefiting from participation in more secular growth markets in several megatrends, including significant fiscal investments in infrastructure and defense the near shoring of manufacturing capacity automation and the scarcity of labor resources Energy conservation handle F <unk>.
We expect to deliver sales between $245 million and $255 million in Q3 and to surpass $1 billion of revenue for the year. We are also raising our full year gross margin improvement guidance and now expect approximately 150 basis points of improvement in fiscal '24.
We expect to deliver sales between $245 million and $255 million in Q3 and to surpass $1 billion of revenue for the year. Okay. We are also raising our full year gross margin improvement guidance and now expect approximately 150 basis points of improvement in fiscal 'twenty four.
Okay. We are also raising our full year gross margin improvement guidance and now expect approximately 150 basis points of improvement in fiscal 'twenty four.
We are also raising our full year gross margin improvement guidance and now expect approximately 150 basis points of improvement in fiscal 'twenty four.
As I mentioned earlier, we're gaining traction with our customer experience initiatives, especially in the key areas of on-time delivery, reduced lead times, overall responsiveness, and communication. Our Mantra Tech acquisition is performing well and we are encouraged by the robust level of quotation activity and the order pipeline across our precision conveyance platform.
Our <unk> acquisition is performing well and we are encouraged by the robust level of quotation activity and the order pipeline across our precision conveyance platform.
We also continued to deliver organic growth through investments in commercial initiatives, innovation, and new product development. On a year-to-date basis, our vitality index or NPD minus three rate was 3.3% through Q2.
We are executing all elements of our strategy and our second quarter results demonstrate the progress we're making as we advance the transformation of Columbus McKinnon.
With that Doug, we can open up the line for questions.
Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may 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 would like to remove your question from the queue.
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For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Matt Summerville with D.A Davidson. Please proceed with your question.
Matt J. Summerville: Thank you. You touched on a couple of end markets David, can you maybe talk a little more broadly about some of your other larger end market verticals like auto, construction, oil and gas, general industrial and maybe in the context of your project related comments, where you've seen that conversion to order momentum start to elongate a bit?
Maybe you touched on a couple of end markets. David can you maybe talk a little more broadly about some of your other larger end market verticals like auto construction oil and gas general industrial and maybe in the context of your project related comments, where you've seen that order too. Conversion to order momentum start to elongate a bit.
Conversion to order momentum start to elongate a bit.
David J. Wilson: Thanks, Matt and good morning, yes, so we. I have been encouraged by the activity across end markets in general. And I would say that notably aerospace and defense electric vehicles food and beverage. <unk> been markets that have been pretty robust for us when you ask about the general industrial markets they've maintained the momentum in the Americas has been pretty strong for us overall.
I have been encouraged by the activity across end markets in general. And I would say that notably aerospace and defense electric vehicles food and beverage. <unk> been markets that have been pretty robust for us when you ask about the general industrial markets they've maintained the momentum in the Americas has been pretty strong for us overall.
And I would say that notably aerospace and defense electric vehicles food and beverage. <unk> been markets that have been pretty robust for us when you ask about the general industrial markets they've maintained the momentum in the Americas has been pretty strong for us overall.
<unk> been markets that have been pretty robust for us when you ask about the general industrial markets they've maintained the momentum in the Americas has been pretty strong for us overall.
The timing of projects is something that has been a bit lumpy as you would expect and we're really encouraged with the activity we've seen and the pipeline and the quoting and the discussions that we've had and those opportunities range across attractive end markets like food and beverage, electric vehicle manufacturing, the industrial markets in general.
Ben. Been a bit lumpy. As you would expect and we're really encouraged with the activity we've seen in the pipeline in the quoting and the discussions that we've had and those opportunities range across attractive end markets like food and beverage electric vehicle manufacturing.
Been a bit lumpy. As you would expect and we're really encouraged with the activity we've seen in the pipeline in the quoting and the discussions that we've had and those opportunities range across attractive end markets like food and beverage electric vehicle manufacturing.
As you would expect and we're really encouraged with the activity we've seen in the pipeline in the quoting and the discussions that we've had and those opportunities range across attractive end markets like food and beverage electric vehicle manufacturing.
I feel like we're pretty well positioned as we are in this quarter advancing through October to see a nice uplift in year-over-year order activity based on the performance we saw quarter-over-quarter. Oil and gas is another one that I didn't mention that I think is worth noting. We've had pretty significant investments in both the Middle East as well as in Asia Pacific as it relates to that market specifically.
I feel like we're pretty well. Well positioned as we are in this quarter advancing through October to see now. Nice uplift in year over year order activity based on the performance we saw quarter over quarter. Oil and gas is another one that I didn't mention that I think is worth noting we've had pretty significant investments in both the middle east as well as in Asia Pacific. As it relates to that market specifically. Yes.
Well positioned as we are in this quarter advancing through October to see now. Nice uplift in year over year order activity based on the performance we saw quarter over quarter. Oil and gas is another one that I didn't mention that I think is worth noting we've had pretty significant investments in both the middle east as well as in Asia Pacific. As it relates to that market specifically. Yes.
Nice uplift in year over year order activity based on the performance we saw quarter over quarter. Oil and gas is another one that I didn't mention that I think is worth noting we've had pretty significant investments in both the middle east as well as in Asia Pacific. As it relates to that market specifically. Yes.
Oil and gas is another one that I didn't mention that I think is worth noting we've had pretty significant investments in both the middle east as well as in Asia Pacific. As it relates to that market specifically. Yes.
As it relates to that market specifically. Yes.
Yes.
Matt J. Summerville: Got it. And then just a quick follow up. As you Greg take leverage down to 2.3 times, do you view Columbus McKinnon as sort of being, not that you are necessarily ever out of it, but maybe more back in the in M&A mode if you get into fiscal '25? And then with respect to fiscal '25, what would your thoughts be on incremental price realization? Thank you.
As you Greg take leverage down to two three times do you view Columbus Mckinnon has sort of been nothing you are necessarily ever out of it but maybe more back in the in M&A mode. If you get into fiscal 'twenty five and then with respect to fiscal 'twenty five what would your thoughts be on.
Incremental price realization. Thank you.
Gregory P. Rustowicz: Yeah, so thanks Matt. So as you mentioned, our focus is really on paying down debt this year and we continue to work an active pipeline because you always have to look at opportunities, but we think with where we sit today, we're on a pretty clear path to delevering to the 2.3 times by the end of the fiscal year. And I think once we get into that level, I think we've got more capacity to look for the next potential acquisition that could be accretive and bring synergies to the company. So our strategy includes M&A as part of our growth to get to the $1.5 billion. And I think we'll be in good shape next year, but once again, a deal has to make sense and it has to make sense financially both because obviously the incremental cost today for interest are substantially higher than they've been in the past.
As you. As you mentioned, our focus is really on paying down debt. This year and we continue to work an active pipeline because you always have to look at opportunities, but we think with where we sit today, we're at a pretty clear path to delever into the two three times by the end of the fiscal year and I think once we get into that level I think we've got more.
As you mentioned, our focus is really on paying down debt. This year and we continue to work an active pipeline because you always have to look at opportunities, but we think with where we sit today, we're at a pretty clear path to delever into the two three times by the end of the fiscal year and I think once we get into that level I think we've got more.
Capacity to look for the next potential acquisition that could be accretive and bring synergies to the company. So our strategy includes M&A as part of our growth to get to the $1 5 billion.
And I think we'll be in good shape next year, but once again it all a deal has to make sense and it has to make sense financially both because obviously the incremental cost today for interest are substantially higher than they've been in the past.
And then your second part of the question with pricing, we would expect pricing next year to moderate somewhat. I think this year we're just under 5% on a year-to-date basis and we have seen inflation come down on materials, and as we think about pricing strategies for next year, I think it'll be more modest than it has been the last couple of years.
We have seen inflation come down on materials and as we think about pricing strategies for next year I think it'll be more modest than it has been the last couple of years.
Matt J. Summerville: Got it. Thank you guys.
Gregory P. Rustowicz: Thanks, Matt.
Operator: Our next question comes from the line of John Tanwanteng with CJS Securities. Please proceed with your question.
Jonathan E. Tanwanteng: Hey, good morning. Thanks for taking my questions and very nice quarter. I was wondering just the incremental gross margin was 60% in the quarter over last quarter, which is really great, is that kind of incremental sustainable once you get back to seasonally stronger quarters or should we think of like deflation or some other component may not be repeating? Any thoughts on how that plays out as we go through the rest of the year?
I was wondering just. Incremental gross margin was 60% in the quarter over last quarter, which is really great. Is that kind of incremental sustainable once you get back to seasonally stronger quarters or should we think of like deflation or some other component may not be repeating. Any thoughts on how that plays out as we go through the rest of the year.
Incremental gross margin was 60% in the quarter over last quarter, which is really great. Is that kind of incremental sustainable once you get back to seasonally stronger quarters or should we think of like deflation or some other component may not be repeating. Any thoughts on how that plays out as we go through the rest of the year.
Is that kind of incremental sustainable once you get back to seasonally stronger quarters or should we think of like deflation or some other component may not be repeating. Any thoughts on how that plays out as we go through the rest of the year.
Any thoughts on how that plays out as we go through the rest of the year.
David J. Wilson: Yeah, John, we feel really good about the sustainable improvements that we've put in place within the business and we feel like the way that we are performing now but for the seasonal adjustment that Greg spoke of as we head into Q3, we see the levels that we're performing at now as being sustainable and clearly you know what our longer term goals are and we intend to keep executing in a way that results in us expanding those margins over time. But from an operating perspective, we've driven a lot of improvements in the underlying business. We have other levers that we've been speaking to that we continue to exercise on that have more room to advance the business. And as we indicated in our prepared remarks, we are now targeting approximately 150 basis points of expansion in this fiscal year.
That we are performing now but for the seasonal adjustment that Greg spoke of as we head into Q or Q3. We see the levels that were performing at now as being sustainable and clearly you know what our longer term goals are and we intend to keep executing in a way that we expand those margins that resulted in us expanding those margins over time, but from an operating perspective, we've driven a lot of improvements in the. Underlying business, we have other levers that we've been speaking to that we continue to exercise on that have more room to advance the business. And as we indicated in our prepared remarks, we are now targeting approximately 150 basis points of expansion in this fiscal year. Yeah.
We see the levels that were performing at now as being sustainable and clearly you know what our longer term goals are and we intend to keep executing in a way that we expand those margins that resulted in us expanding those margins over time, but from an operating perspective, we've driven a lot of improvements in the. Underlying business, we have other levers that we've been speaking to that we continue to exercise on that have more room to advance the business. And as we indicated in our prepared remarks, we are now targeting approximately 150 basis points of expansion in this fiscal year. Yeah.
Underlying business, we have other levers that we've been speaking to that we continue to exercise on that have more room to advance the business. And as we indicated in our prepared remarks, we are now targeting approximately 150 basis points of expansion in this fiscal year. Yeah.
And as we indicated in our prepared remarks, we are now targeting approximately 150 basis points of expansion in this fiscal year. Yeah.
Yeah.
Jonathan E. Tanwanteng: Okay, great. Thank you. And then second question, you mentioned that the projects in the pipeline were pretty strong, but we've seen some news obviously in the media saying that the EV demand hasn't been quite as strong, there's push outs of battery manufacturing facilities and I know some of your future prospects are tied to that in some of your current businesses and I'm wondering what you're seeing in the project pipeline, specifically regarding EVs and batteries and the timing of those projects as we go forward.
You mentioned that the projects in the pipeline were pretty strong, but we've seen some news obviously in the media is saying that the EV. Demand hasn't been quite as strong. Push outs of battery manufacturing. <unk>. Some of your future prospects are tied to that in some of your current businesses and I'm wondering. What youre seeing in the project pipeline, specifically regarding even batteries. And the timing of those projects. Go forward.
Demand hasn't been quite as strong. Push outs of battery manufacturing. <unk>. Some of your future prospects are tied to that in some of your current businesses and I'm wondering. What youre seeing in the project pipeline, specifically regarding even batteries. And the timing of those projects. Go forward.
Push outs of battery manufacturing. <unk>. Some of your future prospects are tied to that in some of your current businesses and I'm wondering. What youre seeing in the project pipeline, specifically regarding even batteries. And the timing of those projects. Go forward.
<unk>. Some of your future prospects are tied to that in some of your current businesses and I'm wondering. What youre seeing in the project pipeline, specifically regarding even batteries. And the timing of those projects. Go forward.
Some of your future prospects are tied to that in some of your current businesses and I'm wondering. What youre seeing in the project pipeline, specifically regarding even batteries. And the timing of those projects. Go forward.
What youre seeing in the project pipeline, specifically regarding even batteries. And the timing of those projects. Go forward.
And the timing of those projects. Go forward.
Go forward.
David J. Wilson: Yeah, actually we are pretty encouraged with the volume of activity that we're seeing in that space, both domestically and abroad as major customers of ours are investing and are engaged with us in pretty active discussions around opportunities that we are expecting will come to fruition here in the near future.
As major customers of ours are investing and are engaged with us in pretty active discussions around opportunities that we are expecting will come to fruition here in the near future.
Gregory P. Rustowicz: Just to add on John, it's really dependent on the specific customers and I think we're linked with two of the more substantial larger players in the EV market both in the US as well as in Germany.
Two of the more substantial larger players in the EV market both in the U S as well as in Germany.
Jonathan E. Tanwanteng: Got it. Thank you. I'll jump back in the queue.
David J. Wilson: Thanks, Jon.
Operator: Our next question comes from the line of Steve Ferazani with Sidoti & Company. Please proceed with your question.
Steve Ferazani: Good morning everyone. Just wanted to get a sense of how much the Mantra Tech acquisition is potentially outperforming and how much that led to the more positive view on gross margin improvement this year. Can you just give us a little bit of sense on the integration of Mantra Tech and just what do you think for cross selling opportunities now that you've had a full quarter under the belt?
Just wanted to get a sense of how much. Mantra to monitor Tech acquisition is potentially outperforming in home. Much that led to the. The more positive view on gross margin improvement this year sneak just give us a little bit of Samsung. The integration of mantra tack and just what do you think for cross selling opportunities now that you've had a full quarter under the belt.
Mantra to monitor Tech acquisition is potentially outperforming in home. Much that led to the. The more positive view on gross margin improvement this year sneak just give us a little bit of Samsung. The integration of mantra tack and just what do you think for cross selling opportunities now that you've had a full quarter under the belt.
Much that led to the. The more positive view on gross margin improvement this year sneak just give us a little bit of Samsung. The integration of mantra tack and just what do you think for cross selling opportunities now that you've had a full quarter under the belt.
The more positive view on gross margin improvement this year sneak just give us a little bit of Samsung. The integration of mantra tack and just what do you think for cross selling opportunities now that you've had a full quarter under the belt.
The integration of mantra tack and just what do you think for cross selling opportunities now that you've had a full quarter under the belt.
David J. Wilson: Yeah, we feel really good about the opportunities for the Mantra Tech business. The business is performing well and is performing to expectations in the quarter. The team's been doing a great job of participating in cross selling and integration related activities, both in Europe, and in the United States and our teams in the United States have built up a pipeline of opportunities that they are actively pursuing as we seek to help scale that business over here in the US beyond the penetration that they've had in the past. In the quarter, they were a good contributor to the performance. They contributed 70 basis points of margin in the quarter. That was the accretive impact of their gross margin contribution. And in general, we're really pleased with the way that the team is performing and the prospects for the business. So we remain very bullish on that piece of the business, but I want to emphasize our bullish view on the overall precision conveyance business that we're engaged in more broadly.
The business is performing well and is performing to expectations in the quarter. The team's been doing a great job of participating in cross. Selling and integration related activities, both in Europe, and in the United States and our teams in the United States have built up a pipeline of opportunities that they are actively pursuing as we seek to help scale that business. Here in the U S beyond the penetration that they've had in the past. In the quarter they were a good contributor to the performance. They contributed 70 basis points of of. Margin in the quarter. The accretive impact of their gross margin contribution. And in General, we're really pleased with the way that the team is performing and the prospects for the business. So we remain very bullish on that piece of the business, but I want to emphasize our bullish view on the overall precision conveyance business that we're engaged in more broadly.
Selling and integration related activities, both in Europe, and in the United States and our teams in the United States have built up a pipeline of opportunities that they are actively pursuing as we seek to help scale that business. Here in the U S beyond the penetration that they've had in the past. In the quarter they were a good contributor to the performance. They contributed 70 basis points of of. Margin in the quarter. The accretive impact of their gross margin contribution. And in General, we're really pleased with the way that the team is performing and the prospects for the business. So we remain very bullish on that piece of the business, but I want to emphasize our bullish view on the overall precision conveyance business that we're engaged in more broadly.
Here in the U S beyond the penetration that they've had in the past. In the quarter they were a good contributor to the performance. They contributed 70 basis points of of. Margin in the quarter. The accretive impact of their gross margin contribution. And in General, we're really pleased with the way that the team is performing and the prospects for the business. So we remain very bullish on that piece of the business, but I want to emphasize our bullish view on the overall precision conveyance business that we're engaged in more broadly.
In the quarter they were a good contributor to the performance. They contributed 70 basis points of of. Margin in the quarter. The accretive impact of their gross margin contribution. And in General, we're really pleased with the way that the team is performing and the prospects for the business. So we remain very bullish on that piece of the business, but I want to emphasize our bullish view on the overall precision conveyance business that we're engaged in more broadly.
They contributed 70 basis points of of. Margin in the quarter. The accretive impact of their gross margin contribution. And in General, we're really pleased with the way that the team is performing and the prospects for the business. So we remain very bullish on that piece of the business, but I want to emphasize our bullish view on the overall precision conveyance business that we're engaged in more broadly.
Margin in the quarter. The accretive impact of their gross margin contribution. And in General, we're really pleased with the way that the team is performing and the prospects for the business. So we remain very bullish on that piece of the business, but I want to emphasize our bullish view on the overall precision conveyance business that we're engaged in more broadly.
The accretive impact of their gross margin contribution. And in General, we're really pleased with the way that the team is performing and the prospects for the business. So we remain very bullish on that piece of the business, but I want to emphasize our bullish view on the overall precision conveyance business that we're engaged in more broadly.
And in General, we're really pleased with the way that the team is performing and the prospects for the business. So we remain very bullish on that piece of the business, but I want to emphasize our bullish view on the overall precision conveyance business that we're engaged in more broadly.
Obviously we've seen some sequential declines in sales activity tied to some softness in the market that we saw over the past year, and with the challenges we've seen in the e-commerce space with one large customer, but we do see a lot of opportunities on the horizon and our team is very actively engaged in good discussions around the development of that business.
Over the past year. And with the. Challenges, we've seen in the e-commerce space with one large customer, but we do see a lot of opportunities on the horizon and our team is very actively engaged in good discussions around the development of that business.
And with the. Challenges, we've seen in the e-commerce space with one large customer, but we do see a lot of opportunities on the horizon and our team is very actively engaged in good discussions around the development of that business.
Challenges, we've seen in the e-commerce space with one large customer, but we do see a lot of opportunities on the horizon and our team is very actively engaged in good discussions around the development of that business.
Steve Ferazani: When I think about precision conveyance becoming a larger part of our overall sales, but it sounds like you're still sort of guiding towards traditional for December quarter seasonality. Any reason to think and obviously we look at the revenue change last September to December, which was very minimal, any reason to think that you're just entering years now where you're just not going to see the same traditional seasonality?
that you're just entering years now where you're just not going to see the same traditional seasonality?
Gregory P. Rustowicz: Yeah, so I think our core lifting business is still 60% of the mix approximately, so I think we will continue to see a seasonal impact on gross margins. I would point out though Steve that last year, we saw a 160 basis point sequential decline. This year, we don't think it's going to be near that level and that's I'd say due to the positive impact that our precision conveyance business and the Mantra Tech acquisition in general will have on our overall gross margins.
Our core lifting business is still 60% of the mix approximately so I think we will continue to see a seasonal impact on gross margins I would point out, though Steve that last year. We saw a 160 basis point sequential decline. This year, we don't think it's going to be near that level and that's it. I'd say due to the positive impact that our precision conveyance business and the mantra Tech acquisition in general will have on our overall gross margins. Okay.
I'd say due to the positive impact that our precision conveyance business and the mantra Tech acquisition in general will have on our overall gross margins. Okay.
Okay.
David J. Wilson: Steve, I would just add that I think your instincts are right as it relates to the mix of business shift and the opportunities we have as we continue to push the business more into that mix of business. We're leaning on a traditional view that the markets and the business has produced the seasonally adjusted result that's been lower in this upcoming quarter, and we anticipate that that will continue this year, but our goal overtime is to see that moderate.
We're leaning on a traditional view that the markets and the business has produced the seasonal seasonally adjusted result, that's been lower in this upcoming quarter. And we anticipate that that will continue this year, but our goal overtime is to see that moderate.
And we anticipate that that will continue this year, but our goal overtime is to see that moderate.
Steve Ferazani: Great. Thanks everyone.
Thanks, everyone.
Operator: As a reminder, it is star one to ask a question. Our next question comes from the line of Walter Liptak with Seaport Global. Please proceed with your question.
Next question comes from the line of Walter Liptak with Seaport Global. Please proceed with your question.
Walter Liptak: Hi, thanks. Good morning and great quarter. I wanted to ask just sort of a refining question about--you made some comments about October and I wonder if you could just please go over those again and how was October for short cycle versus projects?
I wanted to ask. Just sort of a refining question about you made some comments about October and I Wonder if you could just. Please go over those again and how was October for short cycle versus projects.
Just sort of a refining question about you made some comments about October and I Wonder if you could just. Please go over those again and how was October for short cycle versus projects.
Please go over those again and how was October for short cycle versus projects.
Gregory P. Rustowicz: Yeah, Walt, I don't have the short cycle versus project broken out top of mind or in front of me right now, but I know that through the first four weeks of October orders are up double-digits over the prior quarter's same period. So we're encouraged and we wanted to highlight that obviously with the project orders being down in the second quarter. And we are emphasizing that the pipeline is very attractive and we're working on some exciting opportunities. And in this quarter, we're seeing orders accelerate coming out of last quarter and so that's the bottom line.
Top of minor in front of me right now, but I know that through the first four weeks of October orders are up double digits over the prior. Quarters same period. So we're encouraged that we wanted to highlight that obviously with the project orders being down in the. In the second quarter. And we are emphasizing that the pipeline is very attractive and we're working on some exciting opportunities and in this quarter, we're seeing orders accelerate coming out of last quarter and so that's the bottom line.
Quarters same period. So we're encouraged that we wanted to highlight that obviously with the project orders being down in the. In the second quarter. And we are emphasizing that the pipeline is very attractive and we're working on some exciting opportunities and in this quarter, we're seeing orders accelerate coming out of last quarter and so that's the bottom line.
In the second quarter. And we are emphasizing that the pipeline is very attractive and we're working on some exciting opportunities and in this quarter, we're seeing orders accelerate coming out of last quarter and so that's the bottom line.
And we are emphasizing that the pipeline is very attractive and we're working on some exciting opportunities and in this quarter, we're seeing orders accelerate coming out of last quarter and so that's the bottom line.
Walter Liptak: Alright, that sounds great. And then you mentioned the project orders being a little bit slow and we can I guess all kind of think about what that might be from but what is it that you think, why do you think the project orders were down?
And then. You mentioned the project orders. A little bit slow and we can I guess I'll kind of. Think about what that might be from but what is it that you think why do you think the project orders. We're down.
You mentioned the project orders. A little bit slow and we can I guess I'll kind of. Think about what that might be from but what is it that you think why do you think the project orders. We're down.
A little bit slow and we can I guess I'll kind of. Think about what that might be from but what is it that you think why do you think the project orders. We're down.
Think about what that might be from but what is it that you think why do you think the project orders. We're down.
We're down.
David J. Wilson: Yeah, I think part of it is due to rising interest rates and companies are looking at their Capex spend and looking at what it's going to cost to finance some of these projects and while they're good projects I think they're being being more discerning. And I think also as we approach the end of the calendar year, there's a lot of companies that have budgets that are being used up or maybe they've reduced what their original budgets were for Capex and we'd see that typically with a little bit weaker December. And so I would expect that some of these projects will get let loose, if not in our fiscal third quarter, certainly in our fiscal fourth quarter.
that are being used up or maybe they've reduced what their original budgets were for Capex and we'd see that typically with a little bit weaker December. And so I would expect that some of these projects will get let loose, if not in our fiscal third quarter, certainly in our fiscal fourth quarter.
And we'd see that typically with a little bit weaker December. And so I would expect that that will some of these projects will get let loose if not in our fiscal third quarter certainly in our fiscal fourth quarter.
And so I would expect that that will some of these projects will get let loose if not in our fiscal third quarter certainly in our fiscal fourth quarter.
And I also think that is the lumpy nature of project activity. We did see orders down 9% year over year and project based business, short cycle business was steady and up 11% and the pipeline of opportunities is even more encouraging than it has been and so it's a matter of where those projects phase in our customer schedules and our ability to adapt and do what we can to best service them. We're not concerned about the order rates that came through in the second quarter from a project standpoint. We're encouraged about the activity we're pursuing and the prospects for the business more broadly.
We did see orders down 9% year over year and project based business short cycle business was steady and up 11% and the pipeline of opportunities is even more encouraging than it has been and so it's a matter of where those projects phase in our customer schedules and our ability to. To adapt and do what we can do best service them, but. We're not we're not. Without the order rates that came through in the second quarter from a project standpoint, we're encouraged about the activity, where we're pursuing and the prospects for the business more broadly.
To adapt and do what we can do best service them, but. We're not we're not. Without the order rates that came through in the second quarter from a project standpoint, we're encouraged about the activity, where we're pursuing and the prospects for the business more broadly.
We're not we're not. Without the order rates that came through in the second quarter from a project standpoint, we're encouraged about the activity, where we're pursuing and the prospects for the business more broadly.
Without the order rates that came through in the second quarter from a project standpoint, we're encouraged about the activity, where we're pursuing and the prospects for the business more broadly.
Walter Liptak: Alright, great. And then maybe last one for me. It was nice hearing that the 80/20 is going well and you guys are working on PLS. And I guess one of the prior questions you touched on this too, but are there any other 80/20 efforts that you guys are going after?
Alright, great and then maybe. A last one for me. Nice hearing aid. 2020 is going well and you guys are working on Pls.
A last one for me. Nice hearing aid. 2020 is going well and you guys are working on Pls.
Nice hearing aid. 2020 is going well and you guys are working on Pls.
2020 is going well and you guys are working on Pls.
And I guess one of the prior questions you touched on this too but are there any other 80 20 efforts. You guys are going after.
You guys are going after.
David J. Wilson: Yeah, for sure Walt. Our product line and P&L segmentation work and the opportunities we have from a cost perspective as it relates to certain lines of business and a rationalization perspective as well as the factory footprint simplification opportunities coming from the Capex investments we're making to increase capacity in key areas and develop this center of excellence that Greg has been speaking of. And so I feel like we're in a good position to really advance the business from a performance perspective, leveraging 80/20 through those tools. And we're excited about the work that we're doing and the work that is yet to be done that will lead us to a higher performing enterprise.
<unk>. Product line in P&L segmentation work and the opportunities we have from a cough. Cost perspective, as it relates to certain lines of business and our rationalization perspective as well as the. The factory footprint simplification opportunities coming from the Capex investments, we're making. To increase capacity in key areas. Develop this center of excellence that Greg and speaking of and so I feel like we're in a good position to really advance the business from a performance perspective, leveraging 80 20 through those tools. And we're excited about the work that we're doing and the work that is yet to be done that will lead us to. A higher performing enterprise.
Product line in P&L segmentation work and the opportunities we have from a cough. Cost perspective, as it relates to certain lines of business and our rationalization perspective as well as the. The factory footprint simplification opportunities coming from the Capex investments, we're making. To increase capacity in key areas. Develop this center of excellence that Greg and speaking of and so I feel like we're in a good position to really advance the business from a performance perspective, leveraging 80 20 through those tools. And we're excited about the work that we're doing and the work that is yet to be done that will lead us to. A higher performing enterprise.
Cost perspective, as it relates to certain lines of business and our rationalization perspective as well as the. The factory footprint simplification opportunities coming from the Capex investments, we're making. To increase capacity in key areas. Develop this center of excellence that Greg and speaking of and so I feel like we're in a good position to really advance the business from a performance perspective, leveraging 80 20 through those tools. And we're excited about the work that we're doing and the work that is yet to be done that will lead us to. A higher performing enterprise.
The factory footprint simplification opportunities coming from the Capex investments, we're making. To increase capacity in key areas. Develop this center of excellence that Greg and speaking of and so I feel like we're in a good position to really advance the business from a performance perspective, leveraging 80 20 through those tools. And we're excited about the work that we're doing and the work that is yet to be done that will lead us to. A higher performing enterprise.
To increase capacity in key areas. Develop this center of excellence that Greg and speaking of and so I feel like we're in a good position to really advance the business from a performance perspective, leveraging 80 20 through those tools. And we're excited about the work that we're doing and the work that is yet to be done that will lead us to. A higher performing enterprise.
Develop this center of excellence that Greg and speaking of and so I feel like we're in a good position to really advance the business from a performance perspective, leveraging 80 20 through those tools. And we're excited about the work that we're doing and the work that is yet to be done that will lead us to. A higher performing enterprise.
And we're excited about the work that we're doing and the work that is yet to be done that will lead us to. A higher performing enterprise.
A higher performing enterprise.
Walter Liptak: Okay, great. Thanks so much.
Operator: We have a follow up question from the line of John Tanwanteng with CGS Securities. Please proceed with your question.
Jonathan E. Tanwanteng: Hi, thanks for the follow up. I think you've touched on this but I'm just wondering if there's a little more clarity or color on the e-commerce business in that largest [inaudible] and the split between the pipeline for those two?
Wondering if there's a little more clarity or color on the e-commerce. Business in that largest telco customer. And the split between the arms. The pipeline for those two.
Business in that largest telco customer. And the split between the arms. The pipeline for those two.
And the split between the arms. The pipeline for those two.
The pipeline for those two.
David J. Wilson: Yeah, sure. So what I would say John is that we have taken the opportunity with the slowdown in business in that area to do a lot of business development work with a broader base of customers and we've been able to gain access to a number of new and attractive customers where we are growing.
We've also maintained very close connectivity with that specific customer you've mentioned in the past and we're in great discussions regarding the development of new opportunities with them with their R&D teams and we're encouraged by some promising prospects and potentially near term opportunity associated with that pipeline.
<unk> by some promising prospects and. Potentially near term opportunity associated with that that pipeline.
Potentially near term opportunity associated with that that pipeline.
Jonathan E. Tanwanteng: Okay, great. And then finally, just to be clear, at a high level from what are you seeing in October order rates and what you're seeing in your project pipeline, it doesn't seem like demand has weakened outside of your normal seasonality. Is that fair to say?
And then finally just to be clear at a high level. What are you seeing in October order rates and what Youre seeing in your project pipeline. It doesn't seem like demand has weakened outside of your normal seasonality is that fair to say.
David J. Wilson: I think that's generally fair to say. As we alluded to in the prepared remarks, there's been some softness in Germany but that is not something that has been dramatic and it's something that we've been working to offset with opportunities we're pursuing more broadly. And so, the short answer to the question is no, we're not overly concerned about that.
As we alluded to in the prepared remarks, theres been some softness in Germany. But that is not something that has been. Dramatic and it's something that we've been working to offset with opportunities we're pursuing more broadly and so. Yes. The short answer to the question is no we're not we're not overly concerned about that.
But that is not something that has been. Dramatic and it's something that we've been working to offset with opportunities we're pursuing more broadly and so. Yes. The short answer to the question is no we're not we're not overly concerned about that.
Dramatic and it's something that we've been working to offset with opportunities we're pursuing more broadly and so. Yes. The short answer to the question is no we're not we're not overly concerned about that.
Yes. The short answer to the question is no we're not we're not overly concerned about that.
The short answer to the question is no we're not we're not overly concerned about that.
Jonathan E. Tanwanteng: Okay, great. Thanks again.
Operator: There are no further questions in the queue. I'd like to hand the call back to Mr. Wilson for closing remarks.
David J. Wilson: Great. Thank you Doug and thank you everyone for joining us today. We took a meaningful step forward this quarter and established several new performance records. This is a testament to the great work being done by our global associates across Columbus McKinnon and I thank you all.
This is a testament to the great work being done by our global associates across Columbus, Mckinnon and I. Thank you all.
We are pleased with our results to date and are more encouraged with the progress we're making as a team and the potential we have as a business. We're growing in attractive markets, building a higher margin profile, generating cash, and accelerating debt repayment. We now expect to exit the fiscal year with a net debt leverage ratio of approximately 2.3 times.
Times.
Our team remains highly focused on executing our strategy and achieving our strategic plan objectives. Thank you for your attention and have a great day.
Thank you for your attention and have a great day.
Operator: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.