Q3 2024 Columbus McKinnon Corp Earnings Call
Yeah.
Greetings and welcome to Columbus, Mckinnon third quarter of fiscal year, 'twenty 'twenty four financial results.
At this time all participants are in a listen only mode.
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 I would now like to turn the conference over to your host Kristy Moser, Vice President Investor Relations and Treasurer.
Thank you, Rob and good morning, everyone to Columbus Mckinnon, its fiscal third quarter 2024 earnings conference call. The earnings release and presentation are available for download on our Investor Relations website at Investor Relations Scott C. M. C O dot com on the call with me today are David Wilson, our President and Chief Executive of.
And Greg rest with our Chief Financial Officer in a moment, David and Greg will walk you through our financial and operating performance for the quarter, but before we begin our remarks. Please let me remind you that we have our safe Harbor statement on slide two during the course of this call management may make forward looking statements in regards to our current plans beliefs and.
Spectation. These statements are not guarantees of future performance and are subject to a number of risks and uncertainties and other factors that can cause actual results and events to differ materially from the results and events contemplated by these forward looking statements I'd also like to remind you that management will refer to certain non-GAAP financial measures.
You can find reconciliations of these the most directly comparable GAAP financial measures on the company's Investor Relations website and in its filings with the Securities and Exchange Commission. Please see our earnings release, and our filings with the Securities and Exchange Commission for more information.
Today's prepared remarks will be followed by a question and answer session with that let me turn it over to David.
Thank you Christy and good morning, everyone. The third quarter was another quarter of strong net sales as we leveraged our playbook for growth and gained traction with commercial initiatives.
In fact, we delivered over $1 billion of net sales on a trailing 12 month basis for the first time in our history.
With continued category of resilience and healthier supply chain dynamics, we improved operating performance in areas that matter most to our customers and reduced our lead times.
This improvement in operational performance enabled us to further reduce our past due backlog levels and delivered improvements in customer experience.
In the third quarter, we drove 10% topline growth, which translated to even stronger growth in operating profit.
As we expanded gross margin benefited from leverage on our growth and remained focused on performance improvement through C. M. B S and our 80 20 process.
Adjusted gross margin expanded by a robust 160 basis points year over year, even as we lapped pricing actions from the prior year improvements over time have been driven by progress in capacity planning material costs direct labor productivity factory overhead rates pricing and the <unk>.
Acquisition of mantra Tech.
Although we delivered strong margin expansion year over year, it fell a bit short of our own expectations due to a few unique items that Greg will unpack shortly while those dynamics had an impact in the third quarter, we expect to accelerate year over year adjusted gross margin expansion in the fourth quarter.
We have line of sight to 200 plus basis points of expansion with potential upside opportunities and remain on track for our 40% gross margin target in 2027.
That exceptional operating performance is all thanks to the hard work and strong execution of our 3500 Columbus Mckinnon team members.
I couldn't be more proud of how our nimble and innovative team has continued to deliver on behalf of both our customers and our shareholders.
More consistent and improving execution by our team combined with our differentiated business model has delivered a strong record of performance over time and across a variety of economic environments.
While we're growing and generating cash which provides dry powder to reinvest in our growth framework, where we have multiple levers to drive scale.
We also remain focused on using our significant cash flow generation, coupled with adjusted EBITDA growth to.
To naturally deleverage our business our net leverage ratio now sits at two six times and we're on track to achieve approximately 2.3 times by the end of the fiscal year.
We're off to a solid start in the fourth quarter powered by the resilience of our differentiated business growing momentum with our commercial initiatives and strong track record of execution.
If you'll turn to slide four we delivered order growth of 8% in the third quarter positioning us to deliver on our fourth quarter sales guidance, which Greg will discuss shortly.
Orders remained strong across all geographies and we saw particular strength in EMEA as demand remained resilient, despite the broader macroeconomic and geopolitical headwinds.
Underpinning our growth with strength in precision conveyance, and lifting which were up 23% and 7% respectively. Even excluding mantra tech precision conveyance was up 9%.
Overall demand for both our project and short cycle businesses remained healthy project orders grew double digits in Q3, reflecting our customer centric focus targeted end market growth initiatives and channel diversification efforts and on a quarter to date basis through last week short cycle.
Orders continued to expand and are up 11% versus the same period last year.
We are capitalizing on mega trends within the vertical market, leading to project wins in areas related to electric and hybrid vehicle advancements e-commerce and package delivery solutions.
Pharma is shipped to home trends and increasing demand for pre packaged meals, where we are delivering customized solutions for our customers to address their unique needs and exact specifications.
As we lean into customization and increasing proportion of our portfolio requires unique equipment and parts, creating recurring revenue streams for our business that will also be a tailwind to gross margin over time.
While still early we see a growing pipeline of project activity this quarter and I've already had wins in categories benefiting from Megatrends that provide tailwind to our business such as pharma automation and logistics.
While we are not immune to the macroeconomic environment, we remain cautiously optimistic about our near term outlook given the resilience of our customer relationships. The visibility we have into our sales funnel.
In our efforts to improve our customers' experience.
Through our acquisitions and our commercial growth initiatives, we are adding new customers and expanding into new markets markets that have attractive tailwind.
This is muted impacts from pockets of softness in industrial Capex spending.
Importantly, we remain encouraged by our funnel for both short cycle and large project orders.
As I mentioned earlier, we remain highly focused on improving our operational performance and enhancing our customers' experience.
As a result of these efforts our backlog decreased by 6% from the prior quarter driven by reductions in past due backlog, which decreased 26% in the period.
Going forward, we expect backlog to further normalize from current levels.
While this may impact near term shipment flexibility, we expect to benefit from improved lead times and customer satisfaction levels, which we believe will create tailwind to order frequency and volume over the midterm.
In addition to customer experience, we continue to make significant progress on all aspects of our transformation delivering on productivity enhancements and simplifying our business, including foundational progress with the footprint rationalization plan that we mentioned in our last Investor day.
As part of that effort in January we opened our state of the art manufacturing Center of excellence in Monterrey, Mexico pictured on slide five.
A 165000 square foot facility that will enable productivity enhancements and growth over time.
This investment is directly aligned with our 80 20 process and will cultivate a culture of innovation as we expand our R&D capabilities in the region.
We expect to incur approximately $26 million of Capex associated with this phase of the project. We also expect factory consolidation costs of approximately $2 million related to the closure of our Santiago, Mexico facility and our consolidation of that facility into Monterey in the fourth quarter.
We expect to achieve productivity benefits related to this investment over the course of fiscal 'twenty five, but we anticipate that those benefits will be offset by overlapping production costs, while we ramp production volume in the new factory.
Pulling up on slide six we are encouraged with the progress, we're making and by the potential of our business and we advance our strategic transformation to become the global leader in intelligent motion solutions for material handling.
We remain highly focused on executing our strategic plan and achieving both the near and long term objectives, we have established for the business.
I remain confident in the long term trajectory of Columbus Mckinnon powered by our differentiated business model track record of execution and encouraging funnel of opportunities and our acquisition strategy.
We are just beginning to scratch the surface in terms of the value our precision conveyance business can deliver.
The expansion of our total addressable market through our proven playbook provides a long and attractive runway for growth with a focus on targeted sectors that are benefiting from tailwind associated with mega trends related to automation and the scarcity of labor resources, the near shoring of manufacturing capacity.
Infrastructure and defense spending as well as electrification.
Our continued execution growing momentum and the strength of our business model give us confidence that we will remain on track to meet our long term financial objectives.
With that I'll turn it over to Greg to take us through the financial results. Thank you David Good morning, everyone.
Turning to slide seven we delivered sales in the third quarter of $254 $1 million up 10, 3% from the prior year period, our eight 5% on a constant currency basis.
This was at the high end of the guidance, we provided last quarter supported by strong execution from the team and continued resilience in demand.
The mantra Tech acquisition contributed $15 5 million to net sales accounting for six 7% of the net sales increase.
<unk> had a very strong quarter, reflecting the timing of several large project deliveries, namely to Airbus and a large German automotive company in the EV space.
We realized pricing gains of $6 5 million or two 8%, which was in line with what we were anticipating as we lapped last year's November price increase.
Volume decreased by $2 4 million or 1%. This was largely in our precision conveyance platform, which was impacted by lower order rates earlier in the fiscal year.
As David discussed the funnel is healthy for this platform and we saw strong order growth of 23, 5% in Q3.
Foreign currency translation was a benefit this quarter of $4 1 million or one 8%.
We saw robust growth outside of the U S with sales increasing by 30%. This was the result of a combination of both mantra Tech revenue and high single digit organic growth in the U S sales decreased 2% on lower volumes, primarily in our precision conveyance platform as just referenced.
On slide eight we recorded gross margin of 36, 9% in the third quarter on an adjusted basis gross margin was 37, 2% up 160 basis points year over year.
As expected we saw adjusted gross margin declined sequentially by 150 basis points, which includes normal seasonality, while gross margins were the highest we ever had in the third quarter. We came in a little behind our expectations. This was primarily driven by a COVID-19 outbreak in December at our <unk>, Germany factory that.
It impacted labor productivity in.
In addition at <unk>, we had higher purchase components for a particular project that carried a lower margin, which we have addressed and should not repeat Q.
Q4 margins will rebound and we remain on our path to achieve 40% gross margins in fiscal 'twenty seven.
Gross profit increased $11 8 million or 14% versus the prior year. This was driven by several factors, which you can see in the table.
The largest item driving gross profit expansion were contributions from the mantra Tech acquisition, which contributed $6 7 million to gross profit and pricing net of manufacturing cost changes, including material inflation, which added $4 6 million.
<unk> was accretive to gross margins by 40 basis points this quarter with an overall gross margin of 43%.
Moving to slide nine.
SG&A expense was $59 $5 million in the quarter or 23, 4% of sales. This was improved 70 basis points from a year ago. The.
The year over year increase was largely from the addition of mantra tack to the portfolio and the impact of FX, which added 800000 to the total we continue to invest in R&D, which added $1 4 million to the total but this was more than offset by an acquisition earn out in the prior year that did not repeat and lower selling <unk>.
Costs as we realign the business a year ago.
Turning to slide 10, we generated operating income of $26 9 million in the quarter or 10, 6% of sales. This represents an increase of $6 7 million or 33% over last year's third quarter.
Adjusted operating income was $29 7 million or 11, 7% of sales.
On an adjusted basis operating income grew to $6 3 million or 27%.
This reflects the strong operating leverage we have in the business and demonstrates our long runway for margin expansion over time.
Excluding the mantra Tech acquisition, which was additive to our results.
Our business drove 47% adjusted operating leverage.
As you can see on slide 11, we recorded GAAP earnings per diluted share for the quarter of 34.
Down <unk> <unk> versus the prior year. This was due to a $4 $6 million noncash pension settlement expense, which impacted EPS by <unk> 12 per share. We are in the process of terminating one of our U S. Pension plans, we paid lump sum payments to a certain class of current and former employees who will.
<unk> the lump sum settlement the remaining liability will be sold to an insurance company later this calendar year.
When we complete that transaction, we expect another noncash charge of approximately $28 million to $29 million that we will record at that point. The pension plan will be off our books, we had a similar termination back in fiscal year 'twenty. One we have adjusted this out for purposes of calculating adjusted EPS.
Our tax rate on a GAAP basis. This quarter was 29% as we repatriated overseas cash to accelerate debt repayment, which resulted in dividend withholding taxes.
Year to date, our tax rate was 26 and for the year, we still expect our tax rate to be approximately 25%.
Adjusted earnings per diluted share of <unk> 74 was up two <unk> 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, which together impacted EPS by about <unk> 10 per share in the quarter.
On slide 12, our adjusted EBITDA margin this quarter of 16, 3% improved by 160 basis points from a year ago.
On a trailing 12 month basis, our adjusted EBITDA margin was also a 16, 3% a 50 basis point improvement from where we finished fiscal year 'twenty three.
Our return on invested capital continues to improve and was up 30 basis points for fiscal year 'twenty, 3% to 7%, we expect to realize a low double digit ROIC by fiscal year 'twenty seven.
Moving to slide 13 quarterly free cash flow was $23 1 million in the period. This includes cash provided by operating activities of $29 1 million and Capex of $6 million year to date, our free cash flow is $12 3 million, which is an increase of 66% from a year ago. Despite the higher <unk>.
Opex.
Largely tied to our new Monterrey, Mexico facility.
Q4, historically is a strong cash from operations quarter for us and we would expect that trend to continue.
Turning to slide 14, our capital structure continues to improve as our net debt leverage ratio was two six times on a financial covenant basis. As we have previously discussed we have a covenant light credit agreement, we continue to accelerate our debt reduction plans as we paid down another $15 million of debt this quarter.
We are planning to pay down an additional $15 million in Q4, which will bring the total to $55 million of debt. This fiscal year up from the $40 million discussed at the beginning of the fiscal year.
We expect to report a net leverage ratio of approximately two three times as we exit fiscal year 'twenty four.
Turning to guidance on slide 15.
On the back of solid growth in orders in Q3, we expect to continue to grow net sales between 2% and 6% to between $260 to $270 million. In Q4, we also expect roughly $60 million of our SG&A expense $10 million of interest expense.
Tax rate of 25% for the full year diluted shares outstanding of $29 1 million, we expect to continue to be highly cash flow generative with free cash flow conversion of approximately 90% for the full fiscal year. This is inclusive of Q4 capex of approximately $14 million to $19 million, which is elevate.
Due to the opening of our Monterey facility.
We expect to use our cash flow to continue to Delever our business as a result, we expect our net leverage ratio to improve to approximately two three times by the end of the fiscal year.
As I wrap up my review of our financial performance, let me emphasize that our guidance reflects the strength of our results year to date initial trends in the fourth quarter and our ongoing confidence in our differentiated business model, Rob we are now ready to take questions.
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Operator: Greetings and welcome to Columbus McKinnon's third quarter fiscal year 2024 financial. At this time, all participants are on a listen. A question and answer session will follow the formal briefing. If anyone should require operator assistance during the conference, please press star zero on your telephone.
Our first question comes from Matt Summerville with D. A Davidson. Please proceed with your question.
Thanks.
Questions with respect to Monterrey, the duplicative manufacturing cost and of course youre going to have.
Operator: As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Christie Moser, Vice President of Investor Relations and Treasurer. Thank you, Rob.
Are you able to quantify that is that included in the guide will that'd be one times out.
Can you also talk about Monterey, maybe what youre consolidating into that facility.
Christie Moser: And good morning, everyone, to Columbus McKinnon's fiscal third quarter 2024 earnings conference call. The earnings release and presentation are available for download on our Investor Relations website at investorrelations.cmco.com. On the call with me today are David Wilson, our President and Chief Executive Officer, and Greg Rustowicz, our Chief Financial Officer. In a moment, David and Greg will walk you through our financial and operating performance for the quarter, but before we begin our remarks, please let me remind you that we have our Safe Harbor Statement on slide two. During the course of this call, management may make forward-looking statements in regards to our current plans, beliefs, and expectations. These statements are not guarantees of future performance and are subject to a number of risks and uncertainties and other factors that can cause actual results and events to differ materially from the results and events contemplated by these forward-looking statements. I'd also like to remind you that management will refer to certain non-GAAP financial measures. You can find reconciliations of the most directly comparable GAAP financial measures on the company's investor relations website and in its filings with the Securities and Exchange Commission.
Ramp up trajectory looks tightened on cost savings quantification of all of that stuff.
Yes, Matt let me take the first part of that and I'll address the second question and then I'll hand, it off to Greg to address the first of your questions.
So.
If you go back to our analyst or Investor day.
When we talked about our strategy from a footprint simplification standpoint, we outlined a path that include included.
And improvement to gross margin through.
Through the rationalization of our our footprint over time and what we've done is we've put in place the foundation for that work with this brand new facility that we just directed and we started to consolidate into and so we have announced.
Consolidation of our Santiago, Mexico facility into that location in Monterrey, and Thats underway and then over time, we will.
I'll be addressing the follow on plans associated with that overall strategy and obviously for sensitivity reasons, we're not going to get into more details related to those next steps, but we have a very well defined plan that we are actively managing and leading the business through.
Christie Moser: Please see our earnings release and our filings with the Securities and Exchange Commission for more information. Today's prepared remarks will be followed by a question and answer session. With that, I will turn it over to David.
David Wilson: Thank you, Christy, and good morning, everyone. The third quarter was another quarter of strong net sales as we leveraged our playbook for growth and gained traction with commercial initiatives. In fact, we delivered over $1 billion of net sales on a trailing 12-month basis for the first time in our history. With continued category resilience and healthier supply chain dynamics, we improved operating performance in areas that matter most to our customers and reduced our lead time. This improvement in operational performance enabled us to further reduce our past two backlog levels and delivered improvements in customer experience. In the third quarter, we drove 10% top-line growth, which translated to even stronger growth in operating profits, as we expanded gross margin, benefited from leverage on our growth, and remained focused on performance improvement through CMBS and our 80-20 process. Adjusted gross margin expanded by a robust 160 basis points year over year, even as we lapped pricing actions from the prior year. Improvements over time have been driven by progress in capacity planning, material costs, direct labor productivity, factory overhead rates, pricing, and the acquisition of mantra technology.
Expect that to deliver the benefits that were outlined at that time, and our bridge to 40% gross margins.
Hi, Matt. So this is Greg so with regards to how we're going to handle the cost for Monterrey. So this quarter, we pro forma the approximately $755000 as it represented the cost of us getting a team in place hiring new people and some facility costs and we.
Haven't yet produced a single item. So we would expect as we ramp up in Q4. We will also have pro forma cost related to that that would be in excess of what we would the standards. We set for the cost of manufacturing our product and as we go into.
Fiscal year 'twenty five.
We will start to realize benefits from the facility from the consolidation, but we think that in general that it's going to be kind of offset by the fact that we're still scaling up.
Understood.
David could you maybe talk a little bit more.
Provide a little bit more granularity just around some more end market specifics, where you see the.
David Wilson: Although we delivered strong margin expansion year over year, it fell a bit short of our own expectations due to a few unique items that Greg will unpack shortly. While those dynamics had an impact in the third quarter, we expect to accelerate year-over-year adjusted gross margin expansion in the fourth quarter. We have line of sight to 200 plus basis points of expansion with potential upside opportunities and remain on track for our 40% gross margin target in 2027. That exceptional operating performance is all thanks to the hard work and strong execution of our 3,500 Columbus MacKinnon team members.
The most strength right now and maybe where youre seeing some weaker spots in both the U S and your international business.
Yeah sure Thanks, Matt so.
We've seen nice market resilience across all geographies and I think in the data that we talked about relative to.
The performance of the business in Q3, we saw an increase in Europe of nine 5% in orders.
Including <unk>, four 5% year over year, excluding mantra tack on a constant FX basis.
Order rates in our conveyance business were up 23, 5% globally, including <unk>.
David Wilson: I couldn't be more proud of how our nimble and innovative team has continued to deliver on behalf of both our customers and our shareholders. More consistent and improved execution by our team, combined with our differentiated business model, has delivered a strong record of performance over time and across a variety of economic environments. While we're growing and generating cash, which provides dry powder to reinvest in our growth framework where we have multiple levers to drive scale, we also remain focused on using our significant cash flow generation, coupled with adjusted EBITDA growth, to naturally deleverage our business. Our net leverage ratio now sits at 2.6 times, and we're on track to achieve approximately 2.3 times by the end of the fiscal year.
<unk>, 9%, if you exclude that our lifting business was up 7%. So theres been a nice level of resiliency. We are seeing nice performance as it relates to the EV pipeline life Sciences, food and beverage as well as defense opportunities.
And as we look to the future. We are in active discussions with a targeted set of customers that serve the life Sciences space.
The EV and hybrid vehicle space.
The.
E Commerce spaces, we're starting to gain additional traction there. We're excited about the pipeline of opportunities that exist. There and then food and beverage is starting to gain traction what I will say is the <unk>.
<unk> seen probably between June of 2022 in June of 2023 related to the robotics and packaging markets with higher interest rates and some of the slowdown in order rates there that were affecting our conveyor business those have bottomed.
David Wilson: We're off to a solid start in the fourth quarter, powered by the resilience of our differentiated business, growing momentum with our commercial initiatives, and strong track record of our execution. If you'll turn to slide four, we delivered order growth of 8% in the third quarter, positioning us to deliver on our fourth quarter sales guidance, which Greg will discuss shortly. Orders remained strong across all geographies, and we saw particular strength in EMEA, as demand remained resilient despite the broader macroeconomic and geopolitical headwinds.
And theirs.
Sure.
A rebound there that we're able to capitalize on and we feel good about the progress. Our teams are making as we are targeting markets to support growth in our precision conveyance business.
Got it thanks guys.
You bet Thanks, Matt.
David Wilson: Underpinning our growth was strength in precision conveyance and lifting, which were up 23% and 7% respectively. Even excluding Montretek, precision conveyance was up 9%. Overall, demand for both our project and short cycle businesses remained healthy. Project orders grew double digits in Q3, reflecting our customer-centric focus, targeted end-market growth initiatives, and channel diversification efforts. And on a quarter-to-date basis through last week, short-cycle orders continued to expand and are up 11 percent versus the same period last year. We are capitalizing on megatrends within the vertical market, leading to project wins in areas related to electric and hybrid vehicle advancements, e-commerce, and package delivery solutions. Pharma's shift to home trends and increasing demand for prepackaged meals, where we are delivering customized solutions for our customers to address their unique needs and exact specifications.
Our next question is from Jon <unk> with CJS Securities. Please proceed with your question.
Hi, good morning, and thank you for the questions I, just wanted to drill down a little bit on that end market commentary a little bit more if you could.
The first was U S lifting down at all or was that all conveyance.
And if it was all convinced was that simply the lapping of that large e-commerce and robotic customer you mentioned.
Yes U S lifting was up.
With orders in the quarter and on a.
Global basis lifting was up 7% seven 5%.
But the U S. Lifting business was also up in low single digits.
Okay, Great and then you mentioned strength in I guess sort of a bottoming in recovery and to convince them.
Our business is that from a returns of any customers that came out or was that more broad based as you address some of the market.
Yes, it's a little bit of both actually we've continued to gain traction with a new set of customers that we have.
David Wilson: As we lean into customization, an increasing proportion of our portfolio requires unique equipment and parts, creating recurring revenue streams for our business that will also be a tailwind to gross margin over time. While still early, we see a growing pipeline of project activity this quarter, and I've already had wins in categories benefiting from megatrends that provide tailwinds to our business, such as pharma automation and logistics. While we are not immune to the macroeconomic environment, we remain cautiously optimistic about our near-term outlook given the resilience of our customer relationships, the visibility we have into our sales funnel, and the impact of COVID-19, and our efforts to improve our customers' experience. Through our acquisitions and our commercial growth initiatives, we are adding new customers and expanding into new markets, markets that have attractive tailwinds. This is Muted Impacts from Pockets of Softness in Industrial Cap Expenditure.
Engaged and channel diversification initiatives in business development with targeted customers and so we're pleased with the traction we're gaining around e-commerce more broadly through both integrators and end users.
But we are seeing.
The return of activity with customers that we've worked with for a long time and our continued traction around data developments that we're working on with them.
Got it and then finally, you mentioned strength in EV, which seems counter to the sentiment that maybe production is ahead of demand. There I was wondering if you could provide a little more color on what your customers are telling you and kind of how they're planning.
Sure Yeah. So we're working with a number of participants in that space and as we build capacity for our customers. They are focusing on both long game benefits as they position themselves for.
This is a long term trend, but also theyre focusing on productivity improvements in their own factories and the advantages we can provide them with whether that be for immediately growing demand or current demand and there is opportunities for us through the work, we do with intelligent motion solutions that help them with their.
David Wilson: Importantly, we remain encouraged by our funnel for both short-cycle and large-project orders. As I mentioned earlier, we remain highly focused on improving our operational performance and enhancing our customers' experience. As a result of these efforts, our backlog decreased by 6% from the prior quarter, driven by reductions in past due backlogs, which decreased 26% in the period.
Productivity and cost savings too.
To sell more and so we're seeing traction with the work we're doing there.
Great Greg if I could sneak one in there what would you expect on a gross margin basis as we head into the fourth quarter, both what would normally be a seasonal thing kind of one offs that you expect that this quarter.
David Wilson: Going forward, we expect backlog to further normalize from current levels. While this may impact near-term shipment flexibility, we expect to benefit from improved lead times and customer satisfaction levels, which we believe will create tailwinds to order frequency and volume over the midterm. In addition to customer experience, we continue to make significant progress on all aspects of our transformation, delivering on productivity enhancements and simplifying our business, including foundational progress with the Footprint Rationalization Plan that we mentioned in our last investment. As part of that effort, in January, we opened our state-of-the-art Manufacturing Center of Excellence in Monterey, Mexico, pictured on slide 5.
So we think we're going to be you know in the 200 basis point plus.
From where we sit today sequentially from last year, sorry, so that puts it approximately at 38% gross margin adjusted gross margin area.
Great I think we noted in our prepared from off commentary John that we we see upside potential.
We're working on that.
Got it thanks guys.
You bet. Thanks.
Our next question is from Walt Liptak with Seaport Research. Please proceed with your question.
David Wilson: A 165,000 square foot facility that will enable productivity enhancements and growth over time. This investment is directly aligned with our 80-20 process and will cultivate a culture of innovation as we expand our R&D capabilities in the region. We expect to incur approximately $26 million of capital expenditures associated with this phase of the project. We also expect factory consolidation costs of approximately $2 million related to the closure of our Santiago, Mexico facility and our consolidation of that facility into Monterey in the fourth quarter.
Hi, Thanks, good morning, guys and good quarter.
Thanks wanted to ask about.
Our mantra Tac and the sales came in a little bit stronger than I was expecting.
And so I guess the question is was there something that was pulled forward what are we thinking now for.
Sort of.
The 12 months revenue run rate for <unk> sure sure. So as Greg indicated in his prepared commentary, we we shipped two large projects too.
Airbus and then too.
Two large German EV manufacturer.
David Wilson: We expect to achieve productivity benefits related to this investment over the course of fiscal 25, but we anticipate that those benefits will be offset by overlapping production costs while we ramp production volume in the new factor. Pulling up on slide 6, we're encouraged by the progress we're making and by the potential of our business as we advance our strategic transformation to become the global leader in intelligent motion solutions for material handling. We remain highly focused on executing our strategic plan and achieving both the near and long-term objectives we've established for the business. I remain confident in the long-term trajectory of Columbus-McKinnon, powered by our differentiated business model, track record of execution, an encouraging funnel of opportunities, and our acquisition strategy. We are just beginning to scratch the surface in terms of the value our precision conveyance business can deliver.
And those were planned we had visibility to that demand into those shipments in the quarter. So they were elevated and that's not a quarterly run rate. If you will right now for the business, but as we purchased the business it was a $30 million business.
And we had communicated that we anticipated we'd grow the business at roughly a 30% rate and so I think thats still remains intact and would anticipate that we're a year later running at more of a $40 million right.
And as a project focused business, it's natural that that business will have a level of variability quarter to quarter and so that.
That $15 million does not repeat itself in this coming quarter, but.
We continue to see really robust demand for that business and we are encouraged by the progress, we're making with our integration work the opportunities for that business not only through their historical channel of delivery or sales to customers, but also through what we've been able to enhance that with with the combination of our businesses.
So we really feel good about.
The early innings for that business and the growth trajectory that we think we can achieve over time.
Gregory P. Rustowicz: The expansion of our total addressable market through our proven playbook provides a long and attractive runway for growth, with a focus on targeted sectors that are benefiting from tailwinds associated with megatrends related to automation and the scarcity of labor resources, the near-shoring of manufacturing capacity, infrastructure, and defense spending, as well as electrification. Our continued execution, growing momentum, and the strength of our business model give us confidence that we will remain on track to meet our long-term financial objectives. With that, I'll turn it over to Greg to take us through the financial results. Thank you, David. Good morning, everyone.
Okay that sounds great.
And maybe a last one.
The fourth quarter I kind of look back at the data it tends to be a fairly big quarter.
I Wonder if is there something seasonal.
How about the order patterns were large project orders in your March quarter that shipped during the year.
And what's the funnel looking like.
Yeah. So I'll take the first part of that wallet and so typically from a seasonal perspective, you're absolutely right Q4 is our strongest quarter and to put it into perspective Q3 is our seasonally weakest quarter with with the holiday season. So typically there is optimism about the new year.
Our channel and a lot of cases has reduced their inventory levels as of the end of the calendar year, they might be year end reporting companies and so it's important that they have their balance sheet balance sheets, where they want them, but now they've got to look to the future and look at what is the expected demand and so what what inventory do they need <unk>.
Gregory P. Rustowicz: Turning to slide 7, we delivered sales in the third quarter of $254.1 million, up 10.3 percent from the prior year period, or 8.5 percent on a constant currency basis. This was at the high end of the guidance we provided last quarter, supported by strong execution from the team and continued resilience in demand. The Montrotec acquisition contributed $15.5 million to net sales, accounting for 6.7% of the net sales increase. Montrotec had a very strong quarter reflecting the timing of several large project deliveries, namely to Airbus and a large German automotive company in the EV space. We realized pricing gains of $6.5 million, or 2.8%, which was in line with what we were anticipating as we lapped last year's November price increase. Volume decreased by 2.4 million, or 1%.
Got new Capex budget.
Budgets that have been approved and so so from a project perspective, we're starting to see act.
Activity, where orders are going to be coming in related to those projects that we've been working on for quite a while and so.
We would expect those same trends to continue in our fiscal fourth quarter. This year.
I'd just add on relative to the funnel. We are encouraged by the funnel at this point while we.
We saw orders increase in Europe as I communicated earlier, we are.
Believing that the business resiliency is going to continue there as we've come off a low in our second quarter and have seen orders creep up in Q3, and we expect them to continue to continue to move in the upward direction this quarter.
And as I mentioned earlier.
We see opportunities for our precision conveyance and lifting businesses that have.
Sustainable trends and were supported by a lot of macroeconomic trends. So we feel good about the position that we're in.
Gregory P. Rustowicz: This was largely in our precision conveyance platform, which was impacted by lower order rates earlier in the fiscal year. As David discussed, the funnel is healthy for this platform, and we saw strong order growth of 23.5% in Q3. Foreign currency translation was a benefit this quarter of $4.1 million, or 1.8%.
We of course remain cautiously optimistic and were paying attention to how things are developing but at this point.
We see the trends of positive order development continuing.
Okay, Alright, great. Thank you.
Our last question will be from Steve, Arizona with Sidoti and company. Please proceed with your question.
Good morning, David Greg I appreciate all the color on the call.
Gregory P. Rustowicz: We saw robust growth outside of the U.S., with sales increasing by 30%. This was the result of a combination of both Montrotech revenue and high single-digit organic growth. In the U.S., sales decreased 2% on lower volumes, primarily in our Precision Conveyance Platform, as just referenced.
I just wanted to get back into the sales guidance for Q4, when we think about the growth and I think you indicated maybe not as strong from <unk> in Q4, but if I back out mantra tack it would seem at minimum at the low end of guidance. If youre looking at inorganic sales decline is that accurate year over year.
I think we have an organic sales growth at the midpoint of our guidance.
Gregory P. Rustowicz: On slide 8, we recorded gross margin of 36.9% in the third quarter. On an adjusted basis, gross margin was 37.2%, up 160 basis points year over year. As expected, we saw adjusted gross margin decline sequentially by 150 basis points, which includes normal seasonality. While gross margins were the highest we ever had in a third quarter, we came in a little behind our expectations. This was primarily driven by a COVID outbreak in December in our Kunstlislau, Germany, factory that impacted labor productivity.
Year over year.
Greg Yes, yes, that's right. So we do have an organic sales growth Steve year over year at the midpoint of guide.
And I.
That we expect that we'll continue to see positive developments throughout the quarter.
We do have shrinking past due backlog as I mentioned before and so we've been able to.
Address those backlog challenges that we've had and what that's done is it's driven backlog down and I mentioned in my prepared remarks that as we work with our customers and get them into a more frequent ordering pattern and we become more competitive with our lead times, we believe that there's opportunities to gain share and that helps us to drive demand into.
Gregory P. Rustowicz: In addition, at Montrotec, we had higher purchase components for a particular project that carried a lower margin, which we have addressed and should not repeat. Q4 margins will rebound, and we remain on our path to achieve 40% gross margins in FY27. Gross profit increased $11.8 million, or 14% versus the prior year. This was driven by several factors, which you can see in the table.
The business, but that does have.
Periodic impact on this quarter, but we feel good about the progress we're making in those initiatives and so that should trend well as we go into the next year.
Yes.
Add on so at the midpoint, it's kind of mid single digit growth for the company.
Okay.
When we think about or asked you. This in previous quarters now we've seen four out of five quarters with book to Bill under one you can lap mantra tuck in May.
Gregory P. Rustowicz: The largest items driving gross profit expansion were contributions from the Montrotec acquisition, which contributed $6.7 million to gross profit, and pricey net of manufacturing cost changes, including material inflation, which added $4.6 million. Montrotech was accretive to gross margins by 40 basis points this quarter with an overall gross margin of 43%. Moving to slide 9, RSG&A expense was $59.5 million in the quarter, or 23.4% of sales. This was an improvement of 70 basis points from a year ago. The year-over-year increase was largely due to the addition of MontraTech to the portfolio and the impact of FX, which added $800,000 to the total.
How comfortable are you that you can get organic.
Sales growth post lapping mantra, Jack given where you are.
Mhm yeah.
I mean, we certainly feel good about the quarter that we're in and we'll be coming back in.
In the May timeframe with our guidance for fiscal 'twenty five, but we do we do remain encouraged with the momentum in our.
Our order funnel remains really healthy we're in active discussions with our customers I mentioned the channel diversification initiatives the opportunities to gain share in the self help work that we're doing this isn't all about.
A growing macro it's about opportunities for us to compete in the landscape that we compete within and do that effectively and so we.
We remain optimistic about the.
Gregory P. Rustowicz: We continue to invest in R&D, which added $1.4 million to the total, but this was more than offset by an acquisition earn-out in the prior year that did not repeat and lower selling costs as we realigned the business a year ago. Turning to slide 10, we generated operating income of $26.9 million in the quarter, or 10.6 percent of sales. This represents an increase of $6.7 million, or 33 percent, over last year's third quarter. Adjusted operating income was $29.7 million, or 11.7% of sales.
The future.
Alright, thanks for that.
Last one just on.
Debt pay Downs I know Q4 is and you've got sort of guiding for it being a big quarter for cash flow any reason you wouldn't ramp up the pay downs.
We are we have and we will continue to do so Steve. So we started the year with guidance of $40 million roughly $10 million a quarter of debt Paydown and we've ramped that up we're going to be at $55 million for the year with what we expect to do in Q4, and if we can do more than that we will but I think let's say, what's an interesting fact here.
Is that.
For the fiscal year, we will have paid down about half of the purchase price of mantra Tech right, we paid roughly $110 million for it and we're going to pay down $55 million of debt I think that's a very impressive.
Gregory P. Rustowicz: On an adjusted basis, operating income grew 6.3 million, or 27%. This reflects the strong operating leverage we have in the business and demonstrates our long runway for margin expansion over time, excluding the MantraTech acquisition, which was additive to our results. Our business drove 47% adjusted operating leverage. As you can see on slide 11, we recorded GAAP earnings per diluted share for the quarter of $0.34, down $0.08 versus the prior year. This was due to a $4.6 million non-cash pension settlement expense, which impacted EPS by $0.12 per share.
Okay.
Okay.
67% of deaths hedged what does that mean as if we get rate cuts.
Cuts in <unk>.
Yes, so we will benefit from the rate cuts.
For sure and.
For a third of our debt and as the capital markets improve there's always opportunities to even do better and so we will look to see what we can do there.
As well.
Thanks, David Thanks, Greg.
You bet Thanks, Dave.
We have reached the end of the question and answer session I would now like to turn the call back to David Wilson for closing comments.
Gregory P. Rustowicz: We are in the process of terminating one of our U.S. pension plans. We paid lump sum payments to a certain class of current and former employees who elected the lump sum settlement. The remaining liability will be sold to an insurance company later this calendar year. When we complete that transaction, we expect another non-cash charge of approximately $28 to $29 million that we will record. At that point, the pension plan will be off our books.
Great. Thank you Rob and thank you everyone for joining us today, our team is executing and delivered double digit sales and operating income.
Growth in a dynamic environment. This reflects the significant progress, we're making with our transformation and our proven playbook for growth were.
We're pleased with the momentum that we have entering our fourth quarter powered by a diversified platform and an improving competitive position.
We remain a strong cash generator, which enables us to reinvest in our business and de lever the balance sheet unlocking further cash flow potential we're confident in our ability to deliver long term profitable growth and enhance shareholder value.
Gregory P. Rustowicz: We had a similar termination back in fiscal year 21, so we have adjusted this out for purposes of calculating adjusted EPS. Our tax rate on a gap basis this quarter was 29% as we repatriated overseas cash to accelerate debt repayment, which resulted in dividend withholding taxes.
Thanks for your interest in Columbus, Mckinnon and have a great day.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Gregory P. Rustowicz: Year-to-date, our tax rate was 26, and for the year, we still expect our tax rate to be approximately 25%. Adjusted earnings per diluted share of $0.74, up $0.02 from the prior year, higher adjusted operating income more than offset the negative impact of higher interest expense and the increased tax rate year over year, which together impacted EPS by about $0.10 per share in the quarter. On slide 12, our adjusted EBITDA margin this quarter of 16.3% improved by 160 basis points from a year ago. On a trailing 12-month basis, our adjusted EBITDA margin was also 16.3%, a 50 basis point improvement from where we finished fiscal year 23. Our return on invested capital continues to improve and was up 30 basis points for FY23-7%. We expect to realize a low double-digit ROIC by FY27. Moving to slide 13, quarterly free cash flow was $23.1 million during the period.
Gregory P. Rustowicz: This includes cash provided by operating activities of $29.1 million and CapEx of $6 million. Year-to-date, our free cash flow is $12.3 million, which is an increase of 66% from a year ago, despite the higher capex, largely tied to our new Monterey, Mexico facility. Q4 historically is a strong cash from operations quarter for us, and we would expect that trend to continue. Turning to slide 14, our capital structure continues to improve as our net debt leverage ratio was 2.6 times on a financial covenant basis. As we have previously discussed, we have a covenant-like credit agreement. We continue to accelerate our debt reduction plans as we pay down another $15 million of debt this quarter. We are planning to pay down an additional $15 million in Q4, which will bring the total to $55 million of debt this fiscal year, up from the $40 million discussed at the beginning of the fiscal year.
Gregory P. Rustowicz: We expect to report a net leverage ratio of approximately 2.3 times as we exit fiscal year 24. Turning to guidance on slide 15. On the back of solid growth and orders in Q3, we expect to continue to grow net sales between 2% and 6% to between $260 million and $270 million in Q4. We also expect roughly $60 million of RSG&A expense, $10 million of interest expense, a tax rate of 25% for the full year, and diluted shares outstanding of $29.1 million.
Gregory P. Rustowicz: We expect to continue to be highly cash flow generative with free cash flow conversion of approximately 90% for the full fiscal year. This is inclusive of Q4 capex of approximately $14 to $19 million, which is elevated due to the opening of our Monterey facility. We expect to use our cash flow to continue to de-lever our business. As a result, we expect our net leverage ratio to improve to approximately 2.3 times by the end of the fiscal year.
Operator: As I wrap up my review of our financial performance, let me emphasize that our guidance reflects the strength of our results year-to-date, initial trends in the fourth quarter, and our ongoing confidence in our differentiated business model. Rob, we are now ready to take questions. Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone. The confirmation tone will indicate your line is in the question; you may press star two if you'd like to remove your question from the list.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll. Our first question comes from Matt Summerville with D.A. Davidson. Please proceed with your question. Thanks. A couple of questions. With respect to Monterey, the duplicative manufacturing cost that, of course, you're going to have, are you able to quantify that? Is that included in the guide?
David Wilson: Will that be phased out? And then can you also talk about Monterey, maybe what you're consolidating into that facility, how the ramp-up trajectory looks, timing on cost savings, quantification, all that stuff? Yeah, Matt, let me take the first part of that, and I'll address the second question, and then I'll hand it off to Greg to address the first of your questions. So, if you go back to our Analysts or Investor Day, When we talked about our strategy from a footprint simplification standpoint, we outlined a path that included an improvement in gross margin through the rationalization of our footprint over time. And what we've done is we've put in place the foundation for that work with this brand new facility that we just erected and we started to consolidate into. And so we have announced the consolidation of our Santiago-Mexo facility into that location in Monterey, and that's underway.
David Wilson: And then, over time, we'll be addressing the follow-on plans associated with that overall strategy. And obviously, for sensitivity reasons, we're not going to get into more details related to those next steps, but we have a very well-defined plan that we're actively managing and leading the business through, and you know, we expect that to deliver the benefits that were outlined at that time in our bridge to 40% gross market. Hi Matt, so this is Greg.
Gregory P. Rustowicz: So with regard to how we're going to handle the costs for Monterey, so this quarter we pro forma'd approximately $755,000, as it represented the cost of us getting a team in place, hiring new people, and some facility costs. And we haven't yet produced a single item. So we would expect as we ramp up in Q4, we will also have pro forma costs related to that that would be in excess of what we would, the standards we set for the cost of manufacturing our product. And as we go into fiscal year 25, you know, we will start to realize benefits from the facility, from the consolidation, but we think that, you know, in general, it's going to be kind of offset by the fact that we're still scaling up. understood.
Gregory P. Rustowicz: And then David, can you maybe talk a little bit more, provide a little bit more granularity just around some more end market specifics, where you see the most strength right now, maybe where you're seeing some weaker spots in both the US and your international business? Yeah, sure. Thanks, Matt.
David Wilson: So we're, you know, we see nice market resilience across all geographies. And I think in the data that we talked about relative to the performance of the business in Q3, we saw an increase in Europe of nine and a half percent in orders, including MontraTech, four and a half percent year over year, excluding MontraTech on a constant FX basis. Order rates in our conveyance business were up 23 and a half percent globally, including MontraTech, and nine percent if you exclude that.
David Wilson: Our lifting business was up seven percent, so there's been a nice level of resiliency. We are seeing nice performance as it relates to the EV pipeline, life sciences, food, and beverage, as well as defense opportunities. And as we look to the future, we're in active discussions with a targeted set of customers that serve the life sciences space, the EV and hybrid vehicle space, I.T., and
David Wilson: .. .. .. .. ... , headwinds seen, you know, probably between June of 2022 and June of 2023, related to the robotics and packaging markets with higher interest rates and some of the slowdown and in order rates there that were affecting our conveyor business, you know, those have bottomed that and there's a rebound there that we're able to capitalize on and we feel good about the progress our teams are making as we're targeting markets to support growth in our precision conveyance business. Got it. Thanks, guys. Yvette.
David Wilson: Thanks, Matt. Our next question is from John Tanwanteng of CJS Securities. Please proceed with your question. Hi, good morning, and thank you for the questions. I just wanted to drill down a little bit on that end market commentary a little bit more, if you could. First, was the US lifting down at all, or was it all conveyance?
David Wilson: And if it was all conveyance, was that simply the lapping of that large e-commerce and robotics? Yeah, US lifting was up with orders in the quarter, and on a global basis, lifting was up 7%, 7.5%. But the U.S. lifting business was also up in low single digits. Great. And then you mentioned strength, and I guess we're bottoming in recovery in the, Is that from returns of any customers that came out, or is that more broad-based as you address it? Yeah, it's a little bit of both, actually.
David Wilson: We've continued to gain traction with a new set of customers that we've engaged in channel diversification initiatives and business development with targeted customers. And so we're pleased with the traction we're gaining around e-commerce more broadly through both integrators and end users. But we are seeing the return of activity with customers that we've worked with for a long time and continued traction around beta developments that we're working on with them. Got it. And then, finally, you mentioned strength and EV, which seems counter to the sentiment that maybe production is ahead of demand there. I was wondering if you could provide a little more color on what your customers are telling you, kind of. Sure, yeah.
David Wilson: So we're working with a number of partners in that space. And as we build capacity for our customers, they're focusing on both long-game benefits as they position themselves for, you know, this as a long-term trend, but they're also focusing on productivity improvements in their own factories and the advantages we can provide them with, whether that be for immediately growing demand or current demand. And there are opportunities for us through the work we do with Intelligent Motion Solutions that help them with their productivity and cost savings to, you know, sell more. And so we're seeing traction with the work we're doing. Great
Gregory P. Rustowicz: Greg, if I could sneak one in there, what would you expect on a gross margin basis as we head into the fourth quarter, both what would normally be a seasonal thing and kind of the one-offs that you expect that this will be? Yeah, so we think we're going to be, you know, in the 200 basis point plus range from where we sit today, sequentially, or from last year. Sorry. So that, you know, puts it approximately at the 38% gross margin, but just the gross margin area. And I think we noted in our prepared commentary, John, that we see upside potential and we're, you know, we're working on that. I got it.
Gregory P. Rustowicz: Thanks, guys. You bet. Our next question is from Walt Liptak with Seaport Research. Please proceed with your question. Hi, thanks. Good morning, guys, and good quarter. Thanks. One question about MantraTech, and the sales came in a little bit stronger than I was expecting. And so, I guess the question is, you know, was there something that was pulled forward?
David Wilson: You know, what are we thinking now for... sort of the, you know, the 12-month revenue run rate for Montreux. Sure, sure. So, as Greg indicated in his prepared commentary, we shipped two large projects to Airbus and then to a large German EV manufacturer. And those were planned.
David Wilson: We had visibility to that demand and to those shipments in the quarter, so they were elevated. And that's not a quarterly run rate, if you will, right now for the business. But when we purchased the business, it was a $30 million business.
David Wilson: And we had communicated that we anticipated growing the business at roughly a 30% rate. And so I think that still remains intact, and I would anticipate that we're, you know, a year later, running at more of a $40 million rate. And as a project-focused business, it's natural that that business will have a level of variability quarter to quarter. And so that $15 million does not repeat itself in this coming quarter.
David Wilson: But, you know, we continue to see really robust demand for that business, and we're encouraged by the progress we're making with our integration work, the opportunities for that business not only through their historical channel of delivery or sales to customers but also through what we've been able to enhance that with, through the combination of our businesses. So we really feel good about the early innings for that business and the growth trajectory that we think we can achieve over time. Okay, that sounds great.
David Wilson: You know, and maybe a last one, the fourth quarter, you know, I kind of look back at the data. It tends to be a fairly big quarter. And I don't wonder if there's something seasonal about the order patterns where, you know, you get large project orders in your March quarter that ship during the year? And what's the final look?
Gregory P. Rustowicz: Yeah, so I'll take the first part of that, Walt. And typically, from a seasonal perspective, you're absolutely right. Q4 is our strongest quarter. And to put it into perspective, Q3 is our seasonally weakest quarter during the holiday season. So typically, there's optimism about the new year. But our channel, in a lot of cases, has reduced their inventory levels as of the end of the calendar year. They might be year-end reporting companies
Gregory P. Rustowicz: And so it's important that they have their balance sheets where they want them. But now, they've got to look to the future and look at what their expected demand is. And so what inventory do they need?
Gregory P. Rustowicz: You've got new CapEx budgets that have been approved. And so from a project perspective, we're starting to see activity where orders are going to be coming in related to those projects that we've been working on for quite a while. And so we would expect those same trends to continue in our fiscal fourth quarter this year. And I'd just add on relative to the funnel.
David Wilson: We're encouraged by the funnel at this point. While we saw orders increase in Europe, as I communicated earlier, we're believing that the business resiliency is going to continue there as we've come off a low in our second quarter and have seen orders creep up in Q3. And we expect them to continue to move in the upward direction this quarter. And, as I mentioned earlier, we see opportunities for our precision conveyance and lifting businesses that have, you know, sustainable trends, and we're supported by a lot of macroeconomic trends. So, we feel good about the position that we're in. We, of course, remain cautiously optimistic, and we're paying attention to how things are developing. But at this point, you know, we see the trends of positive order development continue. All right, great.
David Wilson: Thank you. Our last question will be from Steve Farazani with Sidoti. Please proceed with: Morning, David, Greg, I appreciate all the color on the call. I just did want to get back into the sales guidance for Q4. When we think about the growth, and I think you indicated maybe not as strong from MontraTech in Q4. But if I back out MontraTech, it would seem, at minimum, it's the low end of guidance.
Gregory P. Rustowicz: You're looking at an organic sales decline. Is that accurate year over year? I think we have organic sales growth at the midpoint of our guidance, year over year. And, and Greg, yeah, yeah, that's, that's right.
David Wilson: So we do have organic sales growth, Steve, year over year at the midpoint of guide. And I, you know, I think that we expect that we'll continue to see positive developments throughout the quarter. We do have a shrinking past due backlog, as I mentioned before, and so we've been able to address those backlog challenges that we've had, and what that's done is it's driven backlog down.
David Wilson: And I mentioned in my prepared remarks that as we work with our customers and get them into a more frequent ordering pattern, and we become more competitive with our lead times, we believe that there are opportunities to gain share, and that helps us to drive demand into the business. But that does have a periodic impact on this quarter, but we feel good about the progress we're making in those initiatives. And so, that should trend well as we go into the next. Yeah, and just to add on, so at the midpoint, it's kind of mid single-digit growth for the. Okay. Um...
David Wilson: When we think about, and I've asked you this in previous quarters, now we've seen four out of five quarters with book-to-bill under one, you're going to lap Montrotech in May. How comfortable are you that you can get sales growth post-lapping Montretek, given where you are?
David Wilson: Yeah, I mean, we certainly feel good about the quarter that we're in, and we'll be coming back in the May time frame with our guidance for fiscal 25. But we do remain encouraged by the momentum, and our order funnel remains really healthy. We're in active discussions with our customers. I mentioned the channel diversification initiatives, the opportunities to gain share, and the self-help work that we're doing. This isn't all about a growing macro.
David Wilson: It's about opportunities for us to compete in the landscape that we compete within and do that effectively. And so, we remain optimistic about the future. Thanks for that.
Gregory P. Rustowicz: Last one just on debt paydowns. I know Q4 is, and you've got sort of guidance for it being the big quarter for cash flow. Any reason you wouldn't ramp up the paydowns?
Gregory P. Rustowicz: which we have and we will continue to do so, Steve. So we started the year with guidance of $40 million, roughly $10 million a quarter of debt pay down. And we've ramped that up. We're going to be at $55 million for the year with what we expect to do in Q4. And if we can do more than that, we will. But I think what's an interesting fact here is that, for the fiscal year, we'll have paid down about half of the purchase price of Montrotech, right? We paid roughly $110 million for it, and we're going to pay down $55 million in debt. I think that's a very impressive number. 67% of debts had... What does that mean if we get the rate cuts?
Gregory P. Rustowicz: We'll benefit from the rate cuts, for sure, and for a third of our debt. And as the capital markets improve, there are always opportunities to do even better, and so we'll look to see what we can do there, as well. Thanks, David. You're welcome.
David Wilson: Thanks. We've reached the end of the question and answer session. I would now like to turn the call back to David Wilson for closing.
David Wilson: Thank you, Rob, and thank you, everyone, for joining us today. Our team is executing and delivering double-digit sales and operating income growth in a dynamic environment. This reflects the significant progress we're making with our transformation and our proven playbook for growth. We're pleased with the momentum that we have entering our fourth quarter, powered by a diversified platform and an improving competitive position. We remain a strong cash generator, which enables us to reinvest in our business and de-lever the balance sheet, unlocking further cash flow potential. We're confident in our ability to deliver long-term profitable growth and enhance shareholder value.
David Wilson: Thanks for your interest in Columbus-McKinnon, and have a great day. This concludes today's conference. You may disconnect your lines at this time, and we thank you.
Operator: ...