Q3 2025 Columbus McKinnon Corp Earnings Call
and the University of Minnesota. For more information, visit www.ncm.nih.gov. For more information, visit www.ncm.nih.gov. For more information, visit www.ncm.nih.gov.
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At this time, all lines are in listen-only mode.
Following the presentation, we will conduct a question and answer session.
Speaker Change: If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Monday, February 10, 2025. And I would now like to turn the conference over to Ms. Christine Moser. Thank you. Please go ahead.
Christine Moser: Thank you and welcome everyone to our call. On today's call we'll be covering both our third quarter fiscal 2025 financial results as well as the recently announced combination of Keto Crosby with Columbus McKinnon.
Christine Moser: This is an exciting evolution in our strategic journey that combines two complementary businesses with scale advantages and strong value creation for all of our stakeholders.
Speaker Change: On the call with me today are David Wilson, our President and Chief Executive Officer, and Greg Rustowicz, our Chief Financial Officer.
Speaker Change: In a moment, Dave and Greg will walk you through our financial and operating performance for the quarter before sharing more about why Columbus McKinnon is so excited about bringing these two great businesses together.
Speaker Change: The earnings release and presentation, including details on the Keto Crosby deal, to supplement today's call are available for download on our Investor Relations website at investors.cmco.com.
Speaker Change: Before we begin our remarks, please let me remind you that we have our Safe Harbor Statement on slide 2. During the course of this call, management may make forward-looking statements in regards to our current plans, beliefs, and expectations.
Speaker Change: 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.
Speaker Change: I'd also like to remind you that management will refer to certain non-GAP financial measures. You can find reconciliations of the most directly comparable GAP financial measures on the company's investor relations website and in its filings with the Securities and Exchange Commission.
Speaker Change: Please see our earnings release and our filings with the Securities and Exchange Commission for more information. Today's remarks will be followed by a question and answer session. We respectfully ask that you limit yourself to one question and one follow-up. With that, let me hand it over to David.
David Wilson: Thank you, Christine. Good afternoon, everyone. We're excited to share more about a transformational milestone for our company, bringing together Keto Crosby with Columbus McKinnon in a highly complementary deal that we expect to deliver compelling value for all of our stakeholders.
David Wilson: This business combination enhances our scale and market position while delivering top-tier financial performance.
David Wilson: But, before I get into the details of the deal, let's discuss the third quarter.
David Wilson: Our global team adapted quickly to shifts in industry demand in the second half of the quarter and delivered adjusted EPS of 56 cents on $234 million in sales.
David Wilson: While the demand environment deteriorated over the quarter, mid-term market sentiment remains positive.
David Wilson: As the third quarter progressed, we encountered two dynamics. First, our U.S. customers took a cautious approach to the evolving policy environment, particularly related to tariffs.
which delayed decision-making and second
David Wilson: We saw subdued demand in Europe, particularly in Germany and France consistent with what you are hearing across the industry.
David Wilson: While our optimism for the business over the medium and long term remains unchanged, our third quarter results and revised guidance for the near term contemplate that the resolution of these dynamics extend through the fourth quarter.
David Wilson: We continue to see attractive opportunities from industry megatrends like near-shoring, scarcity of labor, and infrastructure investments, and we are well positioned to benefit as we capitalize on those dynamics.
David Wilson: As always, we remain focused on what we can control, operating effectively, managing our business with agility, and executing our strategic plan.
David Wilson: As you would expect, we are diligently managing costs to reflect current demand levels, while remaining flexible to take advantage of what are likely to be upside opportunities.
David Wilson: We continue to advance our strategic plan, including executing our 80-20 Simplification Initiatives.
David Wilson: In fact, this quarter we announced the execution of the next step of our footprint simplification plan.
David Wilson: We began transitioning manufacturing last week and expect to cease operations at the discontinued locations in the first quarter of fiscal 26.
David Wilson: Like the rest of the market, we are monitoring the recent developments with respect to tariffs closely.
David Wilson: If a 25% tariff on both Mexico and Canada and a 10% tariff on China were implemented,
David Wilson: The impact would be less than 5% of trailing 12-month sales.
David Wilson: If they were matching retaliatory actions from the impacted countries, these would affect another 3% of sales.
David Wilson: And of course, in that environment, we would explore strategic adjustments to our supply chain and manufacturing footprint to minimize the impact to our customers to the extent possible.
David Wilson: Where this isn't possible, we have a consistent record of working with our partners to pass through input cost increases and preserve margin.
David Wilson: As referenced earlier, the demand environment has been choppy, and we saw orders down 4% year over year, driven by a 6% decline in short cycle orders, where destocking pressures, uncertainty, and delays in decision making persisted.
David Wilson: Project-related orders remain flat with strength and precision conveyance offsetting softness in Europe.
David Wilson: Precision conveyance grew by 16% and linear motion was up 8% from the prior year.
David Wilson: Our project funnel remains healthy, reflecting improving customer sentiment and the effectiveness of our commercial and customer experience initiatives.
David Wilson: Votation activity in the quarter increased to near-record levels but the speed of order conversion is lagging historic levels.
David Wilson: Backlog also remains healthy, down modestly from prior year driven by softer short cycle demand.
David Wilson: Project-related backlog was up 3%, again driven by strength and precision surveillance and linear motion.
David Wilson: With that, I'll turn the call over to Greg, who will provide some additional color on our financial results and outlook.
Greg Rustowicz: Thank you, David. Good afternoon, everyone. We delivered third quarter net sales of $234.1 million, down 8% from the prior year, driven by a 9% decrease in short cycle sales.
Greg Rustowicz: We believe this was largely related to U.S. policy uncertainty and economic softness in Europe, particularly in Germany.
Greg Rustowicz: Project-related sales were down 7% driven by weak demand and delayed revenue recognition resulting from a delay in receiving final design specifications for a large order previously won by MontraTech.
Greg Rustowicz: While we expect revenue to be challenged in the short term, we are optimistic about the future as the new administration's policies take shape, interest rates decline over time, and we benefit from certain megatrends such as nearshoring in the U.S. and automation more broadly.
Greg Rustowicz: as we lay up a favorable product liability adjustment in the prior year.
Greg Rustowicz: The remainder of the decline was due to lower sales volume and mix, which was partially offset by favorable pricing and a net of manufacturing cost changes.
Greg Rustowicz: On a gap basis, our gross margin was 35.1%, and on an adjusted basis, our gross margin was 36.8%.
Greg Rustowicz: On a sequential basis, adjusted gross margin expanded 50 basis points, but contracted 40 basis points year-over-year, largely due to lower volume, unfavorable mix, and the previously discussed prior-year favorable adjustment to product liability accruals.
Greg Rustowicz: With a lower sales volume in the quarter, we managed RS-G&A expense appropriately, decreasing our spend by $2.6 million to $56.9 million.
Greg Rustowicz: This was driven by cost management actions and lower incentive-based compensation partially offset by two unique items, namely a 1.5 million legal judgment for a customs duty assessment in Mexico that goes back to 2014, and a 1.3 million bad debt reserve for a large customer in Sweden that filed for bankruptcy.
Greg Rustowicz: We are pursuing recovery of the amounts owed to us as the bankruptcy process unfolds.
Greg Rustowicz: As a result, we generated operating income of $17.7 million in the quarter on a gap basis and adjusted operating income of $25.6 million.
Greg Rustowicz: Adjusted operating margin was 10.9% in the quarter. We recorded gap income per diluted share in the quarter of 14 cents and 56 cents on an adjusted basis.
Greg Rustowicz: Adjusted earnings per diluted share was down 18 cents versus the prior year including 11 cents per share due to unfavorable FX compared to the prior year.
Greg Rustowicz: In addition, the unfavorable year-over-year adjustment of product liability reserves negatively impacted adjusted EPS by five cents.
Greg Rustowicz: The remainder of the shortfall in EPS was due to lower sales volumes.
Greg Rustowicz: Our adjusted EBITDA was $37.8 million in the third quarter, with an adjusted EBITDA margin of 16.1%.
Greg Rustowicz: We delivered $6.2 million of free cash flow in the quarter, a decrease of $16.9 million versus the prior year, driven by elevated inventory levels due to the timing of large orders and higher stocking levels.
Greg Rustowicz: to facilitate the consolidation of our manufacturing footprint, as well as $6 million of costs incurred for unbilled overtime revenue recognition.
Greg Rustowicz: Free cash flow conversion for the quarter on a trillion twelve month basis.
Greg Rustowicz: plus 266% reflecting the impact of the non-cash pension settlement, factory and warehouse consolidation costs, Monterey, Mexico startup costs, and other unique items impacting GAAP net income.
Greg Rustowicz: From a balance sheet perspective, we pay down $45 million of debt in the first three quarters of fiscal 25 and anticipate paying down another $15 million in the fourth quarter.
Greg Rustowicz: Our net leverage ratio was three times on a financial covenant basis, up 0.3 times from last quarter.
Greg Rustowicz: For the company's credit agreement, we are capped at $10 million for cash restructuring costs that can be excluded per fiscal year. Given the magnitude of our factory consolidation and Monterey, Mexico startup projects, we have exceeded the maximum allowable adjustment by $11.7 million.
Greg Rustowicz: Without that cap or credit agreement, net leverage would have been 2.8 times.
Greg Rustowicz: As a result of this cap, along with our updated guidance, we expect our net leverage ratio will remain approximately three times at the end of fiscal 25.
Greg Rustowicz: Let me wrap up with our updated guidance for fiscal year 25, which reflects the current challenging macroeconomic environment we are seeing in the short term.
Greg Rustowicz: Our new guidance for Fiscal 25 assumes a mid-single-digit sales decrease year-over-year, which will result in a low teens decline in adjusted EPS.
Greg Rustowicz: CapEx for the full year will range between $18 million to $22 million, and our net leverage ratio will end fiscal 2025 at approximately three times, as previously discussed.
Our other guidance assumptions for fiscal 2025 remain unchanged.
Greg Rustowicz: Despite the challenging quarter, we remain confident in the health of our business and our ability to achieve our long-term objectives.
Greg Rustowicz: While we expect near-term macro pressures to continue, we remain focused on operational execution and managing our expenses in the current demand environment.
Greg Rustowicz: With that, I will now turn it over to David to discuss the exciting news on this transformational acquisition.
David Wilson: Thanks Craig. Now on to our deal. I'm thrilled to share that we have entered into an agreement to combine Keto Crosby with Columbus McKinnon in what is a highly complimentary deal that we expect will drive compelling value creation for all of our stakeholders.
David Wilson: This acquisition enhances our scale and market position while delivering top-tier market performance.
David Wilson: Our combination creates a skilled intelligent motion platform with over $2 billion in sales, enhancing our holistic offering and material handling solutions.
David Wilson: Increases the resilience of our portfolio with meaningful additions to our hardware and consumables portfolio, with expanded scale and complementary geographic exposure.
David Wilson: and realizes a top-tier margin profile with pro forma adjusted EBITDA margin of 23% supported by the strong standalone performance of our businesses and approximately 70 million of net cost synergies expected by the end of year three.
David Wilson: Our combination also produces strong free cash flow, which will enable significant debt reduction following the transaction, just as we've done consistently following prior acquisitions. And over time, that cash flow will create financial flexibility to reinvest in growth.
David Wilson: On a pro forma basis, the trailing 12 month adjusted EBITDA multiple for the transaction is approximately 8 times reflecting the expected run rate net cost synergies.
David Wilson: In summary, this is a highly compelling combination for all stakeholders that establishes scale, strengthens our core, increases resiliency, enables growth, and positions Columbus MacKinnon well for the future.
David Wilson: The transaction is expected to deliver value for shareholders and be accretive to the company's adjusted earnings per share in the first year on a pro forma basis at run rate net synergies.
David Wilson: Normalizing for expected integration costs, we expect greater than 100% free cash flow conversion, providing flexibility for deleveraging, reinvestment, and future growth.
David Wilson: I have long had a great respect for Keto Crosby's strong portfolio of offerings and their talented team.
David Wilson: Through this strategic combination, we are creating a company with a shared customer-first culture focused on safety, productivity, uptime, and performance.
David Wilson: I look forward to welcoming Keto Crosby's Associates to the Columbus McKinnon team.
David Wilson: Building on a 250 year history, Quito Crosby has become a leader in lifting and securement, including hardware and consumables with globally recognized brands and a manufacturing footprint across over 50 countries.
David Wilson: The company has a strong financial profile, attractive margins, revenue across a complementary set of vertical markets and geographies, and has grown at a 7% revenue CAGR over the last three years.
Speaker Change: While there are a multitude of benefits that have our team excited about this combination, let me summarize the top five.
First, the combination delivers a meaningful improvement in our scale.
This not only doubles the size of CMCO,
Speaker Change: and enables broader reach. It expands our portfolio and enables us to strengthen capabilities while reducing relative costs to deliver an enhanced value proposition for customers.
Speaker Change: The strategic nature of this combination delivers benefits across all components of our growth framework.
Speaker Change: Strengthening the core with an increased breadth and depth of products that enables a one-stop shop for all material handling needs.
Speaker Change: rowing our core with the addition of a meaningful position in lifting securement and consumables that includes a more resilient revenue source.
Speaker Change: Hito Crosby's lifting and securement consumables products sell at a low average selling price but are relied upon in mission-critical applications where the safety is paramount and failure is not an option.
This combination of attributes drives stable replacement demand.
Speaker Change: expanding our core through a complementary geographic footprint that provides us a pathway to deepen Columbus-McKinnon's presence in the APAC region where Keto Crosby is well positioned.
Speaker Change: Similarly, we see opportunities to deepen keto-Crosby's penetration in Europe, the Middle East, Africa, and Latin America, given Columbus-McKinnon's reach into these regions.
Speaker Change: and given the strength of our combined free cash flow, we'll be better positioned to reimagine our core as we reduce debt and utilize our financial flexibility to accelerate growth.
Speaker Change: This flywheel effect provides even greater capacity to reinvest in growth over time.
Speaker Change: Significant scale also enables meaningful benefits to our collective operational excellence and commercial capabilities.
Speaker Change: Over the past four years, we've invested meaningfully in our Columbus McKinnon business system that defines standard processes, procedures, and technologies to optimize our business.
Speaker Change: Going forward, we will leverage best practices across the portfolio, bringing the most effective commercial and operational approaches to bear as we execute in support of our customers' needs.
Speaker Change: For example, I'm excited to leverage the lean manufacturing capabilities demonstrated within Kido Crosby's Yamanashi, Japan facility, where I had the privilege of spending time with Yoshio Kido and his team last month.
Speaker Change: By combining the best of what both Columbus McKinnon and Keto Crosby have to offer.
Speaker Change: We will have a greater capacity to invest in tools, technologies, and resources that differentiate our performance and improve customer experience across a diversified global footprint.
Speaker Change: Second, the combination positions us to benefit from growth tailwinds that are supported by global industry megatrends.
for Structure Investment and Sustainability.
Speaker Change: For many companies, in-region for-region near-shoring is reducing risk, stabilizing supply chains, and enhancing logistics efficiency.
Speaker Change: Workforce gaps, particularly in the U.S. and Europe, are accelerating the adoption of lifting assistance and automation across manufacturing and logistics.
Speaker Change: Aging facilities are modernizing to stay competitive and meet rising demand.
Speaker Change: Many countries across North America and Europe are suffering from an aging infrastructure requiring investments in automation for transportation, logistics, and smart infrastructure and
Speaker Change: Regulatory requirements and sustainability goals are increasing demand for safer energy efficient operations across EMEA and APEC.
Speaker Change: It's expected that these megatrends will continue to accelerate demand for our combined offerings.
Speaker Change: and we are better positioned to capitalize on these opportunities with great people and a more fulsome portfolio of products serving a broader set of geographies.
Speaker Change: Third, this combination results in a highly attractive financial profile with a more than doubling of revenue and a tripling of adjusted EBITDA with an adjusted EBITDA margin of 23% on a pro forma basis.
Speaker Change: And this top-tier financial profile is expected to deliver free cash flow in excess of 100%, excluding one-time costs related to the integration.
Speaker Change: Importantly, this combined financial performance will exceed the long-term goals we established for revenue, adjusted gross margin, and adjusted EBITDA margin during our 2022 Investor Day ahead of schedule.
Speaker Change: While we will be relentlessly focused on the seamless integration of our businesses immediately after closing, we are identifying opportunities for longer-term improvements that will enhance customer experience and financial performance over time.
Speaker Change: Fourth, this combination and its attractive financial profile are underpinned by significant synergies that deliver operational efficiencies and long-term value creation.
Speaker Change: Columbus McKinnon has a strong track record of successful integrations and cost-synergy realization.
Speaker Change: At run rate in year three, we expect to deliver 70 million of annualized net cost synergies.
Speaker Change: These cost synergies include supply chain optimization and enhanced purchasing power, operational efficiencies, duplicative structural expenses, and overlapping third-party expenses.
Speaker Change: We expect these synergies to phase in over a three-year period with the majority being achieved in year two.
Speaker Change: DMBS is expected to be a significant enabler of success with its market-led, customer-centric, and operationally excellent framework.
This disciplined, proven approach will enable consistent, standard work.
Focus on Improving Customer Experience and Loyalty
Speaker Change: continuously innovate and leverage best practices from across the combined organization.
and Accelerate Integration and Synergy Realization.
Speaker Change: While not included in our deal model, we also see some meaningful revenue synergy opportunities that present upside to our model.
Speaker Change: Specifically, cross-selling opportunities with existing customers, bridging gaps where customers do not overlap, driving growth for our complementary geographic footprint, leveraging Keto Crosby's strong APAC footprint for CMCO product.
and CMCO's AMIA and LADAM footprint for Keto Crosby product.
Speaker Change: Attracting new customers with our enhanced scale, combined portfolio, broadened capabilities, and expanded reach.
Speaker Change: and through simplification efforts that will improve the customer experience across a broader portfolio of products.
Speaker Change: And fifth, this combination results in a highly cash flow generative business that enables us to deleverage rapidly.
Speaker Change: This will be our primary focus for capital allocation in the near term.
Speaker Change: Upon completion of the deal, we expect to be approximately 4.8 times levered on a credit agreement basis.
Speaker Change: Through our significant cash flow and debt structure designed to facilitate debt pay down, we expect to reduce our net leverage ratio to approximately three times by the end of year two after the deal closes.
Speaker Change: Over the long run, our strong cash flow generation characteristics provide the financial flexibility to reinvest in the flywheel of growth and accelerate the execution of our intelligent motion strategy.
Speaker Change: By investing in businesses with strong cash-on-cash returns, we create even more capacity to reinvest in growth.
Speaker Change: As part of the transaction, Columbus McKinnon has partnered with CD&R, a leading private investment firm with nearly 50 years of history, approximately $80 billion under management, and 50% of their capital invested in partnership deals.
Speaker Change: CD&R brings deep and proven experience delivering growth and operational improvement in industrials and manufacturing companies.
Speaker Change: As a result of CD&R's investment in Columbus-McKinnon, it is expected that CD&R's Mike Lamach, Nate Sleeper, and Andrew Campelli will join the company's Board of Directors upon closing.
Speaker Change: We plan to fund this acquisition through a combination of $3.1 billion of committed debt financing, including a $500 million revolving credit facility from J.P. Morgan.
Speaker Change: and $800 million of perpetual convertible preferred equity investment from CD&R.
Speaker Change: The initial debt financing structure provides flexibility for timely execution of the transaction, which we expect to replace with a permanent financing structure.
Speaker Change: The company has a strong track record of quickly de-levering its balance sheet following prior acquisitions.
Speaker Change: On behalf of our entire management team and our board of directors, we are thrilled to welcome Makito Crosby and CDNR teams to Columbus-McKinnon.
Speaker Change: With the addition of Keto Crosby's exceptional business and CDNR's world-class expertise to our already strong team, I have never been more excited about the future of our company.
Let me end where I began.
Speaker Change: We are combining Keto Crosby with Columbus McKinnon in a highly complementary deal that we expect will drive compelling value creation for all of our shareholders.
Speaker Change: This acquisition enhances our scale and competitive position, elevates our financial profile, creates significant value for shareholders, and generates significant cash flow to de-leverage and enable growth over time.
Speaker Change: This deal delivers on our Investor Day targets ahead of schedule and results in an improved platform for future value creation over the long run.
Operator, we'll now open the line for questions.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the 1 on your telephone keypad. You will hear a prompt that your hand has been raised. And should you wish to cancel your request, please press star followed by the 2.
Speaker Change: I would like to advise everyone to have a limit of one question and one follow-up. And if you are using a speakerphone, please lift the handset before pressing any keys.
One moment, please, for your first question.
Speaker Change: Your first question comes from the line of Matt Somerville from DA Davidson. Please go ahead.
Speaker Change: Hi, thank you. You've got Canyon Haze on for Mount Somerville tonight.
Speaker Change: Maybe just to open up the discussion. Hi, good afternoon. Just to open up the discussion, any kind of early prioritizations for the 70 million dollars in cost savings and any quantitative guidance we can think to as far as top line synergies?
Speaker Change: Yeah, good afternoon. Hi, this is David Wilson and just as far as the $70 million is concerned, I outlined those categories in my prepared remarks and
As I mentioned, we'll start with supply chain optimization
Speaker Change: and operational efficiency focused items. We do believe there are duplicative structural expenses as we are combining two companies of roughly equal scale.
Speaker Change: and overlapping third-party expenses. And so I would characterize the synergy opportunities in those four primary buckets. And then as far as the revenue synergies that we've identified, we think there are a number of paths for revenue synergy opportunities.
Speaker Change: and others that, you know, I won't get into here now. But I think, you know, those are opportunities that we haven't built into our model and would see as upside to the existing framework that we've outlined.
Speaker Change: Great, thank you. You know, as far as we think about the longer-term margin profile of two businesses, are there any structural differentials we should think about and kind of between the two assets?
Speaker Change: The Keto Crosby business has a portfolio that includes a larger portion of what we would call lifting and securement consumables.
Speaker Change: These are items such as shackles and hooks and manual tools, manual lifting equipment that is wear-oriented.
Speaker Change: and has requirements that limit wear to less than 10% for it to be safe to use.
Speaker Change: and these products serve highly critical applications. And so failure is not an option. Security and performance is critical. And the average ASP for those products is quite low, $500 and less generally.
Speaker Change: And so, when you think about criticality versus the requirement of the item, and the potential that a used item might have been exposed to extreme temperatures, which can change the metallurgy,
Speaker Change: as well as wear or other exposures that could deem the product to be more brittle or have other challenges.
Speaker Change: Given those characteristics and risks, people generally decide to use new components in that space when doing work that is critical.
Speaker Change: where failure is not an option. And so with that in mind, those products have a more resilient revenue profile and over time can command, I think, a really healthy return for the business.
Thank you.
You're welcome. Thank you.
Speaker Change: Thank you and your next question comes from the line of Steve Farazani from CWD, please go ahead.
Steve Farazani: Good evening, David, Greg, appreciate you outlining what seems like an interesting
combination
Speaker Change: I do have to ask, and obviously you've levered up before and successfully de-levered multiple times, but in this case you have the combination of what clearly is some global uncertainty that at least in the short term is affecting your business.
Speaker Change: and you're levering up to almost five times. Was there any thought to, given the timing of this to lever up so much, how you came around to being comfortable doing it?
Speaker Change: Yeah, so Steve, it really boils down to the confidence we have in the free cash flow generation of the combined businesses. We believe that we're going to generate over $200 million of free cash flow a year, and that's going to grow.
Speaker Change: And we also, you know, one other important fact is, you know, from a timing perspective, we need regulatory approvals. We think it's going to, that we'll get that in the first half of the year and be able to close. But I think as
Speaker Change: We march through the upcoming quarters. I think people are going to get more and more confident with the current Administration and what the policies are going to be and a lot of that uncertainty is going to be removed
Speaker Change: So we would expect actually EBITDA to grow going forward, which will help on the leverage perspective. And just to add on to, we spent a lot of time looking at the synergies, the cost synergies.
Speaker Change: and clearly have a range of outcomes. We have upside to deliver potentially on the cost synergies and we think that, you know, between that and once again the free cash flow, we're comfortable with our ability to de-lever very quickly and as David said in his prepared remarks.
It's going to deliver roughly a turn a year.
Speaker Change: Okay. My follow-up is just on location of KETO's facilities, obviously with the tariffs being high on everyone's mind right now. Can you give us a general overview of where their facilities are and do those facilities serve?
fairly local geographies.
Speaker Change: Yeah, they're generally in region for region, I would say, with the exception that Japan supplies a lot of product into the U.S.
Speaker Change: and so you know that is a supply chain dynamic within their business but we see that as a relatively low risk relative to tariff implications and so I think there's a moderate exposure associated with that business.
Thanks, David. Thanks, Greg. We'll get back in queue.
Thanks Steve.
Speaker Change: Thank you. And your next question comes from the line of Chan Tan-Wan Tang from CJS Securities. Please go ahead.
Speaker Change: Hi, good afternoon. Thank you for taking my questions. I was wondering how keto fits into your current simplification strategy.
Speaker Change: the makeshift to higher growth and higher margin markets, number one. Number two, I guess, you know, do you have to pause or readjust your current consolidation efforts with so many new assets and products, you know, coming into your network and portfolio?
Speaker Change: Yeah, I appreciate it. Thanks. And we do see this fitting well into the framework that we've outlined historically. And so if you think about our growth framework that highlights
Speaker Change: strengthening the core, growing the core, expanding the core, and reimagining the core.
This fits squarely in the strengthening
and growing categories.
and enables.
expansion and ultimately reimagining.
As we
Speaker Change: pay down debt with this superior cash generation and enable future investment in growth. And so this was an opportunity to combine two really good businesses and bring a tremendous value, we think, not only to our shareholders, but to our customers.
Speaker Change: And we see the combination as something that fits very well within the framework that we've talked about. And as you can see with the margin profile that we're forecasting, this will ultimately deliver a top-tier financial profile at scale.
Speaker Change: and so we saw this as a really compelling opportunity to do that and then accelerate as we get to that stage in our integration of this business.
Speaker Change: the deployment of capital in a way that accelerates our transformation into some of those more secular growth markets over time.
Okay, great.
Speaker Change: Sorry, go on. Yeah, I was going to say I think you had a second part of your question on does this impact our footprint consolidation? So that's really a core part of our 80-20 strategy And so as you know, we've been moving forward with our new facility in Monterey We did as David has mentioned in his prepared remarks consolidate two smaller facilities
Speaker Change: this quarter that's going to be happening in the fourth quarter that'll have about three million dollars of benefit going forward so we think you know that's a key part of 80-20 and and we're going to continue to move forward with our existing plans
Okay, thanks Ray.
Speaker Change: Tekin, I was just wondering if you could expand a little bit on your confidence in the synergy numbers and the cash flow, just given the, you know, uncertainty and the possibility of entering a full-blown trade war. Is that achievable if you have, you know, these tariffs that we've, that you've outlined in the exposures that both you and Quito have?
Speaker Change: Yes, John, we do believe that that's achievable. We have got a range of possibilities and I think we've been reasonably conservative relative to what the targets are. We have
Speaker Change: done a tremendous amount of work both internally and with our advisors.
Speaker Change: to arrive at a set of objectives that we've also vetted with the Keto Crosby leadership and feel like we've got a good calibration on where those numbers should be and that those are very achievable over the time frame that we've outlined.
Okay, John, just stand on.
Speaker Change: Yeah, sorry, just to add on, so from an exposure perspective, for Columbus-McKinnon, in a worst-worst case scenario, 25% across the board, we're probably looking at the neighborhood of $10 to $20 million.
and Keto Crosby has.
Speaker Change: Right, and just to clarify, that $10 to $20 million is without passing through
Speaker Change: The impact of tariffs in terms of price increases and so we'd be working to avoid those impacts on our customers but clearly if they weren't avoidable we've had a history of making sure that we work effectively with our channel partners to pass those on and preserve margins in the system.
Got it. That's helpful. Thank you. Thank you.
Thank you.
Speaker Change: Thank you. Once again, should you have a question, please press star, then the number one on your telephone keypad. Your next question comes from the line of Walt Liptack from Seaport Research. Please go ahead.
Speaker Change: Hey, thanks. Good evening, guys. So I wonder if we could just get some metrics here on Keto Crosby. What's the price multiple that you're paying for Keto Crosby?
Yeah, it's eight times post-synergy leverage.
Okay, how about pre-synaptic?
A pre-synergy, it's just over 10.
Okay, and what about other...
Speaker Change: You know, for us, for some of us who might not be familiar with Keto Crosby, how much, can you tell us how much sales they had like the LTM, you know, where their gross margin is?
Yes, they have one...
Speaker Change: Absolutely, it's in the deck vault and they have 1.1 billion dollars worth of sales.
Speaker Change: They have a 23% gross margin. EBITDA margin. Sorry, EBITDA margin.
High 30s
Speaker Change: Gross margin, or 40-ish gross margin, depending upon how you calculate it. They have grown at 7% over the last...
Three years.
Hager.
They have 4,000 channel partners.
600,000 plus end-users
Speaker Change: that have been trained by the company and you know they're pretty geographically diverse well situated around the globe about 20% of their business in it is in Asia
Close to 60% is in North America.
Speaker Change: And then the European business is about 20% and they have about 4% in Latin America.
Speaker Change: Okay, great. Thank you for that. And yeah, that does. And so you're saying that the 60% that's North America, presumably that's mostly U.S.
Thank you. Bye.
Canada as well.
Speaker Change: Latin America and Canada, well Canada is included in that North American number.
Speaker Change: Okay, and how much is coming into the U.S. from outside the U.S. that might be impacted by tariffs?
Speaker Change: Yeah, it's modest. The most significant import amount or amount of kind of transferred product from overseas locations is coming in from Japan.
Okay.
Speaker Change: Okay, all right. Oh, and then the factory consolidation in Mexico, you know, I guess since we talked last time at your second quarter conference call, you know, that was pre-discussions about tariffs.
Speaker Change: You know, what are you guys thinking now, you know, if there are tariffs, is Mexico really the place that we want to be consolidating? And the two factories that you mentioned today, are those both going from the U.S. down to Mexico?
Speaker Change: Yeah, so on the second one, it's a combination. There could be some product lines moving into Mexico and others moving into another U.S. facility because it makes sense to do so after we evaluated it.
Speaker Change: And in terms of the first part of the question related to
Mexico
Speaker Change: It's, once again, I think if there is any tariffs from Mexico or on Mexico and vice versa, it would be, it would impact our savings some, but remember we're looking at very substantial savings when we're fully consolidated.
Okay, okay, thank you.
Speaker Change: Hi, thanks for the follow-up. I was just wondering if you could give us, excuse me, a blended interest expense or rate expectation once you've completed the financing.