Q4 2025 Columbus McKinnon Corp Earnings Call

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Operator: Good morning and welcome to Columbus McKinnon's full year and fourth quarter fiscal 2025 earnings conference call.

Joanna: Good morning, and welcome to Columbus, Mckinnon full year and fourth quarter fiscal 2025 earnings Conference call. My name is Joanna and I will be your conference operator today.

Operator: My name is Joanna and I will be your conference operator. As a reminder, this call is being recorded.

Speaker Change: As a reminder, this call is being recorded I would now like to turn the conference over to Kristy Moses Vice President of Investor Relations and Treasurer. Please go ahead.

Kristine Moser: I would now like to turn the conference over to Kristine Moser, Vice President of Investor Relations and Treasurer. Please go ahead. Thank you and welcome everyone to our call. On today's call, we'll be covering both our full year and fourth quarter fiscal 2025 financial and operational results.

Kristy Moses: Thank you and welcome everyone to our call on today's call, we'll be covering both our full year and fourth quarter fiscal 2025 financial and operational results.

Kristine Moser: 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, Greg and David will walk through our financial and operating performance for the quarter and year.

Speaker Change: On the call with me today are David Wilson, our President and Chief Executive Officer, and Greg Rush towards our Chief Financial Officer in a moment, Greg and David will walk through our financial and operating performance for the quarter and year.

Kristine Moser: The earnings release and presentation to supplement today's call are available for download on our Investor Relations website at investors.cmco.com, 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 for 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: The earnings release and presentation to supplement today's call are available for download on our Investor Relations website at investors that CMC O Dot com.

Speaker Change: But before we begin our remarks. Please let me remind you that we have our safe Harbor statement on slide two.

Speaker Change: 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 for 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.

Speaker Change: Lee from the results and events contemplated by these forward looking statements.

Kristine Moser: 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 GAP 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.

Speaker Change: I'd also like to remind you that management will refer to certain non-GAAP financial measures.

Speaker Change: 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.

Speaker Change: Please see our earnings release, and our filings with the Securities and Exchange Commission for more information.

Kristine Moser: Today's prepared remarks will be followed by a question and answer session. We respectfully ask that you limit yourself to one question and one follow-up.

Speaker Change: Today's prepared 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 turn the call over to David.

David Wilson: With that, let me turn the call over to David. Thank you, Kristi. And good morning, everyone. Let me start by reviewing the fiscal year. I will also give some color on guidance, insights into tariff impacts and an update on the pending keto Crosby acquisition.

David Wilson: Thank you Christy and good morning, everyone. Let me start by reviewing the fiscal year I.

David Wilson: I will also give some color on guidance insights in the tariff impacts and an update on the pending keto Crosby acquisition before I hand, it over to Greg to discuss our fourth quarter results and guidance in more detail.

David Wilson: Before I hand it over to Greg to discuss our fourth quarter results and guidance in more detail. In Fiscal 25, we delivered record orders which increased 4% versus prior year on a constant currency basis, driven by 8% growth in project-related orders and particular strength in precision conveyance. Order momentum remains strong in our fourth quarter, also up 4% on a constant currency basis, again driven by growth in project-related orders and strengthened precision conveyance. While short cycle orders were flat on a constant currency basis in the quarter, we saw an improved comparison trend from the third quarter.

David Wilson: In fiscal 'twenty, five we delivered record orders, which increased 4% versus prior year on a constant currency basis.

David Wilson: Driven by 8% growth in project related orders and particular strength in precision conveyance.

David Wilson: Order momentum remained strong and our fourth quarter also up 4% on a constant currency basis again, driven by growth in project related orders and strength in precision can dance.

David Wilson: While short cycle orders were flat on a constant currency basis in the quarter. We saw an improved comparison trend from the third quarter.

David Wilson: Net sales were in line with our guidance, down 4% on a constant currency basis in Fiscal 25. This was due largely to timing of backlog, given the higher mix of longer-cycle, project-related business as we gained traction on our commercial initiatives and offset slower conversion of short-cycle orders. Short cycle has been impacted by near-term policy uncertainty and channel consolidation that has led to channel inventory reduction. This makeshift also accounts for a 15% increase in our backlog, which positions us well as we enter fiscal 26.

David Wilson: Net sales were in line with our guidance down 4% on a constant currency basis in fiscal 'twenty five.

David Wilson: This was due largely to timing of backlog given the higher mix of longer cycle project related business as we gain traction on our commercial initiatives and offset slower conversion of short cycle orders.

David Wilson: Short cycle has been impacted by near term policy uncertainty and channel consolidation that has led to channel inventory reductions.

David Wilson: This mix shift also accounts for a 15% increase in our backlog, which positions us well as we enter fiscal 'twenty six.

David Wilson: I would like to take a moment to thank our 3,500 Columbus McKinnon team members, many of whom are listening today, for their hard work, dedication, and relentless execution throughout what was a dynamic and challenging fiscal 25. Your efforts have improved our position as we enter fiscal 26. Given these efforts, we have improved our operational execution in areas like safety where we achieved a top-tier TRIR of 0.54, customer lead times, and on-time delivery in important pockets of our business. and Customer Experience, where in our European, Middle East and Africa businesses, we improved our net promoter score by 10 points.

David Wilson: I would like to take a moment to thank our 3500 Columbus Mckinnon team members many of whom are listening today for their hard work dedication and relentless execution throughout what was a dynamic and challenging fiscal 'twenty five.

David Wilson: Your efforts have improved our position as we enter fiscal 'twenty six given these efforts we have improved our operational execution in areas like safety, where we achieved a top tier TR IRR of 0.54 customer lead times and on time delivery and important pockets of our business and <unk>.

David Wilson: <unk> experience, where in our European Middle East and Africa businesses, we improved our net promoter score by 10 points and we are taking these principles and strategies across to our other geographies.

David Wilson: And we are taking these principles and strategies across to our other geographies. We continue to see an encouraging funnel of demand with strong quotation activity across our end markets. Short cycle orders remain more sensitive to channel dynamics, however, driven by policy uncertainty in the evolving macroeconomic environment. Over time, we anticipate this demand will stabilize and that attractive opportunities from industry megatrends like near-shoring, scarcity of labor, and infrastructure investments will emerge. Order activity through mid-May remains encouraging, with orders up year over year and continued over-performance in precision conveyance. While macro uncertainty remains, we continue to see strength in vertical end markets where we've been building a leadership position like battery production, life sciences, e-commerce, food and beverage, and aerospace.

David Wilson: We continue to see an encouraging funnel of demand with strong quotation activity across our end markets.

David Wilson: Short cycle orders remained more sensitive to channel dynamics, however, driven by policy uncertainty and the evolving macroeconomic environment over time, we anticipate this demand will stabilize and then attractive opportunities from industry Megatrends like near shoring scarcity of labor and infrastructure investments will emerge.

David Wilson: Order activity through mid May remains encouraging with orders up year over year and continued over performance in precision conveyance.

David Wilson: While macro uncertainty remains we continue to see strength in vertical end markets, where we've been building a leadership position like battery production.

David Wilson: <unk> Sciences e-commerce, food and beverage and aerospace.

David Wilson: Additionally, we are seeing potential early benefits from industries heavily impacted by tariffs to maximize productivity in their existing U.S. facilities, like steel and heavy equipment. We're also seeing strength in orders related to the Department of Defense.

David Wilson: Additionally, we are seeing potential early benefits from industry is heavily impacted by tariffs to maximize productivity and their existing U S facilities like steel and heavy equipment.

David Wilson: We're also seeing strength in orders related to the department of defense.

David Wilson: Let me now take a moment to address the guidance we issued this morning. Our guidance reflects a macro environment that remains uncertain, with continued volatility related to the evolving U.S. policy landscape. While we're encouraged by early order performance, quotation activity, and the health of our demand funnel, we expect that our current project versus short cycle mix dynamics will continue to impact first quarter sales and margin, and that our strong backlog and margin expansion initiatives will benefit us more in the latter part of the year. With respect to tariff impacts, it is our intention to fully mitigate the cost implications over time, as we implement a robust mitigation plan that Greg will discuss shortly.

David Wilson: Let me now take a moment to address the guidance we issued this morning.

David Wilson: Our guidance reflects a macro environment that remains uncertain with continued volatility related to the evolving U S policy landscape.

David Wilson: While we are encouraged by early order performance quotation activity in the health of our demand funnel, we expect that our current project versus short cycle mix dynamics will continue to impact first quarter sales and margin and that our strong backlog and margin expansion initiatives will benefit us more in the latter part of the year.

David Wilson: With respect to tariff impacts it is our intention to fully mitigate the cost implications over time as we implement a robust mitigation plan that Greg will discuss shortly.

David Wilson: In summary, we are making adjustments to our supply chain and implementing select pricing increases and surcharges, while evaluating additional mitigation strategies. We expect tariffs to be a headwind to margin and adjusted EPS in the first half of the year and are targeting the achievement of tariff cost neutrality by the second half of fiscal 2026. It is also our goal to realize margin neutrality over time, but that will likely occur in fiscal 27.

Speaker Change: In summary, we are making adjustments to our supply chain and implementing select pricing increases in surcharges, while evaluating additional mitigation strategies.

Speaker Change: We expect tariffs to be a headwind to margin and adjusted EPS in the first half of the year and.

Speaker Change: And are targeting the achievement of tariff cost neutrality by the second half of fiscal 2026.

David Wilson: It is also our goal to realize margin neutrality over time, but that will likely occur in fiscal 2007.

David Wilson: It is also important to note that our guidance for Fiscal 26 does not contemplate the impact of our pending acquisition of Keto Crosby. We continue to be excited by the potential of this acquisition, which we expect to scale our business, expand customer capabilities, enable synergies, and, over time, accelerate our intelligent motion strategy. Through this complementary combination, we will be better positioned to deliver a superior customer value proposition through an expanded product offering across a broader set of geographies, generating enhanced financial results and long-term value for our shareholders. We continue to anticipate a deal closing by the end of the calendar year.

David Wilson: It is also important to note that our guidance for fiscal 'twenty six does not contemplate the impact of our pending acquisition of keto Crosby.

David Wilson: We continue to be excited by the potential of this acquisition, which we expect to scale, our business expand customer capabilities enable synergies and over time accelerate our intelligent motion strategy.

David Wilson: Through this complementary combination we will be better positioned to deliver a superior customer value proposition through an expanded product offering across a broader set of geographies generating enhanced financial results and long term value for our shareholders.

David Wilson: We continue to anticipate a deal closing by the end of the calendar year.

David Wilson: While the exact timing remains uncertain, we are constructively engaged in addressing all regulatory requirements and preparing for the marketing and closing of permanent financing for the acquisition while advancing integration planning and readiness. To date, we've received 13 of the 14 regulatory and financial approvals required to close the deal. The last outstanding approval is related to the Hart-Scott-Rodino Act filing. We continue to make progress towards completing the proposed acquisition and are working collaboratively with the Department of Justice on the approval process. Additionally, we are taking full advantage of this valuable time to advance integration planning and to enhance our day one readiness to enable accelerated synergy realization.

David Wilson: While the exact timing remains uncertain, we are constructively engaged in addressing all regulatory requirements and preparing for the marketing and closing of permanent financing for the acquisition, while advancing integration planning and readiness.

David Wilson: To date, we received 13 of the 14 regulatory and financial approvals required to close the deal.

David Wilson: The last outstanding approval as it related to the Hart Scott Rodino Act filing we continue to make progress towards completing the proposed acquisition and are working collaboratively with the department of Justice on the approval process.

David Wilson: Additionally, we are taking full advantage of this valuable time to advanced integration planning and to enhance our day, one readiness to enable accelerated synergy realization.

David Wilson: Within the business, we remain focused on what we can control while navigating what remains an evolving macro environment. Our priorities remain operating effectively, managing the business with agility, and executing our strategic plan. As you would imagine, we are diligently managing costs and implementing mitigation strategies to offset the impact of tariffs. We are remaining flexible to capitalize on upside opportunities, and we continue to advance our strategic plan, including our 80-20 initiative.

David Wilson: Within the business, we remain focused on what we can control while navigating what remains an evolving macro environment.

David Wilson: Our priorities remain operating effectively managing the business with agility and executing our strategic plan.

David Wilson: You would imagine we are diligently managing costs and implementing mitigation strategies to offset the impact of tariffs.

David Wilson: We are remaining flexible to capitalize on upside opportunities.

David Wilson: And we continue to advance our strategic plan, including our 80 20 initiatives.

Greg Rustowicz: I will now turn the call over to Greg to take you through the details of our fourth quarter financial results and fiscal 26 guidance. Thank you, David, and good morning, everyone. Columbus McKinnon delivered fiscal 2025 net sales of $963 million, in line with guidance, but down 4% year-over-year on a constant currency basis, reflecting lower volume due to short cycle order softness in the second half of our fiscal year, as well as the timing of project-related orders that have longer delivery timeframes. In our fourth quarter, we delivered sales of $246.9 million, down 5% from the prior year on a constant currency basis, due to a 9% decrease in short cycle sales.

David Wilson: I will now turn the call over to Greg to take you through the details of our fourth quarter financial results and fiscal 'twenty six guidance.

Greg: Thank you David and good morning, everyone.

David Wilson: Columbus Mckinnon delivered fiscal 2025, net sales of $963 million in line with guidance, but down 4% year over year on a constant currency basis, reflecting lower volume due to short cycle order softness in the second half of our fiscal year as.

David Wilson: As well as the timing of project related orders that have longer delivery time frames.

David Wilson: And our fourth quarter, we delivered sales of $246 9 million down 5% from the prior year on a constant currency basis due to a 9% decrease in short cycle sales.

Greg Rustowicz: While short cycle orders in the quarter were flat compared to the prior year on a constant currency basis, the decline in sales this quarter was largely driven by a weak order pattern in our fiscal Q3. Backlog remains strong at 322.5 million, a 41.7 million or 15% increase versus the prior year, reflecting the strength and project related orders, specifically in precision conveyance as discussed earlier. Gross profit of $79.8 million decreased $14.5 million versus the prior year on a gap basis impacted by $4.4 million of expenses for factory closure costs related to two smaller North American facilities and a continued ramp up of our Monterey, Mexico facility.

David Wilson: Our short cycle orders in the quarter were flat compared to the prior year on a constant currency basis the.

David Wilson: The decline in sales this quarter was largely driven by a weak order pattern in our fiscal Q3.

David Wilson: Backlog remains strong at $322 5 million or <unk>.

David Wilson: $41 7 million or 15% increase versus the prior year, reflecting.

David Wilson: Reflecting the strength in project related orders, specifically precision conveyance as discussed earlier.

David Wilson: Gross profit of $79 8 million decreased $14 $5 million versus the prior year on a GAAP basis impacted by $4 4 million of expenses for factory closure costs related to two smaller north American facilities, and the continued ramp up of our Monterrey, Mexico facility.

Greg Rustowicz: Remainder of the decline was due to lower sales volume and mix, as well as a $1.1 million unfavorable FX impact. This was partially offset by favorable pricing, net of manufacturing cost change. Roughly half of the volume and mix impact was driven by lower volume, and the other half was driven by the product mix within our factor. On a gap basis, our gross margin was 32.3%, and on an adjusted basis, our gross margin was 35.2%. Adjusted gross margin contracted 140 basis points year over year, largely due to lower volume and the unfavorable mix previously discussed. With a lower sales volume in the quarter, the team managed RSG&A expenses appropriately.

David Wilson: The remainder of the decline was due to lower sales volume and mix as well as a $1 $1 million unfavorable FX impact.

David Wilson: This was partially offset by favorable pricing net of manufacturing cost changes.

David Wilson: Roughly half of the volume and mix impact was driven by lower volume and the other half was driven by the product mix within our factories.

David Wilson: On a GAAP basis, our gross margin was 32, 3% and on an adjusted basis, our gross margin was 35, 2%.

David Wilson: Adjusted gross margin contracted 140 basis points year over year, largely due to lower volume and the unfavorable mix previously discussed.

David Wilson: With the lower sales volume in the quarter the team managed our SG&A expenses appropriately.

Greg Rustowicz: While RSGNA increased $6.1 million to $67.5 million, this included $11 million of deal-related costs from the pending Keto Crosby acquisition. On an adjusted basis, RSGNA was down 3 million to 55.5 million. As a result, we generated operating income of $4.9 million in the quarter on a gap basis and adjusted operating income of $24.1 million. Adjusted operating margin was 9.8% in the quarter. We recorded a gap loss per diluted share for the quarter of nine cents and adjusted earnings per share of 60 cents. Adjusted earnings per diluted share decreased $0.15 versus the prior year driven by the lower volume and unfavorable mix, partially offset by lower RSG&A expenses, price increases, and lower interest expense as we continued to pay down debt.

David Wilson: While our SG&A increased $6 1 million to $67 5 million. This included $11 million of deal related costs from the pending keto Crosby acquisition.

David Wilson: On an adjusted basis, our SG&A was down 3 million to $55 5 million.

David Wilson: As a result, we generated operating income of $4 9 million in the quarter on a GAAP basis, and adjusted operating income of $24 1 million.

David Wilson: Adjusted operating margin was nine 8% in the quarter.

David Wilson: We recorded a GAAP loss per diluted share for the quarter of <unk> and adjusted earnings per share of <unk> 60.

David Wilson: Adjusted earnings per diluted share decreased 15 versus the prior year.

David Wilson: Driven by the lower volume and unfavorable mix, partially offset by lower our SG&A expenses price increases and lower interest expense as we continued to pay down debt.

Greg Rustowicz: Our adjusted EBITDA was $36.1 million in the fourth quarter, with an adjusted EBITDA margin of 14.6%. We delivered $29.5 million of free cash flow in the quarter, a decrease of $600,000 versus the prior year. Pre-cash flow for the year of $24.2 million was lower than the prior year, driven by $16.9 million related to the timing of collections for unbilled overtime revenue recognition on large projects, as well as $11.7 million of higher inventory levels due to the timing of large orders and higher stocking levels to facilitate the consolidation of our manufacturing footprint. From a balance sheet perspective, we paid down $60 million of debt in Fiscal 25, including $15 million in the fourth quarter.

David Wilson: Our adjusted EBITDA was $36 1 million in the fourth quarter with an adjusted EBITDA margin of 14, 6%.

David Wilson: We delivered $29 5 million of free cash flow in the quarter, a decrease of 600000 versus the prior year.

David Wilson: Free cash flow for the year of $24 2 million was lower than the prior year, driven by $16 9 million related to the timing of collections for Unbilled overtime revenue recognition on large projects as.

David Wilson: As well as $11 7 million of higher inventory levels due to the timing of large orders and higher stocking levels to facilitate the consolidation of our manufacturing footprint.

David Wilson: From a balance sheet perspective, we paid down $60 million of debt in fiscal 'twenty, five including $15 million in the fourth quarter.

Greg Rustowicz: We continue to prioritize debt repayment and expect that to continue in Fiscal 26. Our net leverage ratio was 3.1 times on a financial covenant basis, in line with guidance. For the company's credit agreement, we are capped at $10 million for a cash restructuring cost that can be included as an add back to EBITDA per year.

David Wilson: We continue to prioritize debt repayment and expect that to continue in fiscal 2006.

David Wilson: Our net leverage ratio was three one times on a financial covenant basis in line with guidance.

David Wilson: For the company's credit agreement, we are capped at $10 million for our cash restructuring cost that can be included as an add back to EBITDA per year.

Greg Rustowicz: Given our factory consolidation activities and Monterey startup costs, we've exceeded the maximum allowable adjustment by $16.6 million.

David Wilson: Given our factory consolidation activities in Monterey startup costs, we have exceeded the maximum allowable adjustment by $16 6 million.

Greg Rustowicz: Let me wrap up with our updated guidance for fiscal year 26, which contemplates our expectation for the continuation of a challenging macroeconomic environment and uncertain tariff policies in the near term. Our unmitigated tariff exposure would have an EBITDA impact of approximately $40 million based on what we know today. Through a combination of mitigation measures including surcharges, pricing, supply chain management, and more, we are targeting margin neutrality over time. We expect tariffs to negatively impact the first half of fiscal year 2026 due to the timing of tariff mitigation actions, including supply chain adjustments, surcharges, and price increases lagging tariff costs.

David Wilson: Let me wrap up with our updated guidance for fiscal year, 'twenty, six which contemplates our expectation for the continuation of a challenging macroeconomic environment and uncertain tariff policies in the near term.

David Wilson: Our unmitigated tariff exposure would have an EBITDA impact of approximately $40 million based on what we know today.

David Wilson: Through a combination of mitigation measures, including surcharges pricing supply chain management and more we are targeting margin neutrality overtime.

David Wilson: We expect tariffs to negatively impact the first half of fiscal year 2026, due to the timing of tariff mitigation actions, including supply chain adjustments surcharges and price increases lagging tariff costs.

Greg Rustowicz: This timing disconnect is largely due to some limitations on our ability to add tariff surcharges immediately to all existing orders in the backlog. However, we do anticipate achieving gross profit dollar neutrality on tariffs by the second half of fiscal 2026, with actions underway to achieve margin neutrality in fiscal 27.

David Wilson: This timing disconnect is largely due to some limitations on our ability to add tariff surcharges immediately to all existing orders in the backlog. However, we do anticipate achieving gross profit dollar neutrality on tariffs by the second half of fiscal 2026.

David Wilson: With actions underway to achieve margin neutrality in fiscal 'twenty seven.

Greg Rustowicz: Also, please note that our guidance does not include any financial results from the pending acquisition of Ketocroz. With that in mind, we are issuing the following guidance for fiscal 2026. Net sales growth being flat to slightly up year over year and adjusted EPS growth also flat to slightly up year over year. This guidance assumes interest expense of $35 million, which is an increase year over year due to the expiration of one of our largest interest rate hedges, which carried a favorable swap rate of 2.07%, as mentioned last quarter. amortization expense of $30 million, an effective tax rate of 25%, and diluted average shares outstanding at $29 million.

David Wilson: Also please note that our guidance does not include any financial results from the pending acquisition of keto Crosby.

David Wilson: With that in mind, we are issuing the following guidance for fiscal 2026.

David Wilson: Net sales growth being flat to slightly up year over year.

David Wilson: Adjusted EPS growth also flat to slightly up year over year.

David Wilson: This guidance assumes interest expense of $35 million, which is an increase year over year due to the exploration of one of our largest interest rate hedges, which carried a favorable swap rate of two 7% as mentioned last quarter <unk>.

David Wilson: Amortization expense of $30 million and effective tax rate of 25% and diluted average shares outstanding of $29 million.

Greg Rustowicz: Additionally, it contemplates a 20 to 30 cent headwind to adjust VPS in the first half of fiscal 2026 due to tariffs.

David Wilson: Additionally, it contemplates a 20% to 30 headwind to adjusted EPS in the first half of fiscal 2026 due to tariffs.

Greg Rustowicz: We are excited about the pending acquisition of KetoCrosby and our ability to achieve our stated long-term objective. While we expect some near-term macro uncertainty, we will continue to control what we can control with a focus on operational execution and managing our expenses, and we will be ready to capitalize on opportunities as they arise.

David Wilson: We are excited about the pending acquisition of keto Crosby and our ability to achieve our stated long term objectives.

David Wilson: While we expect some near term macro uncertainty we will continue to control what we can control with a focus on operational execution and managing our expenses and we will be ready to capitalize on opportunities as they arise.

Operator: Operator, we are now ready to take questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session.

Speaker Change: Operator, we're now ready to take questions.

David Wilson: Thank you.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will hear perhaps that you had has been waste. If you are using a speaker phone. Please lift the handset before pressing any case.

Operator: Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised.

Operator: If you are using a speakerphone, please lift the handset before pressing Our first question will be from James Kirby at J.P. Morgan. Please go ahead. Hey, good morning, guys.

Speaker Change: Our first question will be from James Kirby at J P. Morgan. Please go ahead.

Speaker Change: Yes.

James Kirby: Just want to start here on tariffs. What exactly is the tariff rate embedded, I guess, just for China and the EU for that 20 to 30 cent headwind in the first half of the year? And then just a second part, with the keto footprint, you've mentioned opportunities to relocate or consolidate some of the supply chain with keto. So I know you can't quantify that, but with a combined entity, is that still kind of the correct way to think about it, that maybe the tariff impact would be mitigated either quicker or better than what you're currently guiding?

James Kirby: Hey, good morning, guys.

Speaker Change: Just wanted to start here on the tariffs.

Speaker Change: What exactly the tariff rate embedded I guess, just for China and EU for that 20 to 30 cent headwind in the first half of the year.

Speaker Change: And then just a second part with the keto footprint, you've mentioned opportunities to relocate or consolidate some of the supply chain.

Speaker Change: With Quito.

Speaker Change: Is there I know you didn't get quantify that but.

Speaker Change: With the combined entity.

Speaker Change: Is that still kind of the correct way to think about it that maybe the tariff impact would be mitigated either quicker or better than what you're currently guiding.

David Wilson: Hey, good morning, James. Thanks for the questions. As it relates to that 20 to 30 cents embedded full year, we're looking at You know, directly from a factoring of that full year impact, 145% on the China tariff. and 10% on the EU tariffs. Knowing that that's, you know, in some state of flux at this point, we know that there's some potential adjustment to that, but as is currently were factoring. And then as it relates to the opportunities with Keto Crosby, we're obviously advancing the work that we're doing on integration planning to make sure that we have day one readiness, taking advantage of the time that we have now.

James Kirby: Hey, good morning, James Thanks for the questions.

Speaker Change: As it relates to that 20 to 30 embedded for the full year, we're looking at just directly from <unk>.

Speaker Change: Factoring of that full year impact of 145% on the China tariffs.

Speaker Change: 10% on the EU tariffs and the current consideration knowing that thats in some state of flux at this point, we know that there is some potential adjustment to that but as is currently contemplated we're factoring those amounts in.

Speaker Change: And then as it relates to the opportunities with Quito Crosby.

Speaker Change: We're obviously advancing the work that we're doing on integration planning to make sure that we have day, one readiness taking advantage of the time that we have now we're organizing to have a full fledged mode. That's staffed with dedicated leadership overseen by a steering committee and our board subcommittee from a governance perspective with a laser focus.

David Wilson: We're organizing to have a full-fledged IMO that's staffed with dedicated leadership, overseen by a steering committee and a board subcommittee from a governance perspective. with a laser focus on executing the synergies that we've identified, as well as delivering The cash generation commitments that we have thereafter to de-lever, wrap And so we're working through the opportunities. We are identifying both positives and, you know, potential headwinds to initial assumptions, but we're really comfortable with the targets that we've put out there, and we're marching towards you know, getting to a closure. Got it.

Speaker Change: On executing the synergies that we've identified as well as delivering the cash generation commitments that we have thereafter to delever rapidly.

Speaker Change: And so we're working through the opportunities we are identifying both positives.

Speaker Change: Positives and potential headwinds to initial assumptions, but we're really comfortable with the targets that we've put out there and we're marching towards.

Speaker Change: Getting to a closure later in this year.

James Kirby: Thanks, David.

David Wilson: And for my second question, maybe just want to dig deeper into the near-term outlook. You know, it looks like the short cycle has improved through mid-May, but maybe could you talk about how that trended through April and what you're seeing in early June? You know, and then again, a second part related to keto, but is there any reason to think that wouldn't be what you're also seeing at keto given, you know, they are predominantly short cycle business?

David Wilson: Got it thanks David.

Speaker Change: And for my second question, maybe just wanted to dig deeper into the near term outlook.

Speaker Change: It looks like the short cycle has improved through mid may, but maybe you could talk about how that trended through April and what you're seeing in early June.

Speaker Change:

Speaker Change: And then.

Speaker Change: Again as a second part related keto, but is there any reason to think that wouldn't be what youre also seeing keto given.

Speaker Change: They are predominately short cycle business.

David Wilson: Sure, as you can imagine on the Keto Crosby front, we can't comment on their result, but we would anticipate a similar level of activity. As I mentioned, short cycle sales improved in the latter portion of Q4, and we saw for the quarter a year-over-year flat performance in short cycle activity. And although that was flat year-over-year, it was a significant improvement versus Q3, so that was positive development. And as we progress through the first half of this quarter, we've seen growth in order demand, and we're encouraged by the funnel, both in terms of project activity, which was really robust in the last quarter, and through the full year last year.

Speaker Change: Sure Yeah as you can imagine on the keto Crosby front, we can't comment on that yet.

Speaker Change: Resolved.

Speaker Change: We would anticipate a similar level of of.

Speaker Change: Of activity.

Speaker Change: As I mentioned short cycle sales.

Speaker Change: Proved in the latter portion of Q4.

Speaker Change: And we saw for the quarter, our year over year flat performance in short cycle activity and although that was flat year over year. It was a significant improvement versus Q3, so that was a positive development.

Speaker Change: And as we progress through the first half of this quarter, we've seen growth in order demand and were encouraged by the funnel. Both in terms of project activity, which was really robust in last quarter in the last quarter and through the full year last year.

David Wilson: and with respect to short Got it.

Speaker Change: And with respect to short cycle activity.

James Kirby: Thank you.

Speaker Change: Got it thank you.

Speaker Change: Youre welcome.

Jon Tanwanteng: The next question will be from Jon Tanwanteng at CJS Securities. Please go ahead. Good morning. Thank you for taking my questions.

Speaker Change: Thank you. The next question will be from Jon <unk> with CJS.

Speaker Change: CJS Securities. Please go ahead.

Jon Tanwanteng: I was wondering if you could talk a little bit more about the tariff situation. You mentioned, obviously, the $40 million in headwinds, but I guess the net mitigation once you reach the second half. Could you maybe detail how much of that is expected to come from pricing versus taking out costs and what your underlying demand assumption is? You know, to get to that flat year-over-year revenue.

Jon: Good morning. Thank you for taking my questions. I was wondering if you could talk a little bit more about the tariff.

Jon: Situation, you mentioned, obviously, the $40 million of headwinds.

Jon: But I guess the net mitigation once you reach the second half.

Jon: You maybe detail how much of that is expected to come from pricing versus taking out costs and what's your underlying demand assumption is.

Jon: To get to that flat year over year revenue flat to up again.

David Wilson: Yes, so, John, good morning. From a macro environment, and, you know, hopefully this answers your question. I think I understand what you're getting at. From a macro perspective, we anticipate that the demand environment remains as is today, somewhat uncertain. There's a level of volatility around tariff activity that is still evolving. We are encouraged by the demand funnel that we've seen so far. And we've, you know, we've, you know, got a guide that contemplates flat to slightly up results from a revenue perspective. We think that that will be positively impacted by surcharges and tariffs and potentially negatively impacted by volume.

Speaker Change: Yeah. So John good morning from a macro environment and hopefully this answers your question I think I understand what youre getting at.

Speaker Change: From a macro perspective, we anticipate that the demand environment remains as is today somewhat uncertain, there's a level of volatility around tariff activity that is still evolving.

Speaker Change: We are encouraged by the demand funnel that we've seen so far and we've.

Speaker Change: <unk> got a guide that contemplates flat to slightly up.

Jon: <unk> from a revenue perspective, we think that that will be positively impacted by surcharges and tariffs and potentially negative impacted by volume.

David Wilson: Reductions tied to price increases to offset tariffs that might result in a lesser competitive position. that impacts volume. And so that's kind of a net-net of the assumptions that go into the guide as it's currently contemplated. Let me pause there and see if that answers your question.

Jon: Reductions tied to price increases to offset tariffs that might result in a lesser competitive position.

Jon: That impacts volume and so that's kind of a net net of the assumptions that go into the guide as it is currently contemplated.

Jon:

Jon: So let me pause there and see if that answered your question.

Jon Tanwanteng: No, that's good. Thank you.

David Wilson: And then second, I was wondering if you could talk about the strength and the precision conveyance orders. Where specifically are they coming from? You know, it's a margin on that business. Good. Just any caller there will be. Yeah, precision conveyance orders have been very robust. We're very encouraged by the demand that we've seen there. As you know, we were up 19% year over year in terms of order growth in that portion of the business, and that trend was positive throughout the year and continues to be positive in this quarter. That demand is coming from our MontraTech and Dorner businesses primarily, and it, you know, is for both, you know, precision conveyance solutions that are asynchronous.

Jon: No. That's great. Thank you and then second I was wondering if you could talk about the strength in the precision contains orders where specifically are they coming from.

Jon: <unk>.

Jon: It's the margin on that business. Good just any color there would be helpful.

Speaker Change: Yes precision conveyance orders have been very robust, we're very encouraged by the demand that we've seen there.

Speaker Change: As you know we were up 19% year over year in terms of order growth in that portion of the business and that trend was positive throughout the year and continues to be positive in this quarter that demand is coming from our mantra Tech and dorner businesses primarily.

Jon: And it is for both precision convenience solutions that are asynchronous and rail shuttle oriented or precision conveying solutions that are conveyance and flexible conveyance solutions for our customers and sometimes the combination of the two and we're seeing demand across a number of attractive end.

David Wilson: And rail shuttle-oriented or precision conveyance solutions that are conveyance and flexible conveyance solutions for our customers, and sometimes a combination of the two. And we're seeing demand across a number of attractive end markets. So when you think about strength in end markets, we're seeing strength in areas where we have a leadership position, like battery production, life sciences, e-commerce, food and beverage, aero. We're also seeing demand that's tied to what we think is driven by reshoring and some of the tariff and trade policy implications. in heavy manufacturing environments like steel and heavy equipment. We're seeing demand in U.S.

Jon: <unk>.

Jon: And so when you when you think about strength in end markets, we're seeing strength in areas, where we have a leadership position like battery production life Sciences E Commerce food and beverage Aerospace we're also seeing.

Jon: Demand that's tied to.

Jon: What we think is driven by re shoring and some of the tariff and trade policy implications and heavy manufacturing environments like steel and heavy equipment.

David Wilson: defense and, you know, we had a big trade show out in Europe. We're seeing the investments pick up in automation in that geography as well as in Germany as it relates to military and construction. So there's going to be a number of command drivers here, John.

Jon: We're seeing demand in U S defense and.

Jon: We had a big trade show out in Europe. This.

Jon: This past quarter.

Jon: Or this quarter, even and we're seeing the investments pickup in automation in that geography, as well as in Germany as it relates to military and construction spending.

Jon: So thank you and just a number of demand drivers there John thanks.

Steve Ferazani: The last question will be from Steve Farazani at Sidoti. Please go ahead.

Speaker Change: Thank you the last question will be from Steve Farris, Johnny at Sidoti. Please go ahead.

David Wilson: Morning, David. Morning, Greg. I wanted to ask about mix in the quarter because we've seen multiple quarters now where your precision conveyance orders have been very strong. I would have assumed, and if short cycle is so weak, I would have assumed mix should be positive to margin. You're saying it was negative in the quarter. I'm trying to understand that and how that plays out over the first half of fiscal 26. Yeah, sure. And Steve, the orders were way up in precision conveyance, but the sales were down. Right. And so the translation didn't occur in the quarter.

Speaker Change: Good morning, David Morton, Greg I wanted to ask about mix in the quarter, because we've seen multiple quarters, now where youre precision conveyance orders have been very strong I would've assumed if short cycle is so weak I would've assumed mix should be.

Speaker Change: Positive to margin and Youre, saying it was negative in the quarter I'm trying to understand that and how that plays out over the first half.

Speaker Change: Fiscal 'twenty six.

Speaker Change: Yeah sure Steve the orders were way up in precision convenience, but the sales were down right and so the the.

Speaker Change: The translation Didnt occur in the quarter, but what we've seen is margins were impacted by both volume and mix to lower volume was.

David Wilson: But what we've seen is margins were impacted by both volume and mix. The lower volume was Driving an Absorption Gap and Lower Utilization of Assets that Impacted Gross Margin in the And then we're expecting that to ramp and improve through fiscal 26. From a mixed perspective, we had some higher margin businesses that saw some volume declines like precision conveyance, as I mentioned, and our North American Linear Motion business where we were consolidating into Monterey, as was previously communicated. And so, you know, that ramp there impacted total volumes there, but those are, you know, volume out of that location.

Speaker Change: Driving an absorption gap and.

Speaker Change: And lower utilization of assets that impacted gross margin in the period.

Speaker Change: And then we're expecting that to ramp and improve through fiscal 'twenty six from a mix perspective, we had some higher margin businesses that saw some volume declines like precision conveyance as I mentioned in our North American linear motion business, where we were consolidating into Monterrey as was previously.

Speaker Change: Communicated and so that ramp there impacted total volumes there, but those are ramping as we speak and we're continually continuing to drive more volume out of that location.

David Wilson: And then we saw some strength in some lower margin areas like our rail business and then higher demand for some lower margin hoist related products. I mentioned the impact of tariffs, and we anticipate that tariffs will impact us in the first half of the year as we work to put in place whether they're supply chain adjustments or surcharges or price increases. … offset the impact of tariffs, and there is a lag in our ability to put them in place, whether it be for backlog that's already priced and might be seeing cost increases on supply chain inputs, or it could be tied The impact of price increases that result in volume losses that impact the bottom.

Speaker Change: And then we saw some strength in some lower margin areas like our rail business and then higher demand for some lower margin hoist related product.

Speaker Change: You know, obviously I mentioned the impact of tariffs and we anticipate the tariffs will impact us in the first half of the year.

Speaker Change: We work to put in place whether their supply chain adjustments or surcharges or price increases to offset the impact of tariffs and there is a lag in our ability to put them in place whether it be for backlog, that's already priced and might be seeing cost increases on supply chain inputs or.

Speaker Change: It could be tight.

Speaker Change: Two the impact of price increases that result in volume losses that impact the bottom line.

David Wilson: Does that answer your question? It helps a little bit. Yeah, thanks, David. I appreciate the color on that. But if you're talking about being able to mitigate the tariff impact, in the first half. Given the strong backlog, and you talked about the strong orders even in 4Q, you're not going to be able to reprice most of that, right? So it is going to carry over into the second half, just to a lesser degree. Is that how I should think of it? You should think of it as possibly carrying over to a lesser degree, but as we advance in our clarity around the tariff impacts and work with our customers around surcharge, Surcharge is tied to those orders.

Speaker Change: Does that answer your question.

David Wilson: It helps a little bit yes, thanks, David I appreciate the color on that.

Speaker Change: But if you're talking about being able to mitigate the tariff impact in the first half given the strong backlog and you talked about the strong orders even for Q youre not going to be able to reprice most of that right. So it is going to carry over into the second half just to a lesser degree is that how I should think of it.

Speaker Change: You should think of it as possibly carrying over to a lesser degree, but as we advance in our clarity around the tariff impacts and work with our customers around surcharge.

David Wilson: Those can be put in place on backlog to offset and. And so with the window that we have to communicate and manage contracts where we have notification periods around price changes, we think we can navigate that through the first half and manage that through the second half with the adjustments that we're Yeah, so Steve, just to be clear, we're expecting there to be roughly a $10 million headwind in the first half. maybe a little bit more. Page 9 of 9 becomes a competitor. Our expectation is by the time we get to the second half of the year, we will have covered Okay, that's fair enough.

Speaker Change: Surcharges tied to those orders those can be put in place on backlog to offset input costs and so with the window that we have to communicate and manage contracts, where we have notification periods around price changes. We think we can navigate that through the first half and manage that through the second half with the adjustments that we're making.

Speaker Change: Yes, so Steve just to be clear, we're expecting there to be roughly a $10 million headwind in the first half of the year, roughly maybe a little bit more in the first quarter than the second quarter of the fiscal year, but the big unknown is we can certainly you know price and put surcharges on but what impact has it.

Speaker Change: Gonna have on the volume.

Speaker Change: And so it becomes a competitive dynamic we have to assess but our expectation is by the time, we get to the second half of the year, we will have covered the tariff increases as they exist.

Speaker Change: Okay, that's fair enough.

David Wilson: Thanks, David. Thanks, Greg. Thank you.

David Wilson: Thanks, David Thanks, Greg.

Speaker Change: Thanks, Steve.

Jon Tanwanteng: The last question will be from Jon Tanwanteng at CJA Securities. Please go ahead. Hi, thanks for the follow up.

Speaker Change: Thank you. The last question will be from John <unk> at CJS Securities. Please go ahead.

David Wilson: I was wondering if you could comment on the e-commerce and market of anything that's going on there. Number one. Yeah, absolutely. As we've communicated previously, we've done a lot of work to expand our position in those markets with business development resources to broaden the base of customers we serve. We're serving a diversity of customers across big box suppliers of e-commerce solutions or delivery systems to customers as well as the more traditional parcel delivery customers with the products that we sell through our precision conveyance base primarily. And, you know, we have seen a nice increase in opportunities in the funnel and some traction on some good customer opportunities in that area.

John: Hi, Thanks for the follow up I was wondering if you could comment on the e-commerce and market. If anything is going on there number one I have a follow up after that.

Speaker Change: Yes, absolutely as we've communicated previously we've done a lot of work to expand our position in those markets.

Speaker Change: With business development resources to broaden the base of customers. We serve we're serving a diversity of customers across big.

Speaker Change: Big box suppliers of e-commerce solutions or delivery systems to customers as well as the more traditional Pat parcel delivery customers with the products that we sell through our precision convenience based primarily.

Speaker Change: And we have seen a nice increase in opportunities in the funnel and some traction on some good customer opportunities in that area nothing.

David Wilson: Nothing specific that I would call up by customer or by project in this call, but, you know, we're encouraged by the opportunities.

Speaker Change: Nothing specific that I would call out by customer or by project in this call, but we're encouraged by the opportunities that exist in that space John.

David Wilson: And I was just wondering if you could comment on the timing of the precision conveyance. If you've seen any... Yeah, so the precision conveyance backlog is both project and short cycle based. And when we think about the short cycle nature of our build to order stock, primarily in the US. That is kind of a book and ship business that ships in days and weeks and not months and quarters. And the run rate for that business would reflect, I would say, 40. the volume of that. So, I think that that's probably a reasonable way to think about.

John: Okay, great. Thank you and then I was just wondering if you could comment on the timing of the precision conveyance backlog.

John: Have you seen any lumpiness in the next three or four quarters kind of when you expect that to hit.

John: Yeah, so the precision conveyance backlog is.

John: Both project and short cycle based and when we think about the short cycle nature of our build to order stock primarily in the U S business.

John: That is.

John: Kind of a book and ship business that ships in days and weeks and not months and quarters.

John: And the run rate for that business would reflect I would say, 40% of the volume of that business.

John: So I think that Thats, probably a reasonable way to think about short versus long cycle. As you think about the U S portion of the business.

David Wilson: you know, short versus long cycle. And then the Montra Tech project phasing is largely influenced by the large Power Co. orders that we've taken, and those are for multiple projects and multiple geographies that are moving at a pace that's impacted by construction phasing, as well as some of the trade uncertainty. So we are anticipating that those projects will continue to on a. an overtime basis from a revenue recognition standpoint, which does take some of the lumpiness out of this from a delivery timing perspective over the balance of the next few quarters. And so I would say that we're probably a bit back end loaded on that as it relates to projects, but it is you know, not as spiky as Point in Time Revenue Recognition Project.

John: And then the mantra Tech project phasing is largely influenced by the large power co orders that we've taken and those are for multiple projects and multiple geographies that are moving at a pace that's impacted by construction phasing as well as some of the trade uncertainty and so we are.

John: Anticipating that those projects will continue to execute on our.

John:

John: And over time basis from a revenue recognition standpoint, which does take some of the lumpiness out of this from a delivery timing perspective over the balance over the next few quarters and so I would say that we're probably a bit back end loaded on that as it relates to projects.

John: It is not.

John: Not as spiky as a.

John: Point in time revenue recognition project orientation would be for the business.

David Wilson: Great, thanks, David. Yeah, and John, just to provide a little bit more color, if we look at our backlog as of 3-31, there's roughly 20% of it that will extend beyond fiscal 26 in total. Not specific to precision conveyance. Got it. Thank you.

John: Great. Thanks, David.

John: Yes, and John just to provide a little bit more color. If we look at our backlog as of $3 31, there's roughly 20% of it that will extend beyond fiscal 'twenty six in total in total.

John: That's not specific to precision convenience.

John: Got it thank you.

Operator: That concludes the Q&A section of the earnings call.

Speaker Change: Thank you that concludes the Q&A section of the earnings call I will now turn the call back over to Mr. Wilson for closing remarks.

David Wilson: I will now turn the call back over to Mr. Wilson for closing remarks. Thanks, Joanna, and thank you for joining us. As we look ahead to Fiscal 26, we begin the year with solid order momentum and a strong back. We remain focused on what we can control while navigating what remains an evolving macro landscape, prioritizing operational execution, customer experience, and cost management. Despite continued geopolitical and trade policy uncertainty, our team remains focused on meeting our customers' needs and delivering long-term value to shareholders. Over time, we believe we are well positioned to manage the developments related to trade policy changes, although there may be some volatility from period to period, including sales and margin impacts in the first half.

Speaker Change: Thanks, Joanna and thank you for joining us today as we look ahead to fiscal 'twenty six we began the year with solid order momentum and a strong backlog.

Speaker Change: We remain focused on what we can control while navigating what remains an evolving macro landscape prioritizing operational execution and customer experience and cost management.

John: Despite continued geopolitical and trade policy uncertainty our team remains focused on meeting our customers' needs and delivering long term value to shareholders.

John: Over time, we believe we are well positioned to manage the developments related to trade policy changes, although there may be some volatility from period to period, including sales and margin impacts in the first half.

David Wilson: We continue to make progress towards closing the Keto Crosby acquisition, advancing towards an anticipated close near the end of the calendar year. We remain enthusiastic by the potential of this acquisition, which will scale our business, expand customer capabilities, and position us to accelerate our Intelligent Motions strategy. Through this complimentary combination, our company will enhance its portfolio across a diverse landscape of industrial segments with attractive end markets. with an enhanced lifting, securement, and consumables position. And we'll be better positioned than ever before to deliver a superior customer value proposition through an expanded product offering across a broader set of geographies, generating enhanced financial results and long-term value creation for sure.

John: We continue to make progress towards closing the keto Crosby acquisition advancing towards an anticipated close near the end of the calendar year, we remain enthusiastic by the potential of this acquisition, which will scale, our business expand customer capabilities and position us to accelerate our intelligent motion strategy.

John: Through this complementary combination our company will enhance its portfolio across the diverse landscape of industrial segments with attractive end markets.

John: With an enhanced lifting secure mint and consumables position.

John: And we will be better positioned than ever before to deliver a superior customer value proposition through an expanded product offering across a broader set of geographies generating enhanced financial results and long term value creation for shareholders.

David Wilson: Thank you for investing your time with us today.

John: Thank you for investing your time with US today as always please reach out to Christie. If you have any questions. Operator. This concludes our call.

Kristine Moser: As always, please reach out to Kristi if you have any questions.

Operator: Operator, this concludes our Thank you.

Operator: This concludes today's conference call. You may now

Speaker Change: Thank you. This concludes today's conference call you may now disconnect.

Speaker Change: [noise].