Columbus McKinnon Corporation
First Quarter Fiscal 2017 Teleconference and Webcast
July 28, 2016
Operator: Greetings and welcome to the Columbus McKinnon Corporation First Quarter Fiscal
Year 2017 Financial Results Conference Call. At this time, all participants are in a listen-only
mode. A question-and-answer session will follow the formal presentation. If anyone should
require Operator assistance during the conference, please press star, zero on your telephone
keypad. As a reminder, this conference is being recorded.
I’d now like to turn the conference over to Ms. Deborah Pawlowski, Investor Relations for
Columbus McKinnon. Thank you, Ms. Pawlowski, you may begin.
Deborah Pawlowski: Thank you, Manny, and good morning, everyone. We certainly
appreciate your time today and your interest in Columbus McKinnon. We are going to be
reviewing our first quarter fiscal year 2017 financial results and discuss our outlook for the year.
Then, we’ll open up the line for question-and-answer.
On the call today are Tim Tevens, our President and CEO; and Greg Rustowicz, our Chief
Financial Officer. You should have a copy of the financial results that were released earlier this
morning at 8:00 am, and if not, you can access those, as well as the slides that will accompany
today’s conversation, at cmworks.com.
If you turn to slide two of our slides, I will discuss the Safe Harbor statement. As you are aware,
we may make some forward-looking statements during the formal discussions, as well as during
the Q&A session. These statements apply to future events, which are subject to risks and
uncertainties, as well as other factors that could cause actual results to differ materially from
what is stated here today. These risks and uncertainties and other factors are provided in the
earnings release, as well as in other documents filed with the Securities and Exchange
Commission. These documents can be found on our Web site or at sec.gov.
During today’s call, we will also discuss some non-GAAP financial measures. We believe these
will be useful in evaluating our performance. You should not consider the presentation of this
additional information in isolation or as a substitute for results prepared in accordance with
GAAP. We’ve provided reconciliation of non-GAAP measures to comparable GAAP measures
in the tables that accompany today’s earnings release and slides.
I also want to mention that Tim is joining the call remotely. We don’t anticipate any issues as a
result of this; however, if anything does come up and we lose Tim’s connection, we’ll get that
resolved quite quickly.
And so with that, I’ll turn the call over to you Tim.
Tim Tevens: Thanks, Deb. Can you hear me okay?
Deborah Pawlowski: Yes. You’re fine.
Tim Tevens: Great, let me start on slide three. We want to remind you of our long-term
objectives, which include growing to be a $1 billion business with about a third of our revenue in
developing markets and two-thirds in developed markets, along with $200 million to $300 million
of acquisitions and a steady stream of new products, generating a 12% to 14% operating
margin and a strong working capital level with an overall, very strong balance sheet.
Let me dive into the highlights of the first quarter before I turn it over to Greg. The highlights of
our fiscal 2017 first quarter on slide four indicates that our revenue was up 10.4%, excluding the
negative effects of currency translation of $1.4 million, which was driven by the Magnetek
acquisition. Sales in the U.S. were up 15.1% to $93.9 million and the Magnetek acquisition more
than offset lower volumes. The negative effects of the oil and gas downturn and related
supporting industries continued to have a negative effect on our volume. Sales outside the U.S.
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were up 3.6%, excluding unfavorable FX impact of $1.5 million, to $55.1 million.
We are very pleased with the Magnetek integration activities, as we’re integrating the Magnetek
control technology into our leading powered hoist brand, as well as moving forward with our
smart hoist and lifting system technology. This technology allows for hoist activity monitoring to
increase the productivity and safety of our customers’ operations.
Our gross margin increased to 32.2% and cash from operations more than doubled to $7.2 million
as compared with last year. As we have previously described, our priority now is to repay debt
and we have repaid $16.8 million in the quarter, bringing our total debt to capitalization to 46.3%
and net debt to total cap to 41.7%.
It appears as if the U.S. end markets are stabilizing, as the U.S. industrial capacity utilization is
hovering in the 75% area for the last six months or so. This stabilization should steady our
bookings and, therefore, our revenue in the next one to two quarters. Let me remind you that
we typically lag this indicator, so it takes a while for us to see the effects of it.
As mentioned, our Q1 revenues were up 10.4%, excluding the negative effects of currency
translation, as shown on slide six. The increase was driven by the Magnetek acquisition, as I
mentioned, and more than offset any volume decline in the quarter. We did recognize some
price increase in the quarter as well. Volume was down as a result of lower industrial activity in
key sectors of the economy, such as oil and gas, heavy manufacturing, mining and all of the
supporting industries to those sectors.
We are indeed growing market share in the U.S., as we focus entirely on our customers’ needs
and leveraging our strong channel partner relationships.
We are in the process of launching Compass™, our digital platform that allows our customers to
design, specify, get a quote and order a lifting system, all online. This eliminates many hours of
engineering work for our customers, our channel partners and our business, and provides our
customers 24/7 access to help them drive their business improvements and expansions.
We also introduced a new wire rope hoist line, the Yale LodeKing LT, which utilizes the
Magnetek controls and provides for industry-leading low headroom. The market has taken to
this new powered hoist, which has capacities up to 25 tons and sales are exceeding our
expectations.
In the near-term, however, we do remain cautious, as the industrial markets, although appear to
be stabilizing, can and probably will be very volatile.
Let me turn it over to Greg, so he can review more financial details. Greg?
Greg Rustowicz: Thank you, Tim. Good morning everyone. On slide seven, our first quarter
gross profit grew by $4.5 million, or 10.2%. The Magnetek acquisition contributed $8.4 million of
gross profit.
Productivity, net of our cost changes, was also quite strong in the quarter, contributing $1.4 million
to gross profit, as we benefited from our Lean program and restructuring actions taken in the past
year with the facility consolidation in Germany.
Higher product liability cost was the result of a $1 million legal settlement in the quarter. The
impact of lower volumes negatively impacted gross margin by $4.6 million. Foreign currency
translation negatively impacted gross margin by $500,000.
On a GAAP basis, gross margin was 32.2%, which compared with 32% in the prior-year period.
Adjusted gross margin was 32.2% compared with 32.4% in the previous year. The prior-year
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July 28, 2016
adjusted gross margin was adjusted for purchase accounting inventory step-up expense and
European facility consolidation cost, which together totaled $600,000. The reconciliation for
adjusted gross profit and margin is included on slide 17 of this presentation.
As shown on slide eight, selling expense was higher than the prior year by $2.2 million and
represented 12.6% of sales this quarter compared with 12.2% in the prior year. The Magnetek
acquisition added $3.1 million to selling expense in the quarter. Our base business selling
expense costs were actually lower by $700,000. Favorable foreign currency translation lowered
selling cost by $200,000.
G&A expense increased $1.2 million from the prior year and represented 10.9% of sales this
quarter, down from 11.1% in the prior-year period.The Magnetek acquisition added $1.5 million
to G&A expense in the quarter. Our base business G&A expense was slightly down compared
with the previous year. Favorable foreign currency translation reduced G&A expense by
$100,000. We expect our SG&A quarterly run rate to be $35 million to $36 million per quarter in
fiscal 2017.
Turning to slide nine, income from operations was $11.2 million or 7.5% of sales. Adjusted
operating income was $11.4 million compared with $12 million in the prior year. This represents
a decrease of $500,000 or 4.3%. We have adjusted operating income this quarter for the
Canadian pension lump sum settlement cost in the amount of $200,000 related to the previously
announced warehouse consolidation. Adjusted operating margin was 7.7% compared with
8.8% in the prior year. This reconciliation can be found on slide 18 of this presentation.
As you can see on slide 10, adjusted earnings per diluted share for the first quarter of fiscal
2017 were $0.34 per share compared with $0.38 per share in the previous year, a decrease of
$0.04 per share or 10.5%. Adjusted earnings per share reflect the exclusion of the costs
associated with the Canadian pension lump sum settlement costs, as well as a normalized 30%
tax rate. GAAP earnings per diluted share were $0.32 per diluted share versus $0.34 per diluted
share in the prior-year period. The actual tax rate in the current quarter was 32.5%, which
compared with 33.9% in the prior-year period. The effective tax rate for fiscal 2017 is expected
to fall between 30% and 32%.
Turning to slide 11, excluding the impact of acquisitions owned for less than one year, our
working capital as a percent of sales was 22.4% compared with 21.9% at June 30, 2015 and
21.5% at March 31, 2016. Working capital as a percent of sales increased 90 basis points
sequentially from last quarter, reflecting typical timing fluctuations and higher inventory levels
due to the growth in project backlog. Inventory turns were 3.4 turns compared with 3.6 turns as
of March 31, and are expected to improve in fiscal 2017, which will add to our cash generation
capabilities.
On slide 12, cash from operations in the first quarter was especially strong, coming in at $7.2 million
compared with $3.2 million in the prior year. We are benefiting from the cash generation capability
of Magnetek, as well as lower cash taxes from the utilization of the NOLs we acquired. We are
tracking towards the previously given guidance that capital expenditures will be approximately
$18 million in fiscal 2017.
Turning to slide 13, you can see that our total debt was $250.5 million and our net debt was
207.3 million as of June 30, 2016. Our net debt to net total capitalization was 41.7% as of June 30.
We repaid a total of $16.8 million of debt in the quarter, ahead of our target of $43 million. We have
repaid almost $54 million of the debt utilized to acquire Magnetek. Our focus continues to be on
deleveraging the balance sheet quickly.
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With that, I will turn it back over to Tim to cover the fiscal 2017 outlook.
Tim Tevens: Great. Thanks, Greg. Let’s take a moment and look at that outlook on slide 14.
As we look to the near-term future, we see some good news and some bad news for our future
business. The end markets appear to be stabilizing, as the capacity utilization is leveling and oil
and gas activity appears to be at the bottom of at least a year long slide. In this difficult market
environment, we continue to be aggressive and launch new products, add the Magnetek drives
and control systems into Columbus McKinnon hoists, service our customers well, and take
market share.
We see China in a slower growth mode, but certainly the rest of Asia and Latin America are still
weak. Europe will be negatively impacted in the short-term, as they wrestle with the uncertainties
of Brexit and other geopolitical events.
Our backlog is up nicely to $102.4 million, as a result of some nice orders booked by Magnetek
and our rail and road business in Germany. We continue to improve our gross profit even in a
lower volume environment. Unfortunately, our orders in the quarter, overall, were also down
about 10%. Germany and South Africa seemed to be stable, but other countries in EMEA are
weak. North America remains challenged with orders down 10% year-over-year, mostly driven
by the depressed industrial environment, led by the oil and gas downturn, which started for us,
by the way, in Q2 of last year.
Emerging markets generally remain weak, down 15% year-over-year. We will continue to make
strategic investments in a very prudent way in our business to win market share. New product
launches, investments in digital platforms, such as Compass™, and driving the smart
technology by our Magnetek integration are good examples of these investments. This will
position us well for a recovery later in the year. Our Columbus McKinnon Lean Business System
continues to do well, as you can see from our gross margins, and is improving our operations
overall.
And with that, let me see if I can open it up to questions.
Operator: Thank you. We’ll now be conducting a question-and-answer session. If you’d like to
ask a question, please press star, one on your telephone key pad. A confirmation tone will
indicate that your line is in the question queue. You may press star, two is you would like to
remove your question from the queue. For participants using speaker equipment, it may be
necessary to pick up your handset before pressing the star keys.
Thank you. Our first question comes from Robert Majek of CJS Securities. Please go ahead.
Robert Majek: Good morning.
Tim Tevens: Hi, Robert.
Robert Majek: It looks like Magnetek sales were down about 16% year-over-year. I know that’s
partially due to the loss of sales to Columbus McKinnon. If you take that out, I’m wondering what
the apples-to-apples comparison is there and can you provide any color on what that’s due to?
Tim Tevens: The revenue for Magnetek in the quarter was definitely lower than the prior year.
It was down about $4 million, and most of it was driven by the lack of large industrial projects
that they saw last year that aren’t being booked this year. Overall, I think the quotation activity
is actually up, but there is a hesitancy on the part of the marketplace to actually turn those
quotes into active projects and get them launched. That’s the number one thing we’re seeing
right now.
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Robert Majek: Thank you. And given the North American rig count increased about 14% or so
in the past few months and 7% or so in July, I was just wondering how well that might translate
to your core hoist business in the near-term?
Tim Tevens: We definitely think that there seems to be more activity in this area, mostly for our
rigging equipment that usually goes on the various drill rigs, and some manual hoists, which we
would consider rigging equipment as well. They seem to be doing better, okay in fact, and we
also think we’re taking some market share from some competitors in this area too. I still think
year-over-year though, Robert, we’re down in this environment still, but not down as much as
we have seen in the prior year.
Robert Majek: Right. Thank you. I will jump back in the queue.
Operator: Thank you. The next question is from Mike Shlisky of Seaport Global. Please go
ahead.
Mike Shlisky: Good morning. I did just hop on, so if this has already been asked and
answered, please let me know. First, I wanted to ask about Magnetek’s gross margins. It looks
like they are about 35% in the quarter, if I am looking at this correctly, and maybe even 15%
operating margin. Is that a good run rate based on what you know today, and is that in line with
what your expectations were for the company when you bought them and when the current
fiscal year started?
Tim Tevens: When we looked at the acquisition last summer, we certainly expected the gross
margins to be in the mid-30% area without question, and we did expect that, once we executed
all of our cost reduction synergies, the short-term things that we talked about, including the $5
million run rate, Mike, that we talked about costs being reduced out of Magnetek, that mid-tohigh double-digit operating margins were certainly possible. The one thing that obviously hits
them as well is the amortization expense that comes through, so that pulls back some of that
operating margin as well and it’s a meaningful number. Greg will give you the exact number in
a moment.
Greg Rustowicz: Okay. So, based on the press release, you can easily do the math.
Magnetek’s gross margins were just south of 35%, and we gave you enough information on it to
calculate operating margins, which were just under 11%. I think you were missing the
amortization piece in that calculation. Last June, they did publish standalone financials and you
can see the significant reduction in G&A expense, which was a result of the cost synergies. So,
G&A expense for Magnetek is down $2.5 million in the quarter from a year ago when they were
a standalone company. So I think with some top-line growth at Magnetek, they would absorb a
little bit more of the fixed costs, and they would be back to their more normal 36%, 37% gross
margin.
Mike Shlisky: Got it, okay. I also wanted to ask about the M&A environment. I know you just
did a pretty nice size deal just in the last few quarters here, but there was some talk in the
headlines about a potential crane company, which is kind of in your wheelhouse, that might be
for sale given some of the M&A transactions of other companies out there. I was wondering if
you can comment on how you feel that environment is today, not just about that one company
but just broadly speaking. Are there any bigger targets that you are pursuing and how do you
feel about the valuations at the current time?
Tim Tevens: As you know, our intent is to generate free cash flow and pay back our debt
short-term here. If you look at the rate at which we’re paying down debt, we’ll be positioned
very shortly here to be able to do another acquisition. There is a fair amount of work being done
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by the team, looking at targets and evaluating them to understand how we can strategically
align together to create more value as one company rather than two individual companies.
There are a number of targets that we’re looking at in the hoist industry, in the radio control
business and in various geographies around the world, so there is a cadre of them that we
continue to evaluate.
There is also the potential for some spinoff. I think we’ve talked in the past, Mike, of the Terex
Demag business coming together with Konecranes. There are definitely some antitrust issues
most likely coming out of the European Union that the United States potentially doesn’t know
how to answer just yet, but there are some assets that we would definitely take a look at to
better understand how we could benefit as a result of any of those spins that might occur.
Greg Rustowicz: Tim, let me add on, as well, that we completed a very small acquisition a
week ago for less than $1.2 million, where we bought the assets of a company called Ergomatic
to help us with lift assists and articulating arms for material handling and tool suspension
applications for our Unified business. It was a very small deal, but one we thought was
necessary and was available at the time, so we completed that in July.
Tim Tevens: And given the size of that very small company as you say, Greg, the profits are
very strong. The EBITDA multiple that we paid for that, Mike, was under 2x, but that is not the
norm, of course, as you might imagine. Industrial companies today are seemingly going for 6
times, 8 times, or 9 times EBITDA, depending on how much strategic value there might be.
Mike Shlisky: Okay, got it. I just wanted to ask about your commentary around rail-and-road
projects. It looks like you’ve had some great wins there. I’m curious about the outlook for the
rail business. Some suppliers seem to be a little bit more cautious on rail as far as the volume
of parts that are out there, if you are going into calendar 2017, than they may have been in the
past. Certainly, roads seem strong on the highway build, but what are your thoughts on rail
going into the next calendar year if possible?
Tim Tevens: Our business would be significantly different than what you might see in the U.S.
in terms of the rail downturn and the lack of rail cars being built and what not. The business that
we have is our series of actuators that lift high speed rail cars around the world. By the way, it’s
a global business, where there is high speed rail, which is not America. The actuators lift the
train off the wheel bogies so that the wheels can be removed and maintained. They have to be
inspected and maintained very regularly, like every six months, so this is a maintenance
application where we actually lift 100 meter train, plus or minus 1 millimeter through the length
of that train. As you might imagine, it weighs 100s of tons. This business seems to be pretty
good for us around the world. Our team has some very good success in the quotation activity
and, more importantly, in winning those quotes and turning them into orders. So, we remain
bullish on that kind of rail, not domestic rail where you might be seeing a downturn today.
Greg Rustowicz: And maybe just to give little more color on that, Mike. The projects that we
book can range from a couple of $100,000 to $3 million and, looking at the schedule, one very
large multimillion dollar project is actually a fiscal 2019 project that’s already on the books. So,
we feel really good about fiscal 2018’s railroad business, where, in essence, the plant is booked
I would say at this point for fiscal 2018, so we continue to win good projects.
Mike Shlisky: Okay. If I could just squeeze in one last one here and it’s a very broad question,
but you mentioned that a lot of the broader economic indicators, like capacity utilization, are sort of
stabilizing right now. The charts certainly back that up. If we were to see some increases either
month-over-month or year-over-year, let’s say, here in late summer, is it going to be a quarter or
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two or even three before you actually start to see your revenues trend better? That has been the
pattern in the past, and so, is the idea that, if things get better, it might not be until calendar 2017
or perhaps your fiscal 2018 where you start to really see the volumes coming up?
Tim Tevens: That has been our traditional past. I will tell you, though, that, having lived
through several economic cycles in my life with Columbus McKinnon, I do know that sometimes
it’s actually quicker when it’s a downturn where there is initially not very much activity in the
industrial landscape and then all of a sudden we see businesses have an uptick in activity and
they need to add capacity or add maintenance equipment that they haven’t done or have held
back on for many years.
It could be quicker. I’ve seen that happen in 2001, the bad recession. I’ve also seen it happen
coming out of the 2007-2008 recession where things seem to be not one to two quarters
delayed, but more immediate. That’s not a prediction by any stretch, but I will tell you that we
are seeing our channel partners and customers behave as if we are in a recession.
I’ll give you one example, Mike, where we had a nice order with one of our good customers,
who has been a customer for 50-60 years. That customer decided to reduce the order, because
they decided to move cranes and hoists around in their facilities and utilize equipment from
other facilities, so they didn’t need to buy new from us. That behavior seems like recession-like
behavior to me; that’s typically what you see in a recession. But, as their need and utilization
comes up and they need to add different lines or different expansion of their manufacturing
plant, we can see immediate demand from that in this example.
Mike Shlisky: Okay. Got it. That’s perfect. Thanks so much.
Tim Tevens: Thanks, Mike.
Operator: Thank you. As a reminder, ladies and gentlemen, press star, one if you’d like to ask
a question.
Our next question is from Joe Mondillo of Sidoti & Company. Please go ahead.
Joe Mondillo: Good morning.
Tim Tevens: Hi, Joe.
Joe Mondillo: One of your strong areas, geographically, has been Europe over the last couple
of quarters at least, but you mentioned in your prepared remarks that, potentially with Brexit, it
sounded like you were definitely assuming that things were going to slow. Have you started to
see any slowdown? Could you give us more information on that, and also on how much the UK
makes up of your total sales?
Tim Tevens: Let me start with that and I will back into what we saw from Brexit. Normally, the
UK for us is about a $20 million business per year, so it’s a decent sized business. We have a
very nice presence in that economy with our hoist and cranes and a variety of lifting equipment.
We make clamps there, as well. It has always been good, but during the week after the vote,
though, our team there saw a drop in orders of 40%. It was unimaginable, the vote, I think from
many people’s perspective, but equally as important, it has created a fear and an uncertainly of
what’s going to happen. How will this work, how will the UK migrate out of the European Union,
and what does that mean for everybody? The dialog that we’re having with our customers in
the region is all around that. How are we going to get out of this, how will everything transpire?
I will tell you that, across the European Continent, Germany still is strong for us. They are still
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over-year and we attributed that to the uncertainty of some of the attacks that have been going
on there. It just doesn’t seem like people are focused on what we consider to be business right
now. They’re focused on other things.
And then, the emerging markets seem to be held back as well, worse than we anticipated. I
think, overall, the uncertainty is the cloud that hangs over that whole continent right now as to
how this thing will work long-term. I’ve always believed that Germany will be the engine. It will
continue to be the area where we have bright spots, but the rest of the continent seems to be
under this cloud right now.
Joe Mondillo: So, if you look at your European revenue year-over-year growth and everything,
does it seem to be maybe slowing compared to the last couple of quarters, because there had
been, I think, around high-single digits type growth that you’ve seen there?
Tim Tevens: You’re right. It’s growing, but not as fast. Keep in mind that they went through a
recession in 2013, as well, and coming out of the recession, you typically get higher growth
rates. Once you get back to the peak, which we feel we’re there, put aside Brexit for a moment
and some of the other geopolitical things going on, the growth will definitely slow and be more
GDP-like and that’s what we’re seeing right now.
Joe Mondillo: Okay. In terms of your gross margin, obviously, with the volume down, I think,
that’s a large part of it, but you do say volume and mix, so I was just wondering in that piece of
the deterrent to your gross margins, is product mix any bit of an issue in the quarter that you just
reported? I also noticed that your big project work backlog actually increased, sequentially, so
wasn’t sure if you booked some of the big project work, but you just didn’t realized it in the
quarter. Was mix any part of that or was it just largely volume?
Tim Tevens: Let me comment, Greg, and then I’ll ask you to add color if you would. Most
definitely, we did book some very nice projects, but they’re out in the future, so they didn’t
convert to revenue. You typically know us as a company that books this week, ships this week
and gets revenue this week, so it’s very quick turn. The bookings went off, mostly because of
these large projects that we were able to book, but they won’t turn into revenue till the future,
beyond this quarter certainly. That’s number one.
Number two is, when we see certain product lines, especially where we have very good market
share, like the United States for example, especially on our hoist business, where the hoists
have very good margins for us generally and that volume goes down. It’s certainly more painful
than if we have a product line that doesn’t have as much gross margin and its volume goes
down. The U.S. is kind of our mainstay, our home market. It’s where we have great share, and
when it’s not working and not doing well, our volume is impacted, but equally as important, is
the margins are directly impacted.
Greg Rustowicz: Joe, I’d add color on the gross margin as well, the legal settlement that we
had impacted cost of goods sold and that’s worth about 70 basis points of margin, so without
that settlement, our gross margin would have been 32.9% in the quarter.
Joe Mondillo: Was that sighted in that gross profit table that you put in there? I didn’t see it
there?
Tim Tevens: On slide seven, I think.
Joe Mondillo: Okay. In terms of pricing, it was a little weaker than I anticipated. Is that going
to be consistent just given the lack of the softness of demand or are you anticipating any
increase from that? I think it was 0.2% contribution to revenue on pricing?
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Tim Tevens: In the environment, in particular in the United States, as I normally say, the
company generates, typically, 2% to 3% price every quarter in normal economic times. When
we do see softness, you don’t get as much price as you otherwise would get, so we shrink
normally to 0.5% to 1%. This quarter was particularly weak. I don’t have a feel for what the
future would be. It seems to me that it should bounce back into this 0.5% to 1% area, but we’ll
just have to see.
Joe Mondillo: Okay. And regarding the material cost, it seems that was a very small deterrent
to gross margins, but that’s actually been a benefit over the years. Obviously, with steel prices
rising and other commodity prices rising, it’s not really surprising, but do you anticipate that
being a bigger headwind as we go through the rest of the fiscal year?
Tim Tevens: We typically have longer-term contracts in place that allow us to hold those prices
or at least mitigate some of the price increases. I do believe that we’ll begin to see some level of
inflation, it has to come right? Joe, it’s been I don’t know how many years where we haven’t
seen it. It has to come, and the one thing that I will tell you is that our history has been that we
always recoup it through price increases. So, our goal is to remain margin-neutral through any
kind of volatility on the input cost side.
Joe Mondillo: Lastly, I was wondering, in terms of your working capital, primarily I guess
inventory, how are you thinking about working capital for the year? Is that going to be a source
of cash or is that going to be a use of cash? And then, in terms of the amount of debt pay down
that you paid during the first quarter, is that something to think about on a run rate for the year
that would easily surpass the goal, as you’ve mentioned that you are going to surpass your
initial goal? What sort of debt pay down are you thinking that you’re able to do for the rest of the
year on a quarterly basis?
Tim Tevens: Greg, do you want to take that one?
Greg Rustowicz: Sure. From a working capital perspective, we would expect that, by the end
of year, it’s a source of cash for us. We’re continuing to work hard on the inventory side of
things to get the right products in inventory and match our inventory levels with our forecast.
In terms of our goal on debt repayment, we do expect to exceed it. I don’t think, though, that we
can take the $16.8 million and annualize that number. We expect to be greater than the $43 million.
I think, Joe, we’ll have a better feel after this upcoming quarter. I will say, though, that we did have
a $5 million pension contribution that took place in April, which impacted cash flow this quarter.
Joe Mondillo: Okay. Great. And, actually, if I could just sneak one last one in, in terms of SG&A
costs, you came in on the low-end of that $35 million to $36 million. Do you anticipate that to
potentially creep up, or is it hard to tell at this point, or how do you think about that range?
Greg Rustowicz: I think we’re going to be within that $35 million to $36 million, and were around
the low side this time. There are always puts and takes in terms of some one-time costs you incur
and maybe some costs that you add, but we’re really trying to manage the cost structure, so that
we can deliver the operating income, but yet not impact our long-term strategies that we have in
investing in new product development and other such things. So, I do think it’s going to be in that
range; $1 million is about as tight as we can call it.
Joe Mondillo: Okay. Great. Thanks a lot.
Operator: Thank you. We have no further questions in queue at this time. I would like to turn
the conference back to management for closing remarks.
Tim Tevens: Thank you. Let me summarize by saying, driving profitable growth in a down
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Columbus McKinnon Corporation
First Quarter Fiscal 2017 Teleconference and Webcast
July 28, 2016
market is our target. The combination of Magnetek and Columbus McKinnon is helping us
create smart technology that will allow more productive and safer lifting systems for our
customers.
Our digital platform, Compass™, is the beginning of leveraging technology to help our
customers design lifting systems and reduce work in our mutual operating environment. We will
continue to develop new products and leverage new market opportunities to help drive growth.
One consistent strength of the company is to generate free cash flow regardless of the cycle,
and we will use this cash to de-lever our balance sheet.
I’d like to take this time to thank all of the Columbus McKinnon associates around the world for
their dedication to excellence in making our company a stronger market-leading organization.
Without them and their significant efforts, none of this can be accomplished.
We appreciated all of your time today. Have a good day. Thank you.
Operator: Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You
may disconnect your lines at this time and thank you for your participation.
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