Good afternoon, ladies and gentlemen, and welcome to the Columbus McKinnon Corporation Third Quarter 2025 Earnings Conference Call. At this time, all lines are in listen-only-mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Monday, February 10, 2025. And I would now like to turn the conference over to Ms. Kristine Moser. Thank you. Please go ahead.

Thank you, and welcome, everyone, to our call. On today's call, we'll be covering both our third quarter fiscal 2025 financial results, as well as the recently announced combination of Kito Crosby with Columbus McKinnon. This is an exciting evolution in our strategic journey that combines two complementary businesses with scale advantages and strong value creation for all of our stakeholders. 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, Dave and Greg will walk you through our financial and operating performance for the quarter before sharing more about why Columbus McKinnon is so excited about bringing these two great businesses together. The earnings release and presentation, including details on the Kito Crosby deal to supplement today's call are available for download on our Investor Relations website at investors.cmco.com. Before we begin our remarks, please let me remind you that we have our safe harbor statement on Slide 2. During the course of this call, management may make forward-looking statements in regards to our current plans, beliefs and expectations. These statements are not guarantees of future performance and are subject to a number of risks and uncertainties and other factors that can cause actual results and events to differ materially from the results and events contemplated by these forward-looking statements. I'd also like to remind you that management will refer to certain non-GAAP financial measures. You can find reconciliations of the most directly comparable GAAP financial measures on the company's Investor Relations website and in its filings with the Securities and Exchange Commission. Please see our earnings release and our filings with the Securities and Exchange Commission for more information. Today's remarks will be followed by a question-and-answer session. We respectfully ask that you limit yourself to one question and one follow-up. With that, let me hand it over to David.

Thank you, Kristine, and good afternoon, everyone. We're excited to share more about a transformational milestone for our company, bringing together Kito Crosby with Columbus McKinnon in a highly complementary deal that we expect to deliver compelling value for all of our stakeholders. This business combination enhances our scale and market position while delivering top-tier financial performance. But before I get into the details of the deal, let's discuss the third quarter. Our global team adapted quickly to shifts in industry demand in the second half of the quarter and delivered adjusted EPS of $0.56 on $234 million in sales, including an $0.08 impact of unfavorable foreign exchange movements in the quarter or $0.11 compared to the favorable foreign exchange in the prior year. While the demand environment deteriorated over the quarter, midterm market sentiment remains positive. As the third quarter progressed, we encountered two dynamics. First, our U.S. customers took a cautious approach to the evolving policy environment, particularly related to tariffs, which delayed decision-making. And second, we saw subdued demand in Europe, particularly in Germany and France, consistent with what you are hearing across the industry. While our optimism for the business over the medium and long term remains unchanged, our third quarter results and revised guidance for the near term contemplate that the resolution of these dynamics extend through the fourth quarter. We continue to see attractive opportunities from industry megatrends like nearshoring, scarcity of labor and infrastructure investments, and we are well positioned to benefit as we capitalize on those dynamics. As always, we remain focused on what we can control, operating effectively, managing our business with agility and executing our strategic plan. As you would expect, we are diligently managing costs to reflect current demand levels while remaining flexible to take advantage of what are…

Thank you, David. Good afternoon, everyone. We delivered third quarter net sales of $234.1 million, down 8% from the prior year, driven by a 9% decrease in short-cycle sales. We believe this was largely related to U.S. policy uncertainty and economic softness in Europe, particularly in Germany. Project-related sales were down 7%, driven by weak demand and delayed revenue recognition resulting from a delay in receiving final design specifications for a large order previously won by Montratec. While we expect revenue to be challenged in the short term, we are optimistic about the future as the new administration's policies take shape, interest rates decline over time, and we benefit from certain megatrends such as nearshoring in the U.S. and automation more broadly. Our gross profit decreased $11.8 million versus the prior year on a GAAP basis, impacted by $3.1 million of expenses for factory closure activity and the ramp-up of our Monterrey, Mexico facility and $2 million of higher year-over-year product liability expense as we lap a favorable product liability adjustment in the prior year. The remainder of the decline was due to lower sales volume and mix, which was partially offset by favorable pricing net of manufacturing cost changes. On a GAAP basis, our gross margin was 35.1% and on an adjusted basis, our gross margin was 36.8%. On a sequential basis, adjusted gross margin expanded 50 basis points but contracted 40 basis points year-over-year, largely due to lower volume, unfavorable mix and the previously discussed prior year favorable adjustment to product liability accruals. With the lower sales volume in the quarter, we managed our SG&A expense appropriately, decreasing our spend by $2.6 million to $56.9 million. This was driven by cost management actions and lower incentive-based compensation, partially offset by two unique items, namely a $1.5 million legal…

Thanks, Greg. Now on to our deal. I'm thrilled to share that we have entered into an agreement to combine Kito Crosby with Columbus McKinnon in what is a highly complementary deal that we expect will drive compelling value creation for all of our stakeholders. This acquisition enhances our scale and market position while delivering top-tier market performance. Our combination creates a scaled intelligent motion platform with over $2 billion in sales, enhancing our holistic offering and material handling solutions, increases the resilience of our portfolio with meaningful additions to our hardware and consumables portfolio with expanded scale and complementary geographic exposure and realizes a top-tier margin profile with pro forma adjusted EBITDA margin of 23%, supported by the strong stand-alone performance of our businesses and approximately $70 million of net cost synergies expected by the end of year 3. Our combination also produces strong free cash flow, which will enable significant debt reduction following the transaction, just as we have done consistently following prior acquisitions. And over time, that cash flow will create financial flexibility to reinvest in growth. On a pro forma basis, the trailing 12-month adjusted EBITDA multiple for the transaction is approximately eight times, reflecting the expected run rate net cost synergies. In summary, this is a highly compelling combination for all stakeholders that establishes scale, strengthens our core, increases resiliency, enables growth and positions Columbus McKinnon well for the future. The transaction is expected to deliver value for shareholders and be accretive to the company's adjusted earnings per share in the first year on a pro forma basis at run rate net synergies. Normalizing for expected integration costs, we expect greater than 100% free cash flow conversion, providing flexibility for deleveraging, reinvestment and future growth. I have long had a great respect for Kito Crosby's…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session [Operator Instructions] Your first question comes from the line of Matt Summerville from D.A. Davidson. Please go ahead.

Hi. Thank you. You've got Canyon Hayes on for Matt Summerville tonight. Maybe just to open up the discussion, Hi. Good afternoon. Just to open up the discussion, any kind of early prioritizations for the $70 million in cost savings? And any quantitative guidance we can think to as far as top line synergies?

Yeah. Good afternoon. Hi. This is David Wilson. And just as far as the $70 million is concerned, I outlined those categories in my prepared remarks. And as I mentioned, we'll start with supply chain optimization and enhancing purchasing power and operational efficiency-focused items. We do believe there are duplicative structural expenses as we are combining two companies of roughly equal scale, and overlapping third-party expenses. And so I would characterize the synergy opportunities in those four primary buckets. And then as far as the revenue synergies that we've identified, we think there are a number of paths for revenue synergy opportunities that include leveraging our global roof line and getting geographic coverage enhancements, cross-selling to existing customers, leveraging the strengths of both businesses to provide a simpler solution for our customer base and others that I won't get into here now. But I think those are opportunities that we haven't built into our model and would see as upside to the existing framework that we've outlined.

Great. Thank you. As far as we think about the - the longer-term margin profile of the two businesses, are there any structural differentials we should think about and kind of between the two assets?

The Kito Crosby business has a portfolio that includes a larger portion of what we would call lifting and securement consumables. These are items such as shackles and hooks and manual tools, manual lifting equipment that is wear oriented and has requirements that limit wear to less than 10% for it to be safe to use. And these products serve highly critical applications. And so failure is not an option. Security and performance is critical. And the average ASP for those products is quite low, $500 and less generally. And so when you think about criticality versus the requirement of the item and the potential that a used item might have been exposed to extreme temperatures, which can change the metallurgy, as well as wear or other exposures that could deem the product to be more brittle or have other challenges. Given those characteristics and risks, people generally decide to use new components in that space when doing work that is critical and where failure is not an option. And so with that in mind, those products have a more resilient revenue profile and over time, can command, I think, a really healthy return for the business.

Thank you.

You're welcome.

Thank you. And your next question comes from the line of Steve Ferazani from Sidoti. Please go ahead.

Good evening, David. Greg, I appreciate you outlining what seems like an interesting combination. I do have to ask, and obviously, you've levered up before and successfully delevered multiple times. But in this case, you have the combination of what clearly is some global uncertainty that at least in the short term is affecting your business and you're levering up to almost 5 times. Was there any thought given the timing of this to lever up so much how you came around to being comfortable doing it?

Yeah. So Steve, it really boils down to the confidence we have in the free cash flow generation of the combined businesses. We believe that we're going to generate over $200 million of free cash flow a year, and that's going to grow. And we also - one other important fact is from a timing perspective, we need regulatory approvals. We think it's going to - we'll get that in the first half of the year and be able to close. But I think as we march through the upcoming quarters, I think people are going to get more and more confident with the current administration and what the policies are going to be and a lot of that uncertainty is going to be removed. So we would expect actually EBITDA to grow going forward, which will help on the leverage perspective. And just to add on too, we spent a lot of time looking at the synergies, the cost synergies and clearly have a range of outcomes. We have upside to deliver potentially on the cost synergies. And we think that between that and once again, the free cash flow, we're comfortable with our ability to delever very quickly. And as David said in his prepared remarks, it's going to delever roughly a turn a year.

Okay. My follow-up is just on location of Kito's facilities, obviously, with the tariffs being high on everyone's mind right now. Can you give us a general overview of where their facilities are? And do those facilities serve fairly local geographies?

Yeah, they're generally in region for region, I would say, with the exception that Japan supplies a lot of product into the U.S. And so that is a supply chain dynamic within their business, but we see that as a relatively low risk relative to tariff implications. And so I think there's a moderate exposure associated with that business.

Okay. Thanks, David. Thanks, Greg. I'll get back in queue.

Thanks, Steve.

Thank you. And your next question comes from the line of Jon Tanwanteng from CJS Securities. Please go ahead.

Hi. Good afternoon. Thank you for taking my questions. I was wondering how Kito fits into your current simplification strategy, the mix shift to higher growth and higher-margin markets, number one. Number two, I guess, do you have to pause or readjust your current consolidation efforts with so many new assets and products coming into your network and portfolio?

Yeah, I appreciate it. Thanks. And we do see this fitting well into the framework that we've outlined historically. And so if you think about our growth framework that highlights strengthening the core, growing the core, expanding the core and reimagining the core, this fits squarely in the strengthening and growing categories and enables expansion and ultimately reimagining as we pay down debt with this superior cash generation and enable future investment in growth. And so this was an opportunity to combine two really good businesses and bring a tremendous value, we think, not only to our shareholders, but to our customers. And we see the combination as something that fits very well within the framework that we've talked about. And as you can see with the margin profile that we're forecasting, this will ultimately deliver a top-tier financial profile at scale. And so we saw this as a really compelling opportunity to do that. And then accelerate as we get to that stage in our integration of this business, the deployment of capital in a way that accelerates our transformation into some of those more secular growth markets over time.

And then - sorry, go ahead.

Yeah, I was going to say, I think you had a second part of your question on does this impact our footprint consolidation. So that's really a core part of our 80/20 strategy. And so as you know, we've been moving forward with our new facility in Monterrey. We did, as David mentioned in his prepared remarks, consolidate two smaller facilities this quarter. That's going to be happening in the fourth quarter. That will have about $3 million of benefit going forward. So we think that's a key part of 80/20, and we're going to continue to move forward with our existing plans.

Okay. Thanks. Second, I was just wondering if you could expand a little bit on your confidence in the synergy numbers and the cash flow, just given the uncertainty and the possibility of entering a full-blown trade war. Is that achievable if you have these tariffs that we've - that you've outlined and the exposures that both you and Kito have?

Yes, Jon. We do believe that, that's achievable. We have got a range of possibilities. And I think we've been reasonably conservative relative to what the targets are. We have done a tremendous amount of work, both internally and with our advisers to arrive at a set of objectives that we've also vetted with the Kito Crosby leadership and feel like we've got a good calibration on where those numbers should be and that those are very achievable over the time frame that we've outlined.

Okay. So just to be...

And Jon just to add on - yeah, sorry, just to add on. So from an exposure perspective, for Columbus McKinnon, in a worst worst-case scenario, 25% across the board, we're probably looking at in the neighborhood of $10 million to $20 million tariffs. And Kito Crosby has significantly less than that exposure. So we still think we're going to be - would it have an impact? Yes, but not significant enough to really affect leverage.

Right. And just to clarify, that $10 million to $20 million is without passing through the impact of tariffs in terms of price increases. And so we'd be working to avoid those impacts on our customers. But clearly, if they weren't avoidable, we've had a history of making sure that we work effectively with our channel partners to pass those on and preserve margins in the system.

Got it. That's helpful. Thank you.

Thank you.

Thank you.

Thank you. [Operator Instructions] Your next question comes from the line of Walt Liptak from Seaport Research. Please go ahead.

Hey, thanks. Good evening, guys. So I wonder if we can just get some metrics here on Kito Crosby. What's the price multiple that you're paying for Kito Crosby?

Yeah, it's 8 times post-synergy leverage.

Okay. How about pre-synergy?

Pre-synergy, it's just over 10.

Okay. And then what about other - for us - for some of us who might not be familiar with Kito Crosby, how much - can you tell us how much sales they had like the LTM, where their gross margin is...

Sure. They have one - absolutely. It's in the deck, Walt, and they have $1.1 billion worth of sales. They have a 23% gross margin.

EBITDA margin.

I'm sorry, EBITDA margin, high 30s gross margin or 40-ish gross margin depending upon how you calculate it. They have grown at 7% over the last 3 years CAGR. They have 4,000 channel partners 600,000-plus end users that have been trained by the company. And they're pretty geographically diverse, well situated around the globe. About 20% of their business is in Asia, close to 60% is in North America. And then the European business is about 20%, and they have about 4% in Latin America.

Okay. Great. Thank you for that.

Does that help...

Yeah, that does. And so you're saying that the 60% that's North America, presumably that's mostly U.S. but is

And Canada as well. Latin America and - well, Canada is included in that North America number.

Okay. And how much is coming into the U.S. from outside the U.S. that might be impacted by tariffs?

Yeah, it's modest. The most significant import amount or amount of kind of transferred product from overseas locations is coming in from Japan.

Okay. Okay. All right. And then the factory consolidation in Mexico, I guess, since we talked last time at your second quarter conference call, that was pre discussions about tariffs. What are you guys thinking now if there are tariffs, is Mexico really the place that we want to be consolidating? And the two factories that you mentioned today, are those both going from the U.S. down to Mexico?

Yeah. So on the second one, it's a combination. There could be some product lines moving into Mexico and others moving into another U.S. facility because it makes sense to do so after we evaluated it. And in terms of the first part of the question related to Mexico, it's - once again, I think if there is any tariffs from Mexico or on Mexico and vice versa, it would be - it would impact our savings some. But remember, we're looking at very substantial savings when we're fully consolidated the factory. So it still makes sense to move forward with our plans.

Okay. Okay. Thank you.

Thanks, Walt.

Thank you. And your last question comes from the line of Jon Tanwanteng from CJS Securities. Please go ahead.

Hi. Thanks for the follow up. I was just wondering if you could give a, excuse me, a blended interest expense or rate expectation once you've completed the financing.

Yeah. So it will be a market rate. But right now, we're expecting it to be below 8%.

Okay. Great. And one more question, just I mean, this is one of your larger competitors, and I'm wondering if you're anticipating any regulatory issues to closing antitrust or anything like that? And what do you think the greatest risk might be?

Right, right. So we've assessed this and have obviously worked closely with our advisers to assess risk here, and we understand that it's a low risk, and we're going to be filing as we should for a process like this. And so we're going to proceed with the filing process, and we'll look forward to results and feedback on that within 30 days and then proceed from there. The most significant overlap within our product categories would be in the power chain hoist category. And so we'll be working closely with our teams to assess that as we go forward.

Okay. Got it. Thank you.

Thanks, Jon.

Thank you. There are no further questions at this time. I will now hand the call back to Mr. David Wilson for any closing remarks.

Perfect. Thanks, Ana. And thank you to everyone for joining us today as we celebrate this milestone in our history. Let me reiterate that the compelling value creation we will deliver through this complementary combination of Kito Crosby and Columbus McKinnon, we have significantly scaled our business and positioned our business for the future. As always, Kristy will be available after the call if you have any questions. Thanks again for your attention today, and have a great evening.

Thank you. And this concludes today's call. Thank you for participating. You may all disconnect.