Columbus McKinnon Blueprint for Growth Strategy Drove Margin Expansion, Earnings Growth and Strong Cash Generation in Third Quarter Fiscal Year 2020

Columbus McKinnon Corporation (Nasdaq: CMCO), a leading designer, manufacturer and marketer of motion control products, technologies and services for material handling, today announced financial results for its fiscal year 2020 third quarter, which ended December 31, 2019.

Third Quarter Highlights (compared with prior-year period)

• Blueprint for Growth strategy delivers strong operating results overcoming weaker industrial environment
• Gross margin expanded 20 basis points to 34.0%; Achieved 11^th consecutive quarter of year-over-year expansion
• Diluted earnings per share was $0.63; adjusted diluted earnings per share increased $0.03 to $0.64
• Cash from operations increased 24% to $32.4 million for the quarter and was up 31% year-to-date to $70.3 million

Richard Fleming, Chairman and Interim CEO of Columbus McKinnon, commented, “The successful execution of our Blueprint for Growth strategy continues to deliver solid financial results. The Company demonstrated strengthened earnings power and cash generation during a weaker industrial environment. In fact, the 80/20 Process contributed approximately $5.7 million in operating income in the quarter and EBTIDA margin expanded by 100 basis points to 15.2%, even as revenue declined. This was our 12^th consecutive quarter of EBTIDA margin expansion, keeping us on course to achieve our 19% EBTIDA margin goal in fiscal 2022. We also generated over $30 million in free cash flow in the quarter.”

The implementation of our business operating system E-PAS (“Earnings Power Acceleration System”) provides the tools needed during tougher markets to compete effectively and operate efficiently. We completed the closure of the facility in China ahead of schedule and are on track for the second facility closure in Ohio to be completed in the first quarter of fiscal 2021. Importantly, we continue to make focused investments in innovation and expand our engineering capabilities.”

Third Quarter Fiscal 2020 Sales

($ in millions)	Q3 FY 20					Q3 FY 19					Change					% Change
Net sales	$		199.4			$		217.4			$		(18.1	)		(8.3	)%
U.S. sales	$		108.4			$		116.0			$		(7.6	)		(6.6	)%
% of total			54	%				53	%
Non-U.S. sales	$		91.0			$		101.4			$		(10.4	)		(10.3	)%
% of total			46	%				47	%

Of the $18.1 million decline in revenue, $9.0 million, or 50%, was related to divestitures from the prior-year period. Foreign currency translation also had a $1.7 million, or 0.8%, negative impact on sales. Sales in the U.S. were down $7.6 million, of which $4.9 million was related to divestitures in the prior-year period. Sales outside the U.S., adjusted for foreign currency translation, were down $8.7 million, of which $4.1 million was related to divestitures in the prior-year period. Improved pricing was offset by volume declines in all regions, except the Asia Pacific market, which had the benefit of a rail project in the period.

Third Quarter Fiscal 2020 Operating Results

($ in millions)	Q3 FY 20					Q3 FY 19					Change					% Change
Gross profit	$		67.9			$		73.4			$		(5.5	)		(7.5	)%
Gross margin			34.0	%				33.8	%		20 bps
Income from operations	$		20.9			$		6.6			$		14.2			214.3	%
Operating margin			10.5	%				3.1	%		740 bps
Net income	$		15.3			$		(0.8	)		$		16.0			NM
Diluted EPS	$		0.63			$		(0.03	)		$		0.66			NM
Adjusted EBITDA *	$		30.4			$		30.8			$		(0.4	)		(1.3	)%
Adjusted EBITDA margin			15.2	%				14.2	%		100 bps

*A non-GAAP measure, Adjusted EBITDA is defined as adjusted operating income plus depreciation and amortization. Please see the attached tables for a reconciliation of adjusted EBITDA to GAAP net income (loss).

Strategic pricing and other benefits from the 80/20 Process helped to offset headwinds, including lower volume and related under absorption of factory fixed costs, as well as higher medical costs. This contributed to the 20 basis point improvement in gross margin. For more information on changes in gross profit, please see the table on page 8 of this release. Adjusted income from operations was $23.1 million, up $0.2 million, or 1.1%, compared with the third quarter of fiscal 2019. Adjusted operating margin expanded 110 basis points from the impact of the 80/20 Process. (See the reconciliation of GAAP income from operations to adjusted income from operations on page 11 of this release.)

Adjusted EBITDA margin was 15.2% for the quarter, an expansion of 100 basis points over the prior-year period. (See the reconciliation of GAAP net income to adjusted EBITDA on page 13 of this release.)

Fourth Quarter Fiscal 2020 Outlook

As has been well noted, macroeconomic conditions for industrial companies have slowed. While the Company’s third quarter orders and backlog were indicative of these conditions, the Company believes the Blueprint for Growth strategy is effective in all economic environments. Columbus McKinnon expects that the benefits from its Blueprint for Growth strategy can continue to offset headwinds, fund investments for growth, and drive margin and earnings expansion. The Company expects revenue in the fourth quarter of fiscal year 2020 to be approximately $196 million to $201 million, down about 5% to 7% compared with revenue of approximately $210 million in the prior-year period (excluding divestitures and adjusted for foreign currency translation at current rates).

Teleconference/webcast

Columbus McKinnon will host a conference call and live webcast Tuesday, February 4, 2020 at 10:00 AM Eastern Time, at which management will review the Company’s financial results and strategy. The review will be accompanied by a slide presentation, which will be available on Columbus McKinnon’s website at www.cmworks.com/investors. A question and answer session will follow the formal discussion.

The conference call can be accessed by dialing 201-493-6780. The listen-only audio webcast can be monitored at www.cmworks.com/investors. To listen to the archived call, dial 412-317-6671 and enter the passcode 13697631. The telephonic replay will be available from 1:00 PM Eastern Time on the day of the call through Tuesday, February 11, 2020. Alternatively, an archived webcast of the call can be found on the Company’s website. In addition, a transcript of the call will be posted to the website once available.

About Columbus McKinnon

Columbus McKinnon is a leading worldwide designer, manufacturer and marketer of motion control products, technologies, systems and services that efficiently and ergonomically move, lift, position and secure materials. Key products include hoists, actuators, rigging tools, light rail work stations and digital power and motion control systems. The Company is focused on commercial and industrial applications that require the safety and quality provided by its superior design and engineering know-how. Comprehensive information on Columbus McKinnon is available at http://www.cmworks.com.

Safe Harbor Statement

This news release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements concerning future sales and earnings, involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by such statements, including the effectiveness of the Company’s 80/20 Process to simplify operations, the ability of the Company’s Operational Excellence initiatives to drive profitability, the success of the Company’s efforts to Ramp the Growth Engine, global economic and business conditions, conditions affecting the industries served by the Company and its subsidiaries, conditions affecting the Company's customers and suppliers, competitor responses to the Company's products and services, the overall market acceptance of such products and services, the ability to expand into new markets and geographic regions, and other factors disclosed in the Company's periodic reports filed with the Securities and Exchange Commission. The Company assumes no obligation to update the forward-looking information contained in this release.

Financial tables follow.

 

COLUMBUS McKINNON CORPORATION
Condensed Consolidated Income Statements - UNAUDITED
(In thousands, except per share and percentage data)
		Three Months Ended
		December 31, 2019					December 31, 2018					Change
Net sales		$		199,355			$		217,415			(8.3	)%
Cost of products sold				131,483					144,010			(8.7	)%
Gross profit				67,872					73,405			(7.5	)%
Gross profit margin				34.0	%				33.8	%
Selling expenses				23,169					23,858			(2.9	)%
% of net sales				11.6	%				11.0	%
General and administrative expenses				17,960					20,379			(11.9	)%
% of net sales				9.0	%				9.4	%
Research and development expenses				2,628					3,271			(19.7	)%
% of net sales				1.3	%				1.5	%
Net loss on sales of businesses, including impairment		—							15,550			NM
Amortization of intangibles				3,229					3,701			(12.8	)%
Income from operations				20,886					6,646			214.3	%
Operating margin				10.5	%				3.1	%
Interest and debt expense				3,423					4,330			(20.9	)%
Investment (income) loss				(408	)				82			NM
Foreign currency exchange (gain) loss				188					(25	)		NM
Other (income) expense, net				199					(70	)		NM
Income before income tax expense				17,484					2,329			650.7	%
Income tax expense				2,234					3,111			(28.2	)%
Net income (loss)		$		15,250			$		(782	)		NM
Average basic shares outstanding				23,679					23,348			1.4	%
Basic income (loss) per share		$		0.64			$		(0.03	)		NM
Average diluted shares outstanding				24,031					23,348			2.9	%
Diluted income (loss) per share		$		0.63			$		(0.03	)		NM
Dividends declared per common share		$		0.06			$		0.05

 

COLUMBUS McKINNON CORPORATION
Condensed Consolidated Income Statements - UNAUDITED
(In thousands, except per share and percentage data)
		Nine Months Ended
		December 31, 2019					December 31, 2018					Change
Net sales		$		619,676			$		659,549			(6.0	)%
Cost of products sold				402,699					430,597			(6.5	)%
Gross profit				216,977					228,952			(5.2	)%
Gross profit margin				35.0	%				34.7	%
Selling expenses				68,801					73,940			(7.0	)%
% of net sales				11.1	%				11.2	%
General and administrative expenses				56,713					61,893			(8.4	)%
% of net sales				9.2	%				9.4	%
Research and development expenses				8,419					10,137			(16.9	)%
% of net sales				1.4	%				1.5	%
Net loss on sales of businesses, including impairment				176					26,650			(99.3	)%
Amortization of intangibles				9,708					11,358			(14.5	)%
Income from operations				73,160					44,974			62.7	%
Operating margin				11.8	%				6.8	%
Interest and debt expense				11,034					13,185			(16.3	)%
Investment (income) loss				(939	)				(297	)		216.2	%
Foreign currency exchange (gain) loss				(518	)				206			NM
Other (income) expense, net				618					(417	)		NM
Income before income tax expense				62,965					32,297			95.0	%
Income tax expense				12,537					9,461			32.5	%
Net income		$		50,428			$		22,836			120.8	%
Average basic shares outstanding				23,581					23,245			1.4	%
Basic income per share		$		2.14			$		0.98			118.4	%
Average diluted shares outstanding				23,925					23,647			1.2	%
Diluted income per share		$		2.11			$		0.97			117.5	%
Dividends declared per common share		$		0.12			$		0.10

 

COLUMBUS McKINNON CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
		December 31, 2019					March 31, 2019
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$		84,014			$		71,093
Trade accounts receivable				125,386					129,157
Inventories				135,449					146,263
Prepaid expenses and other				16,890					16,075
Total current assets				361,739					362,588
Property, plant, and equipment, net				81,117					87,303
Goodwill				322,766					322,816
Other intangibles, net				223,206					232,940
Marketable securities				7,370					7,028
Deferred taxes on income				25,117					27,707
Other assets				58,544					21,189
Total assets		$		1,079,859			$		1,061,571
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable		$		46,317			$		46,974
Accrued liabilities				94,205					99,304
Current portion of long-term debt				65,000					65,000
Total current liabilities				205,522					211,278
Term loan and revolving credit facility				186,893					235,320
Other non-current liabilities				203,078					183,814
Total liabilities				595,493					630,412
Shareholders’ equity:
Common stock				237					234
Additional paid-in capital				284,842					277,518
Retained earnings				284,047					236,459
Accumulated other comprehensive loss				(84,760	)				(83,052	)
Total shareholders’ equity				484,366					431,159
Total liabilities and shareholders’ equity		$		1,079,859			$		1,061,571

 

COLUMBUS McKINNON CORPORATION
Condensed Consolidated Statements of Cash Flows - UNAUDITED
(In thousands)
		Nine Months Ended
		December 31, 2019					December 31, 2018
Operating activities:
Net income		$		50,428			$		22,836
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation and amortization				21,991					24,763
Deferred income taxes and related valuation allowance				1,247					(2,353	)
Net loss (gain) on sale of real estate, investments, and other				(602	)				109
Stock based compensation				3,510					4,625
Amortization of deferred financing costs				1,782					1,992
Net loss on sales of businesses, including impairment				176					26,650
Non-cash lease expense				6,136			—
Changes in operating assets and liabilities, net of effects of business acquisitions and divestitures:
Trade accounts receivable				3,989					(1,407	)
Inventories				10,870					(13,043	)
Prepaid expenses and other				(3,224	)				(103	)
Other assets				726					232
Trade accounts payable				(3,013	)				(5,330	)
Accrued liabilities				(11,458	)				3,558
Non-current liabilities				(12,306	)				(8,733	)
Net cash provided by (used for) operating activities				70,252					53,796
Investing activities:
Proceeds from sales of marketable securities				4,908					1,238
Purchases of marketable securities				(4,961	)				(835	)
Capital expenditures				(6,761	)				(7,236	)
Proceeds from sale of equipment and real estate				51					176
Net (payments) proceeds from sales of businesses				(214	)				5,103
Payment of restricted cash to former owner		—							(294	)
Net cash provided by (used for) investing activities				(6,977	)				(1,848	)
Financing activities:
Proceeds from the issuance of common stock				4,457					3,708
Repayment of debt				(50,000	)				(50,051	)
Payment of dividends				(4,245	)				(3,484	)
Other				(643	)				(1,941	)
Net cash provided by (used for) financing activities				(50,431	)				(51,768	)
Effect of exchange rate changes on cash				77					(5,416	)
Net change in cash and cash equivalents				12,921					(5,236	)
Cash, cash equivalents, and restricted cash at beginning of year				71,343					63,565
Cash, cash equivalents, and restricted cash at end of period		$		84,264			$		58,329

 

COLUMBUS McKINNON CORPORATION
Q3 FY 2020 Sales Bridge
		Quarter								Year To Date
($ in millions)		$ Change					% Change			$ Change					% Change
Fiscal 2019 Sales		$		217.4						$		659.5
Divestitures				(9.0	)							(29.3	)
Fiscal 2019 Sales adjusted for divestitures		$		208.4						$		630.2
Volume				(10.6	)		(5.2	)%				(10.0	)		(1.6	)%
Pricing				3.3			1.6	%				10.3			1.6	%
Foreign currency translation				(1.7	)		(0.8	)%				(10.8	)		(1.7	)%
Total change adjusted for divestitures		$		(9.0	)		(4.4	)%		$		(10.5	)		(1.7	)%
Fiscal 2020 Sales		$		199.4						$		619.7

 

COLUMBUS McKINNON CORPORATION
Q3 FY 2020 Gross Profit Bridge
($ in millions)	Quarter					Year To Date
Fiscal 2019 Gross Profit	$		73.4			$		229.0
Divestitures			(2.0	)				(6.1	)
Fiscal 2019 Gross Profit adjusted for divestitures			71.4					222.9
Pricing, net of material cost inflation			2.8					7.9
Insurance settlement			0.1					0.4
Business realignment costs			(0.1	)		—
Product liability			(0.1	)				(0.3	)
Tariffs			0.1					(1.2	)
Factory closures			(0.5	)				(1.3	)
Productivity, net of other cost changes			(2.2	)				(1.9	)
Foreign currency translation			(0.6	)				(3.7	)
Sales volume and mix			(3.0	)				(5.8	)
Total change adjusted for divestitures	$		(3.5	)		$		(5.9	)
Fiscal 2020 Gross Profit	$		67.9			$		217.0

 

COLUMBUS McKINNON CORPORATION
Additional Data - UNAUDITED
		December 31, 2019						September 30, 2019						December 31, 2018
($ in millions)
Backlog		$		125.3				$		143.1				$		159.9
Backlog excluding divestitures		$		125.3				$		143.1				$		154.4
Long-term backlog
Expected to ship beyond 3 months		$		51.3				$		53.9				$		55.1
Long-term backlog as % of total backlog				40.9		%				37.7		%				34.5		%
Trade accounts receivable
Days sales outstanding				57.2		days				57.0		days				52.3		days
Inventory turns per year
(based on cost of products sold)				3.9		turns				3.8		turns				3.8		turns
Days' inventory				94.0		days				96.9		days				96.1		days
Trade accounts payable
Days payables outstanding				32.1		days				33.2		days				25.4		days
Working capital as a % of sales (1)				16.5		%				17.2		%				17.9		%
Debt to total capitalization percentage				34.2		%				36.9		%				42.8		%
Debt, net of cash, to net total capitalization				25.7		%				30.1		%				37.9		%

(1) December 31, 2019 figure excludes Crane Equipment & Service, Inc. (CES) and Stahlhammer Bommern GmbH (STB), each of which were divested on February 28, 2019. September 30, 2019 figure excludes CES, STB, and the Tire Shredder business, which was divested on December 28, 2018. December 31, 2018 figure excludes the Tire Shredder business.

U.S. Shipping Days by Quarter
		Q1		Q2		Q3		Q4		Total
FY 20		63		63		61		64		251
FY 19		64		63		60		63		250

 

COLUMBUS McKINNON CORPORATION
Reconciliation of GAAP Gross Profit to
Non-GAAP Adjusted Gross Profit and Adjusted Gross Margin
($ in thousands, except per share data)
	Three Months Ended December 31,										Year To Date December 31,
	2019					2018					2019					2018
Gross profit	$		67,872			$		73,405			$		216,977			$		228,952
Add back (deduct):
Factory closures			696					200					1,451					200
Business realignment costs			123			—							263			—
Insurance settlement			(77	)		—							(367	)		—
Non-GAAP adjusted gross profit	$		68,614			$		73,605			$		218,324			$		229,152
Sales	$		199,355			$		217,415			$		619,676			$		659,549
Adjusted gross margin			34.4	%				33.9	%				35.2	%				34.7	%

Adjusted gross profit is defined as gross profit as reported, adjusted for certain items. Adjusted gross profit is not a measure determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP, and may not be comparable with the measures as used by other companies. Nevertheless, Columbus McKinnon believes that providing non-GAAP information, such as adjusted gross profit, is important for investors and other readers of the Company’s financial statements and assists in understanding the comparison of the current quarter’s and current year's gross profit to the historical periods' gross profit, as well as facilitates a more meaningful comparison of the Company’s gross profit to that of other companies.

 

COLUMBUS McKINNON CORPORATION
Reconciliation of GAAP Income from Operations to
Non-GAAP Adjusted Income from Operations and Adjusted Operating Margin
($ in thousands, except per share data)
	Three Months Ended December 31,										Year To Date December 31,
	2019					2018					2019					2018
Income from operations	$		20,886			$		6,646			$		73,160			$		44,974
Add back (deduct):
Factory closures			1,592					200					3,089					200
Business realignment costs			662			—							1,075					1,906
Insurance recovery legal costs			66					491					425					1,150
Net loss on sales of businesses, including impairment	—							15,550					176					26,650
Insurance settlement			(77	)		—							(367	)		—
Non-GAAP adjusted income from operations	$		23,129			$		22,887			$		77,558			$		74,880
Sales	$		199,355			$		217,415			$		619,676			$		659,549
Adjusted operating margin			11.6	%				10.5	%				12.5	%				11.4	%

Adjusted income from operations is defined as income from operations as reported, adjusted for certain items. Adjusted income from operations is not a measure determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP, and may not be comparable with the measures as used by other companies. Nevertheless, Columbus McKinnon believes that providing non-GAAP information, such as adjusted income from operations, is important for investors and other readers of the Company’s financial statements and assists in understanding the comparison of the current quarter’s and current year's income from operations to the historical periods' income from operations, as well as facilitates a more meaningful comparison of the Company’s income from operations to that of other companies.

 

COLUMBUS McKINNON CORPORATION
Reconciliation of GAAP Net Income (Loss) and Diluted Earnings per Share to
Non-GAAP Adjusted Net Income and Diluted Earnings per Share
($ in thousands, except per share data)
	Three Months Ended December 31,										Year To Date December 31,
	2019					2018					2019					2018
Net income (loss)	$		15,250			$		(782	)		$		50,428			$		22,836
Add back (deduct):
Factory closures			1,592					200					3,089					200
Business realignment costs			662			—							1,075					1,906
Insurance recovery legal costs			66					491					425					1,150
Net loss on sales of businesses, including impairment	—							15,550					176					26,650
Insurance settlement			(77	)		—							(367	)		—
Normalize tax rate to 22% (1)			(2,106	)				(974	)				(2,283	)				(4,224	)
Non-GAAP adjusted net income	$		15,387			$		14,485			$		52,543			$		48,518
Average diluted shares outstanding			24,031					23,681					23,925					23,647
Diluted income per share - GAAP	$		0.63			$		(0.03	)		$		2.11			$		0.97
Diluted income per share - Non-GAAP	$		0.64			$		0.61			$		2.20			$		2.05

(1) Applies a normalized tax rate of 22% to GAAP pre-tax income and non-GAAP adjustments above, which are each pre-tax.

Adjusted net income and diluted EPS are defined as net income and diluted EPS as reported, adjusted for certain items and at a normalized tax rate. Adjusted net income and diluted EPS are not measures determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP, and may not be comparable to the measures as used by other companies. Nevertheless, Columbus McKinnon believes that providing non-GAAP information, such as adjusted net income and diluted EPS, is important for investors and other readers of the Company’s financial statements and assists in understanding the comparison of the current quarter’s and current year's net income and diluted EPS to the historical periods' net income and diluted EPS, as well as facilitates a more meaningful comparison of the Company’s net income and diluted EPS to that of other companies.

 

COLUMBUS McKINNON CORPORATION
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Adjusted EBITDA
($ in thousands)
	Three Months Ended December 31,										Year To Date December 31,
	2019					2018					2019					2018
Net income (loss)	$		15,250			$		(782	)		$		50,428			$		22,836
Add back (deduct):
Income tax expense			2,234					3,111					12,537					9,461
Interest and debt expense			3,423					4,330					11,034					13,185
Investment (income) loss			(408	)				82					(939	)				(297	)
Foreign currency exchange (gain) loss			188					(25	)				(518	)				206
Other (income) expense, net			199					(70	)				618					(417	)
Depreciation and amortization expense			7,244					7,901					21,991					24,763
Factory closures			1,592					200					3,089					200
Business realignment costs			662			—							1,075					1,906
Insurance recovery legal costs			66					491					425					1,150
Net loss on sales of businesses, including impairment	—							15,550					176					26,650
Insurance settlement			(77	)		—							(367	)		—
Non-GAAP adjusted EBITDA	$		30,373			$		30,788			$		99,549			$		99,643
Sales	$		199,355			$		217,415			$		619,676			$		659,549
Adjusted EBITDA margin			15.2	%				14.2	%				16.1	%				15.1	%

Adjusted EBITDA is defined as net income before interest expense, income taxes, depreciation, amortization, and other adjustments. Adjusted EBITDA is not a measure determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP, and may not be comparable with the measures as used by other companies. Nevertheless, Columbus McKinnon believes that providing non-GAAP information, such as adjusted EBITDA, is important for investors and other readers of the Company’s financial statements and assists in understanding the comparison of the current quarter’s and current year's net income and diluted EPS to the historical periods' net income and diluted EPS, as well as facilitates a more meaningful comparison of the Company’s net income and diluted EPS to that of other companies.

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