Page 1 of 14. Columbus McKinnon Corporation Fourth Quarter and Full Year Fiscal 2017 Teleconference and Webcast May 31, 2017

Transcription

1 Operator: Greetings and welcome to the Columbus McKinnon Corporation Fourth Quarter and Full Fiscal Year 2017 Financial Results Call. At this time, all participants are in a listen-only mode. A questionand-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Deb Pawlowski, Investor Relations for Columbus McKinnon. Thank you. You may begin. Deborah K. Pawlowski: Thanks, Melissa, and good morning, everyone. We certainly appreciate your time today and your interest in Columbus McKinnon. On the call with me are Mark Morelli, our new President and CEO, who just recently joined us at the end of February; and Greg Rustowicz, our Chief Financial Officer. You should have a copy of the financial results that were released earlier this morning; and if not, you can access those as well as the slides that will accompany today s conversation at cmworks.com. If you ll turn to slide 2 of the slide deck, 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 with other documents filed with the Securities and Exchange Commission. These documents can be found on our website 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 have provided reconciliation of the non-gaap measures to comparable GAAP measures in the tables that accompany today s release and slides for your information. So with that, please turn to slide 3, and I will turn it over to Mark to begin. Mark? Mark D. Morelli: Thank you, Deb. Since joining Columbus McKinnon, I ve spent my time with customers, employees, board members and investors. Over this initial period, I ve come to understand unique strengths and opportunities at Columbus McKinnon. This is a very good company with a solid platform from which to build, and we have an excellent runway of opportunities for profitable growth. I came to the Company knowing that Columbus McKinnon counts decades of commitment to quality and reliability, which has provided a solid value proposition for our customers. Our products cover a wide breadth of material handling applications and are globally recognized brands. We have longstanding distribution channels in diverse markets, including general industrial, automotive, construction, energy distribution and production, aerospace and defense, agriculture, natural resources and entertainment. We have a history of strong cash generation throughout the business cycle. Our financial flexibility, broad installed base, and strong position in diverse markets, positions us well to take advantage of a market favorable for growth. As I was joining Columbus McKinnon, we had just closed on our acquisition of STAHL CraneSystems. STAHL is an excellent cultural fit, joining together a family of businesses that are like-minded. We are making progress integrating the businesses and laying the foundation to capture synergies and long-term value. This addition strengthens our position in Europe, the Middle East and Africa. It also expands our explosion-protected hoist offering, deepens our reach into independent crane builders in these regions, and complements our existing business, which sells to independent crane builders in the Americas. So, this gives us opportunities to cross-leverage new market channels and customers. Page 1 of 14

2 Recent acquisitions such as STAHL and Magnetek move us up the value chain of more engineered solutions with higher gross margins and helps us define ourselves as an industrial-technology company. We have opportunities to further rationalize our business and focus on operating efficiency and this represents a significant runway for improvement. The value proposition is also solid as our strong cash flow performance enables us to de-lever the balance sheet, with a conversion of debt to equity value in the form of a higher share price. The opportunities I see to take the Company to a new level of operating performance lead me to conclude that it s an exciting time to join Columbus McKinnon. Let me first provide some brief commentary on the financial results of the quarter and fiscal year. Greg will follow going into greater detail. I will then take some time to further discuss my impressions of the business after my initial months. We ended the year on a strong note with organic volume growth in the fourth quarter. Sales for the quarter were $183.7 million. Having two months of revenue from STAHL was the primary reason sales were up 18.4% in the quarter. Excluding the acquisition, revenue was up 2.5%. This is encouraging since it s the first time we had organic volume growth in the last two-and-a-half years. The growth in the quarter was from the U.S., Latin America and Asia. In the U.S., we saw an increase in specifications for Buy America products. Retrofits and capacity additions for the steel industry are driving demand for new digital controls from Magnetek for crane systems. Construction spending seems to have improved in advance of summer projects; and both midstream and downstream oil and gas projects showed some signs of life. Some channel partners have placed stocking orders, but the level of optimism is uncertain. Our hoist and rigging business also benefited from a relatively strong entertainment industry in the U.S. We are cognizant though that the tragedy at the concert in Manchester, England last week could impact concert attendance and consequently demand for our products globally. In Latin America, general manufacturing improved in Mexico. Channel partners placed restocking orders in March, but there is uncertainty over trade agreements with the U.S., so it s difficult to determine how this will ultimately affect us. In Asia Pacific, China specifically, overall demand in the automotive industry is slowing after 10 years of double-digit growth. However, there s been demand for battery-powered vehicles. Local manufacturers realized sales growth from government policies aimed at improving the air quality in certain heavily populated regions and cities, such as Shanghai. We also had higher demand from our premium Lodestar Chain Hoist directed towards some large projects for the entertainment segment in China. This was partially offset by continued weak demand in oil and gas in Southeast Asia. While the organic growth was encouraging, we are hesitant to call the quarter the beginning of a trend. After adjusting for some significant unusual items, we had similar performance as the prior year quarter. Adjusted net income was $8.9 million or $0.40 per diluted share. We recognized approximately $21 million of unusual adjustments which Greg will walk you through in his section. Given the unusual cost, we posted a GAAP net loss of $4.7 million. We generated about $12 million in cash from operations in the quarter and $60 million for the full fiscal year. We used the cash to pay down $12.8 million in borrowings in the quarter and $46.4 million in the year. This was a significant accomplishment and even better than the aggressive projections a year ago. Our goal is to continue to pay down debt ahead of schedule. Now, I ll turn the call over to Greg to walk you through the results of the quarter and the full fiscal year. Gregory P. Rustowicz: Thank you, Mark, and good morning, everyone. On slide 4, we outline the proforma adjustments that have been recorded in the fourth quarter. In total, we had $21.2 million of non- Page 2 of 14

3 operating costs. The two largest items relate to the STAHL acquisition. We have recorded in cost of sales the purchase accounting impact of the inventory and backlog step-up expense. This amount represents the full amount associated with the inventory step-up. There will be no further step-up expense to be recognized in future periods. The next several items impacted our G&A expense. We incurred $5.7 million of deal and integration costs. Combined with the $3.1 million of deal costs booked in December, we are in line with the guidance that we provided on transaction costs that would be recognized on the acquisition in fiscal 2017 of $8 million to $9 million. The second item affecting G&A were costs associated with our former CEO s retirement in the amount of $3.1 million. There will be no further cost with this item going forward either. The third item affecting G&A relates to $1.4 million of cost for a legal action against our prior product liability insurance carriers related to asbestos litigation. We expect to recover certain past costs and a share of future costs under pre-existing insurance policies. We expect that there will be additional legal costs for this item in fiscal 2018 as this legal action progresses. Finally, we also recorded $1.3 million of debt extinguishment costs related to the refinancing of the balance sheet and $1.1 million for a trademark impairment. We also had a gain on the sale of the FX option that we purchased to hedge the STAHL purchase price. Turning to slide 5. Consolidated sales in the fourth quarter of $183.7 million were up 18.4% from the prior year. STAHL added $24.7 million of sales for the two months of ownership, which represented 15.9% of the quarter sales growth. The rest of the business grew $3.9 million, or 2.5%, despite a slight foreign currency headwind of minus 0.6%. Sales volume was up $4.9 million or 3.2%, and price was slightly down by $100,000, or 10 basis points, due to selected U.S. sales promotions that were run in the quarter. Overall, this was the first quarter of organic growth since September of We saw markets improve in the U.S., Latin America, and APAC, as Mark has highlighted. EMEA sales were down slightly as a result of approximately $1 million in customer-related delays for our project in Africa. For the quarter, U.S. sales were up $3.3 million, or 3.3%, compared with the prior-year period. STAHL contributed $1.5 million to our U.S. sales. Sales outside of the U.S. were up $25.3 million or 46.1%. STAHL contributed $23.2 million of sales. Both Latin America and APAC saw a double-digit organic growth, while organic sales in EMEA were down due to the previously mentioned project delay. On slide 6, our fourth quarter gross profit increased by $1.9 million or 4%. Adjusted gross profit was $59.2 million, an increase of $9.3 million, or 18.6% compared to the prior year. Our adjusted gross margin was 32.2%, unchanged from the prior year. The STAHL acquisition added $8.3 million of adjusted gross profit, which represents a 33.7% adjusted gross margin. The core business had a 32% adjusted gross margin. We did see positive productivity in our plants this quarter of $1.2 million, which increased gross profit. Other items affecting our gross profit included the impact of higher volumes which impacted gross profit by $700,000. In addition, the prior year included $1.5 million of adjustments related to a product liability settlement for a previously sold business and an impairment charge on a building held for sale which did not repeat in the current year. This had a positive impact on the change in gross profit. Pricing, net of material cost inflation, product liability cost, and foreign currency translation each negatively impacted gross profit by $300,000. As shown on slide 7, selling expense in the fourth quarter was higher than the prior year by $2.8 million. STAHL added $2.9 million to selling cost. Favorable foreign currency translation lowered selling cost by $100,000. As previously discussed, adjustments affecting G&A expense were $10.1 million in the quarter. Excluding adjustments, G&A expense increased $2.7 million from the prior year. Page 3 of 14

4 STAHL added $1.5 million to G&A expense this quarter. With the STAHL acquisition now closed, we expect our quarterly SG&A run rate to be $44 million to $45 million per quarter, excluding STAHL integration and one-time cost. Turning to slide 8, adjusted income from operations was $16.9 million or 9.2% of sales. This compares to adjusted operating income of $14.2 million or 9.2% in the prior year. STAHL added $2.8 million of adjusted operating income, which represents an adjusted operating margin of 11.5%. The current year adjustments to operating income totaling $20.1 million are detailed on page 4 of this presentation. The prior year adjustments totaling $2.4 million related to a product liability settlement, an impairment charge on a building held for sale, and facility consolidation cost. A reconciliation for adjusted operating margin can be found on page 19 of this presentation. As you can see on slide 9, GAAP earnings per diluted share were a loss of $0.22 per diluted share versus earnings of $0.29 per diluted share in the prior year period. Adjusted earnings per diluted share for the fourth quarter of fiscal 2017 were $0.40 per share compared to $0.39 per share in the previous year, an increase of $0.01 per share or 2.6%. A reconciliation of GAAP earnings per share to adjusted earnings per share can be found on page 20 of this presentation. All adjustments are tax-effected at a normalized tax rate of 30%. On a GAAP basis, we benefited from a tax rate in the current quarter of 43.8%, which resulted in an income tax benefit of $3.1 million. The favorable tax rate in the quarter was due to the reversal of a valuation allowance on deferred tax assets in certain foreign subsidiaries which more than offset the nondeductible STAHL acquisition deal costs. Turning to slide 10, GAAP earnings per diluted share for the full fiscal year were $0.43 per diluted share versus $0.96 per diluted share in the prior year. Adjusted earnings per diluted share for fiscal 2017 were $1.32 per share, compared to $1.54 per share in the previous year. The tax rate for the full year was 31%. For fiscal 2018, the effective tax rate is expected to fall between 21% and 25%. This is lower than our historical rate and is due to the STAHL acquisition which adds significant interest expense in the U.S. as the parent company was utilized to finance the acquisition in the capital markets. Turning to slide 11, our working capital as a percent of sales was 18.6% compared to 19.9% at December 31, 2016 and 21.5% at March 31, This was our best result in four years. Working capital as a percent of sales decreased 130 basis points sequentially from last quarter, reflecting improved inventory turns. Inventory turns were 4.1 turns, compared to 3.9 turns as of December 31. We are focused on further improving our inventory turns in fiscal 2018 and expect to improve from the current level as we look to generate higher cash flow to pay down debt. On slide 12, net cash from operating activities in the fourth quarter was strong, coming in at $11.9 million, compared to $19.7 million in the prior year. Free cash flow was also solid at $8.8 million. Year-to-date, cash from operating activities increased 14.8%. Our cash flow was actually stronger than what is represented on the slide as we paid over $8 million in cash related to the pro forma adjustments previously mentioned. The hallmark of this Company has always been its ability to generate cash, and we expect this to continue in fiscal Our guidance for capital expenditures is estimated to be $20 million to $24 million for fiscal STAHL represents approximately $5 million of this total. The remainder represents CapEx for productivity projects and maintenance CapEx. We expect to judiciously manage our CapEx and will be selective in which projects we approve. We will prioritize projects with good returns and quick cash paybacks. Turning to slide 13, as a result of the STAHL acquisition, our total debt was $421.3 million and our net debt was $343.7 million as of March 31, Our net debt-to-net total capitalization was 50.2%. Since the STAHL acquisition closed, we have repaid a total of $12.8 million of debt. I m confident that we will be able to de-lever very quickly to a more normal net debt-to-net total capital level of 30%. Page 4 of 14

5 We expect that we will repay $45 million to $50 million of debt in fiscal 2018 and are targeting a 3 times net debt-to-ebitda level by the end of We believe a more comfortable leverage ratio for the Company on an ongoing basis is 2 to 3 times net debt-to-ebitda. As a reminder, we have a covenantlite Term Loan B which has no leverage maintenance covenant as long as the revolver is undrawn. With that, I ll turn it back over to Mark. Mark D. Morelli: Thanks, Greg. Turning to page 14, I d like to discuss my perspectives after my initial tenure with the Company. As I mentioned earlier, I traveled and met with key customers and visited operations during my first several months. Columbus McKinnon is a great company with a solid platform to grow as a world leader. But I also see there s significant runway for improvement. One thing that is consistent is the depth, capabilities and experience of Columbus McKinnon employees. We have the expertise to address the increasingly complex needs of our customers who look to lift, move and position materials in diverse end markets. The dedication of our employees to make this a better company should not be underestimated. We re implementing a new operating system, the way by which we conduct ourselves internally. Coming from United Technologies, I ve grown up with a more disciplined and structured operating environment. How we come together as a management team around our businesses, what we measure, how we hold ourselves accountable and drive to achieve results, needs improvement. We re launching a more disciplined operating environment and I expect this will be evident in our results as we create more of a performance culture. The acquisition of STAHL is on track. It brings a well-established brand and excellent reputation for quality and strong customer relationships. As I mentioned earlier, the acquisition provides a strong cultural alignment, deeper reach into independent crane builders and balances us geographically. Given STAHL s prior parent was predominantly a crane builder, they were prevented from selling to crane builders in the open market. As part of Columbus McKinnon, they now join our team to sell solutions to crane builders, expanding their addressable market. STAHL also advances our evolution as an industrial technology company. They offer a more highlyengineered product with their line of explosion-protected hoist and they are well positioned with engineering and procurement contractors. The higher value add through engineering delivers a stronger margin business model. Likewise, the acquisition of Magnetek in September of 2015 has provided excellent technology and a path for cost effectively integrating motion control in our hoists. While we ve made strides with embedding Magnetek technology, there remains more opportunity to transform the way that we do business through intelligent lifting. Operationally, we have a sound base, but I see opportunity to improve in this area as well as with our financial performance. By driving accountability and operational excellence, we can both improve our competitive advantages, while strengthening our earnings power. I believe we have further opportunity to build a culture of performance and accountability. We are creating a more structured operating system to provide a new cadence in the organization. This new approach to reviewing our business drives accountability and execution. I expect this to promote the operating discipline needed for improved entrepreneurship and execution. And, this establishes a system that will enable us to better identify and manage risk and opportunities. Please turn to page 15. Our priorities for the year will establish the foundation to define our strategic path. Critical to our progress is the establishment of the structured operating system and strong performance culture that I was discussing. We will also focus on the following four areas: First, the integration of STAHL. We have made good progress to date with the integration. The cultural fit is strong, and the teams recognize the intrinsic value created with this combination. We expect that we Page 5 of 14

6 can deliver $5 million in synergies in fiscal 2018 that will be realized through supply chain advantages, opening market channels and blending our global sales forces. Our plan is to achieve a total of $11 million of benefit in fiscal year While the economics of the acquisition are not dependent on revenue growth, we re already realizing growth opportunities from the independence of STAHL from its previous owners and the customers that they can now pursue. Our second area of focus is on leveraging our Magnetek technology. We are furthering our efforts to develop intelligent lifting solutions by cost effectively embedding Magnetek advanced control technology in a number of our products. The launch of new hoists with cost-effective electronic controls will continue in fiscal year 2018 and extends to applications that include remote control of hoists and rigging by a radio control for enhanced safety. In addition to what we ve gained with the enhancement of our hoist with digital drives, longer term we envision that the Company s products will include information intelligence. This will enable exciting capabilities such as preventive maintenance testing, self-diagnostics, remote monitoring and data capture. Connectivity is a driving force behind higher levels of industrial technology and processes, and we believe we can be a leading force in this evolution in the world of material handling. Thirdly, we re going to strengthen our core business. We have a great starting point with unparalleled brand and distribution coverage in the industry. Our brands have the potential to provide a strong source of growth. I believe that we need to focus our many brands with better market segmentation and consequential product positioning to push to be more competitive. We need stronger investments in R&D to drive innovation and new products that solve customer problems. We need to afford this investment by cutting back on SG&A to fund more growth from new and improved products. And, we need to be easier to do business with by simplifying our offerings and improving delivery and lead times. I expect that achieving this will help strengthen our core business. Finally, we will maintain our mantra of paying down debt. As Greg discussed, we ve identified the path to reduce debt in fiscal 2018 by $45 million to $50 million and further eliminate another $50 million to $55 million in fiscal We will focus on reducing working capital requirements, and we ll elevate the evaluation of capital expenditures with a keen eye on better utilizing our capital base. In terms of outlook, we re encouraged by the recent uptick in demand. And, even though it s still early, the processes we are implementing to create a new operating system are taking hold. We expect that by concentrating our resources on the critical few priorities that I ve discussed, we can effectively drive results in the fiscal year and help define our strategic path. Melissa, we can now open the line for questions. Operator: Thank you. [Operator Instructions] Our first question comes from the line of Mike Shlisky with Seaport Global Securities. Please proceed with your question. Mike Shlisky: Good morning, guys. Can you hear me okay? Mark D. Morelli: Yes, we hear you fine, Mike. Mike Shlisky: Great. Thank you. So I just want to get few slide-related questions out of the way. First, I did not see in your slides, which you have almost always put in there, your analysis of some of the broad industrial macro factors that have in the past driven your sales, at least directionally. I was wondering if those numbers were excluded for a reason, or if the current industrial capacity utilization numbers that we are seeing do suggest a favorable outlook for your sales this year. Or does adding STAHL to the mix change how you feel about how those macro factors drive your sales? Mark D. Morelli: No, Mike, I can talk to that. It is not an indication that things like industrial capacity utilization are not relevant to us, but they are relatively flat. There has been a very slight uptick year-overyear, but quarter-to-quarter it has been a pretty flat number. It is approximately in mid-70s right now. As you know, in the past when it has gotten up towards the 80s it has been a really strong demand generator Page 6 of 14

7 for us. But right now, the demand in growth we are seeing is not necessarily due to a dramatic change in industrial capacity. It s just flat. Mike Shlisky: Got it. Second question, with slides you have done in the past, I have always seen a slide outlining your long-term goals for the Company, with $1 billion of sales, margin goals, growth goals, et cetera. Mark, do you have a new set of goals that you are working on right now? Is there a new plan that might come out maybe next quarter? And could you give us a view perhaps of where those goals might be, at least, at the very early stages here? Mark D. Morelli: Sure, I m happy to talk to that. The four priorities I outlined, I think, are really the lowhanging fruit that we need to work on and focus on as a company, but it s not a substitute for more strategic goals. We have a strategic planning process we are now working on. It will run through the summer. It will be heavily informed by us working on these four strategic priorities in depth. And, I expect by the end of this calendar year, we will launch our new strategic priorities with another set of strategic goals that we can articulate. Mike Shlisky: Got it. I also want to touch on the SG&A numbers. I think you had mentioned that you re looking at the cost structure in several different ways here. Is the $44 million to $45 million SG&A run rate outlook exclusive of anything you might find going forward Mark, or is that rate baked in? Is there any possibility it could be below the $44 million run rate by the end of the year if you find things over the next few months to cut. Mark D. Morelli: Yes, that s the run rate numbers that you should probably model. As I m going around and understanding our business better, we ll come up with further guidance when we know specifically what we want to do and how we want to do it. But right now, we re not in a position to guide anything different than that. Mike Shlisky: Okay. One final one from me and I ll pass it along here. On the STAHL accretion, you previously put out a guidance number in the past for fiscal year From that we could somewhat back into it, but do you have an official number you could point to for accretion this past quarter, and has your outlook for the accretion for fiscal 2018 changed at all from a cents per share standpoint? Gregory P. Rustowicz: Yee. Hi, Mike. It s Greg. Mike Shlisky: Hi, Greg. Gregory P. Rustowicz: The previous guidance we had given was $0.34 in fiscal 2018 and $0.51 in fiscal 2019, and that was pre-purchase accounting. The purchase accounting is very far along, and we have the additional amortization expense of $6.7 million; there was a couple of million dollars more for the write-up on fixed assets as well as a favorable supply agreement. So when we look at where we expect EPS accretion from the STAHL deal to come in for fiscal 2018, we re in the $0.12 neighborhood, positive $0.12. And for fiscal 2019, the best estimate today is in the low $0.30 cent range. Mike Shlisky: Just to confirm, those numbers are not much off from what you had initially thought post purchase accounting, et cetera, from when you first did the deal, correct? Gregory P. Rustowicz: Yes. Mike Shlisky: Internally. Gregory P. Rustowicz: They re really close, if not slightly better. Now, once again, just to be clear, the numbers, the $0.34 and the $0.51 that have been talked about have always been couched as prepurchase accounting and pre any kind of non-recurring costs, one-time costs. So the numbers, the $0.12 and the low-$0.30 cent range is after purchase accounting. But it s still prior to any one-time cost that might be incurred. Mike Shlisky: All right, just one quick follow-up there then. Based on Mark s comment, is that based on last year s STAHL run rates for sales? It sounds like there might be some opportunities to have some growth this year at STAHL. Could the accretion exceed what you just mentioned if STAHL does in fact see growth due to its independence, or even due to oil and gas strength going forward? Page 7 of 14

8 Gregory P. Rustowicz: The numbers quoted are our best estimates today with the current expectation for the STAHL business. In the past we have talked about the fact that there were significant Russian projects with STAHL which we do not anticipate reoccurring. In our 8-K/A we published audited financial statements on an IFRS basis for STAHL, and I believe the numbers were roughly $165 million of sales and that would have included some of these one-time sales which, once again, we would not expect to continue in fiscal Mike Shlisky: Okay. Perfect. Thank you so much, guys. I m going to pass it along. Appreciate it. Operator: Thank you. [Operator Instructions] Our next question comes from the line of Robert Majek with CJS Securities. Please, proceed with your question. Robert Majek: Good morning. Mark D. Morelli: Hi, Robert. Robert Majek: You had mentioned organic volume growth was up 3% for the quarter. Can you give us a breakout by month, and then maybe if you could comment if you saw demand also tick up in April and May, and what s driving that demand? Mark D. Morelli: Sure. The most uptick that we had in the quarter actually occurred in January. If you may remember, the December quarter was relatively weak for the Company, and there were some pushouts in orders also from the December quarter. So we did have a pretty decent January. It softened a little bit in February and March, but still slightly above the prior year. So I would say demand is not necessary robust. We ve certainly seen uptick in demand and we re really encouraged by that. What we re seeing so far in this quarter is more of the same. It s not a very strong growth environment we re operating in, but I think we re beginning to see some of the projects that we talked about last quarter continuing. You see North America, as an example, with general industrial doing pretty well. We re seeing some growth in utilities and oil and gas, particularly in the midstream and downstream. We re seeing some entertainment growth. So I think we re pleasantly encouraged by what we re seeing, but I would definitely not say that this is a strong robust environment that we re operating in. Robert Majek: Thank you. And on the quarterly SG&A guidance, it s a roughly $9 million increase from the previous guidance. How much of that is incremental SG&A from STAHL versus an increase in the core business? Gregory P. Rustowicz: Robert, the increase from STAHL is in the neighborhood of $35 million to $36 million on an annual basis, so divide it by four. Robert Majek: Got it. And then just lastly from me on inventory turns, what kind of target is built into your free cash flow guidance for the year? Gregory P. Rustowicz: We have a slight improvement in inventory turns. Once again, our goal is to pay down more than $50 million of debt and certainly managing inventory is a key initiative for us, and one that the entire business is energized around. Robert Majek: Thank you. Maybe just one more from me. On the 21% to 25% tax rate guidance for the year, are there one-time benefits in there or is that a sustainable rate over the next few years? Gregory P. Rustowicz: It s a sustainable rate over the next few years. Robert Majek: Okay. Thank you. Operator: Thank you. Our next question comes from the line of Mike Shlisky with Seaport Global Securities. Please proceed with your question. Mike Shlisky: Hey, guys. I m back with a few follow-up questions. I wanted to follow-up on the trademark impairment in the quarter. Could you give me a little bit more color as to why something was impaired? Is there a marketing change to one of your brands that might make it lower tier or what was behind that in the quarter? Page 8 of 14

9 Gregory P. Rustowicz: It has to do with STB, a company that we bought a few years ago. As you know, it sold heavily into the oil and gas industry. As part of that purchase accounting, there was money allocated to indefinite-lived trademarks and we felt the need to impair that trademark with the fall-off in oil and gas over the last couple of years. That represents 100% of the purchase price allocation to that trademark, so there will not be any more impairments related to that going forward. Mike Shlisky: Okay. And then secondly I want to ask about pricing in the quarter. The number that you put in your release was not quite what I was looking for in my model, a little bit short. Kind of curious if you could tell us how the pricing has gone so far in fiscal 2018 and whether you think we ll be seeing positive pricing for the coming year. Mark D. Morelli: I ll answer and I ll let Greg will follow-up as well. As part of our normal price increases, we went out with a couple percent price increases. It was effective in Europe in January and then in March in the United States. But as normal, we probably did not expect all of it to stick, and we probably had about 50 basis points to 100 basis points to stick. You want to add any color to that, Greg? Gregory P. Rustowicz: Yes. Specific to the fourth quarter, we did run some promotions, I mentioned, in the U.S. and that impacted pricing in a negative way. I would view that as a kind of one-off promotion that has since stopped. The goal there was to drive some more volume, reduce some inventory, and generate some more cash. It had a pretty positive impact, but when you look at pure pricing it did have some negative price impact in the U.S. in the fourth quarter, but that is not expected to continue. And as Mark said, from a modeling perspective, we expect more pricing than we had in this past year which was in the 10 basis point to 20 basis point range, to somewhere between 50 basis points and 100 basis points would be the range to expect for the coming year. Mike Shlisky: Okay. Got it. Thank you, guys. I appreciate it. Operator: Thank you. Our next question comes from the line of John Sturges with Oppenheimer & Company. Please proceed with your question. John Sturges: Thank you for taking my question. You had mentioned, did I understand this correctly, a 6.6% forex headwind? Gregory P. Rustowicz: In the quarter, no. The impact of FX in the quarter was 60 basis points. John Sturges: 60 basis points, okay. I misunderstood that. Gregory P. Rustowicz: 60 basis points, yes, 0.6%. John Sturges: We ve had a change in forex obviously in the last couple of months. Would that have a positive impact for you? Gregory P. Rustowicz: It should, specifically the euro. Where we ve seen some weakness has been in the sterling, in the South African rand, and to some extent the Brazilian reals. John Sturges: Okay. Those are all understandable. Thank you. That finishes for me. Operator: Thank you. Our next question comes from the line of Joe Mondillo with Sidoti & Company. Please proceed with your question. Joe Mondillo: Hi, guys. Good morning. Gregory P. Rustowicz: Good morning, Joe. Mark D. Morelli: Good morning, Joe. Joe Mondillo: Mark, just a big level question here first for you. It seems like over the last for as long as I ve covered Columbus McKinnon, the value of the Company is maybe not reflective of what some investors, including myself, think that it should be. And as CEO, I think that one of the biggest parts of your job directly is to actually try to flush out the value, and increase value, for shareholders there. Page 9 of 14

10 I m just wondering, and I know you gave a lot in your prepared remarks, but if you can maybe sum up the biggest areas you think can improve the Company and will lead to increased value in the stock per se, and what metrics we should be looking at, that you think there s upside in, to track that? Mark D. Morelli: Yes, I m happy to. First of all, I m very excited to be here because I think Columbus McKinnon has a lot of untapped value. If you look at the portfolio of business right now, and in my remarks I touched on them, but let me just try to perhaps say it in another way. It s just a great platform, but the real value, I think, is going to come from the fact that this company needs to be an industrial technology company from a relatively cyclical industrial company, and it s got the elements to actually drive that. If you look at the recent acquisitions, they re much more engineered products. It commands more margins from customers because they re solving tougher problems. Whether it is explosion-protected hoists, it s just a great combination, or the digitization of what needs to happen in Industry 4.0. These are all great opportunities that the Company can now really begin to leverage off. I m not going to go in there and break things that are not broken because it s a good platform, but there is a huge amount of leverage that we can get. And in terms of metrics, we need to think about top line growth for sure when you look at that aspect. Second aspect is this platform has room to get better in terms of its operating performance. And that operating performance needs to really show up in how we are good stewards of capital, on how we ring out efficiency improvements. And this should show up in better gross margin, it should show up in return on invested capital. It s something that I know the Company has looked at before, but I think we can do a lot better job on return on invested capital to get that into double digits. And then lastly is to de-lever the balance sheet, I think also represents an opportunity. We throw off good cash, and we re going to continue to focus on that and making sure we don t do things that are going to spoil that cash flow. And we re going to focus that cash flow on paying down debt. We think that it can also be good for the Company as well and for the shareholders. Joe Mondillo: All right. Great. Thanks a lot. Appreciate that. In terms of the STAHL deal, are we still looking at $6 million of cost this year? And can you give us an update on where we re at with the synergies? Maybe update us again on what the revenue synergies and the cost synergies are related to that business, because I know that s supposed to take place over the next year or two, just give us update there, please? Mark D. Morelli: Yes. Sure. Well, Joe, the synergies that we re looking at is actually $5 million, the number that the Company had previously stated. It has been really exciting for me to jump in on this acquisition and really pull the covers off it. So, I m pretty optimistic that this is going to be a great addition to Columbus McKinnon. How we re going to get there on that roughly $5 million is mostly through cost synergies. We re right now north of $4 million on our roll-up on cost synergies for this fiscal year. And we see opportunities on top of that in the cost side. But on top of that, we also see on the revenue side that we can have some more. So, I think we re holding to that $5 million number that we told you previously. Hopefully, we can push on and do better, but it s not what we re committing to right now. Gregory P. Rustowicz: And Joe, just to add on, when we looked at the deal and came up with synergies, there were no revenue synergies that were contemplated. Although now that we ve had several months of ownership of STAHL, it s very clear that there are going to be opportunities for STAHL to pursue business that it previously wasn t able to pursue. And so we would consider that as a revenue synergy. Joe Mondillo: Okay. And in terms of the cost synergies, I thought we were at $11 million total. But I guess part of that is in fiscal 2019? Gregory P. Rustowicz: Year two. Joe Mondillo: Right. Page 10 of 14

11 Gregory P. Rustowicz: Basically the guidance that we had given was 5 million in fiscal 2018 increasing to 10 million roughly $10.6 million in fiscal Joe Mondillo: And is that still... Gregory P. Rustowicz: So your recollection is correct, but it takes two years to get there. Joe Mondillo: Okay. And everything is on track in terms of all that? Gregory P. Rustowicz: Where we sit today, yes. Right now, we re focused on working the $5 million number this year, and we re beginning to work on some of the longer lead items that will have a positive impact in fiscal Joe Mondillo: Okay. And then... Mark D. Morelli: So we are on track and we feel good about those numbers. Joe Mondillo: Okay. Great. In terms of the overall business, it sounds like Mark, you see opportunity to maybe at least improve efficiencies, if not take costs out. Are we expecting down the road, once you get more time under your belt, to hear about improved efficiency that s going to be able to leverage your cost structure as it is right now? Mark D. Morelli: Yes, I really look forward to that conversation. Obviously, right now, I m still spending a lot of time out in the operations. What I m telling you today is reflective of what I ve learned. As we digest these opportunities as a team and deploy around them, and understand how much we think we re going to get from it, and how we d like to put markers out there in terms of what we want to measure, I d be really happy to do that as we make more progress, and as we put some stakes in the ground for you folks to watch us make progress. So I really look forward to that. Joe Mondillo: Okay. And then in terms of the debt pay down, I was surprised to see the cash balance increased so much. Is there a reason for that? And given where the cash is, and I guess also depending on EBITDA, is the $45 million to $50 million a set goal, or is that dependent on profitability of the Company? And can that be increased, and relative to the cash increasing in the fourth quarter, do you think there s a chance of paying down more debt throughout the year? Gregory P. Rustowicz: There are a couple of parts to that question, so let me start with the first one on the surprise on the level of cash. We ended the quarter with about $77.6 million of cash, virtually all of it was overseas, and approximately $4 million was sitting in the U.S. Included in that was a significant amount of cash, going off of memory roughly, I think, around $28 million, related to STAHL. And as a part of the deal, there is a profit-sharing arrangement where we, STAHL owes Konecranes about $14 million, and that s going to get paid here in the next week or two. So that was contemplated and known at the time of the SPA. So our cash balance is going to go down for that item. The second part of the question is, how confident are we on the $45 million to $50 million? We are very confident. We think we have a clear path to get there and we hope to exceed that $45 million to $50 million level. Joe Mondillo: Okay. Thanks. I also wanted to ask you about what you experience in Europe over the last quarter or so. I was a little surprised on how weak you did see your organic business over there. It seems like we re starting to hear some positive trends within the European region and to be off slightly, I was expecting at least a little bit of growth in Europe. Could you talk to what you re seeing over there? Gregory P. Rustowicz: Yes. Joe, we had talked in the previous call on a large project to Africa and the bulk of that project shipped, but there was about $1 million of revenue that flipped into April which has since been booked. If that $1 million had been booked, there would ve been some slight growth in Europe in the fourth quarter. Mark D. Morelli: I m guessing, Joe, that... Joe Mondillo: All right. So even okay. Page 11 of 14

12 Mark D. Morelli:...we think some of our business in Europe is also lagging, because it s more of a project-base business, particularly coming from STAHL. We do see some activities in oil and gas, as we spoke about, that are coming to market. It s not particularly a robust market, particularly because most of our products are sold in the upstream or offshore, but we are seeing some downstream activity. So I think you will see some of those projects start slowly coming to market through the remainder of this fiscal year. Joe Mondillo: Okay. And then lastly, could you tell me what the purchase accounting related to STAHL is on a quarterly basis, and what your anticipation of quarterly total D&A for the Company is going to be? Gregory P. Rustowicz: The full year amortization right now is estimated to be $6.7 million. So you can divide that by four. There is another $2.2 million of purchase accounting annually that s going to hit up in cost of sales. So it s going to affect gross margin for the step-up on fixed assets, so extra depreciation. And then also, it would include amortization on a favorable supply agreement. So that s the purchase accounting impact. Joe Mondillo: Okay. And then, total D&A, what do you expect that to be? Gregory P. Rustowicz: Yeah, give me one second on that so that I can get this. I m looking for it right now, Joe. If you have another question, maybe you can go ahead and ask that. Joe Mondillo: That was really my last question. I can follow-up afterwards. That s fine. Gregory P. Rustowicz: Okay. Sounds good. Joe Mondillo: Thanks a lot. Appreciate it. Mark D. Morelli: Thank you. Operator: Thank you. Our next question comes from the line of Brian Rafn with Morgan Dempsey Capital Management. Please proceed with your question. Brian Rafn: Good morning, guys. Mark D. Morelli: Good morning, Brian. Brian Rafn: We re here in Milwaukee and Magnetek is right up the street. What is the opportunity to embed intelligent lifting and digital drives in legacy cranes and hoists, not just new products that you develop, or is it really that conversion about selling new cranes and hoists and just replacing the old? Mark D. Morelli: Thanks for the question, Brian. First of all, Magnetek technology can be put into an existing cranes and hoists, and there s really two ways that can happen. One of which is, a lot of times, you might be looking at a steel mill that s going through a retrofit, and the girders of the cranes are perfectly good, and they re going to retrofit with modernizing the control systems. And this is actually what s driving some demand right now in Magnetek, exactly in that type of application. So, you re starting to see some of that capability. The other thing is, in an existing product, even though it might be out there in the marketplace, they can add to those control systems with Magnetek controls. And so, in that case a variable-speed drive might be added on in that application. However, we think the biggest opportunity going forward is to embed it into the controls, because it will be more cost-effective. Because when you re doing a new drive system, you can implement this across the platform and you can more cost effectively get that technology in there, which we think will be more disruptive. Brian Rafn: Okay, appreciate the color. Mark, you mentioned a little bit about hiking up R&D, I m guessing, as a percentage of sales. Do you have any kind of early bogey as to what that might be or where you would go from legacy Columbus McKinnon to where you want to go? Mark D. Morelli: It s not a defined number yet, but we spend about 1.5% of sales on R&D today, and that just seems pretty low. If you are going to be an industrial technology company, you re going to have to boost that. And we need to do this in a way that does not increase our OpEx as a company. I ve done this before in other companies, and I think it can work quite effectively. We need to find areas of opportunities Page 12 of 14

13 to be more efficient and take that cost down, and redeploy it in a way that can really add to growth. I think it s a pretty exciting opportunity for us, because 1.5% is really not a very strong spend in this space. Brian Rafn: Got you. Do you guys measure by chance the percentage of new products developed in the last couple of years as a percentage of trailing 12-month sales? (Some companies do one at 12 months, some do two to three a years) Mark D. Morelli: The Company has reported on that in the past, and it s roughly about 18% that was launched within the last three years. I ve been a fan of that metric. I ve used it in prior companies that I ve managed. But I don t particularly find that a very strong number. The companies that are really innovating and offering new products to market like the kinds that we ve talked about, and the kinds that the Company has talked about, that number should be well north of that. Brian Rafn: Okay. And then just some qualitative aspects of the cultural synergies, history between STAHL and Columbus McKinnon; differences, similarities, I m just looking for more of a qualitative comment. Mark D. Morelli: That s a great question, because it s something that you test obviously very early on, and it s something really difficult to fix if you have a cultural mismatch. I m really pleasantly surprised. It s kind of like we re long lost brothers, and the reason being is that the business model predominantly inside Columbus McKinnon is to sell to crane builders. Independent crane builders are our customer. When you look at STAHL, STAHL also sells to crane builders. So culturally, we have a strong match. In fact, culturally, they didn t fit very well inside Konecranes, because Konecranes prevented them from selling to crane builders in the market phase. So we see the market, and culturally, we address the market very similarly. So we ve gotten along fabulously well in the early days. Obviously, we asked for tough things to be done, but we re working through that, and culturally, I think this will be a really strong bond. Brian Rafn: Your comment about leveraging the sales growth and like you say Konecranes preventing them from selling to crane builders, is that something you re looking at? Do you think you re going to see momentum early out of the blocks with them, or is that sales synergy going to play out over years? Mark D. Morelli: I don t think it will be over years. But keep in mind, some of these are fairly large projects and they take some time to come to market, and it s a fairly new endeavor. So I think we start seeing some quoting activity. We re showing up obviously on the doorstep of folks that we haven t called on before. So it will take some time, not an immediate couple of months thing, but it s something that we should certainly begin to see in the fiscal year. I think it ll obviously be pretty sticky for us, because if you look at the customer relationships they ve built, they ve really established some great customer relationships. So I think it s something that we really look forward to capturing. Brian Rafn: Let me ask you Mark, from United Technologies, having had some experience with General Electric and that, you were talking about more of a disciplined, strategic focused structure. Anything on property, plant and equipment, rationalization or SKU count or anything? A lot of times guys come in, they come from a more disciplined background, and there are a lot of things that they might come in and take a look at like you said, rationalizing product inventory or SKU counts, I m just looking for your thoughts? Mark D. Morelli: I think the right way to approach this is to look at the marketplace and understand how our products and brands are positioned. And I do think there is opportunity here. Obviously, it flows back through on the number of SKUs that you might carry. But if you rationalize it really from a customer-back perspective and focus on how can we optimally compete, how are we easy to do business with, and I think there is opportunity there when you listen to our customers and to our forward-facing employees. So I would expect we will do that and it will make us more competitive in the marketplace, as well as I think it can take out some cost structure. Brian Rafn: Super. Thanks for the comments, guys. Page 13 of 14