Columbus McKinnon Q3 2024 Earnings Call Transcript

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Provided by Quartr
January 31, 2024

There are 8 speakers on the call.

Operator

Greetings, and welcome to Columbus McKinnon Third Quarter Fiscal Year 20 24 Financial Results. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Christy Moser, Vice President, Investor Relations and Treasurer.

Speaker 1

Thank you, Rob, and good morning, everyone, to Columbus McKinnon's fiscal 3rd quarter 2024 earnings conference call. The earnings release and presentation are available for download on our Investor Relations website at investorrelations.cmco.com. On the call with me today are David Wilson, our President and Chief Executive Officer and Greg Restewitz, our Chief Financial Officer. In a moment, David and Greg will walk you through our financial and operating performance for the quarter. But before we begin our remarks, Please let me remind you that we have our Safe Harbor statement on Slide 2.

Speaker 1

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 these 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 prepared remarks will be followed by a question and answer session.

Speaker 1

With that, let me turn it over to David.

Speaker 2

Thank you, Christy, and good morning, everyone. The 3rd quarter was another quarter strong net sales as we leveraged our playbook for growth and gained traction with commercial initiatives. In fact, we delivered over $1,000,000,000 of net sales on a We improved operating performance in areas that matter most to our customers and reduced our lead times. This improvement in operational performance enabled us to further reduced our past due backlog levels and delivered improvements in customer experience. In the 3rd quarter, we drove 10% top line growth, which translated to even stronger growth in operating profit.

Speaker 2

As we expanded gross margin, benefited from leverage on our growth and remained focused on performance improvement through CMBS and our eightytwenty process. Adjusted gross margin expanded by a robust 160 basis points year over year, even as we lapped pricing actions from the prior year. Improvements over time have been driven by progress in capacity planning, material costs, direct labor productivity, factory overhead rates, pricing and the acquisition of Montrotech. Although we delivered strong margin expansion year over year, It fell a bit short of our own expectations due to a few unique items that Greg will unpack shortly. While those dynamics had an impact in the 3rd quarter, We expect to accelerate year over year adjusted gross margin expansion in the 4th quarter.

Speaker 2

We have line of sight to 200 plus basis points of expansion with potential upside opportunities and remain on track for our 40% gross margin target in 2027. That exceptional operating performance is all thanks to the hard work and strong execution of our 3,500 Columbus McKinnon team members. I couldn't be more proud of how our nimble and innovative team has continued to deliver on behalf of both our customers and our shareholders. More consistent and improving execution by our team combined with our differentiated business model has delivered a strong record of performance over time and across a variety of economic environments. While we're growing and generating cash, which provides dry powder to reinvest in our growth framework where we have multiple levers to drive scale.

Speaker 2

We also remain focused on using our significant cash flow generation coupled with adjusted EBITDA growth to naturally deleverage Our net leverage ratio now sits at 2.6 times and we're on track to achieve approximately 2.3 times by the end of the fiscal year. We're off to a solid start in the 4th quarter powered by the resilience of our differentiated business, growing momentum with our commercial initiatives and strong track record of our execution. If you'll turn to Slide 4, we delivered order growth of 8% in 3rd quarter positioning us to deliver on our 4th quarter sales guidance, which Greg will discuss shortly. Orders remain strong across all geographies, And we saw particular strength in EMEA as demand remained resilient despite the broader macroeconomic and geopolitical headwinds. Underpinning our growth was strength in precision conveyance and lifting, which were up 23% 7%, respectively.

Speaker 2

Even excluding Montrotech, Precision Conveyance was up 9%. Overall, demand for both our Project and short cycle businesses remained healthy. Project orders grew double digits in Q3, reflecting our customer centric focus, targeted end market growth initiatives and channel diversification efforts. And on a quarter to date basis through last week, Short cycle orders continue to expand and are up 11% versus the same period last year. We are capitalizing on megatrends within the vertical market leading to project wins in areas related to electric and hybrid vehicle advancements, e commerce and package delivery solutions, farmers' ship to home trends and increasing demand for prepackaged meals, where we are delivering customized solutions for our customers to address their unique needs and exact specifications.

Speaker 2

As we lean into customization, an increasing proportion of our portfolio requires unique equipment and parts, creating recurring revenue streams for our business that will also be a tailwind to gross margin over time. While still early, we see a growing pipeline of project activity this quarter and have already had wins in categories benefiting from megatrends that provide tailwinds to our business such as pharma automation and logistics. While we are not immune to the macroeconomic environment, we remain cautiously optimistic about our near term outlook given the resilience of our customer relationships, the visibility we have into our sales funnel and our efforts to improve our customers' experience. Through our acquisitions and our commercial growth initiatives, we are adding new customers and expanding into new markets, markets that have attractive tailwinds. This has muted impacts from pockets of softness in industrial CapEx spending.

Speaker 2

Importantly, we remain encouraged by our funnel for both short cycle and large project orders. As I mentioned earlier, we remain highly focused on improving our operational performance and enhancing our customers' experience. As a result of these efforts, our backlog decreased by 6% from the prior quarter driven by reductions in past due backlog, which decreased 26% in the period. Going forward, we expect backlog to further normalize from current levels. While this may impact near term shipment flexibility, we expect to benefit from improved lead times and customer satisfaction levels, which we believe will create tailwinds to order frequency and volume over the midterm.

Speaker 2

In addition to customer we continue to make significant progress on all aspects of our transformation, delivering on productivity enhancements and simplifying our business, including foundational progress with the footprint rationalization plan that we mentioned in our last Investor Day. As part of that effort in January, we opened our state of the art manufacturing center of excellence in Monterrey, Mexico pictured on Slide 5. A 165,000 square foot facility that will enable productivity enhancements and growth over time. This investment is directly aligned with our eightytwenty process and will cultivate a culture of innovation as we expand our R and D capabilities in the region. We expect to incur approximately $26,000,000 of CapEx associated with this phase of the project.

Speaker 2

We also expect Factory consolidation cost of approximately $2,000,000 related to the closure of our Santiago, Mexico facility and our consolidation of that facility into Monterrey in the Q4. We expect to achieve productivity benefits related to this investment over the course of fiscal 2025, but we anticipate that those benefits will be offset by overlapping production costs while we ramp production volume in the new factory. Pulling up on Slide 6, we're encouraged with the progress we're making and by the potential of our business as we advance our strategic transformation to become the global leader in intelligent motion solutions for material handling. We remain highly focused on executing our strategic plan and achieving both the near and long term objectives we've established for the business. I remain confident in the long term trajectory of Columbus McKinnon powered by our differentiated business model, track record of execution an encouraging funnel of opportunities and our acquisition strategy.

Speaker 2

We are just beginning to scratch the surface in terms of the value our precision conveyance business can deliver. The expansion of our total addressable market through our proven playbook provides a long and attractive runway for growth with a focus on targeted sectors that are benefiting from tailwinds associated with megatrends related to automation and the scarcity of labor resources, the near shoring of manufacturing capacity, infrastructure and defense spending as well as electrification. Our continued execution, Growing momentum and the strength of our business model give us confidence that we will remain on track to meet our long term financial objectives. With that, I'll turn it over to Greg to take us through the financial results.

Speaker 3

Thank you, David. Good morning, everyone. Turning to Slide 7, We delivered sales in the 3rd quarter of $254,100,000 up 10.3% from the prior year period or 8.5% on a constant currency basis. This was at the high end of the guidance we provided last quarter, supported by strong execution from the team and continued resilience in demand. The Montertec acquisition contributed $15,500,000 to net sales accounting for 6.7% of the net sales increase.

Speaker 3

Montertec had a very strong quarter reflecting the timing of several large project deliveries, namely to Airbus and a large German automotive company in the EV space. We realized pricing gains of $6,500,000 or 2.8 percent, which was in line with what we were anticipating as we lapped last year's November price increase. Volume decreased by $2,400,000 or 1%. This was largely in our precision conveyance platform, which was impacted by lower order rates earlier in the fiscal year. As David discussed, the funnel is healthy for this platform And we saw strong order growth of 23.5 percent in Q3.

Speaker 3

Foreign currency translation was a benefit this quarter of $4,100,000 or 1.8 percent. We saw robust growth outside of the U. S. With sales increasing by 30%. This was the result of a combination of both Montertec revenue and high single digit organic growth.

Speaker 3

In the U. S, Sales decreased 2% on lower volumes, primarily in our precision conveyance platform as just referenced. On Slide 8, we recorded gross margin of 36.9% in the 3rd quarter. On an adjusted basis, Gross margin was 37.2 percent, up 160 basis points year over year. As expected, we saw adjusted gross margin declined sequentially by 150 basis points, which includes normal seasonality.

Speaker 3

While gross margins were the highest we ever had in the 3rd quarter, We came in a little behind our expectations. This was primarily driven by a COVID outbreak in December in our Kunstelslau, Germany factory that impacted labor productivity. In addition at Montertec, we had higher purchase components for a particular project that carried a lower margin, which we have addressed and should not repeat. Q4 margins will rebound and we remain on our path to achieve 40 gross margins in fiscal 'twenty seven. Gross profit increased $11,800,000 or 14% versus the prior year.

Speaker 3

This was driven by several factors, which you can see in the table. The largest item driving gross profit expansion were contributions from the Montertec acquisition, which contributed $6,700,000 to gross profit and pricing net of manufacturing cost changes including material inflation, which added 4,600,000 Montertec was accretive to gross margins by 40 basis points this quarter with an overall gross margin of 43%. Moving to Slide 9. Our SG and A expense was $59,500,000 in the quarter or 23.4 percent of sales. This was improved 70 basis points from a year ago.

Speaker 3

The year over year increase was largely from the addition of Montertec to the portfolio and the impact of FX, which added $800,000 to the total. We continue to invest in R and D, which added $1,400,000 to the total, But this was more than offset by an acquisition earn out in the prior year that did not repeat and lower selling costs as we realigned the business a year ago. Turning to Slide 10, we generated operating income of $26,900,000 in the quarter or 10.6 percent of sales. This represents an increase of $6,700,000 or 33 percent over last year's Q3. Adjusted operating income was $29,700,000 or 11.7 percent of sales.

Speaker 3

On an adjusted basis, operating income grew $6,300,000 or 27%. This reflects the strong operating leverage we have in the business and demonstrates our long runway for margin expansion over time. Excluding the Montertec acquisition, which was additive to our results, our business drove 47% adjusted operating leverage. As you can see on Slide 11, we recorded GAAP earnings per diluted share for the quarter of $0.34 down $0.08 versus the prior year. This was due to a $4,600,000 non cash pension settlement expense, which impacted EPS by $0.12 per share.

Speaker 3

We are in the process of terminating one of our U. S. Pension plans. We paid lump sum payments to a certain class of current and former employees who elected the lump sum settlement. The remaining liability will be sold to an insurance company later this calendar year.

Speaker 3

When we complete that transaction, we expect another non cash charge of approximately $28,000,000 to $29,000,000 that we will record. At that point, the pension plan will be off our books. We had a similar termination back in fiscal year 2021. We have adjusted this out for purposes of calculating adjusted EPS. Our tax rate on a GAAP basis this quarter was 29% as we repatriated overseas cash to accelerate debt repayment, which resulted in dividend withholding taxes.

Speaker 3

Year to date, our tax rate was 26, and for the year, we still expect our tax rate to be approximately 25%. Adjusted earnings per diluted share of $0.74 was up $0.02 from the prior year as higher adjusted operating income more than offset the negative impact of higher interest expense and the increased tax rate year over year, which together impacted EPS by about $0.10 per share in

Speaker 4

the quarter.

Speaker 3

On Slide 12, our adjusted EBITDA margin this quarter of 16.3% improved by 160 basis points from a year ago. On a trailing 12 month basis, our adjusted EBITDA margin was also 16.3%, a 50 basis point improvement from where we finished fiscal year 'twenty three. Our return on invested capital continues to improve and was up 30 basis points for fiscal year 23% to 7%. We expect to realize a low double digit ROIC by fiscal year 20 27. Moving to Slide 13, quarterly free cash flow was $23,100,000 in the period.

Speaker 3

This includes cash provided by operating activities of 29,100,000 and CapEx of $6,000,000 Year to date, our free cash flow is $12,300,000 which is an increase of 66% from a year ago despite the higher CapEx, largely tied to our new Monterrey, Mexico facility. Q4 historically is a strong cash from operations quarter for us and we would expect that trend to continue. Turning to slide 14, our capital structure continues to improve as our net debt leverage ratio was 2.6 times on a financial covenant basis. As we have previously discussed, we have a covenant light credit agreement. We continue to accelerate our debt reduction plans as we paid down another $15,000,000 of debt this quarter.

Speaker 3

We are planning to pay down an additional $15,000,000 in Q4, which will bring the total to $55,000,000 of debt this fiscal year, up from the $40,000,000 discussed at the beginning of the fiscal year. We expect to report a net leverage ratio of approximately 2.3 times as we exit fiscal year 2024. Turning to guidance on slide 15. On the back of solid growth in orders in Q3, we expect to continue to grow net sales between 2% 6% to between $260,000,000 to $270,000,000 in Q4. We also expect roughly $60,000,000 of our SG and A expense, $10,000,000 of interest expense, a tax rate of 25 percent for the full year, diluted shares outstanding of 29,100,000.

Speaker 3

We expect to continue to be highly cash flow generative with free cash flow conversion of approximately 90% for the full fiscal year. This is inclusive of Q4 CapEx of approximately $14,000,000 to $19,000,000 which is elevated due to the opening of our Monterey facility. We expect to use our cash flow to continue to delever our business. As a result, we expect our net leverage ratio to improve to approximately 2.3 times by the end of the fiscal year. As I wrap up my review of our financial performance, let me emphasize that our guidance reflects strength of our results year to date, initial trends in the 4th quarter and our ongoing confidence in our differentiated business model.

Speaker 3

Rob, we are now ready to take questions.

Operator

Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from Matt Summerville with D. A. Davidson.

Operator

Please proceed with your question.

Speaker 4

Thanks. Couple of questions. With respect to Monterrey, the duplicative manufacturing costs that, of course, going to have. Are you able to quantify that? Is that included in the guide?

Speaker 4

Will that be one timed out? And then can you also talk about Monterrey, maybe what you're consolidating into that facility, how the ramp up trajectory looks, timing on cost savings, quantification, all that stuff?

Speaker 5

Yes. Yes. Matt, let

Speaker 2

me take the first part of that and I'll address the second question and then I'll hand it off to Greg to address the first of your questions. So, if you go back to our Analyst or Investor Day, when we talked about our strategy from a footprint simplification standpoint, we outlined a path that included an improvement to gross margin through the rationalization of our footprint over time. And what we've done is we've Put in place the foundation for that work with this brand new facility that we just erected and we started to consolidate into. And so we I have announced the consolidation of our Santiago, Mexico facility into that location in Monterrey And that's underway. And then over time, we'll be addressing the follow on plans associated with that overall strategy.

Speaker 2

And obviously for sensitivity reasons, we're not going to get into more details related to those next steps, but we have a very well defined plan that we're actively managing and leading the business through And expect that to deliver the benefits that were outlined at that time in our bridge to 40% gross margins.

Speaker 3

Hi, Matt. So this is Greg. So with regards to how we're going to handle the cost for Monterrey. So this quarter, we pro form a'd approximately $755,000 as it represented the cost of us getting a team in place, hiring new people and some facility costs, and we haven't yet produced a single item. So we would expect as we ramp up in Q4, we will also have pro form a costs related to that, that would be in excess of what we would the standards we set for the cost of manufacturing our product.

Speaker 3

And as we go into fiscal year 'twenty We will start to realize benefits from the facility, from the consolidation, But we think that in general that it's going to be kind of offset by the fact that we're still scaling up.

Speaker 4

Understood. And then David, can you maybe talk a little bit more Provide a little bit more granularity just around some more end market specifics, where you see the most strength right now maybe where you're seeing some weaker spots in both the U. S. And your international business?

Speaker 2

Yes, sure. Thanks, Matt. So we're we see nice market resilience across all geographies. And I think in the data that we talked about relative to the performance of the business in Q3, we saw an increase in Europe of 9.5% in orders, including Monteratech 4.5% Year over year excluding Monterreych on a constant FX basis, order rates in our conveyance business were up 23.5% globally including, Oncratech 9% if you exclude that. Our lifting business was up 7%.

Speaker 2

So there's been a nice level of resiliency. We are seeing nice performance as it relates to the EV pipeline, life sciences, food and beverage as well as defense opportunities. And as we look to the future, we're in active discussions with a targeted set of customers that serve the that serve the life sciences space, the EV and hybrid vehicle space, The e commerce spaces, we're starting to gain additional traction there. We're excited about the pipeline of opportunities that exist there. And then food and beverage is starting to gain traction.

Speaker 2

What I will say is the headwinds Probably between June of 2022 June of 2023 related to the robotics and packaging markets with higher interest rates and some of the slowdown in order rates there that were affecting our conveyor business. Those have bottomed that And there's a rebound there that we're able to capitalize on and we feel good about the progress our teams are making as we're targeting markets to support growth in our precision conveyance business.

Speaker 4

Got it. Thanks guys.

Speaker 2

You bet. Thanks, Matt.

Operator

Our next question is from Jon Tanwanteng with CJS Securities. Please proceed with your question.

Speaker 6

Hi, good morning and thank you for the questions. I just wanted to drill down a little bit on that end market commentary a little bit more, if you could. First, was U. S. Lifting down at all or was that all conveyance?

Speaker 6

And if it was all conveyance, was that simply the picking up of that large e commerce and robotic customer you mentioned?

Speaker 2

Yes. U. S. Lifting was up with orders in the quarter. And on a global basis, lifting was up 7% 7.5%.

Speaker 2

But the U. S. Lifting business was also up in low single digits.

Speaker 6

Okay, great. And then you mentioned strength in, I guess, sort of a bottoming in Recovery in the conveyancing business, is that from returns of any customers that came out or is that more broad based as you address some of the market?

Speaker 2

Yes, it's a little bit of both actually. We've continued to gain traction with a new set of customers that we as we've engaged in channel diversification initiatives and business development with targeted customers. And so we're pleased with the traction we're gaining around e commerce more broadly through both integrators and end users. But we are seeing the return of activity with customers that we've worked with for a long time and continued traction around beta developments that we're working on with them.

Speaker 6

Got it. And then finally, you mentioned strength in EV, which seems counter to the sentiment that maybe production is ahead of demand there. I was wondering if you could provide a little more color on what are telling you and kind of how they're planning?

Speaker 2

Sure. Yes. So we're working with a number of participants in that space. And as we build capacity For our customers, they're focusing on both long game benefits as they position themselves for This is a long term trend, but also they're focusing on productivity improvements in their own factories and the advantages we can provide them with, whether that be for Immediately growing demand or current demand. And there's opportunities for us through the work we do with intelligent motion solutions that help them with their productivity and cost savings to sell more.

Speaker 2

And so we're seeing traction with the work we're doing there.

Speaker 6

Great. Greg, if I could sneak one in there, what would you expect on a gross margin basis as we head into the 4th quarter, So it would normally be a seasonal thing kind of the one offs that you expect this quarter?

Speaker 3

Yes. So we think we're going to be in the 200 basis point plus from where we sit today sequentially or from last year, sorry. So that puts it approximately at the 38% gross margin, adjusted gross margin area.

Speaker 6

Great. Thanks.

Speaker 2

And then we noted in our prepared remarks commentary, John, that we see upside potential and we're working on that.

Speaker 6

Got it. Thanks, guys.

Speaker 2

You bet. Thanks.

Operator

Our next question is from Walt Liptak with Seaport Research. Please proceed with your question.

Speaker 5

Hi, thanks. Good morning, guys. Good quarter. Thanks. Wanted to ask about Montreatic And the sales came in a little bit stronger than I was expecting.

Speaker 5

And so I guess the question is, was there something that was pulled forward? What are we thinking now for sort of the 12 month revenue run rate for Montreatic?

Speaker 2

Sure. Sure. So as Greg indicated in his prepared commentary, we shipped 2 large projects to Airbus and then to a large German EV manufacturer. And those were planned. We had visibility to that demand and to those shipments in the quarter.

Speaker 2

So they were elevated and that's not a quarterly run rate, if you will, right now for the business. But as we purchased the business, it was a $30,000,000 business. And we had communicated that we anticipated we'd grow the business at roughly a 30% rate. And so I think that still remains intact and would anticipate that we're a year later running at more of a $40,000,000 rate. And as a project focused business, it's natural that that business will have a level of variability quarter to quarter.

Speaker 2

And so that $15,000,000 does not repeat itself in this coming quarter. But we continue to see really robust demand for that business and we're encouraged by the progress we're making with our integration work, The opportunities for that business not only through their historical channel of delivery or sales to customers, but also through what we've been able to enhance that with the combination of our businesses. So we really feel good about the early innings for that business and the growth trajectory that we think we can achieve over time.

Speaker 5

Okay. That sounds great. And maybe a last one. The Q4, I kind of look back at the data, it tends to be a fairly big quarter. And I don't I wonder if there's something seasonal about the order patterns where you get large project orders in your March quarter that shipped during the year?

Speaker 5

And what's the funnel looking like?

Speaker 3

Yes. So I'll take the first Part of that, Walt. And so typically from a seasonal perspective, you're absolutely right. Q4 is our strongest quarter. And to put it into Q3 is our seasonally weakest quarter with the holiday season.

Speaker 3

So typically there's optimism about the New Year. Our channel in a lot of cases has reduced their inventory levels as of the end of the calendar year. They might be year end reporting companies and it's important that they have their balance sheets where they want them. But now they've got to look to the future and look at what is their expected demand and so What inventory do they need? You've got new CapEx budgets that have been approved.

Speaker 3

And so from a project perspective, we're starting to see Activity where orders are going to be coming in related to those projects that we've been working on for quite a while. And so We would expect those same trends to continue in our fiscal Q4 this year.

Speaker 2

Yes. And I'd just add on relative to funnel, we're encouraged by the funnel at this point. While we saw orders increase in Europe, as I communicated earlier, We're believing that the business resiliency is going to continue there as we've come off a low in our Q2 and I've seen orders creep up in Q3 and we expect them to continue to move in the upward direction this quarter. And as I mentioned earlier, we see opportunities for our precision conveyance and lifting businesses that have sustainable trends and we're supported by a lot of macroeconomic trends. So we feel good about the position that we're We of course remain cautiously optimistic and we're paying attention to how things are developing.

Speaker 2

But at this point, we see the trends of positive order development continuing.

Speaker 5

Okay. All right, great. Thank you.

Operator

Our last question will be from Steve Farizzani with Sidoti and Company. Please proceed with your question.

Speaker 7

Good morning, David, Greg. Appreciate all the color on the call. I just wanted to get back into the sales guidance for Q4. When we think about the growth, and I think you indicated maybe not as strong from Montra Tech in Q4. But if I back out Montra Tech, it would seem at minimum at the low end of guidance, you're looking at an organic sales decline.

Speaker 7

Is that accurate year over year?

Speaker 2

I think we have an organic sales growth at the midpoint of our guidance Year over year. And Greg

Speaker 5

can you confirm?

Speaker 2

Yes. Yes. That's right. So we do have an organic sales growth, Steve, year over year at the midpoint of guide. And I think that we expect that we'll continue to see positive developments throughout the quarter.

Speaker 2

We do have shrinking past due backlog as I mentioned before. And so we've been able to address those backlog Challenges that we've had and what that's done is it's driven backlog down. And I mentioned in my prepared remarks that as we work with our customers and get them into a more frequent ordering pattern and we become more competitive with our lead times, we believe that there's opportunities to gain share and that helps us to drive demand into the business. But that does have a periodic impact on this quarter. But we feel good about the progress we're making in those initiatives.

Speaker 2

And so That should trend well as we go into the next year.

Speaker 3

Yes. And just to add on, Steve. So at the midpoint, it's kind of mid single digit growth for the company.

Speaker 7

Okay. When we think about I've asked you this in previous quarters, now we've seen 4 out of 5 quarters with book to bill under 1, you're going to lap Monteratech in May. How comfortable are you that you can get organic get sales growth post lapping Mantra Tech given where you are?

Speaker 2

Yes. I mean, we certainly feel good about the quarter that we're in and we'll be coming back in the May timeframe with our guidance for fiscal 2025. But we do remain encouraged with the momentum and Our order funnel remains really healthy. We're in active discussions with our customers. I mentioned the channel diversification initiatives, is the opportunities to gain share in the self help work that we're doing.

Speaker 2

This isn't all about a growing macro. It's about opportunities for us to compete in the landscape that we compete within and do that effectively. And so, we remain optimistic about the future.

Speaker 7

Great. Thanks for that. Last one just on debt pay downs. I know Q4 is and you've got sort of guiding for it being the big quarter for cash flow. Any reason you wouldn't ramp up the pay downs?

Speaker 3

Which we have and we will continue to do so, Steve. So we started the year with guidance of $40,000,000 roughly $10,000,000 a quarter of debt pay down. And we've ramped that up. We're going to be at $55,000,000 for the year with what we expect to do in Q4. And if we can do more than that, we will.

Speaker 3

But I think what's an interesting fact here is that for the fiscal year, we'll have paid down about half of the purchase price of Montertec, Right. We paid roughly $110,000,000 for it and we're going to pay down $55,000,000 of debt. I think that's a very impressive number. The

Speaker 7

67% of debt hedged, what does that mean as if we get the rate cuts

Speaker 3

Yes. So we'll benefit from the rate cuts for sure and for a third of our debt. And as the capital markets improve, there's always opportunities to even do better. And so we'll look to see what we can do there as well.

Speaker 7

Thanks, David. Thanks, Greg.

Speaker 2

You bet. Thanks, Steve.

Operator

We've reached the end of the question and answer session. I would now like to turn the call back to David Wilson for closing comments.

Speaker 2

Great. Thank you, Rob, and thank you everyone for joining us today. Our team is executing and delivered double digit sales and operating income Growth in a dynamic environment. This reflects the significant progress we're making with our transformation and our proven playbook for growth. We're pleased with the momentum that we have entering our 4th quarter powered by a diversified platform and an improving competitive position.

Speaker 2

We remain a strong cash generator, which enables us to reinvest in our business and delever the balance sheet unlocking further cash flow potential. We're confident in our ability to deliver long term profitable growth and enhance shareholder value. Thanks for your interest in Columbus McKinnon and have a great day.

Operator

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.

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Columbus McKinnon Q3 2024
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