Columbus McKinnon Q3 2025 Earnings Call Transcript

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Provided by Quartr
February 10, 2025
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Operator

Good afternoon, ladies and gentlemen, and welcome to the Columbus Technion Corporation Third Quarter twenty twenty five Earnings Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. Please press 0 for the operator. This call is being recorded on Monday, 02/10/2025.

Operator

And I would now like to turn the conference over to miss Christine Moser. Thank you. Please go ahead.

Kristine Moser
Kristine Moser
VP of Investor Relations & Treasurer at Columbus McKinnon

Thank you, and welcome everyone to our call. On today's call, we'll be covering both our third quarter fiscal twenty twenty five financial results as well as the recently announced combination of Keto Crosby with Columbus McKinnon. This is an exciting evolution in our strategic journey that combines two complementary businesses with scale advantages and strong value creation for all of our stakeholders. On the call with me today are David Wilson, our President and Chief Executive Officer and Greg Rastowitz, our Chief Financial Officer. In a moment, Dave and Greg will walk you through our financial and operating performance for the quarter before sharing more about why Columbus McKinnon is so excited about bringing these two great businesses together.

Kristine Moser
Kristine Moser
VP of Investor Relations & Treasurer at Columbus McKinnon

The earnings release and presentation, including details on the Keto Crosby deal to supplement today's call are available for download on our Investor Relations website at investors.cmco.com. Before we begin our remarks, please let me remind you that we have our Safe Harbor statement on Slide two. 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.

Kristine Moser
Kristine Moser
VP of Investor Relations & Treasurer at Columbus McKinnon

You can find reconciliations of the most directly comparable GAAP financial measures on the company's Investor Relations website and in its filings with the Securities and Exchange Commission. Please see our earnings release and our filings with the Securities and Exchange Commission for more information. Today's remarks will be followed by a question and answer session. We respectfully ask that you limit yourself to one question and one follow-up. With that, let me hand it over to David.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Thank you, Christy, and good afternoon, everyone. We're excited to share more about a transformational milestone for our company bringing together Quito Crosby with Columbus McKinnon in a highly complementary deal that we expect to deliver compelling value for all of our stakeholders. This business combination enhances our scale and market position while delivering top tier financial performance. But before I get into the details of the deal, let's discuss the third quarter. Our global team adapted quickly to shifts in industry demand in the second half of the quarter and delivered adjusted EPS of $0.56 on February in sales, including an $0.08 impact of unfavorable foreign exchange movements in the quarter or $0.11 compared to the favorable foreign exchange in the prior year.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

While the demand environment deteriorated over the quarter, mid term market sentiment remains positive. As the third quarter progressed, we encountered two dynamics. First, our U. S. Customers took a cautious approach to the evolving policy environment, particularly related to tariffs, which delayed decision making.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

And second, we saw subdued demand in Europe, particularly in Germany and France, consistent with what you are hearing across the industry. While our optimism for the business over the medium and long term remains unchanged, our third quarter results and revised guidance for the near term contemplate that the resolution of these dynamics extend through the fourth quarter. We continue to see attractive opportunities from industry megatrends like near shoring, scarcity of labor and infrastructure investments and we are well positioned to benefit as we capitalize on those dynamics. As always, we remain focused on what we can control, operating effectively, managing our business with agility and executing our strategic plan. As you would expect, we are diligently managing costs to reflect current demand levels, while remaining flexible to take advantage of what are likely to be upside opportunities.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

We continue to advance our strategic plan, including executing our eightytwenty simplification initiatives. In fact, this quarter we announced the execution of the next step of our footprint simplification plan. Specifically, we're consolidating two smaller precision conveyance factories into our largest U. S. Precision conveyance manufacturing facility.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

We began transitioning manufacturing last week and expect to cease operations at the discontinued locations in the first quarter of fiscal twenty twenty six. Like the rest of the market, we are monitoring the recent developments with respect to tariffs closely. If a 25% tariff on both Mexico and Canada and a 10% tariff on China were implemented, the impact would be less than 5% of trailing twelve month sales. If there were matching retaliatory actions from the impacted countries, these would affect another 3% of sales. And of course, in that environment, we would explore strategic adjustments to our supply chain and manufacturing footprint to minimize the impact to our customers to the extent possible.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Where this isn't possible, we have a consistent record of working with our partners to pass through input cost increases and preserve margin. As referenced earlier, the demand environment has been choppy and we saw orders down 4% year over year driven by a 6% decline in short cycle orders where destocking pressures, uncertainty and delays in decision making persisted. Project related orders remain flat with strength in precision conveyance offsetting softness in Europe. Precision conveyance grew by 16% and linear motion was up 8% from the prior year. Our project funnel remains healthy reflecting improving customer sentiment and the effectiveness of our commercial and customer experience initiatives.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Quotation activity in the quarter increased to near record levels, but the speed of order conversion is lagging historic levels. Backlog also remains healthy, down modestly from prior year driven by softer short cycle demand. Project related backlog was up 3%, again driven by strength in precision conveyance and linear motion. With that, I'll turn the call over to Greg who will provide some additional color on our financial results and outlook.

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

Thank you, David. Good afternoon, everyone. We delivered third quarter net sales of $234,100,000 down 8% from the prior year driven by a 9% decrease in short cycle sales. We believe this was largely related to U. S.

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

Policy uncertainty and economic softness in Europe, particularly in Germany. Project related sales were down 7%, driven by weak demand and delayed revenue recognition resulting from a delay in receiving final design specifications for a large order previously won by Mantra Tech. While we expect revenue to be challenged in the short term, we are optimistic about the future as the new administration's policies take shape. Interest rates decline over time and we benefit from certain megatrends such as near shoring in The U. S.

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

And automation more broadly. Our gross profit decreased $11,800,000 versus the prior year on a GAAP basis impacted by $3,100,000 of expenses for factory closure activity and the ramp up of our Monterrey, Mexico facility and $2,000,000 of higher year over year product liability expense as we lap a favorable product liability adjustment in the prior year. The remainder of the decline was due to lower sales volume and mix, which was partially offset by favorable pricing net of manufacturing cost changes. On a GAAP basis, our gross margin was 35.1% and on an adjusted basis, our gross margin was 36.8%. On a sequential basis, adjusted gross margin expanded 50 basis points, but contracted 40 basis points year over year largely due to lower volume, unfavorable mix and the previously discussed prior year favorable adjustment to product liability accruals.

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

With the lower sales volume in the quarter, we managed our SG and A expense appropriately, decreasing our spend by $2,600,000 to $56,900,000 This was driven by cost management actions and lower incentive based compensation, partially offset by two unique items, namely a $1,500,000 legal judgment for a customs duty assessment in Mexico that goes back to 2014 and a $1,300,000 bad debt reserve for a large customer in Sweden that filed for bankruptcy. We are pursuing recovery of the amounts owed to us as the bankruptcy process unfolds. As a result, we generated operating income of $17,700,000 in the quarter on a GAAP basis and adjusted operating income of $25,600,000 Adjusted operating margin was 10.9% in the quarter. We recorded GAAP income per diluted share in the quarter of $0.14 and $0.56 on an adjusted basis. Adjusted earnings per diluted share was down 0.18 versus the prior year, including $0.11 per share due to unfavorable FX compared to the prior year.

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

In addition, the unfavorable year over year adjustment to product liability reserves negatively impacted adjusted EPS by $0.05 The remainder of the shortfall in EPS was due to lower sales volumes. Our adjusted EBITDA was $37,800,000 in the third quarter with an adjusted EBITDA margin of 16.1%. We delivered $6,200,000 of free cash flow in the quarter, a decrease of $16,900,000 versus the prior year, driven by elevated inventory levels due to the timing of large orders and higher stocking levels to facilitate the consolidation of our manufacturing footprint as well as $6,000,000 of costs incurred for unbilled over time revenue recognition. Free cash flow conversion for the quarter on a trailing twelve month basis was 266% reflecting the impact of the non cash pension settlement, factory and warehouse consolidation costs, and Monterrey Mexico startup costs and other unique items impacting GAAP net income. From a balance sheet perspective, we paid down $45,000,000 of debt in the first three quarters of fiscal twenty twenty five and anticipate paying down another $15,000,000 in the fourth quarter.

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

Our net leverage ratio was three times on a financial covenant basis, up 0.3 times from last quarter. For the company's credit agreement, we are capped at $10,000,000 for cash restructuring costs that can be excluded for fiscal year. Given the magnitude of our factory consolidation and Monterrey Mexico startup projects, we have exceeded the maximum allowable adjustment by $11,700,000 Without that cap, our credit agreement net leverage would have been 2.8 times. As a result of this cap, along with our updated guidance, we expect our net leverage ratio will remain approximately three times at the end of fiscal twenty twenty five. Let me wrap up with our updated guidance for fiscal year twenty twenty five, which reflects the current challenging macroeconomic environment we are seeing in the short term.

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

Our new guidance for fiscal twenty twenty five assumes a mid single digit sales decrease year over year, which will result in a low teens decline in adjusted EPS. CapEx for the full year will range between $18,000,000 to $22,000,000 and our net leverage ratio will end fiscal twenty twenty five at approximately three times as previously discussed. Our other guidance assumptions for fiscal twenty twenty five remain unchanged. Despite the challenging quarter, we remain confident in the health of our business and our ability to achieve our long term objectives. While we expect near term macro pressures to continue, we remain focused on operational execution and managing our expenses in the current demand environment.

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

With that, I will now turn it over to David to discuss the exciting news on this transformational acquisition.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Thanks, Greg. Now on to our deal. I'm thrilled to share that we have entered into an agreement to combine Quito Crosby with Columbus McKinnon in what is a highly complementary deal that we expect will drive compelling value creation for all of our stakeholders. This acquisition enhances our scale and market position while delivering top tier market performance. Our combination creates a scaled intelligent motion platform with over $2,000,000,000 in sales, enhancing our holistic offering and material handling solutions, increases the resilience of our portfolio with meaningful additions to our hardware and consumables portfolio with expanded scale and complementary geographic exposure and realizes a top tier margin profile with pro form a adjusted EBITDA margin of 23% supported by the strong standalone performance of our businesses and approximately $70,000,000 of net cost synergies expected by the end of year three.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Our combination also produces strong free cash flow, which will enable significant debt reduction following the transaction, just as we've done consistently following prior acquisitions and over time that cash flow will create financial flexibility to reinvest in growth. On a pro form a basis, the trailing twelve month adjusted EBITDA multiple for the transaction is approximately eight times reflecting the expected run rate net cost synergies. In summary, this is a highly compelling combination for all stakeholders that establishes scale, strengthens our core, increases resiliency, enables growth and positions Columbus McKinnon well for the future. The transaction is expected to deliver value for shareholders and be accretive to the company's adjusted earnings per share in the first year on a pro form a basis at run rate net synergies. Normalizing for expected integration costs, we expect greater than 100% free cash flow conversion, providing flexibility for deleveraging, reinvestment and future growth.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

I have long had a great respect for Keto Crosby's strong portfolio of offerings and their talented team. Through this strategic combination, we are creating a company with a shared customer first culture focused on safety, productivity, uptime and performance. I look forward to welcoming Quito Crosby's associates to the Columbus McKinnon team. Building on a two fifty year history, Quito Crosby has become a leader in lifting and securement, including hardware and consumables with globally recognized brands and a manufacturing footprint across over 50 countries. The company has a strong financial profile, attractive margins, revenue across a complementary set of vertical markets and geographies and has grown at a 7% revenue CAGR over the last three years.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

While there are a multitude of benefits that have our team excited about this combination, let me summarize the top five. First, the combination delivers a meaningful improvement in our scale. This not only doubles the size of CMCO and enables broader reach, it expands our portfolio and enables us to strengthen capabilities while reducing relative costs to deliver an enhanced value proposition for customers. The strategic nature of this combination delivers benefits across all components of our growth framework. Strengthening the core with an increased breadth and depth of products that enables a one stop shop for all material handling needs.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Growing our core with the addition of a meaningful position in lifting securement and consumables that includes a more resilient revenue source. Peto Crosby's lifting and securement consumables products sell at a low average selling price, but are relied upon in mission critical applications where the safety is paramount and failure is not an option. This combination of attributes drive stable replacement demand. Expanding our core through a complementary geographic footprint that provides us a pathway to deepen Columbus McKinnon's presence in the APAC region where Quito Crosby is well positioned. Similarly, we see opportunities to deepen Quito Crosby's penetration in Europe, The Middle East, Africa and Latin America given Columbus McKinnon's reach into these regions.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

And given the strength of our combined free cash flow, we'll be better positioned to reimagine our core as we reduce debt and utilize our financial flexibility to accelerate growth. This flywheel effect provides even greater capacity to reinvest in growth over time. Significant scale also enables meaningful benefits to our collective operational excellence and commercial capabilities. Over the past four years, we've invested meaningfully in our Columbus McKinnon business system that defines standard processes, procedures and technologies to optimize our business. Going forward, we will leverage best practices across the portfolio, bringing the most effective commercial and operational approaches to bear as we execute in support of our customers' needs.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

For example, I'm excited to leverage the lean manufacturing capabilities demonstrated within Quito Crosby's Yamanashi, Japan facility, where I had the privilege of spending time with Yoshio Kido and his team last month. By combining the best of what both Columbus McKinnon and Kido Crosby have to offer, we'll have a greater capacity to invest in tools, technologies and resources that differentiate our performance and improve customer experience across a diversified global footprint. Second, the combination positions us to benefit from growth tailwinds that are supported by global industry megatrends, including near shoring, supply chain resilience, labor scarcity, industrial infrastructure investment and sustainability. For many companies in region, for region near shoring is reducing risk, stabilizing supply chains and enhancing logistics efficiency. Workforce gaps, particularly in The U.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

S. And Europe are accelerating the adoption of lifting assistance and automation across manufacturing and logistics. Aging facilities are modernizing to stay competitive and meet rising demand. Many countries across North America and Europe are suffering from an aging infrastructure requiring investments in automation for transportation, logistics and smart infrastructure and regulatory requirements and sustainability goals are increasing demand for safer energy efficient operations across EMEA and APAC. It's expected that these megatrends will continue to accelerate demand for our combined offerings and we are better positioned to capitalize on these opportunities with great people and a more fulsome portfolio of products serving a broader set of geographies.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Third, this combination results in a highly attractive financial profile with a more than doubling of revenue and a tripling of adjusted EBITDA with an adjusted EBITDA margin of 23% on a pro form a basis. And this top tier financial profile is expected to deliver free cash flow in excess of 100% excluding one time costs related to the integration. Importantly, this combined financial performance will exceed the long term goals we established for revenue, adjusted gross margin and adjusted EBITDA margin during our twenty twenty two Investor Day ahead of schedule. While we will be relentlessly focused on the seamless integration of our businesses immediately after closing, we are identifying opportunities for longer term improvements that will enhance customer experience and financial performance over time. Fourth, this combination and its attractive financial profile are underpinned by significant synergies that deliver operational efficiencies and long term value creation.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Columbus McKinnon has a strong track record of successful integrations and cost synergy realization. At run rate in year three, we expect to deliver $70,000,000 of annualized net cost synergies. These cost synergies include supply chain optimization and enhanced purchasing power, operational efficiencies, duplicative structural expenses and overlapping third party expenses. We expect these synergies to phase in over a three year period with the majority being achieved in year two. CMBS is expected to be a significant enabler of success with its market led customer centric and operationally excellent framework.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

This disciplined proven approach will enable consistent standard work, focus on improving customer experience and loyalty, continuously innovate and leverage best practices from across the combined organization and accelerate integration and synergy realization. While not included in our deal model, we also see some meaningful revenue synergy opportunities that present upside to our model. Specifically, cross selling opportunities with existing customers, bridging gaps where customers do not overlap, driving growth through our complementary geographic footprint, leveraging Keto Crosby's strong APAC footprint for CMCO product and CMCO's EMEA and LATAM footprint for Keto Crosby product, attracting new customers with our enhanced scale, combined portfolio, broadened capabilities and expanded reach, and through simplification efforts that will improve the customer experience across a broader portfolio of products. And fifth, this combination results in a highly cash flow generative business that enables us to deleverage rapidly. This will be our primary focus for capital allocation in the near term.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Upon completion of the deal, we expect to be approximately 4.8 times levered on a credit agreement basis. Through our significant cash flow and debt structure designed to facilitate debt pay down, we expect to reduce our net leverage ratio to approximately three times by the end of year two after the deal closes. Over the long run, our strong cash flow generation characteristics provide the financial flexibility to reinvest in the flywheel of growth and accelerate the execution of our intelligent motion strategy. By investing in businesses with strong cash on cash returns, we create even more capacity to reinvest in growth. As part of the transaction, Columbus McKinnon has partnered with CD and R, a leading private investment firm with nearly fifty years of history, approximately $80,000,000,000 under management and 50% of their capital invested in partnership deals.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

CD and R brings deep and proven experience delivering growth and operational improvement in industrials and manufacturing companies. As a result of CD and R's investment in Columbus McKinnon, it is expected that CD and R's Mike Lamach, Nate Sleeper and Andrew Cammpelli will join the company's Board of Directors upon closing. We plan to fund this acquisition through a combination of $3,100,000,000 of committed debt financing, including a $500,000,000 revolving credit facility from JP Morgan and $800,000,000 of perpetual convertible preferred equity investment from CD and R. The initial debt financing structure provides flexibility for timely execution of the transaction, which we expect to replace with a permanent financing structure. Company has a strong track record of quickly de levering its balance sheet following prior acquisitions.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

On behalf of our entire management team and our Board of Directors, we are thrilled to welcome the Quito Crosby and CD and R teams to Columbus McKinnon. With the addition of Quito Crosby's exceptional business and CD and R's world class expertise to our already strong team, I have never been more excited about the future of our company. Let me end where I began. We are combining Keto Crosby with Columbus McKinnon in a highly complementary deal that we expect will drive compelling value creation for all of our shareholders. This acquisition enhances our scale and competitive position, elevates our financial profile, creates significant value for shareholders and generates significant cash flow to deleverage and enable growth over time.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

This deal delivers on our Investor Day targets ahead of schedule and results in an improved platform for future value creation over the long run. Operator, we'll now open the line for questions.

Operator

Thank you. Your first question comes from the line of Matt Summerville from D. A. Davidson. Please go ahead.

Canyon Hayes
Industrial Equity Research at D.A. Davidson Companies

Hi, thank you. You've got Canyon Hayes on for Matt Summerville tonight. Maybe just to open up the discussion hi, good afternoon. Just to open up the discussion, any kind of early prioritizations for the $70,000,000 in cost savings and any quantitative guidance we can think to as far as top line synergies?

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Yes. Good afternoon. Hi. This is David Wilson. And just as far as the $70,000,000 is concerned, I outlined those categories in my prepared remarks.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

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

Canyon Hayes
Industrial Equity Research at D.A. Davidson Companies

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

David Wilson
David Wilson
President & CEO at Columbus McKinnon

The Quito Crosby business has a portfolio that includes a larger portion of what we would call lifting and securement consumables. These are items such as shackles and hooks and manual tools, manual lifting equipment that is wear oriented and has requirements that limit wear to less than 10% for it to be safe to use. And these products serve highly critical applications. And so failure is not an option. Security and performance is critical.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

And the average ASP for those products is quite low, dollars 500 and less generally. And so when you think about criticality versus the requirement of the item and the potential that a used item might be have been exposed to extreme temperatures, which can change the metallurgy, as well as wear or other exposures that could deem the product to be more brittle or have other challenges. Given those characteristics and risks, people generally decide to use new components in that space when doing work that is critical and where failure is not an option. And so with that in mind, those products have a more resilient revenue profile and over time can command I think a really healthy return for the business. Thank you.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

You're welcome.

Operator

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

Steve Ferazani
Analyst at Sidoti & Company

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

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

Yes. So Steve, it really boils down to the confidence we have in the free cash flow generation of the combined businesses. We believe that we're going to generate over $200,000,000 of free cash flow a year and that's going to grow. And we also one other important fact is from a timing perspective, we need regulatory approvals. We think it's going to we'll get that in the first half of the year and be able to close.

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

But I think as we march through the upcoming quarters, I think people are going to get more and more confident with the current administration and what the policies are going to be and a lot of that uncertainty is going to be removed. So we would expect actually EBITDA to grow going forward, which will help on the leverage perspective. And just to add on to, we spent a lot of time looking at the synergies, the cost synergies and clearly have a range of outcomes. We have upside to deliver potentially on the cost synergies. And we think that between that and once again the free cash flow, we're comfortable with our ability to delever very quickly.

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

And as David said in his prepared remarks, it's going to delever roughly a turn a year.

Steve Ferazani
Analyst at Sidoti & Company

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

David Wilson
David Wilson
President & CEO at Columbus McKinnon

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

Steve Ferazani
Analyst at Sidoti & Company

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

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Thanks Steve.

Operator

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

Jonathan Tanwanteng
Managing Director at CJS Securities

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

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Yes, I appreciate it. Thanks. And we do see this fitting well into the framework that we've outlined historically. And so if you think about our growth framework that highlights strengthening the core, growing the core, expanding the core and reimagining the core, This fits squarely in the strengthening and growing categories and enables expansion and ultimately reimagining as we pay down debt with this superior cash generation and enable future investment in growth. And so this was an opportunity to combine two really good businesses and bring a tremendous value we think not only to our shareholders but to our customers.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

And, we see the combination as something that fits very well within the framework that we've talked about. And as you can see with the margin profile that we're forecasting, this will ultimately deliver a top tier financial profile at scale. And so we saw this as a really compelling opportunity to do that and then accelerate as we get to that stage in our integration of this business, the deployment of capital in a way that accelerates our transformation into some of those more secular growth markets over time.

Jonathan Tanwanteng
Managing Director at CJS Securities

Okay. And just

Jonathan Tanwanteng
Managing Director at CJS Securities

to Sorry, go on.

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

Yes, I

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

was going to say, I think you had a second part of your question on does this impact our footprint consolidation. So that's really a core part of our eightytwenty strategy. And so as you know, we've been moving forward with our new facility in Monterey. We did, as David has mentioned in his prepared remarks, consolidate two smaller facilities. This quarter that's going to be happening in the fourth quarter that will have about $3,000,000 of benefit going forward.

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

So we think that's a key part of eightytwenty and we're going to continue to move forward with our existing plans.

Jonathan Tanwanteng
Managing Director at CJS Securities

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

David Wilson
David Wilson
President & CEO at Columbus McKinnon

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

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Okay. And John, just to add on

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

yes, sorry, just to add on. So from an exposure perspective for Columbus McKinnon, in a worse, worst case scenario, 25% across the board, we're probably looking at the neighborhood of $10,000,000 to $20,000,000 tariffs and Quito Crosby has significantly less than that exposure. So we still think we're going to be would it have an impact? Yes, but not significant enough to really affect leverage.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Right. And just to clarify that $10,000,000 to $20,000,000 is without passing through the impact of tariffs in terms of price increases. And so we'd be working to avoid those impacts on our customers. But clearly if they weren't avoidable, we've had a history of making sure that we work effectively with our channel partners to pass those on and preserve margins in the system.

Operator

Got it. That's helpful. Thank you. Thank you. Your next question comes from the line of Paul Lipac from Seaport Research.

Operator

Please go ahead.

Walter Liptak
Industry Analyst at Seaport Research Partners

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

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Yes. It's eight times post synergy leverage.

Walter Liptak
Industry Analyst at Seaport Research Partners

Okay. How about pre synergy?

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Pre synergy, it's just over 10.

Walter Liptak
Industry Analyst at Seaport Research Partners

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

David Wilson
David Wilson
President & CEO at Columbus McKinnon

have one absolutely. It's in the deck, Walt, and they have $1,100,000,000 worth of sales. They have 23% gross margin.

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

EBITDA margin. Sorry, EBITDA

David Wilson
David Wilson
President & CEO at Columbus McKinnon

margin. High 30s gross margin or 40 ish gross margin depending upon how you calculate it. They have grown at 7% over the last three years. They have 4,000 channel partners, 600,000 plus end users that have been trained by the company. And they're pretty geographically diverse, well situated around the globe, about 20% of their business is in Asia, Close to 60% is in North America.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

And then the European business is about 20 and they have about 4% in Latin America.

Walter Liptak
Industry Analyst at Seaport Research Partners

Okay, great. Thank you for that. And yes, that does. And so you're saying that the 60% that's North America, presumably that's mostly U. S, But is that Canada as well?

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Latin America and Canada is included in that North America number.

Walter Liptak
Industry Analyst at Seaport Research Partners

Okay. And how much is coming into The U. S. From outside The U. S.

Walter Liptak
Industry Analyst at Seaport Research Partners

That might be impacted by tariffs?

David Wilson
David Wilson
President & CEO at Columbus McKinnon

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

Operator

Okay.

Walter Liptak
Industry Analyst at Seaport Research Partners

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

Walter Liptak
Industry Analyst at Seaport Research Partners

S. Down to Mexico?

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

Yes. So on the second one, it's a combination. There could be some product lines moving into Mexico and others moving into another U. S. Facility because it makes sense to do so after we evaluated it.

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

And in terms of the first part of the question related to Mexico, it's once again, I think if there is any tariffs from Mexico or on Mexico and vice versa, it would be it would impact our savings some. But remember, we're looking at very substantial savings when we're fully consolidated in the factory. So it still makes sense to move forward with our plans.

Operator

Okay. Okay. Thank you.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Thanks, Walt.

Operator

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

Jonathan Tanwanteng
Managing Director at CJS Securities

Hi, thanks for the fall. I was just wondering if you could give a blended interest expense or rate expectation once you've completed the financing?

Gregory Rustowicz
Gregory Rustowicz
Senior VP of Finance, Chief Financial Officer & Treasurer at Columbus McKinnon

Yes. So it'll be a market rate, but right now we're expecting it to be below 8%.

Jonathan Tanwanteng
Managing Director at CJS Securities

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

David Wilson
David Wilson
President & CEO at Columbus McKinnon

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

Operator

Okay, got it. Thank you.

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Great. Thanks, John.

Operator

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

David Wilson
David Wilson
President & CEO at Columbus McKinnon

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

David Wilson
David Wilson
President & CEO at Columbus McKinnon

Thanks again for your attention today and have a great evening.

Operator

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

Executives
    • Kristine Moser
      Kristine Moser
      VP of Investor Relations & Treasurer
    • David Wilson
      David Wilson
      President & CEO
    • Gregory Rustowicz
      Gregory Rustowicz
      Senior VP of Finance, Chief Financial Officer & Treasurer
Analysts
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Earnings Conference Call
Columbus McKinnon Q3 2025
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