Columbus McKinnon Corporation Stock

Good morning, and welcome to Columbus McKinnon's Second Quarter Fiscal 2027 Earnings Conference Call. My name is Anas, and I'll be your conference operator today. As a reminder, this call is being recorded.

I would now like to turn the conference over to Alexandre Eldredge with Columbus McKinnon Investor Relations.

Thank you, and good morning, everyone. Thank you for joining us for the CMCO Second Quarter Fiscal 2027 Earnings Call. Joining me on the call this morning are President and Chief Executive Officer, David Wilson; and Chief Financial Officer, John Linker.

On today's call, we will be referencing our earnings press release and presentation, which are available on our Investor Relations website, investors.cmco.com.

Before David and John walk you through our operating and financial performance for the quarter, I would like to remind you that during this call, we may make forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 in regard to our current plans, beliefs, and expectations.

These statements are not guarantees for 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 for these non-GAAP financial measures to 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.

Also on today's call, we will make reference to pro forma metrics, which adjust for both the Kito Crosby acquisition and the divestiture of the Legacy Columbus McKinnon U.S. power chain hoist and chain operations as if each transaction had been completed prior to the beginning of the prior year period to improve the comparability of results across different periods.

Today's prepared 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, I'll turn the call over to David.

Thank you, Alexandre, and good morning, everyone. In Q2, we continued building on our strong start to fiscal 2027, advancing progress with the integration of Kito Crosby and unlocking synergies while driving organic revenue growth and delivering margin improvement.

I am pleased with the progress we are making as our people, processes, and systems are coming together to enhance value and execute day in and day out for our customers through our scaled and better positioned business and product portfolio.

Turning to the quarter's results. Orders exceeded $560 million for the second consecutive quarter, growing 13% on a pro forma basis, demonstrating the market's resilient demand for our intelligent motion solutions and providing visibility into future sales growth.

In the period, pro forma sales grew 7% with growth across all geographies and at both Legacy CMCO and Kito Crosby. This robust revenue growth is enabled by our scaled platform, enhanced customer value proposition, and business initiatives, which are unlocking market share gains in targeted growth areas. This growth is also supported by ongoing commercial initiatives and early revenue synergy wins.

The team continues to make disciplined progress advancing our strategic priorities of operational excellence, commercial effectiveness, and customer experience, strengthening our foundation for sustainable growth.

Our broad-based demand strength is benefiting from diversified end market exposure with continued growth in targeted verticals, including energy, defense, mobility, e-commerce, and general industrial. We are also experiencing tailwinds from data center build-outs, which drive direct demand for lifting securement hardware and permanently installed lifting solutions while also driving meaningful upstream demand for the production of data center-related equipment that also requires our solutions.

Volumes are building in the Americas and Asia Pacific, while EMEA has been a bit softer, consistent with what we're seeing in PMI and industrial production data. Inflationary pressures have been persistent, but our supply chain remains resilient, and we are not experiencing any noteworthy changes in our sourcing of raw materials and components.

We continue to lean on our pricing discipline to strategically realize price to offset inflation, giving us confidence in our ability to manage price/cost headwinds. Additionally, we see opportunities to improve our cost position and drive further improvements in core productivity.

Adjusted EBITDA was $111 million in the quarter and increased 177% year-over-year. Adjusted EBITDA margin was 20.6%. These results were stronger than anticipated with sustained strength in the Americas and better-than-expected demand in both Asia and EMEA. Demand resilience was complemented by factors that are within our control and areas where we continue to improve, including strong operational execution, a focus on improving customer experience, and commercial initiatives that are leading to expanding market share.

And since closing the Kito Crosby acquisition, the feedback we are receiving from our customers has been quite positive.

I am pleased with the results we have delivered in the first half of the year, and I am proud of how our teams are coming together across the combined business. This early-stage post-acquisition success gives you a glimpse of the power we are unlocking within CMCO and strengthens our foundation for sustainable, profitable growth in the years ahead.

Our confidence in our shareholder value creation potential continues to grow as we drive organic growth, expand margins, deliver increasing free cash flow, and delever the balance sheet.

On the integration front, we continue to make meaningful progress with agile execution and strong collaboration across the combined organization. Our teams have come together as one to support a common mission of providing innovative intelligent motion solutions to our customers with unmatched safety, quality, and reliability. While we just completed our second full quarter as a combined organization, we are moving swiftly to deliver meaningful synergies and our initial integration priorities are firmly underway.

We expect to meet or exceed our targeted net cost synergies. And increasingly, we are sharpening our focus on the longer-term enablers and initiatives that will unlock the full potential of the combined business.

We are also advancing revenue synergy opportunities that we expect will be meaningful over time. While these items will take time to develop as we align sales force training, channel partnerships, and supply chain optimization, we are seeing early traction from both expanding market share and leveraging our broadened product portfolio across our combined channel reach with key customers.

Overall, we are advancing integration plans and building momentum to deliver sustained organic growth, capture synergies, expand profitability, generate cash, and reduce debt, unlocking substantial long-term value for all stakeholders.

Thanks to the good work our more than 7,000 global team members are doing on behalf of our global business, we are increasing our full year guidance across net sales, Adjusted EBITDA, and Adjusted EPS. John will walk you through those details and provide more context regarding our financial performance shortly.

Before handing the call over to John, I'd like to share an example of how our team is engaging outside of their normal work responsibilities to advance Columbus McKinnon's vision of moving the world forward for a safer, more productive tomorrow.

Last month, 10 of our global CMCO teammates traveled to Rwanda's Nyaruguru district where they work with FICA, a nonprofit organization dedicated to safe, reliable rural transport access to support the construction of a suspended trail bridge. This bridge will now provide for safer year-round access to health care, schools, and economic opportunities for more than 6,700 people in nearby communities.

We are proud that we were able to partner with FICA to support this construction initiative through both our on-site employee volunteer team and with an assortment of hoists and lifting hardware that enabled the construction of the new suspension bridge.

On behalf of our entire organization, I'd like to extend an enormous thank you to all involved in this meaningful initiative.

With that, I'll turn the call over to John to walk us through our second quarter results.

Thank you, David, and good morning, everyone. Through my first 4 months with the organization, I visited multiple facilities, engaged with our teams worldwide, and met many of our equity and debt holders and research analysts.

It is clear to me that CMCO is well positioned to capitalize on megatrends driving demand, deliver organic growth through commercial initiatives, and improve margins through synergy realization and operational improvements. We expect this to lead to outsized free cash flow generation and debt reduction, which will in turn unlock shareholder value.

Our second quarter results represent just the second full quarter since closing the combination with Kito Crosby. These results show early traction on our strategic priorities with stronger-than-expected Q2 results as we capitalized on broad-based demand for our expanded product portfolio of intelligent motion solutions and reflected disciplined operational and commercial execution. Orders of $562.6 million increased $308.9 million or 122% from the prior year, largely driven by the benefit of the Kito Crosby acquisition.

Normalizing for the acquisition and the divestiture, pro forma orders growth was approximately 13%, with continued strength in the Americas and a significant contribution from EMEA, including an approximately $23 million order tied to an energy customer in Saudi Arabia. Excluding this order, the majority of which we expect to convert to revenue in FY '28, EMEA orders were up high single digits.

In APAC, our forward-looking pipeline remains healthy, but second quarter orders declined moderately on a pro forma basis following the pull forward of orders in Q1 linked to their July price increase.

Backlog of $556.2 million increased 2% sequentially, reflecting strong order intake and resulting in a 1.0x book-to-bill in the quarter. Current quarter backlog, which typically represents approximately half of the following quarter's revenue, was $264.9 million at quarter end. We delivered net sales of $539.3 million, which increased $278.2 million or 107% from the prior year, driven by the acquisition of Kito Crosby, volume, and pricing, partially offset by the divestiture and unfavorable currency translation.

Sales growth was broad-based and positive across the Americas, EMEA, and APAC, reflecting mid-single-digit growth in the Legacy CMCO portfolio and high single-digit growth in the legacy Kito Crosby portfolio.

Normalizing for both the acquisition and divestiture, pro forma sales growth was approximately 6.6%, which we estimate was comprised of approximately 4 points of price and 3 points of volume, partially offset by unfavorable foreign exchange.

Sales growth was strongest in APAC, reflecting the impact of recent pricing, broadened product portfolio, and the accelerated timing of a project delivery. The Americas continues to show strength in both short-cycle and project businesses with sales growth through pricing and execution against our commercial initiatives of expanding the reach of our newly combined product portfolio.

Importantly, EMEA delivered modestly positive revenue growth on a pro forma basis, which was an improvement as compared to our expectations going into Q2 as industrial activity showed signs of returning led by investments in infrastructure, energy, and defense.

Overall, demand driving Q2 sales was both broad-based and resilient. On a consolidated pro forma basis, project-related sales increased double digits and short-cycle sales increased mid-single digits with benefits from both pricing and volume growth from a favorable demand environment.

Gross profit of $187.9 million increased $97.7 million or 108% versus the prior year on a GAAP basis, reflecting the Kito Crosby acquisition, pricing, and volume, partially offset by the impact of the divestiture and material cost and diesel inflation in COGS.

On a GAAP basis, our gross margin was 34.8%, while on an adjusted basis, our gross margin was 36.5%, an improvement of 120 basis points year-over-year, primarily due to favorable price versus cost and the accretion of the Kito Crosby acquisition. Adjusted gross margins also improved sequentially when normalizing Q1 to exclude the net benefit of IEEPA tariff refunds.

[ RSG&A ] expenses increased $51.9 million to $122.2 million on a GAAP basis due to the addition of Kito Crosby, integration costs, and increased incentive compensation expense, partially offset by cost saving synergies. Adjusted RSG&A, which excludes acquisition integration costs and other nonrecurring expenses, increased by $51.9 million to $111.1 million. This is where we are seeing the majority of scale benefits from the acquisition and cost synergy realization.

Adjusted EBITDA of $111.2 million increased $71.0 million or 177% with an Adjusted EBITDA margin of 20.6%. Adjusted EBITDA margin expanded 520 basis points year-over-year, reflecting accretion from the Kito Crosby acquisition, prudent cost management, and synergy realization. When normalizing for the impact of the Kito Crosby acquisition and divestiture in the prior period, Q2 Adjusted EBITDA grew approximately 14% and Adjusted EBITDA margins expanded approximately 130 basis points on a pro forma basis.

We continue to believe that based on actions taken thus far, we are well positioned to meet or exceed our net cost synergy target.

Net loss attributable to the company in the quarter was $25.5 million or $0.76 per share on a GAAP basis. Adjusted net income was $31.1 million or $0.61 a share, down $0.01 versus the prior year, primarily driven by operating profit increases, offset by higher interest expense and a higher share count due to the inclusion of the common shares issuable upon the conversion of the preferred shares.

Year-to-date, we delivered $4.6 million of free cash flow, an improvement from the prior year, reflecting our higher operating profits, partially offset by higher cash interest, higher cash taxes, and a higher use of working capital to support strong year-to-date sales growth. We expect this working capital investment to convert to improved cash generation in the second half of this fiscal year.

In the quarter, we opportunistically repriced our senior credit facilities, reducing the effective interest rate on both our Term Loan B and revolving credit facility, lowering the applicable margin spread on both by 50 basis points. On an annualized basis, we expect this to result in savings of more than $7 million.

As a reminder, our long-term debt structure is comprised of a $1.4 billion Term Loan B and $900 million of senior secured notes. The Term Loan B after the repricing bears interest at SOFR plus 300 basis points. We have hedges in place on approximately $1 billion of this $1.4 billion fixing SOFR at approximately 3.7% with laddered maturities through fiscal 2031.

The Term Loan B has no prepayment penalty for optional redemptions. The senior secured notes bear interest at 7.125% payable semiannually. This debt structure, along with our recent repricing, positions us well to navigate the current environment of higher interest rates.

Our liquidity position remains healthy at $532 million, consisting of $110.9 million of cash and cash equivalents and $421.1 million of availability on our revolving credit facility.

Given our strong Q2 results and increasing confidence in the year, we are raising our outlook for fiscal 2027. This updated full year outlook reflects strong orders and financial performance in the first half and increased confidence and traction on our strategic priorities.

The revised outlook takes into account the timing of our current backlog, increased interest rates, and updated foreign exchange rates. Our guidance also incorporates confidence that in the second half of the fiscal year, we will sustain the strong Adjusted EBITDA margin performance from the first half when normalizing the first half to exclude the net benefits of the IEEPA tariff refunds from Q1.

Our increased outlook for fiscal 2027 is net sales of $2.13 billion to $2.17 billion, Adjusted EBITDA of $425 million to $440 million, and Adjusted EPS of $2 to $2.15 a share. Additionally, we have updated our guidance assumptions, which incorporates some adjustments to our acquisition purchase price accounting, which was finalized in the quarter.

These assumptions include interest expense of $185 million to $190 million, amortization expense of $130 million to $135 million, depreciation expense of $80 million to $85 million, capital expenditures of $45 million to $55 million, and normalized effective tax rate as used in the calculation of Adjusted EPS of 25%, and adjusted diluted shares outstanding of 52 million, reflecting our expectation to PIK the preferred share dividend in fiscal 2027.

Our first half results give me increasing confidence in not only our integration of the Kito Crosby acquisition and synergy realization, but also that our scaled enhanced customer value proposition is delivering value across intelligent motion solutions. We are making meaningful progress through our strategic priorities of operational execution, improved customer experience, and expanding market share.

I am confident that our strategy will unlock multiple avenues of organic growth, improve our margin profile, and generate significant free cash flow to fund debt reduction.

Operator, we are now ready to take questions.

[Operator Instructions] Our first question comes from James Kirby with JPMorgan Chase.

Can you hear me all right?

Yes, we can hear you John -- James. Sorry.

No problem. I appreciate the commentary there. Maybe just starting, I'm trying to square the commentary from last quarter that this quarter would be the low point in EBITDA and sales. And you cited some onetime benefits last quarter. Just wondering look ahead if the margin cadence you described last quarter is still intact? And maybe if you can parse through the buckets of onetime benefits versus kind of sustainable durable pricing power.

Yes, James, let me start and ask John to jump in. So when we entered the quarter, we had a performance in Q1 that included the benefits of onetime IEEPA tariff refunds that we knew came into that quarter. We also looked at the backlog that we had and how it phased and anticipated that Q2 would be a low point for the year, as you indicated and we were indicating at the time.

As the quarter progressed and demand patterns evolved, we had robust demand from a short-cycle perspective. We're able to execute ahead of plan in a number of key areas, and we actually had the accelerated delivery of some project activity, both in Asia and in Europe.

And so the combination of those opportunities projected or continued demand and our ability to execute was what resulted in us being able to overdeliver in the period. We also continue to make really good progress with our synergy initiatives and the integration of the 2 businesses, which was terrific.

And the combination of those factors resulted in us delivering a performance that was outsized related to expectations that we previously talked about. As you know, we raised price in Q1, our Q1, in addition to some price increases that went into effect in the prior fiscal year that had carryover benefits.

We're starting to see the benefits of those come through as well. And as John indicated in the quarter, we believe that pricing was about 4% of the growth and volume was about 3% of the growth.

I'll pause there and ask John to continue if there's something you wanted to add.

Yes. Thanks, David. I would say there wasn't anything to call out of any magnitude in Q2 that sort of significantly skewed margins. We didn't have any material IEEPA tariff refunds in Q2 like we did in Q1.

So I think it's just, we overperformed as the quarter progressed. We had a very strong September of sales throughput and that has some nice operating leverage on it, and that allowed a nice margin for us in the quarter, and we're really pleased with how that panned out.

And so as I tried to indicate in the prepared remarks, if you just take, to simplify things, if you take the first half of the year, pull out the net benefit of IEEPA tariff refunds, you're at sort of a little high 19.7% EBITDA margin, something in that ballpark. And if you look at our implied second half of the year and our outlook that we just gave, we're implying that the second half is going to look similar to that.

And so I think we're trying to signal that we're sustaining that strong margin performance, and there'll be quarter-to-quarter fluctuations in where margins land depending on the mix, but we're really pleased with sort of how things are coming together from a margin and synergy perspective.

Yes. And James, you recall on a pro forma basis, we ended last year at 18.5% pro forma EBITDA margins. And so this is a nice progression from that point.

Right. That sounds great. Maybe, David, second question. You talked about the revenue synergies in the prepared remarks. I know probably not ready to give or provide a flavor of kind of the size of opportunity there. But just on the market share you're seeing or potential market share gains, maybe just any more color you can share there in terms of region or product that you're seeing potential for market share for maybe the top line synergies you talked about?

Yes. I mean I think we're seeing it across the organization on a global basis. We're seeing opportunities to sell our products that are Legacy CMCO products into the Kito Crosby channels. We're seeing the same opportunities to sell Kito Crosby products into the Legacy CMCO channels.

Our combined organization presents a more valuable combined offering to the market, which is creating opportunities for us to continue to grow and position ourselves well with customers.

As I said in the prepared remarks, the feedback that we've been receiving from our customers post acquisition and the way that we've been responding both with our actions in the business as well as in the way that we've been responsive to customer needs has received really favorable responses from customers.

And we believe that the combined portfolio, the extended reach, and our focus on improved execution, improving on-time delivery, and customer experience is leading to the opportunity for us to grow the business and gain some share.

And so we're seeing opportunities that we've realized in all geographies. Perhaps if it were weighted slightly, it might be more weighted towards the Americas and the initial phases of this, just simply given our concentration and more fulsome position in that market.

Our next question will be from Matt Summerville with D.A. Davidson.

Can you talk a little bit about how we should expect free cash flow to cadence out for the balance of the year? You mentioned some potential tailwinds from working capital.

And then can you maybe also to the last question, talk about how much revenue and EBITDA may have ultimately been pulled forward, if that's the right way to think about that project acceleration you mentioned in Asia and Europe?

Thanks, Matt. Yes. So from a cash flow standpoint, if you think about sort of year-to-date, some of the bigger buckets that we've had, we've got $90 million of cash interest expense year-to-date, $26 million of cash taxes year-to-date. We've called out the $24 million of cash deal costs year-to-date and then CapEx was sort of $16 million.

I think we've given guidance on sort of most of those elements for the full year. So the one outlier in that is that our working capital has definitely been a use of cash year-to-date.

Some of that is just our sales, on a pro forma basis, our sales are up about 8%. If you kind of look at the blend of Q1 and Q2. Ballpark, that's $80 million of sort of pro forma sales increase. And typically, our working capital runs about 30% of sales. So we've got some use of cash there of 30% of that $80 million of sales increase that is tied up on the balance sheet right now.

So in summary, we would expect the second half of the year certainly to see some unlock on that working capital of converting the AR and particularly the inventory into cash flow in the back half of the year and that use of cash would flip back to at least neutral, if not positive for the full year is kind of how we're thinking about cash flow generation.

So we certainly, the cash flow generation is significantly weighted in the second half.

I'll pause there in case, or I can go to your second question on sort of the second quarter.

Yes, the second quarter is great.

Yes. On the second quarter, I wouldn't, we did call out 1 project in APAC. It was around $5 million that did get pulled forward based off of sort of customer needs, and that was a very high-margin project. And so it was enough to sort of skew our original outcome a bit in terms of some of the drivers from our original talking points for Q2.

Outside of that, I wouldn't cite any significant sort of pull-in type of activity that took place from a sales standpoint in Q2. It's just sort of normal course.

But just overall, we saw strong orders and that translated into strong sales in the quarter. And certainly, as I indicated, it got better as the quarter progressed, and we exited the quarter with just a really nice September.

Our lifting hardware business in the U.S. was particularly strong, which was in that short cycle, which we have less visibility to when we give comments at the beginning of the quarter, and that business really progressed well as the quarter progressed into Q2.

And then just as a quick follow-up, can you be a little bit more specific around where you were from a price/cost spread standpoint in Q2 and how we should be thinking about that spread in Q3 and Q4?

So we called out, on a pro forma basis, we called out the 4 points of price for the combined business. We're not in a position to sort of quantify the specifics of the price cost, but it was favorable. We did see inflation in both material costs as well as diesel. So it's not like all that price is dropping to the bottom line.

But as of right now, just given where we stand with sort of integration and analytics, I'm not in a position to sort of quantify the exact price/cost benefit in this context. But as we go through the back half of the year, we expect that price/cost relationship to remain favorable.

We're always going to be on our front foot, I should say, in terms of looking at other areas of inflation that might be of concern so that we can make further adjustments to pricing as needed. But based off where we sit today, we feel like we'll be able to maintain that favorable price cost in the second half.

Our next question will be from Jon Tanwanteng with CJS.

And congrats on a nice quarter. I was wondering if you could go a little bit more into the detail on the end demand and the drivers of outperformance, particularly in EMEA and Europe. As you mentioned data centers has been stronger in North America. There was an energy project in Asia that pulled forward. But what are the countries and the actual applications that are driving the stronger-than-expected demand that you're seeing in those regions?

Yes. Thanks, Jon. I would say that it's been largely energy, general industrial demand. And as we called out, we did see some increased demand in defense. And so from my perspective, those would be 3 primary drivers outside of normal economic activity that sort of showed up a little bit better for us in the period in Europe.

And we continue to execute in that region on a number of key initiatives from cross-selling to market reach. We did call out the very specific project in energy that we got with Saudi Arabia, as John highlighted. The markets for the mobility market are percolating.

There's a lot of really interesting activity in our rail business, notably that was in the funnel. But in the quarter, it would primarily be energy, general industrial, and I'd say defense outside of the normal level of activity.

Got it. And then just to clarify on the last quarter, you had highlighted that there would be some maybe headwinds getting things into the Middle East. Has that bottleneck been cleared and you can ship there now? Or is that still in place?

Yes. I mean it remains challenging, but we've found ways to navigate. And so while routes to delivering into that market have evolved and the time to deliver might be a little bit longer, we're finding ways to execute and get our product to our customers, but it's not in the same and as efficient a way as we had previously been able to.

Understood. And then just a quick one for John. It looks like you took down your CapEx by a little bit. Was something pushed out? Or did you get more efficient as something else happened? Just wondering what's going on there.

No, nothing pushed out. We've just underspent sort of our original budget so far year-to-date with other focuses on integration activities. And so it's just a push out. There's no signaling there in terms of anything else just lowering our expectations slightly.

Yes, just timing.

Our last question will be from Steve Ferazani with Sidoti.

Appreciate all the commentary this morning. Just wanted to touch on sort of longer term where you are on the leverage journey. It sounds like I wouldn't have expected you to make progress in the first 2 quarters. It sounds like you made a little bit. I think, John, you mentioned the expectation of a reversal of working capital, the typical second half.

Can you walk us through where you think you are? And can you provide us any thoughts on the cadence of how you're going to get there in the next 18 months?

Thanks, Steve. We continue to have confidence in hitting the 4x by the end of FY '28. Based off of how we are reporting our leverage in these calls, we are taking into account the run rate of the synergies of the $70 million synergies in these ratio numbers that we're giving.

So that would imply in order for us to achieve the 4x by FY '28, we need to grow the core business EBITDA as well as generate free cash flow fairly significantly. And as I just indicated, we do expect some free cash flow generation in the second half of the year just from unlocking the temporary working capital investment from the sales growth.

And as we move into next year, I continue to see significant opportunities just to improve underlying working capital metrics themselves. So if you look at inventory turns and DSO and DPO, we absolutely see opportunity to move the needle on those metrics.

And today, we're at about 2.5x inventory turns. And if we could get back to 3x, for example, that would be a significant unlock in terms of free cash flow and a step change in generation. So I'd say that is a big area of focus over the next 18 months is that discipline around the balance sheet and cash flow and making sure that we see that come through and the whole organization is centered around making sure that we generate cash flow and delever.

And then back on the core business, while we're not yet giving outlook for FY '28 here, we'll certainly do that in the coming quarters. But in order for us to achieve the 4x, it's not just going to be a free cash flow story. There's got to be some core business EBITDA generation. And given how orders are trending this year, we've posted a couple of good quarters of orders.

Some of that's already feeding FY '28, and we have the visibility of the synergies that we're achieving that we know we're going to get the carryforward of in FY '28. That's what gives us confidence to sort of say that EBITDA is going to continue to improve into FY '28.

So the combination of those 2 things is what gives us the visibility to say that 4x by the end of FY '28 is still what's the focus area and confidence in what we hope to achieve.

Now that we're a couple of quarters in, have you started to more fully explore what the opportunities to expand with Kito Crosby are in terms of cross-selling and other initiatives that could be a driver to growth and margin in '28, '29? And if I can just sort of add on how you think the macro needs to hold up to get to your targets by the end of next year?

Yes. We have, Steve, we've been working on that since pre-acquisition and have been really deep into it since we've closed the deal. There are a lot of cross-selling opportunities geography by geography. We're doing work on sales training and development. We're doing work on channel development.

We're looking at our supply chains and the availability of product and materials in regions. We have identified a list of initiatives basically region by region, which is how we're executing within the business today and are delivering on those in large part in the early innings. They build over time.

We haven't given a guidance number, but we do believe that there is upside potential from revenue synergies that have not been factored into our forward guide and in our synergy number overall that we've been communicating, which is more of a net cost synergy savings target.

So we're really pleased with the progress we're making, I feel good about the way the early developments have unfolded. And we're not counting on a lot different in terms of the market dynamics. We know that there have been positive drivers, megatrends that we do think will continue, but we're not counting on something that's materially different going into '28 and '29 to support the trajectory that we have, more of a sustained level of activity at current levels to support what we're trying to achieve in the out periods.

Thank you, Steve. That concludes the Q&A section of the earnings call. I would now turn the call back over to Mr. Wilson for closing remarks.

Thank you, Anas, and thank you to everyone for joining us this morning. We're pleased with the strong start to the year and our progress that we are making across the combined organization.

We have significant opportunities ahead of us, and our confidence continues to grow in our ability to drive sustainable organic growth, expand margins, generate strong free cash flow, and reduce debt.

Most importantly, I want to thank our more than 7,000 team members around the world for their continued focus on our customers and strong execution.

We look forward to updating you on our progress next quarter. Thank you very much for joining us today.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Thank you. Good morning, ladies and gentlemen, and welcome to the Columbus McKinnon First Quarter 2027 Earnings Teleconference and Webcast. [Operator Instructions] I would now like to turn the conference call over to Kristy Moser, VP, Investor Relations and Treasurer. Please go ahead.

Thank you, and welcome everyone to our call. On today's call, we will be covering our first quarter fiscal 2027 financial and operational results. On the call with me today are David Wilson, our President and Chief Executive Officer, and John Linker, our Chief Financial Officer. Welcome, John. In a moment, John and David will walk you through our financial and operating performance for the quarter.

The earnings release and presentation 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 for 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 like to remind you that management will refer to certain non-GAAP financial measures. You can find reconciliations to 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.

Also on today's call, we will make references to pro forma metrics, which adjust for both the Kito Crosby acquisition and the divestiture of the legacy Columbus McKinnon U.S. power chain hoist and chain operations, as if each transaction had been completed prior to the beginning of the prior year period, to improve the comparability of results across time spans. Today's prepared 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, I'll turn the call over to David.

Thank you, Kristy, and good morning, everyone. We are off to a strong start in fiscal 2027. Q1 was our first full quarter operating as a combined company following the Kito Crosby acquisition, and the team delivered a solid performance across orders, sales, profitability, and cash flow. Pro forma sales grew 10%, with broad-based growth across all platforms. We continue to advance our strategic priorities, operational excellence, commercial effectiveness, and customer experience, and these initiatives are improving our competitiveness and strengthening our foundation for sustainable growth.

Volumes are building in the Americas and Asia Pacific, while EMEA remains softer in the near term, consistent with what we're seeing in PMI and industrial production data. Our market exposure is diversified, and we're seeing particular strength in targeted verticals including defense, infrastructure, energy, e-commerce, data center, shipbuilding, electrification, and pharma, as well as the broader automation and general industrial markets in North America.

We are also seeing increased activity in oil and gas, some of which is related to the conflict in the Middle East. Automotive demand has been spotty, and general industrial demand in pockets of EMEA remains soft, as previously shared. Our scaled platform, enhanced customer value proposition, and business initiatives are driving market share gains in targeted segments. This growth is also supported by ongoing commercial initiatives and early revenue synergy wins.

We continue to see elevated input costs given the macroeconomic and supply chain environment. Even so, our supply chain has remained resilient, and we've been effective in implementing pricing actions to offset unavoidable inflationary pressure. Over the long term, we've demonstrated consistent pricing discipline, and we remain confident in our ability to secure price where required.

Adjusted EBITDA of $111 million increased 242% with an adjusted EBITDA margin of 21%. When normalizing for the impacts of the acquisition and divestiture in the prior year period, adjusted EBITDA margins expanded approximately 300 basis points. Adjusted EPS grew $0.11 to $0.61 from the prior year period on an as-reported basis. And we delivered positive Q1 free cash flow for the first time in six years versus what has been a typical seasonal cash outflow, enabling us to reduce debt in the quarter, our top capital allocation priority.

These results exceeded our expectations driven by strong execution, favorable demand dynamics, and some cost benefits specific to the quarter. I want to thank our more than 7,000 global team members for their dedication and disciplined execution throughout the quarter. Given our strong start to the year, today we are raising our sales, adjusted EBITDA, and adjusted EPS outlooks for fiscal 2027.

We will talk you through those details shortly. Overall, we're pleased with the quarter and with how the team has remained nimble in the face of unique business conditions. We also remain encouraged by the opportunities in this market and focused on delivering to our near-term commitments while positioning the company for long-term success. Underlying demand signals, particularly in the U.S., support the durability of our momentum. Strong order growth and a healthy backlog position us well. However, our outlook continues to reflect a level of uncertainty given the environment in EMEA.

On the integration front, we are making meaningful progress, bringing our teams together and aligning people, processes, and systems. Although we are still early in the journey, the combined organization is operating effectively as one team, and we are moving quickly to capture synergies.

We have executed initiatives that should position us to outperform our synergy target for the year, and these early wins reinforce our conviction for achieving, and potentially exceeding, our $70 million net annual run rate cost synergy target over time. First-year cost synergies will be weighted towards SG&A, driven by organizational realignment, the removal of redundancies, the elimination of duplicate third-party spend, and contract harmonization. As previously shared, we also see significant potential for future cost of goods sold synergies.

We are advancing plans to capture revenue synergies, and early wins give us confidence that this will be additive to organic growth. Fully realizing the opportunity will take time as we align resources and integrate technology and sales processes, but we continue to believe revenue synergies will be a meaningful tailwind over time. We are demonstrating our ability to execute effectively, and our value creation opportunities remain largely within our control. We are advancing our integration plans and building momentum to deliver sustained organic growth, capture synergies, generate cash, and reduce debt, unlocking substantial long-term value for all stakeholders.

Now I'm pleased to introduce you to our new Chief Financial Officer, John Linker, who joined the company earlier this month. John is a proven leader with extensive financial leadership experience, expertise in global industrial manufacturing environments, and a consistent track record of delivering impactful results with a focus on profitable growth, operational performance, and successful integrations. Since joining a few weeks ago, John quickly immersed himself in our business and began contributing meaningfully. We're excited to have John on board as we continue executing our value creation strategy on behalf of our shareholders, customers, and employees. With that, I'll turn the call over to John to walk us through our first quarter results.

Thank you, David, and good morning, everyone. Before we get into our results, I'd like to take a moment to share some initial observations. I'm thrilled to join the company as Chief Financial Officer, and I'm pleased to be participating in my first earnings call at Columbus McKinnon. Over the last several weeks, I've had the opportunity to meet with our leaders and board, engage with employees across the organization, spend time in our manufacturing facilities, and gain a deeper understanding of our strategy and culture.

What has impressed me the most is the strength of our platform, our talented and engaged people, and an unrelenting focus on our customers that is visible throughout the organization. While I'm still very early in my tenure, my initial observations reinforced my confidence in the company's existing strategy, disciplined operating approach, and long-term value creation potential. The fundamentals of the business are strong, and I believe we are well positioned to execute on our priorities and deliver sustainable growth, margin expansion, and free cash flow generation.

Our capital allocation priorities remain unchanged, with a near-term focus on debt reduction and deleveraging. I look forward to engaging with many of you in the investment community in the coming months and building strong relationships over time. Returning to the quarter, we delivered strong Q1 results reflecting disciplined execution. Results reflect the first full quarter following the close of the Kito Crosby acquisition on February 3rd and the divestiture of our U.S. power chain hoist and chain operations on March 4th.

As I talk about our results and outlook today, I will touch on the impact of the acquisition as well as the performance of our legacy business. Please note that as we further integrate and realize synergies, we'll be focused on maximizing the performance of the consolidated business, and as a result, comparability of the legacy companies will become less relevant. Orders of $568.1 million increased $309.6 million, or 120% from the prior year, largely driven by the benefit of the Kito Crosby acquisition. Normalizing for the acquisition and divestiture, pro forma orders growth was approximately 9% and was broad-based across platforms, with particular strength in the Americas as well as in APAC.

EMEA orders declined year-over-year due to geopolitical and macroeconomic uncertainty, as well as a tough comp from strong orders in EMEA's rail business in the prior year. On the legacy CMCO side, U.S. orders grew in the low-teens, driven by strength in automation and short cycle lifting products. Backlog grew 4% sequentially due to strong orders with a book-to-bill of 1.1 in the first quarter. We delivered net sales of $531.5 million, which increased $295.5 million, or 125% from the prior year, driven by the acquisition of Kito Crosby, volume, pricing, and favorable currency translation, partially offset by the divestiture.

Growth was broad-based, with high single-digit percentage growth in the legacy Kito Crosby portfolio, and low-teens growth in the legacy CMCO portfolio. Normalizing for both the acquisition and divestiture, pro forma sales growth was 10%. Sales growth was strongest in the Americas with growth in both volume and pricing. EMEA grew sales as we executed on our backlog and took advantage of temporarily opened shipping lanes in the Middle East at the end of the quarter.

On a pro forma basis, project-related sales increased 12% and short cycle sales increased 9%, with benefits from both pricing and volume growth from a favorable demand environment. Channel inventory levels are healthy, returning to near normal levels, but remain slightly below historical averages. On the pricing side, the strongest realization was in the Americas through the price increases implemented in fiscal 2026 to offset inflation and tariffs. We've recently taken additional pricing actions across the combined business in multiple regions to offset inflation, and we expect the benefits of pricing to ramp up in the second half of the year.

Gross profit of $146.3 million increased $69 million or 89% versus the prior year on a GAAP basis reflecting the Kito Crosby acquisition, pricing and volume, as well as benefits to material costs specific to the quarter, partially offset by the $55.2 million non-cash inventory step-up expense, the impact of the divestiture, and inflation in COGS. On a GAAP basis, our gross margin was 27.5%, and on an adjusted basis, our gross margin was 38.1%.

Adjusted gross margin, which removes the impact of the inventory step-up and acquisition integration costs, improved 380 basis points year-over-year. Our SG&A expenses increased $64.5 million to $128.6 million on a GAAP basis due to the addition of Kito Crosby, higher integration costs, and increased incentive compensation expense, partially offset by cost-saving synergies. Adjusted SG&A, which excludes acquisition integration costs and other one-time expenses, increased by $57.1 million to $111.9 million.

As a percentage of sales, adjusted SG&A declined 220 basis points to 21.1%, driven by scale benefits from the acquisition and cost synergy realization. Adjusted EBITDA of $111.5 million increased $78.9 million, or 242%, with an adjusted EBITDA margin of 21.0%. Adjusted EBITDA margin expanded 720 basis points year-over-year. Net loss in the quarter was $88.4 million, or $2.05 per share on a GAAP basis.

The loss was primarily due to the non-cash inventory step-up amortization, interest expense, and integration costs. Adjusted net income was $30.5 million, or $0.61 a share, up $0.11 from the prior year primarily driven by operating profit increases already discussed, partially offset by higher interest expense and a higher share count due to the inclusion of common shares issuable upon conversion of the preferred shares. Free cash flow excluding deal costs in the quarter was $32.4 million, up $49.7 million from the prior year, reflecting higher operating profit partially offset by higher cash interest.

Normalizing for the non-cash inventory step-up adjustment, working capital was a use of cash in the quarter, as is typical for us in Q1. However, the use of cash was approximately $20 million better than the first quarter last year. We paid down $18.4 million in debt in the quarter and reduced our credit agreement net leverage ratio by 0.2x to 4.9x. Debt reduction continues to be our priority for capital allocation. Our total liquidity remains strong at $567.1 million, consisting of $98.4 million of cash and cash equivalents and $468.7 million of availability on our revolving credit facility.

Given our strong Q1 results and increasing confidence in the year, we are raising our outlook for fiscal 2027. Our revised guidance also reflects unfavorable foreign exchange movements impacting both sales and adjusted EBITDA, as well as continued near-term demand headwinds in EMEA. Our increased outlook for fiscal 2027 is net sales of $2.09 billion to $2.15 billion, adjusted EBITDA of $405 million to $420 million, and adjusted EPS of $1.90 to $2.10 per share. There have been no changes to our outlook assumptions around interest expense, amortization, depreciation, our normalized effective tax rate, and adjusted diluted share count.

While we don't guide on a quarterly basis, I will call out a few points regarding the shape of the year. First, we do not expect the cost benefits recognized in Q1 to continue through the rest of the year. Additionally, based on our backlog and the phasing of our project orders, we expect Q2 to be the low point for the year in sales and adjusted EBITDA. Following Q2, we expect margins to sequentially improve through the second half of the year as we realize the benefits of synergies, operational efficiencies, and pricing.

I am encouraged by our recent results and progress on our integration, and I believe in our ability to deliver both customer and shareholder value as a scaled provider of intelligent motion solutions. Our strategy will unlock multiple avenues of growth, improve the quality of our services, improve our margin profile, and generate significant free cash flow to fund debt reduction. Operator, we're now ready to take questions.

[Operator Instructions] Your first question is from Matt Summerville from D.A. Davidson.

A couple questions. First, I'm realizing maybe a little bit of sensitivity here, but is there any way to frame up how we should be thinking about these sort of non-recurring or one-time benefits you had in the quarter, either the impact to gross margin, the impact to EBITDA? I would assume none of what you enjoyed in the quarter was contemplated in your guidance. So maybe ultimately the question could be, how much of the guide raised was really driven by those factors and bearing that in mind, it'd be great to get some help as to how gross margins cadence relative to that low-pointing Q2 building through the rest of the year, and then I have a follow-up.

Thanks, Matt. Good morning. This is John speaking. Sure, I'll put some color around the material cost benefits first. And so there were some net benefits that we saw in the quarter. Some of that was indeed [ IEPA ] refunds that came in very late in the quarter, so that was not contemplated or known at the time of our last call. But there's also some other moving pieces in the material cost line this quarter. There were some other puts and takes and reserves. All that did net to a benefit in the quarter.

We're not going to disclose the portion of the benefit related to the tariff refunds as we feel that's commercially sensitive. But what I will say is this, David said in his prepared remarks that the business on a pro forma basis expanded margins about 300 basis points year-over-year, so normalizing for the acquisition and divestiture. And so if you exclude out sort of this benefit we got in Q1, the core business still expanded EBITDA margins by about 100 basis points in the quarter.

So we're calling it about 200 basis points of the 300 was related to this one-time or the benefits specific to the quarter. And as noted, we don't expect any more benefit from that in the rest of the year. In terms of, there were some other pieces of your question there in terms of the cadence of the year. Do you want to comment on the comments?

Good morning, Matt. So, you know, additionally, as we think about the guide and the raise, items driving the guidance raise include the fact that demand has been more encouraging than we originally anticipated when we gave the guidance. We saw really strong short cycle demand through the end of the quarter. We also had the benefit in Q1 of the temporary opening of the Strait of Hormuz, which really helped us to move more product into the Middle East and stepped up our results in the quarter.

Obviously, we want to translate that into our full year view. We are benefiting from improved execution and really for the first time since the closing of the acquisition got to see the benefits of synergy realization coming through in the P&L. That increased visibility gave us increased confidence in the way that we thought about our guide going forward. Real cost benefits that were specific to the quarter weren't anticipated when we originally provided the guidance.

And as we think about Q2 through Q4 and the progression with gross margins, just simply given the backlog and the phasing of the backlog as we think about composition and the period going forward, Q2 will be the low point for the year, and we anticipate that margins will benefit as we go through the balance of the year from synergy improvements, synergy realization, both on the cost of goods line as well as in SG&A.

And again, this year it will be largely an SG&A benefit for the business, then the benefits of pricing actions that we've put in place. And so a combination of those items and improved operational execution should result in a ramp as we go throughout the balance of the year in gross margins with that low point being Q2. Does that answer the question, Matt?

Yes, yes. Yes, that's helpful. Just as a follow-up, maybe just talk a little bit more on how short cycle orders may be cadenced throughout the quarter, what you're seeing in July now that it's essentially in the books, and then how much price benefit we should expect you guys to see this year. Thank you.

Thanks, Matt. Yes, so as far as the progression of short cycle orders, we did see an uptick in short cycle demand as we progressed throughout the quarter. And so demand on the short cycle side of the business was increasing as we went throughout the quarter. We did have some price increases that went into effect towards the end of the quarter, and we think there was some buying ahead of those price increases, which is a very normal phenomenon, nothing that's outside of the normal range when you have a price increase, but that did drive incremental demand in the latter part of the quarter.

On a quarter-to-date basis, we are seeing demand in short cycle business up in the low single digits on a quarter-to-date basis so far this quarter. And then as it relates to pricing and we think about pricing as we go forward through the balance of the year, we would anticipate that, you know, we'll be lapping some price benefits that we were getting last year because we weren't, you know, we're seeing the late stage benefits of those year-over-year increases.

But now that we're lapping those, those increases on a year-over-year basis go away and then, you know, new increases are coming into effect. I would say that we would anticipate that they will progress as we move throughout the year. But, you know, putting a frame around that right now is not something that we're prepared to do. And I would anticipate for the year we'll still see something on the 1% to 2% price increase total.

Understood. Thanks, David.

Thank you. And our next question is from John Tanwanteng from CJS Securities.

Hi, this is Will in for John. Can you quantify or add some more color on the synergy realization you saw in the quarter and if your targets and speed of realization are increasing?

Yes, so we made good progress on a number of fronts, organizational alignment, bringing the teams together, getting really focused on a common set of organizational values and mission and vision, driving cultural alignment. We also had good work that was done in the early stages of contract harmonization and third-party cost savings. We're gaining traction on key initiatives that are maybe a little longer in terms of implementation timeframe, but will have meaningful impacts over time.

And as I said, really for the first time we were able to see, as we're closing our first full quarter together, we're able to really see those benefits get measured in the P&L. And it's one thing to action a synergy, and it's another thing to really see the financial benefits flowing through. And so we're really encouraged by what we're seeing and how things are flowing through.

As I said in my prepared remarks, we anticipate we'll be able to potentially outpace our plans, but we're not increasing our guidance at this point tied to synergy realization. Our current guidance would reflect what we would be prepared to offer in terms of what we'll see from those improved benefits. But certainly, our view of this is increasing in confidence as we think about our multi-year plans and what we'll deliver over time.

I'll just add that in terms of what we saw in the quarter and then as the year progresses, most of these synergies so far are benefiting SG&A. And so you can see that in some of the numbers I referenced in my remarks in terms of the year-over-year percent of sales and so we're seeing some nice benefit on SG&A and then we expect the sort of the COGS-related synergies to pick up steam as the execution continues and benefit later in the year and future years.

That is very helpful. Thank you. And then just one more. You had some push outs last quarter in the precision conveyance business. Did that revenue come in Q1 and what's the expectation going forward?

Right, now the project-related delays that we mentioned at the end of last quarter did not materialize in shipments that we saw coming through in this quarter. And so those projects remain in backlog and are still opportunities for us as we advance throughout this year and into next.

Thank you. And our next question is from James Kirby from JPMorgan.

Hey, good morning guys. Thanks for the time. Just on the free cash flow side, clearly a step up over what the seasonal Q1 is. Can you just maybe talk about the working capital driver there, if that is sustainable maybe if you reconfirm the deleveraging timeline, which was I believe under 4x by the end of year two.

Yes, confirming that, we still feel very good about the deleveraging profile of the business in terms of what we expect to see in the next few quarters and into FY '28. And yes, we continue to stay below 4x in FY '28. In the quarter itself, we did see some, as you're noting, some improved efficiencies on working capital year-over-year. I'd say most of that was on the inventory side. I still see opportunity on the DSO, DPO side. That's more to come as opposed to in the numbers.

I'd say CapEx was maybe a little lighter than our original expectations for the quarter, and that helped the cash flow a bit. And then, obviously, the benefit of some of these material costs that I referenced that benefited the P&L. Some of that did flow through to cash as well, given that there was some refund activity in the past quarter.

Thanks, John. That's helpful. And then just looking at the standalone businesses, it looks like Columbus McKinnon grew low double-digit sales, and Kito from my math grew high single digits. Is that consistent with where you guys saw the businesses operating, you know, let's call it a quarter, two quarters ago when you guys were contemplating kind of synergies here? And is that more macro-driven or is there an operational improvement embedded in where you guys are operating at these levels right now?

Yes. Thanks, James. As you look back at the history of both companies, neither company was growing on a combined basis or an individual basis at those same rates as we look back a couple of quarters or into the last couple of years. I do believe that the combination of our two businesses provides us with opportunities as we're looking at both cross-selling as well as market share opportunities, increasing share of wallet through better customer service, more streamlined approach.

And so I think there is an embedded value that the combination of the two businesses can realize. And I would say that our high degree of focus, as we've talked about in the past, is on customer experience and improving operational performance to support our customer outcomes. And we've remained both focused on our customers from an improvement within our own core operations perspective, but also from a customer-facing resources perspective, doing everything we can to make sure that we're being responsive and being supportive and limiting the disruption on that front.

And I think that that is starting to pay dividends. And we're encouraged by the demand environment that we're in right now, and notably in the Americas and in Asia, with some continued softness in Europe. And we're hopeful that as the Middle East settles out, things will start to improve there and we'll have even more opportunity across the global landscape.

Got it. Thank you.

[Operator Instructions] And your next question is from Steve Ferazani from Sidoti.

Morning, David. Welcome, John. It's a lot of math here I'm trying to work through, David, and that's not my strong point. When I think about the 21% EBITDA margin, and you said you got about 100 basis points specific to the quarter, so that puts it around 20%. If I take the midpoint of your adjusted EBITDA and sales guidance for the year, you're guiding for a full year at 19.5%. But you've talked about the price increases, the synergy realization. Would it be lower full year?

Steve, it's John, I'll jump in. I think your math is pretty good so far. So you're right, I mean, at the midpoint of the guide is 19.5%, and then we were at 21% in Q1, so that would imply the year to go, rest of year is below that. So I think the math at the midpoint is around 18.9% for the rest of the year. There are some moving pieces in there. There's some FX that I mentioned early in the call relative to our last guide that is a headwind. It's order of magnitude about 30 basis points of that we see for each quarter for the rest of the year relative to our last outlook.

I'd say also the EMEA piece that we called out early in the call that the orders were down year-over-year in Q1. And so in Q2, we expect to see some sales softness in EMEA, which has sort of a knock-on effect of deleveraging on margin and unabsorbed overhead there. So you've got a little bit of pressure. And then we, you know, of course, as we mentioned, we got hopefully some pricing upside coming in the back half of the year.

And in general, I'd say we're, we flowed through some of the benefits from the cost from Q1 in the full year guide. We hope that there's upside in all of this. And at this point in the year, we feel like we had a good quarter and we want to wait and see how things progress a little bit, and hopefully there'll be some upside to what we're talking about from a margin standpoint.

Got it. That's helpful. Helpful that you restated your net leverage target. I'm just trying to think about as you've gotten a better handle on the Kito Crosby assets that you've acquired, when you're looking at them now, are there any portion of that that maybe you want to ramp up investments that might drive higher CapEx as a percentage of sales above traditional because you think some of those assets maybe are underinvested or there's improvements you can make?

Yes, it's a good question, Steve. Good morning and in terms of the investment profile, I would say that we still think that we're within our CapEx outlook for the year as we think about our CapEx spend, as we anticipate progression throughout the balance of the year. As John said, we're slightly underspent in the first quarter. And as we think about the balance of the year, we think we're within the guide.

I do think there are productivity improvement opportunities in the portfolio and opportunities continue to expand margins, increase the efficiency of our operations and our execution, particularly as we look at product lines that are specifically targeted for growth. And when I think about the entirety of the portfolio that we have within the Kito Crosby business, there are a few really attractive areas that we see sustainable growth opportunities for.

So the hardware, lifting hardware part of the business is an area where we have two sides to that portfolio, one that's a legacy Columbus McKinnon portfolio and one that is a Kito Crosby portfolio. The synergy value of them operating more seamlessly in alignment and the capacity opportunities and automation opportunities around that business could be areas where we may want to put some CapEx and drive productivity.

Great. Thanks, David. Thanks, John.

Thank you. That concludes our question and answer session for today. I will now hand the call back over to Mr. Wilson for the closing remarks.

Thank you, Jenny, and we appreciate everyone joining us today. We delivered a solid first quarter and are pleased with the early stage progress as we advance the integration of Columbus McKinnon and Kito Crosby. Our positive start to the year and the traction we were gaining with targeted commercial, operational, and synergy realization initiatives enabled us to raise our full year guidance.

We are making meaningful progress in targeted areas and remain focused on what we can control, unlocking margin expansion through identified growth opportunities and synergy realization, and generating significant cash flow to reduce debt. With improved scale and an enhanced competitive position, we are a stronger business and are more confident than ever in our ability to create value for our customers and shareholders. Thank you again for your time and interest in Columbus McKinnon. As always, please reach out to our investor relations team with any questions.

Thank you. That concludes our question and answer session for today and also a conference call. Thank you all for joining.

Good morning, and welcome to Columbus McKinnon's Fourth Quarter and Full Year Fiscal 2026 Earnings Conference Call. My name is Joanna, and I will be your conference operator today. As a reminder, this call is being recorded. I would now like to turn the conference over to Kristy Moser, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you, and welcome, everyone, to our call. On today's call, we will be covering our full year and fourth quarter fiscal 2026 financial and operational results. As a reminder, our results reflect the completion of the Kito Crosby acquisition closed on February 3, 2026, and the divestiture of Columbus McKinnon's legacy U.S. power chain hoist and chain operations on March 4, 2026.

On the call with me today are David Wilson, our President and Chief Executive Officer; and Greg Rustowicz, our Chief Financial Officer. In a moment, David and Greg will walk you through our financial and operating performance for the quarter.

The earnings release and presentation 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 will have our safe harbor statement on Slide 2. During the course of this call, management may make forward-looking statements in regards to our current plans, beliefs and expectations. These statements are not guarantees of future performance and are subject to a number of risks and uncertainties and other factors that can cause actual results and events to differ materially from the results and events contemplated by these forward-looking statements.

I'd also like to remind you that management will refer to certain non-GAAP financial measures. You can find reconciliations to 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. We will respectfully ask that you limit yourself to 1 question and 1 follow-up question.

With that, I will turn the call over to David.

Thank you, Kristy, and good morning, everyone. Fiscal 26 was a defining year for Columbus McKinnon, one marked by meaningful strategic progress and disciplined execution across our operational, commercial and customer experience priorities. As we move further into the first full year as a combined company with Kito Crosby, we're even more optimistic about the future we are building together.

Before I begin, I want to thank our more than 7,000 global team members. Their dedication and disciplined execution throughout this transformational period enabled us to deliver on several fiscal '26 objectives while advancing 2 highly strategic transactions through closure in the early stages of integration, including synergy realization initiatives that will unlock substantial long-term value for customers and shareholders over time.

Throughout the year, we also expanded our 2-way dialogue with investors around our long-term value-creation priorities, and incorporated insights from those discussions into our governance and strategic decision-making. This increased engagement has made us a stronger organization, more aligned with our shareholder interests.

Our performance this year reflects the completion of both the acquisition and the divestiture in the fourth quarter, a momentum that is building across the enterprise. In fiscal 2016, we delivered 20% order growth, 24% net sales growth and 16% adjusted EBITDA growth year-over-year, demonstrating the early stage value of our strategy and the hard work of our team. These results were supported by continued progress in operational excellence, commercial effectiveness and customer experience initiatives that are improving our competitiveness and strengthening our foundation for sustainable growth.

Although Kito Crosby contributed only 2 months of results in the fiscal year, our combination has already begun to meaningfully enhance performance. Removing the divestiture in both periods, our legacy CMCO business grew net sales 7%, and on a pro forma basis, the newly combined company grew 6% for the full year. We saw strong results across both short-cycle and project-based business with particular strength in short-cycle demand, evidence of effective commercial execution and encouraging market conditions in the Americas.

From a platform perspective, linear motion and automation delivered 25% and 8% sales growth, respectively, reflecting both the recovery in demand and improved operational performance in linear motion following the successful transition of production to Monterrey as part of our footprint simplification strategy.

Lifting also delivered solid growth, supported by the acquisition, favorable foreign exchange and tariff-related price increases.

In EMEA, demand remained more challenged given worsening geopolitical conditions and slowing order conversion despite what remains a healthy pipeline. This was partially offset by FX tailwinds.

As we previously indicated, we delivered 20% order growth in fiscal '26, largely driven by the acquisition. Removing the divestiture, legacy CMCO orders grew across both short-cycle and project-related activity, led by strength in automation and lifting.

In the fourth quarter, orders increased 68%, largely driven by the acquisition and complemented by modest growth in legacy CMCO orders. Order activity in the quarter was affected by macro pressures in EMEA and temporary sales force distractions in the U.S. related to the divestiture. While the divestiture created some short-term headwinds, we believe the realignment has positioned us with the right structure and commercial talent to drive future growth.

Encouragingly, in the first 2 months of fiscal '27, orders are up mid-single digits, supported by a strong pipeline and robust quotation activity. While we remain mindful of broader uncertainties, underlying demand signals, particularly in the U.S., are encouraging.

We enter fiscal '27 with a strong backlog position totaling $520 million, including approximately $320 million in legacy CMCO backlog and an additional $200 million from Kito Crosby.

From a profitability standpoint, the year included several noncash and transaction-related items that Greg will detail shortly. Excluding these impacts, adjusted EBITDA increased 16% year-over-year, driven by the acquisition. Adjusted EBITDA margin declined primarily due to tariff-related impacts in the first 3 quarters and the impact of a challenging global macroeconomic and geopolitical environment.

Importantly, we see a clear path to margin improvement over the course of the coming year, supported by pricing actions, operational execution and synergy realization.

On the integration front, we're off to a strong start. On Day 1, we implemented a unified organizational structure that brings together the strengths, capabilities and cultures of both companies. Our teams are executing with urgency together, capturing synergies, aligning systems and processes and building a cohesive operational model that accelerates value creation. The combination of Kito Crosby and Columbus McKinnon is already enhancing our scale, expanding our global reach, strengthening our ability to deliver differentiated solutions for customers, enabling growth and unlocking synergies. Based on early progress, we remain highly confident in achieving our targeted $70 million in annualized net cost synergies in year 3. We are seeing early wins from realigning the organization along with third-party spend savings, including insurance consolidation and contract harmonization. This progress gives us confidence in our ability to deliver and potentially exceed our synergy commitments over time.

As we look through fiscal '27, we expect to grow sales and deliver margin expansion supported by strong U.S. demand, continued operational improvements and the benefits of our integration and portfolio actions. We also expect to generate healthy cash flow, which we will use to pay down debt and reduce leverage.

While we remain mindful of factors that are outside of our control, we have significant opportunities within our control, notably related to improving operational performance, executing our integration priorities and realizing synergies that give us confidence in our trajectory.

The longer-term value creation potential of Columbus McKinnon is also clear. Global megatrends, including onshoring, scarcity of labor and increased investment in infrastructure, automation and defense are expected to be tailwinds to our growth. In addition, we're entering a period of significant opportunity tied to our business combination with Kito Crosby.

The landscape ahead is rich in value creation potential that is within our control. Our combination enhances scale, expands global reach, strengthens our ability to deliver differentiated solutions to customers, enables growth and unlocks synergies.

Overall, we are encouraged by the progress we are making and believe our transformed portfolio positions us to accelerate growth over time. This is clearly an important moment in time for Columbus McKinnon, and we are steadfastly focused on driving profitable growth, generating cash, accelerating debt reduction, advancing our strategy and delivering compelling returns for our shareholders.

I'll now turn the call over to Greg to take us through our fourth quarter and full year financial results.

Thank you, David. Good morning, everyone. We're pleased to share our first set of results after closing the Kito Crosby acquisition on February 3 and the divestiture of the legacy Columbus McKinnon U.S. power chain hoist and chain operations on March 4. As such, our results for the fourth quarter reflect 2 months of Kito Crosby and exclude financial results for the divestiture for the month of March.

In fiscal 2026, Columbus McKinnon delivered record net sales of $1.2 billion, up 24% year-over-year, driven by organic growth, including positive pricing and volume, favorable foreign exchange movements and the addition of $188 million of revenue from the Kito Crosby acquisition. This was partially offset by a $14 million impact from the divestiture.

For the year, sales grew in both short cycle and project sales, with growth led by our linear motion and automation product platforms. Specific to the fourth quarter, net sales of $438 million increased 77% from the prior year, benefiting from pricing, favorable foreign exchange movements and the Kito Crosby acquisition. This was partially offset by the impact of the divestiture. Encouragingly, short-cycle sales in legacy Columbus McKinnon grew double digits in the quarter.

From a profitability perspective, fourth quarter GAAP gross profit of $103 million increased 29%, driven by the addition of $67 million from the Kito Crosby acquisition. This was partially offset by the impact of a $37 million noncash acquisition-related inventory step-up expense, which will be fully amortized by the end of the current quarter.

In addition, the change in gross profit from the prior year reflects a $7 million impact from the divestiture. On an adjusted basis, in the fourth quarter, gross profit was $143 million and adjusted gross margin was 32.7%. Adjusted gross margin reflects the impact of the Kito Crosby acquisition, the impact of the divestiture, which was dilutive to margins, the impact of unfavorable volume and mix as well as the dilutive effect of tariffs.

RSG&A expense of $134 million increased 98% primarily due to $32 million of incremental deal-related costs, $31 million from the Kito Crosby acquisition and $2 million of higher stock compensation expense. Recall that in the fourth quarter of fiscal 2025, stock compensation expense was unusually low, reflecting the stock price decline that occurred during that period. On an adjusted basis, RSG&A expense was $91 million, an increase of 63%, driven by the Kito Crosby acquisition. Adjusted RSG&A as a percentage of sales improved 180 basis points to 20.7%.

In addition to the items I just covered, we had some additional items that affected GAAP net income and earnings per share. In the fourth quarter, we recorded a $200 million noncash goodwill impairment charge due to the sustained reduction in our stock price over the past year, $24 million in debt extinguishment costs and $27 million of higher interest expense due to the acquisition. These items were partially offset by a $103 million gain on the sale of the divested business. All of this together resulted in a net loss attributable to the company of $238 million on a GAAP basis and adjusted net income of $10.4 million in the fourth quarter.

GAAP loss per common share was $5.78 in the quarter and $7.40 for the full year, including the noncash goodwill impairment, noncash inventory step-up amortization expense, acquisition-related expenses and higher interest expense.

Adjusted EPS was $0.24 in the quarter and $1.87 for the year, reflecting the impacts from the acquisition and divestiture as well as higher interest expense, negative tariff-related impacts and a higher share count due to the inclusion of common shares issuable upon the conversion of the preferred shares owned by CD&R.

Adjusted EBITDA was $69 million, an increase of 93% in the fourth quarter. Adjusted EBITDA margin of 15.7% expanded 130 basis points, driven by the accretive Kito Crosby acquisition and increased leverage on fixed costs as we begin to realize the benefits of scale through our newly combined company.

Year-to-date, net cash used for operating activities was $146 million, which included $205 million of Kito Crosby acquisition-related cash payments and $27 million in divestiture-related tax and transaction cash payments.

Free cash flow, excluding acquisitions and divestiture-related cash costs was $68 million, up $43 million year-over-year, which reflects our strong cash flow generation capability.

Our credit agreement net leverage ratio was 5.1x, and as we have previously stated, our capital allocation priority is debt reduction.

As a larger business post acquisition, we increased our total liquidity by $321 million to $561 million. Our liquidity is comprised of $97 million of cash and cash equivalents and $459 million of capacity from our revolving credit facility as well as $6 million of availability on our AR securitization facility.

Let me wrap up my prepared remarks with our new guidance for fiscal year '27, which reflects the full year impact of both the acquisition and the divestiture. We are excited by the opportunities ahead as we integrate Kito Crosby, deliver on our growth initiatives and synergy realization target of $14 million for fiscal 2027, as shared previously.

Our guidance for fiscal '27 is as follows: net sales of $2.05 billion to $2.12 billion, adjusted EBITDA of $390 million to $410 million, including $14 million of in-year cost synergies related to our integration of the Kito Crosby acquisition, adjusted EPS of $1.70 to $1.90 per share. This guidance assumes $185 million to $190 million of interest expense, $135 million to $140 million of amortization expense, $75 million to $80 million of depreciation expense, an effective tax rate of 25% and 52 million of adjusted diluted shares outstanding, reflecting our expectation to pay in kind the preferred share dividend in fiscal year '27.

In combination with Kito Crosby, and in line with historical seasonality, our business is anticipated to be back half weighted as we realize synergies and accelerate growth initiatives. I'm encouraged by the work our combined teams have already done and believe in our ability to deliver shareholder value as a scaled provider of intelligent motion solutions.

Our strategy will unlock multiple avenues of growth, improve our margin profile and generate significant free cash flow, which will allow us to delever the balance sheet rapidly.

With that, operator, we are ready for questions.

[Operator Instructions] The first question comes from James Kirby with JPMorgan.

First question, just on the sales guidance. I'm kind of trying to back into it on an apples-to-apples basis, I'm getting somewhere around mid-single-digit growth. I'm just wondering what the driver is behind there? Is there a macro assumption driving that? And just to be clear, there was no revenue synergies on that front?

Right. Yes, James, this is David. You're correct. There are no revenue synergies assumed in that number. We do have the divestiture excluded clearly and the acquisition fully added. From a pro forma basis, our guidance range is between 1% and 4% growth. And we're confident that we're in a position to execute and deliver at that level. We do have some assumptions around price to offset some inflationary pressures that are coming in and execution according to the way that we're seeing the markets develop. We see strong demand in the U.S. and short-cycle demand notably has been quite strong in the U.S. However, we're mindful of the uncertainties tied into the markets mostly in Europe and in the Middle East and some of the downstream effects of a prolonged conflict in Iran.

Got it. And you mentioned the Middle East, I know it's a small part of the business, but I'm just trying to gauge the secondary impacts on the business if this does continue, whether it be from higher oil or input cost?

Yes. From an input cost perspective, we're confident in our ability to pass on increased cost that might be tied to inflationary pressures there. I think what we're anticipating is what we've seen so far in the market, and that is that there's just continued delays in larger project decision-making. And although we see healthy pipelines for activity, notably in Europe, the decision-making around awarding projects has been slower to evolve. And our direct business into the Middle East approximates $50 million. And so we see roughly $4 million of exposure from a direct delivery perspective and roughly 50% of that has been challenging in terms of our ability to get that delivered into the market. So there's probably around a $20 million, $24 million kind of run rate impact in terms of just disruption if things were to continue at current rates.

The next question comes from Steve Ferazani with Sidoti.

Wanted to follow up the conversation around guidance. Can you give a sense of how you think this will convert to free cash flow? Any change to your leverage targets?

Yes. So good morning. From a free cash flow perspective, we believe that we're going to be able to generate substantial free cash flow. We're going to be putting the bulk of it to debt repayment. Now we don't give specifically guidance to free cash flow, Steve. But we give you enough of the data with where we expect CapEx, where we expect EBITDA and some of the other changes. And I know, in the past, we've been public about the fact that we do expect to be able to improve working capital levels and that's part of the equation. So in total, we believe we can get to the 4x or inside of 4x net leverage within 2 years. Does that answer your question?

Yes. That's helpful. That's helpful.

And from a -- yes, go ahead.

And David, you were talking about early signs are, and you don't want to say so yet, but that you could even exceed synergy realization targets. Can you talk a little bit about the actions you've completed so far? And what you can do in the first 12 months?

Yes. Actions have been focused on really realignment of the organization and synergies that are realized and tied to that. And then benefits that are tied to third-party spend, where we've been able to harmonize contracts and negotiate better positions in multiple areas across the business. And so we feel like we've gotten off to a good start. We're really confident in the progress that we're making and the plans that we have as we execute through the year. And so we're reiterating our earlier guidance around synergy realization, expect to remain on that track and see an accelerated realization of synergies as we move throughout the year.

Got it. You talked about -- and typically, we've seen this through your history is that you are able to pass through the higher cost, but sometimes there can be a lag. With the current inflationary pressures you're already seeing, are you adding surcharges? Or will it be -- are you more thinking about lagging price increases where we might see some impact in the first half of the fiscal year?

Yes. So we've actually acted on both fronts and would anticipate that those ultimately all convert into price increases.

Any difference first half to second half to what you're thinking if the environment remains challenged?

I would expect that we would see continued margin expansion as we move throughout the year given both the synergy realization actions that we're taking as well as the realization of price. But I would expect that in the first half, there's some notification periods that need to be covered as it relates to price increase communications to tie back to inflationary pressures.

Our next question comes from Matt Summerville with D.A. Davidson.

Greg, in your prepared remarks, you commented on a handful of things that drove adjusted gross margin down to the 32.7%. I was hoping you could maybe parse through the impact of the acquisition, divestiture mix, volume, tariff, all that sort of stuff, if you're able to give a little bit of granularity?

Yes. So I mean, clearly, the acquisition was accretive to our adjusted gross margins roughly a couple of hundred basis points, but we had a negative impact from the divestiture, which was roughly 50 basis points of the reduction. And then when you look at it, excluding though the acquisition and divestiture, essentially, the headwinds were split between some delayed shipments in EMEA related to some backlog that we have for a large customer that is basically reassessing their construction schedule, the macroeconomic conditions there. That was a pretty sizable impact. Tariffs, while we've covered the cost of tariffs, we did have a dilutive impact to tariffs from a margin perspective, which is roughly 50 basis points.

We also had an unfavorable mix impact in the Americas, roughly 75 basis points, and it's kind of a good news, bad news story. We've improved our operations substantially, and we were able to deliver on past due backlog that was at lower prices because of just the fact that tariffs and material inflation had increased substantially over the time frame. These are much longer delivery items. And so that was a higher proportion of our total revenue relative to parts, which has very high margins for us.

And then lastly, it's one that's a little more tricky to explain, but we did feel that we had some distractions with the sales force in the U.S. related to the divestiture in terms of there was a lot going on in the quarter. And it had an impact, I think, on how our team was able to deliver. And looking forward, we're confident we've got the right sales teams. We're happy with the operational footprint that we've got, and we expect to improve gross margins going forward.

So that's a lot there, Matt, but hopefully, that answers a lot of your questions. So the short answer is, it's a bit of an anomaly. We would expect gross margins to normalize going forward.

So to that end, and as you think about RSG&A, how ultimately should we be thinking about adjusted EPS and adjusted EBITDA cadence implied at the $1.80 and $400 million midpoints, respectively?

So from an EBITDA perspective, the range we gave lines up with the EPS numbers that we've given you. So there are some items below that would have to be taken into account, depreciation for example, which you'd have to take out. But remember, we add back amortization into our adjusted EPS calculation so that's a nonfactor. We are going to have higher interest expense. We've given you guidance on what that's expected to be. The share count is changing substantially. It's going to be roughly 52 million shares on a diluted basis when we include the converted number of shares from the pipe. So that's how I would think about it from that perspective.

In terms of gross margin and as a percent of sales, adjusted gross margin, RSG&A as a percent of sales, we don't give guidance anymore on those items. It's really all about the EBITDA margin. And I think at the levels we've given with the sales levels, it's roughly in the 19% or a little over 19% of EBITDA. And as we drive synergies, that number is going to get much larger.

Our last question will be from Jon Tanwanteng with CJS Securities.

My first one is, if you could, just what's the volume versus price expectation and revenue guidance this year? Is it mostly price and kind of flattish volumes or some other mix in there? And then as a second piece of that, what is the underlying expectation of increase in COGS this year due to inflation?

Yes. So on the first part of the question, Jon, it's really -- we said 1% to 4% organic growth. And largely, I would think about it, pricing is probably a little more than half of it given the inflationary environment that we're in. And while we are expecting to drive volume and, once again, as David mentioned, we don't have any revenue synergies baked into our guidance, so that's upside, there is the concerns about Europe. And if the European situation improves, then I think we will certainly be higher in that range or even be extending the range of revenue. But right now, with what we see in the world we're living in, we think we've got an appropriate range. And what was the second part of your question?

What's your expectation for increase in COGS this year from inflation?

Yes. I would say, Jon, that we're seeing significant inflationary pressure across the full landscape. And when you think about what's happening with metals prices, transportation costs, oil derivative components, there're a lot of increases that we have been seeing in the data. And while we negotiate long-term contracts wherever possible to make sure that we can stabilize our cost inputs, we are seeing some pressure there. And I'm anticipating that we're going to see inflation at a rate that probably is at least parallel to what we talked about in terms of price increases in the guidance that we provided and potentially higher, in which case we would be adjusting our pricing in concert with that.

On the upside, Jon, though, with the company essentially doubling in size or more than doubling in size, we are putting, from a spend perspective, together both companies' spend, and we're trying to leverage our vendors with our higher spend to get the best possible pricing in terms we can get.

Yes. And we're finding that we're being effective there in certain spots. And so we're doing a lot of work to offset cost input increases and negotiate, as we talked about, longer term, more stable contracts where possible. So it's a very active area of focus right now, but I think the transparent answer is that we have an expectation that it's going to be probably equal to the midpoint of our guidance or higher. And in terms of the pricing impact, so when we talk about maybe 2% price increase, and then that offsetting cost increases, we'll probably see it at that level or higher from a cost input perspective and then we'll adjust accordingly.

Got it. That's helpful. And as we head into Q1, I mean, you mentioned some headwinds to the margin from Q4, whether that's mix, maybe some of these inflation things. Are we going to see a full run rate of those -- a full quarter of those headwinds? Or do you think some of those reverse out like mix? Just how should we think about the margin progression in Q1?

Yes. I would anticipate that the majority of the items, as Greg alluded to, are transient, and we move past them as we execute through. But I would argue that some of them, given the extended conflict in the Middle East and some of the downstream effects of that on order demand as well as the mix of business that's coming in through the factories, the past due items that are shipping at an accelerated pace as we continue to improve our operational performance, some of that has a tail on it that will continue for a short time. And that's why, as I said earlier, I expect that margins will expand as we move throughout the year.

That concludes the Q&A section of the earnings call. I will now turn the call back over to Mr. Wilson for closing remarks.

Thank you, Joanna, and thank you to all in attendance for joining us today. Last year, we took an important step in becoming a more scaled global provider of intelligent motion solutions for material handling. As we enter fiscal '27, we are a stronger, more strategically focused company, and we believe our transformed portfolio positions us to accelerate growth over time. We are steadfastly focused on delivering profitable growth, generating cash, accelerating debt reduction and delivering compelling returns for our shareholders.

Our team is encouraged by the progress we are making and confident in achieving our integration, synergy capture, growth and long-term shareholder value creation objectives. Thank you again for your time and interest in Columbus McKinnon. As always, please reach out to Kristy with any questions.

This concludes today's conference call. You may now disconnect.

My name is James Kirby. I cover the industrials equities at JPMorgan. We're really happy to have Columbus McKinnon here. We have CEO, Dave Wilson; CFO, Greg Rustowicz; and Alex Eldredge on the IR team. It was at this conference -- I think we were the first conference last year after the announcement. And I think we are now the first conference post close. So excited for that. I think Dave has a few remarks, but we'll hop into Q&A after. And please, if you have any questions, just raise your hand, and Michael will be run over.

Perfect. Thank you, James, for hosting us, and thanks, everybody, for your interest in Columbus McKinnon. Before we get into the Q&A session, I wanted to share a little bit about Columbus McKinnon in terms of opening comments. Obviously, we have a safe harbor statement. And as I think about the company today, it's important to comment on the investment thesis.

We really believe that we're going to deliver outsized revenue growth. We have a portfolio of products that includes faster-growing precision conveyance automation and linear motion products. We also have a core lifting business that's really well positioned, not only with, I think, good megatrends and macro developments that will enable it to grow at GDP plus. But also we have a mix of business with our low ASP lifting securement portfolio that will drive more of a recurring nature of business for our portfolio.

We also have what I think is going to be a really great runway of margin expansion. We are going to deliver $70 million of net cost synergies. We're also coming out of a period where we had headwinds tied to tariffs over the last year. And we're also in a position where fixed cost absorption and other improvements from operational efficiencies should really enable us to unlock further margin expansion.

And then finally, as you think about the cash generation properties of our business and the additional business that we brought into the portfolio with Kito Crosby, we historically drive cash in excess of net income in terms of cash conversion. We expect to expand that via synergy attainment. We also expect to pay down debt on an accelerated basis and expect to exit fiscal '28, which is 2 years from now at a debt-to-EBITDA ratio that is below 4x. And certainly have a longer-term target of being 2x and our #1 priority from a capital allocation prioritization standpoint is on debt reduction.

So just a little bit more about the company. We're a leading global lifting and automation company, providing professional-grade solutions for solving customers' critical material handling requirements. We participate in these markets all over the world. We have a very diverse set of end markets that we serve. We're operating in 70-plus countries. We've been in business for over 260 years. Now we have 7,000 employees plus and a total addressable market of $35 billion. And I think as you consider the portfolio and the way that it's evolved through this acquisition, you can see that the investment thesis really does stand in terms of growth potential, margin expansion potential. A lot of that within our own control as a self-help story and as a control what you control -- can control kind of a story. And the ability to accelerate debt repayment is not only something that we talk about, but something that we do and we have done repeatedly with other deals that we've taken on in the past.

So the products in our portfolio address customers' unique motion control needs within what we consider to be 5 attractive product platforms. You can see on the left-hand side of the page, the largest portion of our business is in lifting hardware. This is securement. These are the low ASP products that tend to act more as consumables in the market. Hoists and cranes would be the next largest segment. The 2 of those combining to make up what we would call our core lifting portfolio. Then you can see precision conveyance, also a large market, north of $6 billion. Obviously, a lot of runway there in terms of additional market share opportunities for us. Then you can see automation and linear motion. All 3 of those last reference business platforms are growing faster than the rest of the entire portfolio and serve really attractive niche markets.

Here on this page, this is a bit of a repeat if you've been paying attention to the company for some time. On the left-hand side, you can see our Columbus McKinnon business system framework with people and values right at the center of that framework. And then that's surrounded by being market-led, customer-centric and operationally excellent, 3 key tenets of our Columbus McKinnon Business system and then wrapped up in innovation. This is the foundation of how we operate. We're leveraging the core principles of that platform, not only in our core business but across now the Kito Crosby organization and benefiting from the experience that they have and the strengths that they have as we add those capabilities into the way that we approach this business system.

To the right of that, you see our growth framework, which is very complementary, kind of operating on the foundation of the business system. The growth framework allows us to focus on strengthening the core, growing the core, expanding the core and reimagining the core. This is not only supportive of organic initiatives that we characterize in these vectors, but also in terms of the way we think about M&A growth. Recently, with the acquisitions we've done before Kito Crosby, we focused on reimagining our core and developing a platform of precision conveyance products, which we're very proud of, and we think has tremendous runway.

But most recently, with this acquisition, you can see on the right-hand side how we would characterize the work that we've done to acquire Kito Crosby and what that enables us to do. And you can see clearly, it solidifies our leading position in the lifting solutions space, but it also enables us over time to really expand and reimagine the core with the combination of the 2 businesses and what that will unlock as we move forward.

Just a quick summary of the combination and the real benefits here, the strategic rationale. We increased the scale of the business. We achieved top-tier financial performance and the cash generation that thereafter follows, enables delevering. We have tremendous amount of self-help through the value creation initiatives and synergy realization. And then below that, a lot of opportunities for revenue growth before I emphasize the long-term vision that we have, which is backed by a proven leadership team. And this leadership team that we've assembled is now what I would consider to be a blended state of exceptional talent from both companies.

On the foundation of our Columbus McKinnon Business System, which you can see at the center of this page, you can see that we're really focused on 3 simple things as a company. There are 4 boxes here, but I'm going to summarize it with 3 simple statements. One, we're going to make sure we drive business continuity. We have to protect core customers. We have to protect the core business. And we've added a fully staffed integration management office to enable the IMO to operate independent of the business operational teams so that the business operational teams can deliver on execution while the integration management teams deliver on the value creation and other integration objectives.

Clearly, that leads us to driving synergy value, and we're targeting $70 million of net cost synergies with additional upside on the cost profile as well as with revenue potential. And you can see on the upper left, the reference to the revenue synergies that we're targeting and ultimately leading to integration that we'll deliver through the business. And then the final point I'll make is that all of that work is geared towards driving cash flow and taking that cash flow and delevering with it. And so number one is business continuity. Number two is value capture and synergy realization, both on cost and revenue. And number three is cash generation and debt repayment.

You can see a summary here of the levers that will enable the cost synergy targets that we're driving to. It's really freight and procurement cost synergies, you can see facility consolidation and footprint rationalization as well as SG&A and third-party targets. We have a well vetted, well-defined set of plans that are being led within the company and work streams that are operating on track, and we're very confident in our ability to achieve the targets that we've outlined here. And on the right side, we start to tease out a little bit more of the conversation around the revenue synergies. We haven't been specific about those for competitive reasons. We don't want to go to the market to talk specifically about what we're targeting from a revenue synergies perspective. But rest assured, there are well-defined plans that we're executing on to deliver revenue synergies for the business.

This chart simply highlights that we've done this before in terms of raising -- putting together a capital structure, raising debt and then accelerating the repayment of debt. You can see the examples for Dorner and Garvey when we acquired that company or those companies, I should say, and then montratec. But this is something we did before that even still with the acquisition of montratec -- not montratec, Magnetek previously.

And then finally, we'll end where we began with the investment thesis. And you can see that we really do believe this company will deliver outsized growth, margin expansion as well as enable us to accelerate debt repayment. And we think that it's a very attractive investment opportunity. So I'm going to go back to the table and take questions. I hope you have some.

Yes. Of course. If anyone has questions, raise your hands or you can just shout them out. David, thanks for that. I'm sure that most of the conversation we're going to have is around the acquisition, but maybe before we get into that, just on the macro front, demand seemed pretty strong at start of the year, pretty good ISM data. You guys had double-digit short-cycle sales and product-related sales last quarter. Barring the last 3 weeks, what are you seeing on the demand front? And has that changed going forward in the pipeline?

Yes. Demand remains encouraging is the way that I would characterize the business today. Although the world is watching what's happening geopolitically and in the Middle East, notably. We continue to see a robust pipeline of opportunities. We've had very meaningful conversations with our customers, both on the short cycle as well as longer cycle project in those areas, and we feel that the pipeline remains robust. There's no notable change to any demand dynamics or within our supply chain at this stage. We are shipping into the Middle East. We have about $50 million of sales, EUR 50 million of sales into the Middle East on an annualized basis. And with flight disruptions as well as strait interruptions, if you will, we haven't been in a position where you can access that as readily. So there might be some modest impact to the quarter's execution in that delivery environment.

But from a supply chain standpoint, we don't have any notable materials that would come out of that region or the supplier requirements. And so we feel like we're reasonably well positioned. The bigger impact that could come out of that environment is just simply elevated oil prices for a longer period of time and what that might mean to a broader economy. And so we would be negatively impacted by what might be a slowdown tied to that, but we, I think we'd be positively impacted by the fact that we provide the world's best explosion-proof products for the markets that we serve and the oil and gas space demands those at a time like this where additional drilling and additional investment in global capacity oil products would increase.

Right. That was going to your next question in terms of the exposure to oil and gas business mix. I think it's about 10% pro forma.

Yes.

Okay. And move on from that another macro. Tariffs, you're lapping, still plan to be margin neutral by fiscal '27. Is there -- when you think about the pricing, you were able to pass through pricing that you happened last July. Are there future pricing increases baked in? And when you're looking at the combined company, what should we think about in terms of the tariff impact going forward?

Yes. Greg, if you want to go ahead and take this one, I can certainly jump in.

So from a pricing perspective, we did raise prices roughly 7% back in July, and that fully covered the cost of the tariffs that we were seeing. But we've seen also with some of the -- with the Supreme Court ruling that there's the likelihood that the IEEPA tariffs are going to -- they've been obviously impacted and to our benefit. And we would expect that overall tariffs will become less of a headwind going forward. Some of the tariffs are going to remain, the ones that were in country, the Japan, European Union, et cetera. But -- and then even the Section 201 tariffs only have 150-day shelf life. And so we'll see what happens with that. And so we're now in the process of actually determining when we'll be able to get tariff refunds back, and that could be a sizable number for us.

And so we think that would accelerate the path to neutrality. And we do see price increases that would continue in the normal course as we go throughout this year on a combined business basis. And what I'd say is that Kito Crosby, we took similar actions to the actions that we took relative to working to achieve cost neutrality, certainly in the last fiscal year. And so we start to lap that, as you indicated, James, and we're going to anticipate that we'll get benefits as we head into next year tied to offsetting tariff costs as well as the potential for something like what Greg referred to in terms of the relief that might come from that.

A quick follow-up on that one. Also from a customer behavior standpoint, is there -- I remember second half of last year, calendar year, you guys were saying a lot of customers were waiting to see the tariff picture be resolved. Is that -- are you seeing any customer hesitation now given tariffs or the Middle East conflict really?

No, nothing at this stage. But as we talked about before, to the extent this is prolonged, certainly that could evolve and change. But we haven't seen any delays or change in demand patterns tied to either tariff evolution or volatility or the Middle East conflict. And we're encouraged by what we see as stronger demand and we think over a longer cycle, given what's happening in the country relative to reshoring and other investments that we see happening.

Got it. I guess moving on to the acquisition. You've had a year to plan. I guess in that year, maybe what has been the biggest surprise to either the upside or biggest challenge that has -- is new incremental from the original announcement? And I guess on the synergy side, has there been any early wins? So kind of a 2-part question.

Okay. Yes. I would say we've had a lot of time, as you indicated, to get ahead of this with both sides of this team now that we've assembled. And while we had some restrictions tied to antitrust concerns that you would understand and that we were careful about making sure we were thoughtful and responsible about. We've learned a lot about the business. We've learned a lot about the opportunities. We've done a tremendous amount of preplanning. We stood up an integration management office that's fully staffed. We've established all the work streams defined by all the categories of opportunity. We've been able to do a lot of analysis and do prework around freight, logistics, material spend, RFQ proposals and getting ready and frankly, launching them immediately following close in many cases.

And so I think in terms of surprises, I think nothing that's notable, I would say, to the downside. And I would say perhaps just more positive opportunities as you peel back the layers of the onion, there's just more and more areas where we think we can collectively create more value. So feeling encouraged about where we stand and what we can deliver in this year and the full targets that we'll ultimately deliver on as we execute through the next 3 years. And then in terms of synergies.

Yes, early wins, yes.

Early wins. I don't want to comment on specifics, but we've had some early wins commercially and from a revenue perspective that are encouraging that don't necessarily translate into sales in this month, but are encouraging conversations with customers and upside opportunities. And then on the cost side, we've obviously executed on a new leadership team. We've done work around third-party spend, insurance costs, other related overlapping costs. We have launched RFQs with vendors and are looking at synergy savings that will start flowing through in the P&L from a material cost perspective. And there's just more to come. We've got multiple waves of actions that are planned, and we're executing on those.

Got it. On the divestiture of the powertrain, obviously, was a necessary step for the close. Are you able to disclose any color on Kito Crosby's powertrain business? Is it a similar sized business to what Columbus McKinnon had? And then another 2-parter, and I hopefully won't have too many 2-part questions. But on the revenue synergy side, I know there's things you can't disclose there, but are there -- with the powertrain hoist divestiture, I would assume there's some revenue synergies opportunities that you can execute on.

Sure. Absolutely. We're really pleased with the competitive position that we have in the wake of the divestiture. Obviously, the legacy Columbus McKinnon power chain and chain businesses were very important to us as a stand-alone company. And the team was an important part of our team. We're excited that they've gone to a new owner who is going to help them to compete. But we're in the wake of the acquisition, very pleased with the acquisition properties with what we're acquiring, the capabilities of the team, the capabilities of the products, the competitive positioning, what they have in their development pipeline from a new product perspective.

And in many cases, our products sell through the same channel partners, the same customers. Our reach is similar. And so that business is a larger business than ours. You asked the question about size. That business is larger than our businesses and frankly, is very well positioned to compete. And in the wake of the disposition, we're in a position where under kind of fair non-intervening or we can compete without disrupting or the word is escaping me, I apologize, but we're in a position where we can compete effectively, and our team is stepping up to compete effectively.

Got it. We've got a question here.

Is there a natural complement inside of the existing client base in both organizations for cross-selling?

There is -- yes, absolutely.

What degree is that sort of like -- first quarter of that or effort versus [indiscernible] attacking new market...

Yes. So the question was, is there a complementary cross-selling opportunity across the channels, the customers with the teams that we have brought together. And would that be a more natural first call to order versus attacking new markets? And the answer is yes to both of those. It's lower-hanging fruit. It's a more straightforward set of opportunities. We're working with customers to introduce products that we had available perhaps on the Kito Crosby side that weren't available on the Columbus McKinnon side or vice versa, and we're cross-selling those. We're also in a position where when we have a broader portfolio to offer because of our scale and the ability to be a more significant player in the market, we're able to bring a better solution and a better value to the customers, which we intend to improve upon. We're doing work operationally. We're doing work from a lead time perspective. We're making investments in digital capabilities to assist the customer in the way that they interact with us to make our portfolio and our experience for the customers better.

[indiscernible].

The question was, do the pieces of equipment communicate to one another and are there opportunities for a digitized fleet of assets that might be employed in a facility. And the short answer to that is yes, but not in all cases. And so where we do have equipment that communicates machine to machine and with one another and also has IoT capabilities and the ability to provide analytics and data to an operator as well as to our channel partners so that they can look at a cockpit of the installed base and see cycles, wear parts, opportunities, service needs. It's something that we're empowering our channel partners with to enable them to be better able to respond to customer demand, but also as an advantage for us because that visibility translates to our visibility as well to us, and we're able to provide those channel partners with better support so that they can service the customers more readily.

This is sort of novel inside the organization now that you brought the 2 organizations together. Is there something that's being done to make this more of a discipline versus to say sort of -- hopefully, it's going to happen and be done efficiently in terms of the commercialization of this opportunity?

Yes, absolutely. We have very well-defined commercial objectives. We've put a leader of the commercial strategy and the commercial synergies full time on the IMO, that person and within our framework of establishing key metrics, breaking down the projects into phases and specific deliverables with work streams defined around those. Geographic contributions, prioritization, as you indicated, the lowest hanging fruit, the kind of first call to order versus second, third, fourth. All of that is built in. And then that's being addressed through the framework of our Columbus McKinnon Business System. And so without a doubt, we're trying to take a thoughtful approach to this that not only is going to get the results for this acquisition and over the next few years as we execute on our debt repayment and acceleration of our deleveraging. But also over time, as we are improving Columbus McKinnon's ability to be advantaged as we think about further opportunities to scale.

Good segue actually to my next question. You mentioned CMBS. You had on the slide, the new slide on the margin improvement in the free cash flow slide, lifting growing at GDP plus. I remember back in your Investor Day when that -- when was that, 2022, I think. And correct me if I'm wrong, you mentioned it was kind of a GDP plus/minus grower. Can you talk about how the lifting profile or the portfolio has changed since then using 80/20, CMBS? And what is embedded in that lift? Is that the assumption that is embedded in the 3-year outlook to meet those deleveraging targets?

Yes. So through the use of 80/20 and our CMBS approach, we've taken a hard look at that portfolio and have done work around pricing. as well as work around product make, buy, product plant locations and consolidation opportunities. And we've positioned the portfolio to be, we think, more competitive. Also, at the time that we went to the market with that presentation, we were struggling with some supply chain delivery execution challenges. We've also rationalized SKUs and simplified the product portfolio from a design standpoint that enables us to have more control over our supply chains and overall performance from a lead time and delivery perspective. So we're working to improve the customer experience by doing a better job of executing to meet their needs. We think that the combination of our 2 businesses together give us an advantage as it relates to value creation with customers. And so we think we can grow faster.

We also think there are market dynamics around safety, productivity, uptime as well as just in general, reshoring or repositioning of manufacturing assets around the world, not only in the Americas, but around the world in region for region. And so as capacity levels change and demand changes in those regions around how they buy, where they buy from, we think that's going to increase the need for the equipment and services that we can provide within the lifting segment. And then the final point I'd make is now we have this low ASP lifting procurement portion of the portfolio, which is a bit more stable and predictable, and I think provides a really nice base of business, not only from an absorption and profitability standpoint, but from a launching point to seek growth opportunities that might be more project based from that.

Got it. And you've used the term, I think, in the presentation before, a one-stop shop for lifting. The customer base, is that -- and again, it kind of goes to the revenue synergy question, but that one-stop shop, are you -- how confident are you in gaining that traction, the current Columbus McKinnon customer base, how -- what's the opportunity of the current customer base that would be potential Kito Crosby product users, if that makes sense?

Yes. We both have the legacy Columbus McKinnon portion of the business that we exited, the new Kito Crosby business that we've acquired, as an example, serves a -- in large part, very similar customers. And the opportunity that we have to potentially win some of that business from them as a more of a one-stop shop is something that we're going to have to earn the opportunity to be awarded. And we work with our customers, talk to our customers all the time. They have a balance of needs that they're balancing out across a number of vendors.

And I think by bringing that one-stop approach to being able to offer a more vertically integrated set of solutions, a broader set of automation capabilities to bring our balance sheet to bear in a way that can support their development and growth and executing from a lead time and cost and just delivery perspective, I think we'll open up those doors, and we'll have an opportunity to -- with that digitization wrapper we're putting around it, really make it easier for them to do business and put more demand into our business. And so I think there is really an opportunity to leverage that and grow the company.

Got it. Maybe -- and Greg, I want to get to you on the walk through the free cash flow. But just going off David's question first or answer to that question. I get asked as analysts from -- people who are generally new to the story, what is the value proposition of Columbus McKinnon? Why would a customer go to Columbus McKinnon over maybe a cheaper alternative abroad? What is your answer to that in terms of why you're able to maintain the customer base you have and the leadership position you have in North America?

Any time you're lifting, positioning, moving assets in a factory, it's your asset that tends to be high value and important. And safety is critical when you're lifting things above someone's head. When you're moving vaccines at high volumes or other very important products at high volumes on a conveyance solution or you're positioning a defense system, anti-missile system with one of our linear actuators. These are critical applications that you don't want to go to someone who doesn't have the experience, the capabilities, the engineering prowess that we do. And being able to bring that to a customer today in a more comprehensive way with automation, digitization, lead time, scale, broader capabilities is something that I just -- I think at the end of the day, you don't want to take a chance on. You don't want to walk away from a proven leader that's scaling and becoming even more capable to take a chance on something that might save you $1 on the purchase price, but could cost you a whole lot more as it relates to quality, reliability, total cost of ownership.

Got you. To be fair, that actually is how I usually answer that question. So that is -- I'm glad there. I'm getting it right. Probably for 1 or 2 more questions. If anyone has a question, feel free to raise your hand.

Greg, on the free cash flow levered profile year 1, you've mentioned numbers back in this conference last year, actually, obviously, that's moved around with divestiture and other moving pieces. Maybe just a high-level walk, and I know I don't -- I'm not asking for guidance for year 1, but just a high-level walk of the moving pieces to get to where you think end of full year 1 free cash flow is.

Yes. So a year ago, as James mentioned, we have a page in a deck from this conference a year ago that had roughly $200 million of free cash flow. And if you think about what's changed, so we had the divestiture and that probably impacted free cash flow by roughly $45 million when you take EBITDA and CapEx and taxes into account there. So that would essentially put you at about $155 million. But then since we're a year further along. We did give Kito Crosby 12/31 numbers. Their EBITDA, it was what we disclosed, was expected to be in a range of $273 million to $283 million. So call it $278 million at the midpoint. That's about $15 million higher than what was assumed a year ago. So you put that on top of the $155 million and you're in the roughly $170 million range with just those 2 items. And also with the potential to outperform on year 1 synergies.

Right. Got you. That's helpful. Last question. And maybe I'll just give an open one from the equity side. Again, a question I get asked a lot, and we'd like to hear both your answers on is the proper peer set for Columbus McKinnon and where -- we were just talking about it before you opted in on the valuation side of it. But what's your perspective on that in terms of the proper peer set? You have a slide in your lender presentation that shows other lifting peers and how you have a stronger margin profile than them for traditional lifting peers. But maybe just comment on maybe why your equity is not getting the multiple that those guys are getting.

Yes. So 2 parts to that question. So the first...

I only asked 2-part questions.

Even when they're not. So the first part in terms of peers, there really aren't any peers similar to this company. And so what I -- what we do is we look at industrials that are roughly in the $2 billion top line range with 20% plus EBITDA margins. And there's people like Regal Rexnord. I think who else is in that group. But we've published a number of those in previous slide decks. And when you look at those companies, they're typically in the 12 to 13x EBITDA multiple range. And so what we think the overhang on the stock is clearly, it's the it's about putting points on the board, right? So this has going on for a year now. It's really the leverage that I think caused a pretty substantial turnover in our shareholder base. And so we've got a whole new set of investors who are comfortable with 5x leverage, which is essentially what we are when we closed, both the divestiture and the acquisition.

Once again, we expect to delever to the point of under 4x within 2 years, so in the 3s. And I think once we get into the July quarter and have our first full quarter of the new company, that will be one proof point to start, and we'll be able to report on the success we have with synergy realization. And I think a quarter or 2 in a row and all of a sudden, the market is going to get a lot more confidence in what we've been saying for the past year plus.

Great. We're out of time. Thank you so much, Columbus McKinnon. Appreciate it.

Thanks, James.

Good afternoon, and welcome to Columbus McKinnon's Third Quarter Fiscal 2026 Earnings Conference Call. My name is Constantine and I will be your conference operator today. As a reminder, this call is being recorded.

And I would now like to turn the conference over to Kristy Moser, Vice President of Investor Relations and Treasurer.

Thank you, and welcome, everyone, to our call. On today's call, we will be covering our third quarter fiscal 2026 financial and operational results. On the call with me today are David Wilson, our President and Chief Executive Officer; and Greg Rustowicz, our Chief Financial Officer. In a moment, David and Greg will walk you through our financial and operational performance for the quarter.

The earnings release and presentation to supplement today's call are available for download on our Investor Relations website at investors.cmco.com.

Before we begin our remarks, please let me remind you that we have our safe harbor statement on Slide 2. During the course of this call, management may make forward-looking statements in regards to our current plans, beliefs and expectations. These statements are not guarantees of future performance and are subject to a number of risks and uncertainties and other factors that can cause actual results and events to differ materially from the results and events contemplated by these forward-looking statements. I'd also like to remind you that management may refer to certain non-GAAP financial measures. You can find reconciliations of the most directly comparable GAAP financial measures on the company's Investor Relations website and in its filings with the Securities and Exchange Commission, please see our earnings release and our filings with the Securities and Exchange Commission for more information.

Today's prepared remarks will be followed by a question-and-answer session. We respectfully ask that you limit yourself to 1 question and 1 follow-up question. With that, I'll turn the call over to David.

Thank you, Kristy, and good afternoon, everyone. Last week, we were very pleased to announce that we closed the Kito Crosby acquisition. We have been working diligently over the past few quarters towards closing this transformational acquisition and are excited to now get to work on delivering the benefits associated with bringing these 2 innovative companies with industry-leading technical expertise, customer-centric cultures and a shared vision for operational excellence together. We are welcoming the Kito Crosby team to Columbus McKinnon as we combine the best of our collective talent and capabilities to deliver an enhanced value proposition for our customers. Additionally, we expect to close the previously announced divestiture of our U.S. power chain hoist and chain operations by the end of this quarter. This will be the final step in aligning the combined company towards our next phase of growth.

Let me now shift to our quarterly results. As part of our permanent financing, which was recently completed at attractive interest rates, we preannounced key metrics for the third quarter and are happy to share that we came in at the high end of those ranges. We delivered double-digit growth in sales, orders, EPS and backlog year-over-year as we saw continued stabilization in U.S. short-cycle order activity and capitalized on our strong project backlog. We continue to see an attractive global funnel of opportunities, and our backlog remains at healthy levels, positioning us well for the future. Adjusted EBITDA was $40 million with an adjusted EBITDA margin of 15.4%. This margin was flat to the prior quarter as our tariff mitigation actions offset normal seasonality.

Adjusted EPS improved 11% from the prior year to $0.62. Additionally, we made meaningful progress on operational improvement, tariff mitigation and integration preparedness initiatives. While it's becoming increasingly difficult to estimate tariff costs as vendor price increases begin to replace tariff-specific surcharges, we believe that we came in slightly ahead of our $10 million net tariff impact in the first 3 quarters of fiscal 2026. We continue to expect that we will achieve tariff cost neutrality by the end of the year and margin neutrality in fiscal 2027.

I'd like to thank the entire Columbus McKinnon team for their unwavering commitment to our customers and strong execution in the quarter. The team successfully managed through a complex set of strategic objectives and an evolving market landscape while delivering ahead of our initial expectations for the quarter.

Orders were up 11% to $247 million. The U.S. grew 15%, driven by strength in lifting, automation and precision conveyance, and EMEA grew 3% despite the continuation of a weaker economic landscape that is causing slower order conversion. Globally, growth was balanced across both short cycle and project orders, reflecting stabilization of short-cycle demand, traction on our commercial initiatives and implementation of tariff-related price increases. Our pipeline of quotation activity remains encouraging, and we continue to see a strong funnel of new business opportunities. We expect U.S. demand to remain healthy, driven by lower interest rates, favorable CapEx deduction rules as part of the new tax legislation and benefits from onshoring, all of which will serve as tailwinds for our business.

As mentioned previously, in EMEA, we expect choppiness to persist given the forecast for a challenging demand environment in the near term. While the pipeline for new business continues to build, order conversion is expected to continue to be slower than typical. We are focusing our efforts on vertical end markets with tailwinds like metal processing, government and defense and heavy equipment as well as end markets where we've been building a leadership position like battery production, e-commerce, food and beverage and aerospace. Our backlog is strong, up 15% versus the prior year to $342 million with an increase across all platforms in both our short-cycle and project businesses as we've continued to deliver on our commercial initiatives and capitalize on U.S. market stabilization.

I'll now turn the call over to Greg to share the details of our third quarter financial results.

Thank you, David. As David shared, Columbus McKinnon delivered strong results in the third quarter with double-digit growth in sales, orders, backlog and adjusted EPS. We delivered net sales of $258.7 million up 10.5% from the prior year driven by higher volume, pricing and favorable currency translation. We saw particular strength in lifting, linear motion and automation. Growth was strongest in North America, driven by stabilization of demand in the U.S., and we saw a modest organic growth in EMEA against a weaker economic backdrop.

Pricing impacts continue to accelerate, and we expect pricing to continue to ramp over the next several quarters as we work through our backlog. Short cycle sales increased 13% and with outperformance in the U.S. benefiting from both pricing and volume growth. Project-related sales increased 8% as we converted backlog to revenue globally. Gross profit of $89.2 million increased $7.1 million or 8.6% versus the prior year on a GAAP basis, reflecting higher sales volume, price increases and favorable FX rates. We also had lower factory consolidation and start-up costs in the quarter compared to a year ago, which was partially offset by negative tariff-related impacts.

On a GAAP basis, our gross margin was 34.5%, and on an adjusted basis, our gross margin was 35.1% -- adjusted gross margin contracted 170 basis points year-over-year due to unfavorable product mix and the impact of tariffs. Product mix this quarter was unfavorably impacted by the timing of sales for our higher-margin precision conveyance platform as well as a less favorable product mix in our U.S. lifting business. We also had more rail project shipments globally and less linear motion sales, which negatively affected margins. RSG&A expenses this quarter included $6.3 million of acquisition-related costs for the Kito Crosby transaction as well as our pending divestiture. Excluding these items, adjusted RSG&A as a percent of sales was unchanged from the prior year, even with the lapping of a favorable incentive compensation accrual release. As a result, we generated operating income of $16.2 million in the quarter on a GAAP basis and adjusted operating income of $24.5 million. Adjusted operating margin was 9.5% in the quarter. This resulted in adjusted EBITDA of $39.8 million in the third quarter with an adjusted EBITDA margin of 15.4%. Please note, the calculation of adjusted EBITDA and margin now includes an add-back for stock compensation expense to be more consistent with our credit agreement definition. GAAP income per diluted share for the quarter was $0.21, up $0.07 or 50% from the prior year. Adjusted earnings per share was $0.62, up $0.06 or 11% year-over-year due to higher net income resulting from higher sales volume and pricing as well as lower foreign exchange losses in the current year compared to the prior year. Free cash flow in the quarter was $16.5 million, reflecting higher earnings, favorable working capital, increases in customer deposits and lower cash taxes, partially offset by $6.7 million of transaction-related cash payments. As David previously mentioned, we're pleased to have announced the closing of the Kito Crosby acquisition. Now that we've closed the transaction, we have begun integration activities, including executing against our $70 million net run rate cost synergy target. In connection with the acquisition, we completed our permanent financing to fund the transaction, which included a new $1.65 billion Term Loan B based on 3-month SOFR plus 350 basis points, which was funded at 99% of face value. $900 million of senior secured notes with a coupon of 7.5% funded at par, $800 million of perpetual convertible preferred stock, along with a new $500 million revolving credit facility, which significantly increases the company's liquidity. We are pleased that our financing rates came in below our initial estimate of approximately 8%, accelerating our ability to pay down debt and delever the balance sheet. Additionally, we increased the amount of our Term Loan B in the capital structure which is prepayable without penalty. With significant cash flow generation expected, we have the flexibility to pay down debt ahead of scheduled amortization, which will further reduce interest expense. Additionally, we intend to use the proceeds of our pending divestiture of our U.S. power chain hoist and chain operations, net of taxes and transaction fees of approximately $160 million to pay down the Term Loan B. We expect that transaction to close later this quarter.

Going forward, the company's primary capital allocation priority will be debt repayment. We expect that our significant combined free cash flow will enable us to reduce our net leverage ratio to below 4x by the end of fiscal 2028.

Given the recently completed acquisition of Kito Crosby and the uncertainty around the timing of our pending divestiture, we are withdrawing our prior Columbus McKinnon stand-alone guidance for fiscal year 2016. As usual, we will provide guidance for fiscal '27 on our earnings conference call in May 2026 when we report our fiscal year '26 fourth quarter results.

Certain transaction-related expenses, purchase accounting adjustments and early integration costs are expected to be recorded in the fiscal fourth quarter of 2026. The impact of these costs, along with higher interest expense is expected to be dilutive to GAAP earnings per share in the fourth quarter and for the full fiscal year of 2026. We also expect significant transaction and other deal-related costs in the quarter which will negatively impact free cash flow, both of which have been anticipated. We are enthusiastic about the recently completed acquisition of Kito Crosby and our ability to achieve our stated long-term objectives. Our operational and commercial teams remain focused on business continuity and delivering on our operational and customer service initiatives. In addition, our integration management office as a dedicated team of cross-functional leaders to advance our progress on cost synergy realization and drive revenue synergy upside. While the acquisition closing process has gone on almost a year, we have used our time wisely to advance our integration and synergy plans.

I want to add that we are excited to welcome the Kito Crosby team to the Columbus McKinnon family. Going forward, we are one team with a common shared vision of the future. Operator, we are now ready to take questions.

[Operator Instructions].

Your first question comes from the line of Matt Summerville from D.A. Davidson.

A couple of questions. First, can you remind us a bit on the seasonality in the Kito Crosby business kind of compare and contrast versus that of the core business? And also talk about the timing in which the $70 million in cost-related synergies is realized, meaning how much is sort of in year 1 versus year 2 versus year 3. Any kind of help you can give there? And then I have a follow-up.

Sure. Thanks, Matt. So as you know, Columbus McKinnon as a stand-alone business has its strongest quarter in the fiscal fourth quarter, which is the quarter that we're in, ending in March. Kito Crosby year-end is a December year-end, and they also typically have their strongest quarter seasonally in the fourth quarter for them, so our fiscal third quarter.

And then nothing beyond typical trends in the industry that would be driving normal activity in the business, which in our business, as we compete in the same markets, we tend to see a first half that's more or less equivalent to the second half and a bit of a stronger second quarter and a stronger fourth quarter. So I think we expect to see something similar with their business profile. And then from a $70 million of synergies perspective, we expect roughly 20% in year 1, and that number going up to 60% realized in year 2 and then the full 100% of the $70 million realized in year 3.

Got it. And then do you kind of think about I would assume the EBITDA cadence for Kito would follow a similar pattern. So if that's -- if I'm mistaken on that, please correct me. But then I was hoping you could do kind of a deeper dive kind of around the horn, if you will, on your major end markets in addition to what you said in your prepared remarks. So a bit of a deeper dive, if you will, there and maybe add a little bit of geographic color as you do it.

Well, Matt, the first part of your question, you would you would expect that Kito Crosby is going to be in the 22% to 23% EBITDA margin range with the sales level that they have. So nothing unusual from that perspective.

Yes. And then Mark, I'm sorry, as it relates to markets, we benefit from broad-based exposure to many end markets as does Kito Crosby. In this past quarter, we're seeing general industrial space strength and investment in automation. We saw a lot of demand in the automation space. We also saw a really nice demand profile for e-commerce orders, and we're seeing those start to come back. Bright spots also included construction, aerospace and government, heavy machinery and food and beverage. And then some pockets of slower demand included general stocking distributors who managed inventory into the year-end. As well as energy and utilities, although this is impacted by project timing, and we expect that to improve.

As it relates to geographic demand, orders in the U.S. were up 15% and orders in Europe were up 3%, but much of that was FX driven. And so we're -- we saw demand in Europe continue to be slower than anticipated. And as we provided comments in the prepared remarks, we anticipate that, that slower decision-making is going to continue into the coming quarter.

My next question is from the line of James Kirby from JPMorgan.

Congrats on closing on the acquisition. I guess just on -- I know you aren't giving forward quarter or even next fiscal year guidance here. But just, I guess, based on the original assumptions embedded in the deal when it was announced a year ago, how are both businesses trending? And I hope you can comment on that now that the deal is closed relative to your initial assumptions?

Sure. And what I would say is that we provided in our January 14 press release when we announced the divestiture, pro forma fiscal year '26 guidance range assuming that we would own Kito Crosby for the full year as well as that we divested the chain and electric chain hoist business at the beginning of the year. So kind of a pure pro forma view inclusive of $70 million worth of net run rate synergies. And in that set of assumptions, we were running somewhere between $2 billion and roughly $2.1 billion. We had in terms of revenue. And then we had EBITDA that was in the $440 million to $460 million range in the combined business. Now you'd have to get to a base business without the synergies, you'd want to back off $70 million from that on the assumed benefit over the 3 years. And then we could add back in the 20% for year 1 if you were thinking about the business from a go-forward basis. And that would be the TTM performance from March 31 backwards from a range perspective. I hope that helps, James.

Got you. It does. I was speaking more in terms in the macro background. I mean -- and I know I'll weave that into my second question here, but obviously, a really strong start to the calendar year. ISM data was strong, short cycles of 13% last quarter or the quarter you sort of. Is that -- and maybe just following on Matt's question, is that sustainable? Or do you think that is somewhat of a recovery from slowdown last year? And maybe say more color into the sectors driving that order pipeline.

Yes. So short cycle business is robust. We did see a 10% year-over-year increase in short-cycle orders last quarter. And seasonally, it's sequentially down typically versus the second quarter as stocking distributors take some inventory out of the channel. But as we head into the first quarter of this year, we do see orders up slightly over prior year in the period to date through January. And so continue to anticipate that the short cycle demand remains robust, notably in the United States. And we feel good about the demand funnel. Our funnel is quite healthy, and that is a reference to global activity and inclusive of EMEA, where decisions are a little bit slower given the overall view of large economies there, notably the IFO index for Germany as a leading indicator that we're looking at.

But as you said, we see good trends in the U.S., and we're encouraged by that demand profile and would see that continuing for our business into the -- at least into the first half of this year. And James, just a follow-up on circle back on the beginning part of your question.

So we did preannounce ranges for Kito Crosby's 12/31 results. A year ago when we announced the deal. We were pointing to about $1.1 billion in revenue and $263 million of adjusted EBITDA. And with the 8-K we put out on January 14, we ranged their sales at between $1.14 billion and $1.15 billion, so up probably 3% to 4% and adjusted EBITDA between $273 million and $283 million, so up nicely.

The next question comes from the line of Steve Ferazani from Sidoti.

Just wanted to touch on the margins and tariff offsets a little bit. I'm trying to figure out the margin squeeze year-over-year this quarter. How much of that's from tariffs and how much of that is from mix? I think you pointed to some more rail. Lower-margin rail deliveries this quarter. And then what levers you need to pull that remain to get you to tariff margin neutrality in fiscal '27 your confidence to get there?

Yes. Thanks, Steve. And I would say, just at a high level, the biggest impact was backed was mix. followed by tariffs. And really, we had a mix issue as it related to more unit sales in lifting equipment versus parts sales that obviously bodes well for future aftermarket opportunities with bigger installed base, but that consumed a bunch of our capacity in the quarter and reduced the opportunity to produce and sell parts. We also had a lower revenue number for precision conveyance product. And that was just based on the timing and delivery. Orders in that business in the U.S. are up considerably. And we have a significant backlog still related to the Powerco orders that we received previously from Montratec. But based on phasing delivery in the quarter was lower on a relative basis. And therefore, those 2 factors really led to a reduction in margins.

As you know, rail shipments do have an impact on overall margin and the mix of rail versus actuation or screw jack sales into the OEM space or the machine builders market. is a mix challenge for us that we're navigating as the markets in Europe are still growing or picking back up in the wake of a slowdown for machine building activity.

And then -- the confidence level and ability to get to margin neutrality. Is it in terms of tariff?

Yes, absolutely. We still anticipate that as we exit this year, we're at margin neutrality relative to the tariff impacts, and we are -- that is cost neutrality, I should say, and then margin neutrality next year as we execute on the initiatives that we have in store.

Okay. Given the prolonged nature to get the Kito Crosby deal closed, I know you've been working on integration ahead of our planning your ability to capture that your confidence level to capture those 20% of the $70 million of synergies in year 1. Any chance you're going to beat that? And is that going to be bad? Are you thinking that's back half weighted?

Yes. We're working our tails off to deliver on that and to hopefully over-deliver that, certainly what we're striving to be able to do. But our commitment is to get to the 20% in a year. And that's the way that we're targeting those savings and communicating about those savings. But as you know, we have a full and robust list of opportunities. We've been working since October with a full-time staffed integration management office, taking advantage of the time between signing and close to get ready for day 1 and to position ourselves with actions that allow us to certainly meet and hopefully exceed those targets, and that's what we're striving to be able to do.

And I would anticipate in the natural course of those savings building that they would be naturally back-end loaded.

Our last question will be from the line of Jon Tanwanteng from CGS Securities.

Congrats on closing the deal. My first one is, did you benefit or were you impacted by any pull-ins or push-outs in the quarter? And the reason I'm asking is just because that's been an item in the last several quarters. And I'm wondering if that was a factor in this one, too.

Yes, Jon, nothing that we would state as material. Certainly, last quarter, we did reference that. But in this quarter, no, nothing that was too material.

Okay. Great. And then second, could you talk about how much of the strength in the quarter and the orders that you're seeing is from the U.S. can hoist business just because that's going to be divested in the near future. And I'm just wondering what that looks like if that may not have been there.

Yes. There was nothing material in the chain hoist orders or in the chain production orders that was that would have kind of in any outsized way influenced the order number out of what would be typical. And so when we think about the performance in the quarter on a relative basis, I would say that orders were more or less in line for that piece of business relative to prior periods. And so I think there's anything to specifically call out as it relates to demand that would go away and that business specifically being a big influencer of the order rate that we had in the third quarter.

Okay. Great. That's helpful. If I could squeeze one last one in there. I mean you did a bit better in the quarter. It looks like Kito's doing well as well, but you did pull the guidance. I understand due to timing, but it seems like the underlying trends are stronger compared to when you ask guided. Is that fair to say?

Yes. I mean I think the business in the U.S. is robust, and we feel confident about the performance in that region. I think in Europe, we continue to see some softness as it relates to demand and timing of orders related to the overall macros and on an overall execution basis within our business, we have a strong backlog. It's up materially year-over-year. And we demonstrated in the last couple of quarters our ability to execute on that backlog. The challenge has been a bit of mix and how that mix is translating into revenue. And I would expect that to continue as we execute through this fourth quarter.

But in general, trends are robust and the combined businesses will be, I think, delivering into markets that are going to receive the combination well. and we're going to be targeting the execution of synergies. And so I think this is a terrific opportunity to bring these businesses together. And over the course of this year and the coming 2 years, really deliver a lot of value for our shareholders.

Great. Thank you, David.

Thank you, Jon.

Thank you.That concludes the Q&A section of the earnings call. I will now turn the call back over to Mr. Wilson for closing comments. Sir, please go ahead.

Thank you, operator. Before we close, I want to take a moment to reiterate the Columbus McKinnon investment thesis, having now closed the Kito Crosby acquisition. We believe this acquisition will be transformative, and I'm excited about our collective future. On a combined basis, we will be doubling our revenue base as we become a scaled global provider of Intelligent Motion solutions for material handling. This will better position us to deliver solutions for our customers, which meet both their routine needs and their most complex intralogistics challenges. We will also have improved leverage from scale across our global geographies and product portfolios.

Geographically, both companies have strong positions that we will leverage and grow in North America. Additionally, we will benefit from our complementary positions in EMEA and Asia Pacific, and we have significant room to grow together in Latin America. Our combined product portfolio will allow us to assemble a holistic offering for our customers across all geographies and simplify the customer experience over time. We will also focus on delivering a one-stop experience for our customers, finding their buying and servicing processes. And our greater scale and combined free cash flow will enable investment in digital customer experiences that ensure we are at the forefront of the industry in terms of ease of doing business. Our operations will benefit from leverage across our combined material spend and the combined benefits of the Columbus McKinnon Business System, including 80/20 and Kito's expertise in lean manufacturing and process tools. In addition, we have plans to improve the financial profile of the company. while delivering the $70 million of identified net annualized cost synergies that we expect to achieve.

Finally, our substantial cash flow generation potential is expected to rapidly delever the balance sheet to less than 4x net leverage by the end of our fiscal year '28. I firmly believe our best days are ahead of us. While I acknowledge the work that lies ahead, I am thrilled to be in this position. We have the right plan and team in place to ramp our integration efforts. Our newly combined teams are already partnering to enable synergized commercial initiatives and customer success.

In tandem, our integration management office is laser-focused on delivering our cost synergy objectives and integrating these 2 great companies. I believe this combination will drive meaningful value for all of our stakeholders and usher in the next phase of growth for Columbus McKinnon.

Thank you for your time and continued interest. As always, please reach out to Kristy with any questions.

This concludes today's conference call. You may now disconnect.

Good morning, and welcome to Columbus McKinnon's Second Quarter Fiscal 2026 Earnings Conference Call. My name is Ludy, and I will be your conference operator today. As a reminder, this call is being recorded.

I would now like to turn the conference over to Kristy Moser, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you, and welcome, everyone, to our call. On today's call, we will be covering our second quarter fiscal 2026 financial and operational results. On the call with me today are David Wilson, our President and Chief Executive Officer; and Greg Rustowicz, our Chief Financial Officer.

In a moment, Greg and David will walk you through our financial and operating performance for the quarter. The earnings release and presentation to supplement today's call are available for download on our Investor Relations website at investors.cmco.com.

Before we begin our remarks, please let me remind you that we have our safe harbor statement on Slide 2. During the course of this call, management may make forward-looking statements in regards to our current plans, beliefs and expectations. These statements are not guarantees for 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 the 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 prepared 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, I'll turn the call over to David.

Thank you, Kristy, and good morning, everyone. Our team delivered results in the second quarter that were ahead of expectations as we capitalized on record backlog and saw stabilization in U.S. short-cycle order activity. We also made meaningful progress on our operational improvement, tariff mitigation and integration preparedness initiatives. I would like to thank our entire Columbus McKinnon team for their dedication and continued focus on performance and execution.

Net sales increased 8% year-over-year to $261 million with growth across all product platforms as short-cycle demand stabilized, and we accelerated deliveries from Q3 to meet evolving customer delivery requirements. Sales were up broadly, and we delivered volume growth in both the U.S. and EMEA, our 2 largest regions.

Adjusted EPS improved $0.12 sequentially to $0.62 in the second quarter, reflecting higher sales, margin expansion and continued cost management. Margins improved sequentially, driven by improved absorption on higher volumes and the early translation of tariff mitigation actions. As expected, year-over-year adjusted margins were down due to tariffs and sales mix impacts in addition to an incentive compensation accrual release in the prior year.

Last quarter, we estimated the net tariff impact in Q1 was approximately $4.2 million. As price increases begin to replace tariff surcharges, it is becoming more difficult to calculate net tariff-specific impacts. Nonetheless, we estimate that our Q2 net tariff impact moderated slightly from Q1 levels.

Despite the constantly evolving tariff landscape, we continue to expect tariffs to be a net $10 million headwind to operating profit in the fiscal year. Given latest developments, however, we now expect this impact to spill over into this quarter, and we are now targeting the achievement of tariff cost neutrality by the end of fiscal '26. We still expect to achieve margin neutrality in fiscal '27.

Orders were $254 million, down 3% year-over-year as the prior year benefited from 3 significant project orders totaling over $20 million within our precision conveyance and rail businesses. While our pipeline of quotation activity remains healthy, the weaker economic landscape in EMEA and APAC is resulting in slower conversion for project orders.

In the U.S., we saw order growth of 11% with strong performance in both project-related and short-cycle categories, reflecting a strengthening demand environment, the stabilization of U.S. short-cycle volumes and the implementation of price increases to offset tariffs. Over time, we expect lower interest rates and megatrends, including reshoring, automation and scarcity of labor to drive incremental demand.

We are capitalizing on our leadership positions in end markets with notable tailwinds such as aerospace, energy, rail and transportation, metals, heavy equipment and defense.

We also remain focused on the vertical end markets benefiting from secular growth trends where we have been building a leadership position such as battery production, e-commerce, life sciences and food and beverage.

Our backlog is a healthy $352 million, up $34 million or 11% versus the prior year, with increases in all platforms as we've continued to execute on our commercial initiatives.

Strong execution to meet evolving customer delivery requirements resulted in the accelerated conversion of Q3 backlog into Q2 shipments. As a result, current quarter backlog came down 4% year-over-year, which is expected to impact Q3 sales volume.

While we remain laser-focused on the performance of our core business, we continue to advance integration preparedness for the pending acquisition of Kito Crosby. We have established an Integration Management Office, or IMO, that is executive-led and reports into me as well as a Board subcommittee that will provide governance and oversight related to integration initiatives and our performance versus plan.

The IMO will be comprised of dedicated executive and cross-functional leaders from both companies to ensure the realization of our combined company integration and synergy objectives. This will enable core business leaders and teams to focus on ongoing business activity, operational performance and improving customer experience.

We remain enthusiastic about the strategic combination of our companies, which will scale the business, enable synergies, expand customer capabilities and accelerate our Intelligent Motion strategy over time. Following integration, we'll be over $2 billion in sales, delivering top-tier industrial margins and strong cash flow performance that enables reinvestment in our business after deleveraging.

Our team continues to prepare for the closing of the acquisition as quickly as the regulatory process will allow, and we now expect the transaction to close by the end of our current fiscal year.

I will now turn the call over to Greg to review the details of our second quarter financial results and full year guidance.

Thank you, David, and good morning, everyone. As David shared, Columbus McKinnon delivered strong results in the second quarter even as we navigated ever-changing tariff policies in a volatile macroeconomic environment. We delivered the second highest quarter for sales in our history of $261 million, up 8% from the prior year, driven by higher volume, pricing and a favorable currency translation.

We drove sales growth across all platforms, led by our lifting and linear motion platforms. We saw pricing accelerate in the quarter and expect previously announced price increases to ramp over the next few quarters as we continue to work through our backlog.

Short-cycle sales increased 7% as we benefited from higher U.S. short-cycle orders as the market stabilized after the uncertainty caused by tariffs. Project-related sales increased 8% as we converted backlog to revenue on some larger projects in our U.S. precision conveyance and rail businesses.

Gross profit of $90.2 million increased by $15.4 million or 21% versus the prior year on a GAAP basis, driven by the benefit of higher sales as well as a significant year-over-year reduction of $11.1 million in factory consolidation and new factory start-up costs.

On a GAAP basis, our gross margin was 34.5%. And on an adjusted basis, our gross margin was 35.3%. Adjusted gross margin contracted 100 basis points year-over-year due to the previously discussed impact of tariffs.

While our SG&A expenses increased $13.9 million to $70.3 million on a GAAP basis, this included $9.9 million in acquisition-related costs incurred for the pending Kito Crosby transaction and $1.1 million in business realignment costs. Excluding these items, adjusted RSG&A was up by $5.8 million to $59.2 million on higher sales volume and incentive compensation accrual release in the prior year as well as the impact of foreign currency translation, which was $1.1 million of the increase.

As a percentage of sales, adjusted RSG&A increased 60 basis points to 22.7%. However, normalizing for the change in incentive compensation costs, adjusted RSG&A would have improved as a percentage of sales. As a result, we generated operating income of $12.2 million in the quarter on a GAAP basis and adjusted operating income of $25.2 million. Adjusted operating margin was 9.7% in the quarter. This resulted in adjusted EBITDA of $37.4 million in Q2 with an adjusted EBITDA margin of 14.3%.

GAAP income per diluted share for the quarter was $0.16, and adjusted earnings per share was $0.62. Adjusted earnings per share decreased $0.08 versus the prior year, driven by the impact of tariffs.

Free cash flow in the quarter was $15.1 million, reflecting growth in earnings and working capital improvement even as we paid $2.5 million of acquisition-related deal costs.

Finally, we are updating our full year guidance for fiscal 2026. We are increasing our expectations for net sales and now expect growth of low to mid-single digits for the year, up from the previous guidance of flat to slightly up year-over-year. We are also reaffirming our adjusted EPS guidance of flat to slightly up year-over-year.

As a reminder, our fiscal third quarter is our seasonal low for both sales and margins given fewer workdays due to the holiday season. Our guidance assumes approximately $10 million of tariff-related cost impacts to the business in fiscal 2026. Fiscal Q3 will see residual cost impacts due to the timing of tariff recovery initiatives and recent changes increasing Section 232 tariffs. We expect to be profit dollar neutral on tariffs by the end of fiscal '26 as we implement our mitigation strategies.

As a reminder, our guidance does not include the impact of the pending Kito Crosby acquisition. We remain enthusiastic about the pending acquisition and our ability to achieve our stated long-term objectives, including synergy realization and de-levering. While we continue to navigate a volatile macroeconomic environment, we remain focused on our controllables, including operational execution, cost control and driving our commercial initiatives.

Operator, we are now ready to take questions.

[Operator Instructions] With that, our first question comes from the line of Matt Summerville with D.A. Davidson.

A couple of questions. You obviously ported the sales goodness you saw in the quarter through the guide for the remainder of the year, but you didn't do the same for earnings. Can you talk about kind of the pluses and minuses that didn't allow that sales goodness to kind of flow through? And maybe the answer is the magnitude of pull forward, it sounds like you may have had into the quarter. And if that would be the case, can you help us kind of understand and quantify that? And then I have a follow-up.

Sure. Yes, Matt. And you kind of hit the nail on the head. We had revenues that were pulled forward from Q3 into Q2. And as you know, Q3 tends to be a seasonally low quarter and then Q4 a seasonally high quarter. And so typically, first half, second half tends to approximate one another in terms of top line, but we do have the tariff total of $10 million that we talked about as a net impact to the year still being the amount that we anticipate for the year and a portion of that, probably a few million dollars translating into Q3. And so the combination of the pull forward, the tariff impact in Q3 and the roughly 20% increase in second half versus first half EPS kind of is why we didn't raise the EPS guide on the slightly higher revenue.

And so while we anticipate that we continue to make progress throughout the year, and certainly, we're laser-focused on doing so, realizing those improvements and then making that progress, we thought it was prudent to de-risk the second half of the year with the beat in the first half and focus on executing to deliver on the full year guide.

Matt, this is Greg. There's also another factor to it as well, and that's foreign currency translation. So we're certainly benefiting on the top line from a foreign currency translation, and it was roughly $8 million year-to-date, and it will be probably a similar number in the second half of the year. And the margin on a foreign currency change is essentially your operating margin times the change in sales. So it's going to have less of an impact on the overall bottom line.

Got it. So there's definitely some moving parts there. So I want to understand 34.3% was a gross margin in Q1. 35.3%, I believe, is what it was in Q2 on an adjusted basis, realizing seasonal factors, realizing timing of how pricing is rolling through and tariff mitigation, there's a lot of moving parts in the back half of the year. Is there a way that you guys can help us kind of triangulate on what the margin sort of cadence looks like from here through year-end?

Yes, sure. And I'm happy -- we'll obviously be able to catch up offline and clarify any questions. But I do want to say that in the second half of the year, if you think about margin performance and you think about our full year guide, the year-over-year gross margin impact, if you compare prior year to this year, would be approximated by the tariff impact of $10 million. $10 million on $1 billion is roughly 100 basis points of margin erosion from a year-over-year perspective. There's a little bit of a mix impact in there as well, given the fact that we are ramping our linear motion factory in Mexico that provides very higher-margin product into the mix.

Also, as we ramp our montratec volumes, those are providing higher volumes, same in automation. But we are also managing through a heavy backlog of lower-margin crane-related solutions that we are providing. And so the combination of those factors, it's a mix impact as well as the headwind associated with the full year tariff impact that results in the gross margin outlook that we have for the business.

And Matt, I'd like to also point out, as you know, that our fiscal third quarter is typically our seasonally slowest. There's less workdays. We have the holidays impact that around the world. And we typically see margins flat to slightly down in the third quarter because of that as there's less absorption in our factories.

And your next question comes from the line of Jon Tanwanteng with CJS Securities.

This is Willem on for Jon. Can you talk to the sustainability of the improved short order activity in the U.S.?

Sure. We were pleased to see that activity come back as we were forecasting. We knew that we had some disruption in our fourth and first quarters as I think our channel partners leaned on their inventory and the kind of unsettled trade relation scenarios played out. But we did see the rebound happen in this quarter. It was robust, and we were pleased with that. And we do anticipate that, that will continue as we advance through the third and fourth quarters. We don't see any reason at this point that, that would go in a wrong direction.

We do have some seasonal impacts in that in the fourth quarter with a lot of customers having year-ends that are measured in December. They may manage inventory in a way that manages that down towards the end of the year. But if you look at the second half, first half scenarios, I think that we'd see reasonable and continued level of demand for short cycle through the balance of the year.

And can you add some color around the project backlog and pipeline and conversion rate trends, both in the legacy business and the precision business?

Yes. I mean really encouraged by the funnel of opportunities that we have. We have record-level funnels in most categories of products. We're in very active and engaged conversations with multiple customers about pretty interesting and significant opportunities.

Those decisions around letting or making decisions around awarding those contracts have taken a little bit longer than we would have anticipated entering our second quarter. And so the timing of those projects being awarded is something that plays out over time. But we're encouraged by the project backlog that we have. As you could see that in the $352 million or $351 million worth of backlog that we have and at the end of the quarter. But we are even more encouraged by what we see in the funnel and how those projects are playing out right now.

We are seeing conversion rates notably in Europe, given some of the deteriorating macro forecast there taking a little bit longer to close if you look at it geographically than those in the Americas. But still, we remain encouraged about what lies ahead.

And your next question comes from the line of Steve Ferazani with Sidoti.

I did want to ask about the timing of the Kito Crosby closing. It sounds like you now think it's going to be 3 months later. You've pushed it off before. I think all you had was HSR to clear. Any reason to be concerned here? Any thoughts on the delay?

Right. Yes. No reason to be concerned. We've substantially complied with the DOJ's second request, and we're working towards closing. We're trying to do so as expeditiously as possible, and we've made progress from a financing, integration planning and regulatory standpoint. As you know, we've secured fully committed financing and completed the syndication of the bridge facility, including the $500 million revolver, and we'll pursue permanent financing as we advance toward closing.

And we're taking full advantage of the time that we have between now and close to make sure that we're preparing for day 1 readiness. And so we've established a full-time dedicated integration management office. We've established a governance structure with our Board around oversight.

And we're working with a group of external resources to make sure that we're wrapping the expertise around this that is necessary to allow for us to accelerate delivery of synergies and de-lever rapidly post close, but also to make sure that we have good business continuity, and we don't disrupt the core business and enable the resources that are focusing there to remain as focused there as can be possible during this transition. So nothing to be worried about there, just working through the process and anticipate closing by the end of our fiscal year.

Fantastic. I'm going to kind of combine a couple of my follow-up, a couple of different questions, but they do link. Strong cash flow this quarter. Typically, second half is much stronger than first half on the reversal on working capital.

Just want to think about, one, how you're thinking about CapEx and cash flow for this year based on your earnings guidance? And two, given that you're pushing out the deal close -- not you aren't, but the deal closed by a quarter and you've had the strong cash flow, are you changing where you think your leverage will be post close?

Yes. So let me start off with the first piece of it, which is where we expect CapEx, and that will be in the 10-Q that gets filed this evening. And we're expecting with where we sit today, roughly $15 million to $20 million of CapEx for the full year. And we are quite pleased with the progress we've made from a cash flow perspective.

And from a leverage perspective, we're talking about big numbers here from a financing perspective. And so even though we expect to drive substantial free cash flow in the second half of the year, we're comfortable that with what we've said earlier that it's going to be in the high-4s roughly when we close. But clearly, there's -- that can move 0.1 point.

And your next question comes from the line of James Kirby with JPMorgan.

Most of my guidance questions have already been asked. But just following up on some of the questions on the U.S. Obviously, a really strong quarter with orders and sales up double digits. You mentioned some industries in the prepared remarks, David, aerospace, energy, but just wanted to dig deeper there. Are there any subsectors you're seeing particular strength or weakness in the U.S.? And how are we looking into September and October here?

Yes, James, we're seeing robust demand across most end markets as we look at the U.S. Certainly, heavy equipment, steel playing a significant role in driving demand. Aerospace is strong. The Department of Defense is strong. And even automotive is picking up, I think, as there's a little bit of rebalancing in terms of ICE engine versus e-vehicle as well as tariff-impacted production plans. And so we provide solutions into that space that are picking up as well.

So feeling good about the level of demand that we're seeing here and anticipate that as we go forward, the tailwinds around labor scarcity, the need for improved production or productivity, automation as well as some of the trade-related impacts will play a benefit, play a role in helping drive demand in the U.S.

Okay. That's helpful. And then maybe for our second question, maybe a high-level one on what you're seeing in lifting in North America and especially as it relates to the competitive environment. Just broadly speaking, I assume peers are doing the same things you guys are doing with price surcharges. So maybe you could just speak high level on the dynamic in the U.S. in the lifting space.

Yes. Certainly, we are obviously focused on executing our strategy, and we have been disciplined about improving customer experience, improving our operational performance to meet customer expectations. We continue to make progress there, and we'll continue to do so through the balance of our year and as we head into combining with Kito Crosby.

The competitive landscape is one where our competitors are disciplined, and they tend to follow a similar path to the path that we're following. We try to be leaders in the space. But obviously, we compete against good companies. And they're taking similar actions, as you had indicated, relative to tariff mitigation plans, relative to making sure that we're looking at our supply chains. We're looking at tariff codes. We're looking at the opportunities to rebalance production where we can. And I think that we're in a position where we're clearly focused on doing what we can to execute well, earn more of our customers' business and grow our share in the space. And we continue to remain focused on that as we head into the balance of the year.

Thank you. And that concludes the question-and-answer session of today's call. I will now turn it over to David for final remarks.

Great. Thank you, Ludy, and thank you to all for joining us today. In summary, we delivered a solid Q2 with 8% sales growth as we execute on record backlog. Our tariff mitigation actions are beginning to take effect, and we are confident in our ability to offset impacts over time.

Our performance gives us the confidence to increase our full year revenue outlook and reiterate guidance for adjusted EPS. Our demand pipeline remains healthy, and we are focused on executing our commercial and operational initiatives to deliver results for our customers. That focus, combined with effective cost management and strong cash flow generation positions us to deliver shareholder value over time.

We also continue to make progress towards the closing of the Kito Crosby acquisition and remain enthusiastic about the value this strategic combination will unlock for all stakeholders as we more than double revenue, deliver top-tier industrial margins and generate strong cash flow, enabling rapid de-levering.

Thanks for investing your time with us today. As always, please reach out to Kristy with any questions. Thank you.

Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.