Columbus McKinnon Corp (CMCO) 2018 Q4 法說會逐字稿

Greetings, and welcome to the Columbus McKinnon Corporation Fourth Quarter and Full Fiscal Year 2018 Financial Results Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Deborah Pawlowski, Investor Relations for Columbus McKinnon.

Thank you.

You may begin.

Thanks, Michelle, and good morning, everyone.

We certainly appreciate your time today and your interest in Columbus McKinnon.

I have here with me today Mark Morelli, our President and CEO; and Greg Rustowicz, our Chief Financial Officer.

You should have a copy of our fourth quarter fiscal 2018 financial results, which were released earlier this morning.

And if not, you can access those and the slides that will accompany our conversation today at our website, cmworks.com.

If you'll turn to Slide 2 of the slide deck, I will review the safe harbor statement.

As you are aware, we may make some forward-looking statements during the formal discussions as well as during the Q&A session.

These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today.

These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed with Securities and Exchange Commission.

These documents can be found on our website or at sec.gov.

During today's call, we will also discuss some non-GAAP financial measures.

We believe these will be useful in evaluating our performance.

You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP.

We have provided reconciliation of the non-GAAP measures to comparable GAAP measures in the tables that accompany today's release and the slides for your information.

So with that, if you would please turn to Slide 3, I will turn it over to Mark to begin.

Mark?

Thank you, Deb.

We had a strong quarter finishing a great fiscal 2018.

We're on the right path having implemented the first phase of Blueprint 2021 and the team is firing on all cylinders.

Our positive momentum is due to the deployment of our new operating system, E-PAS, or Earnings Power Acceleration System, as well as our focus on key initiatives and the performance culture taking hold.

We finished with Q4 sales of $214 million, growing 17% over last year's fourth quarter.

Organic growth, which excludes STAHL and the benefit of foreign currency exchange, was up more than 4% for the quarter and nearly 7% for the year.

Solid execution and favorable project mix drove further margin expansion as gross margins for the quarter and the year achieved new records.

This performance helped drive our fiscal 2018 diluted earnings per share to $0.95, up from last year's $0.43 on a GAAP basis.

Our new approach to the business and the benefit of favorable markets grew our total backlog 16% since the end of December.

The STAHL acquisition is now more than a year behind us, and Q4 has only 1 month of acquired revenue.

STAHL was accretive $0.06 to earnings per share this past quarter and $0.17 for the full fiscal year, proving itself an excellent acquisition.

STAHL's backlog was up 13% from the end of December, and they continue to provide strong margins.

Importantly, we continue to demonstrate the excellent cash generating capability of our business, delivering nearly $70 million in cash from operations and providing a strong free cash to net income ratio that was greater than 100%.

Our solid performance in the fourth quarter and the year validates our Blueprint 2021 strategy as we transform into a high-performing industrial technology company and increase our earnings power.

Phase 1 of Blueprint 2021 drove fiscal 2018 results, and I'd like to thank the Columbus McKinnon team for their hard work and dedication.

Let me quickly walk you through the progress we made on our top priorities.

Our initiative around STAHL value creation surpassed its first year goal to achieve $5 million in synergies by attaining $6 million.

We further leveraged the STAHL acquisition to implement a new platform and go-to-market strategy, and we now expect to surpass our original total goal of $11 million to achieve $15 million of synergies annually.

We further leveraged our Magnetek technology with the launch of several models of variable speed drive to include the ShopStar VS and Prostar VS.

And we effectively launched our first full-featured smart hoist, the Lodestar VS.

By strengthening the core, we improved product availability and reduced lead times to drive sales and market share gains.

And for the quarter, adjusted operating income was $21 million or 9.6% of sales, up 22%.

For the year, adjusted operating income was just over $80 million, a 32% increase.

Margins expanded in the year by 180 basis point to 9.6%.

Adjusted EBITDA margin improved 220 basis points to 13.9% for the year.

As Greg will address, our debt repayment well surpassed our original plan.

We paid down nearly $50 million in the quarter and about $60 million in fiscal 2018.

Improved performance drove strong cash generation.

As a result, net debt to adjusted EBITDA was at 2.6x at the year-end, surpassing our goal to get under 3x net leverage by the end of the fiscal year.

We also implemented our new operating system with wide adoption and good penetration.

E-PAS enables better decision-making and engagement of the team to grow faster than the market with better conversion to the bottom line.

Our accomplishments this past year have achieved the intended results, and we'll build from processes we put in place and our positive momentum.

Before I walk you through our outlook and where we go from here, let me turn the call over to Greg.

Greg?

Thank you, Mark.

Good morning, everyone.

On Slide 5, consolidated sales in the fourth quarter of $214.1 million were up 16.6% from the prior year.

STAHL added $13.6 million of acquisition sales or 7.4%.

We have now passed the 1-year anniversary of the STAHL acquisition, which occurred January 31, 2017, and we will no longer show acquisition revenue for STAHL going forward.

Excluding FX, we also had organic sales growth of $7.7 million or 4.2%.

Sales volume was up $7 million or 3.8%, and pricing was higher than the previous year by $700,000 or 40 basis points.

Overall, our vertical markets remained strong and backlog was up 16% from December.

Foreign currency translation continued to be a tailwind and increased sales in the quarter by 5%, largely the result of a stronger euro and weaker U.S. dollar.

For the quarter, U.S. sales were up $7.6 million or 7.3%.

STAHL contributed $1.4 million of acquisition revenue to our U.S. sales.

Sales outside of the U.S. were up $22.8 million or 28.7% with $9.1 million of the change due to FX.

STAHL contributed $12.2 million of acquisition revenue to our international sales.

Overall, we saw a solid organic growth in the quarter as the U.S. and EMEA regions showed strength and Canada improved.

EMEA saw high-single digit organic growth in the quarter as the business environment remained strong.

On Slide 6, we achieved record adjusted gross margin of 34.6% in the quarter and 33.7% for the year.

We did benefit from an exceptionally strong gross margin out of STAHL this quarter, which is not likely to be repeated as it reflected an unusually strong project mix.

Our fourth quarter gross profit of $74.6 million increased by $24.3 million or 48.2%.

Adjusted gross profit was $74 million, an increase of $14.8 million or 25.1% versus the prior year.

The reconciliation for adjusted gross profit can be found on Page 17 of this presentation.

Let's now review the quarter's gross profit bridge.

The STAHL acquisition added $5.6 million of adjusted gross profit.

This represents STAHL's gross profit for the month of January 2018.

Higher sales volume and mix contributed $2.7 million of gross profit.

We also saw positive productivity net of other cost changes in our plans this quarter of $3.2 million, which increased gross profit.

Foreign currency translation added $3.2 million of gross profit.

The impact of higher pricing more than offset raw material inflation, which positively impacted gross profit by $200,000.

Other items positively affecting our gross profit are pro forma items, which includes STAHL inventory step-up expense incurred in the prior year of $8.9 million and a partial recovery on an insurance claim, which added $600,000 of gross profit.

As shown on Slide 7, RSG&A costs were $54.3 million in the quarter.

This includes $4.9 million of pro forma costs related to the STAHL integration, debt repricing fees and legal costs for insurance recovery litigation.

Excluding these items, RSG&A was $49.4 million versus our previous guidance of $46 million.

Foreign currency translation impacted the guidance by $800,000 as the euro strengthened relative to fiscal fourth quarter.

The remainder of the variance was due to higher selling expense in the fourth quarter, partially due to higher sales volume as well as the timing of certain costs, a bad debt provision we recorded for a customer who filed bankruptcy, and additional warehouse closure costs related to subleasing.

Compared to the prior year, the STAHL acquisition added $3.3 million to RSG&A costs.

Unfavorable foreign currency translation also increased RSG&A costs by $2.4 million.

We also incurred $1.5 million in higher incentive compensation costs.

These costs were partially offset by $5.3 million of lower pro forma items affecting RSG&A this year versus last year.

Our quarterly forecasted RSG&A run rate is expected to approximate $48 million in the first quarter excluding pro forma items.

We expect to incur approximately $2 million for additional restructuring actions as part of the STAHL integration.

This will yield annual savings of approximately $4 million, with $3 million realized in fiscal 2019.

Of these savings, approximately half will affect RSG&A.

This will lower our RSG&A spend to approximately $47.5 million per quarter beginning in the second quarter.

All in, we estimate a total spend for STAHL integration of $11 million with savings of $14 million in fiscal '19 with an additional $1 million coming in fiscal '20.

Turning to Slide 8. Adjusted income from operations grew 22% to $20.6 million or 9.6% of sales.

This compares to adjusted operating income of $16.9 million or 9.2% in the prior year.

Adjusted operating margin improved 40 basis points over the prior year.

We achieved $6 million of STAHL synergies, which is ahead of schedule.

I do want to point out that there is a new pension accounting standard that is effective for us in fiscal 2019.

This will have the impact of moving $2 million of pension income on an annual basis from operating income to other income expense on the income statement.

There will be no impact to net income or EPS.

The reconciliation for adjusted operating income can be found on Page 18 of this presentation.

As you can see on Slide 9, GAAP earnings per diluted share were $0.36 versus the loss of $0.22 per diluted share in the prior year period.

Adjusted earnings per diluted share for the fourth quarter of fiscal 2018 were $0.51 compared to $0.45 in the previous year, an increase of $0.16 per share or 13%.

STAHL contributed $0.06 of accretion to adjusted EPS this quarter and added $0.17 of accretion for the full year.

This is an outstanding result.

The reconciliation of GAAP earnings per share to adjusted earnings per share can be found on Page 19 of this presentation.

All adjustments are tax affected in our normalized tax rate of 22%.

On a GAAP basis, our effective tax rate in the current quarter was 23.5%.

Turning to Slide 10.

For the full year, GAAP earnings per diluted share were $0.95 versus $0.43 per diluted share last year with the current year negatively impacted by the effect of tax reform.

Adjusted earnings per diluted share for the fiscal 2018 were $2.01 compared to $1.47 in fiscal 2017, an increase of $0.54 per share or 37%.

The reconciliation of full year GAAP earnings per share to adjusted earnings per share can be found on Page 19 of this presentation.

We expect the full year effective tax rate for fiscal 2019 to be between 21% and 23%.

We are making significant progress on our Blueprint 2021 financial goals.

Our adjusted EBITDA margin was 13.9%, significantly improved from 11.7% in the prior year.

We also saw our return on invested capital improved to 8.9% from 6.4% in fiscal 2017.

Turning to Slide 11.

Our working capital as a percent of sales was 17.9% in the fiscal fourth quarter.

This compares to 17.4% at December 31, 2017, and 18.6% at March 31, 2017.

Working capital as a percent of sales decreased 70 basis points from the prior year quarter, reflecting higher DPOs and higher accrued liabilities largely due to higher incentive compensation accruals.

Inventory turns were 3.7 turns lower than a year ago and down slightly from December levels.

We are carrying higher inventory levels currently to improve our on-time delivery as the markets are strong and our backlog is up substantially.

We believe that our product lines simplification initiative will favorably impact turns later in fiscal 2019.

On Slide 12.

Net cash from operating activities for the year were $69.7 million, which was higher than the prior year amount of $60.5 million.

For the year, free cash flow was $55.1 million.

Our guidance for capital expenditures for fiscal '19 is $15 million to $20 million.

Turning to Slide 13.

Our total debt was $363.3 million and our net debt was $300.3 million as of March 31, 2018.

Our net debt to net total capital was 42.4%.

We repaid a total of $60 million of debt this year, surpassing our initial target of $45 million to $50 million set at the beginning of the year.

We made excellent progress delevering and have achieved the net debt to adjusted EBITDA ratio of 2.6x.

Our long-term target for net leverage is approximately 2x, so we are almost there.

We expect to repay another $60 million of debt in fiscal 2019.

Once we have delevered the balance sheet, our capital allocation priorities will continue to be funding our organic growth initiatives; acquisitions consistent with Blueprint 2021; and finally, returning excess cash to shareholders via dividends or share repurchases.

I will now turn it back over to Mark to wrap up.

Thanks, Greg.

The strong results for fiscal 2018 represent our teams' capability and the relevance of our Blueprint 2021 strategy.

We executed well as our performance culture is taking hold and this shows our commitment and passion to create a great company.

Our global leadership team and associates are pulling together to achieve our goals, and I thank them for their efforts.

We're making great strides building a business model that can consistently deliver better than 15% EBITDA margins and improve ROIC to greater than 10%.

We've entered fiscal 2019 with a strong running start on Phase 2 of Blueprint 2021 and are building from the competencies of Phase 1. To accomplish this, we'll focus on 4 critical activities.

The first is to simplify the business.

As you know, we restructured the company into 3 product groups that better address our customers' needs, allow us to act with more speed and streamline our processes.

These are industrial products, crane solutions and engineered products.

We are simplifying our business through product line and platform rationalization.

We're adopting common platforms to drive better features for our wire rope hoist customers as well as streamline our offerings across the business to provide greater focus to capture more customer mindshare.

The proof of our success will be recognized by reaching our EBITDA and ROIC goals.

Our second critical focus will be on improving productivity.

We expect to exceed our objective $11 million in synergies from the STAHL acquisition and achieve an additional $4 million annual savings.

As Greg mentioned, we expect that you'll begin to see results in our second fiscal quarter.

We also have a significant runway of opportunities in managing our operations better from material cost management and further focus on labor productivity, particularly indirect labor.

Our third critical focus area is on ramping the growth engine.

Future growth will be driven by focusing on solving tough customer problems.

If we do a good job addressing our customer needs, we'll provide products that leverage our digital platform for ease of doing business.

We will also incorporate relevant technologies that enable higher yield, better productivity and improved safety.

This includes how we go to market, how we interface with customers and the capability of our products that we developed.

This has everything to do with investing in our technologies and positioning the business to capture market share.

Finally, to be effective with the amount of change we're implementing, we have to further transform the culture.

This involves a great deal of commitment by our team.

We've defined our mission, vision and set out goals that we must work to achieve.

While it may appear simple, the intensity to affect this change has not been easy, but we've made excellent progress.

I applaud our team for their effort and dedication to the company, to our customers and to the strong legacy of providing professional-grade products that Columbus McKinnon represents.

We're taking advantage of current favorable tailwinds that continue in our markets.

We've seen industrial capacity utilization in both the U.S. and Europe trend upward and several target verticals are seeing strong demand.

Given our strong backlog and the momentum we have in the business, we believe first quarter sales will be about 7% to 9% over last year's first quarter, about 1/3 of the increase is from the benefit of FX.

We expect solid performance in fiscal year '19.

And as a reminder, our focus for the year will be on Phase 2 of our strategy, which is about delivering earnings growth.

Michelle, we can now open the call for questions.

(Operator Instructions) Our first question comes from the line of Greg Palm with Craig-Hallum Capital Group.

I mean, based on the results in, I guess, backlog levels, there doesn't seem to be much of any impact of any of that sort of tariff-related noise out there.

So I'm just kind of curious what you're hearing from customers and maybe how is quoting and sort of order activity trended this far and the June quarter as well.

Yes.

Our trend in the June quarter sort of starts off April, a little bit lighter than we had in March.

And the reason being is that we have a lot of promotions that run through the March quarter.

So that -- we expect that to be a little bit down.

But overall, the activity remains really strong.

And to really get to your question, we're not seeing much impact due to the noise around the tariffs.

Obviously, there are some geopolitical concern there, but folks seem to have a pretty bullish view on CapEx.

And we see a lot of quoting activity that continues.

So hopefully, we'll do good and we'll land some of that and continue with some strength.

From an end-market perspective, anything you want to sort of call out that either drove upside to the quarter based on your earlier expectations?

Or just what's sort of driving the order backlog activities recently?

Sure.

I'm happy to.

We're seeing a really good activity in construction markets.

Obviously, our products, mostly on the hand tool side in our electric-chain-hoist-type products are used in construction.

We're seeing a really broad acceptance of that based on strength in the construction markets.

In general manufacturing, including steel, we're seeing a lot of uptake there, a lot of refurbishment of steel mills as they're adding new capacity as they're refurbishing some of their older capacity.

We're selling a lot of Magnetek controls into those kind of retrofits, and that's been a really good business for us.

Entertainment is strong.

It's a -- folks are getting ready for the festival season in the summer time.

So folks are loading up on their inventory before they go out more on the road.

And so that's looking pretty bullish as I think folks are feeling pretty comfortable with spending money for entertainment venues.

And those entertainment venues are becoming a little more extravagant to try to attract greater crowds.

Oil and gas, particularly in the midstream and downstream, seem to be going well, that's both sort of pipeline work as well as a refinery LNG.

We're getting continued quotes there as we see the EPC contractors trying to build that out, and that's go out over the next couple of years.

And then, we've got things like automotive that folks I think in the U.S. had been somewhat concerned that maybe the markets have leveled there.

But we continue to see model changeover, which really drives our product line.

And that's been really good for us so far, and that's kind of continuing to this year as well.

So I think it's pretty broad-based also from an aerospace as I think orders for aircraft has been up, and we have a very strong product line there as well.

So I think we're pretty comfortable with what we're seeing on some targeted vertical markets, and we're getting some good growth.

Yes.

That's great.

And I guess just last one from me.

In terms of Blueprint 2021, what areas are you seeing the most improvements or success to date?

I know there's 3 phases and a handful of different initiatives in each phase, but I wanted to get some more color on sort of the overall progress there.

Yes.

Sure.

I think on the Phase 1, I think you're seeing a lot of positive momentum.

Our operating system has definitely enabled us to focus much better.

We deployed that down to 13 distinct businesses, so it's well deployed and the penetration has been deep in the company.

And it really enables us to focus with clarity on what we need to be spending our time on and how we deliver results.

And so that's just a process now that we've built into the company.

And as we've now organized into these 3 product categories, that is embedded deep into the company.

What we've carried forward from our 4 initiatives from last year, particularly strengthening the core, has added real value to what we're doing on product availability, which we think is really a key hallmark to how we can further gain share, particularly in the market where it's beginning to tighten up on supply.

And while we have a lot of quoting activity out there, it's really imperative that you deliver on time to your customers.

And then as we go into Phase 2, as we build off that positive momentum, the first real area that we're going to get traction from is on this product line simplification area, and we think there's some great runway of opportunity there.

Because of the complexity that we've had to go to market, it's actually been confusing for some of our sales people and our customers, and I think it's -- we carry unnecessary indirect costs serving that.

So as we clean that up, we're going to get I think a lot of traction out of that.

So we're going to continue to mine that opportunity.

We're early earnings on that, but I think the team is really focused and we feel very good about what that pack can deliver.

And then as we get later into Blueprint 2021, we'll get more some of this operational benefit.

We had a new VP of Operations join us recently this past quarter.

Perhaps, you saw the announcement.

And he's just getting dug in there, but I think there's a long runway to -- of opportunity there.

And then the later phase of this Phase 2 that we're in is really on the ramping up the growth.

And as you know, we have a new Head of Product Development that we have a search going out for.

And hopefully, we'll make announcements on that soon.

And we think that, that will really plant the seeds for growth out into future years.

Hopefully, that gives you some color.

Our next question comes from Michael Shlisky with Seaport Global.

This is Ryan Amberger on for Mike.

Just a few quick ones.

Could you give us a sense of whether the record gross margins we saw in this quarter are repeatable?

I know you mentioned that you saw a benefit from STAHL.

And do you think you can beat fiscal 2018 in the year ahead?

Yes.

So we did see substantial margin coming out of STAHL largely due to projects that had a richer mix than in general.

But I think we made excellent progress on gross margins.

I think for most of the year, we've been in the high 33s to the low 34s.

We would expect to be able to continue in that zip code from a margin perspective going forward.

And as we start to see the benefits of Phase 2 of Blueprint 2021, we should expect our gross margins to further improve.

Great.

And then one other quick one.

Just a quick clarification on the 7% to 9% growth for fiscal Q1.

What's the pricing assumption there?

And what's your pricing expectation for the full year?

Yes.

So As you know, we go out with price increases generally in the fiscal fourth quarter in the U.S. And at this point in time, we would expect our pricing to be higher than it was in fiscal '18 where it was 40 basis points, but we're not yet ready to go out and -- with a number of what we expect to see for the year.

I think we'll have more clarity once we see what price increases stick and how that all shakes out.

But once again, we do expect higher pricing overall in fiscal '19.

Our next question comes from Jon Tanwanteng with CJS Securities.

A lot of companies have been seeing increased steel and freight expenses and even more recently, a lack of freight capacity.

Just -- can you touch on what you're doing from a pricing perspective to offset that?

Are you going to exceed the increases there?

And are you changing anything operationally to make sure you have enough capacity for shipping?

Yes.

So Jon, we're certainly seeing inflationary environment, and we're certainly seeing steel prices go up.

We're impacted by steel because we buy bar stock, and we also make link chain.

However, we're not nearly as impacted by some of our crane builders that have to buy the stand girder and put the whole crane together.

So I think we've been able to mitigate the material inflation pretty well.

We have a new process in place with our head of operations.

And so we're -- we feel pretty confident about what we're seeing.

So far, we're able to mitigate.

And obviously, we've passed on pricing.

And we've done this historically.

We've done really good at passing on pricing as well.

So we're monitoring things very carefully.

I'll turn it over to Greg because I think he should make some comments on this as well.

But before I do, on the logistics side, folks have asked us this question before.

So I'm really careful to ask our customers, "Are we having some problems?" And I think maybe there's been some very minor issues.

But in relation to some of the transportation issues we had worked through around some of the hurricanes last year, there's really been nothing to speak of.

And so we've been able to manage that quite effectively as well.

Greg, do you want to make some comments?

Yes.

So Jon, in our press release, our raw material inflation ticked up to about $0.5 million in the quarter.

And that's up sequentially from $300,000.

So we are seeing a bit of a rise.

But as you know, we -- we'll more than cover that with price increases that we've announced to our customers.

And we don't see any issue with inflation at this point in time.

As Mark mentioned, we have a good process in place.

And we leveraged our supply base and look for other sources as necessary to mitigate any inflation concerns that we would have.

Okay.

Great.

Thanks for the color.

One more for Greg.

After paying down debt in '19, I think you have a $60 million target out there, are you expecting to have any excess cash generation to pursue other metal diode enhancing activities that's -- with the $15 million to $20 million CapEx also in line?

Yes.

So the $60 million of debt repayment, which we expect in fiscal '19, will get us down to right about the 2x net debt-to-EBITDA leverage ratio.

So it's really more of a question for fiscal '20.

I see at this point in time, our excess cash will predominantly be used for delevering.

And at that point in time we'll be at our targeted level of roughly 2x.

Our next question comes from the line of Matt Koranda with Roth Capital Partners.

Just wanted to touch on pricing one more time.

And maybe could you talk about it from a competitive environment standpoint?

Sort of, what have you observed competitors or others doing in the space in terms of pricing to offset raw material inflation?

Are they following suit with you?

Just any color on the sort of what you've observed in the marketplace.

Yes.

So Matt, we've definitely seen a -- some of our competition go up on price.

I think folks are looking to move forward with their CapEx projects.

So many CapEx projects has been on the books for a long period of time.

And they're very confident, I guess, moving forward, which is why we're seeing some of these order intake.

And so I think as a consequence, the market right now is willing to accept some of those pricing increasing and obviously passing that on to some of their customers as well.

So I don't know that we're really running into a whole lot of barriers there.

And so I think at least for what we see so far, obviously, things could change.

And we're in an inflationary environment, so we're going to watch things really carefully.

But what we've been able to see and experience so far, I don't think there's a huge amount of concern.

Yes.

So, Matt, let me add one other point on the whole pricing discussion.

So when we calculate pricing, it's based on standard product.

And so we calculate the change in pricing on a comparable hoist, for instance, that we sold in the previous year.

So in our highly engineered business, when we go out and quote on that, we're taking into account our current input costs.

So that, because we -- it's a unique project that [hadn't] been sold in the previous year, when we get that revenue, there is no price on it per se, it's all in volume.

But implicitly, in our bidding process, we're taking into account current raw material costs to come up with our bid price.

Got it.

So that offsets the raw material inflation, sort of, on a real-time basis for highly engineered products.

Yes.

And it doesn't show...

(inaudible) if you could, between the 2, for overall for you guys?

Sorry, Matt.

We didn't hear that.

Could you repeat that?

Yes.

Sorry.

Remind us the mix of standard versus this highly engineered product for Columbus McKinnon overall.

Well, I can answer it from a STAHL perspective.

So about 55% of the STAHL business is engineered to order.

So that's a pretty heavy aspect to their business and their business model.

For Magnetek, there's also -- probably, a majority of their business is in that as well.

So the 2 more recent acquisitions, that's a big part of their business.

So I think that speaks to the tight business model where they're able to price relatively quick in on the market to reflect whatever changes are there.

And then the other type product is fairly quick turn.

We don't have as much visibility on it.

But as you know, it moves off the shelf fairly quickly.

And as a function, we feel like we'll be able to react pretty quickly to changes we see there as well, because the lead times on that are not that long.

Yes.

Just as a kind of a ballpark number, Matt, if you were to look at legacy Columbus McKinnon prior to the Magnetek and STAHL acquisitions, our engineered to order would be roughly 20% of our revenue.

Okay.

Very helpful, guys.

And then just another one here on the new product introductions.

I don't think we've talked about it enough on the call.

But I noticed some new wire rope placed announcements from you guys.

And I wondered if you could sort of spend a minute or so and talk about if those are in fact leveraging some of the wire rope placed IP or production knowhow from STAHL, and then how are those products being received in the market.

I'm just talking specifically about the YK and the Shaw-Box SK announcement from maybe a few weeks ago.

Yes.

Thank you for the question.

We're really happy to talk about that.

We're excited because this is a great example of how we can leverage some competencies from Yale and also Magnetek across our wire rope hoist platform.

And so what we're essentially doing is we're getting a more featured product, and we're being able to offer that into what we consider more of the standard-type offerings not the -- necessarily the engineered to order, but you're able to offer an extended range in terms of tonnage and as well as features.

And I think this offers our customer a greater choice and also gives us greater brand leverage, both into the Yale and Shaw-Box brands.

So we're getting really good receptivity from our customers.

Obvious thing they ask about these days are, "How's availability doing?" So obviously, we're working on that so we can carry through with very good availability.

But so far, things look really good.

We've launched the initial offering there.

So we're through with that Phase 1 of that.

And this year, we're working on an expanded tonnage range and also kit cranes.

And we'll be launching that later this year.

So we're really excited about the approach.

We're really excited about what our new product development activity can become.

It's early stages on some of the things we're working on, but -- and from our -- you can see from our variable speed launches as well.

But we think that this is going to be a great path for Columbus McKinnon.

And Matt, just to also add on to it.

So this project was actually part of the synergies we expected from the STAHL acquisition and are part of the incremental $5 million that we're going to get in fiscal '19.

Okay.

Perfect.

Yes, that was actually my next question.

I mean, is that -- is this particular project the bulk of that incremental $5 million that you're anticipating?

Or could you call out the other items that sort of are the drivers of the incremental synergies?

So it's a part of it.

The other part of it is that, as we've understood, this new ability to organize more effectively, how we go to market from this customer back, we've been able to streamline things more effectively.

So I think it's a combination of both.

It's a significant piece of the savings for sure.

Okay.

That's helpful, guys.

And just a housekeeping one really quickly, then I'll turn it over.

Are you guys going to report on the 3 segments that you mentioned in your prepared remarks?

And I know you called them out before, but are you going to start reporting revenue on sort of -- on that basis?

How should we think about that?

Yes.

I don't think so.

At this point, Matt, I think right now, these are really product categories.

We certainly run the business at the corporate level, and we think it might be misleading if we kind of go down that path.

So at least for right now, we're going to maintain our current reporting that we have.

We also have a -- some difficulty with accounting at that level as well.

So I think it would just provide us a level of difficulty and perhaps may be misleading.

(Operator Instructions) Our next question comes from the line of Christopher Hillary with Roubaix Capital.

I had a question on pricing, but I think everyone else covered that really well, so thank you for all that.

Maybe would you care to just talk a bit more about the new COO, his background and skill set and how you anticipate that applying to Columbus McKinnon?

Sure.

Let me clarify that.

So the gentleman that has joined is our new Head of Operations.

So he's Vice President of Operations across the company.

And his background, he started with Toyota in the lean production system and worked up through Danaher company.

So he's got very much a Danaher training and has spent many years kind of coming from that type business model, if you're familiar with that.

And operationally, he's worked on turnarounds, he's worked on world-class businesses.

So I think he's really sort of seen the whole spectrum.

And what he's really focused on is I think we've got a tremendous runway of opportunity of operations here.

We've never had this position filled at Columbus McKinnon.

We've got roughly 2.5 million square feet, including our warehousing and we've consolidated a little bit of the warehousing there, but when you look at how our factories run, I think we're definitely on the lean journey, but how we get to world class, we've got a long way to go.

And I think there's a tremendous runway of how we improve our management of material costs, how we improve our labor productivity, how we look and manage our footprint, there's just a real tremendous opportunity.

And I think he's the right guy for us because I think he's seen what it's supposed to look like, but he's also -- can roll his sleeves up and help us get there.

Yes.

And Chris, just to clarify for you and for people on the line, Vice President of Operations is essentially he's in charge of all of our manufacturing facilities.

He does not have any sales responsibility at all.

So typically, a COO would be in charge of businesses.

That is not what this gentleman is responsible for.

Okay.

And then maybe one more.

We've seen more signs of strengthening in the CapEx cycle.

And I'm curious if you see that developing your backlog or maybe the length of time.

I think you mentioned capacity filling up the industry.

Are you starting to see your backlog extend out a bit in a healthy way?

I.e., kind of longer, larger projects coming through?

Yes.

Chris, so typically, we do report that in our press release.

And we're consistently within a 32% to 34% or 35% range of backlog that is going to ship after the coming quarter.

So I would say it's pretty consistent.

So of our current backlog of $177.4 million, there's roughly $118 million of backlog that is due to ship in the current quarter that we're in, the June quarter.

There are no further questions at this time.

I would like to turn the call back over to Mark Morelli for any closing remarks.

Well, thank you very much for joining us on today's call.

I appreciate your interest in Columbus McKinnon as we execute our path for creating greater value through our Blueprint 2021 strategy.

Thanks, folks.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation and have a wonderful day.