Columbus McKinnon Corporation (CMCO) Earnings Call Transcript & Summary

Welcome to Columbus McKinnon's 2022 Investor and Analyst Day. We're very pleased to have all of you here in the room as well as those of you that are participating via the webcast. I'm Deborah Pawlowski, Investor Relations for Columbus McKinnon. Let me first introduce -- let me first -- well, I'll first make note that we may make some forward-looking statements during this presentation as well as during the Q&A that are covered by the safe harbor statement noted on this slide. We will also be mentioning some non-GAAP financial measures. The reconciliation of those non-GAAP financial measures to GAAP measures are included in the slide deck that will be posted on the website as supplemental slides. Now let me introduce you to the management team that is here with us today. We have David Wilson, our President and CEO; Greg Rustowicz, our Chief Financial Officer; Bert Brant, our Senior Vice President of Global Manufacturing Operations; Appal Chintapalli, who is our President of EMEA and APAC, newly appointed to that position by the way; Alan Korman, our Senior Vice President of Corporate Development and General Counsel; Mark Paradowski, Senior Vice President and Chief Digital Officer; Mario Ramos, our Senior Vice President of Global Product Development and Marketing; Terry Schadeberg, our President of Americas, also a new position; and Adrienne Williams, Senior Vice President and Chief Human Resources Officer. You will be hearing from most of these management team members today as we go through the agenda that you will note here. We will be taking a break roughly around 10.15. [Operator Instructions] And we should get to our question-and-answer session around 11:30 or so. [Operator Instructions] We will finish around 12:30 today. And for those that are in the room, I do hope you will join us for lunch, and those on the webcast, you're missing out. [Presentation]

Great. Good morning, everyone, and welcome. It's been great to see many of you here this morning. And also, I know we have a large audience online. I'm thrilled to be here with members of my management team to share the exciting things that are happening at Columbus McKinnon, as we advance our transformation of the business and unlock the significant value creation potential we have as a company. When I joined Columbus McKinnon in 2002 in June, in fact, we were just into the early innings of the COVID-19 pandemic. Needless to say, it was a challenging time to join a new company and also for an organization to take on a new leader. Now 2 years into the change, and I couldn't be more pleased with how -- or proud, I should say, with how the team has responded. Not only have we significantly navigated -- have we navigated the significant disruptions brought on by the pandemic, we've built a stronger and more agile business in the process. Over the past year, we've achieved several new quarterly firsts for the company, including achieving record orders, record sales and record gross margins while facing some of the most challenging macro environments in our lifetimes. Overall, in fiscal year '22, we executed to deliver 40% growth in revenue, 75% growth in operating income and 81% growth in adjusted EBITDA. We also significantly advanced Columbus McKinnon's strategy and have taken several significant actions to transform the business, including the development of our Columbus McKinnon Business System, or CMBS, our Core Growth Framework and the completion of 2 transformative acquisitions. While all of this has improved the business and our position among our motion control peer group, what is more important is how it has positioned us to progress even further, unlocking the potential Columbus McKinnon has to be the global leader in intelligent motion solutions for material handling and to advance beyond what we have defined as our blueprint for growth, emerging as a leader among our motion control peer set. I want to begin today's session with a bit of a background on how we went about advancing Columbus McKinnon's strategy. What you see on the screen is the strategic planning framework that we established within our Columbus McKinnon Business System. This framework defines our disciplined approach to strategic planning. This process begins with an assessment of internal factors like who we are as a company, our strengths, our weaknesses, et cetera, and is then paired with an assessment of the external factors. So things such as market, macro trends, competitive landscape, customers, adjacencies and so forth. You can think of this as a comprehensive SWOT analysis of sorts. The framework then advances to defining our purpose, our values, our vision and transitions to strategy clarification and deployment, leveraging Hoshin Kanri methodologies and concludes with cascaded personal objectives. All of this sits on and is supported by a foundation that includes the appropriate talent development initiatives, organizational structure, the Columbus McKinnon Business System, change management capabilities and good governance practices. Critically important to our success is Columbus McKinnon's culture and the engagement of our global employees. Leveraging our strategic planning framework, we spent the last year working with hundreds of associates from around the world to clarify Columbus McKinnon's purpose and refreshed our core values, vision and mission. As a collection of acquired companies, it was important that we clarify our why, a purpose that would unite the company around a single reason for existence. A purpose that employees and customers could connect with emotionally and one that would build a sense of loyalty with the company. For nearly 150 years, Columbus McKinnon products have been used to lift position and secure materials. And over the last few years, we've added capabilities that enable intelligent motion and integrate controls and automation technologies into our offerings. Our customers benefit from the safety, productivity and uptime improvements these offerings enable and the interconnectivity, control and diagnostic information that our intelligent motion solutions provide. Ultimately, the products that are produced within the processes that leverage Columbus McKinnon technologies advance the world and the end users of these products benefit significantly. And that's the connection that led our team to define and align around Columbus McKinnon's purpose statement which is, together, we create intelligent motion solutions that move the world forward and improve lives. Each month, I host a global leadership communications meeting with the top leaders from around our company. I now begin those meetings with an example of what we call our purpose in motion. It's a bit of play on words. But that's what we call it. We call it our purpose in motion. And to do this, I leverage a slide that might look similar to this that shares images and a summary that's specific to the project that we're highlighting. And that information illustrates our purpose in motion. And on this slide, you see a number of images. Those images, and I'll give you a little clarity on some of them, are examples of our purpose in motion. And you can see the use of our precision conveyance equipment to automate the production of COVID-19 vaccines. The use of our actuators to precisely and safety lift and service advanced transportation systems. The use of our precision conveyance equipment to automate e-commerce fulfillment, and the use of our entertainment hoists and rigging equipment to support traveling crane systems at the National Aquatics Center for the Summer Olympics. Our solutions do make a true difference in the lives of the people around the world that use them. And they are used day after day in critical applications that move the world forward. These are exciting times for Columbus McKinnon and the customers that we serve, and we're thrilled about the future that we're creating. Following our assessment of internal and external factors and the development of our purpose, values and vision statements, we clarified our strategy, which is to transform Columbus McKinnon from a legacy cyclical industrial company to a top tier, secular growth, intelligent motion solutions company. We'll do this by executing on our strategic priorities, which are highlighted on the slide, and I'll just cover them quickly. We're going to strengthen and build upon Columbus McKinnon's core. We're going to invest in high-growth, high-margin platforms. We're going to increase our exposure to high-growth secular end markets. We're focused on creating an exceptional customer experience for our customers, and we're targeting achieving top-tier performance in comparison to the motion control peer set, leveraging CMBS and our Core Growth Framework. We believe that this approach will transform Columbus McKinnon into a top-tier motion control enterprise. Underpinning the strategy is our strategic framework. And this is a visual depiction of that framework, which begins with the Columbus McKinnon Business System, which is represented by the circular graphic on the left. Here, you see the key principles of our entire strategic framework, those of being market-led, customer-centric, operationally excellent and, at our center, people and values driven. And all of that is encompassed by an ongoing cycle of innovation. The Columbus McKinnon Business System, which leverages elements of Columbus McKinnon's prior Earnings Power Acceleration System, or EPAS, and incorporates 80/20 methodology is the key to strengthening core competencies, enabling scale and creating sustainable competitive advantage. Moving to the right, you'll see a graphic that depicts our Core Growth Framework. This framework emphasizes strengthening the core, growing and expanding as well as reimagining that core for Columbus McKinnon. And it defines our balanced and disciplined approach to prioritizing driving and delivering organic and inorganic growth across the enterprise. We're confident that leveraging this framework, as we execute on our strategy, will deliver attractive growth, financial performance and shareholder value while transforming Columbus McKinnon into a higher value, intelligent motion enterprise. As I mentioned earlier, CMBS leverages the foundational elements of EPAS and 80/20 and expands upon them with a broader set of core competencies, key processes and tools that establish a stronger enterprise foundation in a Columbus McKinnon way, if you will, for enabling growth and in creating scalability. The key principles of CMBS are rooted, again, in being market-led, customer-centric and operationally excellent with people and values at the center. This required a shift for us as a company as we embarked on the journey to adopt those core principles. And it required us to alter our orientation and our perspective to be more outside-in-focused. Being market-led and customer-centric meant that we had to establish a deeper and more institutionalized understanding of the markets that we serve, the competitive landscape that we engage in and the opportunities as well as strategic adjacencies available. And this perspective sharpened our outside-in focus and our insight into what drives customer behaviors; why they buy, what they buy, how they buy. We're improving our knowledge of how we are perceived and that's enabling us to align internally to improve our customers' experience. Double-clicking on the Columbus McKinnon Business System reveals these 10 core competencies that are embedded within the framework. And these are the competencies that we're focused on strengthening to really enable the scale and create sustainable competitive advantage within Columbus McKinnon. Drilling down further into the CMBS framework, you can see that our Level 1 market-led framework element cascades to Level 2 competencies, which cascade to Level 3 competencies and subprocesses -- sorry, Level 3 key processes and subprocesses and then Level 4 tools and enablers. In this example, we're highlighting programmatic M&A as a core competency with Level 3 key processes, including strategic alignment, target identification, screening and outreach, due diligence, valuation modeling and integration. So these would be key processes where we have playbooks around how we operate as Columbus McKinnon as we pursue those elements. And then down to Level 4 tools and enablers that include our M&A pipeline tools, due diligence checklists, valuation models, third-party management resources and tools used to do that, integration tracking tools, et cetera, and leveraging the system that we establish around this to strengthen core competencies through the use of standardized best practices and tools is really increasing clarity, ownership, measurability, accountability within the organization, which is improving our sustainable performance and enabling us to develop competitive advantages over time. Here, you can see that we're on a journey and where we are on that journey. Our 10 core competencies cascade into over 300 subprocesses and key processes. Of these, just under 2/3 are either complete in terms of defining, documenting and establishing best practices or they're in the alignment phase for that activity. We expect to complete the remainder of that work this year as we establish a CMBS office to both strengthen our effort and accelerate returns. Cascading, training and our disciplined approach to execution in these areas will establish a consistent Columbus McKinnon playbook or multiple playbooks for each of these core competency elements with defined processes, templates, tools, metrics and reporting for each core competency area. And like the development of any execution-related differentiated advantage, getting to greatness or great performance really requires relentless repetition and execution, coupled with continuous improvement in innovation, just over and over and over and over again. And as you do something that's a best practice over and over and over and over and over again, you build muscle, you build strength, you build competitive advantage over time. And that's exactly what we're trying to do as we move from being more fragmented as an organization to one that's more combined and focused on these best practices that we can leverage as core competencies for Columbus McKinnon. We're in the early innings of this progression, but we see bright spots across the organization and we're pleased with how things are advancing. This approach, we believe, will ultimately lead to differentiated competitive advantage for our company. As with CMBS, I'd like to go a bit deeper on our Core Growth Framework, which again emphasizes strengthening, growing, expanding and reimagining the core of Columbus McKinnon, defines our balanced and disciplined approach to prioritizing driving and delivering organic and inorganic growth across the enterprise. Strengthening the core is a foundational path that's focused on initiatives that will strengthen competencies and improve our competitive position within our existing share of the SAM or our serviceable addressable market. Growing the core is a path that is focused on taking greater market share within the markets we currently serve or again our SAM. Expanding the core is a path that's focused on expanding beyond our SAM into the broader TAM or total addressable market. And reimagining the core is a more transformational path that rethinks our current TAM and targets strategic expansion beyond that current TAM. So like in the other framework categories, this growth can be achieved both organically and through acquisition, leveraging innovation -- innovative approaches and the application of Columbus McKinnon technologies in markets that extend beyond today's TAM. We have detailed plans for each of the categories of our Core Growth Framework. And Mario will speak more to that when he speaks to you in a moment about our growth initiatives across the enterprise. As we initiated our assessment of the industrial automation and technology landscape and considered opportunities for growth, we identified several mega trends in the areas of automation and digitization, as you see on the screen, e-commerce and the modernization of infrastructure. These are driving what we believe will be both attractive and sustainable vertical market growth in material handling, life sciences and food and beverage, among others. Given these trends, we initiated organic growth initiatives focused on growing within and/or gaining access to these markets. We also initiated a thorough review of the global industrial automation landscape to clarify our strategic growth or M&A priorities. This review began with an assessment of the entire $1.8 trillion industrial automation landscape. We then applied filters that allowed us to screen that landscape for the best CMCO opportunities. Those filters included the size of the market segment and its expected growth rate, the propensity for automation and applied intelligence within that segment, the profitability and defensibility of the segment and, ultimately, CMCO's right to play in that segment given proximity, core competencies, et cetera. And this led us to narrow that list of attractive industrial automation opportunities into what we're calling micro segments. And those micro segments totaled about $30 billion. So we went from the $1.8 trillion space to about $30 billion that we identified as attractive to Columbus McKinnon. Here, you can see a summary of the micro segments our analysis identified as attractive for growth. These segments are situated within a chart that highlights operating margin on the vertical axis and market growth rates along the horizontal axis. The market for Columbus McKinnon's core lifting segment is also included for reference. Before we talk further about these micro segments, I'd like to go back and take a closer look at Columbus McKinnon's portfolio as a starting point. Let's start with how the portfolio was defined in fiscal year '21 when the entire portfolio for Columbus McKinnon was characterized as "lifting." A few things that you'll notice from this chart include the fact that we defined TAM for Columbus McKinnon's market as $11 billion, and that included broader elements of our portfolio than simply hoists and lifts or hoists and cranes. But those elements were, again, ultimately considered or characterized as lifting, but this highlights the broader market for those. Columbus McKinnon's operating margin was approximately 2% to 3% higher than the levels shown on the prior slide. So our operating income performance was about 2 to 3 points ahead of where the market was for lifting equipment. And Columbus McKinnon's growth rate was approximately 1.5% below the market growth rate shown on the prior slide for lifting. So we're performing better at the margin line, but growing slower than the market. And we're also grouping things together and characterizing them as lifting. Note that the growth rates that I'm highlighting and is footnoted on the slide are for the 3 years prior to the pandemic. So we're speaking about a more normalized period of performance. Jumping to Slide 19. You'll see that a deeper analysis of Columbus McKinnon's portfolio in fiscal '22 revealed this picture. So in addition to our lifting platform, we identified that we also had higher growth, higher margin positions in linear motion and controls and automation. These are more attractive pieces of the portfolio that were embedded and buried within the characterization of lifting. These additional positions were losing focus when aggregated within the broadly characterized lifting label. And that aggregation also masked the lack of growth within our true lifting business. So now increasing our focus on these individual positions, including lifting, has led to improved performance across the business and prioritization of our initiatives, which is driving better overall focus and execution within the business. This analysis also identified about $3 billion worth of additional TAM for the business. So you'll see that the sum of these TAMs add up to $14 billion versus the $11 billion that we previously targeted, including about $1 billion for linear motion and about $2 billion for controls and automation. Building upon this refreshed view of the business and considering the results of our industrial automation market assessment, we narrowed our focus on M&A on the specialty conveyor micro segment and transformed the portfolio with the addition of 2 highly attractive acquisitions. This view shows the current portfolio situated within chart that highlights CMCO's operating margin on the vertical axis and our growth rates along the horizontal axis. These are Columbus McKinnon growth rates, not the market growth rates. On the right-hand side of the chart, you see a table that summarizes McKinsey's assessment of the long-term growth projections for these markets. As you can see, we now have a much more attractive portfolio as we leverage CMBS initiatives within our Core Growth Framework and are now growing our lifting platform at rates that exceed market rates. Today, we have a business that's just over $900 million in revenue and serving addressable markets that total just over $6 billion. So this is our SAM in this case. We have a strong concentration in North America and leading positions within each product category. Our global market share is approximately 15%, and we have tremendous opportunities across the portfolio. Note that the revenue figures on this page include an estimate for the full year of Garvey ownership, and they're also rounded so they will not tie to the other financial figures or our reported financial figures exactly. With the benefit of our improved portfolio, CMBS, our Core Growth Framework and the investments we're making in enablers, we're targeting growth of approximately $600 million over the next 5 years to $1.5 billion, and EBITDA margin that improves to 21%. We've planned for a balanced distribution of growth driven by organic initiatives and programmatic M&A that will deliver revenue growth at a CAGR that exceeds 10% over the 5-year period. This growth targets attractive vertical markets with recurring revenue prospects supported by secular market growth trends. Our organic revenue growth plans deliver $250 million, as just stated, over the 5-year period. And this organic growth builds upon recent improvements in our organic growth results, which you'll hear from Mario about later, and will be delivered through a balance of new product and commercial development initiatives. Not only Mario, but Mark and Terry will also speak about key initiatives that underpin our organic growth expectations later in the presentation. Our M&A efforts will be programmatic and focused on the priorities highlighted here. And we expect our programmatic approach to deliver $325 million of growth over the 5-year period. We're cultivating an active and growing pipeline of opportunities that are focused on advancing our leadership in key technology areas while improving and increasing our exposure to high-growth secular markets. They're also focused on improving customer intimacy and recurring revenue streams. And they're focused on increasing our automation, remote monitoring, diagnostic and aftermarket support capabilities within the overall intelligent motion ecosystem. In addition to the growth initiatives just highlighted, we're advancing our core competencies with a select group of key enablers within our CMBS framework. These enablers underpin future growth and increase Columbus McKinnon's earnings power. Here, I've highlighted 4 such enablers in the quadrants of this chart. First, in the upper left is our revised regional organization and go-to-market structure, which we are implementing now. This is simplifying our approach to the market, improving our customer alignment, all while reducing structural costs within the business and driving approximately 100 basis points -- 100 to 150 basis points of SG&A improvement. Second, in the upper right, is our end-to-end digital investments, which are generating demand, increasing transactional efficiency, improving analysis and decision-making, enabling shared services as well as reducing risk within the business. You'll hear more about this from Mark next in our presentation. In the lower left, you see operational excellence initiatives. Bert will talk more about those later in the presentation. These are improving customer experience, simplifying our footprint, improving our working capital efficiency and along with pricing actions, are expected to drive approximately 400 basis points of gross margin expansion over the strategic plan period. You'll hear more about that, as I said, from Bert in just a minute. And then finally, in the lower right, are the people and values initiatives that are evolving our talent population and attracting top talent to the organization, increasing employee engagement, developing global bench strength and executive succession candidates while driving higher retention rates across the company. And you'll hear more about that from Adrienne when she speaks about our overall talent focus. So we're making good progress on each of these critical enabler areas, and I expect that these are going to underpin and accelerate the transformation of the company. So finally, as I wrap up my prepared remarks, I'd like to reiterate how proud I am of our team and the great work that they're doing. We've significantly advanced Columbus McKinnon and our strategic framework as well as completing the 2 transformative acquisitions. We also built a stronger and more agile business in the process. Now we're accelerating our transformation, and I'm confident that with our focus in these areas, we'll successfully execute on our strategy, leveraging the Columbus McKinnon framework for strategy and substantially advance our underlying portfolio along the way to achieve our financial targets. I'll now turn the presentation over to Mark Paradowski, our Senior Vice President and Chief Digital Officer, who will discuss our digital enablement initiatives. Thank you.

Thanks, David. As David said, my name is Mark Paradowski. I am the SVP of Information Services, Chief Digital Officer. I have been with Columbus McKinnon nearly 25 years. Before joining Columbus McKinnon, I was with EDS, Electronic Data Systems, and Oracle Corporation. When I joined Columbus McKinnon, it was largely a technical role and through the years of additional responsibilities, eventually getting into leadership and management. And a little over 8-plus years ago, I took over and started building and leading our global IS function. The last few years, I've been given the opportunity to drive forward our digital transformation, specifically a lot of our digital-enablement activities, and that's what I'd like to talk to everybody this morning about. So back in 2019, I had the opportunity to speak at the investor conference, and I talked about 3 foundational digital initiatives that we had embarked upon, the first one being Compass. Now Compass is just the name of our configure, price, quote tool or our configuration tool. Compass originally was kicked off to help our customers configure our hoists, our electric chain and wire rope hoists, and develop crane kits. For those that don't know, crane kit is essentially a bunch of different of our components and electrification, trolleys and trucks and a hoist, they get put together into a kit or system that we then sell to our channel and our channel then installs for our end customer. That was the original focus of Compass that we launched into in 2019. Also kicked off was our PIM initiative. Now PIM stands for Product Information Management, which is essentially just a database, specifically, constructed with all of our product information. And product information can be attribute-based stuff, resources around videos, pictures, so on and so forth. But it is kind of a foundational element that companies who embark upon externally facing initiatives put together. So it was a foundational element for us. And finally, our global website redesign. Years ago, we had many websites, well over 30. I think 37, 38 is the number that sticks in my head. Obviously, not the best experience for our customers. They want to learn more about our products, platforms and solutions. So we kicked off an initiative to create a single global website based out of a single content management system. Now single website doesn't mean single website. Single website really means we can still provide the degree of personalization, localization, regionalization that's necessary, but still drawing out of that single content management system. So kind of, again, another foundational element as we move into that digital space. All those projects have done extremely well over the last couple of years. And in many cases, especially around our configuration tools, we went from what was really a follower in the industry to now a market leader, which then brings me to today. We continue to focus on many of our external customer-facing activities, specifically Compass. Compass continues to advance, and I'll talk more about that in a minute. But now we also have D-Tools. D-Tools is our configuration tool for our precision conveyance group, allowing customers to come in and configure conveyance systems directly online. Those 2 products, then I'll wrap up into a project we call Partner Portal, and I'll touch upon that in a couple of minutes. Looking more internally, our digital transformation now has embraced our internal stakeholders as well. We launched our global HRIS platform, which gives us greater visibility to our human capital across the globe. We're also about to launch a new global intranet. Now that may not sound that important, but it is really a modern tool to help us advance our performance culture to engage all of our associates. And with our acquisitions, it helps us onboard those associates into the Columbus McKinnon family a bit faster. A bit more on the system side. We're moving forward with our customer and lead management or really what I like call a CRM plus. Many of our customers buy across our platforms, but we need to get -- give our customer service teams and sales teams the visibility they need of all interactions we have with those customers. This solution allows us to do that across platforms, across regions and, most importantly, across multiple ERP systems. So they can see everything, the full engagement of that customer. And then finally, our global ERP rollout, where we're rolling out a single global ERP platform to all of our facilities. And I'll talk about that as well a little bit more. As we map these initiatives through their customer journey, they start to touch every point of that journey. Starting at the beginning with demand generation, moving into that global website I talked about, then through our configuration tools where they can configure price, quote and order, driving into that global ERP platform where we can drive our facilities to perform that ease of intercompany activity, ultimately, through fulfillment. But it doesn't stop there. We then move on to post sales and using the intelligent motion control, diagnostic and monitoring utilities, we can engage our customers digitally even after the sale. Now sitting under all that is the data. We realize how important that data is. So we are advancing our analytics and data analysis capabilities, grabbing data through every step of that journey so we can better understand how to better engage our customers, convert more quotes to sales, to improve our operations, post-sale support and even feed that data to our product development team so they can move on to the next generation of our products. Let me jump into a couple of these initiatives just a bit more. So let me talk about demand generation. Certainly, demand generation is a critical component for us, especially in the digital space. That doesn't mean our sales and customer service teams aren't important. They are an integral part of us working with our channel partners and end customers. But utilizing demand generation tools, we can drive engagement, educate our customers, help them design solutions all online. And we can collect every one of those touch points. Every time we touch a customer through social media, they visit our website. Every one of those is an opportunity for us, a lead. Those leads all get pushed out into our CRM system that we're building. That CRM system allows us then to nurture those leads into opportunities, move those opportunities into sales. In some cases, those leads will be serviced by our channel partner, and that's where Partner Portal comes in again. And again, I'll expand on that in a little bit. Moving on to Compass. As I mentioned, Compass was originally designed to be a configuration tool for crane kits and hoists. But as we rolled it out to our channel, we realized it could be so much more. So we advanced it forward and it's no longer just a simple configure, price, quote tool, it is a true e-commerce platform. Shown up here on the screen is the product families or a sampling of the product families that are currently available on Compass. No longer is it just configured product. It's configured product. It's what we call preconfigured product, which is configured product bought in very repetitive standard configurations. And then our full suite of standard products. Right now, we have nearly 7,000 standard or configured parts in Compass, and that will soon be 9,000 parts as we'll be launching Compass into Germany in the coming months. Additionally, the tool will help design 3D models. Up on the left, there is a single girder underhung crane kit. That kit was designed on Compass. In minutes, they designed the kit, they added their electrification, their trolleys, their potential intelligent motion solutions. It produces then a 3D model. That 3D model then can be downloaded and integrated into the channel partner or end customers' 3D model. That whole process, what used to take days, now takes actually minutes. Also shown up there is a configured Lodestar and then a freestanding work center with Columbus McKinnon hoist on it. All these tools are really enabling our channel to be more engaged with us when they want to be engaged with us. Additionally, they can take that quote and turn it into an order, and that order will flow seamlessly into our ERP systems, eliminating all that manual activities. We are really enabling our channel partners to engage with us in that digital space. Now the adoption of Compass continues to grow. We have over 50% of our customer base utilizing Compass every month. The A customers, which is a classification out of our 80/20 process, we're over 80% with them. In this fiscal year, we'll cross over the 40% revenue coverage or what we call our Compassable revenue, meaning products that can be purchased, configured through Compass. And we are already starting to really realize the benefits from this. I've already talked about some of them from the channel partner perspective, specifically, they can quote when they want. It is often what we hear from them. We want to quote when we want to quote. We quote on the weekends. We quote at night. Well, now we've enabled them, they can quote whenever they want, do it in minutes. No longer is there an hour a day, a month -- not a month. They can also then, like I said, convert those directly into orders. They press a button, put their information in, it's right down into our ERP system. That also helps us internally. No longer are we utilizing our internal resources do quoting or manual order entry, allowing us to redeploy our resources in more value-added activities. There's also the analytics here or the data I talk about. We can see what they're buying, what they quote and they don't buy. That information is very important for us to understand what is happening with our channel partners and our customers as they look at and quote products. Many times, they do a quote multiple different ways, looking at pricing, looking at lead times. We have all that analytical data to better understand what our channel partners are looking at. Ultimately, this tool now moves us further along and to be an industry leader with our configuration capabilities. It creates a real stickiness with them because we are so easy to do business with, which brings me to Partner Portal. Columbus McKinnon today has multiple portals that our customers have to log into to engage with us. A lot of that is a bit of legacy through our acquisition process, but it creates a bit of a disjointing process as our customers engage us every day. If they want to look up an order, they may have to log into one portal and if they want to place an order, they may have to look up to another. That's what Partner Portal is fixing. Partner Portal is collapsing all of these different portals into a single, unified portal experience. Now it's just not moving all that functionality in a single portal, we're also taking the power of Compass and eventually D-Tools and rolling that up into that Partner Portal. So they'll be able to configure, order management, everything they used to do in the old portals and encompass all into that single unified solution. We're also adding some new functionality that we didn't have before. First one I'd like to talk about is the lead integration. Earlier, when I talked about the demand-generation activities and how we're tracking and managing leads, I mentioned that sometimes those leads get pushed out to our channel partners. That will be done through Partner Portal. We will push that lead to Partner Portal and have visibility on how our channel manages that lead, how they follow up on it, how they convert it to a quote and, ultimately, into an order. That lead management activity also helps our channel partner because no longer are we just sending them an e-mail saying, "Hey, contact this person, they contacted us." We have full visibility and they have a tool now to better manage their lead activities. Also, we're adding something we call case management. I think we've all seen over the last couple of years, we engage in the digital space first. We rarely pick up the phone and actually call anybody anymore. We just want to go to a website, go to some social media and ask a question. This 2-way case management functionality that we're building out in Partner Portal will enable us to interact with our customers, our channel partners through that digital space, giving our customer service team just another tool they can use to better engage our channel. Again, all this, Partner Portal with that configuration capabilities, really is an industry leading -- in our space, it is truly an industry-leading development on how to digitally engage and enable your channel. Moving on to our ERP business system road map. As I mentioned before, we are in a bit of a journey, implementing all of our facilities onto a single ERP system. We have completed 18 facilities so far. Most recently, we went live with our Künzelsau, Germany, facility at the beginning of May. And currently, we have an active implementation going on for our Mexico and Panama entities. Through our planning horizon here, we have additional implementations plan, which will drive us up above that 90% of our revenue on that single platform. With every implementation, we start to realize even more efficiencies through shared services, better visibility of our operations. And for the facilities that are on that system, the intercompany material flow improves vastly. So in summary, you can see how many of these external-facing digital initiatives really enable us to better engage our end customer and our channel partners, giving them the tools through Compass, D-Tools, Partner Portal to truly drive our revenue growth and a larger wallet share with them. And many of our internal activities around CRM and ERP and HRIS are enabling our internal teams to be more efficient and drive forward daily the charter of Columbus McKinnon. Now I would like to introduce Bert Brant, our SVP of Global Manufacturing Operations.

Thank you, Mark. Good morning. As Mark said, I'm Bert Brant. I have been the global operations leader for Columbus McKinnon for about 4.5 years now. This past April, I actually began the 41st year of my career in operational leadership positions, including roles with Denso Manufacturing, Emerson Electric and several companies within the Danaher family. Our operational strategy continues to focus on 3 important areas of improvement; the overall customer experience, improving factory performance and usage of working capital. Over the past year, disruptions in the overall supply chain has forced us to add a focus on daily supply chain management to regain our prepandemic position on delivery. Other priorities continue to be footprint optimization, capital investment to improve our Tier 1 factories and advancing our sales, inventory and operation planning process to better utilize our working capital and continue improving deliveries. Over the past 4 years, we've improved gross margin by 220 basis points, despite the COVID setback in fiscal year '21. Our plan will drive another 390 basis points improvement to the 40% gross margin target which we have set forth in this planning period. The largest lever for driving this margin improvement continues to be the simplification of our product and our processes as which -- where our plants manufacture our product. This simplification also allows us to drive material savings by procuring fewer, less complex components from fewer suppliers and to better align our factory footprint to improve utilization of both direct labor and overhead. Other levers continue to be pricing activities were needed to offset inflationary pressures and continued accretive acquisitions. This chart compares on-time delivered to incoming order rates in millions of dollars. Over the past 2 years -- over the 2 years prior to COVID, you see that the team actually improved our on-time delivery from a baseline of 77% to 93%, which was something the team worked extremely hard on for the first few years to set that base [Technical Difficulty] we struggled to match our capacity, we're dropping order books and our delivery performance dropped approximately 20 points. Once we stabilized our plants and our warehouses, we quickly regained 10 points of that back. You can see, over the past 12 months, another decline in the delivery performance has come based on order rates coming back quicker than planned and the global supply chain continues to struggle with recovery. Constraints. We have worked very close with our customers to better understand their needs. We are improving our communication and information flow to them. And as you can see, for the past several months, we've been at a level of historic orders. With continued improvements in communication, quick, accurate information and a continued improvement in supply chain, we will return to our delivery [ performance ] and then continue on the path to best-in-class delivery. We truly see the short-term setback as an opportunity to improve and get better. As stated earlier, our operational strategy continues to focus on reducing the cost of goods by improving our direct labor productivity through factory simplification and investing in equipment to reduce the amount of labor required, optimizing our factories to reduce overhead cost per unit produced and reduce material costs by eliminating SKUs and consolidating vendors. These improvements are direct results from our continued product line simplification efforts along with new platforming work, which Mario will explain in a few minutes. This simplification process is also aiding in our regional localization process, which will allow better support and faster lead times to our customers. Over the past 4 years, the team has generated over $28 million of material savings through tactical negotiations, vendor selections. About $10 million of savings has come from VAVE and strategic processes. As we all know, over the past year, inflationary pressures have eroded some of the tactical savings opportunities we see in the future. Fortunately, our strategy is to shift our focus to VAVE and strategic versus tactical. These [Technical Difficulty] reductions, feature simplifications, which allows the sourcing team to place more business with fewer, more capable suppliers. Examples of these will be motors, controls, castings, which are all areas that today we continue to struggle with pricing and supply issues. Much of our gross margin enhancement over the past 4 years has come from improvements in the areas of overhead and direct labor utilization, which makes up about 37% of our total cost of goods. As a total percent of COGS, we have reduced 6% from 43% to 37%, and these improvements are -- represent about $30 million of improvements. These savings were generated with simplification of factory footprint, better alignment of product to plants and overall consolidations. Over the next 5 years, we are planning another 9% reduction in labor and overhead costs to 28% of our COGS. These improvements will be facilitated by continued footprint simplification and increased capital spend on modernizing our production equipment. Taking a deeper look into our footprint simplification. You can see, over the past 4 years, we have reduced 7 factories from the baseline of 22. 3 of these factories are through divestitures and 4 were through consolidations. Through -- and these consolidations were again through plant and product simplification [Technical Difficulty] acquisitions, we've added 5 factories, 3 in North America, 1 in APAC and 1 in Europe. We have strategic plans to take out -- to reduce another 4 factories over the next few years, which would reduce the original 22 to 11 for a 50% reduction in our baseline plants. We were, in the period, were a total of 16 plants globally, including the 5 we've added. These consolidation activities allow us to focus our resources, both human resources and capital resources, on fewer, more utilized facilities. As we continue consolidating our global footprint, we also plan to increase our capital expenditure as a percentage of revenue. The footprint simplification process will allow us to focus capital spend on fewer, much more utilized factories. As we align product within these factories, regionally and based on complexity, we will establish, what we call, center of excellence. An example will be in a highly engineered plant versus a plant doing more standard product. And then we will invest in these facilities accordingly to their setup. After a higher investment period planned for fiscal '23, we would level off around 2.5% spend level going forward. Here are a few examples of types of equipment we are procuring for our factories. We're replacing very manual, labor-intensive machines with modern [ CEC ] equipment, which are multifunctional and also allow one operator run various machines. These technologies are not new, but we are placing these orders and bringing the equipment in as we consolidate so we can improve utilization and, at the same time, have much greater return on investment. Taking -- moving to a minute, take a look at what we're doing from working capital. As we discussed earlier, we have invested quite a bit in inventory over the past year to support our customers from a lead time delivery standpoint. In the future, we want to continue improving our ability to utilize this inventory and result have a best-in-class inventory turn and also on-time delivery process. We are projecting our inventory turns to be somewhere in the area of 5 turns with on-time delivery at 95% and better. To accomplish this, we've added a very experienced sales, inventory and operation planning team whose responsibility is to drive and improve forecasting process, allowing us to better align our future requirements with the inventories we hold and supporting shorter lead times and faster deliveries. We have also invested in a software planning tool called Demand Solutions to facilitate the forecasting and planning process between the sales and operations teams globally. So to close with a brief recap. Our operations strategy is a continuation of the 3 focal points we discussed in our last investor meeting in 2019; improving the customer experience, improving our factory performance and improving our usage of inventories. Material, overhead and direct labor savings to date have generated 220 basis points of gross margin. Future strategic material savings and factory improvements based on investing in fewer, better utilized factories will bridge the remaining gap to our 40% gross margin goal we have set for this planning period. Thank you. And I would like to introduce Mario Ramos, our Senior Vice President of Product Development and Marketing. Thank you.

Thank you, Bert. All right. Good morning, everyone. I'm very pleased to be here with you today. Just to start things, give you a little bit of my background. So I was -- I have been leading this R&D, product management and strategic marketing functions for the past 25 years. And over the past 4 years, I have the pleasure to be working here at Columbus McKinnon. Actually, June of 2018 was when I joined Columbus McKinnon, so I'm very happy to be here for 4 years. All right. So let me start with our presentation about innovation and organic growth. So in this first slide, you will see we have 4 major platforms in our portfolio. We have automation, we have lifting, linear motion and conveyance solutions. In the past, when I joined the company, our automation strategy was focused on lifting automation. Today, we are leveraging all the competencies and capabilities that we have in automation to serve all our platforms. So we're working on lifting solutions, linear motion and conveyance solutions, and we are really taking advantage of those competencies. Our strategic initiatives are divided into 2 major areas. We have product development activities and we have commercial development activities. If you think about our strategy, the next-generation platforms that we are developing in our products are really leveraging the new technologies that we have, new materials that exist today that didn't exist 30 years ago when we first designed these platforms. And by leveraging that technology, we're able now to address specific new needs in the market, number one. Number two, we have learned from the past about what are the key features that are needed in the market and what are the things that are not relevant anymore. So we continue to advance these next-generation solutions in all the different platforms that we have. The second part of our product strategy is around introducing some of these solutions into strategic vertical markets that will help us to move from a highly cyclical markets into more secular growth markets that offer additional opportunities for us to grow. The other part is, in automation, we are really now engaging all the different platforms that we have in the past and where I will call them more dummy platforms into a true intelligent motion strategy where we are leveraging our automation capabilities, including adding monitoring capabilities and diagnostic capabilities that allow us to work closely to our end users, understand how they use the product, how many times they have to do certain activities with the product, so we can learn. And in the next generation of products, we can be more purposeful about what are the key areas that we need to address. In terms of commercial development, we have been working as well in aligning our strategy to develop a stronger access to strategic segments that will offer us a higher growth rate over time. We are looking into how do we create a pull strategy from an end user perspective, creating value specifically to end users so they can start requesting and asking for specific solutions that we can offer. And finally, we're advancing our digital tools, as Mark mentioned, to continue creating a better customer experience that I'm going to give you a few more details later in the presentation. This is a very important chart, and I know it's a little bit busy, but I hope you will appreciate everything we have here. First of all, on the part of accelerating our organic growth and improving our returns, it starts with how do we invest our money, how much money do we invest in innovation, R&D, product development. As you can see, we have been very -- we have been cautious on the initial investment because if you -- probably if you were here 4 years ago when we have the same presentation, you may recall that the first step that I took when I joined the company was to stop a lot of low value-added projects. After that, we have to then really invest in our voice of the customer activities to understand what really creates value in the different markets that we serve. And now that, as you can see on the second chart in the middle, our returns on product development have been increasing significantly since 4 years ago. We started at 56%, we're at 106% today. So what is this metric? This is a metric that reflects a benchmark that Deloitte developed a few years back to distinguish between low performance, medium performance and high performance in R&D. And what you can see here is that we take our new product development profits for products that were introduced over the past 3 years plus our margin expansion through VAVE activities and we divide that by the total investment that we have in R&D in a given year. And that gives us a ratio that tells you how efficient you are in -- with your solutions developed by product development. And the right-hand side is probably the most important part of this chart. When we started our journey 4 years back, we have -- in fiscal year '18, we reported about $4 million of incremental growth from strategic initiatives. So as we down-select to the most critical opportunities and then we create a strong road map for growth, you can see in that chart that we have continuously improved our results. And we are -- last year, we achieved $31 million of incremental growth year-over-year so -- versus prior year. So this is net incremental growth through these initiatives -- growth initiatives. I have a couple of examples of our success story before we jump into what is our plan for the future. But part of this is building the muscle and creating opportunities to really understand what is the value proposition that we have for our customers. So on the left-hand side, you will see a tandem hoist. The tandem hoist is something that, in the past, we used to have these offerings as part of our ETO, so engineer-to-order, type of business. But we discovered that many customers have a lot of frustration around that because they were not experts in the solution. So we took the task to, in fact, investigate what were the most needed solutions in the market, and we created a standard solutions, configurable solutions that they can go now, go through our Compass tool and very easily, say, "Okay, this is how much I need to lift. This is the way. These are the speeds that I need. This is the level of automation that I need." And we can build packages, modular solutions that will build this tandem hoist. And this can be done now in minutes, as Mark said. Before, it will take several weeks before you can get a quote. Now you can do it in minutes. We can have the full package of documentation ready. We have your pricing ready and you can place an order right there once you identify what is exactly what you need. So the success story here is that we forecasted a certain amount of incremental sales once we implemented and defined this new configurable solution. And the reality is we were able to exceed that by 2x. So it was an amazing success. So it was a great lesson learned on how we can continue to improve that experience. The second thing that we have towards the right is our linear actuator with Intelli-Motion that we just recently launched. And this is also another success story. During voice of the customer, we identified an opportunity on the rapidly expanding automation-ready market for actuators. So we identified the opportunity, worked with some customers and redefined how these type of products work. And not only by introducing variable speed drive control into the product, but by doing that, actually, we were able to increase and be best-in-class in terms of our ability to serve that market with much higher ratings, and these ratings what reflect really is the duty cycle. So our duty cycle is better than competition now by having these solutions. And it is an automation-ready product that you can program right at the point of use, you can make changes very quickly, you can create diagnostic capabilities on these products depending on what application you have. So this is a great success story. And we have a lot of quotes right now ongoing since we launched this product, and we're working with some OEMs to introduce this into their platforms. So David introduced this chart before, and this is our bridge for growth over the next 5 years. And I'm going to be specifically explaining to you how we're going to achieve those $250 million of growth over the next 5 years. So the number one thing is that our Columbus McKinnon Business System has 3 basic principles: market-led, customer-centric, operationally excellent. This chart is covering 2 of those elements: Our market-led and customer-centric elements. So in the first column that you have here, we have developed standard processes and practices to understand the market dynamics, understand market sizes, how much they are growing, what are the strategic vertical markets where we want to focus our initiatives. We're looking at the competitive landscape and understand what are the competitors' moves and why they are making those moves. Where do they have successes? Where do they fail? How do we learn from that and how do we integrate that into our strategy? And then the megatrends. Things are changing. The megatrends we have probably 3 years ago, 50% of them are still valid, but there are another 50% that are new, and we need to be agile at that and understand what is the strategic impact that we have in the business. The second column actually talks about the voice of the customer focused on products and solutions. So we have developed best practices where our product management team is now involved into voice of the customer activities where we invite the strategic customers to come and be part of the design cycles and learn with them about what we need to do different. And the last part is about the customer experience. We have and are developing further tools that we will use to understand better the customer experience and continue advancing our applications, tools, engagements, facilitating things so we can be easier to do business with over time. So as we move forward now into a road map for growth, there has to be intentionality about how we want to grow our business. In the past, most of our investments were, in general, industrial. And that's a segment that is growing pretty much at GDP levels. So we are changing that by creating opportunities through new product development as well as channel initiatives that are focused strategically on high-growth, secular markets that will allow us to be less cyclical over time. So our solutions or the new approaches that we are putting together in products, solutions and commercial activities are aligned to these new strategic segments in industrial automation, metals and mining, food and beverage, pharma or life sciences, e-commerce, infrastructure. And we are leveraging all of that to really unleash the potential to grow for Columbus McKinnon. So let me walk you through 3 examples of some of the activities that we are working on right now that will create a lot of opportunities for us to grow. Intelli-Connect. So many of you -- I'm sure you heard or read some of the recent product launches that we have around Intelli-Connect. Intelli-Connect is our connecting platform that allow products to be connected where we can provide to customers diagnostic capabilities, monitor -- remote monitoring capabilities. So we launched this originally for our wire rope hoists. A couple of months back, we just launched the first electric chain hoist in the world with monitoring and diagnostic capabilities. We are the first ones to implement that in this product line. And we continue to advance that to our linear actuators as well as to our conveyance solutions elements. So as we expand these capabilities, these are focused on improving safety, productivity and uptime. Why? Because these are the areas that customers care about, and they are willing to pay for those type of solutions when you improve safety, productivity and uptime. So as we continue advancing these solutions, the next steps is to continue making easier for our customer also to understand what is the spare parts they need. So as we connect our products, we know exactly what catalog number it is. We know what is your -- if you need to replace something, let's say, you need to replace a component, we know exactly how that product was built and we can tell you with one click, you can order a spare part, you can get that in your factory right away. So that's for the future. And we are also going to enable enterprise asset management. So this is fleet management systems for factories that have multiple of our products, and these systems has to be easily integrated to their maintenance department so they can provide maintenance to these products. As we continue our electric chain hoist 2.0 modular platform -- so these products have been designed for more than 30 years, okay? And they serve a purpose in the market. With the new technologies, we can -- number one, through voice of the customer, we identify new opportunities that are underserved today with existing platforms. Second, each one of these platforms have a unique value proposition, but we are developing now a modular solution that will enable our ability to serve all those value propositions with a single platform. And by economies of scale, we're going to be able to also be more cost-effective. So this is about profitable growth. And we believe that by addressing those specific new needs that are underserved today, we're going to be able to capture a higher degree of market share. Now as Bert mentioned, over the past year, we also use new product development to help us simplify our internal operations, to simplify our complexity with some of these multiple platforms that we have. Last year, we reduced about 10,000 SKUs from the existing SKUs that we have in Columbus McKinnon. And this new platform will enable also a lower number of SKUs that will serve the same and even more applications in the market. And this is going to help us to have better manufacturability, standard of subassemblies that we can reduce over time and, over time, to create different modular configurable solutions to our customers, and this is how we're planning to grow in this area. This last example is about AquaPruf that was recently launched. This is our sanitary conveyor solution that we just launched a few months back. This product is very particular because we have already a sanitary solution before in the market. But this allow us to learn more from the customer and understand what was the true value proposition and where they needed additional features and help. And we identify that by creating a new solution that allow them to very easily clean these systems, okay? Because they have to clean these systems at the end of every shift, sometimes more often than that. So we created a higher level of sanitation on this product line, eliminating any of those elements that could eventually be difficult to clean. And we also created patents around it. So we are developing a new technology. Our customers are really excited about it. When they saw the first products that we were putting in front of them and showing them the new features, they were really excited. And our sales are just starting to ramp up after we launched this product, and we're very excited, and we see that this is going to be growing very fast in the coming months. Finally, here on the commercial development side. So we are developing strategies to really have a business development team, strengthening and developing further our channel access to strategic vertical markets like pharma, food, beverages, infrastructure and warehouse automation. Beyond that, our geographic expansion is focused on where do we have the right to play? We have products that can serve and feed the purpose of applications in other regions. So we strategically selected to go west of the U.S., where we have not as strong presence as we have on the East Coast and Midwest. So we're going to move some of our efforts there. We have the right products. We are gaining channel access. We are signing up new channel partners in that region and we're planning to expand and grow. Similar to that, EMEA, we're expanding beyond Germany. We have very strong presence in Germany, in particular. We're expanding beyond Germany, putting emphasis on how we grow these other markets and the Southeast Asia region. And last but not least, our channel expansion and digital tools. So as Mark mentioned, we are in a journey to continue enhancing the different digital touching points that we have with customers. And by doing so, we're also improving our customer experience, making it easier for them to do business with us, okay? and you see -- they can see us as a true partner. By creating these tools, we're enabling them to really have a very easy way to configure products, select those products, create quotes, place orders. And I think by closing that cycle, the next step is how do we serve aftermarket, as Mark mentioned. So we have a very good -- in summary, we have a very strong road map of product development activities and commercial activities that are going to help us unleash the potential of Columbus McKinnon to achieve our growth objectives. So thank you very much for your attention today. We're going to go to a break now. Thank you. [Break] [Presentation]

That was impressive. I would buy stock in that company if I were you. That looked pretty good. I'm Terry Schadeberg, recently been named President of the Americas for Columbus McKinnon. Had the pleasure for over 9 years before that to be CEO of Dorner Manufacturing. So obviously, I joined the company about a year ago through that acquisition. I've spent about 25 of the past years leading companies in the industrial automation marketplace in a high-growth environment. What I'm here today to talk to you about actually is to introduce our Precision Conveyance platform to you. So what I'd like to do is, first, start off with, as Columbus McKinnon started to think about expanding their core as part of their blueprint for growth, why they pick Precision Conveyance. And I think the answer to that is actually pretty simple. There are 2 reasons. The first reason relates to the markets that Precision Conveyance plays in. And then the second are related to the specifics of the platform that we chose to acquire. And when you think about the market, there are 3 great characteristics associated with it. First off, it's large, $4 billion TAM, $1.5 billion SAM, right? Second, it's a growing market, right? It's growing actually at a faster rate than most other markets out there are growing. Third, it's also highly fragmented, which means there are a lot of opportunities for us for both organic and for inorganic growth. And then certainly, there's a side benefit that many of the end markets that we're dealing in tend to be less cyclical than maybe some of the traditional Columbus McKinnon or industrial markets that we play in. Now on the platform specific side, what we liked about it, first off, is that -- it has a proven track record of double-digit growth for an extended period of time. So we have management teams, employees who know how to grow in this environment. The second thing is that our products had differentiation, most of which, by the way, are patent protected. That allows us to create higher value for our customers. And third, we combine that product differentiation with an overall value proposition that allows us to provide that overall greater value and on top of that, provide higher-than-normal financial returns as a result. So that's kind of the why. But the question I most often get from people is, well, what the heck is Precision Conveyance? Everybody kind of knows what a conveyor is. And when most people think about what a conveyor is, they kind of think of a big, dumb, ugly roller conveyor that's in a warehouse or a distribution center that's probably moving a box from point A to point B. And if you think about that and then you flip at 180 degrees, that is really what Precision Conveyance and what we do at Columbus McKinnon is, right? So instead of making big, dumb conveyors, we actually make thousands and thousands of actually relatively small conveyors. They can be as narrow as 2 inches wide. They can be as short as 6 inches long. Instead of moving large boxes, we're typically moving individual pieces in part, right? Something maybe as small as the lead wire to a pacemaker. All the way up to, for us, a big thing might be a 20-pound bag of sugar or a 40-pound block of cheese. So that's kind of the range we play in. And instead of really being focused on the warehouse and distribution side of businesses, we're on the other side of the wall. We actually focus on the process and packaging side of business. So you think about it, we do -- we really -- what we really sell is productivity, right? And we help our customers improve productivity 1 of 2 ways, either by helping them automate processes that currently aren't automated or by improving the throughput on already automated processes. So if you think about what an automated process looks like, right? It's a series of OEM piece of equipment. It might have a vision system, a robot, some other processing equipment. Eventually, it feeds into a high-speed packing machine. And what's happened to each one of those pieces of equipment over the last 5, 10, 15, 20 years. Their capabilities have exploded, right? You think about what a robot can do today versus what it could do 5 years ago, much less, 10, 20 years ago. It's absolutely amazing. So when you look at the throughput, the throughput used to be, well, I just look at what's the slowest machine within my automated line, and that's going to tell me how much I'm going to get out of it. But that's not the case anymore, right? The limiting factor now is how you bring a product into through and out of each one of those pieces of equipment, right? The material handling system. You see if I can bring that product and I can make sure that it shows up at the exact right place at the exact right time and quite frankly, just as importantly, in the exact right orientation. And I do that consistently 100% of the time. Now that vision system or that robot doesn't have to search, right? So you can actually speed it up to be closer to its full capabilities. And as a result, you get higher throughput, higher productivity out of your overall system. That's really what Precision Conveyance is and that's really what Columbus McKinnon does and we do it better than anybody else in the world. So what we thought we'd do if it comes up here, there we go, showing just a little bit of a video of something that we're doing kind of in the real world. So this is actually a case where we're moving coins. We have 22 precision move conveyors that are interfacing with 13 different vision-guided robots, moving thousands and thousands of coins a day. Each one of those conveyors can index up to 100 times per second. They have a precision of plus or minus 0.5 millimeter in terms of location and orientation. The great thing about this, by the way, is that all of those conveyors are standard. You can go online. You can configure those yourself, right? There's no engineering involved. You can do it all online. And those same -- the same application while we're dealing with coins here, it actually fits thousands, thousands, thousands of other applications that we do every single day. So that's a little bit about what Precision Conveyance looks like. So then what I wanted to do is take just a minute to talk about Garvey, our most recent acquisition because they make accumulation tables. And very often, we get a lot of questions about really what is accumulation and why do people need it? And what accumulation really is. It's a tool for line balancing, right? You have an automated production line. They all have different capacities and capabilities, you use accumulation to balance those lines. And I thought the easiest way for me to be able to describe this to you is actually go through kind of a real-life example. So if you look at the top of the screen here, this is an example of what's a typical filling line. It could be bottling, but it also could be cosmetics, it could be yogurt, whatever. Start with a depalletizer which has just taken all your containers, breaking them up, feed them onto a conveyor, it's going to go to a filler. Filler is going to put whatever needs to go into it. From the filler, it goes to some kind of capping machine. After it's been capped, it goes to a labeler. From a labeler, it goes to a packing machine, right? Pretty simple process. You'll see it in thousands and thousands of manufacturing plants all around the country. Now the first thing you look at is at the top above the name of each one of those machines, you look at the capacity each one of those machines. So it's theoretical capacity. And you can see they're not balanced, right? Packing machine has up to 300 bottles per minute, kind of your low end is your filling machine, which is about 180 bottles per minute. But the problem is that those are kind of the theoretical rates that you can get. But no machine actually runs at 100% efficiency. So actually, if you go to any one of those manufacturers, in their literature, they'll tell you what the real efficiency is. And so in this situation, which is pretty normal, the efficiencies range anywhere from 92% to 96% for each one of those machines. So you might think when you look at this from a theoretical standpoint and say, "Oh, I can probably get 180 bottles per minute." But then when you factor that efficiency and you might go, I can only get 92%, right? Because my lowest efficiency is 8%. But the problem is that lack of efficiency, that downtime that's created, it's not synchronized. It happens at all different times. So in reality, that efficiency loss is actually multiplicative, right? So if you look at it and you follow what happens through that production line instead of getting 180 bottles per minute or even 167 bottles per minute, which would be kind of your low-end efficiency, you're only getting 130 bottles per minute. So now what you do is you insert accumulation tables, right? So you go to our bottom example. So what we've done here is we've actually put some type of buffering or accumulation system between each one of the pieces of equipment. What this allows you to do is kind of build almost like a backlog in front of each machine, right? So that in the case if the filler were to go down, you don't have to stop the depalletizer. It can continue to run because you got a place for this product to kind of accumulate. Same thing goes though, quite frankly, if the depalletizer goes down, you don't have to shut the filler and everything else on the line down as well. And as a result, you can see as it flows through, you actually do get the 167 bottles per minute, which is kind of the minimum machine capacity based on its efficiency rate. So you're able to drive a 28% increase in efficiency in the production line for what amounts to a relatively inexpensive investment in accumulation. So here, what we're looking at is a video of what -- this is actually a very large accumulation table for us. I'm told there were 2 of them in the system, I think a total of about $1.2 million. We're moving our favorite clear beverage, which happens to be vodka. This is such a large table that can actually hold 6 tons of vodka bottles when filled as we go along. Preaccumulation, by the way, the bottleneck in this situation was between -- we were actually doing 2 things, by the way. We're doing accumulation and we're also sortation because what we're doing is we're going from 1 filler that's running at about 310 bottles per minute and we're taking it to 2 labelers that are running at 210 bottles per minute. So preaccumulation, we were getting 296 bottles per minute. Post accumulation, we're getting 343 bottles per minute running through this entire system. As a result of that, because this system, by the way, runs 2 shifts a day, 6 days a week. We were able to produce 13 million more bottles of vodka in a year as a result of this $1.2 million investment. When you think about that kind of do a payback analysis in your own head and go, hey, listen, if I make only 1 bottle of vodka and by the way, what these guys charge, they're making more than $1 on it. But we make $1 profit on every one of those incremental bottles that we produce, the payback, we're not -- we don't talk about months. We talk about weeks of a payback for these type of systems. So it can be really, really powerful in terms of what we do. So we kind of talked a little bit about Precision Conveyance, what it is. I talked a little bit about accumulation. Now let's take a look at our overall product portfolio. And this is really a big deal because most conveyor companies, when you look out there, they typically tend to make 1, maybe 2 different types of conveyor technology. The Columbus McKinnon network has really 5 full platforms plus a pretty robust aftermarket platform. What that allows us to do is provide the customer, both a full solution but also the right solution. Now in addition to it, which is really probably most important is that with our 27 active patents, we fully cover over 40% of the revenue that we drive within our sales. So it really creates a stickiness and a value for our customers. Now we wanted to go over 2 different case studies for you. The first one will be kind of more related to what would have been the traditional Dorner style Precision Conveyance and then the next one will be on accumulation. And I love this first one. First off, just look at that, that's flipping cool. We're moving meat pies, actually, Jamaican meat pies is what we're actually moving. The process is really super simple, right? So you have a former. And so the former what it does is it takes raw dough, it sticks meat inside of it, and then it crimps it down to make it look like a pie, then it comes out on a conveyor. Well, they used to have 4 employees who would manually pick these things up off the conveyor, turn around, they would set them on a tray, right? Well, I had some problems with it. First off, think about just repetitive motion issues, right? So they are concerned from a safety issue that this was going to be a problem. Second issue with it was that employees hated this job. So there was high turnover. Third problem was that they had variances in productivity, right? They couldn't keep a steady flow of product going through there because if one of the employees was having a bad day or if they started talking about a football game or anything else distracted them much less if they happen to be out on vacation or sick, your productivity would go up and go down based on that. So they had a really hard time creating a steady production line. And then finally, they also had high waste because you're dealing with a raw meat pie, right? And so these guys are picking them by hand. And very often, they would create what they call bleeders because they would break the crust. And then by the time it gets through the cooker, [indiscernible], you got all the stuff oozing out and it doesn't look good and they have to throw it all away, right? So what we did, very simple system, and this is truly what I love about it. This is the example of most of what we do. We always talk about our big projects, but really what we do are these very small things that solve individual problems within a plant. This is a 2 conveyor system, right? All we have is on the bottom. We have this all sanitary conveyors, so it can be washed out very easily. But we have an indexing conveyor that will deliver a new tray every 1.5 seconds, and then we have on top, we have -- that's -- it's a servo-driven retractable tail conveyor. So all we're doing is pulling back and dropping those on, so we fill a tray every 1.5 seconds. Obviously, the return for the customer was great. It had 11-month payback, right? So first off, it eliminated almost all waste. It not only increased productivity, but it had a consistent productivity for the customer. And quite frankly, it also improved employee morale because they no longer had to try to rotate customers through it. So this is really kind of the power of what we do and the cool things that we get to do at Columbus McKinnon in our Precision Conveyance group. Next one is not nearly as cool, but more impactful from a customer's perspective is we put an accumulation system into a wine-producing facility. And Greg, actually, I don't know why Greg travels with a bottle of wine, but Greg actually gave me one of his bottles of wine to describe a little bit. So big challenge in accumulation is that very often, you're dealing with products that are not easy to move. And so in this case, what we call this is a reverse table bottle, right? So the problem is when you move this at speed, especially when it's full, it's going to want to tip. It's now think about what happens when you've got a whole bunch of bottles ramming into this, right? If they're going to break, you're going to have a mess, you're going to shut down your whole production line. You're probably going to have to throw out, if not all of the conveyors, you're going to have throw out all the belting and everything that goes along with it. So what the customer did. And by the way, this was a 5 machine line. The bottleneck in this situation was between the filler and the corker. I've always wanted to sell a machine that was called a corker. I don't know why, but I thought that would be really cool. Unfortunately, I can't yet. But maybe with our M&A activity, we can buy one. But we put in an accumulation system, we were getting 161 bottles per minute. After that, we got a 15.5%, almost 16% increase in productivity, up to 186 bottles per minute. We added 12,000 bottles of production per shift to this, by the way, people drink a lot of wine. But 12,000 bottles per shift, this had a payback of 5 weeks. So again, these are very simple things to justify for companies to put in. So it's an exciting product and we're very excited to have it as a part of our portfolio. So a little bit about our end markets, right? So these are really the 5 primary end markets that we play in, food and bev, life sciences, CPG, e-commerce and kind of general industrial. There are a lot of things that we like about these end markets. First, they're very diverse. So we're not over-rotated to any one of these 5. So as things change within industries or within the economy, we're not overexposed to anyone. They all, as you can see, have really higher-than-normal growth rates, which is very exciting for us, tend to be a little bit less cyclical than maybe your general industrial. And what's really exciting for us, too, is that, quite frankly, many of them are still in the -- kind of in the early parts of their automation journey, right? So you think about food. Food is really kind of in its infancy in terms of automation because there's always been limiting factors that you can't get really a fully hygienic robot or vision system. That's changing now. The robotic manufacturers are developing more and more. And while we've been playing in this market for many, many years, we do think that -- once we can get some more hygienic automation tools available, greater automation is going to take place. Life sciences, particularly at pharma fulfillment centers. I think manufacturers have figured out that it's not very effective, both from a cost and a quality standpoint to have pharmacists fill individual prescriptions by hand. You can automate that process. So that is exploding from market perspective. And even e-commerce, where we were talking about it this morning with someone that you start to see that maybe there's a little bit of headwinds out there. But when you think about what we really do in e-commerce, right? So the major guys, the Honeywells and people like that, they do the 90%, 95% that goes into a warehouse and distribution center and they do it exceptionally well. And we don't in that world, right? But what happens is that, that remaining 5% are kind of one-off challenges that require the level of automation and sortation that we can do for them. And so while maybe there's a little bit of headwinds there from an overall standpoint, we are still very bullish on the future for e-commerce as a part of our market makeup going forward. Finally, I wanted to talk a little bit about kind of growth and growth strategies, which are the things that I find the most fun. Next slide, I'll kind of give you the overview of the total 6, but I wanted to highlight 2 that we think are really important as a part of what we're doing. First is a multichannel sales strategy. So back when we were pre-Columbus McKinnon, we realized back in 2016, 2017, that we were heavily dominated by selling through automation and material handling distributors. Good partners for us but the problem is there was a lot of white space within our market that they could not reach. Particularly, we are very excited about our ability to sell through OEMs and integrators. Our name was already well known. We just needed a little bit of a change to our go-to-market strategy to take advantage of it. What's exciting is we started to implement that. And again, it was probably back in '18 when we really fully started to implement that. And by the end of fiscal year 2022, we were able to drive that from 10% to 20% of our total sales. While distribution sales went from 60% to 41%, in that same window of time, distribution sales overall grew 50%. So we're not making this shift at the expense of any category. All 3 categories are growing at above average rates. And the second thing is M&A. We have a really strong M&A pipeline. There are 4 real characteristics that we look for when we're looking at M&A candidates. First and foremost, it's always about the technology, right? If they've got a technology that can drive superior value to our customers, hopefully somehow protected with IP, it's something that we're always very interested in bringing into the fold, especially if they can integrate well with their existing product lines. Second, if they can move us into some of the attractive markets that we just talked about. If they can help us take our existing products and move deeper into life sciences or food or other markets like that, we find that very interesting and exciting. We already have a somewhat robust aftermarket program within the Precision Conveyance group, but it could be enhanced dramatically. So if there's a candidate out there who can help us move forward with our aftermarket activities, we'd be very interested there as well. And we also know that far, far, far too much of our sales are located in North America. And so we know that if we can find someone who can help us expand our value reach because we know our value proposition is just as important, particularly in Europe as it is in the United States because it's all driven by labor cost and labor availability, we should be successful there. We just need a little help to get there. So those are 2 of the key ones that we wanted to focus on. But really what we have are 6 strategies that we're moving forward on. A couple of things excite me. First off, the fact that with 6 strategies, we're not dependent upon any 1 strategy to kind of win or fail, right? We've got a number of irons in the fire that we're successful on. Second thing is almost all of these growth initiatives have been underway for a period of time. So we're not just like starting out and hoping. We're already seeing traction in almost every single one of them. Third thing is, if you look at many of these which is why we're excited to be part of Columbus McKinnon is that the Columbus McKinnon organization can help us leverage their resources to advance all of these. So if you look at geographic expansion, you heard about Appal taking over Europe and Asia, I think he can do wonders for us there. You take a look at probably the most exciting thing for me was one of the limiting factors of our Precision Conveyance platform today is really the fact that we are still fairly mechanical oriented. We didn't have the electrical and the controls capabilities that were necessary. In goodness, 20 minutes from our main conveyor plant, we have a $100-plus million controls business that we can integrate into the Precision Conveyance business and really multiply and grow that business. And then we talk about linear motion. Linear motion is an industrial automation product, right? And so with a little bit of enhancement to those products, a little bit of tweaking to them, we can start taking those and where they have been sold through kind of your general industrial distributors. We can start taking those to the automation places and really develop a robust industrial automation platform for us going forward. New product technology is also important. We've had a history of being the most innovative company in our industry, but now we're accelerating that because we're actually leveraging resources from Mario's new product development team to be able to enhance and bring products to the market faster. We talked about multichannel sales strategy. We've also talked about high-growth sectors and M&A. So we're just really excited. And by the way, M&A is also a big benefit for us because now we have a dedicated team who can help us source and close deals. So the addition of Columbus McKinnon as part of our process is really very excited -- is very exciting. So kind of in summary, I've given you a little bit of an overview of what Precision Conveyance is. I could talk about this for 2 days instead of 15 minutes because I do love it. But I do think not only is having this Precision Conveyance going to be accelerated by being a part of Columbus McKinnon, but I also think the Precision Conveyance group can accelerate the transformation of Columbus McKinnon itself. So we're excited to be a part of it. We're really looking forward to the future, and thank you for your time. So now I will introduce eventually. There we go. Adrienne Williams, our Senior Vice President and Chief Human Resource Officer.

Thank you, Terry. Good morning. So very glad to speak to you all today about how we are linking our people strategy to our overall Columbus McKinnon enterprise strategy. As Terry mentioned, my name is Adrienne Williams. I started with Columbus McKinnon last June. Prior to that, I had 15 years in the hospitality industry and about 5 years in the health care industry. And before -- when I came to Columbus McKinnon, one of the things that I spoke with David and the rest of the team about was the amount of growth and transformation that the company was experiencing and anticipating. So I knew we have to create different solutions to help the company meet the business need. And I really wanted to lend my expertise and be a part of that transformation. So again, very glad to be here. So over the last year, we spent some considerable time evolving our people, talent, culture framework to better align with that enterprise strategy because ultimately, if we want to unlock the potential of intelligent motion solutions, we have to be able to unlock the potential of our talent. So David shared with you the Columbus McKinnon business system earlier. And at the heart of that is our people and values. So we created a HR framework that supports this Columbus McKinnon business systems with 5 key pillars and that attract, develop, engage, retain and rewarding our people. And I'll go into all these in a little bit more depth. But when we're talking about attract, what we really mean is we're looking for focusing on that bench strength and getting next-generation leaders because they won't just come from our internal talent, but we're attracting top talent with the critical knowledge, skills and abilities to close those competency gaps. For develop, we're looking at growing cross-functional leaders, giving our team members different experiences and opportunities and providing them with stretch projects to help them grow and learn. And we've also spent a lot of time focused on developing our commercial teams. For engage and retain, what we were hearing from our teams were, they wanted more consistent and better communication. So we conducted an engagement survey, and we hadn't done one for quite some time last August, and we created some action planning to address what we learned. At the same time, we were still feeling the effects of the pandemic that resulted in the great resignation and an extremely competitive labor market. So we're consistently evaluating our compensation packages and our internal pay equity to ensure we remain competitive in the market. And that leads me to rewards, which we know we're focused on our base and incentive pay upon hire as well as a pay-for-performance philosophy for established team members to ensure that we are rewarding our top performers. And then we also have a competitive health, wellness and retirement plans. Under that, everything that we're doing, we are being very intentional about integrating newly acquired businesses into our people, culture and values framework. So when we talk about attract, what we're talking about really is getting the right people in the right roles. And we've identified 4 competency areas that we believe are going to be most needed to enable the company's transformation. So for project management, as you've seen today, we've got some exciting things going on in the business. And we're building a project management team to help deliver solutions across the entire enterprise, focused on efficiency and effectiveness through our LEAN processes. Things are changing very rapidly. So it's important that we can remain nimble and lead through all these new experiences. We've hired a number of experts in our digital marketing and demand generation. And we're continuing to attract firmware, software and control engineers to continue advancing that intelligent motion solutions. Mark talked about our IT platforms. So we're looking for people that literally speak that language. And operationally, Bert talked about what we're experiencing there. So we've hired experts in continuous improvement, supply chain, sales operations, inventory and planning, all working together to create solutions to optimize the product delivery. And Terry just mentioned with our commercial teams we're focused on expanding those vertical markets into the food and beverage, life sciences and e-commerce. So we're really tailoring our talent profiles because what we need at 12 to 18 months ago has significantly changed to what we need today. So we can't approach development as a one-size-fits-all mentality. There are common themes throughout our talent needs but people are individuals. So therefore, they have individual needs. So we use some talent assessments, not just at the hiring process, but Caliper and our Hogan assessments develop -- they highlight development gaps. And what that does is that gives us the capability to start having those development conversations with our people day 1. You'll see later in the presentation that career growth is critical to our engagement and our retention strategies. So we're really defining career progression. We're building individual development plans, and we're providing coaching and mentoring to support our next-generation leaders. And many of us on the executive team have mentees that we're partnered with because many companies talk about giving exposure to that next-generation leader, but they really don't give them a platform to do that. And we're being very intentional about giving our people platforms for that exposure and experience. On the leadership development side, I'm really excited about a new tiered leadership program that we're on the cusp of launching. It's a series that considers an employee's current role as well as their experiencing -- their experience. So it's going to focus on everything from first-time supervisor training to those more established experienced leaders such as those competencies of leadership change, executive presence, setting expectations and the like. Our eCornell certification program, we've graduated 16, then we have another 5 that are currently enrolled. And our succession planning, we are digging deeper into the organization to develop successors for the executive team as well as that next level down because if someone -- if we do need that successor, we want someone else ready to go that next level down that can succeed that person. So we're just looking at more holistically and not just one layer. I mentioned earlier that we hadn't done an engagement survey for some time. It had been about 7 years. So we decided to conduct an engagement survey to really understand what our people felt and thought about leadership in the company. And we partnered with Workforce Science Associates, and we had a very good participation, good participation will be 70%. We reached 75% participation rates. So we feel like it's a really good representation of what our people actually think. And that we started developing and executing on action plans based on what we heard and what we learned. So engagement, though, is not a onetime-a-year thing. So on the left-hand side of that screen, you'll see just some of the other opportunities we have that we're engaging our people through. And I won't drain that portion of it. But just highlighting a few on onboarding. About 2 months ago, I was reading an article that talked about good onboarding can improve retention by 82% but 88% of companies don't do it well. So if we want to be an employer of choice, this is a way that we can differentiate ourselves in the market. So we've created a cross-functional project team to update our onboarding processes. And then on the right-hand side, we're investing -- I'm sorry, I'll talk a few -- talk about a few bit more on that left-hand side. We are investing in our people through learning and growth opportunities. We've talked a little bit about that and doing consistent ongoing communication. And communication, there's a lot going on in the organization. So we're not just talking about what's going on, but the why behind the decisions are being made. And then David talked about the new purpose statement centered around purpose in motion and the conversations we have with our management team every month on that. And what that does is it helps our employees connect what they do with the purpose of the company. And I think that's a very powerful message. Beyond the engagement surveys on the right-hand side, everything that we're doing is going to fit more broadly into those 4 categories. So its career growth, we're doing more on cross-training and conducting hourly performance evaluations. For work environment, some examples there would be supporting work life balance, flex scheduling, developing recognition activities. For our leadership, we've talked a little bit about this, but we're spending a lot of time developing our people and having effective and ongoing communication. And for pay and benefits, in addition to our rewards platform, which I'll talk about in just a bit, we're aligning our vacation policies across our sites, and we've increased our shift premiums in markets where we weren't as competitive. So the results thus far, we have been able to decrease our turnover from Q1 of this year to Q1 of last year by 8%. So for our total rewards, we do look at that as a 4-pronged platform, and we have a complete health and wellness package, and we're working consistently with our carriers and our vendors to ensure that we are giving solutions to our employees that they find effective. So we also spend a lot of time educating our employees so they can make the best decisions regarding the appropriate level of coverage for their situations. And again, everything that we're doing here, we are focused on integrating into our new business. So Dorner is fully integrated into our rewards plans, and Garvey is targeted for January because we want to make sure we're capitalizing on those costs and time efficiencies. Our wellness programs. We also have a foundation of education there as well and it's all about helping our employees understand how to take steps to improve their health. We have different health care incentives that encourage them to take action, such as getting your physical, taking the health risk assessments. And then we enhanced our wellness plans by changing our long-term disability benefits from being 100% employee paid to 100% employer paid because the reality is you're going to need your disability benefits more likely than your [ user ] life benefits. It is important that we remain competitive in the marketplace. So before we post the position, we do ensure that we have up-to-date market analysis to give insight on base salary, short- and long-term incentives. We have been matching -- employer matching retirement plans. And even if an employee doesn't participate, we will still contribute to their retirement account. And then finally, we have resources focused on HR technology. We just partnered with the IS team on launching an HRIS system. And that will give us data -- access to data that we just hadn't had before. So next steps is to interface that with Power BI. So we'll be able to do some root cause analysis to help drive solutions within the business. So how does all that support our enterprise strategy? We did some modeling on what we anticipate the workforce to look like by the end of the strategic plan. And we're anticipating some significant shifts in resources. So as we generate efficiencies and become more productive, we anticipate seeing a decrease in our employee mix for the manufacturing and professional personnel and an increase in our technical employees. That's going to help drive that strategy. So manufacturing, we anticipate moving from about 60% to 54% of the population, but those are going to be more LEAN, technology-driven manufacturing roles versus that manual, labor-intensive resources that we have today. For the professional employee, we'll see a slight decrease there. And I mentioned on one of the previous slides, we're targeting those vertical markets, digital generation technology, project management and customer-facing capabilities. And those are going to focus on product demand, increasing that product demand versus order entry. And then finally, on the technology professionals, we are looking at hardware, software, engineers, digital demand resources, and those are going to drive those -- the growth within the organization. And that employee mix, we would be looking at 15% to 22%. So as we become more effective and efficient, the shift in employee mix, we believe we'll see about a 23% increase in sales per employee. And I can't end without talking about our efforts in diversity, equity and inclusion, which support the entire HR framework. In fiscal '22, we put goals in place to support our values and to address any gaps that we were seeing in the workforce. And one of our goals was to have 100% of our salary professional positions require a diverse slate of candidates. And I'm happy to say that we didn't meet that goal. We also had a goal of 50% hires for diverse candidates. In the U.S., we did hit 53%. Globally, we were slightly below our goal. But of course, that's measured differently in the U.S. versus globally. And then we're also continuing to improve our diversity within our leadership roles. We also can hire diverse candidates, but to truly retain that talent, our leaders need to be trained on how to lead diverse teams. So we also had a goal to solve for that issue as well. So we provided our employees director level and above, with a 3-part DEI training series. The first 2 parts were instructor-led virtual and it was all based on how to identify and mitigate unconscious bias. Then we had a Capstone training session during our Leadership Summit this past April, on how to lead inclusive teams. So we've made some really good progress over the last year in our HR framework under the pillars of attract, develop, engage, retain and reward, and a lot of opportunities still remain. So I'm looking forward to continuing to drive the business solutions throughout the HR functions. And with that, I will introduce our CFO, Greg Rustowicz.

Thank you, Adrienne. So good morning, everyone. I'm Greg Rustowicz, the CFO for Columbus McKinnon. I've been CFO for about 11 years. And like Bert, I have almost 4 decades of experience. Some people would probably say you must be really seasoned. And I guess we are. We've seen a lot over 40 years of a work career. But I'm really -- I've been really excited, though, to talk about the transformation that Columbus McKinnon has been undergoing. The progress that we've made as well as where we expect to end in 5 years from now. And so with that, let me launch into the presentation. So in my section of the presentation, I'm going to review our financial targets, which we have set for fiscal '27. But let me begin with a review of the key financial assumptions underpinning our new targets. Our new targets have sales growing at a CAGR in excess of 10%. This is comprised of 5% organic growth and 6% inorganic growth. The organic growth is driven by our go-to-market strategy, which David has covered as well as the strategic initiatives that Mario talked about. Inorganic growth includes acquired revenue of $325 million, including growth on that acquired revenue under CMCO's ownership. We are also assuming no material changes to current market conditions. From a COGS perspective, we expect to expand gross margins to 40% with a number of key 80/20 initiatives. This includes factory footprint simplification and productivity improvements, adding $30 million to gross profit by fiscal year '27. Product line simplification, material productivity and VAVE will expand gross profit by $9 million by fiscal year '27. We are assuming raw material inflation normalizes, and we are able to more than cover raw material inflation with price increases as we have consistently demonstrated over the last 10 years. From an RSG&A perspective, we are going to be reducing our RSG&A as a percentage of sales to approximately 20% by the end of fiscal year '27. We're reflecting the cost savings from the new go-to-market structure as well as shared services from our SAP implementation, driving cost savings. We also expect that additional investments in digital enablement and higher sales will improve our leverage and scale our current SG&A spend. Our new financial targets cost for sales of $1.5 billion and adjusted EBITDA margins of 21%. And we expect that the acquired revenue of $325 million will generate approximately 25% EBITDA margins, which will be accretive to our overall margin target. This is in line with the EBITDA margins realized on the Dorner and Garvey acquisitions. We will also improve gross margins to approximately 40%, which as you can see, is a 400 basis point increase from where we finished fiscal year '22. And we will reduce SG&A as a cost -- as a percentage of sales as we reduce structural costs, as David has covered and leverage our SG&A spend with digital investments in scale. We expect that the depreciation add back will be about 1.5% of margin uplift. This will result in about $315 million of EBITDA by fiscal year '27. This slide covers our revenue bridge from fiscal '22 to the $1.5 billion revenue target. From our FY '22 actual revenue of $907 million, we will benefit from a full year of the Garvey acquisition, which will add $18 million of revenue in fiscal year '23. And that reflects 8 more months of the acquisition as we closed on that deal December 1, 2021. In addition, we expect organic revenue to grow at a CAGR of 5.3%, adding about $250 million of revenue over the 5-year time frame. The acquisitions will add $325 million of revenue. This includes revenue acquired in the first year under CMCO ownership as well as the growth on that revenue over the 5-year time frame. This means that the revenue on the acquisitions completed in the early years of the 5-year time frame, we'll see sales compound with both market growth and revenue synergies. We're showing a category for divestitures with nothing assumed. I do want to make mention that we regularly review our business portfolio as part of our strategic planning process. And if a business is worth more to a third party than it is to us, it will be considered for divestiture. While a divestiture would impact our sales target, we would expect to use the proceeds to invest in faster-growing, more profitable businesses that are aligned with our portfolio transformation. We do not believe that the divestitures would impact our 21% EBITDA margin target. So this slide shows how we are going to obtain our original 19% EBITDA margin goal and then grow to 21% over the next 5 years. As we are all aware, the COVID-19 pandemic has impacted our ability to achieve our original 19% EBITDA margin goal. We have seen order rates and backlog at record levels but supply chain challenges have impacted our ability to deliver. Bringing backlog down to more normal levels will give us 2 benefits: fixed cost absorption benefits in our factories as well as SG&A scale, which we believe will add 2 points to our margins. We also expect margins to go up 1% with pricing and freight recovery actions. We still have substantial backlog that does not reflect the latest market pricing in it. Finally, with the cost actions we are taking in SG&A this year, we expect the annualized impact to result in a 0.5% reduction in our cost base, and that's net of inflation on SG&A costs. This will get us to the original 19% EBITDA margin target that we set. From there, we expect that acquisitions will be accretive to EBITDA margin by about 1.5 points. Growth in scale will add 2.5 points to our new margin target but will partially be offset by an incremental investment in new product development of about 0.5 point. Factory simplification and that material productivity together will add 2.5 points to our target. We are also including other cost inflation assumed to be negatively impacting margins by about 4%. This excludes inflation on materials, which will be offset with price increases. Now let me take a minute to speak about our capital allocation priorities. Our capital allocation priorities are in line with what we have previously discussed. Our first priority is to fund our growth initiatives. We expect to fund growth initiatives and new product development and strategic CapEx resulting from our factory simplification plans. These growth investments will be accretive to our margin targets. In addition, programmatic M&A is part of our strategy, but we will remain disciplined in our approach to drive value creation. From a balance sheet perspective, our net leverage increased with the Dorner and Garvey acquisitions but is currently at a manageable 2.7x as of March 31. We expect to manage our capital structure responsibly. And while we may increase leverage temporarily for acquisitions, we have a proven track record of delevering. We also plan to fund our U.S. pension plans at the same level as in fiscal year '22, which is about $1.5 million. With our LDI, or liability-driven investment approach, we were 100% funded in one of our legacy plans and about 95% funded in the other as of March 31. We expect to terminate these plans in the near to medium term. Lastly, we will look to return excess capital to our shareholders by adhering to our dividend policy of paying a consistent dividend that grows over time, and we'll consider share repurchases opportunistically. With the strategy that we have outlined, we expect to generate substantial free cash flow. By fiscal year '27, we expect to be at a run rate of about $160 million, significantly higher than the historical free cash flow levels that we have realized. And this equates to about 100% free cash flow conversion rate. From a leverage perspective, you can see that after the STAHL acquisition, which was completed in January of 2017, we delevered very quickly to well below our target of 2x net leverage. This speaks to the cash generation capabilities of Columbus McKinnon, one of our hallmarks. While we have recently increased net debt substantially with the Dorner and Garvey acquisitions, we are still only 2.7x levered as of March 31, our most recent fiscal year-end. Long term, with our programmatic M&A strategy, while net debt levels are expected to increase, we can still manage to a 2x net leverage ratio over the long term. We are very confident in our ability to manage our capital structure as we have demonstrated over my tenure with the company. Finally, we thought it would make sense to show the financial progress we have made to date with our transformation. On this slide, we are comparing year-over-year sales growth gross margin, adjusted EBITDA margin and current trading multiples with the average of 2 peer groups. The first group is a legacy industrial peer group that includes our direct competitors as well as other industrial companies that many of you benchmark us against. The second group is a motion control peer group that we believe should be the new comparison group. As you can see, we are outpacing both peer groups on sales growth and gross margin. We are significantly ahead of the legacy peer group on adjusted EBITDA margin and closing the gap with the motion control peer group but still trading at a discount to this peer group. As we advance our transformation with the financial targets that we have outlined, we expect to outperform the motion control peer group. Let me now turn it back over to David to wrap up.

Great. Thank you, Greg. And as we conclude our prepared remarks, I just wanted to recap quickly on our strategic plan and cover a few quick points as we talk about moving beyond the blueprint. So we talked about our strategy. Our strategy is to transform Columbus McKinnon from a legacy, cyclical industrial company to a top-tier secular growth-oriented intelligent motion solutions company. We're going to do that by focusing on the strategic priorities you see outlined here. We're going to also unlock Columbus McKinnon's potential with a focus on Columbus McKinnon's business system and the great work we're doing to advance our efforts there, leveraging the core growth framework that builds from strengthening the core to growing the core, expanding the core and reimagining the core. And ultimately, through that process, evolve the company in a way that transforms Columbus McKinnon into that intelligent motion solutions enterprise that's leading amongst its motion control peers. We believe that, that transformation will look something like this. We've already dramatically advanced the underlying portfolio of Columbus McKinnon over the last year. And we believe that as we advance with these specific initiatives that we've talked about today, both organic and acquisitive growth as well as our efficiency efforts and underlying enabling work, we believe we can get to a future portfolio that looks like this and achieve those bottom line improvements that get us to the 21% EBITDA. So as you can see, these are the outcomes that we think we can achieve as we move beyond the blueprint and transform Columbus McKinnon into the global intelligent enterprise -- global intelligent motion enterprise that we're targeting. We're going to move to $1.5 billion in revenue and $315 million in EBITDA in fiscal '27, evolving the enterprise to be a leader in the intelligent motion solutions space and deliver $250 million of organic growth and $325 million of M&A growth. We believe that we'll do that leveraging improvements in our Columbus McKinnon business system, increasing our digital capabilities, as Mark Paradowski outlined and improving stickiness and reducing risk and driving customer intimacy as well as improving customer experience along the way. We're going to drive simplification in our factory footprint, unlocking further value through our 80/20 initiatives there. And ultimately, as Adrienne just outlined, strengthening the talent and sustainability of the organization with our investments in talent and succession planning. And with that, we're going to conclude our prepared remarks and move into a question-and-answer period. For those of you on the webcast, we will be taking about 5 minutes to get ourselves resituated so that if you could be patient with us, we'll be right back to you. Thank you. [Break]

Okay. Great. We're going to open the Q&A session. So if someone has a question in the audience here, please feel free to ask. Sean has a microphone. We'd like to capture it so that the webcast participants can hear as well and we'll go for it. I think we've got an hour scheduled and looking forward to taking as many questions as we can. Thanks.

I'll start with some questions that we did get through the -- through our web audience. Are we actually seeing much in the way of onshoring of manufacturing and operations yet by our customers? Or is that still an expectation that has yet to really play out?

Okay. Great question. I'll just take that to begin with and comment that we are absolutely seeing onshoring business or reshoring business pick up. I won't speak to specific examples and customers, but I would target an industry and say we're seeing a lot of in the metals industry. I will also cite a few statistics. Manufacturing PMI was up again in April in the latest data that I saw inching up from March and still above 50. And then what we're seeing is 9 out of 10 export countries or yes, export countries have PMI indexes that are up as well. So 9 out of 10 up there. And then manufacturing construction projects in The United States are at peak levels in the trends that I've seen going back as far as I can get the data. So looking at the latest chart I saw from the National Association of Manufacturers, construction spending was over $96 billion as of the April data and that was up over March. And it was at a record over that period of time. And so what we're seeing is a lot of manufacturing, construction and capacity being brought online as PMI is high.

Another from the web audience. Do you see warehouse and e-commerce to continue to be a strong growth vertical over the next few years? And a related question on that is does the donor customer mix have to change due to the over expansion by the large e-commerce package delivery company that we all know.

I'll start, and then maybe what I'll do is ask Terry if he wants to comment a little bit further. But what I would say is that, yes, e-commerce is going to remain a growth vertical for us. There is a lot of demand for the e-commerce delivery activities. It's a much more efficient model to get product and goods to people than the traditional approach. And so there's so much business capacity for more transactional activity that will move through e-commerce. And we are seeing shifts in large customers' demand patterns at the moment as they're reassessing their strategic investments again at the moment. But we're in the early innings of what we've been doing to help build out capacity for that customer and others. And so this is something that we see as being a bit of a temporary change for that particular customer, but also something that speaks to the opportunity more broadly in the marketplace where we are in the low penetration level and where we're gaining access to do more in an environment that I think when you look at the demand trends over the longer period of time that it's undeniable that there'll be more, not less e-commerce execution requirements and delivery requirements. Terry, is there anything you'd add to that?

No other than adding that -- thinking about what we do and how we do it, we're less dependent upon capacity expansion per se than we are in terms of going in and being able to solve specific bottleneck issues within existing facilities. So like you said, that capacity reduction or a constraint right now may impact us short term, but long term, I don't think it has a real impact on what we do in the e-commerce market.

Thank you.

Maybe just to start on organic growth. The -- you showed a slide with market growth rates by like the different verticals, I guess, you're exposed to, whether that's lifting or automation or linear, et cetera, when you kind of weight those market growth rates by your sales, kind of builds to like a 4.5% type of growth rate, which is what your organic target, I think, is?

It's slightly lot larger than that.

Is kind of -- is the plan -- and then you talked about how you had underperformed, I guess, prior versus the market for a period of time, for whatever reason. So is the plan kind of to move that from underperformance to something like growing with the market with all the organic initiatives you talked about, whether that's product development, commercial development, et cetera and why not grow above the market?

Sure. And our goal is to grow above it, and we are targeting slightly above that market growth, but in our targets that we've put out there, we've hedged back a little, that growth expectation from a market perspective. And we've also -- so those are market -- longer-term market growth rates that we had for [ Mackenzie ]. They were published prior to any discussion of recession. We're assuming not a material adjustment in those, but we're assuming that they are hedged back a bit. And we're expecting to outgrow market with our organic initiatives. But if you think about that core growth framework that we outlined, when you talk about strengthening the core, which is clearly a focus as we build this foundation, we need to do that to grow with the market. That's about making sure you maintain your share of the served address or serviceable addressable market. And so there's a fair chunk of what we're working on that allows us to maintain and grow with that market growth and ensure that we're targeting. But there's also a lot of opportunity to grow and expand from there. So we've set targets that we think are reasonable and achievable. And that's what's reflected in that $250 million. But your math is exactly right as it relates to those numbers.

Yes. And just to add on, so part of the minus 1% that we saw in that time frame, which is just a very limited time frame, was also as a result of 80/20 where we shed the bottom 25% of our customers, and that cost us about 1% of revenue. So I would argue that we are more flat than anything. But yet in the market growing at the GDP level of a couple percent, roughly 2% over that time frame. Yes.

So the assumption is a catch-up and then getting to above market growth.

Yes. If I can add something?

Please, Mario.

Yes. Our strategic growth initiatives, 70% of the growth that we are projecting are on more high-growth markets or vertical markets that we identify. So those solutions and access channel activities that we have are focused on that. So that's going to help us, of course, to be ahead of the market.

Jon Tanwanteng from CJS. Just want to be clear, how much cushion have you built into those long-term numbers for a recession, whether it be short or extended or deep or particularly shallow?

Greg, do you want to take that?

Yes, sure. So recessions can be very tricky to predict both the timing as well as the magnitude of it. So when we talk about having current market conditions, that's assuming that we're kind of where we are today. So depending on when -- if there is a recession, when it would occur, how deep, if it was just a short-term recession in the next year, I think we could recover pretty quickly, and we would typically see almost a V-shaped recovery like we have with the pandemic-induced recession. But what was different this time around was the whole supply chain constraints because as we talked about on our last quarter call in David's opening comments, we're booking at $1 billion-plus revenue level. We've got almost $100 million more backlog in our legacy Columbus McKinnon, so excluding the precision conveyance backlog, $100 million more than our historical levels. And it's not because customers have said, "Oh, we'll put the order in and we'll delay it." They're basically, "It's like we just can't get the 1 golden widget we need to ship the product, and that's really been the issue." So if it's early on, I don't think it's going to have much of an impact. If you tell me that, hey, there is a recession in fiscal year '27, the last year of it, then obviously, that would have a significant impact. But depending on how deep.

And the second question for me. I was just wondering if you could describe the M&A opportunity that's out there. You have $325 million target. Have you identified those companies that could help you get there? Is there a list of specific opportunities that you're looking for and kind of -- if there is kind of -- what is the time line? Do you have to acquire them earlier or later in that time frame to get there?

Yes. Let me start. Sure and then Alan, you too. Okay. And what I would say, Jon, is that, yes, absolutely, we have a very active dialogue ongoing with a number of companies in the space. We participate, as we showed -- showed you in a very large and fragmented total addressable market. And so when you think about the $30 billion market landscape that we narrowed the $1.8 trillion industrial automation space down to, and then you go deeper within those areas that we're really targeting within precision actuation or precision linear motion and then specialty conveyors in addition to the legacy core of our business, you can see a lot of fragmentation and opportunity. And so there's a very specific list of target candidates that we're engaged in discussion with. Those discussions that we're engaged in take various forms and turns along the way. And I think as you've all experienced in your careers as you watch how these things evolve, they're not very predictable. We're also being very thoughtful about where we are in a cycle, where we are with our decisions around capital allocation, where we are with the execution requirements we have, the backlog we have. We have a lot of opportunity in our organic runway that we need to make sure we're prepared to execute and deliver on. And that's really where we're laser-focused right now while we maintain our commitment to be programmatic with M&A in a disciplined fashion to develop and grow the business. And so what we want to be is in a position to act when we think we have the right opportunity, but not to be leaning too far in on that in a way that would be detrimental in a period where it might not make as much sense.

Yes. And just to add on, so I talked about $325 million of acquired revenue, including revenue synergies and the growth on that with earlier acquisitions being able to compound at the market growth rates that David shown. So the number is roughly $250 million of acquired revenue that then with the growth and revenue synergies gets to the $325 million. And so the idea here is that this is a programmatic approach that there's roughly round numbers, $50 million of acquired revenue a year, each year over the 5 years. So it's not 1 deal, the size of a Dorner deal, which was $485 million, but these are literally bolt-ons that we add to our existing. And maybe, Alan, you can just speak to what you're seeing today in the marketplace from a multiple perspective?

Sure. To add on in terms of what David and Greg mentioned, I would say as part of our Columbus McKinnon business system, we do have a very strong cadence around our M&A process and procedure with defined criteria that we use, again screening a very active funnel of opportunities. We continue to see these opportunities pretty regularly. We're obviously looking for the right company, right fit. And based on opportunities around areas that we talked about in terms of precision conveyance, linear motion, we're constantly looking in those areas. And when the right deal comes around, then we'll be in the market to talk about it.

Thanks, Jon.

I wanted to go back to the precision conveyance multichannel model and just get a little more color there. Multiple ways to go to market through an integrator, distributor or direct sale. And I just wanted to kind of gauge is the integrator, distributor kind of an entry into a part of the market. And then the direct sale is a larger existing relationship and really taking this to the next level, do you eventually move up that scale to that direct sale model to capture a greater portion of the parts and aftermarket content or any major variation between those customer types?

Yes. So Terry, let me just say a couple of things and then ask you to fill it in. We have an opportunity. I personally believe to expand our reach to our end user community, the people who use our products. We are very, very pleased with the work that we do with our distribution channel partners, and we believe that we can grow further with them as Terry demonstrated that he did even when he went with the multichannel strategy. So as the channel activity that he was managing shrunk as a percentage of his total between I think it was 2016 and 2022. He actually grew it, yes. So it went from 60% to 41% between '16 and '22. But actually, that 41% represented 50% more absolute dollars going through that channel than we had in 2016, yet it was 20% less of the total. And so we believe there's a big market out there for us to access, and we believe that we can advance through multichannels to be successful at expanding our share of that total market. And Terry, I'll let you talk about what you're thinking there?

Yes. I mean I think when you think about those different activities, so typically, if it's a direct-to-end user opportunity, it's because we're able to provide the entire solution, right? So where the integrator and the OEM come into play and at times a distributor, is that when the solution involves conveyance, but it also involves robotics or multiple other applications that, quite frankly, we don't want to go down that approach because the margin profile of an integrator is significantly less than the margin profile of a machine manufacturer. And so that's where we see the OEM and the integrator being very valuable to us as we go along. Now getting that direct end user control, though, that's where really our marketing department and our sales activity come into play so that yes, you are selling to and through the OEM or the integrator or quite frankly, even a distributor, but you're building and maintaining relationships at the end user. So they're driving preference for your product that then obviously allows you to maintain greater control and pricing and everything that goes along with that. So I think the direct end user touch is there no matter what channel we go through and whether we do that through our marketing activities or whether we do that through our sales activities.

And that gets back, Mike, sorry, just to add that gets back to the demand generation initiatives that we have underway through our digital processes that Mark talked about earlier, too.

Great. And just as a follow-up. So this has been quite a journey. I believe you shed 3 or 4 businesses with negative or no earnings. SAP implementation, more facility rationalizations. I was just trying to figure out, gauge the level of disruption potentially or heavy lifting relative to the prior actions versus the current ones? And then within that 4 facility rationalization, is assuming that's all organic or if you bring on new businesses, does that number go up, down, better gross margin, so you can keep those facilities intact? Any color around those kind of anecdotes?

Sure. So Mike, what we've done is we've identified the critical initiatives to execute on this strategy and the project-oriented heavy lifts associated with that. And then we've mapped them out from a time line perspective. And looked at where those phase and thought about the resources that need to be allocated to working through those activities because we are concerned about the same thing. And we're going to be very mindful about what's happening in the macro environment at the same time that we're working to advance all of these activities. But the resource capacity is well thought through as we think about who needs to work on, what to be able to achieve those actions that are outlined in the strategy. The -- I'd love to hear from the management team relative to the prior heavy lifts because I certainly didn't live through them previously. But I would say that what we have to do to execute on this next 5 years is manageable within the framework that we've outlined. It is not inclusive of M&A in terms of footprint additions. So those would be incremental and potentially change that framework that Bert outlined. And I think that we will -- we believe we're confident that we can execute on that to be able to deliver the results that we're talking about. Greg or Bert, any of the...

So the earlier part of your question, the divestitures were relatively easy. I mean it was corporate development, finance, lawyers involved in that. So that wasn't hard. The hard part and Bert will comment on it is when we want to simplify our existing footprint. Two of them were relatively easy because, one, we had 2 in China, and that were very close together and the same management team. So putting those together went actually very well. Another one was relatively small. It was in France, and that went to Germany. We handled that okay. The 2 Ohio closures, the first one, and I think the second one proved to be more challenging. But the second one was really because it was rate at the beginning of COVID or when we were in process of moving. And so that actually created some challenges for us from a consolidation perspective. But I would mention, and Bert can comment on it. As we look at the savings, the $30 million of savings coming from simplification and the net reduction of 4 factories, that is going to be the number in the last year of the plan. So it's not like it's going to be spread evenly. It is going to start small and ramp up to the $30 million by the last year because we're starting with the smaller, simpler ones first before we move to the more complex ones. But the good news is, as Bert and his team, it's not the first time they've consolidated factories. So you want to jump in?

No, yes. And I think the 1 piece, as David talked about, as we build our CMBS process and also our PMO office, we're adding those to our process. We've actually just recruited a PMO expert to help us with the process to be more thoughtful. So we're bringing more team members on to add more behind the processes as we continue to grow. As Greg said, no 1 wants to close a facility during COVID, I can tell you that's a pretty difficult situation. But the amount of learning we took away from that is what's going to help us be better going forward.

And there's just 1 other point. So there's a couple of enablers to doing this well. One is Mario owns, and that's the product platforming. So that's absolutely critical that, that gets taken care of. And the other one, Mark Paradowski has on the IT side. So you don't want to move into a new facility on an old system, right? So SAP has to be implemented in the factories that are going to be moving, and we also have to simplify the product mix because the 1 thing we did learn is while you have your bills, materials and your bonds on paper, what actually happens is maybe slightly different, and that's where you can run amok where the operators say, "Well, it doesn't exactly work that way. I'm going to change the dial on the machine to this because I know that this will get me the -- whatever the specification is." And if that's not written down, when you go to make that hand off, that's where you really see the problems show up.

Right. So just to come back to that quickly. Under CMBS, we have playbooks around how we would handle this kind of work. And that includes sending and receiving teams. And that includes work that's done in advance of stage gates that need to be done. So validation of routing, validation of bills and materials, validation of steps in the process, validation of supply chain capability and to support whatever the change might be. And to the point that Greg made earlier, we found ourselves in a position where we weren't able to validate all of that in the latest move that happened during the pandemic. But on a go-forward basis, you can rest assured that we're going to have a disciplined process around how that happens. And we're going to make sure that we execute the playbook to ensure that it's done responsibly. And the other thing that you can also count on is that we're going to -- if we have to pump the brakes, we're going to pump the brakes. We're going to be mindful of what's happening in the environment and make the right decisions for the enterprise of evaluating priorities and determining what the right answers are in a dynamic environment.

This is Matt from Davidson. Just a couple of questions. First, can you talk about the aftermarket opportunity in legacy lifting versus conveyance as we think about parts, service, monitoring? And how you think about the criticality of recurring revenues? And then I have a follow-up.

It's a great question. And then we think of it as being highly critical and it represents too small a portion of the business. And so within the legacy lifting business, it's in the low double digits, 10% to 15%. And that portion of the business, we think, should be pushing up on double that size. We have done some things recently with technology that we're excited about that we think can give us more customer intimacy and get us more visibility into the aftermarket product requirement needs. So Mario talked about our intelligent motion solutions and our Intelli-Connect remote monitoring solutions. So with our legacy Columbus McKinnon cranes and hoists, we have -- now have the ability to understand usage, understand wear parts, understand fault codes, understand lifting loads all remotely for us and for our channel partners. So we can do that for 1 unit or multiple units. And if you're someone who manages a region as a channel partner or as a salesperson or as a business leader, you can look at that portfolio of installed base and understand where there are issues, where there's a service requirement, where there's a risk, where someone is at an end-of-life state and really start to push that service and aftermarket solution in a way that actually engages the channel to support you because they are getting the same visibility. And so it's not that you're working around an existing partner. You're working in concert with that partner to make sure that you can provide the solution and grow that piece of the business by providing value-added solutions to the end user as well as the channel partners. So I'm excited about that. And I think, Matt, that we can do a better job. We're also, as we talked about, as we consider M&A opportunities, thinking about recurring revenue and aftermarket to not only improve the cycle attributes of the business but to just build in that base of customer connectedness that leads to perhaps that next OEM sale opportunity as well.

Got it. And then as a follow-up, can you maybe walk through a little bit more of the detail, and I apologize, I can't remember who gave the presentation, but he was talking about how from 2018 to 2022 you reduced labor and overhead by 6 percentage points. And now for the go-forward planning period, I think the number is 900, which is an acceleration. What is actually driving that acceleration?

Okay. Bert, did you want to take that?

Sure. Yes, a lot of what we just spoke of, the continued consolidation processes. And remember, we also talked about in the past few years, we've kind of minimized capital spend because we needed to get these facilities somewhat centralized. And now as we invest in those new facilities, we'll take a lot of labor out as we put in new equipment. So it's really a combination of the leverage you get from more volume and the increase in technology that allows [indiscernible]. That's the biggest piece but we continue the same day-to-day improvements on material savings, productivity and just really taking a hard look at the overhead cost and making sure we're being very thoughtful about where we spend those dollars.

There's a number of questions still from the web. Considering the $250 million of incremental revenue attributable to organic growth, how would you characterize the different scenarios or challenges across the strategic vertical markets or the risk-reward scenarios, which offers lower barriers to gaining market share, more fragmentation, which would require a more inorganic assessment to gain market share. I think just some granularity regarding the various vertical markets for growth.

Sure. I'll start and maybe, Mario, I can pitch up to you on that. So we've been very deliberate about where we're trying to grow the business organically. As we said, we're going to be market-led as a company. That's one of the underpinnings of the business system. We start there. So we look at where we want to grow for very deliberate reasons, and we're managing organic and inorganic activities to try to target those specific markets. The areas where we have most channel coverage or most historic success, obviously, are easier for us to access organically. But we also, through our acquisition of Dorner and Garvey now have a broader reach for products that haven't necessarily been successful in certain markets. So Terry referenced earlier, the linear motion products we have, the actuation products we have that are very specific to automation requirements, to conveying solutions or advanced industrial technology needs. And with slight modifications to the portfolio, we can be very successful with those products in those markets. And so there are some barriers to entry, but they're not insurmountable. And what we've done is we've factored that into the organic growth plans that we've put together for this 5-year strategy. And so what you saw on Mario's chart was a trajectory of growth that started on the left-hand side with our legacy industrial markets and then move to the right. And the biggest chunk of growth individually in an individual market logically came from the industrial markets because we have a bigger base there. And so that organic ratio of growth on that bigger base is going to result in more absolute dollars. But on a percentage basis, we're growing faster and more deliberately in the targeted markets that are faster growing like life sciences and food and beverage and pharmaceuticals and electric vehicles and so forth. And so Mario maybe you can comment a little further?

Yes, absolutely. So as David mentioned, we spent a lot of time on the market-led, customer-centric type of approach. So we identify those markets that are growing fast, but we also identify what is our right to play, meaning how much access do we have in those channels? What type of products do we already have playing in those channels? How can we extend our solutions and expand our market share reach or our market reach in those areas? So as we were developing those exercises, then we identify about 100 different opportunities on the -- within our framework. And then we have to deselect and really look into what are those high-growth, really less risk type of opportunities. And by leveraging our current footprint, the access that we have in the strategic regions as well as channels, we are going to be able to really penetrate these markets with the new solutions that we want to prepare. And that's how we're planning to achieve that, minimizing the risk in one hand and optimizing the investment on the other hand that we have on these strategic vertical markets.

One thing that jumped out to me, I think, in the presentation was the -- you talked about this earlier, [indiscernible] the degree of gross margin improvement you expect. When you look at how the underlying business has performed since 2018, I think it was kind of a 34 percentage type of a gross margin. This past year, probably if you exclude Dorner and Garvey, maybe going to 35% gross margin and you had all these initiatives in place over those years, you took down facilities, you simplified product line, you had material productivity savings, et cetera. Just curious, what were the offsets over that period because I'm sure they've offset some, maybe inflation is one of them. And then kind of what gives you confidence with these initiatives in play that you get 400 basis points over this plan period?

Sure. I think a lot of what has to be understood as we talk about that expansion is the fixed factory cost that exist in the footprint of our portfolio today and the leverage we get on the volume. So the legacy portion of the business is still running and what we've delivered in revenue behind pre-COVID levels. So although our order rates have gotten back to pre-COVID levels, our shipment rates have not gotten back to pre-COVID levels as it relates to that legacy portion of the business. And that's the challenge because when you don't produce at levels that are that high in those factories, some of the fixed cost absorption challenges you have in those factories erode that gross margin. So there's that erosion, then there's clearly an inflationary aspect that has hit us. And we've gone after price. But when you increase price and cost at the same rate, you erode margin, right, as a percentage. And so I think those are the 2 primary headwinds that I would speak to. And what you saw in Greg's bridge that bridges us back to 19%, is that simply by tackling that backlog and being in a position to execute with the support of the supply chain, which is why that is such a variable for us and getting back to that level or to the level that we've targeted at 19% is that unleashing that backlog, getting it through our factories, getting the absorption, getting the benefits of that activity, we believe we've got about 200 basis points of expansion. And then on top of that, we've done work around price already. And on top of that, we have the actions we're implementing as we speak around the new go-to-market model and the regional realignment, which we believe adds on the SG&A side to the bottom line returns. And so we believe we've got a nice gross margin trajectory with the first couple of items. And then on the second, we believe that we've got an EBITDA expansion to the 19%.

Yes. And maybe just to add on. So in Q2 and Q3, and Q3 is typically our seasonally worst quarter just because of shipping days, we had record gross margins in those quarters [indiscernible] that was with Garvey and the Dorner acquisitions or 1 month of Garvey in the December quarter. So it's not that much of a stretch to say, hey, you're almost at that 37% right now. We all know that supply chain challenges have really impacted our ability to deliver, has created inefficiencies in our factory operations. So the point though I would add is the legacy gross margins for the entire year were 35%. So that -- they didn't go down. They went up from the previous year, and we see that there's opportunities because a good bit of the consolidation and simplification that is going to take place is going to be on the legacy side of the business.

That makes a ton of sense. And then a follow-up would be, can you help us frame like when do you expect to kind of get to that 19% now? Is that -- well, you said not this year, I think. But is there kind of a time frame you have in mind for kind of when you hit that initial buoy?

Sure. So we have a management plan that with the ability to execute on our backlog and our supply chain gets us to that level at the exit point of this year but we don't believe at this point based on everything we know that, that still holds, if you will. And so it really is dependent on the ability for that supply chain to be in to flow again. And given that, that does happen, we could see that happening in fiscal '23 -- sorry, fiscal '24, probably calendar year 2023, but not at this -- at this point, we don't see that happening in this year given the dynamics that are in the marketplace. But again, I want to emphasize what we're focused on is our own ability to control what we can control. And we have a management plan. We're executing on actions that we know are driving a healthier backlog, that are driving additional costs out of the system, that are giving us greater degrees of freedom as it relates to being prepared if there is a recession to advance even further with our recession actions -- planning actions. And so we feel very good about that being able to happen in the near term once we get out of the constraint period that we're in relative to the supply chain. Yes, Mike?

Jon. I just wanted to go back to the pricing commentary. One of the slides had pricing to 2% inflation long term. And I think we just came up a quarter of 4.5% price. So I just wanted to get some color on the timing versus front end versus back end, how you're kind of managing that? Is this another step-up or 450 bps right now seems to be where we should be?

Yes. I think are you referring to the EBITDA margin bridge where we showed pricing and freight recovery, adding 1 point of margin to get to the 19%?

Yes, that might be it.

Yes, yes. So it's basically adding 1 point to the overall target. And that's really -- as I talked about in my commentary, we have instituted significant price increases last year and this year, and we've had to just given what we've seen with material inflation going up substantially. So we just need -- our backlog isn't at current pricing, that needs to kind of get flushed out. And once it does and assuming that raw material or material inflation moderates and doesn't have the volatility that it has, our pricing will catch up and that's where we're going to see that incremental 1 point impact on EBITDA margins. But it's not a 1% price increase.

Got it. Understood. And then regarding the automation investments and for the incremental labor overhead savings, just kind of trying to understand if near term, there is an SG&A for CapEx swap happening and that CapEx investment, how front-end loaded is it? Is there recurring items? Or can you walk us because historically, last 4 years, you've been running less than 2% of CapEx sales. Now you're turning closer to 3%. I'm just trying to figure out how transitory that is?

Yes. So in the -- the current CapEx guidance is $30 million for fiscal year '23. And you're right, it's more than double what it was last year. And it's largely tied to 1 primary item and a secondary item. Primary item is the simplification efforts. You saw the chart that Bert showed on a number of the machining pieces of equipment that we are in process of buying as part of our simplification efforts. So that's the single largest part. The secondary part is there are several million dollars and Bert had it on his chart. I think it was a $3 million number for IT initiatives. And also the SAP implementations, the CRMs, all of the items that Mark Paradowski presented. But there is a pie chart in the presentation that breaks down the CapEx.

Yes. And I would just add that the investments in those pieces of equipment, when you think about, and if you've had experience or with all the touch points you have in manufacturing environment, you understand this, moving from manual CNC equipment or manual [ layers ] to multi-access, fully automated machining tools, it drives a tremendous amount of productivity improvement and capacity increases. And the labor savings and that coupled with the ability to leverage that investment in a machining center across multiple facilities allows you to really drive benefit that's material to the business. And those investments are necessary now. But I do think that as we go forward, what Greg has modeled in his cash flow model and the way that we invest is a level of CapEx that's slightly above those historic levels like.

Yes. And the other part I would add on is much like we have seen material constraints, we're also seeing CapEx constraints, too. So there is equipment that has been unordered, but that has been ordered that was expected to be received in fiscal year '22 that it's 6 months delayed.

3 months delayed.

So I don't know if there's anything else, Bert, you want to add to that?

No, I think that's right. I think there's a lot of capital equipment that there are delays. But again, the beauty of it is this consolidation on top of just spending that capital money, the timing is perfect. And that's where a lot of savings come from.

Let me just take another question from the web audience. What is the optimal global revenue mix for conveyance systems? How quickly can you grow that business organically in international markets? Or would an acquisition make global expansion easier?

So that business today, and Terry chime in here, but that business today is roughly 85% North American or U.S. centric. You may have even closer to 90% U.S. We've got a small piece of business in Europe, roughly, call it, 5%, a small piece of business in Latin America and Mexico, call it 5% and then a small piece of business in Malaysia, call it another 5%. And so that business is spread out in a way where we have a penetration into global markets, but a very small penetration into those markets. If you think about, as Terry said earlier, the size of the global markets for these products, Europe, you could argue is every bit as big as America, perhaps even bigger, right? So you could easily say that we should be as big there as we are here. And then Asia should be even larger than that. And so I think an ideal distribution for that business would be weighted such that America might be the smaller piece of it and you've got a global presence that's considerably larger. We have opportunities to grow that business organically that we are actively pursuing. We have scale and reach outside of Terry's business that we're leveraging. But we also have great opportunity as we look at the M&A landscape to continue to develop and grow that business through M&A actions globally. And I'll let Terry add to those comments.

Great answer. Nothing to elaborate.

Great.

Two more questions. The first one, just with your plans to consolidate facilities as well as your suppliers as you simplify your SKUs, how much resiliency are you actually building into your network after we've seen 2.5 years of really tight supply chains, shipping freight, logistics, disasters basically. Are you trying to run a leaner model? Or is there still going to be flexibility redundancy to be able to respond to challenges like we've seen in these last couple of years?

Yes. I'll start, maybe, Bert, you finish it. So we're very deliberate about product line simplification, not only because we have too much complexity in the current portfolio, but also because of the fragmentation that, that drives in our supply chain and the lack of leverage that we have with vendors because we're buying one [ Z ] of this and two [ Z ] of that. It's difficult to really get scale and leverage and influence with the network of vendor partners. So that's a deliberate set of actions that you mentioned, we can leverage to drive resiliency and improve resiliency, which is absolutely a focus of what we're doing. The same is true as we concentrate on our own footprint and make sure that we're in geographies that enable us to have longer-term confidence in the availability of labor resources, the availability of the best talent, the availability to have scale and create an attractive environment to recruit into with the best equipment and so forth. So we are being thoughtful about how we're investing, why we're investing in the sustainability of what we're doing over the long term despite what might happen with cycles or challenges that are introduced just like we're facing right now. Bert, is there something that...

Yes. I think as Dave said, it's 2 things, what's leverage, and that's the big game for us. But the other is we're using this opportunity with the new regional structure to in-source that product in the region [indiscernible]. So in the Americas, we want to be curing promoters. In Europe and Asia Pac, we went the same but have a local -- more localized. So we're using that opportunity to simplification plus the new structure to really allow us to do this. Those 2 work in hand in hand and is really where that process will give us the benefits.

Okay. Great. And then the second question to answer, just a simple 1 for Greg. How much of that 5% organic CAGR that annual is price?

Yes. So the assumption is, is that pricing will be moderated that it won't be at kind of the current levels where we have gone out with multiple price increases down near double digit. And so it's just -- it's in that 1% to 2% range. But in essence, it's -- we're getting enough price to not have margin degradation. So it's not about that we're just covering material inflation, but we're covering more than it so that our margins aren't impacted negatively so -- but where the assumption is it's a relatively small number.

One more question here from the web audience. Within conveying solutions, if we consider your market position, value proposition and customer payback, can you talk about the consolidation of these factors and developing an appropriate pricing strategy in the current market towards a customer or within a specific end market? As we think of a loosening of the supply chain challenges, how do you anticipate this dynamic to positively impact demand for your products as more products flow through the customer material handling process?

Interesting. Terry, do you want to take a run at that?

Yes, absolutely. I'll answer the second one first because I may need clarification on the first one. But the second one, we certainly -- we have seen supply chain has had a dampening impact on demand for our product currently not because there's a lack of demand, it's just that the lead time to get the equipment that we're interfacing with has gotten so long that they don't need the conveyors for a little bit longer, right? So that's had a bit of a dampening impact on us. And certainly, as that starts to free up, we expect this to flow and kind of restore a more normalized flow of activity. The first question, could -- do you want to elaborate on that just a little bit in terms of -- or reread it maybe for me?

I'll translate. So the question really is related to the very quick paybacks that you're able to achieve for your customers. So then from a pricing strategy perspective, are you getting -- the value proposition we're providing are we pricing for it?

Yes. I mean that's a good question. It's a great question, actually. And there's always opportunities to become more sophisticated in our pricing activities. I would say that in many cases, we do get it, but in many cases, we don't. And sometimes that's just a factor of our path to market, which is why direct path to market is better because you have more control over that versus an OEM or an integrator or even a distributor who's taking advantage of the value you're creating but dampening maybe a little bit of the price that you can get for it. So there are certainly opportunities for price improvement within our businesses. And I think as we continue to move forward with product development, I think we can enhance that even more.

Any more questions from the audience? We are...

I think I was asking about this earlier than you might have done a number. Just the restructuring you expect over the plan period for the actions that you are taking in manufacturing or headcount or whatever?

Yes. So from a factory simplification perspective, it's going to be roughly $8 million. And from a SG&A perspective, it's just under a 1-year payback. So it's just under probably $8 million as well, $7 million, $8 million.

$8 million for the factory stuff and then you...

Yes, because the go-to-market savings are more in the -- closer to $10 million of savings.

So I think what you're saying, Greg, is in total, it would be the combined numbers. And that's over the period based on the cost that we've included to extract.

So it's not all fiscal '23.

So it is a -- that's what's included in the 5-year frame to take out the costs that we've identified from a human resource perspective, restructuring perspective. Did we answer all the questions online, Deb?

Yes, we have so.

Okay. Great. Well, I certainly appreciate everyone's attention today and what I hope is an increasing level of interest in Columbus McKinnon. We're thrilled to be here with you. We're really excited about the future we're creating, as we said before. And I'd like to start -- or end I should say the way I started, which has basically affected my team. [indiscernible] proud I am of them for the great work that they're doing. We're making great changes within what is a terrific foundation and business that we think has [ dramatic ] transformation capabilities. So we've significantly advanced the Columbus McKinnon strategic framework. We transformed the business through 2 transformative acquisitions. We also built a stronger, more agile business as we talked about in the process. And now we're accelerating that transformation. And I'm confident that we'll successfully execute on our strategy while leveraging our strategic framework to substantially advance the underlying portfolio and achieve our long-term financial plans. And I want to wish you all a safe trip home. And I appreciate your attendance and questions and everybody online. We look forward to seeing you all very soon. Thanks.