Ladies and gentlemen, thank you for your patience, and please remain on the line. Today's Columbus McKinnon conference will be starting shortly. Once again, we do thank you for your patience and ask that you please remain on the line. Today's Columbus McKinnon conference will be beginning shortly. Greetings, welcome to the Columbus McKinnon Corporation Q4 fiscal year 2022 financial results conference call. At this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star one on your telephone keypad. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sean Southard of Investor Relations. Thank you. Please go ahead.
Thank you, Donna, and good morning, everyone. We certainly appreciate your time today and your interest in Columbus McKinnon. Here with me are David Wilson, our President and CEO, and Greg Rustowicz, our Chief Financial Officer. You should have a copy of the Q4 fiscal 2022 financial results, which we released this morning before market. If not, you can access the release as well as the slides that will accompany our conversation today at our website www.columbusmckinnon.com. After our formal presentation, we will open the line for Q&A. Please limit yourself to one question with a follow-up and then return to the queue to allow for continuous flow and adequate time. If you'll turn to Slide 2 in the deck, I'll review the safe harbor statement. You should be aware that we may make some forward-looking statements during the formal discussions as well as during the Q&A session.
These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release, as well as with other documents filed with the Securities and Exchange Commission. These documents can be found on our website or at sec.gov. During today's call, we will also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliation of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and the slides.
With that, please advance to Slide 3, and I'll turn the call over to David to begin. David?
Thank you, Sean, and good morning, everyone. We outperformed expectations with record sales in the quarter and for fiscal 2022, even while we were challenged with the inefficiencies created by supply chain constraints and inflation. Sales in the quarter were up 36% over last year's Q4 to a record level of $253 million. Organic growth was a very strong 17%. We're steadily advancing our transformation to be the global leader in intelligent motion solutions for material handling, and Columbus McKinnon is uniquely positioned to help solve many of the critical challenges the world is facing today.
We are central to the investments being made in infrastructure, global efforts to localize and rebalance supply chains, the need for automation in the midst of shortages and labor availability, and the need for safe, ergonomic material handling in a world of factory automation and direct-to-consumer delivery. As we executed to meet customer needs and growing demand for our products, gross margin was impacted in the quarter, given rapid increases in freight and expediting costs associated with high inflation and the effect that the war in Ukraine and the shutdowns in China are having on the global supply chain. We also completed a large project where we did not recover the full impact of recent material cost increases given the rate at which cost inputs escalated and the strategic nature of that customer relationship.
Our operating income was $24 million, and our adjusted operating income established a new record level in the quarter at nearly $29 million. EBITDA margin in the quarter was 15.4%. We are taking further actions to address the risks associated with this unusual operating environment and remain committed to realizing our longer term financial targets. Fiscal 2022 was a year of significant progress and represents a step change in Columbus McKinnon's business model and mix as we execute on our strategic transformation. We began the year with the addition of a Precision Conveyance platform through the acquisition of Dorner. This platform expanded our offerings, provided increased access to attractive markets with strong secular tailwinds, and diversified our revenue stream with higher margin business. We later added the market leading capabilities, high growth, and accretive margin profile of Garvey to this important strategic platform.
We also accelerated organic growth through initiatives leveraging our core growth framework, looking outward to our customers and markets to clarify opportunities while innovating with automation and rethinking our commercial strategy. We also benefited from further core market recovery and increasing demand across targeted secular growth markets. The food and beverage, life sciences, and e-commerce markets remained robust, and the entertainment market began to pick up nicely in the latter half of the year. We ended fiscal 2022 with record quarterly orders of nearly $270 million and entered fiscal 2023 with a backlog of over $309 million, also a new record. If you'll please turn to Slide 4, I'd like to highlight the significant progress we made over the past year as we reimagined our portfolio and improved our approach to the markets we serve to unlock Columbus McKinnon's potential.
Given this transformative work, approximately 40% of our business is now tied to higher growth, higher margin markets. If you'll advance to Slide 5, I'll now turn the call over to Greg to review our financial performance in the quarter. Greg?
Thank you, David, and good morning, everyone. On Slide 5, net sales in the Q4 were $253.4 million, up 36% from the prior year period and significantly ahead of the guidance we provided last quarter. While supply chain challenges continued, we had significant backlog that allowed us to prioritize shipments that exceed our guidance. As David mentioned, it has been a constant struggle to match up material availability with the timing of supplier shipments and customer requirements. This challenge resulted in an estimated $15 million of delayed shipments in the Q4 . Sequentially, sales were up 17% as we benefited from strong order rates, incremental pricing, and a full quarter of the Garvey acquisition.
Overall, our Precision Conveyance platform added $40.5 million of revenue in the Q4 , which was up 11.3% from Q3 levels. Looking at our sales bridge, sales volume was a major driver of growth with volume up $23 million or 12.5%. We also saw pricing accelerate with year-over-year pricing improvement of 4.5%, which was higher than last quarter's 3.4%. Our pricing actions resulted in $8.4 million of year-over-year price, up from the $5.6 million of year-over-year price we reported last quarter. Foreign currency was a headwind and reduced sales by $5 million or 2.7% of sales. Let me provide a little color on sales by region. For the Q4 , we saw continued strength in the U.S. with sales volumes up 15.9%.
We also improved pricing 4.7%, up 110 basis points from Q3 levels. Outside of the U.S., sales volume was up approximately 9% as volume increased approximately 40% in Latin America, 15% in Canada, and 12% in APAC. Volume also increased 5% in Europe. We saw improved pricing outside the U.S. of 4.3%, which was a 120 basis point improvement over Q3 levels. With the current economic backdrop of significant material inflation and higher freight costs, we took more aggressive pricing actions in the fiscal Q4 , which is also our timeframe for implementing annual price increases. We will do what is necessary to protect and grow margins in this environment while balancing customer requirements and maintaining our leadership position.
On Slide 6, gross margin was 33.7%, which included a $3.2 million negative impact from the recent Garvey acquisition for amortization of backlog acquired and inventory step-up expense. This completes the amortization of backlog acquired and inventory step-up expense, which were both recognized over one inventory turn. Normalizing for these items, our adjusted gross margin was 34.8%. This was up 20 basis points from the prior year. Gross margin was lower than what we were expecting as sequential gross margins declined 190 basis points. This was due to rapidly rising costs in the quarter, primarily freight costs, both inbound and outbound, as well as additional raw material inflation associated with ETO projects. In addition, we were also impacted by inefficiencies associated with juggling production schedules due to supply chain constraints.
Overall, our Precision Conveyance acquisitions were 130 basis points accretive to our adjusted gross margin this quarter. Let me point out a few highlights on our gross profit bridge. Q4 gross profit increased $21.4 million compared with the prior year and was driven by several factors. Our acquisitions provided $17.3 million of gross profit. Sales volume and mix added $7.6 million, and pricing net of material inflation added $3 million. Offsetting these items were acquisition-related amortization of backlog expense and inventory step-up expense, together representing $3.2 million, and lower productivity net of other cost changes of $1.3 million, which included the higher freight cost that I just discussed. Foreign currency translation reduced gross profit by $1.8 million.
As shown on Slide 7, our SG&A costs were well controlled, coming in at $54.8 million in the quarter, or 21.6% of sales. With record sales in the quarter, we leveraged our SG&A costs as a percent of sales and demonstrated the power of scale. SG&A costs were sequentially higher by 2.4%, which included $1.1 million of business realignment expense and a full quarter of Garvey SG&A of $1.5 million, which was sequentially higher by $1 million. Compared with the prior year, SG&A costs were higher by $8.1 million. This was largely due to additional costs from acquisitions of $7.7 million and business realignment costs of $1.1 million, partially offset by Dorner acquisition deal costs of $4 million incurred in the Q4 of fiscal year 2021.
In addition, with the U.S. dollar strengthening, foreign currency translation lowered our SG&A costs by $1 million. For the fiscal Q1 , we expect SG&A expense to range between $53 million and $54 million. Turning to Slide 8, adjusted operating income was $28.6 million. Adjusted operating margin was 11.2% of sales, up 110 basis points from the prior year. This margin expansion included the impact from the accretive acquisitions completed this past fiscal year, which contributed 60 basis points. We also benefited from operating leverage on improved volume and strategic pricing. As you can see on Slide 9, we recorded GAAP earnings per diluted share for the quarter of $0.41. Adjusted earnings per diluted share of $0.79 was up substantially from $0.60 in the prior year period.
As a reminder, we are adding back amortization expense on a tax-effective basis to our adjusted earnings per diluted share calculation. With the recent and significant increase in interest rates since January, interest expense is expected to be approximately $6.2 million in the Q1 . Weighted average diluted shares outstanding are anticipated to be about 29 million, and we will continue to use 22% as our pro forma tax rate when calculating non-GAAP adjusted earnings per share. On Slide 10, our Adjusted EBITDA margin for the full year was 15.4%. This was improved over the prior year by 350 basis points. Our recent acquisitions were accretive to our Adjusted EBITDA margin by 190 basis points. Our return on invested capital also continues to improve and was 7.5%.
We are executing plans that will drive margin expansion and are still targeting 19% EBITDA margins and double-digit ROIC, but the timing of achieving these goals is becoming less clear in the current macroeconomic environment. Nonetheless, the team is focused on executing our strategy and driving long-term shareholder value. Moving to Slide 11. We generated approximately $22 million of free cash flow in the Q4 . For the full year, we generated $35.8 million. This includes cash outflows of $14 million related to acquisition deal costs. We also added approximately $40 million of inventory to meet rising demand and lessen supply chain impacts. Our working capital as a percent of sales was 15.5%, which was in line with what we were expecting. Capital expenditures were $13 million for the year.
We expect capital expenditures of $25 million-$30 million in fiscal 2023 as we invest in our factories to enable the next leg of our margin expansion initiatives. Turning to Slide 12. We refinanced the capital structure last April and May as a result of the Dorner acquisition, which included an equity offering and a new $450 million Term Loan B. We refinanced the Garvey acquisition utilizing the accordion feature of our Term Loan B and borrowed an additional $75 million. The current Term Loan B principal outstanding is $502.6 million, which carries an interest rate of LIBOR plus 275 with a 50 basis point LIBOR floor. The Term Loan B is 60% hedged with interest rate swaps that blend to a swap rate of approximately 2.08%.
As of March 31, on a pro forma basis, which includes Garvey's March LTM Adjusted EBITDA but excludes expected cost synergies, our net leverage ratio improved to 2.7x. We expect to achieve our targeted leverage ratio of two times towards the end of fiscal 2023, barring any additional acquisitions. Finally, our liquidity, which includes our cash on hand and revolver availability, remains strong and was approximately $198 million at the end of March. Please advance to Slide 13, and I will turn it back over to David.
Thanks, Greg. As you can see on Slide 13, we had exceptionally strong orders in Q4, with an average daily order rate that was up 13% compared with the trailing Q3 . As I shared earlier, our Q4 orders were nearly $270 million, a new record, and accelerated throughout the quarter. As you may recall, we previously reported that order rates were up approximately 7% through the first three weeks of January, so February and especially March were quite strong. Even with record sales of $253 million in the quarter, order growth outpaced sales and our backlog grew to a new record level of $309 million. Long-term backlog, which is expected to ship beyond the Q1 , was about 44% of our total backlog, and our short-term backlog was $174 million.
If you would please turn to Slide 14, you'll see that we expect sales in the Q1 to be in the range of $220 million-$230 million. This range includes a $4 million sequential FX headwind versus Q4 and an $8 million-$9 million year-over-year FX headwind. While our backlog and market demand remain robust, the cascading effects of the war in Ukraine and the pandemic-related shutdowns in China are expected to have further impacts on our supply chain and the availability of materials. We're also implementing our new ERP platform at Stahl in Germany. This is the last major building block of our European system harmonization initiative, which will enable us to realize further cost and productivity synergies through integration and shared services.
This is, however, expected to have an impact on Q1 shipments as we complete training, go live, and execute through the transition. Even with these headwinds, our guidance range of $220 million-$230 million represents a mid-single digit year-over-year organic growth rate at the midpoint. We continue to see significant demand in all markets and are encouraged by the traction we're gaining with our organic growth initiatives. In fact, through mid-May, sequential order rates in our Q1 have been effectively in line with the record levels we saw in Q4. During this period of supply disruption, high inflation, and macroeconomic uncertainty, we remain laser-focused on execution. We're taking further action to deliver operational cost and price improvements while executing to address increasing customer demand.
We're also very encouraged by our longer-term prospects and look forward to sharing details associated with our strategy and updated targets during our Investor Day on 23 June 2022. We are truly creating a better, more scalable, and more profitable business model for Columbus McKinnon as we evolve into the global leader in intelligent motion solutions for material handling. With that, Donna, we can open the call for questions.
Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that is star one to register questions at this time. The first question is coming from Matt Summerville of D.A. Davidson. Please go ahead.
Thanks. A couple questions. Obviously, I would assume that you're gonna have lower absorption in Europe in Q1. Volume obviously gonna be, you know, perhaps down, all things considered, on a sequential basis, given your revenue guidance. How should we be thinking about kind of the go-forward margin cadence and I guess earnings seasonality, if you will, as we move throughout the year? In particular, how should we be thinking about incremental operating margins as we move beyond Q1?
Good morning, Matt. Fair questions and important ones for us to address on the call. We are expecting that we'll pick up some of the margin erosion that we had in Q4 and make advancements from there as we head through Q1 based on pricing and other actions that we've taken within the business. We do acknowledge that there are the challenges you mentioned relating to absorption, particularly associated with lost time and training hours we're putting into our STAHL ERP implementation. We anticipate a step forward from what we saw in Q4 but acknowledge that they probably won't be at the rates that we would have normally been trending to, but for that implementation.
Yeah. Matt, this is Greg. In addition to that, we've got backlog, record backlog at $309 million that, into a large extent, is priced at old pricing as we choose. We're not able to reprice the backlog given we've taken purchase orders already for the business. That's another factor in this.
Yeah. We're really encouraged by the longer-term prospects for the business and the targets, however, and we remain on a similar trajectory, but for, you know, a bit of a seasonal impact or, you know, project-related impact in this first Q1.
As a follow-up, you know, how should we be thinking about incremental realized price in fiscal 2023 relative to fiscal 2022? To the extent you're willing to talk about it, how much of a list price increase did you guys put through during the March timeframe, for your normal annual sort of increase? Thank you.
Yeah. I think what we're anticipating is that we'll probably see, given what Greg just highlighted relative to the backlog we're carrying at a record level, the pricing actions we recently took, and the phasing of that cost price mix as we work through that backlog and get new backlog at the incremental price level, a second half that has a better price cost ratio. I think that's probably the best way to be thinking about this, you know, this year and price realization for the company. We remain, as we were last year, very focused on making sure that we're taking actions to offset those cost inputs. As you saw throughout last year, we were successful at outpacing cost inputs through Q2 and Q3.
In Q4, we outpaced material cost increases, but were impacted by freight charges that came in very quickly and rapid increases in some particular material costs that came through. That's a timing element that we'll, you know, get out from under.
Yeah, maybe to also add on to David's comments. In general, Matt, we've raised prices anywhere between 5% and 10%, probably on average towards the higher end of that range, different by region. You know, we're clearly gonna remain steadfast in looking at our inflationary pressures, and we'll look at other ways to realize our margins by additional price increases and/or surcharges.
Understood. Thank you, guys.
Thanks, Matt.
Thank you. The next question is coming from Christopher Howe of Barrington Research. Please go ahead.
Good morning, everyone. Thanks for taking my questions. I wanted to follow up on the last call that we had. You talked about the Garvey and Dorner synergies, revenue synergies. You picked up that order in the prior quarter. Can you talk about how they performed together in the quarter and the different dynamics you're seeing, whether it's pulling some of Dorner's customers into Garvey or the vice versa? What's your anticipation for their performance this fiscal year?
Sure. Yeah, the businesses are doing very well. We're really pleased with the acquisitions, continue to remain very bullish about our strategic intent and, you know, the direction that we're taking the business in. For the Q4 , sales in the acquisitions were about $40.5 million. We continued to emphasize the synergistic opportunities across the business. We completed training, brought the teams together, really focused on making sure that the ability to cross-sell across the businesses was not only, you know, as it was when we got through the acquisition and realized a couple of quick wins, but it was enhanced. You know, both businesses continue to make good progress as it relates to representing the broader portfolio. I think that we're just starting to, you know, chip away at the tip of the iceberg there.
Yeah. A little more color as well. We did recognize revenue synergies of $850,000 so far, including the $700,000 that we talked about last quarter. We've got almost $2 million of current active quotes out there for Dorner and Garvey products. We're in the process. We've cross-trained the sales forces. We expect that this is just gonna continue to ramp up exponentially. You know, performance-wise, you know, both businesses in the quarter delivered what we were anticipating. David talked about the revenue, low 40% gross margins, 25% EBITDA margins. You know, on track for what we were expecting. You know, the other point would be is that the one project that we recognized kind of below average margins was actually in that segment, so we've taken actions to address that going forward.
Okay. A follow-up question on the 19% Adjusted EBITDA target, the double-digit ROIC. It's still a goal, but the timing is a little bit less clear. Can you put less clear into further context? Is that we have what happened in Q4. We still have a challenged environment here going into Q1. How does the duration of this challenged environment impact some of your comments about it being less clear? Just a quarter-by-quarter basis, we'll get a better picture on how the second half looks or any more color there would be helpful.
Sure. No, that's fair, Chris. I would say it's probably like you said, we're gonna get better visibility as we progress quarter by quarter. We have a management plan that achieves that goal by the end of this year. We are executing in an environment that's not enabling us to execute to that plan, given macro factors, supply chain disruptions, higher inflation, and the impacts of, you know, the port shutdowns in China and so forth. We're seeing, you know, those effects playing out. We're confident and really committed to making sure that we execute the plan that we have, self-help where we need to, control what we can control.
You know, this is a business that if we don't achieve that outcome on the timeframe that we outlined previously, we'll achieve it as things stabilize and the business gets back to, you know, a bit of more normal footing. You know, nothing's really changed but for the economic environment relative to our pursuit of that, you know, that goal. We'll talk more about our goals beyond reaching that point when we get together during our Investor Day in June.
Okay. I apologize if you mentioned it already, but the ERP implementation in Europe that's affecting Q1 with a more limited production schedule to facilitate the implementation, that is expected to be completed in Q1 or? [crosstalk]
It is. In fact, we're going live now. We're working through all of the transition elements. The system is performing as expected. The impact on our operational areas is as we would expect. We've done 12 implementations of this type across the enterprise, and this is the last, as I said in my prepared remarks, the last major building block that really enables us to get more synergies across Europe, and you know, drive better performance as we go forward. We expect this to be a Q1 impact and for us to be able to derive better performance as we go forward.
Chris, this is, you know, clearly our largest factory in the system, our most complex factory in the system. We went live 1 May 2022. The system's working. You know, we're probably at about 80% efficiencies this week, you know, from a shipping perspective, and it's really just the learning curve. It's not like we haven't done this before. We've had 12 of them, but none of them have been of this size. It's just part of the process, I guess, the pain of what you have to do to get the system implemented, but then you reap the benefits down the road.
Yeah. All very positive, all very focused on what we're trying to achieve as an enterprise.
Thank you.
Thanks, Chris.
Thank you. The next question is coming from Greg Palm of Craig-Hallum. Please go ahead.
Yeah. Good morning. Thanks for taking the questions. I just want to go back to the revenue guidance. You know, even if, you know, you sort of add back or sort of normalize the cadence, you know, given, you know, FX, given ERP, you know, it still suggests that revenue is gonna be down quite a bit sequentially, which I don't think is normal seasonality. Just help us understand exactly. I mean, are you expecting that supply chain gets worse? Because it sounds like overall demand is still pretty strong.
Yeah, that's right. Demand is very strong, Greg, as you can see, you can see that in the backlog, you can see that in the bookings rates. Obviously very encouraging dynamics. As we execute on our backlog and look at this quarter, we're facing sequential FX headwinds of about $4 million, and then we're facing the impact of that implementation that we mentioned in Europe. The combination of those elements and, you know, adjusted organically when you think about acquisition volume, period-over-period and so forth, we're in a position where this represents a 6% increase, or a mid-single-digit increase over prior year Q1 . Typically, we do have a seasonality impact as we head into our Q1 from Q4. We didn't see that last year because we were recovering from the pandemic.
If you look back a year, you'll see that that was not the case. If you look back beyond that, you'll see that there is a historic pattern of Q1 that's lower than Q4. That's more of a seasonal effect for the business.
Yeah, it's usually, you know, in 2019, it was about a $4 million-$5 million impact. But also with the SAP implementation, we pushed really hard to get production out of Künzelsau, so we wouldn't be disrupting our customers. The Q4 had that impact. But having said that, I talked about the fact that we had about $15 million of revenue that was hung up with supply chains. I think the team, you know, is very nimble. We have such a large backlog, and the fact that we made the right decision to order $40 million more inventory allowed us to kind of pivot and, you know, work on other orders and ship those orders. You know, so the Q4 number did have that, I would say, positive impact of, you know, working hard to push production and revenue out of a Stahl facility.
Got it. Okay. I mean, just since we're on that subject, how should we think about normal seasonality, you know, this year, just given the last, you know, couple of years have been anything but that?
Yeah. If you go back in history and, you know, with what we believe today, you know, the first half of the year is versus the second half of the year is more or less a 50/50, 51/ 49 kind of a split. Historically, the Q4 , the quarter we just finished is the seasonally strongest quarter as people buy in advance of price increases. They buy in advance of the summer entertainment season, construction, et cetera. Companies, 12-31 companies now have their new CapEx budgets, you know, and that are approved, and so they're moving forward. Our weakest quarter is always the December quarter.
There's less shipping days and just a, you know, on the industrial side, the business does see a reduction in inventory as our channel partners manage their inventory for their year-end reporting. And so, you know, a first half, second half look is it's gonna be within a point of 50/50, one way or another.
Q2 up over Q1, Q3 down, and then Q4, our strongest.
Perfect. Okay, great. Thanks so much for the help.
Thanks, Greg.
Thank you. The next question is coming from Jon Tanwanteng of CJS Securities. Please go ahead.
Good morning. Thank you for taking my questions. I just wanted to get back to the 19% EBITDA target question. I assume you will talk about this more in your Investor Day, but I was wondering if you're expecting to get to the same profit dollars, if not the percentage at this point, within the same timeframe.
Yeah. You know, from a dollar perspective, you know, we talked about the way we've gotta get there is essentially, you know, roughly 39% gross margins. SG&A as a percent of sales of around 21%, and then we pick up 1.5 to two points by adding back depreciation. You know, from a scale perspective, we saw the benefit of scale this quarter on SG&A costs. We're at a $253 million or $1 billion kind of a run rate. You know, our SG&A is at that level. We've got to, you know, get to that $1 billion + to get the SG&A where we need to get it to. You know, clearly with supply chain, we've gotta, you know, get out in front of all of the inflationary pressures that we're seeing, and we're working very hard to do so. There have, y eah. I mean, clearly, you know, this quarter or this fiscal year, I think we did $908 million of revenue, and we need, you know, $100 million+ more.
Got it. Thank you. Could you also talk about the order trends in Q1 so far? Has the end demand been stronger or worse than, again, you know, that's accounted for seasonality and, have the input prices, supply chain pressures actually gotten worse or moderated as you've seen them so far?
The order rates have been more or less in line with the record levels we saw in Q4. As I mentioned, Q4 progressed throughout February and March at faster rates of input. On a quarter to date basis, we're running with short cycle orders up about 7.5%, project orders down slightly north of 20%, and then our acquisition orders up near 30%. On a net basis, we're more or less in line with order rates relating to the Q4 . Feel really good about demand. We're seeing strong demand across really all of our end markets that has continued into the Q1 . We're obviously watching that closely, but very focused on execution.
As a team in this period, we're, you know, laser focused, as I said in my prepared remarks on our execution and, you know, meeting the commitments that we have, improving our customer experience, and driving the results that we're committed to getting to.
Yeah. Then Jon, on the inflation question, in the quarter, if you look at our sales bridge and our gross margin bridge, you can see that, you know, price was up 8.4%, but price net of material costs was $3 million. So $5.4 million was raw material inflation. You annualize that and I think you're at $21.6 million. We think that's gonna get worse before it gets better. You know, we could be seeing inflation in the $24 million-$26 million range on materials. You know, on top of that, we've clearly seen gas prices go up, which, you know, for trucking costs, our costs are up, marine costs are up. There's, you know, issues in ports and with congestion. There's issues in China with COVID shutdowns that are affecting things.
Logistics costs are. They're actually double per container what they were at the start of our previous fiscal year. That's another factor in the equation. I think that answers your question.
Okay, great. It does. Just to clarify, I think you said before that you still expected with all that to see a sequential pickup in gross margin or did I hear that incorrectly?
Yeah. We think we're gonna improve on where we are right now. I mean, clearly, you know, this was not where we wanted gross margins to be, and we will make improvement as we've got more pricing that we've announced in the quarter in that roughly high single digit range that I mentioned on the call. You know, it's just a matter of, you know, what other shocks are we gonna see to the system, right? Nobody. In January when we had this last call, no one would've predicted where we are today.
Understood. Thank you, guys.
Thanks, Jon.
Thank you. The next question is coming from Steve Ferazani of Sidoti. Please go ahead.
Morning, David. Morning, Greg.
Morning, Steve.
[crosstalk] You mentioned a couple of times that one larger project and the impact it had given the higher material costs. Obviously your revenue came in much higher than guidance. Can you offer any kind of way to quantify the impact either on revenue or margins on that one project?
Yeah, it was, you know, just under $1 million impact from a margin perspective. 30 basis points.
Okay. How are you thinking, you know, we've talked about this on the call before and the idea that Dorner and Garvey are perhaps more project-oriented, and how you would manage the costs related to those projects. Clearly, things are a lot more challenging right now than in normal times, but you said you were addressing it. How are you thinking about that? How are you addressing it?
Right. Yeah. Fair question, Steve. What we've done is we've reduced the shelf life on our quotations, and so they're shorter cycle quotations, and they're tied to latest pricing. Then where we can negotiate, we're getting price escalators or tied to indices, so we're able to drive change orders more clearly in the conversations with customers. We've also made changes in our project execution team. We're, you know, advancing our Columbus McKinnon business system, focusing on our office of program management, project management, and we've made some resource adjustments there as well. This is, I think, a unique case, and, you know, I think you're right as it relates to the dynamic nature of that business and particularly in this kind of an environment.
We feel like we've got this. You know, in a postmortem assessment, this particular project very well understood, specifically outlined, you know, where some of the issues were that resulted in that outcome. We've taken corrective action not only in our systems and the way that we approach the processes that manage the projects, but also in the team and in the communications we've had with our customers.
Yeah. It's, you know, the fortunate piece of it is there's really, you know, two main inputs. It's either gonna be aluminum or stainless steel that has created the issue.
Helpful. Thank you. Just wanted to ask a question on capital structure, how you're thinking right now. You have $200 million in liquidity. We know interest rates are rising. It sounded like you are using some interest rate swaps. Can you talk about what you're doing with debt and how you're thinking about repayments, given the expected increasing interest rate environment?
Yeah. I mean, I think the one thing we're going to do is manage our capital structure conservatively and appropriately. That's why we entered into another interest rate swap this quarter. It was February fourteenth, we've locked up 60% of our interest rate risk at a swap rate of 2.08. As we think about, you know, liquidity, we think we've got ample liquidity. You know, we still have a programmatic M&A strategy, but we understand where things are right now with all the macro uncertainty, and we're gonna be cautious with how we approach it. In terms of debt repayment, our 10-K is gonna be filed this evening. In there, we're estimating roughly $40 million of $41 million, I think, of principal payments annually, so roughly $10 million a quarter, $10 million-$11 million a quarter.
Great. It's helpful. Thank you for that. Then just the last one, and you've addressed it, but I do wanna ask it again. In terms of everyone's waiting to see some signs of a slowdown in demand, and it sounds like you're very clear on this, and we saw it in your bookings and your backlog. Are you seeing any kind of signs that you're seeing slowdown in any of your end markets?
Yeah. The only comment that I'd make that might add a little more color to the conversation so far, Steve, is a reference to project quotation conversion. Project quotation activity is very high. It's up. You know, there's a lot of active dialogue, and it's encouraging. The cycle at which those orders are converting on the project side is a little slower than it had been a quarter or, you know, two quarters ago.
Is it directed at any sort of end markets, or is that a broad kind of an answer?
Yeah. It's a broad answer. It's [crosstalk] Yeah, it's kind of the activity we're seeing. We're seeing some activity phasing adjustments. As people are talking about a project that might be a $5 million project that delivers over six months, they might be saying, "Hey, look, I wanna release the first $3 million of it, and I want it to run over nine months." You know?
Okay. Okay. Great. Thanks, David. Thanks, Greg. Appreciate it. I'll leave you.
Okay. Thanks, Steve.
Thank you. The next question is coming from Pat Bauman of J.P. Morgan. Please go ahead.
Oh, hey, good morning. Thanks for taking my question. Just a lot's been covered already. Maybe if you could help on the freight dynamics a little bit more. I guess I'm just wondering, just in a little bit more detail, what impacted the sequential gross margin, you know, related to freight? Just like what exactly escalated so much versus your January expectations? I think you called this a timing element in response to another question, but I'm just not clear what aspect of this is timing or why you referred to it that way.
Yeah. What we're really talking about is freight costs sequentially went up, you know, close to $3 million, which is well over, what's that, 110 basis points and of gross margin. It was really across the board. I mean, clearly, we've all, you know, seen what has happened with gas prices at the pump, you know, $5-$6 a gallon. Well, that, you know, translates into higher truckload costs for moving product domestically. We've seen significant increases in marine costs. We've seen, you know, if, you know, there's certain parts that we need desperately, and we have to air freight them, air freight costs are up. I mean, you see that if you travel commercially, how expensive airline tickets have now gotten. This is all within the quarter, you know, this increase.
This isn't a year-over-year change. This is, you know, basically what happened in the December timeframe versus what we experienced in March. You know, some of it probably due to the Ukraine situation that's going on over in Europe right now.
Yeah, port disruptions in China. I think the timing element to this, Pat, is the realization that this was occurring as fast as it was and our ability to get out from under it with our own actions, and make sure that we're making adjustments in our pricing structure to accommodate those changes. That's where the timing element comes into play.
You mentioned $24 million-$26 million of materials, I guess, inflation expectation.
For the full year.
What is [crosstalk]
Yeah, Pat.
Yep.
That's for the full year.
Yeah, that, I don't think that includes freight, but in any event [crosstalk]
No, it doesn't.
What are you expecting from a pricing perspective for the year based on actions you've taken?
What we've taken so far is high single- digits is where we should average. Now having said that, once again, we've got record backlog that doesn't have current pricing, right? 'Cause our pricing all went into effect either t he second week in March or 1 April 2022. To the extent we're working down backlog, we're not gonna see the benefit of the current pricing. There's this lag. You know, we're working to look for other ways to help recover this.
Understood. The slides mentioned something about Precision Conveyance backlog, you know, down on project timing. What end market was that in reference to in particular? Just curious if you could give some color on that.
Yeah. There were some. Well, our project business is really focused on the food and beverage, life science, and e-commerce markets. Remember I made some comments earlier about quotation activity, conversion to project activity, a lot of very engaged customers on exciting project opportunities that are just taking longer to get to the closure timeframe. I think that's just the nature of the lumpiness of the businesses.
Understood. Okay, thanks.
Thanks, Pat.
Thank you. The next question is coming from Michael McGinn of Wells Fargo. Please go ahead.
Hey, thanks for the time. Just going back to the question regarding that large project and the charge that was associated with that, how many customers do you have that are like that? Or maybe also, how many projects do you currently have in place that are similar to that?
Yeah. That was a, you know, top 1% from a size perspective. It was a big number, and that's why it had such a big gross margin impact.
Right. I mean, if you think about the split of business, roughly 50/50 in that business, projects versus short cycle, build-to-order type project activity. We probably have, you know, $20 million in any given quarter that is active relative to project-related business, and this business would've approximated 15%-20% of that amount, and this would've been a large project. You know, like I said, from a process standpoint, from a timing perspective, complexity associated with some of the rapidly rising input costs, and the strategic nature of the opportunity and follow-on opportunities and the aftermarket opportunities thereafter, you know, we weren't able to recover all. We recovered some. We weren't able to recover all of the escalation in price.
Great. In terms of Precision Conveyance, I guess simple question, what end market are you more bullish on for this year, e-commerce or food processing?
Well, we're encouraged by all the markets that we're pursuing, but I would say from a dynamics perspective, given the rate at which e-commerce grew over the last couple of years through the pandemic, I think the growth there is gonna be attractive, but it's not going to be as explosive as it was over the last couple of years. We're seeing great traction in food and beverage and life sciences in addition to the already great, you know, experiences we're having in e-commerce, and we're also expanding our customer base in e-commerce, which obviously gives us further threads to pursue.
Okay. Maybe if I could just sneak one more in. Konecranes consolidating their services and their products business into one, I believe. Are you expecting anything competitively to come out of that dynamic or just business as usual?
I think that they're obviously changing, shifting gears in the wake of the walk away from the Cargotec acquisition or merger. You know, I think they're going through a lot of adjustments. I don't think they've demonstrated anything historically that's lacked discipline in terms of their approach to the markets, and so we're not particularly concerned about that strategic shift.
The one thing I would say is now they will, you know, be more directly competing with our channel. You know, their R&M business was really sold into the channel, but now that they've combined the service with the equipment, they'll be, you know, much more, I think, visible and competing with our channel, which should help us.
Great. Appreciate the time.
Thanks, Mike.
Thank you. The next question is coming from Walt Liptak of Seaport. Please go ahead.
Hi. Thanks. Good morning, everyone.
Hey, Walt.
Morning, Walt.
Hey, good call so far, a lot of detail. I'll ask one about working capital. Yeah, I wonder how you're thinking about some of the working capital components in the Q1 . You know, for example, do you need to build some inventory again? And then how do you expect to end the year on some of these working capital accounts?
Just as I think about working capital, you know, we ended the year at 15.5%. You know, that 15% range is where we would expect working capital to be at the end of the year. There could be some temporary blips along the way. I mean, clearly, we're gonna have lower sales than we had in the Q1 versus the Q4 , which will impact our metrics on inventory turns, DSOs, and DPOs. I think, you know, the right way to think about it is 15%.
Yeah, mid-teens%. I think we demonstrated last year an ability to flex in the experience of a, you know, need to make moves through the pandemic. We went down to below 10%. As we were experiencing growth, we ramped back up into the mid-teens% with the addition of the $40 million of revenue. We expect this year to be relatively stable at that level. To Greg's point, there could be some period-to-period blips, but that's where we expect to end the year.
Okay. All right. Great. Thank you.
Once again, ladies and gentlemen, that is star one if you would like to register a question at this time. The next question is a follow-up coming from Jon Tanwanteng of CJS Securities. Please go ahead.
Hi, sorry. I was just wondering if you could just give us a little more color on the when you're implementing this ERP system in Europe, you're losing a little bit of revenue. Are you planning to recover that in future quarters, or does that push out the whole stack a bit, you know, further back?
No, we do expect to recover it in the year. This is just, you know, an impact in the period. As we get more efficient coming out of this quarter, we expect to consume that backlog and ship those dollars in revenue.
Yeah. Another way to think about it, Jon, is orders are not being canceled. You know, we did accelerate shipments into the March timeframe, knowing that we had the ERP implementation upon us. That, you know, benefited and maybe you could say outsized the Q4 revenue a little bit. You know, orders are not being canceled.
Understood. Thank you.
Thanks, Jon.
Thank you. We're showing no additional questions in queue at this time. I would like to turn the floor back over to Mr. Wilson for closing comments.
Great. Thank you, Donna. Fiscal 2022 was a year of significant progress and represents a step change for Columbus McKinnon as we advance our strategic transformation. We completed two transformative acquisitions and executed to deliver terrific results for the year, including 40% growth in revenue, 75% growth in operating income, and 81% growth in Adjusted EBITDA. As I stated earlier, in this period of uncertainty, we remain laser-focused on execution and improving our customers' experience. We're taking further actions to improve the business and our performance while executing to address increasing customer demand. We're truly creating a better, more scalable, and more profitable business model and mix for Columbus McKinnon as we evolve into the global leader in intelligent motion solutions for material handling. Finally, I wanna emphasize how proud I am of our global team of talented Columbus McKinnon associates.
They have remained resilient, agile, and focused on results and improvement through what has been a very challenging and dynamic period. As a result, Columbus McKinnon has not only persevered, we're emerging as a stronger and better company. We appreciate your time today and your increasing interest in Columbus McKinnon. Thank you, and make it a great day.
Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines and log off the webcast at this time, and enjoy the rest of your day.