Manitex International Inc (MNTX) 2007 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Veri-Tek International conference call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will be given at that time. (OPERATOR INSTRUCTIONS) As a reminder, this call is being recorded today, Tuesday, August 14, 2007. I would now like to turn the conference over to Mr. David Langevin. Please go ahead, sir.

Thank you. Thank you, everyone on the call, for your interest in Veri-Tek. With me today is Andrew Rooke, our President and Chief Operating Officer, and he will start off with details on the quarter and the details to the financials and will also give you the Safe Harbor information, which I urge you to read attached to the press release. Also, briefly, a few housekeeping duties. A replay will be available at the conclusion of this call and can be accessed until Tuesday, the 21. To access the replay, please call 1-800-406-7325 and for participants internationally, call 303-590-3030 and enter the conference ID number 3769199. Of course, feel free to call our web -- or access our website where the information will be available at the conclusion as well.

Now first let me talk about the -- briefly, about the numbers. We definitely saw improvement in the second quarter, however, I don't want to give anyone the impression that we believe we're satisfied with that. We still have a long way to go and we're just beginning as a public company. As many of you know, we merged roughly a year ago in July of '06 between Manitex and Veri-Tek and I thought I'd briefly summarize and review the progress that we've made in the first year.

For example, we, coming out of the blocks issued $11.1 million in proceeds of new shares and we used those proceeds to lower our debt, our long-term debt and to purchase Liftking. I would like all of us to believe that Liftking was an excellent acquisition. During the first six months of this year, it is running on a purchase price to EBITDA multiple of approximately 3 times. And this dovetails well with the recently-announced Noble acquisition. The reason being that Noble's strengths are Liftking's weaknesses. By that I mean Noble has a very strong commercial application, commercial product, principally off of the back of its heritage, which comes from Caterpillar. Liftking, as we know is very strong in specialized equipment and military equipment, but it is weaker in its commercial products. And so we believe that with the addition of Noble, we will be able to increase the flowthrough in the Liftking production, smooth out that flowthrough, and also, obviously, be incremental and accretive to the earnings at Veri-Tek.

Of course, the obvious question is to what magnitude and to what extent and because Noble has been lacking in capital in the last few years and not able to produce at a level that it was demanded to, its sales have been less than what we've expected. We did announce in our press release on the noble release that we expect sales to eventually go in the area of $20 million and with margins consistent with our Liftking business. So we feel it's a very positive acquisition to our shareholders at a purchase price of $4.2 million, represented by forgiveness of related party receivables.

Finally, we also recently announced the sale of the assets involving the legacy Veri-Tek business. That's very important to us because we've used that money to also retire long-term debt and also eliminate after the end of the third quarter the ongoing nondiscontinued business that we have, the losses that we've incurred at Veri-Tek. With the reduction in debt that we've done over the last year, we've strengthened our balance sheet, which allows us to continue to grow our company by acquisitions as well as internal growth and this is an important objective of ours.

The last thing I wish to mention before I turn it over to Andrew is a brief comment about the strength of the markets that our product serves and the one that we haven't talked about yet, which is the Manitex business, the crane business. As many of you know, our cranes are used for infrastructure, mostly road and bridges, energy, utilities, and commercial construction. So we believe the underlying strength of these markets will bode well for the future growth of our business. With that I would like to turn it over to Andrew, who will walk us through the performance for the second quarter and then return for questions and answers. Andrew?

Thanks, Dave. And good afternoon and welcome, everybody. I would like to start with the Safe Harbor statement. The press release and discussions on this conference call contain statements that are forward looking in nature which express the beliefs and expectations of management, including statements with respect to anticipated revenue and EBITDA as a percentage of sales and the expected closing of the testing and assembly segment.

Such statements are based on current plans, estimates, and expectations and involve a number of known and unknown risks, uncertainties, and other factors that could cause the Company's future results, performance, or achievements to differ significantly from the results, performance, or achievements expressed or implied by such forward-looking statements. These factors and additional information are discussed in the Company's filings with the SEC and statements in this release should be evaluated in light of these important factors. Again, reiterating Dave's comment, we would encourage you to read the full statement that's attached to the press release.

I'm now going to start with a financial overview and highlights in summary of the quarter and then review a few areas of particular note that we would like to highlight today. As an overview, with regard to our financial statements, it's important to recognize that prior to July the 3rd, 2006, the Company operated in a single segment of the business, the testing and assembly equipment segment. Following the decision taken by the Board in March of 2007 to sell these operations, these segments reported as a discontinued operation. The continuing business is our Liftking equipment segment that was established through the acquisition of Manitex in July of '06 and Liftking in November of '06. Therefore, the comparative numbers for 2006 do not show any revenue or gross profit for this segment, only the Corporate expenses that were involved in it. And to help evaluation and people understand the position, I'm going to use sequential comparisons of the first and second quarters of 2007 unless otherwise stated.

Firstly, I would like to comment on the second quarter highlights of the continuing operations. We saw a 29.4% sequential increase in net sales of $30 million and $23.1 million compared to the first quarter of 2007. This increased the delivery of two Liftking 400 term capacity transporters to our customers. Net income from continuing operations increased to[$0.5] million compared to [$0.1] million in the first quarter of 2007. We had a 210-basis point sequential improvement in EBITDA margin to 8.7% of sales. We generated [$0.7] million in operating cash flow and our long-term debt was reduced by $1.6 million to $38.3 million. Subsequent to the end of the quarter, we made certain important announcements that David has already alluded to.

The sale of the testing and assembly equipment assets to 1.1 million and confirmed that we expect to completely close this segment in the third quarter of 2007. And we also announced the acquisition of the Noble rough terrain forklift product line.

In a bit more detail then, our net sales for the second quarter of 2007 reached $30 million, an increase of $6.8 million or 29.4% from the $23.1 million in the first quarter of 2007. The revenue improvement was primarily due to improved manufacturing throughput at Manitex and strong sales of special vehicles and military products at Liftking, including the two 400-ton transporters I mentioned earlier.

Gross profit was $5.8 million or 19.4% gross profit margin for the second quarter compared to $4.2 million or 18.2% gross profit margin for the first quarter of 2007. The improvement in gross profit percent was driven by the achievements of higher production efficiencies as well as the implementation of certain operating initiatives launched in the quarter in the supply chain and other sourcing improvements. Total operating expenses for the second quarter of 2007 were $3.7 million compared to total operating expenses of $3.3 million in the first quarter.

Integration expenses associated with acquisitions as well as certain legal accounting and consulting expenses relating to the Company's registration statement on Form S-3 and our Sarbanes-Oxley compliance initiative all contributed to the higher operating expenses in the quarter. Net income from continuing operations for the second quarter was [$0.5] million or $0.06 per share compared to net income from continuing operations of [$0.1] million or $0.01 per share for the first quarter of 2007. This does reflect the fact that our operational improvements did not fully flow to the bottom line, as we were adversely impacted by an unusual strength in the Canadian to U.S. dollar exchange rate that generated foreign exchange losses of [$0.5] million in the quarter. From the currency translation of the seller note from the acquisition of Liftking and from the higher level of U.S. dollar sales by Liftking in the quarter.

Net income for the second quarter was [$0.3] million or $0.04 per share on fully basic and fully diluted share compared to net loss of $1 million or $0.13 per basic and fully diluted share in the first quarter. We believe that EBITDA and EBITDA as a percentage of sales represent key operating metrics for the business. During the second quarter, the Company generated $2.6 million of EBITDA equal to 8.7% of sales compared to $1.5 million, 6.6% of sales for the first quarter of 2007. EBITDA for the first six months ended June 30, 2007, was $4.1 million or 7.8% of sales.

Moving on to the balance sheet and cash flow, the Company completed the quarter ended June 30, with $20.2 million in working capital and the current ratio of 2.1 to 1. Long-term debt decreased in the second quarter by $1.6 million from March 31, reflecting the repayment of notes payable and the reduction in the amount drawn on the Company's line of credit. Shareholder's equity increased 3.9% to $19.2 million from $18.4 million as of December 2006.

Moving on to our guidance, previously we provided guidance for 2007 indicating that we anticipated revenues of between 95 million and $100 million and EBITDA percentage of sales between 8 to 8.5%. Today we can reaffirm this 2007 guidance.

I would now like to review a few more areas in some more detail. Revenue. As already stated, revenue's increased over the first quarter by nearly 30%, with strong contributions from both Manitex and Liftking. At Manitex, the absence of the adverse weather there had impacted our Texas facility in January and some of the organizational changes in supply chain improvements made midway through the first quarter have positive impacts on our financial performance, as we were able to increase throughput to our forecast levels and ship against our strong order book. At Liftking we benefited from the shipments of two specialist transporters and the high volume of military shipments. These orders are generally of a longer lead time than commercial and industrial sales and also have higher average selling prices than those on Liftking's typical commercial product sales.

Our gross profit margin of 19.4% was an improvement of 1 percentage point over the first quarter of 2007. This is largely due to the improved production efficiencies, but we also started to see benefits from some of our supply chain sourcing activities. These latter items are in their early days, but we do see these as opportunities for margin enhancements as we progress. Since today we are only sourcing approximately 5% from what we would consider to be low-cost sourcing countries. And we see several opportunities to increase this.

Our operating expenses for the quarter were $3.7 million, an increase of $3.3 million over the same period of 2006 when only the Corporate costs for the testing and assembly segment business were reported. Costs for 2007 obviously represent the Liftking equipment segment and the Corporate expenses associated with the Company. We continue to establish the infrastructure necessary to achieve our strategic objectives and to integrate the two acquisitions in Manitex and Liftking. Additionally, in the second quarter, we continued to incur legal and accounting expenditures related to the SEC review of our S-3 registration, cost for the preparation of the proxy, and the consulting costs relating to our Sarbanes-Oxley compliance project.

For the SOX project in particular, not only are we actively managing our total cost, we're monitoring the balance of internal and external resources applied to the overall objectives of this project. We do consider a good portion of these costs temporary or nonrecurring in nature and in particular, for example, the SEC review of the S-3 was completed during the second quarter. I referred to foreign currency losses earlier on, the strength of the Canadian dollar against the U.S. dollar hurt our net financial results in the second quarter. This loss is caused by the almost unprecedented depreciation of the U.S. dollar versus the Canadian dollar in three months when the exchange rate moved approximately 8%.

This movement impacted two areas, the outstanding balance on the seller notes of Canadian dollars of $2.8 million for the acquisition of Liftking, which was revalued at June 30, generating a loss to the increase in the liability of [$0.2] million. Liftking also recorded high levels of U.S. sales during the quarter in our settlement recording an exchange loss of about [$0.2] million. Notwithstanding the fact that this exchange movement was unprecedented, we have accelerated our discussions on the appropriate actions to take to further mitigate exposures and hope to conclude these discussions in the next few weeks.

With regard to the balance sheet, as I stated earlier, we did reduce our long-term debt by $1.6 million in the quarter and in addition in August negotiated the exemption of our credit facility until April 1, 2009. It's an important objective for us to improve our ratios and in particular our EBITDA to debt ratio and we continue to take actions to address this.

Just referring to a couple of the subsequent events that I referred to, on the discontinued operations, the legacy business of the testing and assembly and equipment segment, we did complete the sale of the Diesel Engine assets for $1.1 million on August the 1st, and the closure of the remaining activities is on target for the end of this quarter. We were also very excited to announce the completion of the Noble acquisition on July 31, which is a great addition to our family of products with a tremendous history and future potential. We expect many benefits out of this acquisition. Noble has a reputation for providing a durable, innovative, and high-quality product and the result is a very strong distribution network. Noble has a large, installed base which generates a healthy active market past the business as well.

From a manufacturing standpoint, our plans are to integrate this into our existing facilities. Our sales and marketing team is excited about the opportunity to offer an expanded high-quality rough terrain product line to our customers while also gaining access to all our other products to Noble's dealer network. It's a bit premature, I think, at the moment to comment on the specifics in terms of the numbers, but we do anticipate that the Noble business will be very significant for us as we move forward, along the lines that Dave has already discussed. With that I would like to hand back now to Dave.

Okay, if you would please open it up for questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Sam Nicholls from Quillen Securities. Please go ahead.

Hi, David. How are you?

Fine, Sam. Thanks.

Two -- actually just two questions, if I could. On the top line, was any of Noble included in the second quarter? Was second quarter on a like for like basis versus the first quarter?

Noble was not included. It was acquired July 31, so it will have a small piece in the third quarter.

Okay, okay. And your EBITDA margin improvement, if we were to actually toss back in the D&A there, I'm coming up with an operating margin of 6.9% in the second quarter and last quarter it was 4%. I was wondering if you could walk us through some of the reasons for the improvement and there were a couple one timers, if I recall, in the first quarter, legal and accounting expenses. If there's any way to break out what led to the improvement, that would be terrific.

Andrew, do you want to try to generally respond to Sam, that question.

Yes.

Thank you.

I think we stated in the call earlier one of the key elements was the improved throughput at Manitex. We had some issues in the first part of the first quarter, if you recall, we had some adverse weather conditions which affected us. We made some operational changes in the facility during the latter part of the quarter, of the first quarter. And really that allowed us to improve our throughput through that facility and that really helped drive our operating and our gross profit margin through the levels that we saw in the second quarter. We also saw some benefit from the higher level of sales at Liftking. We referred to that, particularly the high level of military sales and the two transporters that we shipped. Those do have a sort of a higher selling price than your average Liftking product. Those things in particular drove the gross margin through. In terms of our operating expenses, I think we've mentioned also that those increased quarter on quarter. We did have some higher legal costs relating to the things that we talked about, the SEC review, et cetera, the proxy, et cetera. So really our biggest driver is through the efficiencies in the supply chain improvements that we saw.

Okay. Thank you. One more question, I lied, actually. Your backlog, how's your backlog now?

It's something we have reported on on an end-of-the-year basis and as I mentioned in my statement, our end markets remain strong and we typically right now are in the process of developing our '08 business and our '08 backlog. So I think rather than give a specific number, we'll just indicate that the backlog and the end markets remain strong. We typically -- I hate to always get in exactly what a backlog is, because it's sometimes difficult for us to determine with all the customers that we have in process. But just suffice it to say, it continues with the markets that we serve to be a lot of activity and demand for our products, as we stated in our Q.

Okay. Thank you. Thank you very much.

Thanks, Sam.

Thank you, our next comes from the line of Jeff Feinberg from JLF Asset Management.

Good afternoon, Mr. Feinberg.

Good afternoon, excellent results. Thank you very much. A couple of follow-up questions, please. I guess the first thing was thinking about the Noble opportunity, just piecing together the pieces that you have mentioned here in the call and thinking about the longer-term opportunity for the Company, just the way we did with Liftking, it sounds like as per the press release that this could be a $20 million business and have similar 10 percentage type margins. The accretion on this should be in the order of the magnitude of $0.15, $0.17 a share. Is my thought process here correct, based on what you've talked about here?

Well, again, Jeff, as you know, we're very hesitant and we have been very hesitant to be real specific, but you certainly summarized what we have discussed on this call and in our press releases, yes.

Okay, great. Just wanted to make sure. I jumped on the call a little late and someone had mentioned to me that you had talked about margins similar to corporate. So I was just putting the pieces together.

That's correct.

Thank you. The second thing was, I was just curious, and this probably goes to just the Corporate philosophy question, but for the first half of the year, I know you had a number of one-time manufacturing issues in the first quarter which caused your EBITDA margin to be less than you would have liked, you did an 8.7% here in the second quarter which got you to 7.8 for the first half. Certainly seems awfully conservative when you're running above 8.5 now to leave the target for the year at 8 to 8.5. I was just wondering if that's conservatism or if there are any specific manufacturing issues that you foresee?

I don't think there's anything that we foresee, specifically. Our team just -- again, I have to obviously take total and complete responsibility as leader of the team, but I just want to be very conservative and make sure that we have a little bit more visibility to make sure that we're going to improve and beat the numbers that we put out in the marketplace. I don't think there will be any more ice storms in Texas, but maybe we'll have some other calamity, but I think it's just my nature not to be overstating anything. So again I have to take ownership of that.

Understood. Well, I certainly appreciate it and I guess if I'm doing the math correctly, embedded in this quarter, who knows how currencies will move, but if I'm reading the press release correctly, the actual impact this quarter was on the Canadian dollar cost you $0.5 million. It looks like that was similar to the total earnings overall for the Company. So if we add that back and assuming stable currencies going forward, we're at $0.10 a quarter plus [$0.01] if I'm doing the math correctly?

Yes. The Canadian dollar was really something that moved up much quicker than what we anticipated, obviously. It was insignificant in the first quarter and it's not like Andrew and I haven't had many years of experience with exchange rates and we just didn't anticipate and neither did our Canadian friends that operating the business the extent of that movement versus the U.S. dollar, but we are looking at it diligently now and we'll see what we do in the future to hedge that so that we don't have that kind of impact on a quarterly basis.

If that had been hedged, you would have made $0.11. So, okay. Thank you very much.

Thanks, Jeff.

Thank you. Our next question comes from the line of Philip Anderson from Pinnacle Fund.

I want to continue along the line of some of Jeff's questioning here. Dave, you said earlier in the prepared remarks and the response to Sam's question regarding backlog that at this point in time, that was an annual number which you had given earlier and at this point in time you're working on '08 numbers and '08 business plan and so on.

That's right.

From which one could infer, you're not working on '07 numbers, i.e. '07, the backlog is there or is essentially there to support whatever expectation you had created internally in terms of business for the rest of this calendar year?

I think in our type of business, with the lead times for suppliers and vendors, we have the visibility to be working on the '08 numbers right now and not the '07 numbers. Although, we have to obviously stay on top of it so we maximize the best we can for '07. Our planning meetings now are concentrating on what are we going to deliver on in '08.

So you have the orders now for '07, but you still obviously have to manufacture the equipment and sell it and manufacture it at an appropriate margin?

That's correct.

Okay. In getting back to again on the Noble acquisition, can you give us a sense -- obviously at one point in time, this was a very substantial company. Can you help us understand why it became much smaller and what it may take to make it larger again? Lastly, give us a sense to how this acquisition was valued on some type of a trailing revenue or EBITDA basis?

The Company and it has been publicly released and it should be made known that I was involved as a shareholder in the Company and part of the related party that's mentioned in the forgiveness of the inner company -- not inner company, but the receivable that's sitting on the -- was sitting on the books of Veri-Tek International, so I've known the Company for a number of years and it really was an orphan within the group when we developed a number of our companies. We moved it, Lubbock to Mexico to Georgetown to Chicago so we moved it four times in four years and as you know, that's no way to run a business. That's no way to grow or substantiate a product line. It was really not until we had the opportunity to put Liftking together that I really saw that the combination of the two would be tremendous and then of course we had to -- the reason it took time from the Liftking acquisition which was December 1, until July 31, was to go through the analysis that has to be done for independent committee, fairness opinion, evaluation, all that type of stuff. So we had to go through all that and once we completed that, we put together the acquisition.

The EBITDA to multiple, it was a model that was put together by an outside party and I think it's on a historical and a future basis, I don't want to throw out some number, but roughly four times I think is kind of the number that we were looking at and again as we mentioned in our press release and our prepared statement, we hope to do better than that as we go forward, but again that will take time as we develop the resources internally and the supply base, et cetera, to ramp it up to higher levels. Certainly, at least preliminary, we've been told by the sales group and the organization the distribution group that there's significant demand for the product.

So you paid 4 times EBITDA on a trailing 12 month basis or some type of a trailing multiple basis for a company which has been discombobulated 4 times over the last four years and has been moved around and it has been, and sounds like it's been starved for attention and perhaps starved for capital and your sales guys already have a sense as to how they can -- would it be the same sales -- would it be a VCC sales force which can sell this, in addition to the -- whatever salesforce Noble had? Can your same sales guys sell this out of their same bag, in effect?

It's very interesting. We have a sales group that's part of the material handling group and several of them in the past in their history have sold this product, and it's been part of this organization. So as you mentioned, historically, this company was significantly higher than the numbers that we had mentioned as far as sales, so that kind of dovetail's Andrew's statement that these guys are really excited about having this product again and of course salesmen love to have products to sell because they are paid on salary plus commission basis. So this is something that we could all have some substantial profits going forward.

Sounds good to me. I like substantial profits. Turning to the page and asking you and Andrew to elaborate a bit, the comments regarding "certain efficiencies that were launched in the second quarter to reduce operating costs", and going on, benefits from -- actually, let me stop there. Can you elaborate on the opportunity to improve the profitability of, I believe that statement refers to improving the profitability on a, in effect, on a per boom truck basis. Can you elaborate what the opportunity is and who's, how organized the Company is to execute on whatever opportunity there is?

Sure. Should I take that Dave?

I'll just briefly summarize Andrew's comments, which I think are relevant to what you were saying is that the amount of components that are used to produce our products and the amount of material that are used to produce our products is obviously of very high material content. As Andrew mentioned, only a few percentage of our materials at this point come from what we consider to be low-cost providers. And Andrew is working very diligently with the operating teams to significantly improve that as we go forward, and that could have a substantial impact on our operating earnings and therefore our earnings per share, but Andrew, go ahead and comment on some specifics. That's just generally where we're trying to go.

I think the general point is very well made that -- and the other point I'll add to it is that we're in the very early stages of this. We've had some of the management team here and myself in particular have had exposure and experience of this type of sourcing activity of starting to drive manufacturing efficiencies through the business through the application of lean techniques and things like that. But we are really just touching the surface of this as we start today. And therefore that's why we believe there's an opportunity. We've started to look at that opportunity and we've started to do some good things. We've started to look at simple things in terms of our supply chain, which make the business simpler or make it more efficient. We will continue to drive forward on those particular things. We will continue to update people with that. It's a very exciting part of the story, we think.

Andrew, you say that you're just starting out, can you give me a sense, give us all a sense whether it's an 18-month process, it's a six-month process, if you have whatever changes you're going to make with suppliers, if you have contracts that you're engaged to for a long period of time, or if you have inventory you have to work through, or what a testing and acceptance period might be for a new supplier? But in a practical business persons terms can you give us a clear understanding as to the work which has to be done until we begin to benefit from it from a profitability perspective.

I think it's a long-term journey but you can get short-term and medium-term benefits as well. The tendency is for those to start to filter through the system slowly at first and then to gain momentum as you do these things. We are in the early stages of it, there are to the best of my knowledge few long-term contracts that we need to work through, but one of the key issues in all of this is maintaining the high degree of quality that we have a reputation for and therefore engineer and validation and things like that are important to us and obviously to our customers. And those vary depending on the type of product that you're talking about or type of component that you're talking about. So I don't mean to talk around the subject, Phil, but we will start to see benefits come through and they will continue to come through, because it's a continuous thing. That's the key to these things, continuous improvement and we're starting on that journey now. And there's a lot of education that has to take place and a lot of activities that have to take place to deliver on them. But we certainly believe we're starting and we're continuing to move in the right direction.

Well, thank you for that, Andrew. And then If I were to tie your response to my question into Jeff's observation regarding the improvement in EBITDA margin, one, I, meaning one, could expect that the results of this program which you'ver just described were to continue to cause EBITDAR expansion as a percentage of revenue?

Yes. The other thing you have to bear in mind, of course, there are other factors that come into play. People put prices up, material prices increase and things like that. Those are always offsets to the benefits that you gain from these type of activities. So at the end of the day, we see those particular things as being positive and hopefully they do drop through to the bottom line.

Okay. Did not mean to put you in a position to make a forward-looking statement, Andrew. Lastly, do you have a summary of the one-time expenses that you referred to in your prepared remarks? What they may have been? An approximate dollar basis in the quarter? You referred to Sarb-Ox and some other things. Do you have an approximate total for that?

We haven't actually put one out, no. We know that the costs relating to the S-3 registration, for example, were probably in the region of 150,000, something like that. We have continued to invest in the Sarbanes-Oxley work and it's an ongoing project, as I'm sure you know, but we are very conscious of what level of costs we're putting into them and we're trying to balance that, as I said, with external and internal. What we do see is that we should see some redemption in those, particularly now the S-3 statement has been completed and signed off. So we see some stabilization, some benefit hopefully coming through in the next quarters from that.

Okay. Well, thanks very much, guys. It looks like a very strong quarter and you're clearly making a lot of progress in building a company which could become of real consequence and seems to be a terrific job and look forward to seeing you guys in a few weeks at the Roth conference.

Thanks, Bill.

Thank you. (OPERATOR INSTRUCTIONS) Your next question comes from the line of [Jeffrey Lau] from [Tuxedo Road Associates]. Please go ahead.

Good afternoon, Dave.

Good afternoon, Jeff.

In previous conference calls, we talked about -- or you talked about, I should say, looking at expanding the lower end of the product line, an area that you really haven't paid as much attention to as you have the higher end of the line. Has there been any progress made there?

Thanks, Jeff. I'll just kind of resummarize that for folks who haven't heard this in previous quarters. This relates to the Manitex business. There's a full product line that runs in the kind of products that we serve, run from 17-ton crane size to 50-ton lifting capacity crane size. And we really dominate and concentrate in the higher end of that range, so 26 and ton higher and we've not participated to a great extent in development of our products and the engineering of our products on the lower end. That's been by design because the lower end has been a lot more pricier and from my standpoint, a lot more difficult for us to compete and we can really bring out the specialty and the concentration of our engineering at the higher end.

Having said that, we have been spending the last year aggressively looking at costing and sourcing components for the lower end that allows us to be competitive because it's a large piece of the market. It's a larger market, even though it's a much lower margin market. So to answer your question, Jeff, we have prototyped now and Andrew and I are leaving tonight for Texas and spend the next couple of days and we'll see the prototype and then try to figure out along with our management how soon we'll start hitting the market with that. I know we had said in the third quarter we do have, I believe, a prototype that we can start to advertise the market. That's expected maybe fourth quarter '08 before we see full production of that product.

All right, great, Dave. Thanks.

Sure.

Thank you. (OPERATOR INSTRUCTIONS) Our next question comes from the line of [Eckal Kirby] from Morgan Stanley, please.

I haven't talked to you for a while, but two questions. One, first one, are you adjusting or are you -- how are you handling your EPS numbers for the year?

How are we handling the EPS numbers? I'll say according to Generally Accepted Accounting Principles. That's a good excuse, because I don't really know. I assume it's accretive -- or dilutive and primary, correct, Andrew?

Yes. I'm sorry, I'm not sure of the question, really?

Well, one of your estimates now--.

Discontinued and not discontinued. The only guidance we've given to the market is a sales and a operating percentage. We have not given a specific EPS number.

Okay. And you've given some EBITDA guidance.

That's it. The EPS for us, while certainly it is very important going forward as we develop this company and enters -- certainly not maturity, we're not anywhere near maturity, but as we continue to develop and get rid of the discontinued business which we've done and get a freestanding scepter -- segment, we'll be able to do a better job of having confidence in an EPS number. It just was very difficult as we look at this in '07 or '06.

Right. On a more fundamental basis, and this is kind of a hard question, but with the problem that Minnesota experienced with this bridge collapsing and, does this enter into your potential market for the Manitex equipment that's being sold? I've been kind of interested to hear whether or not that would fit into your market? I'm talking about the amount of bridge building that needs to be reconstructed, that kind of thing?

As you said, it's a difficult question to answer because you're talking about -- and we've -- I've been, not inundated but I've received a lot of information from dealers and investors, shareholders, these articles where all of a sudden all the political geniuses of the world are talking about how they're going to finally spend all the money that's necessary to fix the bridges and roads and all the things and of course that's the heart of our business. That's what our business is. I've been in this for better or for worse for many years and I'm still waiting for all that money to flow through, but it certainly can't and certainly is going to help and I hope that this time they are serious about providing more support, because it clearly is an area that needs it and requires it. So I'm hopeful that this will be a very positive influence to our business going forward. But it's a -- it's out of our hands from a standpoint that it's in politician's hands and both state, federal, and local level as you know are all involved with building of infrastructure.

But it is an opportune time if the money flows?

That's correct.

Okay.

That's right.

If we could get together and schedule that event that we were talking about, I'd appreciate it.

Absolutely. I'll follow-up with you. Thank you so much.

Okay.

Thank you. I'm showing that we have no further questions at this time. Please continue.

Okay. Just again, this is Dave Langevin. I just again would like to thank everyone for their interest in Veri-Tek and welcome comments, questions, and look forward to our next call. Thank you very much. Bye-bye.

Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation. You may now disconnect.