Manitex International Inc (MNTX) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Veri-Tek International Corporation fourth quarter 2007 and full year financial results 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, Thursday, March 27, 2008. I'd now like to turn the conference over to Mr. David Langevin.

Thank you. Thanks to everyone on this call for their interest in Veri-Tek. I would like to first start with our Safe Harbor statement. The following comments contain forward looking information based on our current expectations. Because forward looking statements involve risks and uncertainties, actual results could differ materially. For such risk and uncertainties please see the list of risk and uncertainties in our SEC filings. Veri-Tek expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements included herein. Or to reflect any changes in our expectations, with regard there to or changes changes in events, conditions or circumstances under which any such statement is based.

With that bit of housekeeping out of the way. I would like to continue as our custom. I will make a few opening comments. Followed by operational comments from our President and Chief Operating Officer, Andrew Rooke. And then I will conclude with a brief overview on our 2008 goals, before we open it up to questions.

As stated in our release, 2007 was truly a transformational year for our Company. I'll mention a few of those accomplishments achieved during this past year. We sold off our legacy business for cash, and eliminated the accounting and cash losses attributed to that business. We significantly improved our balance sheet by reducing our indebtedness by over 32%. We acquired the Noble product line, which among its many qualities gave us access to the Caterpillar distribution network. The extension of this relationship to the other products within our Company was demonstrated by our recent announcement involving certain Manitex products and the Caterpillar Rental Store, Allied Vendor Program. We introduced a new 50 ton crane at Manitex which has seen unprecedented demand in the marketplace. Finally, we saw meaningful increases in our key significant financial measures, namely our earnings per share, EBITDA, gross margin, and sales. With those -- that brief introduction, I'll turn it over to Andrew to review the operating results. After which, I will discuss some of our goals for 2008. Andrew?

Thanks, David. And good afternoon and welcome, everyone. I'm going to go over the overview, summary highlights and the details of our full year 2007 and quarter four earnings release.

Before addressing the highlights with regard to our financial statements I'd like to be clear as to how they reflect the acquisitions and disposals that we have completed as we have transformed the Company into a focused industrial equipment Company. The legacy testing and equipment assembly equipment business is treated as a discontinued business for 2007 and comparative results have been adjusted to reflect this. We acquired Manitex on July the 3rd, 2006, Manitex LiftKing on November the 30, 2006, and the Noble product line on July 31, 2007. These comprise the continuing operations of the Company, and operating the engineered lifting equipment market. Consequently the results for the continuing operations for 2007 include 12 months of Manitex and Manitex LiftKing and 5 months for Noble. The results for 2006 only include six months of Manitex and Manitex LiftKing.

Also included in the earnings release and our filings our unaudited pro forma results for the year ended December 31, 2006. Assuming the acquisitions of Manitex and LiftKing occurred on January the 1st, 2006. We include this for informational purposes.

I'd like to start with the overview of the financial highlights of continuing operations for the fourth quarter and for the full-year 2007. We reported 163% net sales growth to $106.9 million for the full year 2007 from $40.7 million for the full year of 2006, driven by full-year revenue contributions from Manitex and Manitex LiftKing. Revenues for the fourth quarter of 2007 increased 32% to $27.3 million from $20.7 million for the same period in 2006. For the full year 2007, net income from continuing operations was $2.1 million or $0.25 per basic and $0.23 per diluted share for the full year 2007 as compared to a $0.5 million loss or $0.10 per basic and dilute share in the same period 2006.

For the fourth quarter of 2007 net income from continuing operations was $0.7 million or $0.07 per basic and diluted share, compared to a loss of $0.4 million or $0.06 per basic and diluted share in the same period last year. Our gross margin improved 440 basis points to 18.6% for the full year 2007 from 14.2% in the same period of 2006. Our EBITDA increased 278% to $8.5 million for the full-year 2007, from $2.2 million for the full-year 2006. EBITDA for the three months ended December 31, 2007, was $2 million compared to $1.3 million in the same quarter of the last year. We reduced total indebtedness 32% to $25 million as of December 31, 2007, from $37 million at December 31, 2006. After initiating a currency hedging program in early 2007, we reduced currency losses in the fourth quarter to less than $100,000.

There were some, also significant operational highlights that are worth being mentioned. We acquired the Noble forklift product line in the third quarter which we commenced operating with our specialty store pick operation LiftKing. We improved manufacturing efficiencies and throughputs at our Georgetown, Texas facility. Contributing to a year-over-year labor efficiency improvement of approximately $0.4 million. In the third quarter, we completed the sale and closure of the historically unprofitable testing and assembly equipment segment for $1.1 million. And use the proceeds to resize debt.

At the end of the third quarter, we completed a $9 million gross equity raise with proceeds used to retire debt. We had a successful second quarter launch of the Company's highest capacity that has been met with orders for over 70 units. And Dave has already mentioned we made progress on the strategic objective of addressing higher growth segments in markets by identifying our international opportunities to diversify and drive future growth. In some more detail then, net sales for the year ended December 31, 2007, increased to $106.9 million. Up $66.3 million or 163% from $40.7 million for the same period in 2006. The revenue increase is primarily the result of having a full-year of Manitex and Manitex LiftKing's results in the current year and only two quarters of Manitex and one month of Manitex LiftKing's results in the prior year.

On a pro forma basis, assuming Manitex and Manitex LiftKing had been acquired on January the 1st, 2006, the Company's revenue was approximately $106 million in 2007 compared to $89 million in 2006, an increase of 19%. Manitex revenues were strong. Driven by demand in our end markets in North America and as a result of our focused product developments and new product launches, which we believe has led to an increase in market share. On a pro forma basis for the 12 months ended December 31, 2007, compared to the same period for 2006, Manitex volume showed strong growth of approximately 16%. The reception for the higher tonnage boom trucks is very pleasing to us, and gives our customers opportunity to improve their return on investment. These higher tonnage products are allowing us to better serve our oil, gas, mining and infrastructure markets and are allowing us to expand our addressable market into those traditionally addressed by all-piston chassis and all terrain cranes.

LiftKing revenues were also ahead in 2007 with a commercial product and recurring revenue volume, supplemented by sales of two large transporters and strong military volumes. On a pro forma basis for the 12 months ended December 31, 2007, compared to the same period for 2006, volumes showed strong growth against 2006 of approximately 34%. The sales impact from the Noble acquisition was not significant and contributed only a small amount of revenue in the period since acquisition. Gross profit was $19.9 million or 18.6% gross profit margin for the year ended December 31, 2007. Compared to gross profit of $5.8 million or 14.2% gross profit margin for the full year 2006. An improvement of 440 basis points. The Company's gross profit was favorably impacted in 2007 by product mix, volume efficiencies, a 2007 price increase and the benefits of sourcing materials from lower cost countries.

The favorable mix is a result of an increase in styles of cranes with higher lifting capacity, particularly the 45 ton crane, which was introduced in the second quarter 2006, and the 50 ton crane which was introduced in the second quarter of 2007. We also suffered however, from integration costs of the Noble product line, the impact of the weakening U.S. dollar versus the Canadian dollar and upward pressure on raw material and component pricing. To Noble, we completed the integration for one product line into the Manitex operation, and began activity to integrate production at the core product line into our LiftKing facility. We incurred stocks at cost and inefficiencies associated with this, largely due to the time taken to bring the supply chain into effect. And the manufacturing learning curve.

LiftKing which currently sells approximately 75% of its production into the U.S., was adversely impacted, by the weakness of the U.S. dollar to the Canadian dollar starting in quarter two. And suffered a net margin impact of approximately 10% for 2007. Total operating expenses for the year ended December 31, 2007, were $13.6 million compared to total operating expenses of $4.6 million last year. The increase is primarily the result of including Manitex LiftKing in 2007 for a full year, compared to one month in the prior year, and at having a full year of Manitex' expense in the current year and only two quarters in the prior year.

Included in the operating expenses, are costs associated with Sarbanes Oxley compliance of approximately $0.5 million and increased research and development costs which was driven by U.S. product line expansion and product adaptation for anticipated international demand for our Manitex products. In addition to the 50 ton crane launch, specific product enhancements introduced in the year included upgrading capacity of the 38-ton crane to 40 tons. Efficiency and safety features for the 30, 45, and 50 ton cranes and design of the new 110 foot boom for the 50 ton crane that was launched at the Con Expo show in March 2008. At LiftKing, the heavy capacity Lowery forklift product was introduced and features upgrades to the Noble product line prepared for evaluation and customer Input.

We believe that EBITDA and EBITDA to sales are important measures for the Company. And for the year ended December 31, 2007, the Company generated $8.5 million of the EBITDA, or 7.9% of sales. Compared with $2.2 million of EBITDA or 5.5% of sales for the same period last year. This was an increase of 278%. Net income from continuing operations for the year ended December 31, 2007, was $2.1 million or $0.25 per basic and $0.23 per diluted share, compared to a net loss from continuing operations of $0.5 million or $0.10 loss per basic and diluted share for the same period in 2006. Currency transaction losses from the Canadian/U.S. dollar exchange rate negatively impacted net results by approximately $0.8 million for the year ended December 31, 2007. Largely incurred before we entered into contracts in September 2007.

Commencing the second quarter of 2007, was a considerable strengthening of the Canadian dollar against the U.S. dollar, which led us to enter into forward contracts to hedge foreign currency transaction losses to mitigate our exposure to such currency movements. The effect of this policy was to reduce foreign currency losses through December 31, 2007, by $0.2] million as we place contracts to fully hedge the outstanding balance of the LiftKing seller note and the accounts receivable balances denominated in U.S. dollars, subject to currency fluctuation on settlement at our Canadian subsidiary.

Income tax for the year ended December 31, 2007, was $0.2 million. An effective rate of 7.1%, and relates to state and local taxes. No federal tax provision was required in 2007 because the current year income could be offset by previously unrecognized tax benefits. Net income for the year ended December 31, 2007, was $1 million or $0.11 per basic and $0.10 per diluted share, based on 8.6 million basic and 9.2 million diluted weighted average common shares outstanding. Compared to a net loss of $8.9 million or $1.66 per basic and diluted share, based on 5.3 million basic and diluted weighted average common shares outstanding in the same period last year.

Moving on to the results for the fourth quarter ended December 31, 2007, for the three months ended December 31, net sales were up 32% to $27.3 million from $20.7 million in the year ago period. The Company's gross profit was $4.9 million or 18% gross margin, compared to $3 million or 14.6% gross margin in the same period last year. The increasing gross margin reflects an improvement for both Manitex and Manitex LiftKing. Manitex LiftKing improvements primarily related to increased efficiency as a result of an increase in production volume. The margin improvement at Manitex is related to several factors including product mix, the 2007 price increase, and the benefits of sourcing material.

Total operating expenses for the quarter ended December 31, 2007, were $3.4 million compared to total operating expenses of $2.8 million in the same period last year. The increase is primarily result of including Manitex LiftKing in 2007 for a full quarter, compared to one month in the prior year, and an increase in corporate expenses. The increase in corporate expenses reflects the recruitment in management to build an organizational structure to continue to drive the Company's strategy and growth objectives, including activity to integrate the management systems and controls and operations of the three acquisitions. Net income from continuing operations for the three months ended December 31, 2007, was $0.7 million or $0.07 per basic and diluted share. Based on 9.8 million basic and 10.4 million diluted weighted average shares outstanding. Compared to a net loss from continuing operations of $0.4 million or $0.06 per basic share and diluted share. Based on $6.5 million outstanding for the year ago period. EBITDA for the three months ended December 31, 2007, was $2 million compared to $1.3 million in the same quarter of last year.

I'd like now to move on to the balance sheet and cash flow. We made some significant steps toward improving some of our key ratios in the year. We generated net cash from operating activities of $1.1 million. Raised $1.1 million from the sale of the testing and equipment segment assets. $1.9 million from the exercise of warrants and $8.2 million after expenses from the issuance of stock and warrants. This cash was used to reduce debt by $12 million during the year. Such that total outstanding debt has decreased to $25 million at December 31, 2007. From $37 million at December 31, 2006. I anticipate that this should convert to a reduction in our annual interest expense, of approximately $0.8 million. These are important objectives for us, and these actions have improved our overall balance sheet.

The Company completed the quarter ended December 31, 2007, with $19.2 million in working capital and the current ratio defined as current assets divided by current liabilities, is 2.2 to 1. Compared to 1.9 to 1 at December 31, 2006. Shareholder equity increased 66.4% to $30.7 million from $18.4 million as of December 31, 2006. Working capital at December 31, 2007, increased from 2006 by $2.4 million, driven largely by increased accounts receivable from the higher level of sales in quarter four, 2007. And by reduction in accounts payable and accrued expenses. Inventory reduced year on year, mainly at LiftKing, where work in progress on large transporters at December 31, 2006, were converted to finished products and sold during 2007. With that I'd like now to hand back to David.

Thank you, Andrew. I'll just add a few of the comments that Andrew made to discuss a little bit about our goals in 2008, and then we will turn it over to questions.

As previously stated, in 2007, we expanded our market share and introduced new products which had an immediate impact on our Company. However, the primary geographical area served by our distribution is North America. And as everyone is aware at this time, the economic growth percentages are much higher for many international countries versus where we are in North America. Fortunately, our products are in demand in many of these high growth countries. However, in order to deliver to this demand, we need representation in those areas. To that end, we anticipate announcing in the near term new distribution agreements with international distributors. Our expectations are that this will have a positive impact on our Company during the second half of this year and beyond.

Other key steps that we will concentrate on for this year are that we expect to continue to grow as a percentage of sales our higher margin part business. We will introduce a new product in the sky crane group, which we believe will expand our market presence in the sign crane and utility markets. Our engineers are working on obtaining European CE Mark determination for our Manitex group of cranes. We expect this declaration to be complete, to be completed by the end of the second quarter, for third quarter implementation. Due to the high demand for the large tonnage cranes around the world we are working on adding a higher tonnage crane beyond our present 50 ton crane. And finally, we expect to continue to add accretive acquisitions. With that, Andrew and I would welcome any questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from [Devon Waite], please go ahead.

Thanks for taking the questions. When you look at these acquisitions that you're conceivably going to do in '08 what sort of metrics should we be looking at? Are these on an EBITDA multiple or a sales multiple, what's your target range for those?

Hi, Devon. This is Dave Langevin. What we have stated and based on some of our history of the acquisitions that we've done in the last few years, is that we'd like to keep it on an EBITDA multiple of 5 or lower, if we can. We've accomplished that so far. And we also would like to make sure that it's accretive. As we go forward.

Okay. Great. That's good for me to be able to look at when you make announcements. The second thing is, in respect to your -- these additional international distribution agreements. Are you not only talking about distributors, but are you -- have you also outlined or targeted additional rental companies such as the recently announced caterpillar deal? And with cat, I think we talked a little bit, they have approximately 460 rental stores globally. How do they compare to like a Hertz or united Rentals or Sunbelts or some of these other ones as far as size wise?

I'll respond to the first part. I'll let Andrew tackle the second one. He did a lot more of the work on the Caterpillar vendor program, and so he might have a better handle on responding to that. On the first question, a lot of the dealers, the international dealers that we're working with are very large, strategically placed in the important areas of the world. And they have their own rental pools, but not to the status of a Caterpillar, because again, there's only one Caterpillar in the world, so you just don't have that kind of magnitude any place else. So the -- they're really more direct, similar to the dealers that we have in the Manitex family now. Andrew, you may want to respond on the Cat issue.

The Cat Rental Store network is approximately 1600 globally. The initial part that we've been given access to for our Manitex products, our Manitex LiftKing and our Noble products are already part of that, but our Manitex products have access now to the North American and South American network, which is about 550 stores throughout that region. And also, access to the European piece of the network. I haven't got that broken out for me. But there, what they call their EMEA, their Europe, Middle East and African region has about 820 rental stores. On top of that, they have about 236 in what they call the Asia Pacific. The Cat see their rental store program as a growth area. Particularly what is called the Allied products. Which is what we are to them. And they are looking for significant growth out of this program, for their own purposes, obviously, and with that, we hope to be part of that network as well. Initially, we'll be putting in probably three of our cranes into that rental network. And then taking it from there, but for -- I say, about 1600 rental stores across the world.

Okay. And one last thing and I'll get out of the way and let somebody else ask a question. As we spoke, the lower tonnage cranes have the lowest margins and as you move up, particularly your latest offering of 50 ton, that has much better margins, your introduction of this sky crane that you'll have out sometime in the second half of the year. Would that fall in line more margins akin to the 50 ton crane or more down towards the 17 ton crane range?

We anticipate that will be somewhere in the middle.

Okay.

And we have targets internally, that we are are are driving for, we expect that to reach those targets, but it's not something that I'd like to discuss on an open call. So we'll be happy to discuss it with you privately.

Great, I appreciate it. Thank you.

Thank you.

Thank you, our next question comes from the line of [Phillip Anderson] from [Nicholson], please go ahead.

Hi, David, Andrew.

Hi, Phil.

Dave in the press release, you mentioned the intention to reach -- I'm just reading now, to reach through international partnerships. And you kind of echoed that in your prepared remarks. It was -- we all read (inaudible), well, we all -- I read them, I don't know if anybody else does, they're having enormous year over year gains in India, the Middle East and elsewhere, and it seems that the Company's higher weight products in particular, could have a lot of appeal. Really what I'm curious about, is to what extent if any, would getting into international distribution relationships require a capital commitment on behalf of the Company?

Well, from our standpoint, I mean, it's just going to be basic production, and we certainly don't have any constraints from a capital standpoint because of the work that we've done in the last year, year and a half on improving our balance sheet as Andrew mentioned in his remarks, so we have more than sufficient availability under our lines in order to continue to grow the business, and implement our business plan. And I'll briefly comment on something that you did mention our good friends at Tarex and Manitua they have, obviously as you stated, have been benefiting from the international growth around the world. And Andrew and I just returned from a show that occurs once every three years, an equipment show, and we received hundreds of inquiries, principally for our larger tonnage cranes, because those are -- those really fit the market and the need around the world. So we're very excited about the opportunity to grow our business, and, in order to do that, we need to have representation, as I said, more rapidly putting that together.

Dave, from the hundreds of inquiries that you had at the trade shows could you parse them out between, in general percentages between domestic inquiries, and I don't know if there's any internationally. If there were international customers, they're either end customers or rental fleet owners and managers or dealers, lumping them all into a category of international demand. Could you give us a sense of how much the inquiries came internationally versus domestically.

Yes, from just -- I didn't participate in all the presentations and all the meetings because there were just too many going on, and we had our entire sales force there as well as our operating management, Andrew and myself. So there's a lot going on, but I can generally state from what I observed, you had representations from all the key markets at the show. So any area that you would expect there be significant growth and activity in the markets that we serve are all present. However, again, the stable of our distribution -- and I don't want to -- I don't want to turn my back on the stable of our distribution, because it's a very important piece of our business, of course. That would make up the majority of the inquiries that we received, but it was very encouraging to observe the great amount of international activity in our booth and in our display, and again especially around our -- there's just a lot of interest in our large 50 ton crane, as Andrew stated in his comments, it really is a low cost alternative to a new class of product for us, and it gets us into a different category, which just expands the market for our products.

Yes. Okay. Well, it all sounds very intriguing, essentially your stable, as you just characterized them, domestic customers put up 100 million, $110 million a year and it sounds like putting really money down so to speak. You're about to get some meaningful distribution for the first time in the hottest markets in the world, you have a product that people want. So presumably you could layer that on top of what your stable customers can do. It all could become very interesting.

You're right, Phil. This is incremental. So this is that stuff that we've had historically, so that's why we, within the operations, are very excited about meeting that demand. Thanks for your comments.

As the Bard once said, Dave, we wait with baited breath.

Thank you, and our next question comes from the line of Richard Hoss from Roth Capital Partners.

Hey, guys, how's it going?

Good.

Just I guess additional insight on Noble. It didn't contribute but it sounds like you're successfully integrating it into the LiftKing operations. At what point do you expect this to start contributing?

As Andrew mentioned we started in the latter part of the fourth quarter. It took a little bit longer than we expected to get the suppliers lined up and the integration with LiftKing. It's a sophisticated product, as you would expect being a caterpillar design and caterpillar distributed product and we just wanted to make sure we got it right. Because it's very important to deliver a -- starting out of the box, a quality product. Not that LiftKing doesn't have a quality product. It certainly does, but you can imagine the fit and finish on a military product going to the Middle East is not the same as a fit and finish on a Caterpillar product. So we've worked through a lot of those. I think Andrew is closer to it, but my sense from observation is the first quarter has seen a steady improvement of the production in that product. And as Andrew mentioned in his remarks and in our release, we had a -- we have a good backlog there, and obviously, a distribution network which wants the product. I don't know, Andrew, if there's anything you want to add.

Yes, I think the integration has continued throughout the first quarter, but I think we're -- the phrase we use in the press release I think is poised. I think that's probably fairly appropriate. So I'm looking forward to really starting to see these come forward now in 2008.

Okay. And then just how much have you seen impacts from the domestic? Or economic environment?

I think Rick, what we're seeing, again, we like the position that our Company is in the marketplace. As Andrew mentioned in his prepared remarks, I mean, to repeat what many of you know, we serve oil and gas, infrastructure, mining, we're in good segments, but this market is more difficult than it has been in a while. And there seems to be a pause and delay. But not, I don't get the sense that it's going away. People are just a little bit more hesitant to pull the trigger, because if you're a dealer, you just want to make sure that if you're anticipating some sales or you have a customer that you're working on, you just want to make sure that customer doesn't -- for whatever reason, whether it be financing or delay in their project, whether it be state funding, federal funding, whatever is driving that project that he doesn't get stuck with a bunch of cranes. To answer your question, I don't think it's -- it's certainly something that's worrying us, everybody's worried about this market. But we feel good about where we are in the market.

So it's really an uncertainty to jobs out there, rather than a financing problem or something like that?

Oh, I think there is -- I think that -- I've heard some examples of people are having to delay some orders because their customer is having some problems getting their financing, but it's not -- I mean, I wouldn't say that's the majority. But there are certainly some of those. I don't want to -- I don't want to give you the impression that that's not an issue at all. It's not the majority of our issues.

Fair enough. Thanks.

Thank you.

Thank you, and our next question comes from the line of [Matt Schwartz] from [JLF]. Please go ahead.

Hi, Matt.

Good afternoon, congratulations on the continued success.

Thanks, Matt.

Thank you. In the current earnings consensus for calendar '08 for you guys, I think is $0.47, are you guys comfortable with that number given what you see out there today?

We haven't -- we haven't -- the Company hasn't specifically given guidance yet, Matt. I'd just like to see a little bit more visibility on the -- in the market. I'd also like to see some of the steps that we're taking, some of the products that we're introducing, some of the follow-up of some of the things we've talked about on this call, and once I see a little bit more visibility and we see a little more visibility we'll give a little bit more comments about our own guidance. Certainly, the -- I mean, I'm aware of the analysis that you're referring to, and we were comfortable when that was released so I can't say we're uncomfortable with that. But as far as giving our own guidance, I'd like to hold off for a little bit more period of time.

Okay, very good. Well, thank you very much.

Thank you, Matt.

Congratulations, thanks.

(OPERATOR INSTRUCTIONS) Our next question comes from the line of [F.L. Kirby] from Morgan Stanley. Please go ahead.

Hi, guys, first of all, I think you -- I got to compliment you on building the business, it seems like you're building it with the strategy that you had in the beginning, slow but sure, and the previous caller kind of asked the question that I was going to ask, and that was in reference to guidance. But I'm assuming that you would rather have the second half of the year get more momentum before you're willing to do that? Is that the purpose of being a little guarded there?

That's exactly right. That's how I'd like to see some filling in of the second half of the year, which we're optimistic we'll see, but at this point we're just -- we just -- I'd rather be a little safe than sorry.

Well, you -- my questions are answered. Thank you, guys.

Thanks.

(OPERATOR INSTRUCTIONS) I'm showing that we have no further questions, please continue with any closing remarks.

Thank you. I would just like to thank everyone again for their interest in Veri-Tek and look forward to speaking with a number of you on other calls. Thanks again. Take care.

Thank you. Bye bye.

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