Manitex International Inc (MNTX) 2008 Q1 法說會逐字稿

Welcome to the Veri-Tek International Corporation first-quarter 2008 financial results conference call. During today's presentation all parties will be the most in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS) This conference is being recorded today Tuesday May 13, 2008. I would now like to turn the conference over to Mr. Dave Langevin, Chairman and CEO. Please go ahead sir.

Thank you (inaudible). 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 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 on our SEC filings.

Veri-Tek expressly disclaims any obligations (technical difficulty) while undertaking to release publicly any forward-looking statements included herein or to reflect any changes in our expectations with regard thereto or changes in events, conditions or circumstances on which any such statement is based. With that bit of housekeeping out of the way I would like to continue.

As is 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 review on 2008 events before we open it up to questions.

First on macroeconomic factors notwithstanding, we tracked to our expectations in the first quarter. As our press release indicated, certain areas within the North American capital equipment market remain under pressure. But our crane business is performing within our expectations.

The net increase in revenues is a result of an increase in our crane business. We did see a decrease in commercial forklift sales in part as a result of a decrease in the economic activity as well as a delay in receipt of anticipated military orders with these decreases offset by the introduction of the Noble rough terrain forklift product line.

In other matters our announcement last week that we had signed our second international distributor the Russian distribution firm DSC comes less than one month after announcing our first international distributor agreement with a well-established distributor in the Middle East and delivers on the goals we outlined in our fourth quarter conference call that we would pursue opportunities outside of North America. These agreements position us in two of the most rapidly growing regions in the world.

We will continue to develop a stronger presence in international markets and we are confident that our high-quality and competitively priced capital equipment will offer the same excellent value that we have delivered to our North American customers. Further, DSC will feature two Manitex cranes, a 30 ton and a 50 ton in their booth at the CONEXPO Russian international trade event in September 2008 which creates more visibility for the Company and provides us with additional global marketing leverage. We expect financial contribution from both of these international distribution agreements to begin in the third quarter.

We also announced recently that selected models within the Company's Manitex productline would join the Manitex Liftking and Noble productlines in Caterpillar's preferred Allied Vendor program which qualifies additional Veri-Tek products for distribution through Caterpillar's entire global equipment rental network. With the acquisition of Noble forklift which was originally designed as currently marketed by Caterpillar, we acquired a productline that was already a part of the Caterpillar preferred network.

Caterpillar's agreement to add Manitex boom trucks into its preferred networks supports our strategy. The global network is a strategic fit to our international expansion strategy and further gives us additional access to the rental market which is not an area in which we have focused prior to the Noble acquisition.

Finally and I believe this is very significant in this market we saw a 14% growth in our backlog over December 31. We also reduced our interest expense in the quarter by almost $400,000 by reducing our total indebtedness during 2007.

With these brief introductory comments I will turn the call over to Andrew to review the operating results.

Thanks, David, and good afternoon and welcome everyone. I'm going to cover the details of our first quarter 2008 earnings release starting with the income statement.

Revenue for the first quarter 2008 was $23.5 million compared to $23.1 million for the same period of 2007. Sales in Manitex crane products increased approximately 4% year-over-year while sales of material handling product were adversely impacted by the economic uncertainty in North American markets and delays in the receipt of anticipated military orders.

David indicated that areas within the North American capital market remained under pressure. We believe that Manitex is gaining market share and that several sectors of the market that we serve such as energy continue to be active. Market demand for our material handling product is down compared to the first quarter 2007 although some of this softness has been offset by Noble shipments that were not part of the business until the acquisition of the productline in July 2007.

There was a strong level of quotation activity in the military sector but again shipments in the first quarter were down compared to the first quarter of 2007.

Our gross profit for the first quarter 2008 was $4.3 million or 18.1% compared to $4.2 million or 18.2% for the first quarter of 2007. The slight decrease in gross margin percent reflect increased margins of crane products from improved mix and efficiencies offset by a decrease in margin percent for the forklift specialized carrier productline due to the previously mentioned uncertainty in North American markets, the negative impact of a stronger Canadian dollar and costs associated with the integration of the Noble productline.

The increase in crane productline margins is due to several factors including the increase in sales of cranes with higher lifting capacity which have higher gross margin, the benefit of an increase in sourcing materials from lower cost countries, a price increase that was instituted in midyear 2007 and improved production efficiencies partially offset by price increases on certain materials.

Total operating expenses for the quarter ended 31 March 2008 were $3.7 million compared to total operating expenses of $3.3 million in the same period last year. The increase is primarily related to the Company's participation in the CONEXPO trade show and increased investment in research and development.

CONEXPO, a once every three-year international event for the construction industries was held in March 2008 in Las Vegas and we're very pleased with the enthusiastic reception to the extensive range of products that we displayed and received over 100 inquiries during show. Among the launches at the show was further enhancement to the Manitex 50 ton crane reflecting our continuing commitment to product development.

Interest expense decreased $0.4 million in the first quarter of 2008 as actions taken during 2007 contributed to total debt outstanding being $13.7 million lower than at the end of the first quarter of 2007. The Company also benefited from lower interest rates as a significant portion of our debt is indexed to the prime rate.

In September 2007, we initiated a currency hedging program to reduce foreign currency losses due to the strengthening of the Canadian dollar. In the first quarter of 2008, we recorded a foreign currency transaction loss of approximately $9000 as the Company was successful in nearly eliminating currency risk for the period through the purchase of four currency exchange contracts.

Net income from continuing operations for the first quarter 2008 was $0.5 million or $0.05 per basic and diluted share compared to $0.1 million or $0.01 per basic and diluted share in the same period last year. The income tax benefit for the three months ended March 31, 2008 was $0.5 million and the income tax expense was $0.2 million. The 2008 effective tax rate differs from the federal statutory rate for the current utilization of prior year losses for which no previous benefit was recorded and the tax benefit related to a discreet item for the recognition of a deferred tax asset for the Texas temporary margin tax credit as a result of a resolution of an income tax examination.

We believe that EBITDA and EBITDA to sales are important measures for the Company and EBITDA for the three months ended March 31, 2008 was $1.1 million or 4.5% compared to $1.5 million or 6.6% in the same quarter last year. The reduction in EBITDA arises from the lower operating income continuing operations for the first quarter 2008 largely accounted for by the increased expenditure on attendance at the CONEXPO show.

Moving onto the balance sheet we completed the quarter ended March 31, 2008 with $20.9 million in working capital and the current ratio of 2.3 to 1. Working capital increased in the quarter principally attributable to raw material for crane production, working process related to a specialized carrier under construction and a small increase in finished goods inventory of crane product.

Total outstanding debt increased to $26.3 million at March 31, 2008 from $25 million at December 31, 2007 as the Company utilized its line of credit during the quarter. Shareholders equity as of March 31, 2008 increased 1.8% to $31.2 million from $30.7 million as of December 31, 2007. I would now like to make a couple of comments from an operational perspective.

We continue to work towards product development and improved efficiencies in our businesses. The 50 ton crane is approaching its first anniversary and has been a very successful product for both our sales and our customers. Orders received to date have been in excess of 100 and we believe this validates our focus toward high tonnage product. This continues to be a target for our product development which we expect to assist us in both North American and global markets.

During the quarter, we made good progress with our (inaudible) activities at our Georgetown, Texas facility. This work involves repositioning workcenters to improve production flow and the installation of new welding capacity that will benefit our production processes. This project will continue through the third quarter of 2008. With that, I'd like to hand back to David.

Thank you, Andrew. I would like to just wrap up with a couple of summaries on the announcements we made in 2008. As you know we have signed three very important distribution agreements that will help us penetrate key global markets -- the Caterpillar Allied Vendor program and distribution agreements in the Middle East and Russia. These agreements provide Veri-Tek with new high-growth distribution channels.

In addition it is anticipated that our engineers will be concluding in the third quarter the new European CB certification process for our 50 ton crane which will allow us to sell our most popular crane into markets where this certification is required.

And lastly we just announced that we have received approval from NASDAQ the list on the NASDAQ capital market exchange as of May 28. We have also received shareholder approval to change our name to Manitex International which is being made to be consistent with our corporate identity to our customers, employees and other stakeholders in our Company.

Veri-Tek's business and brand name is no longer part of our Company. Manitex of course is our most well-known and largest brand. We expect that moving our listing to the NASDAQ capital market will add liquidity to our stock and support efficient trading for our shareholders. With that, I would welcome questions.

(OPERATOR INSTRUCTIONS) Sara Magers, Wachovia Securities, LLC

I'm just wondering, can you tell me what the industry shipments for boom trucks were in 2007?

I believe the information that is generally public was around 2000 units.

About 2000. Veri-Tek had about what, did about 500 in shipments?

I am not sure of that information. I guess it is because we do register -- it was around 600 units. We said we had 21% in our 10-K filing.

So 21% market share?

(multiple speakers) those numbers (inaudible) track.

You had previously stated that you expect boom trucks shipments in 2008 to be lower than the shipments in '07. Does that still hold with these new distribution agreements that you have announced?

I think the market -- I'm very sure the market will be down in North America. It was down '06 versus '07 and we believe it will be down '08 versus '07. But we believe our market share is increasing because obviously we are as we stated we're increasing the amount of business of our cranes and we do expect in the future to have international business but those crane numbers that I quoted to you are not international. Those are just the US.

Just domestic, yes. Just to switch gears what's your current capacity for boom trucks?

We just run one shift so we really don't -- I think we could continue to build at the levels we expect in the near future without any problems. And as Andrew mentioned we continuously improve the processes and the efficiency and so therefore the capacity keeps increasing. Again I don't anticipate that is going to be a near-term issue.

With the new agreements for the 50 ton and the 30 ton boom trucks are you going to be needing to add capacity to Georgetown at all?

No.

So there's no kind of investment associated with that (multiple speakers)

We have continuously made improvements in productivity within the plant. We purchased recently some new welding equipment. As Andrew stated we're working on some really -- layout of the plant but as far as major purchases, no.

Richard Hoss, Roth Capital Partners.

How is the outlook for acquisitions? I know it was something that was mentioned last quarter and I think we actually gave a number for what you guys look for. How does that look?

It's very interesting because it's sort of like the housing market and stuff. You would think as the economy softens, acquisitions would be easier but then of course you have got financing which is tougher. So I would say we're continuing as always to look for opportunities which will be positive to our Company and we will continue to explore those as we go forward. So I don't think anything has really changed, I just don't want to give you the expectation that we are going to put something in the business in the next couple of days.

What is the outlook for additional distribution agreements, if any?

We will continue to -- we have some other agreements that are in process in key areas around the world and so as I stated in my prepared remarks we will continue to add agreements in key parts during the rest of the year. We are very concentrated on -- as you know there's very strong demand for the high-capacity cranes around the world and we want to be able to make sure that we participate in that opportunity. So we are diligently and expeditiously signing up as many dealers as we can as fast as we can around the world. It just takes a little bit of time because you have to go through a process with each dealer.

Okay and then within the material handling segment it looked like you explained some of the weakness was due to delays in military orders. Do you expect those to materialize?

Based on everything that we are getting as indications, the answer is yes. The question always with the military is timing because they don't appreciate quarterly events or the flow of a production process. But on the other hand they also don't understand and appreciate economic downturns.

They're continuing to be very strong. Unfortunately we have a long-established history in the military area, over 40 years providing key material handling equipment. So I would expect us to receive those orders and as Andrew mentioned the order activity is quite strong right now.

Maybe we'll see in the past quarter -- maybe we saw some weakness from a delay and maybe we'll see a little bit extra strength in say current quarter, next quarter?

That's we were trying to imply in the statements that we prepared, yes.

Finally, the SG&A you talked about it because of the CONEXPO trade show -- so I would expect that stripping those out you would be at your normal run rate and you would expect to be at that run rate for the year?

That's correct. That's a once every three-year event that you dedicate a lot of resources, money, time and effort to. It's well worth it because of the activity that we had this year versus where we were three years ago is overwhelming. It was very exciting for us in the crane world if you can get excited in the crane world. We had a lot of activity and a lot of inquiries as Andrew mentioned.

Perfect, thanks for answering the questions.

Philip Anderson, Pinnacle Fund.

I just wanted to follow up on some of the questions which have been previously asked and answered. Looking at the income statement if in fact the SG&A would've been commensurate with last year without this once every three-year trade show, that does suggest this was about a $3000 expenditure for you. Would that be a number that is in the ballpark?

What we indicated was I believe and correct me if I'm wrong, Andrew, that our SG&A was up approximately $400,000, is that right?

Our operating expenses in total were up that region, yes The (multiple speakers)

The trade show was the bulk of it, wasn't it?

Correct.

You're right, Phil.

And then the military order that I guess had been expected now has been pushed out. Can you give us a sense of the magnitude of that order should it materialize?

Well it's a combination of many different items because we manufacture a number of different military units for different branches of the government. I'm not quite sure how (multiple speakers) quantify it.

Perhaps could I step in David? (multiple speakers) mentioned there is a range of products. We have a range of inquiries and quotations which we get asked to supply and we anticipate several of those coming to fruition into orders for us. So it's not one item, Phil.

Let me approach the same subject from a slightly different tact. Can you tell us/remind us what the value of military orders were in this business say last year overall?

We did (multiple speakers)

(multiple speakers) was military?

We did say publicly in releases that it was 8% so that is roughly $9 million.

Essentially there's $9 million -- if that were to be repeated there's $9 million of business "on the come" and hopefully it will materialize and (inaudible). Andrew, can you elaborate -- I think you had said that you're having lots of dialogue or quoting activity. Can you elaborate on that with the military?

Well we -- the process for the order verification with the military is we are validated as a supplier to several parts of the military, US, Canadian and other parts of the world and we respond to those inquiries and provide them with appropriate product and appropriate pricing. And that goes through the military process of procurement.

And as Dave mentioned they seem to have -- I'm sure there is a process. I wasn't going to say that there isn't but that process isn't geared to necessarily to our financial reporting process or our manufacturing process. When they come, they come.

And to help you, Phil, a little bit a lot of this stuff is repeat business we have done in the past and it's not -- there's not a lot of -- we're pretty confident that that is going to be units that we're going to be producing so it's just a matter of time.

I see. So it's not a lot of necessarily negotiation or haggling which takes place. It's a question of they are getting around to place the order with you.

Some of these generals around these branches don't have the same criteria we have.

Are you telling me they don't operate in a ninety-day quarterly basis?

Perfect, Phil.

Lastly speaking of around the world so to speak, you know I think the fact that your backlog was up 14% which is net of the drop-off in the business in materials handling is pretty impressive frankly. And obviously the rest of the world -- many areas of the world are on fire with construction. You have the Middle East which Dubai is building something new and the biggest new thing in the world seemingly everyday there's an announcement of a very significant construction project in that part of the world. And obviously Russia has lots of money from oil.

(inaudible) yet in India and China are those hopefully those are I guess this is more of a comment than a question. Hopefully some of those are some fo the areas that you're pursuing. I know that it's not lost to me that there's lots of growth opportunities around the world and I guess I just look forward to seeing additional distribution contracts as the year plays out.

Michael Potter, Monarch Capital.

Thanks for taking my questions. The CE Mark process you said that will be done in Q3 for the 50 ton crane. How long does that take typically?

We have been working on it since the beginning of the year and our engineers have been working with a consultant to make sure that we have had everything documented to make sure we qualify.

So we're going to submit the documentation in (multiple speakers)

No, what it is is (multiple speakers) it is a self-certification where you basically attach the information to the crane when it is delivered.

I see and so that should be complete in Q3?

That's correct, that is our anticipation.

Okay. Some of the (multiple speakers)

In some of these areas, it's not required. I'm sorry, Michael. Just in some of these serious it's not required and some it is. We just want to make sure that we have the world covered.

But it's one more like a hurdle to jump over to make it easier still internationally.

That's right.

With the 50 ton crane doing so well is there any demand or any thought to going to a 60 or 70 ton crane? Is there a market for a larger crane that is currently not being served?

Yes, Andrew referred to the development of and what our strategy is to continue to increase the capacity because as I said in previous calls that is where the market continues to expand and of course the pricing is less competitive and the margins are better. To answer your question, yes, we do have those on the drawing board and we're trying to work as diligently and as quickly as possible to have those products ready. We don't have a specific timetable that I want to mention that this point but it is in process.

I guess when you made the announcement for the Russian distributor a week or two ago, you mentioned in there briefly that it's a potentially larger market than North America. Is there any minimums with the agreement we have with the Russian distributor? Are they giving any (inaudible) sense of what kind of demand there is in the near-term?

Well they have -- they are going to place -- they have placed some orders and there will be some shipments delivered as we mentioned in the near quarters. And they don't have the entire -- I mean they have certain regions within Russia which we also expect to sign other dealers and other regions in Russia.

So obviously within Russia as Phil just mentioned the market is because of the oil money and just all the development that is occurring there it's not surprising that currently it is a bigger market than the US and for our products, not obviously overall but for our products. And we have not got a clear enough handle from the dealer in our own internal sources to try to determine how big this could be.

Some of our competition has stated and you have seen some of those 50 or 70% of their crane production wherever that is produced is going into the international markets. So we think starting from nothing but having products that are in demand, we have some significant upside as we start to deliver these products into those areas and as people become accustomed to our quality and value. So we're trying to be as optimistic as we can but it's a developing process.

Jeffrey (inaudible) Tuxedo (inaudible) Associates.

A couple of questions if I may. You tell me how you want to take them and what order. I'll ask a question and then wait for an answer and reply to the second.

Strategically, having signed agreements for distribution in the Middle East and in Russia strategically as you look at the rest of the world given your statement about where you stand in the EU are there in place efforts to try to expand distribution beyond those particular wins?

The answer to your question is yes. We have carved up the rest of the world and we are trying to as I think I mentioned earlier we are trying to expand into those areas realizing that each agreement is a negotiation. So each agreement takes a little bit of time because that particular dealer in that particular area has to make sure that they get all their kicks in their agreements of how many freebies they get and how many -- what areas they get, what countries they get, all that kind of stuff. So we're trying to prudently expand this as rapidly as possible.

Can you give us color on the integration of Noble and Liftking given the Caterpillar distribution rental agreement in terms of how you plan to exploit that and what you are planning to do relative to trying to create the quality Caterpillar requires for the rental agreement as that would apply to the total system?

Sure, the integration is proceeding along. We had some backlog which we are finishing up at this point and so that is going out. The material handling business as we commented is soft because of the economic environment. That's probably good because -- a good time to make sure that you are getting the points you raised on quality and deliverability and all the issues you have when you deal with Caterpillar are better served during a somewhat slower time than during a time when everything is hotter than a firecracker. So it's giving us a chance to make sure the integration and implementation goes and it never goes as fast or as smooth as we all want at corporate but it is proceeding along and we expect to see better results from that integration in the next upcoming quarters.

Given Liftking's particular expertise in working with the Canadian -- primarily the Canadian and to some extent the US military, now that you have the Caterpillar rental (inaudible) agreement in place is there not an opportunity on a global basis now to introduce Liftking's productline globally?

That's true. It's somewhat of a different unit and of course you have to have -- the nice thing with the Caterpillar design product, it's a well-known, well thought of product within the Caterpillar distribution. It's like a lot of things if people are comfortable and used to it and like it, it's the first thing they pick to. But within the Caterpillar rental programs and Caterpillar programs that they put out around the country we are putting Manitex, Liftking and Noble into all of those programs that we get access and visibility to (inaudible) in as many ways as we can.

Andrew is more involved with that than I am. I know there's one coming up in Spain that our folks and our products will be at and I don't know if you want to explain, Andrew, how these things work. There's a lot of (multiple speakers) key people have come in from all over the world.

Sure, just to sort of recap that Allied Vendor program that we have got involved in with CAT our access to it came with the Noble acquisition. We fairly rapidly moved Liftking product into that as well. And that was essentially a North American operation that we had access to. Both Noble and the Liftking product then got introduced to the European piece of the Allied Vendor program and recently we announced that the Manitex operation would be putting a limited number of their cranes that were appropriate for the type of market into that program as well.

So essentially, the North American program that CAT has, it has about 440 houses in North America, just over 100 in South America and it has an entire region which they refer to as Europe, Middle East and Africa. We are allowed access to the European piece of that at the moment as they continue to develop their own Middle East and African section. But that EMEA group is over 800 participants. Asia-Pacific which we're not part of yet but hope to be as we work through the (inaudible) has another -- over 200 participants in that program.

So we believe it is a good program for us. There's some of the best dealers around. They have a series of programs to promote product and as David just mentioned the European session is actually taking place later this month where again we have representers and that will cover introducing ourselves, our product to all representatives in that program from the EMEA region. This is part of taking our product onto the global stage and that's why we're excited by it. We have work to do to get the success that we want but I'm sure we can do it.

David, these are interesting times.

Yes, you're right, Jeff. Thank you very much.

(OPERATOR INSTRUCTIONS) At this time I'm showing no further questions in the queue. I'll turn it back over to Mr. Langevin for any closing remarks.

Thank you again everyone for your interest in Veri-Tek. As we go forward as Manitex International we welcome your interest. Thank you again. Good day.

Thank you sir. Ladies and gentlemen that does conclude today's Veri-Tek International Corporation in first-quarter 2008 financial results conference call. If you would like to listen to a replay of today's please dial 303-590-3030 or 1-800-406-7325 and enter the pass cide 3875923. [OPERATOR INSTRUCTIONS] Thank you for your participation. You may now disconnect.