Manitex International Inc (MNTX) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Manitex International First Quarter 2009 Results Conference call. (Operator Instructions) This conference is being recorded today, Thursday, May 7, 2009. Now I would like to turn the conference over to David Langevin, Chairman and Chief Executive Officer. Please go ahead.

Thank you, Dale. Good afternoon, ladies and gentlemen. And thank you for your interest in Manitex International. On the call with me today is Andrew Rooke our President and Chief Operating Officer. A replay of this call will be available until May 14th which can be accessed by dialing 800-406-7325 if calling within the United States, or 303-590-3030 if calling internationally. Please use passcode 4067097 to access the replay.

As always we will be limited on this call to discussing our public information, and any discussion of future events or expectations are subject to uncertainties and risk factors which are fully disclosed in our public filings and which I strongly encourage you to read.

As everyone on this call is aware, these are unprecedented economic times for the economy at large as well as for our industry. But in spite of these conditions and in the face of a 40% reduction in sales from the corresponding quarter in 2008, with the efforts and tremendous sacrifices of our entire team and a flexible response to conditions we were able to maintain a good percentage of cash flow on sales, a much improved gross margin, a solid increase in operating profit percentage and most importantly a net profit. Andrew will address the details of these improvements in his prepared remarks.

We were also able to make announcements of some very positive commercial progress during the recently completed quarter. Namely, we booked and announced the [nice] crane order to the Middle East and what seemed like an eternity or after an eternity we were able to announce a return of our military business and our Material Handling Division, and we announced a very important sales alliance with that first initial crane order. Finally, and most importantly, we announced the approval of the extension of our bank credit facility for three years until April -- extending until April of 2012.

Again, I want to emphasize that all these accomplishments were made possible through the efforts of the entire Manitex team which, by the way, have maintained a very positive attitude through these difficult markets.

With regards to the rest of the year, as we stated in our release, we cannot predict with any reliability the future sales trends for our markets. But we do believe that we have control of our costs, that we will continue to balance our activity with demand and that we are currently maintaining our order book at a consistent level. This will allow us to expect continued improvement upon our performance as we progress through the year.

With that, I would like to turn over to Andrew for specific operating comments, after which we will be happy to take questions.

Andrew?

Thanks, David, and good afternoon and welcome everybody. I'm going to go over the details of our first quarter ended March 31, 2009 earnings release.

The market took a very rapid and dramatic turn down during the first quarter. It was dominated by three major activities for us. Firstly, ensuring the business was right-sized for the level of demand which we achieved by taking actions to reduce annualized costs by $6 million which is $1 million more on an annualized basis than we previously announced.

Secondly, appropriately managing our cash, supply chain and inventory levels to which we were able to generate $2.5 million of cash flow from operations.

And thirdly, advancing our overseas military and strategic activities from which we announced specific orders valued at $8.6 million.

It's against this background that I will go through the details of the financial results.

Net sales for the quarter ended March 31, 2009 were $14 million, a decrease of 40% compared to $23.5 million in the three months ended March 31, 2008. Excluding the impact of the acquisition of Crane & Machinery & Schaeff in October 2008, the decrease in sales was 48% with the impact similar over across both Crane and Material Handling sectors.

Revenues from parts and service activities in all operations were less severely impacted than [unit] sales. The rapid change in economic condition generated significant customer uncertainty and earlier in the quarter we continued to see the cancellation of orders which in several cases had an immediate impact on manufacturing operations and inventory.

In addition, the level of new orders received decreased significantly over the corresponding period of 2008. However, during February we reported some success with our increased focus on several new North American and International sales initiatives with the announcement that we had received orders for international boom truck trains and military forklifts with a total value of $6 million. The first part of these boom truck orders destined for the Middle East shipped during the quarter.

Also during the quarter we announced our strategic marketing initiative with Allied Machinery and the receipt of an initial order of $2 million for boom truck trains. We believe this is an important and exciting initiative that is intended to increase our presence with new customers and in markets where we currently have limited distribution. The net effect of these activities is that we had a positive order intake during the quarter and that our consolidated backlog at the end of the quarter is at a similar level to that reported at December 31, 2008.

Gross profits of $3 million for the first quarter of 2009 was reduced by $1.2 million or 29% from the first quarter of 2008 principally from the result of the 40% reduction in sales. However, gross margin percent for the first quarter of 2009 increased 350 basis points to 21.6% compared to the first quarter of 2008 and 530 basis points from the fourth quarter of 2008.

The improvement in gross margin percent resulted from swift action to balance our activity levels with demand and included headcount reductions of salaried and hourly employees, virtual elimination of overtime, suspension of additional hires and merit increases, reduction in executive and salaried pay, bonus and benefits and the introduction of shortened work weeks. These actions combined to reduce manufacturing expenses by 37% compared to the fourth quarter of 2008.

Also benefiting the gross margin percent was improved price realization and the benefit from a weaker Canadian Dollar for our Toronto operations.

Total operating expenses for the quarter ended March 31, 2009 were $2.5 million including $0.1 million of restructuring expenses relating to headcount reductions made in the quarter. Excluding these restructuring costs, total operating expenses were 35% or $1.3 million lower than the first quarter of 2008. This reduction was achieved through the management actions implemented regarding staffing levels and total [remuneration] including pay, bonus and benefit reductions and working week reductions. In addition, the first quarter of 2008 included $0.3 million in costs associated with the ConExpo trade show.

Net income from continuing operations and diluted EPS for the quarter ended March 31, 2009 was respectively $0.1 million on $0.01 per share based on 10.7 million diluted shares.

Excluding restructuring costs of $0.1 million, net income for the quarter was $0.2 million and $0.02 a share. This compares to net income from continuing operations for the first quarter of 2008 of $0.5 million which included a discreet tax benefit of $0.5 million from recognition of the Texas Temporary Margin Tax Credit.

EBITDA from continuing operations for the first quarter of 2009 was $1 million or 7.4% of sales, a 290 basis points improvement compared to $1.1 million or 4.5% of sales for the first quarter of 2008.

I would now like to comment on the Company balance sheet and liquidity position. The Company completed the quarter ended March 31, 2009 with $20.8 million in working capital and current ratio of 2.7. Cash flow generated from operations in the first quarter of 2009 was $2.5 million.

Our operating working capital compared to December 31, 2008 decreased $3.6 million as we continued to increase our focus in this area. This reduction was obtained principally from accounts receivable.

We worked extensively with our supply chain to ensure that procurement was only for firm orders and to manage the pipeline of components and achieve good success in this area. Additionally, manufacturing operated with a build to confirmed order policy. However, late customer cancellations in the early part of the quarter had a negative impact on both raw material and finished goods inventory.

The net impact of this is that as of March 31, 2009 our inventory levels remain flat in comparison to the balance at December 31, 2008 at $21.1 million (sic - see press release). Included in this inventory are finished goods of $6.4 million compared to $5.6 million at December 31, 2008 that we anticipate will be converted to sales and cash during the year.

Total outstanding debt was $25.1 million at March 31, 2009. A reduction of $3 million compared to $28.1 million at December 31, 2008. The decrease was substantially all reflected in reduced borrowings on our lines of credit. Availability under our lines of credit at March 31, 2009 was $5 million and we remain in compliance with our covenants.

As David has already indicated we were very pleased to report that our principal lender approved the extension of our credit facilities for a three year period to April 2012. We are currently finalizing the necessary amendments with the bank for this agreement and we believe this extension will provide the flexibility and resources to support our forward strategy and demonstrate the support of our lenders to our plans.

To finish I'd like to add a comment regarding the business in general. The entire Manitex family of employees has demonstrated great flexibility and determination through this first quarter and made many personal sacrifices to ensure that we can continue to deliver to all of our stakeholders. We believe this is a great strength of our business that will continue to assist us as we continue through 2009 and I'd personally like to thank them for their efforts and support.

With that, I'd now like to hand back to David.

Thank you very much, Andrew. Dale, would you please open up the line for questions, now?

Thank you, sir. We will now begin the question and answer session. (Operator Instructions) Ned Borland, Next Generation Equity Research.

I was wondering if you had seen any cancellations late in the quarter. Has the pace of cancellations kind of muted as you've gone through the quarter?

I don't want to make too much out of that because I don't think it was overwhelming. Obviously, we have some inventory so generally we would build to a specific order book so clearly we had some cancellations but, Andrew, you're probably better prepared.

I would say, generally, it seems like the whole marketplace is firming. There's talk all over of stabilization and I think that we're seeing that as well. And, as I said in my remarks, we are seeing a stabilization of our backlog and order book and so I think that reflects on the fact that -- and we're also being very, very careful when we take orders to make sure that we have specific customers in mind, end users, and that people are not just seeing what happens or getting -- looking like they are going to get product on consignment.

But, Andrew, you are closer to it, obviously.

Well, I think that's a fair comment, Dave. Certainly we've reported in Q4 there were cancellations and earlier on in the quarter there were. As things have firmed up, we've certainly seen (inaudible) and I agree with you that in the whole scheme of things that the level of cancellations was not a significant issue.

And then switching to the end markets you said that things seem to be firming up. Are there some end markets that are, I guess, firmer? Starting to see some glimmers of hope out there or is everything still kind of broadly weak?

Well, you have to be cautious because obviously everybody in the marketplace today is cautious after the dramatic turndown that we saw starting in the third quarter. But generally we're getting -- it seems like there's more optimism on behalf of -- we principally sell through dealers as you know, Ned, and it seems like there's more activity with our dealers.

The markets that we generally serve in are oil and gas and infrastructure and utilities and it seems like most of the markets that we -- well, not most of the markets but a lot of the markets that we serve are at least optimistic and trying to be cautiously optimistic. So I just think the general tone has improved.

David, if I can just add to that, during the quarter as you know we announced the Middle East order and some international business. And, of course, that has been very beneficial for us as well. And certainly some activity levels in those parts of the world where we decided to focus has also come through as well and that is still giving us opportunities as well.

And then on the gross margin. I mean, that was a pretty impressive performing given that drop in sales. I know most of it is to the steps you've taken on the cost side but you said that spare parts were a little stronger for you in the quarter. And I know those would seem to carry a higher margin. Is your parts business -- are we to read that the gross margin is somewhat sustainable here?

Well, Ned, our business model all along from the time that we started this - seems like a hundred years ago, you know - several years ago, was to be a specialized niche player where we had generally better margins because obviously I've been, and of course Andrew has been as well, been in businesses where the business model has very, very more of a commodity business with very low margins.

And then secondly, because they are specialized equipment we also are constantly trolling the world looking for businesses and assets where there is more spare parts. And that business model works and this is proof of it because, you're right, from a whole dollar standpoint, everything is down. So spare parts on a -- comparison of year-over-year is down but on a percentage basis it's obviously up. So that's helped but I don't want to over-emphasize that because I don't think that that's, as you said, the main reason for the -- and what I think are just fabulous margins considering the economy and the volume of our business but that certainly adds to it and that certainly contributes to it.

And then the final question for Andrew here. I know you guys haven't finalized the details with the bankers but can you give us some help on what interest expense might look like going forward?

Well, I think we all know that the level of interest that people are paying in the market is higher than when we originally had the arrangement in place so I think we'll see some increase in interest rate. Yes.

But you know, again Ned, we always have a very good relationship with our bank and -- but we did try to do some market surveys to make sure - and we're not finished - but we did some market surveys to make sure that interest rates that we were discussing with our banker are comparable to any other interest rate that's prevalent out in the marketplace.

Thank you.

Rick Hoss, Roth Capital Partners.

The backlog, you didn't mention an actual number. You just said it was similar to last quarter which was 15 and change, I believe.

That's correct. You're right.

And then you said bookings were level to what you saw in the fourth quarter?

Yes. Basically - I don't want to give you a misunderstanding there - we're basically saying that our backlog is consistent with what we had at the end of the quarter and our bookings -- our bookings are stronger in the first quarter than they were in the fourth quarter because I think we probably had a negative bookings in the fourth quarter, you know, from the standpoint that -- compared to your booking versus your cancellations.

Right.

I'm glad you asked that question, Rick, because I don't want people to have the wrong impression there.

And I know that there just is not any clarity out there as far as looking ahead out there for the remainder of the year but for the next quarter the expectations of the backlog based on, I guess, better bookings comparatively, is it out of the ballpark to think that revenues could continue on the same sort of gross dollar amount. And then, obviously, factoring in the improvements you've made as far as gross margins go in the reduction of SG&A?

Again, it's very difficult to say as we mentioned in our releases but we do feel we are on firmer ground and that we're hopeful that we will see more utilization out of our facilities, higher production levels which will increase our sales. So we're hopeful that what we're seeing is sustainable. We're just -- everybody is just very cautious to look very far out because the visibility is just not very clear yet.

And then if I could just gain a little bit more of your insight into the relationship you have with energy markets and where I'm going is that you're seeing recovering oil prices, you're seeing the oil go beyond $50 bucks and I think as you potentially narrow in on say $75, some of these projects that have been delayed or canceled for the time being say in the Oil Sands start to become economic again, how much of a driver or upside could you see some of these projects coming back on line, how much could you see that driving a second half bump in your revenue?

I'll start on that, Rick, and then I'll turn it over to Andrew because I think he's had a lot of discussions on the day-to-day activities with the -- with some of those customers. And I would say, generally again, strategically we started years ago because we wanted to build a company that -- we wanted to try to as much as possible -- these are highly cyclical companies. I mean, Andrew and I have spent our whole life in highly cyclical companies and I wanted to try to, as much as possible, manage that cyclicality. And I saw oil and gas with the products that we have as being a way to address that. And so we really have been building products specifically for that industry with customers' input and that sector in mind.

And I think that's worked because we have some customers where our product is what they use and what they think about when they are expanding their programs and going into new projects. So I would say it seems like we're getting some more activity but I'll turn that over to Andrew because he's got a lot closer involvement with it.

Thanks, Dave. Rick, I think you're right. What we seem to see is there's an investment threshold, oil price, the price of oil determines what that is when they start the new projects into place and we are seeing a tick-up in oil price. Equally, as Dave said, we've got product that is available and is very well suited to those markets. What we don't see yet is those projects coming on line and unfortunately we don't know when those projects are coming on line.

I was actually up in some of the oil fields earlier this quarter and there's little activity there. And you talk to the operators in those oil fields and they are waiting for this tick-up and they will start to come through. But I think -- which is sort of a rambling answer but we honestly don't know.

But what we do know is the product is right for those markets. They like it in the markets. When the oil price starts to give the oil companies the confidence to start the projects and get them rolling again we think we're very, very well suited to it.

And then last question, what sort of new projects are you seeing in the pipeline as far as either new equipment that you are developing, enhancing your existing equipment or potentially penetrating new markets?

Well I would say, Rick, what's happening right now is the markets -- the sales that we're getting or the orders that we're getting currently are different than the orders we were getting a year ago. A year ago, if you remember, everything was large tonnage, 40, 45, 50 ton cranes, our biggest cranes. And now because capital, you know, for a lot of companies this year they are just not spending a lot on capital. Their capital budgets have been slashed so now they are looking more into rental market.

So the, for example, the combination with Allied that we've announced is a wonderful opportunity for us to really penetrate and expand our rental which we've really not had for years. And I think you'll see some visibility on that in the next 90 days because of the activities that we're doing with Allied.

And so I would say what we're doing now is we're really shifting or we have shifted some of my -- our development -- and we were doing this along -- the same time we were developing, or did develop, the large cranes, we were modifying and enhancing and improving the smaller cranes so that we could have a full range of cranes for the marketplace and so therefore I think that really helps us out in this cycle.

I don't know, Andrew, if you want to talk specifically about any other projects although we hate to talk too much about any of that stuff until it's out in the marketplace but go ahead.

Yes. I think the only other comment I would make is that one of the things that Manitex has prided itself on is its flexibility and innovation. And one of the things that we are able to do both in the crane and in the forklift arena is where customers have some specific needs which may be lower volume than some of our competitor's needs who wants. We are able to deal with those things. So we are able to do a lot of engineering with regard to some specific applications for people. And that's where some of our resources are going now.

Thank you for taking my questions.

Howard Lu, First Wilshire Securities Management.

Hi, gentlemen. This is Dmitri. Hey congratulations on making money in such a rough quarter.

Thank you. It's not anything to brag about to be truthful but I'm excited about it. I think if we can do it in this quarter, we can do it in any quarter.

Yes. I think your larger competitors would have lost a ton if they lost 40% of their revenue.

Yes. I know. Well, we -- the marketplace with the sales is something that obviously you try to control as much as you can and our market share is not -- we certainly haven't -- we've held our market share so we're doing everything we can in the market but most important thing is we can control our costs so we are really being adamant about that.

Could you guys talk a little bit more about the military business? You mentioned you seen a pick-up in maybe like what you're seeing with the orders coming through and what kind of contribution you think it can make?

Well, I did mention that we had finally -- because this -- this is going way back so many people on the call probably don't remember but we had a very successful first part of '07 because we had some really good military business in our Material Handling Division and we expected that to continue but we couldn't control the timing of that because when you're dealing with a lot of these military establishments they don't worry about quarterly calls or quarterly earnings or anything else. They are just working on their program.

So we've been working on some for quite some time and it just seems like now it's starting to break. So we did announce a fairly substantial military order in the first quarter which we really won't start seeing delivery of that because they have some very long lead times on some of the specialty equipment that we make there. We really won't see that until the third quarter in a large way. We'll see some in the second but most of it will be in the third and fourth quarter and that should be a very nice contributor to our third and fourth quarter earnings.

And then could you talk a little bit more about Allied? How big are they? What's their scope? What kind of (inaudible) are they in to and what's their long-term potential for that partnership?

I'd love to. And Andrew and I both have been very busy on that project. But Allied is a privately held company based in Phoenix, Arizona which is all over the US. They rent -- they basically are a specialty niche renter in their two product lines that they represent or they rent are [R]-cranes, principally, R-cranes and JLG equipment. And it's a good sized company and it is a high margin company because, again, they are doing one day, one week, one month, so they kind of fill the holes and in today's market, which as I said earlier, with capital expenditures significantly reduced, people still have needs on a spot basis and so they are the company that they call when they need that kind of project. So it's a really good company for us to partner up with.

And what we expect as we go forward is their business over the next 12 months should be very strong because of the nature of their business and we should participate in that. So it's kind of a shining light in a very difficult market.

Very helpful. Thanks again, guys.

Thank you. (Operator Instructions) Phillip Anderson, Pinnacle Fund.

Dave, Andrew in his prepared remarks section of the press release mentioned that the inventory management will begin to generate cash flow this year. What is your target level of inventory? Understanding that orders are beginning to come in and things are firming up, do you have a target level of inventory based upon the current volume of business?

I guess the way to answer this, and it's a little bit difficult because trying to peg how much -- how are you going to sell inventories especially in this kind of stubborn market is a tough one. But I'll give you kind of a general idea that would not be too crazy.

We have addressed in the past kind of a goal of working capital to sales of being in the 24%, 25% range. And if we apply that same percentage to current sales, we would have working capital which includes the biggest component of that being our inventory right now, somewhere around $8 million to $10 million lower. And that's, again, I don't want to say to people you snap your fingers and generate $8 million to $10 million out of your working capital but I would say that, again, we had stated that goal and we were going along with that pretty well on a historical basis and, of course, we -- the inventory with some of the cancellations has not -- has been stubborn and not come down as fast as we want. But it's, as you mention and as Andrew mentioned, we think over the rest of the year we'll see a reduction in [net] -- most importantly the finished goods.

You did a great job in collecting the receivables and bringing that down. So if you were to get down to that $15 million, $16 million level I would suspect the majority of that would come from reducing inventory.

That's correct. We still have some more -- and, again, working capital and (inaudible) receivables and payables and you'll still see some of those come down. But then on the other hand, with business firming up we might see some of that go up. So we just -- we're trying to get back to that goal of ours which was a percentage. But right now it's -- with the sudden downturn it's a little bit out of whack right now.

Well, again, I'll echo what the prior questioner said which I think making money in this business in this time of the cycle is wonderful, particularly when contrasted with the larger companies which had just terrible quarters. And it looks like you're going to continue to make money based on your current comment on the comments so congratulations and keep up the good work.

Chris [Lahey], L.D. Micro.

Gentlemen, good quarter. My question was answered already but I just, for my own knowledge, what percentage of your revenue is international right now? For the last three or four quarters?

We just got approval from most of the international arena in the -- and correct me if I'm wrong, Andrew, was it the start of the fourth quarter? Is that when we received (inaudible) certification? And so we haven't really been a very large player. What we said at the beginning of the -- or the end of last year was that we would expect this year to be 10% international which is all new business and I would not think that that would be a problem.

Excellent. And can you guys expand through it just using your current distributors or you would have to align with other companies to do that?

Yes. We are slowly but surely aligning with other companies although if our North American distributors have international contacts as well, we are using them. So we're trying -- we've announced that we had a [run-in] dealer. We obviously have some Middle Eastern contacts and representation because of the order that we booked in the first quarter.

We did mention when we acquired Crane & Machinery in the fourth quarter that a substantial amount of their sales over the years have gone international so we have those contacts now and that's also borne fruit this first quarter as well. So we're trying to use every means possible.

Excellent. Thank you so much and keep up the good work.

[Handa Misrawni], SFM Investment Corps.

I was a little late for the call so if you mentioned this I'm sorry. By these improved margins which are great and I congratulate you also, are these numbers that we can expect to see going forward and we can use them in a model?

The margins are substantially better than what we've had historically. If you look at some of the ranges that we've had we've -- you -- I don't (inaudible) roughly in the 18% to 19% range. We've got chewed up in '08 with material cost increases and material price increases and so we lost some margin in the '08 period.

So far in '09 we haven't seen -- we've obviously controlled it from a controllable cost standpoint. Our efficiencies have been good, believe it or not, at these horrendously low levels so we haven't had huge variances. And I want to say, of course, but I'm just hesitant to do that so I would think some kind of blended range over the last three years would be -- if I was building a model I would do something like that.

Because last year I know the first two quarters you had like 18%, it was only the back half that you got hit.

Yes and that was pretty consistent with everybody in our business because we are a heavily steel content company and of course, as you know, steel prices went through the roof in the second half of the year and then now they've obviously stabilized.

Right. So I'd like to think that this (inaudible) it could stay around because if you managed to do it now --

Yes. We'd like to think that way too but, again, it's a difficult thing to predict.

Thank you.

Thank you. (Operator Instructions)

Well, if we don't have any further questions -- are we -- anyone else queuing up or are we okay?

We have no further questions. Please continue, sir.

Thank you so much everyone. I really appreciate your interest in Manitex International and look forward to speaking to you again in the future. Thank you, again.

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