Manitex International Inc (MNTX) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Manitex International first quarter 2010 conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Wednesday, May 12, 2010.

l would now like to turn the conference over to our host, Mr. David Langevin, Chairman and CEO. Please go ahead, sir.

Thank you. Good afternoon, ladies and gentlemen. Welcome to our first quarter call. On the call with me today is Andrew Rooke, our President and Chief Operating Officer, and Scott Rolston, our Senior VP of Group Sales. Andrew will address the specifics of our first quarter and Scott will discuss the development of our markets. Please see our website or our release for replay instructions for this call which will be available until 5/19. We will be using slides to assist in this presentation.

Please refer to the first slide regarding the Safe Harbor statement. We, as always, will do our best to provide our investors and interested parties with our expectations, with the understanding that there are significant risks in the markets. Therefore please be mindful of these risks and refer to our disclosures in our SEC filings for further guidance on our risks.

Now, please refer to our overview slide. Overall, we had a significant turnaround in our operations as reported in our first quarter. We went from an approximately $1 million loss in operating income before gain on acquisition purchases in the fourth quarter, to an approximate $1 million in operating income in the first quarter. We also had a substantial improvement in cash flow or EBIDTA from $426,000 in the fourth quarter of last year, to $1.83 million in the first quarter. Our EBIDTA as a percentage of sale was our best level since 2007. So, this is a quality start to the new year.

Unfortunately, the markets we work in still remain at low levels with limited visibility. There is, however, an exception to this since we continue to see good activity in our critical specialized material handling equipment which, as many of you know, are primarily used for military applications and international markets. This does provide us with a solid base for 2010. Also, as we stated in our release, we are beginning to see signs of recovery in our order and parts activity, which Scott will cover in more detail. But we are not satisfied with our results. Our income was affected by charges which specifically occur in the first quarter, such as audit and legal fees related to our annual filings, and by our new acquisitions. We need you to know we will continue to be diligent in our cost control. Having said this, we are pleased with our gross margin percentages which remain strong across the board in our various divisions. We had a good mix of large cranes in the quarter and we had a benefit of a year-and-a-half of cost reductions.

With regard to our balance sheet, we saw steady improvement in our key ratios, and the benefit of this was confirmed by our recent 8-K filing where we were pleased to report that our bank had reduced our interest rate we are changed on working capital by 50 basis points effective immediately.

With that overview, I will turn it over to Andrew for a more detailed report. Andrew?

Thanks, David. Good afternoon and welcome, everyone. If you turn to slide four of the presentation, this shows the key figures for the first quarter of 2010, with comparatives for the first and fourth quarters of 2009. Sales for the first quarter of $22 million were up $8 million or 56% compared to the first quarter of 2009. With approximately 50% of the increase attributable to the acquisitions of Badger and Load King that occurred in the third and fourth quarters of 2009, respectively. The balance of the increase resulted from strong demand for material handling product for military and international customers partially offset by lower demand for Manitex crane and shave products.

On a sequential quarter basis, sales were up 47% compared to the fourth quarter of 2009, which again reflected strong material handling sales to military and international customers, but also an increase of 12% in Manitex boom truck cranes. This increase reflects not only some improved economic conditions, but also the continued success of the 5155 crane launched in the third quarter of 2009. Quarter one 2010 gross profits of $5.2 million was an increase of $2.2 million, or 210 basis points over the first quarter of 2009. Gross margin also improved $1.8 million, or 60 basis points over the fourth quarter of 2009. At 23.7%, our gross margin percent in the first quarter of 2010 was the strongest the Company has achieved to date and we continue to be pleased with its performance which is a result of improved product mix in sales from our niche market customer and product strategy, and from the restructuring actions implemented in the past 15 months where we sized our business for the level of demand in the market.

Operating expenses of $4.2 million in the first quarter of 2010 increased from the first quarter of 2009 by $0.9 million, excluding the impact of acquisitions due to increased selling, R&D and legal costs, as well as an adverse impact from currency on the translation of Canadian operating expenses. Compared to the fourth quarter of 2009, operating expenses after adjusting for the gain on Load King in quarter four increased $0.5 million which is accounted for by the operations of Load King in the first quarter of 2010 after its acquisition on December 31, 2009. And legal and audit fees associated with its acquisition. We were pleased to be able to report net income for the quarter ended March 31, 2010, of $0.3 million, equivalent to $0.03 per share. This compared to net income of $0.1 million or $0.01 per share for the first quarter of 2009. Also very pleasing is that we are able to report an increase of 75% or $0.8 million in EBIDTA to $1.8 million equivalent to 8.3% of sales, our strongest performance by that metric since the third quarter of 2007.

Slide five shows a reconciliation between the Q1 2009 net income of $0.1 million at the top of the page to a net income for quarter one of 2010 of $0.3 million at the bottom. Walking through the slide, the impact of the $8 million in increased revenues between quarter one 2010 and quarter one 2009 resulted in a gross profit increase of $1.7 million. Through improved product mix and previously implemented restructuring activities where we were able to adjust our manufacturing facilities, we improved our margin percent to 23.7% further benefiting the profit impact by $0.5 million to a total gross profit increase of $2.2 million. The addition of the Badger and Load King business in quarters three and four of 2009 added $0.7 million in operating expenses, giving an underlying increase between the first quarters of 2009 and 2010 of $0.9 million. This increase results from increased selling and R&D expenses, legal and audit expenses including those for the acquisition of Load King and an adverse currency impact from the translation of Canadian expenses due to the strengthening of the Canadian dollar between the two periods.

Selling expenses reflect not only cost related to increase in activity such as commissions, but also to our continued development of overseas markets where, for example, we have invested in an additional overseas based resource. R&D expenses reflects engineering resources that we have applied towards new product development such as the Manitex 5155 crane, and the new heavy lift version of our 50-ton crane, together with the ongoing development of our Badger range of rough terrain cranes. Other expense largely reflects an increase in interest expense arising from the higher interest rates associated with the Company's credit facility that was extended in July of 2009. And the increased level of debt between the two periods, arising substantially on the acquisition debt for Badger and Load King.

For further information, some may be aware that we announced on Monday of this week that the interest rate charged by our bank was reduced 50 basis points with immediate effect on our revolving lines of credit with them. Finally, we considered our tax charge increased $0.1 million between the two quarters. The effective rate in quarter one 2010 was 33.9%, compared to 14.4% for the first quarter of 2009.

Slide six shows our key working capital and liquidity ratios which remain in good condition. Working capital increased $2.3 million from the fourth quarter of 2009, reflecting the increased level of activity and growth during the quarter. Higher sales volumes accounted for increased accounts receivables of $3.3 million, with inventory reductions offsetting $1.3 million of this. Our current ratio improved again during the first quarter of 2010 to 2.9 to 1 compared to 2.8 to 1 at December 31, 2009.

Slide seven shows our debt and liquidity position. During the first quarter of 2010, our net debt increased through usage on our line of credit, offset by debt repayments of $0.5 million in the quarter. At March 31, 2010, we had $3.3 million of availability on our lines of credit based on reliable collateral. As previously mentioned, we are very pleased to report EBIDTA for the quarter of $1.8 million or 8.3% of sales, our best performance since 2007.

Slide eight gives an overview of some of the key operational factors in play during the first quarter and in the foreseeable future. Most of our operations are still building to firm orders since we have yet to see a significant number of dealers prepare to place stock orders. As a consequence, our future visibility is still relatively limited compared to historical trends although marginally better than the past 12 months and we have been and may continue to be impacted by the timing of when orders are received. This timing is also potentially affected by the recent increases in supplier lead times for several key components. This is largely reflecting the patchy economic activity that suppliers are seeing from various sectors that they serve. But some sectors are showing more positive trends than others and they're consequently finding it more difficult to adjust their working patterns. During 2010 we've also started to see the push from suppliers for increased prices arising from underlying steel price increases. Our strategy and response to mitigate this has been to reorganize our purchasing function to more effectively secure synergistic benefits from either group volume or commonality of supplier across our organization, in addition to the tactical developments of more competitive suppliers.

Now I would like to turn it over to Scott Rolston who will give an update of our markets, as you can see summarized on slide nine.

Thank you, Andrew, and thank you everyone for taking the time to join us today. I will briefly update status on important Manitex sales markets. On our previous calls we reported expectations of slow first and second quarters for 2010 with gradually increasing opportunities later in the year. The activity we see allows us to remain optimistic. We are accurate in our predictions. Here is why.

First, shipping levels are increasing. While still incredibly low relative to 2008 or prior numbers, revenues have trended up throughout the first quarter. They will continue to increase through the second quarter. Visibility beyond the second quarter is still very limited, but we believe the increasing rate of order intake carries some inertia. Next, quoting activity is increasing at a rapid rate. Total quotations made in March exceeded the combined total quotes for both January and February. Quotations in April exceeded March by 35%. While conversion of quotes to valid orders remains challenging, it is not much of a reach to associate this increase in quote activity with an expected increase in orders.

When looking at specific markets, power line construction remains strong. We targeted this market in our development and it shows in our backlog. Currently 26% of the crane backlog is associated with orders going to this market. Our new product is achieving broader acceptance and we are confident this market will remain strong. Energy exploration and development seems on the verge of contributing to expectations for second half of year increases. Quoting activity has increased dramatically and this segment makes up 53% of all open quotations. Territory for these quotations includes all of the Americas.

Our international efforts remain consistent. We continue to receive orders from those customers we have targeted for 2010 contributions. We are still on target to achieve 20% of our 2010 business outside of our traditional North American market. We are excited to announce we have received our first orders for European CE certified cranes and will begin shipping to this market in late third quarter or early fourth quarter. The few stocking dealers who have reentered the market to purchase for rental fleet and finished goods stock over the last five minutes are continuing this activity. While the total number of dealers investing in this business model in 2010 remains low, those who have reentered the market seem to be gaining momentum.

In the other businesses within our portfolio, we are experiencing similar trends to that seen by our Manitex cranes. Our Badger cab down rough terrain crane continues to gain acceptance and momentum with the rail application. Those shipped to date are performing well and we are now providing multi year quotations to multiple customers. Our expectations include obtaining similar momentum within refinery and other commercial applications as we progress through 2010.

Our Material Handling operations continue to see strong military and international organization demand for the specialized heavy duty products, although commercial activity still remains low. Our Load King business is seeing increased quotation activity, as well as the first signs of dealer stock orders.

In summary, we believe we are positioned in the correct markets to continue to gain share and increase revenue as the second half of 2010 unfolds. Our efforts, as always, include continuing to develop new products for the markets we see recovering this year and next.

Again, thank you for the opportunity to share this update. I will now hand the call back to Dave Langevin.

Thank you, Scott, for that update on the markets. Now, if you look at the summary slide, as I said earlier, this quarter marks the turning point for operating profits and solid cash flow through EBITDA. This all with a backdrop, as Scott and Andrew reported, of very stubborn markets. Please let me summarize again our often stated goals which is to build a high quality, valued Company of niche products, with demand up for these products in any market and with good margins. We continue to balance spending on R&D, and we will continue to be optimistic with selective acquisitions.

The balance necessary to achieve these goals represents a real challenge for everyone within our Company. And the sacrifices made by our employees during these last 18 months I know are really appreciated by our shareholders. This dedication allows us to get through 2009 and puts us in a unique position to generate operating long-term growth as we start to come off the bottom of these markets.

With that we would be very happy to take any questions.

Thank you, sir. (Operator Instructions). And our first question comes from the line of Ned Borland, of Hudson Securities. Please go ahead.

Hudson Securities. Good afternoon. Just looking here, did you put out a backlog number? I didn't hear it in your comments.

The backlog we didn't put out. We have been spotty on that some quarters versus others. Generally it is flat and consistent with what we reported in the K. So, I look at it as we had a pretty good sales quarter and we have been able to hold our backlog relatively flat to the number that we reported in the K just a couple of weeks ago. At the end of the year it was approximately $22 million, which compares to the end of the previous year of $15 million.

Okay. And you had $8 million in orders that were announced in the quarter, so basically we can assume the backlog is roughly around $20 million?

That is right. The backlog is relatively consistent. That's correct.

Okay. And then on the gross margin. That is two straight quarters of pretty elevated gross margin for you all. You got rising raw materials. You are expecting volumes to pick up. What is the sustainability of the gross margin as we head towards the back half of the year here?

Obviously we get some efficiencies from volume. If you look at some to have information we have on some of the budgets and forecasts of the individual units that the individual general managers prepare, there is consistency in the gross margins. But, again, we try to outline the pros and cons of that, because that is always a difficult thing to exactly measure. But you are right, we have been seeing some gross margins we have never achieved, and are certainly, we feel, the leaders in the industry. But again, if we gain some momentum from sales, we certainly gain some efficiencies and some other attributes which help that gross margin going forward.

Maybe putting it a different way. You did a fair amount of cost restructuring. How much of those costs flow back if volume picks up here? Do you start hiring guys back soon? What are some of the cost headwinds we should be thinking about here?

The labor cost shouldn't be a huge component of our cost of goods sold because we have said on a number of occasions that the greatest cost of our costs of goods sold is the material. So, that is really the battle that you fight. Because I would love to hire back people as we continue to grow.

Okay. Thanks.

Thank you. Our next question comes from the line of Rick Hoss with Roth Capital Partners. Please go ahead.

Andrew, I guess would be the more appropriate person to ask this question. The SG&A, there are some one time costs in there, legal and acquisition, currency, what can we expect in the second quarter?

I think you will see some stability in the SG&A. One of the things we should talk about, Rick, on the slide was the impact of the strength in the Canadian dollar. That happened, as you know, through the first quarter and now we are back up to the higher levels that we saw at the end of the quarter. So, that, on a comparative basis is obviously having some impact on us. But our intention is to maintain SG&A levels with the level of business activity that takes place. Clearly, as sales move, we have seen in this quarter, some of the selling expenses move with that, as well. We are doing some incremental investment in where it makes sense to in some of the developing markets we're looking at, for example. So, there are things moving through the SG&A. Quarter-on-quarter, as you saw, the principal movement was we brought in a new business, number one, and then we obviously had some legal and audit expenses relating to those acquisitions. So, those things will always happen on the back of specific events. I think that is the picture that we see as we go through the year.

Okay. So, excluding the effect of the acquisitions, that $3.8 million would have been $3.6 million or $3.5 million -- in other words, I am trying to get a run rate ex the acquisition costs.

As I say, I think it will remain relatively stable, subject to certain elements of the SG&A moving for sales expenses, for example. And I think you also see, as volumes start to creep up, and hopefully they move very rapidly, but you have seen what our outlook is, there will be some reinvestment in certain action that we deliberately held back on. But I see those going with volume, as volume comes through. We're holding back on some of those expenditures because volumes aren't there and the activities haven't got a return on Investment at the moment.

Okay. Then top line, sequentially, do you think you will be able to hold this $22 million level, or do you think you will see some weakness in the second quarter?

I think you will see revenues, perhaps, not quite as strong as that $22 million, but I don't see us falling back down to the levels we were at Q4. I think we have seen an increase in activity and an increase in demand. Our order book is, as Dave said, consistently level with where it was at the end of the year. And a fair proportion of that backlog is capable of being shipped in the second quarter.

Rick, it's Dave. The only thing I would caution a little bit on is -- and you know, because you have studied us well -- sometimes, as Andrew mentioned in his prepared remarks, suppliers and those types of things are getting a little more difficult because we are putting demands on them they haven't seen in a while. And sometimes they haven't ramped up. So, exactly when you produce product, especially at some of the longer lead time item is not as accurate to predict anymore. So that is one of the reasons why I think Andrew is being somewhat hesitant. Because we obviously know what our plans are for the second quarter and most everything is booked, but exactly when you funnel that through the plan within 5% is unpredictable right now.

Okay. Then, of the military orders that are expected to ship this year, can you give a rough idea of percent and where those will fall in the quarters. If you expect to ship the majority in the second or the third or the fourth, or evenly split sort of thing?

So far we have been able to spread those out throughout the quarters. Andrew, you might be a little closer to it. I don't think there is any one quarter.

That is a fair statement. Yes. I think it is relatively consistent between the quarters. Again, interestingly this flows back straight away to that comment you just made. One of the challenges there are there are some long lead items from suppliers that are very specialist for those types of applications. Those are impacting the timing of some of the shipments. So, some of those do spread out into the third quarter, for example.

Okay. Then, Scott, you talked about -- I am sorry. Go ahead, Dave.

I was going to say, I don't see any really spike through the rest of the year, but it is, as I said, a good, solid base for us to build off of for the rest of the year.

Okay. Then, Scott, in your prepared remarks, you talked about 53% of all quotes came from energy. I am assuming that is associated with the Manitex line of equipment?

That's correct. And, almost exclusively the larger portion of the Manitex cranes. The larger sizes.

Okay. What is the remaining 47%, if you can break that out?

Of the open quotations?

Yes.

They would be spread with power line construction, general construction. We actually have quoted four big units to housing construction here which is the first of any such quotes to the housing industry in a year-and-a-half.

Okay. So it looks like on a quoting basis --

Any mining, Scott, in there?

We do have cranes quoted to mine also, probably 10%.

So the lion's share then is for Manitex, which we really haven't seen over the last year. It sounds like the Manitex line of business is poised to pick up significantly compared to '09?

Given the broad backlog number David spoke of, the Manitex cranes make up about half of that.

Okay. And how would that compare to, say, December year-end or even the third quarter? In other words, I am trying to gauge a pickup in the Manitex line, which seems like it has been the hardest hit.

Rick, it's Andrew. Yes. I think we said a couple of things. One, the first quarter Manitex sales were up against the fourth quarter, and the same applies to the backlog.

Okay. Thank you, gentlemen.

Compared to previous years, when you have a $15 million backlog, you don't have much of anything, so, this is obviously a nice pattern, one of the reasons why I wanted Scott to address this because I think it is important information for our shareholders.

Right. Okay. Thank you, gentlemen.

Thank you. Our next question comes from the line of Dmitriy Kernasovskiy with First Welshire Securities. Please go ahead.

Good afternoon.

Dmitry, ask Scott about his next trip to Russia.

Scott, when are you going to Russia?

June 1st.

Where are you staying?

The Raddison.

Moscow?

Yes.

Good.

Assuming I get my Visa in time. Can you help?

I'll call them. Anything I can do to pull my KGB strings for you guys. Most of my questions have been answered. What was the market share for Manitex cranes this quarter?

(inaudible) in the segments that we participate in.

How much?

40%.

How did that compare to Q4?

It is up about 2 points.

Great. And also, you mentioned that you expected revenue to fall off a little bit in Q2. And at the same time, it looks like Manitex cranes should do better. So would that imply a little bit of a drop off in Badger and some of the other businesses?

Scott, I don't know if you want to address that. Badger -- what are your expectation there just generally?

I will take that, Dave.

Go ahead, Andrew.

I think the key thing is we had a very, very strong quarter in Manitex in the first quarter. I think that is where there is a little bit of drop off. That is all.

Got you. Thanks, and we will talk offline about Russia.

Very good.

Thank you. Our next question comes from the line of [James Jenatelly] with Newland. Please go ahead.

Hi, guys. Can you tell us how much of your business was international in the quarter, and how much of it was military?

Scott, do you know the international? The international, and again, I don't know exactly, a lot of the business that goes out of Liftking is international.

I would say it's probably around 40% of international business in the quarter.

Okay. And then to military customers?

That's military and international.

Okay. And then last year was obviously the trough quarter for everyone. The SG&A obviously stepped down with the variable selling costs. There was definitely an extra 150 or so basis points, by my math, of additional SG&A. The only thing we heard was maybe some higher year-end audit and legal costs as a call out.

You generate, the selling of SG&A with $8 million of sales generates a good chunk of that in the S part.

So what we gained in gross margin, though, relative to what was supposedly going to be a high margin, military business period, was eaten up by SG&A, right?

Andrew, you might have better numbers, but we gained quite a bit in overall gross margin. Certainly, Jim, some of that was eaten up by SG&A because of higher sales. What exactly was the increase in gross margin?

That generated almost $500,000 just in terms of the margin percent in the quarter. I think in terms of the SG&A movement, as well, we had acquisition costs for the Load King business which came through. You are right. The first quarter is, from an SEC reporting and those types of things, a very busy quarter. That obviously comes through in the SG&A in the quarter, as well.

Right, but then you said, as we put together our Q2 models here, you are looking at a flat SG&A period from your prior comments I heard, right?

Yes. Unfortunately it seems to go on. The second quarter you have a lot of the proxy costs come through. So, it is really those sort of legal costs and audit costs, et cetera. They are very high, relatively higher in the first and second quarters compared to the third and fourth quarters.

Are you expecting a profit in the second quarter?

To answer this question, yes, I am expecting a profit in the second quarter.

Thank you, guys.

Thank you. Our next question comes from the line of [Jeffrey Round] with [Tacedo Rowe Associates]. Please go ahead.

Good afternoon, guys. This question is for Andrew. Can you give me a breakout of your inventory levels, raw materials, finished goods, work in process. Percentages.

This is obviously in our filings which will be done in the next few days or so. I think it is probably fair to say our finished goods are probably 15%. Our raw materials is probably around about 75%. And then the rest is work. That is a relatively consistent type of picture. The finished goods side does tend to fluctuate, but those are pretty reasonable numbers.

Thank you, Andrew.

Thank you. (Operator Instructions). And I am showing there are no further question in the queue. I will turn it over to you for closing comments.

Thank you very much. Thank you again for your interest in Manitex International.

Thank you, sir. Ladies and gentlemen, that does conclude today's Manitex International first quarter 2010 conference call. Thank you for your participation. You may now disconnect.