Manitex International Inc (MNTX) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Manitex International, Inc., second quarter 2010 conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions.

(Operator Instructions)

This conference is being recorded today, Wednesday, August 11, 2010.

I would now like to turn the conference over to Chief Executive Officer and Chairman, Mr. David Langevin. Please go ahead, sir.

Thank you. 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. Please see our website or our release for replay instructions for this call, which will be available until August 18, 2010.

If you are following along with our slides, which can be found on our website or on the link with our earnings press release, please refer to the first side regarding our Safe Harbor statement. Appreciate that 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 aware of these risks by referring to our risk disclosures in our SEC filings.

Let's start with the overview slide. We've been reporting for some time now on the weakness in our core basic crane business. And while the economic market for cranes is still in the lower stage of cycle, our strategy for developing specialized cranes for certain markets is really paying off. We first saw this in a significant increase in our market share over the past year, which we are still maintaining. And further, as we reported in our release, our backlog as of June 30 has increased 14% to $24.9 million from the first quarter of 2010.

We also indicated that the mix has shifted back to our core crane products, which is primarily represented by our newer developed cranes for the power distribution businesses and oil and gas sectors. This improving trend has continued into the third quarter as demonstrated by our recent announcement of new orders for the energy industry in Canada.

Two other points that I wish to emphasize from our overview slide. One, that the revival of cash flow from operations that we reported on in the first quarter continued in the second quarter, and we expect this to continue with the potential for further momentum in this area as we go through the rest of the year. Secondly, we were happy to announce our operating agreement for CVS Ferrari, which manufactures equipment serving the specialty pour container markets.

For all the reasons as we stated in our release, CVS is an excellent fit in our overall strategy. We would further like to clarify that all sales from CVS, both equipment and part sales, that occur from July 1 on, will be recorded in the books of Manitex International. We should also comment that Manitex assumed none of the debt or other financial obligations of old CVS upon entering into this contract. So, the way the agreement is structured, we start fresh, with a large customer base, pool the parts business to restart a high-quality company in an attractive market.

With that overview, I will turn it over to Andrew to expand on our operating results.

Thanks, David. Good afternoon, and welcome, everyone. As we've done throughout the past several quarters, we are presenting both year-over-year and sequential comparatives. We're doing this because we believe it's important to point out the consistent trajectory of improvements we believe we are seeing. So, in addition to the comparatives against the very tough, or what we could even call a trough year of 2009, we are posting increasingly positive numbers sequentially as we head through 2010.

Slide four of the presentation shows the key figures for the second quarter of 2010 with comparatives for the second quarter of 2009 and first quarter of 2010. Sales for the second quarter of 2010 of $19.5 million were up $7.7 million or 65% compared to the second quarter of 2009. With approximately 55% 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 continued strong demand from material handling product from military and international customers and stronger demand from our Manitex boom truck cranes.

Although we were very pleased with the increase from both the 2009 acquisitions and the underlying business, absolute levels of sales still remain substantially below prior years and provide significant opportunity for growth when markets return to more normalized levels.

On a sequential quarter basis, although sales were down 11.2% compared to the first quarter of 2010 due to lower shipments of specialized material handling equipment, this was partially offset by increased sales of boom truck cranes, which increased approximately 14% over the first quarter of 2010. Quarter two 2010 gross profits of $4.6 million and gross margin percent of 23.6% were increases of $2.1 million and 270 basis points, respectively, over the second quarter of 2009.

At 23.6%, our gross margin percent in the second quarter of 2010 was just 0.1% behind that achieved in the first quarter of 2010, which was the strongest the Company had achieved to date. The higher level of performance, which we believe is sustainable, 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 18 months, where we sized our business to the level of demand in the market.

Operating expenses of $3.7 million in the second quarter of 2010 decreased from the first quarter of 2010 by $0.5 million, as costs required for statutory filings and legal expenses declined. Compared to the second quarter of 2009, operating expenses increased $1.2 million, which included $0.7 million related to the acquisitions of Badger and Load King in 2009.

Of the balance, selling expenses increases $0.2 million related to increased volumes and an increased proportion of international sales. Additionally R&D expenditure related to continuing development of new crane products increased by $0.1 million, and we also incurred increased restructuring costs of $ 0.1 million. Finally, we also recorded a $0.2 million adverse foreign currency translation impact from the strength of the Canadian dollar in the quarter.

For the three- and six-month periods ended June 30, 2010, SG&A expense as a percentage of sales was an improvement of 260 and 60 basis points, respectively, compared to the comparative periods of 2009. We were pleased to be able to report net income for the quarter ended June, 2010, of $0.2 million, equivalent to $0.02 per share. This compared to a net loss of $0.1 million or $0.01 per share for the second quarter of 2009.

Also very pleasing is that we were able to report an increase of 192% or $1.1 million in EBITDA to $1.7 million, equivalent to 8.9% of sales, our strongest performance by that metric since the third quarter of 2007. Our backlog at June 30, 2010, was $24.9 million, an increase of 14% from the end of the first quarter of 2010 and an increase of 75% from June 30, 2009. It includes an increase in boom truck crane orders over the prior periods, reflecting our success with some of our niche products in targeted markets.

Slide five shows a reconciliation between the quarter two 2009 net loss of $0.1 million at the top of the page to a net income for quarter two of 2010 of $0.2 million at the bottom. This reconciliation also separates the impact of the Badger and Load King acquisitions made in 2009.

Walking through the slide, the impact of $3.5 million in increased revenues, excluding acquisitions, between quarter two 2010 and quarter two 2009 resulted in a gross profit increase of $0.7 million. Through improved product mix and previously implemented restructuring activities where we were able to adjust our manufacturing activities, we were able to further benefit the profit impact by $0.5 million, leading to a total gross profit increase of $1.3 million, excluding acquisitions, equivalent to an incremental margin of 36%.

SG&A expenses, excluding acquisitions, increased $0.4 million, of which selling expenses related to the higher revenues and to international sales accounted for approximately 50% of the increase, with a further 25% from the impact of translating Canadian expenses at a significantly weaker US dollar exchange rate. The balance is comprised of a variety of smaller factors including the partial reinstatements of salary reductions implemented in 2009.

Interest and other expense were $0.2 million higher than the second quarter of 2009, with interest rates on our lines of credit at a higher rate in 2010. And $0.1 million of the increase from the fact that the second quarter of 2009 benefited from a foreign currency exchange gain of $0.1 million, which was not repeated in the 2010 quarter.

Similarly, our book tax charge increased by $0.2 million from the 2009 quarter, as in 2009 we were able to record a tax credit of $0.1 million, whereas in 2010, our effective tax rate for the quarter was 32.2%. These factors, together with the benefit from the 2009 acquisitions of $0.1 million resulted in $0.3 million improvements in net income to $0.2 million for the quarter.

Slide six shows our key working capital and liquidity ratios, which remain in good condition. Working capital increased $3.7 million from the fourth quarter of 2009, reflecting the increased level of activity and growth during the six months to June 30, 2010. Higher sales volumes accounted for increased accounts receivable of $3.8 million, and an increase in our cash balance of $1.2 million. These were offset by reductions in inventory and an increase in accounts payable and accruals of $0.7 million and $0.9 million, respectively. Our current ratio is improved 0.1 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 second quarter of 2010, we reduced our net debt position by $0.7 million, and as of June 30, 2010, we had $4.6 million of cash and availability on our lines of credit. As previously mentioned, we were very pleased to report EBITDA for the quarter of $1.7 million, or 8.9% of sales, our best performance since 2007.

Slide eight gives an overview of some of the key commercial trends we are seeing. During the second quarter, we have experienced increased demand from several niche markets we serve. In particular, the energy, utility, military, and rail sectors and the international markets of the Middle East. This has, in turn, led to a 14% increase in our backlog from March 31, 2010, which includes a particularly pleasing increase for our Manitex boom truck cranes and Badger rough terrain cranes. In addition to the Middle East, we have seen an increase in demand for our higher tonnage cranes into Canada to serve the oil and gas sectors. These factors provide support for our strategy of developing targeted niche products and continuing to invest in research and development.

I'm pleased to add that we have two additional product launches in progress for quarter three and quarter four this year, as we seek to maintain and improve the benefits of Manitex products to our customers. These include a trailer-mounted crane specified for a global customer in the energy sector, and the further development of our successful 50-ton boom truck crane with another new boom specification. Looking forward, our backlog provides improved visibility for the second half of the year, and we anticipate that power construction will remain strong and the energy exploration and international sectors will show improvements over recent activity levels.

I'd now like to hand back to David, who will provide some further background about our recent entry into the container handling and port equipment sector and to conclude the formal presentation.

Thank you, Andrew.

The next slide covers the CVS transaction, where we would like to put a little more clarification on a rather complex proceeding, under the Italian bankruptcy code, and this section of the code that does not have a long history of precedence. Basically, we went into the Italian courts with old CVS, and old CVS recommended to the courts, with the concurrence of the court appointed trustee, that new CVS, which is a wholly-owned subsidiary of Manitex International, be approved to operate the CVS business from July 1 on for a period of 24 months. During this time, a plan will be developed for old CVS to be liquidated with its assets being sold and the old liabilities being satisfied in part by the proceeds from the assets. These liabilities include all severance costs for all its employees as required under Italian law, as well as liabilities for suppliers and bank lines plus other liabilities, none of which carry forward to the new CVS.

So, as we stated earlier, it represents a fresh start for the new CVS with the benefits of a long history as established by the old CVS in the specialty port equipment business. As such, we've started now to identify the extent of the backlog which is real, the parts business which need to be filled, and meeting with customers to gain information on their immediate and long-term needs for equipment purchases to establish our production schedules. CVS puts Manitex in markets that would have taken years for us to get access to. So, it has the potential to really accelerate our growth in a dynamic sector of the market.

Moving to the final summary slide. Consistent with our comments in the first quarter and with the improvement in our visibility, we still believe the second half of the year will be stronger than the first. Another second-half-of-the-year objective for us is to place even more emphasis on our cash flow to add further strength to our solid balance sheet. And finally, we look forward with excitement in developing the significant potential of the CVS opportunity.

At this time, Andrew and I would welcome any questions.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from the line of Rick Hoss with Ross Capital Partners. Please go ahead.

Gentlemen. On the CVS transaction, you covered some parts of it, but I'm really looking for the numerical contributions. And I'd assume that initially you're going to handle their after market business and then really try and strategically evaluate what product lines you want to go into at that point. But what sort of incremental revenue and what margin can we think about the contribution here from CVS?

Rick, you're right. Initially, the easy, the low-hanging fruit, the easy thing to do, and the right thing to do is to fill their parts orders so that we can obviously restore confidence in the customers, and get the customer back talking to the company on a regular basis. And that we've started, of course, now. But initially, right now we're in the startup phase, meeting with customers, as I mentioned, going through and making and confirming the backlog, which we did announce when we did the transaction as $10 million. And I hope that between now and the end of the year, we will be able to fill all of the backlog and ramp up the parts business. So I would expect initially that you might have some distorted margins initially as we start to really restructure the Company.

Okay. Is the CVS backlog included in the $25 million you gave?

The $10 million number that I just --

No, the $25 million reported, the end of the quarter number.

You mean the number we -- which number are you referring to?

The one you just reported for the quarter.

There's no CVS backlog in that number, no. There's nothing of CVS as of June. It's all from July 1st on. I'm glad you asked that question, because there's nothing in there for CVS.

Okay. And that $10 million in backlog, because it's presumably after market business, it shifts fairly quickly, and so that $10 million gives us certainly visibility for six months type of delivery schedule?

As I mentioned, what we said when we announced that, our intention was to try to fill that in the next six months, that's correct.

Okay. As far as the SG&A, what still has to be included? I'm trying to get a handle on your overall cost structure, and I know you've had some increases in pay and bonuses, a get-well type of period. How much more is left here?

We haven't done bonuses yet. We have been restoring base pay. If you recall, we did some across-the-board, some fairly dramatic reductions in '09. And we restored 95% of those reductions so far. So we are not quite back to 2008 levels for our entire team, but we're getting close. And as always, we appreciate the patience and just the willingness of our employees to work with us. So we're getting close to being back to 2008 levels.

Right. Okay. And it makes sense that you're not back to 2008 revenue.

No, no, we're not. We're inching our way back, and we're doing much better, and obviously, I would certainly hope that everybody appreciates what the employees have done. But we're not back to those levels yet.

Right. And last question for me, the backlog, can you break out a composition? I know you talked about an increase in core business, which is a very good sign. But can you give me an appreciation for how much is the military business lasting and what's core?

I don't know, Andrew, if we've broken it down that much in the past.

What we did say was that the Manitex backlog was up 14% over the first quarter.

That's consolidated, though. That's all consolidated.

No. That was the Manitex.

Oh, that's just Manitex?

That's right.

Okay. The corollary then is, you said gross margins you should be able to maintain this level in the second half of the year.

Yes. And I think one of the principal reasons is, what we have said is that the orders that we have been receiving are in a very good mix. So the orders that we've announced recently, those are high tonnage, high-margin cranes.

Okay. So it's not a case of you're just going to be delivering to the military that's going to benefit gross margin, but you're actually, because you're selling the high tonnage cranes, the higher margin core business, that's going to be the reason why the margins are going to maintain their --

Yed. With the visibility that we have, we're looking at very good margins of the businesses that we have booked between now and the end of the year.

Perfect, thanks, gentlemen.

Our next question comes from the line of Ned Borland with Hudson Securities. Please go ahead.

Good afternoon, guys. Just a follow up on CVS. I guess you've got what? $10 million in parts backlog.

No, it's not just parts. It's everything. It's $10 million of backlog, which is parts and all goods.

Okay. And you're basically purchasing this backlog from the court, right?

We're operating the Company and building out that backlog from the courts, that's right.

Okay. All right. So I'm just trying to understand, as your costs flow here, you've got to start up a new business here from scratch. Just wanted to see, I guess it would be renting this company, right, initially?

Yes, basically what happens, as I was trying to -- and I guess I didn't do a very good job -- I was trying to clarify that we are now the party that operates this business, and we are paying an insignificant immaterial amount to the courts for that right and privilege. And then we have to start up -- so you are going to have some startup costs. So as you well know, from following us and other people in the industry, the spare parts business is your most profitable piece. So if you just looked at that and say, gee, you're going to make a fairly significant percentage on that, but it isn't going to be quite at those levels because we obviously have some startup costs that we're incurring as we restart the business. But it's still going to be, I think, a fairly attractive business for us, yes.

But if you're starting initially on parts, what is the run rate on part sales that CVS was doing on a monthly or quarterly basis before you guys inherited it here?

Generally, it was a private company, so there wasn't any public information. But, it's an old company, been around for many years, 30-some years, has a good population out in the field, and you can generally use the 80/20 rule, as we do in all of our other products. We're running higher than that right now in our businesses as we have publicly announced, but that's because our whole goods is not at the same level that it was a couple of years ago. And they were at, as you know, $100-some million of sales a couple of years ago as well. But you can generally use an 80/20 rule for parts versus whole goods.

Okay. And then switching over to Badger for a second here, Andrew's comments were that the rail industry, you're starting to see some interest. Can you give us a flavor of maybe Badger's results in the quarter versus last year before you bought it?

Badger -- what we announced, Andrew, as I recall, is that the trailing 12 months for Badger was like $5 million or something like that. It was relatively small.

Yes, I haven't got that number, Dave.

It was relatively small, and it's doing much better than that now. So it's running at a much higher rate than where it was. We knew that they had developed a new 30-ton crane, which was specifically built for certain markets, which we really liked. We finished the completion of that in the first quarter of our ownership, and then it has really caught on with rail maintenance. So a rail maintenance tool and it's a refinery tool. And the biggest market that we've hit so far is the railroad market. It's done very well.

And then last quarter I think there was a lot of discussion about quotation activity being pretty elevated. I would image it's still at least more elevated than it was.

Yes, Contrary to some of the things in the last 24 hours, we've had a pretty good -- I don't want to say we're overly optimistic because I don't want to be -- I want to be tempered, but we seem to be having good activity since our last report.

Okay. And then on the new product launches, are there any costs associated with those that would spike SG&A up a little?

I think that that's just a continuation of the research and development expenses that we've been steadily holding on a fairly consistent basis throughout. And as we've said, we need to continue to build the product base that we have which has gotten us through and will continue to allow us to grow. So, Andrew, I think it's just baked into the numbers that we have.

That's a fair comment, absolutely right, David.

Okay. So basically no sharp spike up in R&D or any sales and marketing expenses associated with the launches?

Not that I'm aware of, no.

Okay. Thanks.

Our next question comes from the line of Dimitri Cornasofskia with First Wilshire.

Hi, David, great quarter. Could you give a little bit more detail on the core crane business, like how much there is contributed this quarter, and how much of that is international, and what sorts of customers are buying ?

Basic crane, Manitex and Badger, or just Manitex?

Manitex particularly.

Manitex particularly? I would say in the second quarter it had an average quarter. It didn't have a super quarter. But I think what we were trying to lay the groundwork for was we've seeing it slowly and steadily rise and do much better, which is giving us confidence and optimism as we go forward. Because obviously that's one of our bread and butter companies that historically has been a significant provider of our income. With this downturn, it's certainly performed admirably, because, as I mentioned, our market share in a very bad market has gone up significantly, and we've maintained that market share. And I think we should see better results from that. I think what we're trying to say is we should see better results from that from now until the end of the year from what we can see for visibility because of the the good mix of cranes that we have in Manitex. But I would say we just had a so-so quarter in the second quarter, not that great. Would that be fair, Andrew? Do you have anything else you want to add to that?

No, just on the customers probably. We specifically talk about some of the markets where we've seen some activity and good response to some of the product that we've launched. We work very closely with our customers there, and that's very encouraging. The Middle East has been good for us and hopefully will continue to be. We did announce the Canadian orders that we got after the end of the quarter, and that's the energy, that's the utility sectors that we've really been able to get some traction with.

And Dimitri, it was cash flow positive, and net income positive and all that. Again, I don't want you to get the wrong impression but historically, compared to historical, it still has a long way to go.

And anything in Russia?

Optimism -- we have optimism but I don't think -- In fact, I asked Scott that the other day. I said, "Do you have any orders you want us to comment on?" I think he guaranteed me that we would have some by the end of the year.

And the margin for the $10 million to the backlog, the blended 80/20 parts and finished product margin, what do you think that could be?

I think it's going to be consistent with our other companies. So I think fairly consistent with what we see in our other divisions.

So somewhere around 20% then?

That's correct.

Okay, sounds good. Thanks, gentlemen.

(Operator Instructions). We do have a question from the line of Michael Potter with Monarch Capital Group. Please go ahead.

Hi, guys. Just a quick question. David, the Company has been very acquisitive over the past couple of years in picking up some good solid assets, hopefully on the cheap. The focus going forward, are we pulling away from acquisitions now and just focusing on integration and getting our margins back to where they were historically? What's the actual strategy?

A couple of things. The margins of where we are, are better than where we have ever been historically. So I think we've tried to integrate and continue to be acquisitive by not decreasing our margins overall. So you try to keep blending in these things in a consistent fashion without hurting the trend that we've been on. So the cash flow margin, the gross margin. However, having said that, I also mentioned in my prepared remarks that we put together a nice group. We have a number of different projects. We've always talked about a debt to cash flow ratio that we are comfortable with. And for all of those reasons, I'm certainly not going to move away completely from opportunities, but I think that in the near term we should concentrate on the businesses we have and grow those businesses and create the best return we can for our shareholders, Being mindful, as well, that if there are significant opportunities that would really help our shareholders, because that's obviously who we all work for, that's what we should do. So I don't know if that answers your question, Michael, but that's the best I can give.

Not really, you watch what you will, basically.

We're not going to -- I'm not out searching, we're really concentrating on the companies that we have. Thank you, Michael.

Thanks.

And we do have a question from the line of Jeffrey Lowe of Tuxedo Road. Please go ahead.

Hi guys. Two questions, two separate areas. Number one, crane machinery and the ancillary company that you have refurbishing, reselling cranes, are you getting any confirmation of, we're getting close to a bottom, people are not going to cannibalize any more, they really want to get spare parts, and they are interested in the secondary market for cranes? Or what's happening there?

A couple of things. One, you mentioned something that maybe everyone on the call isn't as aware as you are that we started on June 1 a division within crane and machinery, which is our distribution group in Chicago, because the used market, the used crane market was showing some very good life that we started to buy and sell. Because again, that's an early indicator of putting equipment back to work, rather than stepping up. And this is more the general economic area rather than step up and buy $100,000 of cranes. They're buying the slightly used ones. And that's kicked off very well. I think that's going to really help our distribution business at a time where they were not moving a lot of new cranes. So I think that will help our profits going forward.

And also on the spare parts area, the spare parts is another early indicator, and it's been very solid. The market there has been holding up very solid recently, since roughly the first of the year, but lately it's been strong consistently. So that also gives us some optimism that that's an indication, of course, that people are using and restoring their equipment by purchasing spare parts. So I think both of those indicators are showing positive signs from our perspective.

That's terrific. The second question has to deal with some comments from Caterpillar, Manitowoc and Terex where they all seem to be hitching their stars for future immediate growth prospects internationally. And Scott's done some excellent work in Canada and Saudi Arabia. Are you seeing any more interest in terms of inquiries from other parts of the world?

They fortunately, as you know, the companies that you mentioned are much larger and have facilities and locations in many parts of the world, so they're able to really take advantage of those markets on a much more direct basis than we are. But as you also know, we've been spending a lot of time over the last couple of years, and we started this several years ago, to develop those markets, because we just realized that there was demand for our equipment and ways in which we could deliver our equipment to be a low-cost provider and efficient provider to many of the same industries, special industries that we serve in the US. And I would say activity in quotation in all those areas are good, but there's more areas for us to go in. So we're nowhere close to penetrating that. And that's another opportunity that CVS gives to us because CVS is everywhere but North America. And while we certainly have significantly improved our international presence and activity, are still basically a North America centric company. So the possibility of latching onto a group that sells everywhere but the US or North America, that is also very attractive to us. Because there are some ways to get into some of these areas that we're just not familiar with, that a company that's been doing it for 30 years knows how to do it and has the dealerships and the representations to do that. So that's really what we're eventually going to do, but that's not going to happen in this quarter or next quarter. That will be a longer-term project but certainly it's something that we talk about all the time.

Congratulations in your cash management activities. It's nice to see some figures in the cash account.

Yes, and we're going to continue to, as I mentioned in my prepared remarks, that is going to be an emphasis of ours because we have a chance now to harvest some cash and we're going to do that and pay down some debt.

Great job.

Thank you very much.

And I show no further question at this time. Management, please continue.

Okay. Thank you very much and thanks a lot for your interest in Manitex International. We look forward to future calls. Thank you.

Ladies and gentlemen, this concludes the conference call. You may now disconnect. Thank you for your participation.