Manitex International Inc (MNTX) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Manitex International Incorporated third 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, November 10, 2010.

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

Thank you, Lisa. Good afternoon, everyone, and thank you for your interest in Manitex International.

On the call with me today is Andrew Rooke, our President and Chief Operating Officer, who will discuss specifics of our third-quarter results. Please see our website or our release for replay instructions for this call, which will be available until November 17. We will be using slides today to assist in this presentation. Refer to the first slide regarding the Safe Harbor statement. Please review this slide as well as a detailed description of our risk, which can be found in our SEC filings.

Before I begin commenting on our results, I would like to first mention a filing we did several weeks ago regarding the sudden passing of our dear friend, Terry McKenna, a member of our Board. Forgetting for a moment the personal aspect this passing had on all of us at Manitex, I would like to briefly mention the impact it had on our compliance with respect to Board composition per -- according to Sarbanes-Oxley.

Our Board of Governance Committee have become the search process and we expect to be back in full compliance well within the required period given to us under the regulations, but of course, Terry's contributions will be missed by our fellow Board members and our entire organization.

So now I'd like to please direct you to the overview slide. As we have consistently communicated in the first and second quarters of this year, we began to see an improvement in our sales and our operating results. We saw additional improvement in the third quarter of this year in which sales were up, gross profit was up, net income was better, EBITDA was our best percentage ever, working capital improved, and we paid down some debt -- all against a backdrop of weak economics for developed countries.

Our international expansion programs, which we initiated several years ago, have really begun to pay off. In fact, as we reported, approximately 35% of our revenues for the current quarter were from non-domestic customers. On top of that, we've also experienced significant increase in our backlog in all our product groups, reflecting what we characterize as a modest firming of demand.

One of our many challenges now is to continue this expansion and maintain our cost control. We are addressing this issue by a continuous review of our manufacturing processes, going to improve our variances and deficiencies, as well as to consolidate functions where we can.

With those brief comments, I will turn it over to Andrew to review the details, after which I will do a wrap-up on our expectations prior to questions. Andrew?

Thanks, David, and good afternoon, and welcome, everyone. As we've done throughout the past several quarters, we are presenting both year-over-year and sequential comparatives, because we believe that it's important to point out the direction and consistency of improvements we believe we are seeing. So in addition to the positive comparisons against 2009, we are posting increasingly positive numbers sequentially as we head through 2010.

Slide four of the presentation shows the key figures for the third quarter of 2010, with comparatives to the third quarter of 2009 and the second quarter of 2010. Sales for the third quarter of 2010 at $24.9 million were up $9.8 million or 65% compared to the third quarter of 2009. Excluding acquisitions and the CVS Ferrari business, this increase was $5.9 million, representing organic growth of 39%. Compared to the third quarter in 2009, revenue increases were seen in all major product categories, with claims up 15%, Material Handling up 230%, and equipment distribution [up] 146%.

Crane sales continue to reflect strong demand from new product introductions from niche markets, including our Badger rough terrain and our Manitex 51-55 cranes. Material Handling products continue to experience strong governmental and military demand for specialized equipment, as well as contributions from acquisitions, CVS Ferrari, and the North American Equipment Exchange division.

Compared to the second quarter of 2010, sales increased 27%, with Material Handling and cranes increasing 29% and 14%, respectively. Although we're very pleased with these increases from both the 2009 and 2010 comparatives, the market demand and our absolute levels of sales still remains substantially below prior years, and this provides significant opportunity for growth when the market starts to return to more normalized higher levels.

Quarter three 2010 gross profits of $5.9 million and gross margin percent of 23.6% were increases of $3.6 million and 890 basis points, respectively, over the third quarter of 2009. At 23.6%, our gross margin percent was equal to that of the second quarter of 2010, and we're just 0.1% behind that achieved in the first quarter 2010, which was the strongest the Company had achieved to date.

The high level of performance is a result of higher margin product mix in sales from our Material Handling products and higher capacity in specialized cranes, 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 $4.4 million in the third quarter of 2010 included $0.6 million related to the addition of acquisitions on the CVS Ferrari business, and compares to the third quarter of 2009 at $2.9 million, which excludes the accounting treatment of the bargain purchase gain recorded on Badger.

Sales-related costs increased $0.4 million and R&D expense increased $0.1 million from continued investments in new product development. SG&A cost for the third quarter of 2010 were equivalent to 16.2% of sales.

We were pleased to be able to report net income for the third quarter 2010 of $0.7 million equivalent to $0.06 per share. This compared to a net loss of $0.1 million, or $0.01 per share for the third quarter of 2009, which also included a $0.9 million gain on the Badger bargain purchase. This contributed to our being able to report $2.3 million in EBITDA, equivalent to 9.1% of sales, our strongest ever performance by that metric, that compares to $1.7 million in the second quarter of 2010 and a negative EBITDA of $0.1 million in quarter three, 2009.

Our backlog at September the 30th, 2010 was $32.8 million, an increase of 32% from the end of the second quarter of 2010 and an increase of 49% from December 31, 2009. This includes the addition of the CVS Ferrari as well as an increase in the backlog for all product groups.

Moving to slide five, this shows a reconciliation of the $0.8 million improvement in net income between the quarter three 2009 net loss of $0.1 million at the top of the page to the net income for quarter three of 2010 of $0.7 million at the bottom.

Walking through the slide, the impact of the $0.9 million gain from the acquisition of Badger in quarter three 2009 has been added back to the quarter three 2009 net loss of $0.1 million to give an adjusted operating loss of $1 million for the third quarter 2009.

The impact of the $9.8 million increase in revenues between quarter three 2010 and quarter three 2009 resulted in a gross profit increase of $1.4 million. Through improved product mix and previously implemented restructuring activities, where we are able to adjust our manufacturing activities and improve our gross margin percent by 890 basis points, we're able to further benefit the profit impact by $2.2 million, leading to a total gross profit increase of $3.6 million.

Operating expenses increased $1.4 million and included $0.6 million from adding acquisitions in the CVS Ferrari business; $0.4 million from increased selling expenses; increased R&D expense of $0.1 million; and other increases, including higher legal fees and the impact of the stronger Canadian dollar. Interest and other expense were broadly flat, with slightly higher interest expense being offset by foreign currency gains on hedging contracts.

Our book tax charge increased by $0.5 million from the 2009 quarter, and in 2009, were able to record a tax credit of $0.2 million, whereas in 2010, our effective tax rate for the quarter was 33%, giving a charge of $0.3 million in the quarter. These factors resulted in the $0.8 million improvement in net income to $0.7 million for the quarter.

Slide six shows our key working capital and liquidity ratios, which remain in good condition. Working capital increased $4 million from the fourth quarter of 2009, reflecting the increased level of activity and growth during the nine months to September 30, 2010. Higher sales volumes accounted for increased accounts receivable of $6 million, and inventory increased with the addition of the CVS Ferrari in our North American equipment division. Offsetting this were increases of $3.4 million from accounts payable, accruals, and other liabilities, principally customer deposits.

Slide seven shows our debt and liquidity position, and our net capitalization increase of $1.9 million from December 31, 2009, driven by the increase in equity of $1.6 million. During the third quarter of 2010, we repaid $1.2 million of long-term debt from our cash resources, and reduced the total debt [cash down] into $33.7 million, an increase of just $0.2 million from December 31, 2009. This comprises an increase of $2.5 million on our lines of credit, driven by the increase in activity in the business, and the reduction of long-term debt, principally stellar-financed and term debt, and capital lease obligations of $2.3 million. We remain committed to reduce our debt consistent with continuing to fund the growth of the business.

Our revolving facility based on available collateral and advanced formula was $22.3 million and we had $3.2 million available under these lines as at September 30, 2010. We continue to manage cash availability as a critical function in these volatile times.

On slide eight, I'd like to discuss some of the commercial trends we are seeing. Overall, our US markets remain at very low levels. We do have adversely stronger activity in certain niche market sectors of energy, utilities, military and governmental and railway, but these are also volatile and sensitive to underlying trends, for example, commodity prices and inventories.

Non-US markets are showing stronger economic activity and we have targeted Canada, Middle East, and parts of Europe with our international dealers. And the CBS dealer network now provides a much wider international scope as well. As a result of our targeted strategy, non-US sales account for 35% of quarter three 2010 revenues, up almost 33% from quarter three 2009, with increase driven by our four product lines as well as first contributions from CVS Ferrari.

CVS Ferrari made a small contribution to sales and profit as expected in the third quarter of 2010. Since with the operating agreements approved in early July, business operations really only commenced from its start-up position in late August. Initial sales were made from the acquired backlog, but the orders have since been received as well. We have targeted service and parts support from the outset, as the old CVS company had really been unable to support customers for quite some time, and this approach has been well received.

Additionally, we hosted the first international dealer conference for CVS Ferrari dealers from around the globe at our Texas facility last week. This was well attended and confirms our belief regarding the potential of this business for us.

We believe that our results in the quarter and year-to-date indicate that our recent market strategy is proving effective and confirms our strategic positioning. These markets are generally requiring more specialized equipment, often meaning higher tonnage and higher margin products. Access to the global container handling market with CVS will provide additional growth and diversity to this strategy, since this market is expected to experience growth from economic recovery, and also from increased globalization, which is increasing container traffic volumes and therefore demand for equipment.

Our strategy is underpinned by the continued success of newly-introduced products specifically targeted to markets and customers. Our Manitex 50-ton platform additional configurations are proving commercially attractive and we also shipped our first trailer [mounting train] for [all-fill] services in quarter three. Additional product light launches are planned for quarter four, 2010.

Our consolidated backlog increased 32% from 49% compared to quarter two, 2010 and 12/31/2009, respectively. All product groups saw increases and this includes a contribution from CVS. Of particular note is the crane products backlog increase of 14% in the quarter.

Looking forward, our backlog provides improved visibility for the fourth quarter of 2010 and the first quarter of 2011, and we anticipate that power construction will remain strong, and the energy exploration and international sectors will continue to show levels of activity comparable with recent months.

I'd like to now hand back to David, who will provide an overall summary and conclude the formal presentation.

Thank you, Andrew. Overall, with a core domestic market that remains significantly below historical levels, our expectations are that 2010 will show significant growth over 2009 by all material measurements. This, along with the strength of our balance sheet and from cash generation, leads us in what we believe is a good position to take advantage of the expected future upturn in economic activity.

Further, as we stated in our release, and with our present visibility, we're expecting our fourth quarter results to be similar to our third. While we believe this is a very positive statement in these economic times, along with the normal seasonal issues in the fourth quarter of holidays and reduction in manufacture days, we may experience the potential for upside in our forth quarter results coming from our operating agreement with CVS.

For those not familiar with this agreement, we signed an operating agreement for CVS Ferrari on July 1 of this year. CVS manufactures equipment for the container, port container market, which includes new equipment and replacement part components similar to our other businesses. CVS is a product and a market which fits very well into our strategic plan, which is to find specialized products serving markets where we expect growth.

As Andrew reported, production began in late August and we are still in what we consider the ramp-up period now in the fourth quarter. While it is coming along completely as we expected and did contribute to our third quarter results, it is very difficult to project the size of this contribution for the fourth quarter at this time.

With those concluding comments, Lisa, I would like to now turn it over for questions.

(Operator Instructions). Rick Hoss, ROTH Capital Partners.

Dave, how much of CVS is in the backlog? Did you give that number at all?

We did not, but it is slightly under $6 million -- at September 30.

Okay. And then you said that CVS started to contribute in late August --

Right.

-- and it contributed, what, approximately $4 million to the third quarter revenue?

No, we didn't give a number; we just said that it did contribute in the third quarter; the number was slightly less than $2 million.

Okay. Slightly less than $2 million, okay. So (multiple speakers) --

And it also was profitable.

Okay. So at this point then, I mean, if it contributed to for half the quarter, then that's $4 million for a quarter and that's $16 million for the year. And this is just on -- is this just the parts business at this point?

You know, (laughter), I had said that we certainly wanted to -- we had parts that we needed to sell, which we have, but we also are doing whole goods as well. So it's actually more whole goods than I expected, only because it took longer for us to get some of the parts, because the part shelves were rather bare when we took the operating agreement and took the Company over. So in reality, it became more whole goods than parts but the parts are contributing, of course.

Okay. And I know it's still early and you're still running through some evaluation at this point, what do you think the incremental revenue annualized is on -- the pieces of the business that you had visibility into, what do you think it is today?

Well, that's the problem, is that -- I would say we have a lot of interest and activity in the business. It's certainly in line with our expectations; I just would hate to give a number. I obviously can tell you that, historically, in 2008, it did greater than $80 million and in 2009, it did greater than $50 million of sales; those two years that obviously was not -- it was fairly dormant in 2010 up until the time we took over in July. And we expect it to have a substantial positive outlook going forward, but I just don't have a number for you yet.

Okay. No, that's understandable. And then the credit facility you entered, did you say there was maybe a few million left on that? And is that enough room for next year's plans?

Well, (multiple speakers) I was going to say, Andrew, before you respond, I like this question, because we started the year, as you know, Rick, at a $3 million -- we've been kind of running at a $2 million to $3 million availability and we expanded -- you know, if we do nothing more in the fourth quarter than what we did in the third, we're into the [90s] -- so it went from $55 million to [90s] -- a $40 million increase, with our advanced rates decreasing on our formula and our borrowing base, and keeping our working capital line constant throughout the year. So I think we can -- I don't want to steal it from you, Andrew; I apologize, but (laughter) I get that question a lot, so (laughter) --

You must have read my notes, Dave, because (multiple speakers) --

(laughter) Sorry, Andrew. I apologize.

(laughter) Okay, so you're all good for next year based on your (multiple speakers) working capital management? Okay.

Yes. And I guess on top of that, we should also comment, Andrew -- because Andrew had a big hand in this -- we also have several available lines now in Europe as well that we've been able to obtain. So we're -- though, that's after the quarter, but we're -- you know, there's -- we have been working on making sure that we're trying to be able to operate the business going forward.

Okay. And then last question for me. Just an update on the Russian market activity and what you're doing over there, and if Dmitriy was able to do a -- get you in the right -- get you in contact with the right people.

You know, Andrew mentioned our international conference last week. So I had dinner one night with a good gentleman from the Ukraine and another one from Moscow. And I expect that we'll have some activity going forward. But we've been saying that for several quarters, so -- but it sounds like business is finally picking up there, and we should see some results.

Okay, perfect. Thanks, guys.

(Operator Instructions). Ned Borland, Hudson Securities.

Good afternoon, guys -- great quarter. Just following up on your comments about the guidance, David, the revenue line that you project for similar versus 3Q, I'm assuming that includes CVS. So if you do get the full run rate of CVS business in there, what kind of backs off sequentially for you?

Well, I'm glad you said that, because it's one of the areas I was trying to crystallize a little bit. It does not include CVS. That's the issue that I was trying to communicate, which obviously I did a very good job at. (laughter)

I was trying to communicate that at this point, given -- you know, I could give some numbers on CVS, but I just worry about -- because it's so new and it's a complete startup, you did hear what we did for the third quarter, and I would expect more of the math for the fourth quarter, but it's just not in the numbers yet because I just didn't want to throw out a number that I wasn't comfortable with.

So to answer your question, it does not include the CVS numbers. And that's why I was saying that we had obviously some potential upside.

So if you'd allow me to paraphrase for you, if we were to take sort of a similar organic revenue level that you saw in the third quarter, and then sort of add what we think could happen with CVS, that would be the way to view it?

That's right.

Okay. And on the profitability front, it looks like -- well, it's $600,000 involved with, I guess, acquisition-related costs. So is the traditional run rate there, $3.5 million on SG&A, is that a fair way to look at it or --?

You know, I would -- what would you say, Andrew? You're closer on that one than I am.

Well, I think if you looked at the quarter-on-quarter movement, that gives you a good perspective of where we are. Obviously, our selling costs move as our volumes have moved. So I think that's a good way to try and get some analysis from it, Ned.

Okay. Fair enough. And then you've done an admirable job of restructuring and there have been some compensation-related expenses that you guys have scaled back. Do any of those kind of creep back in here in the fourth quarter in the near future (multiple speakers) --?

Well, as you mentioned, our loyal employees, they've all taken reductions, which we instituted in the last part of '08, beginning of '09 in several different phases. And we will catch up for everybody to be back to 2008 levels at the end of 2010. So -- I mean, sorry, the end of this year. Yes, so, at the end of 2010.

So, we -- in the fourth quarter, we have 5% of people's basic compensation, which will be added back at the beginning of the new year, so that won't affect the fourth quarter; but we will accrue some incentive comp, which we also have not done in two years. So we'll accrue some incentive comp for everybody, but that's already in the numbers that I mentioned to you.

Okay. And then just on the hedging, Andrew, we've seen the euro tick up here a little bit. How are you feeling about your hedging as things stand here in the fourth quarter?

Our hedging that we've engaged in has historically been on the Canadian dollar, so our euro exposure has not been that significant. Many of the -- well, in fact, the majority of the CVS transactions are euro-denominated, so they don't do a significant volume into the US at the moment. Obviously, hopefully, we will start to improve upon that.

So there's not a significant euro zone exposure from CVS sales. I think our hedges -- with the way the dollar has gone, the volatility is very, very high, and we do our best to manage it as we can. The results, I think, in quarter three were indicative of that management, which came in basically relatively flat impact across the base. So that's what we'll continue to do.

Okay, thank you.

(Operator Instructions). And I show no further questions at this time. Please continue.

Okay, Lisa. Thank you very much, and I appreciate everyone's interest in Manitex International and look forward to the rest of the year and 2011. Thank you so much.

And ladies and gentlemen, this concludes the Manitex International, Inc. third-quarter 2010 earnings conference call. You may now disconnect. Thank you for your participation.