Manitex International Inc (MNTX) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Manitex International second-quarter 2011 results conference call. (Operator Instructions). This conference is being recorded today, Wednesday, August 10, 2011.

I would now like to turn the conference over to David Langevin, Chairman and CEO. Please go ahead.

Thank you, Alicia. Good afternoon, ladies and gentlemen, and thank you for taking your time, taking the time and thank you for interest your interest in Manitex International. On the call with me today is our President and Chief Operating Officer, Andrew Rooke.

Please see our website or our release for replay instructions for this call which will be available until August 17, 2011. We will be using slides to assist in this presentation which are available through the webcast or directly from the Investor Relations section of our website. Please refer to the first slide regarding the Safe Harbor statement. I'd ask you to review this statement and refer to our SEC filings for further guidance on the risks associated with our Company.

We've organized our call today as we always do with my leading off by making a brief opening statement, followed by a review of our results by Andrew and a closing statement by me. Andrew and I will then be open to any questions.

Now, please refer to slide number three.

As stated in our release, we continue to make good progress, led by our increase in sales and earnings per share. But we are also making new highs in cash generation from operations as defined by EBITDA and the outlook looks good with our steady increase in backlog. Significant cost pressures seem to be abating. But we must continue our diligence of working with suppliers for timely delivery and cost control. In this regard and especially in light of current events, we must reinforce our concentration on cost control. With significant uncertainty in economic markets we must control those which we can control which is our costs. We've demonstrated a cost focus in the past and are determined to maintain this emphasis.

On the strategic front, we are very pleased to announce the completion of the CVS Ferrari acquisition right after the quarter end. And while CVS from the signing of our operating agreement a little over a year ago has consistently been profitable with modest sales, we believe CVS has a potential, over time, to be a very significant contributor to sales and profits for our group. We like the growing port sector served by CVS and welcome the fine distribution network and hard-working employees of CVS to the Manitex family.

Finally, we have consistently over the years been concerned with the state of our working capital in order to ensure that we have the right structure for our growth. As many of you know we have recently announced that we have expanded our credit facility with an extension of maturity date and a reduction in our interest rate, putting us in a solid position for future growth.

With that brief overview, I will turn it over to Andrew to review our results. Andrew?

Thanks, David, and good afternoon and welcome, everyone.

Before covering the detail of the second quarter's results, I would like to start out by providing a commercial update for our business which is covered on slide four. Please bear in mind that these comments do not account for any impacts, positive or negative, from the economic events of the past few days that have dominated headlines and more likely than not have impacted everyone on today's call.

The US capital markets in which we operate have remained steady throughout the second quarter with signs of recovery in certain sectors without any significant broad-based construction demand increase. Activity in international markets has reflected pockets of demand strength and we're fortunate to be better positioned, having recognized international expansion as a key strategic growth area for us and one in which we've invested during the past two to three years.

In aggregate, with energy prices at a relative high, the energy sector continues to be the strongest demand sector in the US, Canada, and internationally, leading to demand for a range of Manitex products but especially for the larger tonnage boom truck frames.

Container handling activity continues to increase, which is a positive indicator for equipment utilization and demand. We have seen higher levels of quoting. Consistent with our competition, we have implemented incremental price increases for the second half of the year as a response to the rise in material pricing that we've seen in our costs for the past six months or so. In our products, the range is 0% to 8%.

With regard to our products, demand could remain skewed towards the higher tonnage cranes or industry-specific products such as that for energy services and utilities. Our key market on the boom truck market at the half-year is trending towards annualized growth of 114%, compared to 2010, with the categories we are active in showing even stronger growth of 131%.

Despite these increases, overall demand is still 40% behind 2007 levels. I mention this to provide perspective as to where we are compared to where we were and where we could be in the event that a more broad-based recovery takes place. Expanding our international market presence has been the key strategic initiative for us and continues to provide growth opportunities as shown by non-US sales for the first six months of 2011 with 41% of sales, compared with the 38% that we had in 2010.

As identified later in this review, military and governmental demand is currently weaker than at this stage at 2010 although, in July, we were pleased to announce that two new military customers had placed orders for $1.9 million. Military customers order placing cycles are influenced by many factors, and tend to be more volatile and have a longer sales cycle. We believe however that we are well-positioned to secure more orders from this sector in due course.

CVS Ferrari's markets are continuing to strengthen and its operations are consistently contributing profitable sales of approximately $8 million a quarter. We completed the acquisition transaction on July 1 and believe that this step has provided increased confidence to the CVS customer base and should provide further impetus to the CVS commercial port business.

In this regard, in early July we announced receipt of orders valued at $3.1 million from the Brazilian ports sector, a very vibrant market and one which has historically been strong for CVS product. As a reminder, CVS's business is essentially non-US and there is a substantial installed base throughout Europe, Asia, and South America.

Finally, as a result of many of the factors just referred to, our backlog as we entered the third quarter of 2011 has increased 27% from December 31 2010 to $51 million. This included a strong contribution from our boom truck crane operations, providing further support for our optimism for a steady increase in overall activity and good visibility for the second half of the year.

Now, turning through to the results for the second quarter, slide five of the presentation shows the key figures for the second quarter of 2011 with comparators for the second quarter of 2010 and the first quarter of 2011.

Sales for the second quarter of 2011 are $37.1 million, including a contribution from CVS of approximately $8 million. We're up 90% with $17.6 million compared to the second quarter of 2010. Excluding the impact of new operations, organic revenue growth was 39%. Revenue increases were obtained in both our operating segments with Lifting Equipment increasing 81% and Equipment Distribution increasing 254%.

Within the Lifting Equipment segment, boom truck crane sales increased approximately 80% and continue to reflect strong demand for larger tonnage product in the specialty energy and utility markets in both the US and international. Material handling products benefited from another strong quarter from the CVS Ferrari container handling business and improved demand in the specialized trailer market, which helped offset weaker demand in the higher margin military and specialized governmental products.

The increase in equipment distribution revenues was driven by our used equipment sales program which we began in June 2010 and increased parts sales and service activity. On a sequential quarter basis, total revenues increased 17%, largely due to increased sales from the crane operations. Quarter 2 2011 gross profit of $7.5 million was a $2.9 million increase in both the second quarter of 2010, driven by increased sales volume.

Gross profit margin for the quarter was 20.2% compared with 23.6% for the second quarter of 2010. With the reduction resulting from lower margin product mix and sales in material handling and distribution businesses and increased material costs. Compared to the second quarter of 2010, in material handling there was a decrease in shipments of higher margin military and governmental units while in distribution the increase in revenues is principally from lower margin used equipment and service sales.

Gross profit margin of 20.2% in the second quarter of 2011 was consistent with the 20.4% achieved in the first quarter of 2011, reflecting a similar mix in sales together with material prices that are higher than the comparable 2010 period but relatively stable on a sequential quarter basis.

Operating expenses, that is research and development, SG&A and restructuring expenses for the second quarter 2011 were $5.2 million and included expenses of $0.9 million relating to expenditures at the CVS Ferrari operations and new operations started in 2010. This compared to $3.7 million in the second quarter of 2010.

R&D expenses increased $0.1 million from new projects commenced in the year. SG&A expenses, excluding the cost of the new operations increased $0.6 million of which $0.3 million is related to increased selling expense and $0.3 million related to other increases including personnel costs for the reinstatement of salaries reduced during the 2008/2009 downturn and the limited increase in headcount. SG&A expense which includes non-cash depreciation and amortization of $0.6 million for the second quarter of 2011 was 13.1% of sales compared to 16.9% for the second quarter of 2010 and 15.4% for the first quarter of 2011.

Net income for the quarter ended June 30, 2011 was $1 million, equivalent to $0.09 per share compared to $0.2 million and $0.02 a share for the same quarter of 2010. EBITDA was our highest ever quarterly dollar value of $3 million, equivalent to 8.2% of sales. Backlog of $51 million was an increase of 103% from a year ago and 27% since December 31, 2010 with increases across all sectors but driven particularly by strength in boom truck sales -- cranes.

Slide six shows a bridge between the 2010 quarter 2 net income of $0.2 million to the net income of quarter 2 of 2011 at $1 million. Walking through the reconciliation table, sales increased $17.6 million of which $10.1 million was from the new operations. The increase in volume provided the gross margin benefit to the $4.1 million but there was a negative impact of $1.3 million from a less favorable product mix and material cost increases.

The product mix of sales in the quarter was not as favorable since there was a decrease in higher margin military and governmental sales in the second-quarter 2010 and an increase in lower margin used equipment sales. The combination of the volume of mix provides the net gross profit increase of $2.9 million. Operating expenses increased by $0.9 million from new operations and $0.6 million principally from increased selling and personnel expenses in the remaining businesses.

Finally, the other key contributor to the net income movement between the two periods is an increase in tax expense of $0.5 million, driven by an increase in taxable income if the effective tax rate was relatively consistent between years.

Slide seven shows our key working capital and liquidity ratios. Operating working capital has been reduced as a percentage of annualized last quarter sales to 30%, although as we have managed the 66% year-to-date growth in revenues, both operating working capital and working capital increased in dollar terms. Our current ratio and other working capital ratios remain strong as we have moved through this growth phase.

Inventory has increased since the end of 2010 as we've ramped up production, primarily at our Manitex boom truck and CVS operations. In CVS, we have also started a modest selective investment in spare parts inventory to provide the required competitive levels of support to our customers.

Slide eight shows our capitalization and liquidity position. Our net debt to capitalization increased to 46.2% at the end of the quarter from activity-related increases in financing of the $4.8 million combined with a net increase in other debt of $1.1 million. The net increase in other debt was the result of funding the CVS acquisition at the end of the quarter, which closed on July 1.

Year-to-date EBITDA was $5.1 million including $3 million for the second quarter. We continue to manage liquidity carefully as we respond operationally to the increases in sales demand and, as a result, usage on our lines of credit in Italian working capital facilities, net of an increase in cash increased by $3.5 million in the quarter.

As David mentioned earlier, during the second quarter, we were pleased to reach an agreement with our principal North American lender to extend our revolving credit facilities with a four-year agreement which increased our capacity to borrow and lower the interest rates of such borrowing. We've consistently considered such opportunities to improve our financial flexibility and strengthen our financial position to be a key part of executing our growth plans.

Now I'd like to hand back to David for his final summary.

Thank you, Andrew. Concerning our outlook for the rest of the year, assuming a majority of our backlog of approximately $50 million is produced between now and the end of the year, and with a steady amount of parts sales, we believe that this combination should produce overall sales in the area of $140 million for the full year. That would represent a 46% increase over the 2010 full-year results.

Of course, there are a number of factors which can affect this outlook, such as material changes in the world economies and failure in delivery from our supply base, to name a few. Regardless, we remain excited about the group we are building and look forward to the future with optimism.

With this optimism, I'd also like to refer to our recent Form S-3 filing which should lower our execution costs and improve the marketability of our securities if the opportunity should present itself in the future.

With that, Alicia, we would like to open it up to questions.

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

I want to spend a little time on gross margin if I could. Dave, initially you talked about focus; you are very focused on lowering [costs]. I was hoping you could share with us an example of some of the things that you've been doing in order to achieve the lower cost that you strive to maintain.

I think, Rick, we still have a long way to go. So I don't want to give you the impression that we are by any means close to the end of this. Of course I think we really have to focus on that now both in our gross margin and in our SG&A, because these are things that we can as I said in my prepared remarks, these are things we can control.

And then, of course, as you know in our cost of goods sold, our biggest cost was material. And so I think we just have to, as we grow internationally and as we grow as an organization, we continue to strive to make the best effort amongst our companies to have group purchasing make sure we're getting the lowest cost available from our suppliers, work with our suppliers, work with alternative suppliers, continuing to evaluate our suppliers from a cost standpoint. And I think we just have to ratchet that up a notch now with any potential economic issue that we face as we have in the past.

On the SG&A front, I think this is something obviously that we can control. It is a very difficult area because, of course, it involves personnel and people and places and locations. So I think we just have to continue to challenge ourselves and make sure that we're doing everything we can to deliver a product, a quality product at the lowest cost and provide this service but also take advantage of the size that we have and the organization that we have.

So, I know it's very broad but that's really what we're trying to work on.

Okay. And then focus on the actual cost of the raw material. I think the last conference call, there was concern and we were -- we had a little bit more of inflationary pressure in raw materials at that point. Since then things have abated somewhat.

But can you describe for us the timing as far as current prices for materials and how long they take to run through the P&L in other words, if a quarter ago, or two quarters ago, you were purchasing steel at a much higher price than is available today, when does that get on a quarterly basis? And how should we be thinking about modeling that particular aspect in gross margins?

Yes. I think you generally, as you know, we mentioned this in our last quarterly call that just as time is not the way that in the state that we're in with excessive demand for our product and pressure on our suppliers to deliver components, you had to and you saw that, you've seen that in our inventory being built up by ordering larger quantities and trying to get deliveries in larger portions so that we can have those available to make sure we can deliver the products on a timely basis.

And that really at this present time, this is something that we are obviously monitoring very carefully, but at this present time, that trend continues. And, although we have seen because of I think just a normal process, we have seen some falloff. But, certainly in our inventory is prices that were -- oh, I don't know, Andrew, 6% to 8%, somewhere in that range higher than a year ago. Of course.

Across the product? Yes, absolutely.

And of course as you know, Rick, we've implemented, as Andrew mentioned in his remarks, we've implemented some price increases, especially in the products where we have the greatest demand and have been trying to balance that out. So that you can see from quarter to quarter our margins have gotten to be a little more consistent.

And can you give us an idea I guess what CVS gross margin is running at? And if you don't want to give us a specific number maybe, as a comparison to the other segment, higher, lower, etc.?

It's relatively consistent and again, you have some issues with the type of models that go through at a quarter so, it's a little bit I don't want to say misleading. But one quarter doesn't necessarily become the judge of the entire year and, for the --. Generally speaking, we expect that operation to have margins consistent with our other operations. But for the quarter it was slightly under what our other operations were running at but again that was not -- I don't want you to get a feeling that that's a trend. That just happened to be some of the models that were going through that quarter.

But as we think about yet contributing more on a blended basis then we don't necessarily need to decrease our assumptions for gross margin as CVS becomes a greater portion of overall revenue?

That's correct.

And then, Andrew, if I could spend a little bit of time on the SG&A last -- the first-quarter we had $[500,000] of ConAgra so, right, and that gave us $4.9 million in SG&A. This quarter, did you say that there was $0.9 million so their $900,000 from associated with the CVS acquisition?

The CVS and new operations that were started on a comparable quarter basis, yes, that's correct.

So the new operation, is it something that now is embedded in SG&A at the end of the quarter?

Yes, and there we are referring to the used equipment set that we established in June of last year. Which we started in June and then slowly ramped it up through that third quarter of last year.

And then, the backlog of $51 million, Dave, I'm assuming that that majority if not all is going to be recognized this year.

Yes and that's what I said in my remarks is that, anticipating that we will get the majority of that done in this year and -- which is normalized part sales that's how we came up with -- that's in excess of $60 million between those two alone. So you would expect that we should be able to comfortably hit our target as long as we continue to hold with our backlog.

And then last question, I know that throughout the whole CVS process, there was -- on your behalf, there was the challenge of trying to figure out which business unit you wanted to retain and which one you wanted to sort of let I guess fall by the wayside and not necessarily restart. Do you have more clarity on that? Do you have --? Can you describe --?

Out-of-the-box, the reach stackers of course are the defensible product that we've always talked about that we are concentrating on. However, the large material handling equipments that they produced, the straddle carriers, as we get further into this business and extend our knowledge of the business around the world last week, I was in the Hamburg, Germany port, which is a very dynamic interesting port talking about [straddle] carriers that we have produced for them and the possibility of future ones. I'm sure that we are going to expand our product portfolio and extend our reach so that we can extend our sales base for that -- over that company.

But, we'll roll these out as we go on a systematic basis in an area and make sure that we're producing a quality product. So, starting out-of-the-box, it's material handling and stackers.

Okay, material handling and stackers. That's worth about $7 million to $8 million on a quarterly basis, if you add additional, use additional product lines and that's how we get a higher overall revenue contribution.

You know, we've been running in the first year, even when we had an operating agreement and not own it, we were running [6 to 7] and you heard that we bumped up that a little bit higher in the second quarter and I hope that that will continue to expand as we go. Because as we talked on previous calls, this was a sizable organization when it was running at full tilt.

Yes, I think you gave us a narrow range last time.

Yes, very narrow. Thanks, Rick.

Kristine Kubacki, Avondale Partners.

I just wanted to ask a few more questions about, in your prepared comments, a little bit more on that container handling activity. I guess is this an end market that continues to strengthen or in terms of the growth rate or is the growth rate pretty steady? And I guess where are the geographies that are most strong?

Are you referring to the port container-handling business? Is that what you are referring to?

Yes.

It follows the port container so, obviously we are based in northern Italy. Some of our strongest markets are Germany, Africa, Brazil, of course, South America and so we are in areas where there is a lot of shipping going on. And of course, as we all know there is a lot of shipping between the German market and the Asian market. And so it just follows the increase in activity, and it's a smaller market. There is a lot of people in this -- concentrated in this area because it's not thousands of units. It's hundreds of units so it presents for us an excellent opportunity.

Okay. Very good. And then I guess just a little further question on -- you talked about the supply base and I guess it's been a topic in a lot of industrial companies as we've seen pretty severe ramp-ups and given the strength of the downturn, are you seeing supply bases constrain over during that time and I guess are you seeing any supply shortages or are there any constraints in your supply chain that you are either seeing or that you are worried about at this point?

Well, it's been a serious issue as I'm sure you've heard from a number of companies that you follow and, I would say the biggest -- some of the biggest issues that we have are in chassis, axles, maybe transmissions and, those are still, they are still issues. I mean, they are still continuing to have problems as of yesterday where I was -- we were working on some of these projects.

So, it's something that is continuing to develop.

Is any of that related to Japan per se? Or is it just a broad-based just recovery industrial globally?

No, I think it's just a global issue. I think most of those have resolved themselves.

And in your sense, how long do you think it's going to take? Is this a couple quarter phenomenon to work through from the supply base or is it -- do you think it could take longer?

Well, a couple of quarters ago they were saying a couple of quarters. And so, I asked that of some of our general managers yesterday because we -- I'm surprised about how long this was extending and it certainly appears, for now anyhow between -- that it's going to continue for the rest of the year.

And I guess it's asking a little bit, I mean, there is a cost component of obviously the raw materials themselves but, is it your sense that there is a cost increase as associated with that supply-chain trying to hurry materials up either air freighting or things like that? Is that an impact?

It is an impact but, of course, as you can imagine we are trying to avoid that because that -- these -- we're not apples. So we're not -- we don't have 180% gross margins. So you have to be very careful but there is situations where you are actually freighting in, air freighting in components which is, as you know, very expensive.

Okay, well, very good. Thank you very much. Appreciate your time.

[Jeffrey Lum], Tuxedo Road Associates.

Hi Dave, I've got a couple of questions. Number one, to make it the easiest, can I assume with the S-3 filing that part of that is recognizing the possibility with the luck of a better stock market that warrants which come due by the end of the year may be exercised?

Well, I think with all the caveat that you have there, the issue is of course, as you say, the biggest issue is the stock market. But I think the S-3 is really just, as I said, the execution costs and the -- we've done a couple of pipes in the past and those are expensive and they have penalties for not getting registration and that type of stuff so it was just -- it just seemed like a prudent way.

We looked at hundreds of companies and our Board received extensive advice from outside parties. And we just concluded that was the most prudent thing for us as a company that -- with a track record that has historically put together a number of acquisitions and we've been able to do those as we know by a number of creative means.

What we want to do was best and most conservative for our shareholders and for our Company. So, it just seemed like it was a -- we can obviously issue these shares in a pipe but it would be much better to do it in an S-3 filing.

No. Listen, I totally agree. I think that's prudent and, as we both know, if the warrants were exercised, a pipe transaction wouldn't have to take place but (Multiple Speakers).

We'll see. I mean obviously that's something outside of our control on the warrants as you well know.

Absolutely. Question number two. I haven't heard much lately about Badger. How is Badger doing?

You know, Badger is doing fine in its [railroad] specialty. Compared to when we bought it it's significantly higher than sales and profits and then when we purchased it in the summer of 2009 where we are also in the process of putting together some new products which, I think, will be very exciting for us in 2012 and beyond.

I look forward to introducing some of those so I would say it's doing well. And it's specialty railroad-based which is an excellent market. And we are trying to convert some of those railroad products to a more commercial product which I think will have an expanded base for us as we go forward.

The last question is -- during the course of I think the first quarter, chassis manufacturers were quoting you four to five months on delivery time. Has that improved, given how well you've done in heavy truck? I mean, heavy crane? Has that gotten better or is that still about the same?

I was talking to Kristine, the previous questioner, as I said to her, if you would've asked me in that quarter when it was going to start to be cleaned up I would've said now. But, as of yesterday, (Multiple Speakers). It's just extending.

It's a real pisser, because it's a very obviously -- you don't have a crane without that chassis and it's something that because we have so many specialty, high-capacity cranes, we need a certain type of truck. And those trucks are in demand.

(Operator Instructions). [Michael C. Kos], Sidoti & Company.

I wanted to ask you, I think last time we had spoken around the first-quarter call, you guys were saying how you wanted to target the SG&A of around 14% of sales. You did 13.1% this quarter. Are you still targeting that 14% number? Do you think that's probably where it will fall in line going forward?

No. I think we'll do better than that, especially with the concentration that we are placing in that area. So, I think hopefully as we go forward we'll continue to see some modest improvement in our SG&A.

And, with the EBITDA target, you guys did 8.2% this quarter as well. But do you have like a goal in mind when you go forward with this?

I mean, it's -- as Andrew mentioned, it's the highest cash flow we've ever generated in a quarter and at $3 million, that's a $12 million run rate and, obviously that gives us very good coverage in our debt and gives us good cash flow to support our growth. And, yes, we would like to get closer to the 10% range. We were very close to there a year or so ago when we got into the 9s. And, so I think there is more improvement there but it's something that we'll have to wait and see.

Okay and with the -- has there been any more progress, I guess? I know you were looking into trying to develop a crane that was doing 60 to 70 tons which would be definitely more than what you do currently. How is that initiative going right now?

I think I'm not sure this is a forum to talk too much about some specifics at least but I would say we are continuing to expand our capacity base, yes. We'll see -- what we will see some -- we expect to see some future development in the not-too-distant future.

And then plans to bring CVS into North America at all?

It historically has not been active in North America because of its impetus around the world. But we do have plans to introduce it but I think that will be a very long-term process.

Mike Zelvin, Brill Securities.

This is a broader question and it gets to the heart of the environments that we're in right now and your comments in the past about this just being a very, very slow cycle versus what we saw a couple of years ago and, maybe you can make some general comments about what you're seeing in terms of any differences for the general environment.

Thanks, Mike. As we've stated, we have stated on numerous occasions that we are in a very slow economic environment and the -- we are bouncing off the bottom and Andrew alluded to some of that in the growth that we've experienced versus the general overall market. In the -- it's really too early to tell in the current state of affairs but it certainly doesn't feel like 2008 because there we had some pretty real -- maybe it was just because it was closer to home, we had very real economic issues that everybody put their brakes on very quickly. And again, it's too early to tell but we just haven't -- we are certainly staying very close to our customers and very close to our dealers but we just haven't experienced that yet at this point.

That was my only question. Thanks very much.

Thank you. Mister Langevin, there are no further questions at this time. I will turn it back over to you for any closing remarks.

Thank you, Alicia. Thank you, everyone, for your interest in Manitex International and look forward to future quarters. Thanks again.

Ladies and gentlemen, this does conclude the Manitex International second-quarter 2011 results conference call. You may now disconnect and thank you for your participation.