Manitex International Inc (MNTX) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Manitex International Inc. fourth quarter 2011 results conference call. During today's presentation all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator Instructions)

Today's conference is being recorded, March 22, 2012. I would now like to turn the conference over to David Langevin, Chairman and CEO. Please go ahead, sir.

Thank you, Alicia. Good afternoon, ladies and gentlemen, and thank you for 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 are available until March 29. We will be again 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. We encourage 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 in the past, with my leading off with a brief opening statement followed by a review of our results by Andrew, and a closing statement by me. Andrew and I will then respond to any questions. So now, please refer to slide number 3.

2011 was a very strong year for our group. Sales were up nearly 50% and adjusted net income grew even more at nearly 70%. And as many of our investors may recall, we took a conservative view throughout the first three quarters of 2011, with 2009 still fresh in our memory. That is, we kept production at a rather steady state until it became overwhelmingly apparent in the latter half of the year that we were growing at a sustained level. And because we use a variable cost model which requires us to buy our components and build up our inventory before we can assemble, we expect to begin to see the results of our inventory build-up in the first quarter of 2012. Several other significant events occurred worth noting in 2011, including the completion of this CVS Ferrari transaction, extension and expansion of our bank facility, and of course, the most important commercial factor for the Manitex shareholders, is the significant expansion of our backlog.

So far, in 2012, orders keep coming in at a very high rate, driven by the North American energy markets. We now are taking orders for, and soon will be producing, equipment for the energy markets at a rate which represents over 50% of our total business. We began working this area by developing products at our Manitex division several years ago. Because it's basically a niche industrial Company, we saw these markets as an area where it could make a significant difference for our Company. I don't think any of us saw the tremendous explosion that has occurred in the energy area, and the demand that this has created for our products. And while none of us really know how long this demand will continue, or if it will continue to come at this velocity, we do believe that in this environment of a $100 plus per barrel of oil and the improvements in drilling technologies which have created more possibilities for uses of our equipment, that the future demand for our products looks strong. Further, we are being told by experts in the energy field that this expansion has a long way to go, which bodes well for sustained growth of our Company.

For now, we can say that demand for our products are continuing at a rate which exceeds our ability to produce. And, as stated in our release, our capacity issue is not a physical space, but in suppliers' ability to meet our needs. But our suppliers are meeting the challenge and we see steady improvement in our production rates as we progress through 2012. At this point, I would like to turn over to Andrew to review our results and discuss further our commercial development and I will wrap it up with comments on our outlook. Andrew?

Thanks, David, and good afternoon and welcome, everyone. Before covering the detail of the Company's fourth quarter and full-year 2011 results, I'd like to start out by providing a general commercial update for our business, which is summarized on slide 4. I will be speaking to our results that we are reporting today, but before I do, it is also important that I mention that with our first quarter of 2012 now largely behind us, we've seen that overall commercial conditions have remained consistent with what we saw at the end of 2011.

Overall, we are pleased to say that business conditions continue to strengthen as we move through 2011 (sic), particularly in those parts of our operations that serve the energy sector here in North America. In terms of our markets, as I just summarized, the energy sector in North America, in particular, experienced high levels of growth and demand, to support the expansion of fields in several states, while north of the border in Canada, energy field development activity continues to expand as well. Power line construction and mining are also showing stronger demand. General construction activity in historical terms is still slow, but demand has steadily increased from the second half of 2011 and has also been helped by the relatively warm winter period in the Midwest.

European markets remain slow and where there is demand, the availability of credit to customers has been impacted by stricter bank lending and this is having an additional tempering effect. In South America, and other non-European geographies, inquiries related to general construction projects, mining and energy, are showing more positive trends. Most OEMs, including ourselves, implemented price increases for orders during 2011 and also for orders currently being placed, which due to all the backlog are targeted for 2013 delivery. These increases are in response to higher component sourcing costs and the more positive demand environment. In aggregate, with oil and certain commodity prices at a relative high, the energy and mining sectors continue to be the strongest demand sectors in the US, Canada, and internationally, leading to demand for the range of Manitex products but especially for the larger tonnage boom truck cranes.

With regard to our products, the market demand remains skewed towards the higher tonnage cranes or industry-specific products such as that for energy services and power line construction. We have long recognized the need to invest in R&D in order to maintain our ability to innovate and provide new products or configurations that are in demand from our customers. In the past few months, we've expanded the sector-specific features of our core Manitex Boom Trucks and particularly the 50 ton platform which remains key to our participation in the energy services market. One of the more recent product features we've added, for example, is include the wireline feature which formerly was available only on the 30 ton platform on both 40 and 50 ton platforms, with options for either shorter or longer booms. By so doing we've increased not only the flexibility of the crane to its user, but have also increased the number of applications for which it can be used, providing more reasons for the customer to buy our crane.

In 2011, our principal market, the boom truck market, experienced annualized growth in terms of unit volume of new deliveries of approximately 130% compared to 2010, within the categories we are active in. Nevertheless, even after this increase, the market was considerably below historical levels, which we believe provides potential for further increases. Additionally, the historical market did not address the energy and power line construction set as it does today, providing potential for a larger overall market than previously seen. With the firming of market conditions, we've also seen increases in other products in our portfolio, although not having the same impacts on our overall operation. Orders for commercial material handling equipment and specialized trailers have progressively improved, and helped offset a slow year for military and governmental products in 2011. However, following the receipt of several orders in late 2011, these military products do have a greater representation within our backlog for later in 2012.

CVS Ferrari continued to perform as expected and remains a profitable and important part of the Company's future growth strategy. In fact, at the end of January, we announced our first North American sale for CVS Ferrari, which was an order from the Canadian military for over $1 million in reach stackers. Although relatively small, this order was the first tangible result of our efforts to expand CVS into this market and will leverage the commercial relationships of Manitex here in North America and we look forward to further progress in this regard.

At December 31, 2011, our backlog had increased to a record level for the Company, at $83.7 million, driven substantially by the demand for Manitex boom trucks, but also supported by a broad increase of dual operations. In quarter four of 2011, our backlog increased 33%, as order intake again exceeded output. With a steadier market and this order backlog, we are pursuing increases in production that should convert to higher levels of sales sequentially during 2012, and lead to a level of output matched to ongoing demand.

Now turning to the results for the year, slide 5 of the presentation shows the key figures for 2011, with comparisons to 2010 and 2009. 2011 revenues of $142.3 million increased $46.4 million or 48% from 2010. Growing demand for Manitex boom truck products, particularly from the energy and power line construction sectors was responsible for approximately 50% of the increase. For these sectors, the higher tonnage and higher reach boom trucks represent the principal product in demand, complemented by more specialized mid-range capacity units. The absence of any significant improvements in the general construction sectors resulted in a smaller increase in demand for lower capacity boom trucks. The remaining increase in year-over-year revenues was generated by the CVS operation and by used equipment sales within the equipment distribution segment, both of which commenced activity mid-year 2010. Reduced military and governmental material handling revenues were offset by increased sales of smaller commercial units and an increase in sales for Load King engineered trailers.

2011 gross profits of $29.3 million was a $5.9 million increase or 25% improvement above 2010, driven by increased sales volumes. Gross profit margin was 20.6%, compared to 24.3% for 2010, with the reduction resulting primarily from a change in product mix, given lower-margins in the material handling and distribution businesses and increased material costs. Compared to 2010, in material handling, there was a decrease in shipments of higher-margin military and governmental units while in distribution, the increase in revenues was principally from lower-margin used equipment and service sales. Adjusted net income for the year of $3.6 million, or $0.31 per share, was an increase of $1.4 million, 69%, or $0.12 per share over 2010, and a detailed reconciliation is shown on slide 7. The 48% year-over-year improvement in revenue resulted in the previously discussed increase in gross profit, which offset additional R&D expenditure of $0.4 million and SG&A expense of $3.4 million.

R&D activity resulted in the launch of several new product features during the year, particularly focused on the energy sector and also a new product for the general construction market. Of the SG&A increase, approximately 65% is from the full-year of expense at CVS and our used equipment operation, North American Equipment, both of which started operating midway through 2010. The remaining increase is attributable to increased selling expenses from volume, cost for attendance at the ConExpo expedition in March, and from restored prior salary reductions and additional performance-based compensation. However, SG&A expense for 2011 improved as a percentage of sales and was equivalent to 13.9% of sales compared to 17.2% for 2010. EBITDA for 2011 was $11.1 million, or 7.8% of sales, an increase of $2.4 million, or 28% from 2010 and is a record level for the Company.

Slide 6 shows the key figures for the fourth quarter 2011 with comparatives for the same period of 2010 and the third quarter 2011. Fourth quarter 2011 net revenues of $36.6 million grew by $7 million or 23.8% over the fourth quarter of 2010 and were broadly in line with the third quarter 2011, with lower sales days in the fourth quarter being offset by increased activity. Sales in Manitex Boom Trucks and Load King specialized trailers accounted for the majority of the increase. Gross profit margin of 20.5% in the fourth quarter of 2011 was 0.7% behind the 21.2% achieved in the third quarter of 2011, reflecting a less favorable mix in sales. Adjusted net income for the fourth quarter of 2011 was $1.1 million, or $0.09 per share compared to the $0.9 million or $0.08 per share in 2010. EBITDA for the quarter was $2.9 million, equivalent to 7.9% of sales.

Slide 7 provides the reconciliation of adjusted net income. We reported GAAP net income for the 3- and 12-month periods ending December 2011 and 2010. The charge made in Quarter 4 2011 of $1.2 million represents the present value of 20 annual payments of $95,000 for an unusual legal settlement related to a 2006 product liability claim acquired from a predecessor company. As such, we do not believe it is representative of the ongoing operations of the Company in 2011, which generated adjusted net income in 2011 of $0.31 per share compared to $0.19 a share in 2010.

Slide 8 shows a bridge between the 2010 net income of $2.1 million, the adjusted net income for 2011 of $3.6 million. Walking through the reconciliation table, 2011 sales increased $46.4 million, of which approximately $23 million was from new operation. The increase in volume provided a gross margin benefit of $11.3 million, but there was a negative impact of $5.3 million from a less favorable product mix and material cost increases. The product mix of sales was not as favorable since there was a decrease in higher-margin military and governmental sales to 4% of revenues from 18% in 2010 and an increase in lower-margin used equipment sales from 3% to 5% in 2011.

Material costs increased throughout 2011 from increased raw material costs and the improving demand environment and remain a challenge to offset, which we will do through a combination of improved sourcing and sales price increases. We have placed a continued focus on material cost and recognize the imperative to reduce and contain costs of several operations as we go forward. The combination of volume and mix provided a gross -- a net gross profit increase of $6 million.

Operating expenses, that is R&D, restructuring expenses, and SG&A, increased by $1.6 million, of which $0.4 million was from R&D and the balance principally from increased selling and personnel expenses in the remaining businesses. CVS and our used equipment business, North American Exchange, both commenced operations in midway 2010 and the effective and additional six months of operations in 2011 contributed $2.1 million of additional operating expenses. The other key contributor to the adjusted net income movement between the two periods was an increase in tax expense of $0.8 million, primarily from an increase in taxable income, although the effective tax rate also increased 1.3% between years.

Slide 9 shows our key working capital and liquidity ratios. Operating working capital increased as a percentage of annualized last quarter sales to 34.2% from 31.1% at the end of 2010. This reflected not only the increase in working capital to support the growth in annualized last quarter sales achieved in Quarter 4, 2011 of 24%, but also investments in inventory as we ramp up to higher output levels. Our goal remains to reduce this towards the 25% to 30% achieved in 2008. Our current ratio and other working capital ratios remain strong as we move through this growth phase. Inventory of raw materials has increased since the end of 2010, as we have ramped up production at our operations, including moving from the start-up phase in CVS in Italy. Working process has increased at our material handling operations due to longer lead time military and specialist orders in the backlog.

Slide 10 shows our capitalization and liquidity position. We continue to closely monitor our levels of debt and interest coverage. Our total debt increased $8.2 million in 2011 to $42.2 million or 3.8 times trailing EBITDA. This resulted from our outstanding debt of $3.8 million from the original $4.9 million for the acquisition of assets for CVS and increased borrowing of $7.5 million on lines of credit to support growth in activity. Total debt repayments in the year were $3 million. EBITDA for 2011 of $11.1 million was the highest recorded by the Company and increased 28% compared to 2010 and results in interest coverage of 4.4 times, which we believe is quite strong. And now, I would like hand back to David for his final summary.

Thank you, Andrew. Please refer to the last slide. In many ways, 2012 is a rather simple year for us from a strategic standpoint. We just need to execute. And as we have stated several times, we are currently receiving orders at a very healthy rate, we're boosting our output, and we need to continue to efficiently manage our costs as we expand. We have good visibility going into 2012 with our backlog, as announced, which is up over 110% from 2010 continues to build and as a result, we are now scheduling deliveries into 2013 for our Manitex division. In summary, we expect to increase sales and profits sequentially each quarter during 2012. All in all, this year is shaping up to be a very exciting one for Manitex International. With that, Alicia, I would like to open it up for questions.

Thank you, air. Ladies and gentleman we will now begin the question-and-answer session.

(Operator Instructions)

And our first question comes from the line of Larry Pfeffer with Avondale Partners. Please go ahead.

Hello, Dave, hello, everybody, how you doing?

Hello.

Hello, Larry.

Just first question, you mentioned pinch points in the supply chain. Where exactly, what components, are you guys seeing the biggest pinch points in?

I think it's -- we've mentioned in the past, we've had chassis deliveries but I think those have pretty much resolved themselves. Now it is long cylinders. And I mean, these are not anything in a particular order, and they will all be taken care of. Piston motors for our winches, axles for some of our products -- I mean, all things that can be resolved. So again, nothing that is going to be permanent but just you have these when you are, as I mentioned, a Company which puts together the components and assembles them, we have to have all the components in before we can complete it. That process started in the third and fourth quarter of 2011 and we've got the buildup of the inventory on our balance sheet, which you saw, to support that and then we will start flowing through in the first quarter of this year.

Right. And I saw that you guys -- shifting voice a little bit to CVS Ferrari, I saw you guys put a press release on the order in North America. I was just wondering how the commercial acceptance of that has been? I know that was a military, governmental order in Canada is there any -- I wonder how the commercial acceptance has been with that?

I don't think it's been delivered yet, right, Andrew?

No, not delivered --

Correct.

I mean, I think, again, it's something that we have been working on and that we will continue to work on to expand our market into North America but again, it's going to be a -- it's a slow process, but again it's an indication of the fact that our material handling groups between Liftking up in Canada and CVS in Italy are working together to expand them into our area.

Okay, well thank you very much, guys. Great quarter.

Thank you, Larry.

Thank you.

Thank you. Our next question comes from the line of Dmitriy Kernasovskiy with First Wilshire Security Management. Please go ahead.

Hello, Dmitriy.

Hello, Dave. My question is first, are you guys shipping cranes over to Williston in Dakota, and shale oil developments?

Well, we, as you know, sell cranes through our dealers but certainly that area is representative of the locations of where our cranes are going, yes.

Okay. Okay. And just wondering on the coming year, if there was any possibility to quantify that a little bit, any range of maybe sales for the kind of increase that you're expecting and also where you think the margins will go?

Yes, it's tough to answer those questions. Obviously, I want to try to be as specific as possible without locking ourselves into one position, up or down, and right now, with all the variables and factors that we have, I am not able to be more clear than what we have been. Obviously it's going to continue to be better in the first quarter than the fourth quarter of last year and we expect, as we say, to sequentially improve that as we go through the year. And as far as margins, I don't think it would be prudent for us to specifically discuss individual margins for products but clearly, the higher tonnage crane products have some of our most attractive margins, but on the other hand we have a large portfolio of diversified products and some of them have lower margins so you have to kind of look at the average and I think that where we've been is a good representation of where we are going.

Okay. Thank you.

Thank you, Dmitriy.

Thank you. Our next question comes from the line of Fred Buonocore with Rodman and Renshaw. Please go ahead.

Hello, Fred.

Yes, good evening, how are you doing?

Good, thanks.

Great. So I just wanted to follow-up on Dmitriy's question on margin and your commentary, Dave, just on -- it sounds like what you are saying is that maybe the mix should remain relatively the same. But, doesn't it sound like maybe you'll have a better year in 2012 for military sales, which tend to have a better margin, if I am not mistaken?

We have announced some good military orders, as Andrew alluded to. And we expect some of those to be going through, as Andrew mentioned, second and third quarter, I believe, Andrew, would probably be a good representation of when those units will be going through the facilities?

Yes.

That will certainly help our margins and we hope that we see some good improvement in margins. I just hate to be too -- I hate to overpromise or raise expectations too great because we have a lot of demand for our product right now so it seems like there's a lot of good things happening so I don't want to be too aggressive.

No, certainly, fair enough. And then I will hit you with another question that will be tough to answer but, also on the guidance commentary just to clarify. So, you've got this large and expanding backlog, which sounds like you expect it to continue to expand for the foreseeable future, so that gives you some degree of visibility. Would it be fair to say that the challenge in trying to quantify revenue growth or revenue level for 2012 is really, the big challenge really being your ability to get throughput and get those materials that I guess have been kind of slowed down from some of your suppliers, and maybe that more so than your actual own operation's ability to manufacture the trucks and get them out the door?

As you say, Fred, these are not very easy questions, right, so I mean that's why you make the big bucks, right?

That's right. (Laughter)

You've seen our physical space where we make our boom trucks, which is what we have alluded to as the strong growth area, which of course it is, and we were generally running those, as I mentioned in my prepared remarks, at a fairly consistent level throughout most of 2011 and then we started to prepare to ratchet that up in the latter part of 2011. And it's really a function of getting components and getting people and neither one are an issue that can't be solved, but both are issues that take time.

As we sit here in March, as Andrew alluded to, we know that January was better, February was better than January, and we expect March to be better than both of those two months. So, we've seen a good, consistent, solid improvement but, trying to put a hard and fast number on it is something that we still want to wait and see as it develops so that we're not saying it's going to be X and it ends up being Y. I'd rather have -- because you're right, we do have good visibility. We are taking orders for 2013 so we have very good visibility. Really much better than I have ever seen and that's very encouraging. But we also have many different businesses and as Andrew alluded, a number of the businesses are growing but at more modest rates than clearly than what we have at Manitex. So, it's just trying to juggle all those balls. I just don't want to be too aggressive.

Sure. No, I completely understand. And then, in that regard, have you been adding people in your Texas facility? And, how long is the ramp up with those additions, typically?

Yes, we have been, and it's just a training -- we train people, we've got a second shift started now, it's not up and running yet, it's just getting started. Preparations, training on the first shift to move them to the second, make sure we have quality and throughput at a level that we are happy with and so we don't want to -- the last thing we want to do is start making products that ends being a lot of warranty and rework -- that just causes more inefficiency than it's worth so we're building up in people as well. Right.

Great. And then shifting gears, to Europe, a two part question. Can you talk a little bit more about the Europe container market for CVS? And also, can you just quantify in the fourth quarter maybe how much revenue CVS contributed? Thank you.

Andrew, you want to? You just got back from Europe, so you might be better prepared certainly on the number of CVS for the fourth quarter and, then kind of what you've seen in the container world or the [sifting] world for Europe?

Yes, as we talked about on the commercial piece, the European markets are continuing to be relatively flat and subdued by the general economic conditions over there. That's also exacerbated by, as we referred to, some of the propensity of the banks to provide finance to end customers, much as we saw during the 2009 days over here. The good news is that CVS is growing from a relatively small base and therefore, incremental gains are fairly substantial for us. The fourth quarter for CVS is very similar to the previous quarters in terms of its level of activity, round about $7 million and we've said, for the year, that CVS was profitable and contributed $29 million in revenues. So, from a start-up position in July 2010, that's a very pleasing uptick.

In terms of specific markets, as I say, they're all relatively subdued, some more than others. CVS strength is in the Italian market, in particular. And that, as we all know, has got challenges. But it's also got good international prospects as well. CVS historically has sold into a number of worldwide markets and we are continuing to explore those commercial opportunities, not just based on central mainland Europe. Hopefully, that answers your question.

Yes, it does, Andrew. I appreciate it. Okay, thank you.

Thanks, Fred.

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

Hello, Dave, thanks for taking my question.

Thanks, Mark.

If you could help us, you made some reference about boom trucks in particular being below historical levels. I guess, taking it even a step further, can you give us some color into your view on where you are within the cycle? And, maybe comparing now your entire portfolio to what you view as historical normalized levels and maybe historical peak levels?

Yes. The boom truck market, obviously, goes through fairly reasonable cycles because of just the wear and tear on the equipment. We have some new -- because we did not have the size of the boom trucks that we now have during the last cycle, so if you look at 2007, 2008 which ran from 2003 to 2007, we didn't have the 40, the 45 and the 50 ton cranes, which now represent significant pieces of our market. And we are also are serving markets which previously we didn't have, especially of course the biggest one is the energy markets. We have not seen for Manitex a significant foothold in that market up until the last couple of years, with it growing significantly over the last six to nine months.

So, it's a little bit difficult but, I would say, just generally speaking, it feels like we're just in the early stages, we're coming off the bottom, we clearly have some replacement cycles, we've mentioned in previous calls that we have some dealers now stocking for inventory, which they had not for a number of years, so I would think that we are in the first couple innings of the ballgame and we have a long way to go.

And how about for the rest of the lines within the portfolio? Next question.

See I think the rest of the lines are generally just getting started as well. I think Andrew mentioned that in his commercial summation that we're starting to see improvement in everything but not anything very dramatic, yet. And so it's just against -- I think the -- it's fairly consistent across all of our lines. Andrew, do you have -- it was your comments so I don't know if you have any comments you want to add?

No I think you summarized it exactly right, Dave. But we have referred to a relatively subdued general construction activity in most of our markets. The energy sector is clearly driving Manitex. It's also driving some parts of our other businesses but, overall general construction activity is still very subdued, we would say.

Yes, I am glad you mentioned that, Andrew, because Load King is another one that's clearly benefiting from the energy markets. Their backlog is up significantly and that's heading into the energy markets as well.

That's helpful. Thank you very much.

Thanks.

Thank you. Our next question comes from the line of David Raso with ISI. Please go ahead.

Hello, David.

Hello, good afternoon. Hello. Two quick questions. One, I know you don't want to be too specific on the guidance, but we just had a quarter where revenues are up and gross profits were down. Knowing what you know about your backlog, your supply chain, should we see any quarter with that dynamic when you look out the next few quarters and obviously specifically the current first quarter?

When we announced our third quarter results, we felt that the fourth quarter would be very similar to the third. We said the sales -- while we had increased activity, which we did, we had less production days and we didn't run a lot of overtime or anything else. We had shut downs in November, shutdowns in December, and so we kind of indicated that fourth quarter would be similar to the third and I think it was within $300,000, $400,000, half a truck or something, or a truck or two would get out, we would've done a little bit higher. But anyway, I don't expect anything like that in 2012 from what we've seen. Clearly with the visibility we have and the facts of what we've seen in the first couple of months, I would expect a steady, sequential increase quarter-over-quarter in 2012, as we indicated.

What I'm thinking, year over year, is I'm trying to get a feel for incremental margins in terms of operating leverage. So I don't know if you want to be of any help framing or wide range, how you think about your operating leverage both -- or maybe at a minimum, take this [curve] to the price cost. You mentioned some of the price increases for '012. How quickly are '012 shipments reflecting those price increases? There's obviously been times we would have a couple months lag, with price increases maybe [deferred] '012 orders, so you are not really experiencing the benefits of the price increases for many months? (Inaudible - multiple speakers) Thoughts?

You're right, David. We have several layers of price increases, most notably at our Manitex operations. They instituted price increases in the middle of last year, which clearly are all in our backlog. And at the end of last year, which are not clearly all in our backlog, probably have some in there and some not. Majority not than in. We've indicated already this year a price increase for 2013 product, just to protect ourselves as our backlog extends out. And it seems to be fairly moderate that we are in a moderate environment for material prices at this point.

Obviously, we are cautiously optimistic that we will see, because of just pure absorption, as you put more throughput through a facility, as we all know, you lower your absorption cost per unit so we should see some improvement in margins as we enter into 2012. But from a mix standpoint, we still have a number of -- outside of Manitex -- we still have a number of divisions which need to be continuously challenged because, as Andrew alluded to, we have a mix difference there where we may be doing more commercial units versus more government units, we may be just doing lower-margin commercial units which are necessary to support higher-margin energy units and the combination is not so large. But we think if we can stay in this kind of range where we are at, with the higher volume, we will have a very good year. There's a lot of factors went into all those.

And excuse my ignorance here, but Manitex, of your $142 million or so of revenue in '011, how large was Manitex of that $142 million?

We don't give specific indications but it was slightly less than 50%.

Okay.

For 2011 and as I indicated, it certainly is growing at a faster clip than anything else we have because of the fact that the majority of our backlog is in that division going forward.

So to summarize, is it a 50%-ish of the Company? Could be growing 50%? I mean, is that how you're thinking about the Manitex growth rate for '012?

I would say Manitex is 50%-ish of our Company going forward at a significant growth rate.

Okay. All right. I really appreciate the detail. Thank you.

Thank you, David.

Thank you. Our next question comes from the line of Matthew Dodson, Edmunds White Partners. Please go ahead.

Could you just help me understand from the standpoint, you had about $20 million in expenses below the line this last year on a fiscal year basis. And I guess, what I was hoping to understand is, as you ramp this year, is there a way that you can help us understand how much more you've got to spend in R&D or SG&A to bring that extra dollar of revenue?

Yes. We should, where we've mentioned where we -- obviously we have mentioned the absorption in the gross margin line and on the SG&A line, the G&A should not move very much because we don't need more administrative people to move more volume. The sales line, the selling piece will of course fluctuate as a commission of our sales but that's not the biggest component of SG&A. It's G&A. So you should see, like we saw this year, I certainly don't know if it will be to that extent, it depends on volume but, we saw a 2-plus percentage points decrease in SG&A from 2010 to 2011 and we should, as our sales continue to increase, see a continued benefit in that area going forward. And our R&D, we do continue to spend somewhere in the 1% range so we probably will see some improvement or continued cost increase in our R&D but it's not going to be significant.

Okay. Got it. So if I look at that, I mean, basically your SG&A grew about 20% this year and your sales grew roughly 48%?

Right.

It's kind of like SG&A would increase maybe half of the rate of sales, if that much?

Again, I don't expect it to have that much growth but certainly the S part of the G&A will continue to be more coordinated with the selling expense but G&A shouldn't -- we had some unusual things in 2011 where we were restoring salary reductions that we had taken in previous years and some of those things are not going to recur. We had, as Andrew mentioned in his prepared remarks, a very large show in the first quarter of last year, so I think we should be in a pretty good environment for G&A this year.

Okay. Great. Thank you so much.

Thank you.

Thank you. Our next question comes from the line of [Jeffrey Loan] with Tuxedo Capital. Please go ahead.

Hello, Jeff.

First of all, you guys did a hell of a job. So, congratulations to all of you.

Thank you, Jeff appreciate it.

And if Mark is on the phone, Mark you did a hell of a job getting that first order for CVS, so keep it up. I've got three quick questions if I could. I can do them -- or four actually -- if I could do them one at a time. In terms of units, not in terms of sales, the capacity at Georgetown looking at your existing backlog, cognizant of the fact that you're training a second shift, where do you look at your capacity utilization relative to your backlog and your estimate of sales for 2012?

Well, it's a difficult question. Capacity is always one that flexes all the time because you always find better and more efficient ways. I have always been amazed how much things can be done in a plant as they continue to evolve. If you look at 2008, that plant did much higher volume because at that point, as far as units, because at that point we were doing a much smaller lifting capacity type crane. So this year we have, at least our budget so far and the budget has been changed a couple of times already this year from when it was done in the fall of last year, it's up significantly from a unit standpoint, clearly also from a dollar standpoint. We are just starting in the second shift mode so I would think that we are probably 50%, 60%, if I wanted to guess, 50%, 60%, maybe 70% of the capacity level at this point. But again, I think it's going to be somewhat restricted this year, just because -- it's still going to be a very significant year but it's going to be somewhat restricted just by the ramp-up period and I hope that we continue to ramp up this year into next year so that we see a very good year next year as well.

In past years, going back a couple years, we had some contribution in Manitex from, in particular, Russia, and there were some forays to try to develop relationships in the Middle East. What is happening in terms of international as it pertains, particularly, to Manitex?

Yes. We continue in those areas but, fortunately business is so strong that it's just not an emphasis right now. We have so much work and so many orders that -- but we continue to deal with current or new Russian dealers, continue to work on longer-term assignments in that area and we continue to have good relations with our Middle East dealer, which in past times provided excellent, excellent business for us. So I would say both of those areas are still being efforted but we've got our hands full right now with the business we have.

I understand that. Third question is, what's happening with Badger?

Badger is a really nice company, as you've heard me say before. I really like Badger. The margins are really good there. They're developing some new products. They've really done some nice things in the facility. Their budget is -- we mentioned that most of the Company's budgets are modest for this year, their's is a little bit more aggressive. I am really encouraged by the percentage of profits that they are generating on their sales and have great expectations for them as they go forward with some of their new product development that they have underway.

The last question I have is something that is near and dear to your heart. Debt capacity. If the absolute best were to happen and some of the other areas in which you participate, i.e., CVS, Badger, et cetera, were to pick up, how much room do we have, given the renegotiated line with Comerica to be able to satisfy the production requirements needed if some of the divisions which currently are guesstimated to grow at a faster rate than budget were to suddenly kick in?

Well, we went to the bank at the beginning of this year with obviously we had our budgets that were given to us by the operating units and we were given more than enough capital to ensure that we can exercise and implement our budget. And we also appear, from the models, having some reasonable good cash flow as we go through the year because we don't need to continue -- we reach a level of inventory where you are turning revenue -- so our inventory turns slow down a little bit because we were building inventory in the fourth quarter, and that starts to change as you reach a level where you're running at a rate that can absorb your sales so we should be in good position from what we can see right now.

Well, it's a long way from 2003, kid.

Yes, I agree. Thanks, Jeff.

Thank you. Our next question comes from the line of Mike Cikos with Sidoti & Company. Please go ahead.

Hello, Michael. How's everything going?

Hello, David. Okay, thank you.

Good.

Just first question I wanted to ask you about. We said that the gross margins from the third quarter to the fourth quarter saw some contraction based on a less favorable sales mix and I wanted to follow up and just say, I guess, get a feel for which -- I guess, where are the products shifting to that are causing that contraction in the margin?

I don't remember, Andrew, it seems like the third and fourth, like a lifetime ago, I am more worried about the first. What are the -- was that Liftking or Load King? Which operations?

We had a bit in Load King and we had a bit in CVS as well, actually.

Oh, okay, CVS. Yes.

As you know, we started to introduce some additional products, not just the reach stackers now, so that contributed to a slightly reduced margin at CVS as well.

I went from 21.2% to 20.5%, is that right?

Yes, it was about 0.7% drop.

Yes. Okay, great.

Okay. And then, with that second shift that you plan on starting up in Texas, did it start already? Or do you know when you are going to be starting that up?

No, they are in the process now of training people on the -- in conversations I had with them this week there was about 35 people that were going through training programs so it's in process now. I don't believe that other than there is some skeleton crew on the second shift, that they have started the second shift yet.

Okay. Is it fair to say that that second shift would be up and running some time during the second quarter of this year, though?

Yes.

Okay. And, with CVS, you had also mentioned that you're looking at some international prospects as well. Where, specifically? Can you shed some more light on that?

You know, they did announce a Brazilian order; we've got some activity in the African area. Again, Andrew, you were just over there. I mean the Italians, obviously, have for years been working outside of Italy on an international basis so that's where a lot of the sales have been going but other than those two, is there other areas that you want to mention generally?

You hit the best ones.

Okay.

Okay, so Brazil and Africa for them. And, with I guess jumping over to Europe, I guess with the economic environment, things have been rough over there, and we're seeing that the banks have been tightening up their lending practices. Well would you say that that market then is actually getting a little worse right now?

Well, I think again it's just in the shipping area, the shipping markets are not terrible because obviously, the ports there are shipping goods, still shipping goods outside of their -- exporting goods outside of their country, but clearly, as we all know, the European market is not a growth environment at this point. But again, our business there is very well-contained and in good shape and while we'll see -- we expect to see incremental growth this year, over last year, it's not going to be at the same level we are seeing at Manitex, for example, but it will still be a growth environment for us.

Okay.

We are coming from a low base, as Andrew said. So, we are not overly exposed to Europe at any standpoint, but clearly, it's not a growth environment for this year.

Okay. And then my -- the last thing that I wanted to ask you about would be the material prices that you're seeing. If you could, I guess, give some more color as far as the materials that are increasing and that you are seeing the biggest increases in and, I guess, what rate?

I think I've been hearing around 2% is kind of the material price increases that we've been seeing going through. But again, they're not -- if you remember, when we started to come out in 2009 and 2010, you saw very dramatic increases in material and that is not happening now because of the fact that, as you know, outside of some of some of the key areas that we are heavily involved with, thank goodness, in North America there is not -- it is more modest growth anywhere else so that's keeping material price and other cost increases under control.

Okay. And, you are, I guess, containing that via both price increases and working alongside new suppliers, as well?

That's correct. That's right.

Okay. All right, terrific. Thanks and great job on the quarter, guys.

Thank you very much, Michael.

Thank you.

(Operator Instructions)

I'm sorry going ahead. I thought we were done. Okay, go ahead, Alicia, we will take another one.

Thank you. Our next question comes from the line of Matthew Dodson with Edmunds White Partners. Please go ahead.

Well, we just have a quick follow-up question. Can you quantify what the tax rate is going to be next year?

Andrew?

I wish I could but, no seriously, I think that, relatively similar to this year, I think.

Yes, I think we should use the same relative effective tax rate. I don't know of any reason why it would be materially different.

Exactly.

Perfect, thank you.

Thank you.

Thank you. And I am showing no further questions in the queue at this time. Please continue.

Thank you, Alicia, and I appreciate everyone's interest in Manitex International. Look forward to speaking to you again in the next quarter. Thank you very much.

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