Manitex International Inc (MNTX) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Manitex International, Inc. second-quarter 2012 results conference call.

During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be opened for your questions. (Operator instructions). Today's conference is being recorded August 7, 2012.

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 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 14, 2012.

We will again 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 our Safe Harbor statement. Review this statement and refer to our SEC filings for further guidance on the risk associated with our Company.

We have organized our call today, as in the past, with my leading off by making a brief opening statement followed by a review of our results might Andrew and a closing statement by me. Andrew and I will then welcome any questions.

For now, please refer to Slide number 3. On our first-quarter earnings call, we emphasized the production of our backlog would be our primary goal and challenge for this year. We believe that the second quarter was a very good start to meeting our goals and the results we just reported indicate that our production is up. We are generating cash flow and earnings at a solidly higher level than last year. Specifically, revenues were up 23% over the first quarter and 42% when compared to the prior-year quarter. Earnings per share was up over 80% when compared to the first quarter and 124% over the same prior-year period. Our increase in earnings was driven by a modest improvement in gross margins with a more significant impact coming from controlling our general and administrative expenses. We expect this trend to continue through the rest of the year. That would give us an excellent year-over-year improvement when comparing 2012 to 2011.

As we mentioned in previous quarters, we began to plan increases to our production schedule for 2012 in the fourth quarter of 2011. And the results that we've reported today show that we reached a higher level of sales slightly ahead of schedule. While the markets for our products continue at a level which indicate a replacement cycle is occurring, they are certainly not running at a full recovery basis.

We believe the commercial markets are running at a very anemic growth rate and much of our GAME has come from the energy markets. These are markets that we did not participate in during the last cycle which was principally a real estate cycle. Therefore, we could see an increase in commercial activity as we go forward, combined with the continuing expansion of energy markets although possibly at a slower growth level, allowing our Company significant room to grow.

Furthermore, we are very satisfied with our positioning in energy markets for the long run. We believe that, by developing products especially for these markets, we are creating meaningful long-term value for our Company. Meanwhile, we continue to develop new products throughout our organization and in fact we are about ready to launch several new products which we believe will have a favorable impact on our sales and profits in 2013. Andrew will provide more details on product development in his remarks shortly.

Finally, the expansion of our Manitex crane production at our Badger facility is progressing on plan and will be ready for limited results in the fourth quarter of this year and full production of the Manitex 17 ton crane at the Badger Crane facility for 2013.

The movement of some select Manitex cranes to a Badger facility is a good example of the opportunity we have at Manitex International. We have plenty of plant capacity to significant grow our group internally without adding new facilities or large capital expenditures which give us real flexibility, and we have demonstrated in the past the ability to adjust through any market condition.

Moving on to some of our other divisions, it looks like our international operations will have a respectable year in what we all know is a difficult global economic environment. Our expectations were not high going to this year for Europe, but our team is doing a good job of delivering CVS product around the world, helping offset weakness at home, examples of which are earlier announcements of CVS sales to South Africa, Canada, and Brazil. Also the country of Canada continues to function on a positive level and our Canadian business reflects this trend.

Finally, we completed a small equity offering after the quarter end with the proceeds targeted to retire long-term acquisition notes. The primary reason for this offering was to make sure in the future we were not using our operating cash or line of credit for amortization of principal, but rather to fund the continuing growth and development of our businesses which we believe will have the greatest benefit to our shareholders.

With those overall comments, I will turn it over to Andrew to discuss the results in more detail and we will wrap up with our outlook. Andrew?

Thanks, David, and good afternoon and welcome everyone. Following our usual format, I would like to start out by providing a general business update which we summarized on Slide 4.

Overall, we are pleased to say that both in the quarter and year-to-date our financial results have shown that demand has remained strong in our target market. While we recognize that much of Europe remains on shaky ground with uncertainty in the capital market and relatively slow economic growth and that the North American construction environment is also being generally sluggish, our niche market strategy and variable cost model have served us well and continue to drive our operating and financial performance.

The energy sector in North America in particular again experienced high levels of growth and demand in the quarter. Powerline construction demand also remained firm and general construction activity, which in historical terms is still slow, continued to slow the increase. Our dealers who operate in these sectors remained under pressure to supply product into the field as soon as possible and equipment is not staying on the dealer lots for very long.

We saw little change during the quarter in European markets which, remain slow and adversely impacted by the uncertain economic environment. Where there is demand, the lack of available credit for customers and stricter bank lending continues to impact customers' ability to purchase. However, in South America and other non-European geographies, such as Africa, inquires related to general construction products, mining, and energy were active during the quarter and we saw an increase in orders from these regions. In summary, therefore, notwithstanding the signs of uncertainty and slower global growth, our niche markets have remained at strong levels of demand.

With regard to our product sales, the second quarter has been very similar to recent quarters with demand being driven by the energy and powerline construction sectors seeking out higher tonnage boom trucks and specialized trailers. Second-quarter and the first six months of 2012 revenues and order intake were higher than their comparable periods last year, driven by general market demand strengthening, but also from the positive response to our continued product development strategy. As part of this strategy, the third and fourth quarters will see the rollout of our new 15 ton Badger pick and carry crane targeted for the industrial and refining sectors as well as the joint Badger/Manitex 50 ton rubber-tracked crane which we believe will be the highest capacity crane mounted on rubber tracks targeted to powerline construction and specialized mining applications.

In addition, we will deliver the first Manitex crane mounted to the new Caterpillar 660 truck chassis, which we believe will be an exciting opportunity for additional distribution as we go forward.

As we reported in July, our backlog at June 30 increased to a record $150 million with an order booking to billing ratio of 1.3. This of course includes the impact of output increases secured in the quarter. Our plant production expansion is targeted to allow us to balance production activity with demand and will therefore contribute to increased revenue, but also increasingly lead to a slowdown in backlog growth in the near future.

All product groups contributed to the increase in backlog and Manitex boom trucks represent the major part of it. However, CVS and Load King were also stronger performers in the quarter, securing some additional orders for the second half of the year.

Now, turning to the financial results, Slide 5 of the presentation shows the key figures for the second quarter of 2012 with comparatives for the second quarter of 2011 and the first quarter of 2012. As I cover the numbers, I hope you'll see why we are very happy with the quarter on many fronts and are pleased to recognize the contribution of the whole Manitex International team, supply chain, and dealers in their performance this quarter.

Second-quarter 2012 revenues of $52.5 million increased $15.4 million or 42% from the second quarter of 2011, resulting from strong demand for all products, the benefits of achieving production increases at several facilities and increased shipments in material handling equipment. Manitex boom trucks represented approximately 50% of the increase where the higher tonnage and higher reach boom trucks used in the energy and powerline construction sectors continues to be the principal product with the highest demand.

Additionally, significant increases in year-over-year revenues were generated by specialized material handling products and by Load King trailers, which was driven by strong end-user demand in the energy sector and in international markets.

Sales of CVS specialized port and container handling equipment increased on a year-over-year quarterly basis. As in the past, these are almost totally non-North American markets. On a sequential basis compared to the first quarter of 2012, the strong 23% increase in revenues was a function of achieving planned increases in output ahead of schedule together with the benefit of shipments of specialized material handling equipment.

Second-quarter gross profit of $10.8 million was a $3.3 million increase or 44% year-over-year improvement driven primarily by increased sales volume. Gross profit margin was 20.5% compared to 20.2% for the comparable quarter and 20% for the first quarter of 2012. This slight improvement was principally the result of improved mix in the quarter and some absorption benefit as well as good cost control as we ramped up production.

Our mix of sales has been relatively consistent over the recent periods and we don't foresee dramatic changes in the coming periods. Net income for the second quarter 2012 of $2.3 million or $0.20 per share was an increase of $1.3 million. That's 124% or $0.11 per share over the second quarter of 2011. The 42% year-over-year improvement in revenue resulted in increasing gross profit of $3.3 million which was partially offset by additional expenditures for R&D of $0.3 million and SG&A of $1 million. The Company expects to launch new products resulting from this R&D expenditure towards the end of the third quarter 2012 and benefit from additional profitable growth opportunities in 2013. The increase in SG&A reflects the impact of the increased selling expenses related to the expansion of our sales organization and the increase in revenues as well as increased performance related compensation. As a percent of revenue, SG&A expense declined by 1.8% to 11.3% of revenues compared to 13.2% for the second quarter of 2011.

EBITDA for the quarter was $5.1 million, or 9.7% of sales, an increase of $2.1 million or 68% in the second quarter of 2011 and is another record quarterly level for the Company.

As already discussed, backlog increased $16 million in the quarter, giving a record level at June 30, 2012 of $149.6 million. This is also almost $100 million higher than a year ago, which underscores the strength of our product initiative and market demand over the past 12 months.

Slide 6 is a bridge between the Quarter 2 2011 net income of $1 million to the net income for Quarter 2 2012 of $2.3 million.

Walking through the reconciliation table, Quarter 2 2012 sales increased $15.4 million, which provided a gross margin benefit of $3.1 million and was a small favorable impact of $0.2 million from product mix absorption and cost control. The combination of the volume and mix provided a net gross profit increase of $3.3 million.

R&D increased by $0.3 million from our development activities and SG&A increased $1 million. As we have previously disclosed, we have invested in additional sales and marketing resources in several of our operations to improve geographical coverage and support to our dealers and to drive further revenue increases. These costs together with volume related sales experience and increased performance related compensation account for the SG&A increase. SG&A as a percentage of sales, however, decreased further to stand at 11.3% in the quarter.

The other key contributors to the net income movement between the two periods was an increase in tax expense of $0.7 million principally generated from an increase in taxable income since the effective tax rate remained effectively constant, decreasing to 34.8% and 36.1% for the second quarter of 2011.

Slide 7 shows our key working capital and liquidity ratios. Working capital increased $11.3 million from December 31, 2011, with increases in receivables and inventory totaling $22.1 million being partially offset by increased Accounts Payable, short-term revolving credit facility, and accrued expenses totaling $12.2 million. This increase in working capital helps support year-to-date growth of 39% in revenue and further projected revenue increases as we move through 2012.

Our current ratio of 2.2 and other working capital ratios remain strong as we have moved this growth phase. Inventory has increased since the end of 2011 as we have ramped up production at our operations and the supply chain has started to respond to our schedule increases. Raw materials includes an increasing -- an inventory of truck chassis which has allowed us to improve production throughput by reducing the impact of delayed deliveries from manufacturers. Increased work in process reflects the improvements of the pipeline of product for shipment in the next quarter as some of the longer lead time orders in the backlog prepare to ship.

Slide 8 shows our capitalization and liquidity position. Our total debt at June 30 increased $7.2 million compared to December 31, 2011, to $49.4 million. Increased borrowings of $9.4 million on lines of credit, equipment finance, an Italian working capital financing are offset with repayments and other long-term debt of $2.3 million. Net of cash, the increase was $5.5 million.

During the second quarter, we made an early payment of $0.6 million of debt related to prior acquisitions in line with our intent to reduce overall debt and continue to strengthen the balance sheet. With a $4.1 million raise through the stock offering in July, subsequent to the quarter's end, we intend to retire additional debt. We have already completed the repayment process for $2 million with the balance of the net proceeds to be completed shortly.

Finally, with the strong quarterly performance, we delivered $5.1 million in EBITDA, leading to a trailing 12-month EBITDA of $14.5 million, which provides an interest coverage ratio of 5.7 times at the end of the second quarter.

And now I would like to hand back to David for his final summary.

Thank you, Andrew.

As we stated in our release, our results for this quarter and the next couple of quarters all be driven primarily by efficient production of our backlog. With that visibility, we believe that the third quarter will be slightly higher in sales and profit when compared to the second quarter.

The fourth quarter is always more difficult to predict because production hours are lower for the fourth quarter and productivity is just never as good during last weeks of November/December. However, by the end of the third quarter, we would expect 2012 year-to-date sales to exceed sales for all of 2011. Therefore, suffice it to say that we expect a very good improvement in sales and profits when comparing 2012 to 2011.

With that, Alicia, we would welcome any questions.

(Operator instructions). Kristine Kubacki, Avondale Partners.

Good afternoon. I was just wondering, on a macro level, given the macro slowdown that we are all reading about in the papers and the one area that has been set out has been the area of energy, North American energy, and all of us are watching our screens and we look at your backlog and I guess everything seems strong, but the question is for how long. Can you tell us? Has there been any change in your customer behavior? Are there any -- would you think that anything could get pushed out or canceled? Are you seeing anything -- any change there?

And then I guess a second follow-up to that would be on the commercial side, you talked about that that could start a come back little bit. Are you saying demand yet there or is it more that intuition given that the fleet age there is just so old and that we have seen some more positive data points coming out of housing?

Okay, Christine, thanks. Good questions. On the backlog, as Andrew stated, we would expect that it's just not -- it is unusual for us to have a backlog of this magnitude compared to our sales. And as our sales continue to improve and increase, we would expect, as we stated, that the backlog total dollar amount will decrease. It is just, again, not something that you would have where you would have a company such as ours with such a large backlog going out so far. So, we would expect that to be balanced, more balanced as we go forward. So I -- that is our expectations.

On as far as cancellations, I am not aware of any at this point. So, I believe that certainly, in the gas area, there have been postponements, but that has already been factored in. That was factored in months ago. And we are seeing an improving market in the commercial area, but principally it is because of what you stated. The last good cycle we had was -- in that area was 2002 to 2006. So that equipment is just very old, and so we are starting to see some replacement in that area.

Okay. And then, just in terms of acquisitions on the pipeline there either in North America or Europe, are there any opportunities out there for you and how are you viewing that right now?

Well, with the growth level that we have currently, we of course -- with my history, I've missed the enjoyment of having an acquisition every other week, so it is something that we look at all the time. And I do see that as being a positive way for us to continue to grow the Company. But again, with our growth level being so strong right now and with the uncertainty around the world, we are being very cautious to -- as we look at the opportunities, but that is not to say that we won't be more active in the future. It just depends on the opportunity and where we see where we are in the marketplace.

If you look at our history, we had a period of time where we were not doing very much. And then we were very active in 2009 and 2010 and then again we have had a period where we have just been growing our business and growing it with new products. And we think that that has proven very beneficial for our shareholders.

Okay. Very good, thank you very much.

Mark Tobin, ROTH Capital Partners.

Good afternoon, gentlemen. This is Joe Bess for Mark.

So, looking past Q3 and adding a little bit more color to your last comment, David, can you talk a little bit about what sort of production rate you might be expecting for Q4 versus the previous Q4 in terms of -- with such a large backlog? And then basically looking to get a little bit more color for what our revenue expectations should be for the last quarter. Are you expecting sequential growth? And then the front-half expectations for 2013 as we watch the backlog kind of come back down to more historical levels.

I will do the best I can. The issue is just -- I guess I am just trying to be cautious and realistic in the fourth quarter. It is just a quarter in which you have less production hours. You can only squeeze so many hours in the day and as I said, in the last week of November and the last week of December, you certainly just have -- been my experience over all these years that you just don't produce at the same level even though you obviously try to work around it as much as possible.

However, with the backlog we have, clearly we are going to try to be running at levels which will be significantly higher than we were a year ago because, a year ago, we ran the second, third, and fourth quarters kind of at a flat line rate of $36 million to $37 million in production per quarter. Now, this year, we have done roughly $43 million and $53 million, $52.5 million and $43 million in the first quarter. And as we say, we expect the third quarter to be slightly higher. So, I certainly would expect the fourth quarter to be significantly higher than a year ago, but I just don't have a clear indication yet as to how many hours and how much production we could do in that last November, last December time period.

Okay, great. And in terms of your production, are you seeing any sort of logjams in terms of your assembly, or can you talk to us about the smoothness of manufacturing right now?

I think they have done a good job of efficiently -- as we have said, we have efficiently ramped up production, obviously significantly. And I think they have done a nice job of holding on to the efficiencies. Clearly, there's going to be some inefficiencies as you get to higher levels, but it hasn't meaningfully impacted any of our numbers.

Okay, great. Thank you.

(Operator instructions). [Jeffrey Long], [Tuxedo Road Associates].

Hi, guys. I have got three questions and I will try to make them all easy. David, can you give me an idea of what markets you think the new expansion into Badger will serve? That is question number one.

Question number two is that at one point we were developing a relationship with Caterpillar. Outside of utilization of their new truck bodies, is there anything going on their relative to rental equipment or leasing equipment through them?

And number three, in the past, we had attempted to build relationships in the Middle East and in Russia. I haven't seen either of those areas commented upon relative to our equipment over the last year, year and a half. Is there anything new in those two areas?

Okay, I will try to go through each one. Hopefully, I won't forget them. But first, on the Badger expansion, that is a -- basically into the commercial markets and what we're trying to do there is concentrate our Manitex Texas facility on the higher-margin, higher-tonnage cranes. But meanwhile, we recognize that we are starting to see a rebound and a recovery in the lower tonnage commercial cranes which obviously was our bread-and-butter for many years. And we don't want to miss that, so what we are trying to do is Badger make straight mass boom cranes just like Manitex and we want to, but clearly there's differences between the Badger cranes and the Manitex cranes. So that is what we have been doing over the last six months -- getting that facility up and ready to operate and run a Manitex crane through that operation. So it is basically just to start to capture the non-energy, non-specialized type of crane that we are now producing right now down at Manitex.

What is Terex doing in that sector of the marketplace in the lower tonnage area? (multiple speakers).

I'm not sure I can't respond to what they are doing. I don't really know. I mean I assume that they are -- that their plants are running in the areas that they have interest in these markets. They are running what they can, but, again, (multiple speakers) Manitex.

On Caterpillar, Andrew, you might know more, but I don't know, I haven't heard of a lot of other activities. I know there's always discussions with Caterpillar on various projects. This is one that Andrew mentioned which is very exciting. It is something that Caterpillar has stressed as an area that they want to emphasize this new chassis that they are coming out with and we are mounting a crane on their chassis and so that has proven in the past.

You mentioned the Middle East. I mean the way we got into that market was we started to mount cranes on the Man chassis and basically they were a Man dealer which is a chassis that -- more of an international chassis. I don't think you see a lot of them in the United States, but you certainly see them around the world. And that is how we got into the business there. And so what we are hoping is of course that this is an nice entree for us to have some further business with clearly a very strong distribution market (multiple speakers) in Caterpillar. You don't get any stronger than that. So that is why we are excited about it.

And as far as Russia, we have sales; they are certainly not material. We have sales going from CVS going into Russia, but fortunately with all of the business and development in North America, our emphasis and concentration has been closer to home in the last year, year and a half.

So to answer your question directly, I think we just realize that we have got a lot of business right here and I think our numbers have proven it and we just wanted to concentrate on this business while certainly Russia is a longer-term opportunity and one that is closer for CVS to develop. And we have been attending conferences and sales in Russia. It is a pretty tough market to crack for a lot of reasons and fortunately we have got good business here.

Got it. Thank you.

Josh Goldberg, G2 Investment Partners.

Mr. Goldberg, your line is open if you have a question. (Operator Instructions). It appears Mr. Goldberg has stepped away from the line. Our next question comes from the line of [Peter Devoid], Morgan Stanley.

It is not Peter. It's [Jeff Feld]. You, on I think it was Slide 4 indicated that orders received continue at a faster rate than the output. Is this an execution issue? And I think you -- the insinuation is that this order flow is going to continue. And I guess my question would be does your -- do you look to a possibility of not filling the orders that you are getting?

Okay, I'll give it a stab and, Andrew, you can correct me if you think I am wrong. I think, over the last couple of quarters, as we have received a large influx of orders, which I mentioned is really outside the normal backlog period that we would experience in the equipment world, we have received orders faster than our input, or increase in production. But I think what we mentioned in our remarks was that we expect that to balance out as we go forward.

So to answer your question, I think, while certainly it has been true historically, we think that we will catch up and start to see an increase in order production versus order inflow in the next couple of quarters. Is that kind of the same consensus you have, Andrew?

Yes, absolutely right.

So, the catch-up would probably be in the fourth quarter where you expect things to slow down?

I think the third and fourth quarter will start to see -- we will start to see an improvement in our production versus our order inflow so that it gets to be more balanced where we are on a three- to six-month cycle not a six- to 12-month cycle which is where we are at now. It is beyond -- we just had a very large influx of demand of several of our new products, which is very fortunate. I mean we are very happy that we had it of course, but it created some out of balance between production and order inflow. But I think that will start balancing out as we go forward.

I may be wrong. I mean I don't -- it is hard to predict as we all know order inflow, because we have got a lot of opportunity that we are working on and maybe I'll be surprised, as in what I said several calls ago, I couldn't imagine the amount of business that some of our development of our products has created. And it has been a very positive set of circumstances for us.

Okay. Thank you.

Matthew Dodson, Edmunds White Partners.

Can you talk just a little bit about pricing and the pricing dynamics? So, if you are -- you know you are booking significant more than your shipping out, can you talk about what you are seeing in price and your ability to potentially raise price?

Well, we have done some price increases over the last 18 months basically in six-month increments. And I believe right now we are -- we have announced price increases for 2013 units. But I wouldn't expect any -- certainly the majority of those increases that we have historically are baked into our backlog. But I wouldn't expect, as we sit here today while we are looking at it all the time, I don't know of any more known price increases that we have in process.

Okay. Then the other question is can you talk a little bit about the rental fleet, what you see from the rental customers and your sense of their utilization? And is that continuing to get better question? Are they the major buyers or are you just seeing individual companies as the major buyers, or help us understand that dynamic, please?

We are a little bit different than maybe some of the other equipment companies you might follow or invest in. We have specialty equipment that goes to a lot of specialty areas and so we are not selling that much to some of the large national rental houses, although we have in the past, but we aren't currently selling that much. We sell more to the specialized rental houses. And at this point, it seems like most of their units are going to end customers versus rental crane houses, specialized rental crane houses.

Just to follow up with that, are you seeing pricing though for the special rental houses? Are they starting to increase prices? Because it seems like that would be a positive dynamic for you.

Yes, that's true. We have seen that. We have experienced increased -- increases in their utilization and their rental rates, yes.

Okay, great. Thank you.

(Operator instructions). I am showing no further questions in the queue at this time. I would like to turn the conference back to management for any final remarks.

Thank you, Alicia, and thank you . Everyone for your interest in Manitex International. We look forward to future calls. Thank you again.

Ladies and gentlemen, this concludes the Manitex International, Inc.'s second-quarter 2012 results conference call. Thank you for your participation. You may now disconnect.