Manitex International Inc (MNTX) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Manitex International, Incorporated first-quarter 2014 results conference call. (Operator Instructions). This conference is being recorded today, Thursday, May 8, 2014.

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

Thank you, Damien. Good afternoon, ladies and gentlemen, and thank you for your interest in Manitex International. As usual, on the call with me today is Andrew Rooke, our President and COO. Please see our website or our release for replay instructions for this call which will be available until May 15, 2014. We will again be using slides in this presentation, which are available through the webcast or directly from the investor relations section of our website.

Refer to the first slide regarding the Safe Harbor statement. Please review this statement and refer to our SEC filings for further guidance on the risks 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 by Andrew and a closing statement by me. Andrew and I will then be happy to respond to questions.

So please now refer to slide number 3. Before we begin to discuss the details for the quarter, I believe it is always good when we are starting the year to review again the strategic goals of our Company. Our Company is committed to profitable growth both through acquisitions and organically. We believe our Company and its shareholders will prosper from the economic benefits and marketplace recognition which come with critical mass.

As you may recall, we stated last year we had an objective to reach $350 million in annual sales for 2015. We stated that this was not guidance but rather was meant as a goal, which was not dependent on acquisitions but was based on the assumption that we would have a slow but steady growth in the economies where we participate. We are well on our way to reaching this goal.

And notwithstanding the second half sluggishness of last year, we are encouraged by the increase in this year's first-quarter orders. This acceleration in orders is translated to a return to production schedules, which we will believe will allow us to accelerate our growth as we progress through this year.

As important as it is for us to grow organically, we believe that given the condition of the world economies, we can add further benefit to our shareholders by continuing to work on opportunistic acquisitions which will be accretive to our earnings and complementary to our existing product lines, particularly in the lifting and crane categories.

With that brief strategic overview, I would like to turn to the specifics of the first quarter. We started the year, as we have in previous years, on a modest basis. But when compared to the first quarter of last year, we have made an improvement in this year's first-quarter on a number of fronts. The most important is we have had a positive increase in backlog for the first time in over a year. Our belief is that this has set us up for a good year in 2014.

Further, it was very gratifying to see another Navy order for our Liftking subsidiary. Also, as we mentioned in our release, and to be clear, this year's Navy contract is separate from last year's contract and only a portion of last year's contract is in our backlog. As a reminder, our backlog represents only orders to be delivered in the next 12 months.

Now going back to the numbers in our results. We've had several other ratios that while not as robust as we would liked, clearly represent a to better start to this year as compared to the same quarter a year ago. A couple key areas I would like to point out are, for example, our EBITDA margin for the first quarter this year was 7.5%. A year ago the same quarter we started out at 6.9%; and, more importantly, ended at 8.8% for the full year.

With the production schedule we now have we believe we will see a similar increase from last year, which could put us over 9% on a full current year basis. Similarly we started last year's first-quarter with a gross margin of 17.2% and finished for the full year with a gross margin of 19%. We started this year with an 18.5% gross margin and, as mentioned, with planned increases in production and with similar percentage increases, we could end the full-year closer to a 20% gross margin.

Finally, we believe we will make up the earnings-per-share reduction we took in the first quarter from ConExpo expenses and earn more than that over the rest of this year, with orders and deliveries from the many leads and contacts we developed at the convention.

I would also like to mention that we've experienced an increase in production for each consecutive month during the start of this year. And contrary to last year, so far there has been a follow-through in orders. In the short run, we believe this order increase will result in our achieving over $70 million in sales for the first time in our history in the second quarter of this year.

With those brief comments, I would like to turn it over to Andrew for his review. Andrew?

Thanks, David, and good afternoon and welcome, everyone. Following our usual format I will start out by providing an update about the state of the markets we serve and make some remarks relating that to our performance. And then I'll get into the comparative financials.

So let's start with slide 4. As we commented in March, we saw a very sharp increase in orders in this quarter which took our backlog back up to $100 million. This trend, which has additionally continued into the second quarter, resulted in the first-quarter 2014 book-to-bill ratio of 136%, our strongest order performance since quarter one of 2012.

This is indicative of improving customer confidence here in North America, which was particularly noticeable at the ConExpo show that occurred in early March, and which is now translating into orders. Energy demand for rig count growth is flattish, tracking at a growth rate of 1.1% compared to this time last year, and 1.6% from year end 2013. Expectations continue, however, for a modest recovery in the sector.

We are anticipating that overall the North American market will continue to grow compared to last year. There is still much below the peaks of 2007 and 2008 with certain geographies, such as Mexico, where there recently has been a significant pickup in activity, experiencing stronger demand than the average. European markets have remained fairly constant since year-end for a positive compared to the first quarter of 2013.

Our product revenue profile has remained relatively consistent, with healthier levels of demand for a higher capacity truck-mounted cranes. Shipments of 40 ton capacity and above were more than double those of lower capacity units in the first quarter.

Commercial and energy-related material handling equipment has been slower. While container handling equipment was steady in the quarter compared to last year, it is now showing an improved mix of product and future orders. Subsequent to the end of the quarter we announce receipt of our second major military contract in the space of 12 months for specialized material handling equipment from Manitex Liftking subsidiary.

The order has initial value of $26 million, and with options exercised, this could increase to $38 million over the next five years, the term of the contract. Deliveries will commence in 2015 and orders from this contract are not yet reflected in our backlog, as deliveries are expected not to be within the next 12 months.

Together with the existing U.S. Navy contract of similar value we will have a healthy level of shipments for this attractive military business in 2015.

With regard to our backlog, I have already referenced the increase to $100 million at the end of the quarter, which was 29.4% increase from December 31, 2013. This was a very broad-based mix increase, but with Manitex truck-mounted cranes strongly represented. With this improved visibility, as we've already mentioned, we have initiated production increase to match our activity levels at current demand. And our financial results in the coming quarters should reflect higher volumes and higher margins.

Now turning to the financial results. Slide 5 shows the key figures for quarter one 2014, with comparatives for quarter one 2013 and quarter four of 2013. First-quarter 2014 revenues increased $3 million or 5.1% from the first quarter 2013 to $62.6 million. Excluding the benefits of $7.8 million from acquisitions, revenues decreased 8.1% due to decreased material handling revenues, while crane, container handling, and equipment distribution revenues were flat year-over-year. Sales activity in the quarter reflected lower quarter one production schedules derived from the broad-based lower backlog which we entered 2014.

Net income for the quarter of $1.9 million was unchanged from the first quarter of 2013, with increased revenue and gross profit offset by an SG&A costs from the businesses acquired in 2013 and $0.7 million of cost incurred for the ConExpo show and an increase in interest in tax expense.

An increase gross profit of $1.4 million derived from improvements in the industrial crane operations will improve mix and production costs and the favorable impact from product mix from the acquired business revenues.

SG&A expenses, excluding the cost of the ConExpo, were 10.6% of sales compared to 10.4% of sales for the first quarter of 2013 and remain controlled within our target range. Earnings per share after the negative impact of approximately $0.03 per share from ConExpo costs, was $0.14 per share compared to $0.16 per share for the first quarter of 2013.

EBITDA for the quarter was $4.7 million, equal to 7.5% of sales, and was an increase of 14.6% from the $4.1 million in the first quarter of 2013.

Slide 6 is a bridge for the net income from quarter one 2013 to the net income for quarter one 2014 of $1.9 million. Moving through the reconciliation table, a $3 million improvement in revenue resulted in the gross profit benefits that $0.5 million which was increased by $0.9 million, the effect of a 130 basis point improvement in the gross margin percent from 17.2% in quarter one of 2013 to 18.5% in quarter one of 2014.

The combination of volume and mix provided a net gross profit increase of $1.4 million.

Two principal factors influenced operating expenses: the first being $0.7 million of expenses relating to participation at ConExpo, the top industrial trade show held once every three years, and the second being SG&A costs within companies acquired since the first quarter of 2013. As discussed previously, we experienced a very positive reaction to our attendance at the ConExpo show and expect to recover this expense in orders and leads in the future.

The other factors influencing operating income were $0.2 million of higher interest costs arising from working capital financing and $0.2 million of increased tax expense attributable to an increase in the effective tax rate to 32.5% from 26.4% for the first quarter of 2013. The principal factor accounting for the increase in the effective tax rate was the absence of R&D credits with such provision provide -- expired as of December 31, 2013.

Slide 7 shows our working capital marginally increased from $74 million at December 31, 2013, to $75.2 million at March 31, 2014, with the principal movements being reduction in cash used to reduce debt and pay accrued expense and an increase in receivables arriving from the timing of shipments and a mix in sales we included a higher proportion of two international customers.

Slide 8 shows our capitalization and liquidity position. Total debt at the end of the quarter was $52.7 million, a reduction from $54.2 million at December 31, 2013. The key movements being a reduction in working capital and floorplan debt of $1.1 million and the capital leases of $0.2 million and the reduction in acquisition related debt of $0.3 million.

With 12 month trailing EBITDA increasing $22.1 million, our debt to trailing 12 month EBITDA ratio was relatively stable at 2.4 times compared to 2.5 times at December 31, 2013.

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

Thank you, Andrew. As mentioned in our year-end call, in general increases in production do not occur in the same quarter in which we receive the order. We usually have a one or two quarter lag from booking of the order to building the unit. Therefore, we are planning for increases in production for the second and third quarters for this year. We have executed on this strategy well in the past and we expect no less from ourselves now.

We also expect that our increase in sales will also lead to an increase in all our other important performance metrics.

Finally, for the full year, excluding any impact from any potential acquisitions, we should see another solid increase in our results which should translate to a good return for our shareholders.

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

Thank you, Mr. Langevin. (Operator Instructions). Philip Shen, ROTH Capital Partners.

This is Matt on for Phil. Thanks for taking our questions. I wanted to start out with the backlog if we could here. How much of the $100 million in current backlog do you guys expect to recognize as revenue in 2014?

I would think the majority of it would be, Matt, we might have -- it kind of depends, too, on obviously when people want delivery of things. But as far as I'm aware of, most of us it is in the next 3 to 6 months.

Would you concur, Andrew? What's your feelings on that?

Yes, I would. I think that is a fair comment.

Okay, great. That's helpful. And then in terms of new orders, it looks really healthy. I'm getting to book to bill of almost 1.4 here. Can you give us a sense for what drove the strength in the new order flow during the quarter?

Well, unfortunately, we started the year pretty -- you know, the pretty dismally. At the end of last year we did not see people pulling the trigger from working on projects to making orders. But in January it was slow. But then February started to really pick up. So just seems like the psychology and people's belief in the market started to really take hold and we started to get the orders. It continued modestly in March and better and higher again in April.

Okay, great. That is helpful, as well. And then can you guys sustain that book to bill rate going forward? And could you comment a little bit on the trend that you are seeing during Q2?

Well, as I mentioned, in April we received more orders than we produced and we have increased our production, so that was very positive. And we hope to see follow through. If you remember last year, we started modestly and then increased in the second quarter and we were thinking we were going to have quarter over quarter sequential increases like we did in 2012. In 2012, we started in the low 40s, and then increased it quarter by quarter. But last year we didn't. From the first quarter to the second quarter, up; and then down significantly in the third, and then up in the fourth.

So it was a very choppy year last year. But hopefully this year, the way it is starting, we would anticipate having a much better run of increases quarter over quarter this year.

Okay, great. And then shifting gears a little bit, talking about some of the products. Can you give us an update on the interest level for the 70-ton crane? What's the current pace of quoting activity and what does order flow look like there? And when could you begin deliveries and what could this mean in terms of revenues?

Yes, we are very pleased. We had some deliveries in the first quarter of fuel. Some of those that have [gone in], especially we received -- I don't know if it is, if all the book -- if everything is in the books yet, Andrew. But I know we -- I heard about a significant order up in Canada for some units, a 70-ton unit that had gone up there. And so, we are very encouraged by the early indications and we will get more units out in the second quarter. And those are fairly significant price units, as they should be.

Okay, that's great. And then one more here, if I may. In terms of acquisitions you've mentioned in the prepared remarks -- what is your latest thinking on acquisitions? Are you targeting any specific geographies or end markets? Are you currently in any discussions with any potential targets? Just a little color on your thought process there.

Yes, we have made it as a complement to our organic growth. If you look historically, we have obviously stressed that the first thing is new products and organic growth. But it has always been a part of our strategy. And we gauge it based on how we see the economies going in the world because if we believe that we are coming to an end of the cycle, or if there is some reason why we should hold back at this point, we will do that. We have in the past. But as we stated publicly, we feel that we are in a good state in the obviously early stages of the cycle. A good period to add some more businesses, to add some more depth to our Company, and we are concentrating in the crane area.

Great. That is very helpful, guys. And I'll jump back in queue here. Thank you.

Tom Finan, Avondale Partners.

Good afternoon guys. I'm sitting in for Kristine. So I know you said that demand was pretty broad based in the incoming orders. But just specifically for oil and gas end markets, if you could just give any color there, it would be helpful.

Sure. After experiencing a fairly strong oil and gas market for equipment in 2011 and 2012, as we all know, 2013 was not strong. And I don't think 2014 will be as strong as possibly 2015. But it is starting to look like equipment purchases are coming back. And we are certainly doing a lot of quoting from discussions that we've had with our customers being our dealers. It seems like that market is starting to resurrect itself, which is great, because that is complementing our commercial market, our power line construction market, and all the other markets we serve.

Okay, great. That's helpful. And then if you could just give an update on how Sabre is performing?

Sabre had a nice quarter. We mentioned acquisition sales, Sabre was certainly the majority of those. And it is performing fine.

Okay. And then the last one, can you just give a little color on commodity costs? We've heard a few companies state that those are starting to increase a little bit.

I have not seen any indication of that, and our expectations are that it will be under control for the near term.

I don't know -- Andrew, you are closer to that than me. Have you seen anything yet?

I would say that what we have seen is the sort of normal, rational movement in prices. As you say, there's nothing extreme taking place. Everybody is taking the opportunity to process on the small side -- the low single digit increases in prices. And that goes with people selling to people buying. So that helps the market that we are in.

Thank you, Tom.

Okay. Great. Thank you.

Ryan Cassil, Global Hunter Securities.

Just to start out on shipments, did you guys have any weather-related or customer related delays on shipments? Or did things play out how you guys saw it internally?

Well, it was certainly a disturbance during the quarter. That's no doubt about that. But we tried to make up everywhere we could. We had plants that were shut down from period to period, especially in the north. Obviously we have plants in South Dakota, Minnesota, Indiana, Illinois, Toronto. So, we had a number of plants which were in areas that were affected, but generally speaking I think we tried to make up any delays that would've occurred during the quarter.

Okay. Okay, sounds good. And just thinking back to the last call, you guys have talked about strong leads coming out of ConExpo. Did those play out as you expected? Or have they gotten delayed a little bit? Where do you stand versus your previous expectations on that?

I would stay that we are still very bullish on what occurred at ConExpo. We received some tangible orders in the March and April time period directly related to discussions and meetings at ConExpo. So I would say that it is still playing out. And it is has turned out to be -- it was a very good year for ConExpo this year, compared to three years ago, as we stated in our last call.

Okay. All right. Thanks, guys. Appreciate it.

Les Sulewski, Sidoti & Company.

So can you talk about how this Navy order came onto your plate? Was this through a bidding action, or was this just a follow-on order?

This is from our Manitex Liftking subsidiary, which has being dealing in military areas for over 40 years. So they really have a very good network, and really have, obviously, good contacts with a number of the military organizations around the world. So this is something that they work on on a regular, steady basis. They have for many years. They are well-respected within the organizations. But these are long, difficult processes. They're obviously -- we are making specialized material handling equipment. And in a lot of cases, it's not so much the bidding process as it's just the qualifications that they've learned over the years from dealing with our Company.

All right, thank you. That's helpful. Now you're talking about increasing production levels to get your leadtime a little bit higher. What is it going to take? Is it going to be extra costs involved? Are you capable of doing this in the short term? Can you talk a little bit more about that?

Sure, of course, Les. We have flexed our production up and down over the years depending on what we see in our backlog. And fortunately, it is much too better to have to try to increase your production than decrease it or keep it flat like we did in the first quarter. So this is a good problem. And we have, in the past, increased -- I mean, if you look at in previous years, we have gone up in the quarter as much as $10 million. We certainly have the financial capability.

You remember, our process is we, for most purposes, are assemblers. So, in most cases, we help the buyer components from our suppliers around the world get those components in our shop and then assemble the product, for most purposes. Obviously there's exceptions to all that.

But, generally speaking, the process is just getting the order, getting the component, assembling the product. And that just takes time. So that is why we say, we get an order in one quarter, we build it in the next couple of quarters. That's the way it works.

Okay. Thank you. And one more for me. And without the R&D tax credits, what could be an assumed tax rate moving forward?

I don't think, Andrew, we are going to see -- a least I hope we don't see (laughter) -- this is a sore spot for me, Les, a sore issue for me. But hopefully we won't see any greater percentages than what we've seen in the first quarter.

Do you concur with that, Andrew?

Yes, the rate is based on a full-year expectation rate, but the specific comment on the R&D credit -- of course that is totally outside of our control. That is over to Washington, I'm afraid.

So, Les, I would expect the 32% to be kind of the range that will be using for the foreseeable future.

Okay, great. Thank you.

[Jeffrey Long, Tuxedo Road Associates].

A couple of questions. The first one is kind of off-the-wall. Do we own Georgetown now?

No, we do not. We continue to lease Georgetown.

Okay. Second, can you give me some color on CVS? As we recall, CVS at one point was a $100 million business. I am wondering what we are doing there, new product-wise, to try to regain significant revenues out of CVS? Or is the marketplace just not ready to accept significantly larger orders in that arena?

I am very glad you brought it up, Jeff, because this is really a shining star for us. First thing is CVS, obviously, as you correctly stated, was $100 million a year before it went bankrupt in 2009. And then we bought it in 2010. And it has really been doing very well during a very difficult period; always profitable. I don't think, Andrew, we ever had an unprofitable -- I don't even think we've had an unprofitable month, as far as I can recall.

So these guys have done a really good job. All the people there have. And there are really doing, really growing now, they're -- we mentioned in our release or our prepared remarks that CVS and Manitex are really driving us forward. And they have goals and aspirations. They have their own separate goals and aspirations to get back to that $100 million, and not that far down the road.

They are doing very well. They are clicking along at a $10 million quarterly clip right now. They are working on some very significant orders. The marketplace is cooperating. That equipment wears out very quickly because it's used so much. So there's some real need for that equipment around the world, as we go forward. So I am very encouraged by CVS, and very hopeful for the results as we go forward.

That is great for that. And my congratulations to Mark.

Yes. He deserves it.

He is doing -- he has been, and he is doing well.

He is. Thanks, Jeff.

Amit Dayal, H.C. Wainwright.

Congrats, Dave. Just one question on the margins side of things. You stated that margins started lower last year, but went up.

Right. Right.

And the trend should follow this year. What is going to drive this margin improvement?

We obviously ran things at a lower level in the first quarter. And a good thing is, the lower level is now in the 60s, whereas, not too long ago a lower-level was in the 40s. So we are moving up in the world. But just as we get more production, a better mix, more efficiencies -- just as we have in the past, we should see a study -- as we go into -- we mentioned that we will be -- our goal is to get into the 70s in the second quarter. We are clearly, if we are producing in the 70s, we should have a higher margin than where we are now. So that's what our expectations are.

And that's what our models show for production with the units that we have going through the facilities now.

And is CVS your highest margin business right now?

No, no. Our highest margin business would be Manitex.

Okay. Most of my other questions have been asked. I will (multiple speakers) afterwards, yes. Thank you.

(Operator Instructions).

No further questions, Damien? Are we --?

Yes, no further questions. Please continue with closing remarks.

Thank you, Damien. Thank you, everyone. I appreciate your interest in Manitex International. I look forward to our further calls. Take care.

Ladies and gentlemen, this concludes the Manitex International, Incorporated first-quarter 2014 results conference call. Thank you for your participation. You may now disconnect.