Manitex International Inc (MNTX) 2017 Q1 法說會逐字稿

Good day, and welcome to Manitex International First Quarter 2017 Results Conference Call. As a reminder today's conference is being recorded. At this time, I'd like to turn the conference over to David Langevin, Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you, Lisa. Good afternoon, ladies and gentlemen, and thank you for your interest in Manitex International. On the call with me today is Michael Schneider, Senior VP of Financial Operations and Administration at Manitex; this is Michael's second quarterly call with us replacing Andrew, who has moved on to be CEO of our joint venture. As I mentioned in our last call, Michael's been with us for a little over a year.

Now please refer to our first slide regarding our Safe Harbor statement. We ask you to review this statement and also refer to our SEC filings for further guidance on the many risk factors associated with our company. Also please see our company website or our release for replay instructions for this call, which will be available till May 11, 2017.

I will begin with a brief overview and Michael will comment on our financials after which we will open it up for questions.

Let's begin with Slide #3. As I have stated on several occasions and I hope everyone on this call is aware, we are coming off of several years of declining business in our major product categories for many reasons. And an especially slow period during most of the second half of 2016. And I also hope everyone has seen several of our recent releases, which announce that our backlog was moving up, our book-to-bill was solidly over 1, which converts to over $90 million in orders taken for the quarter, which is the best in years and it is exciting for us to be talking about increasing production rates and visibility for our major straight-mast cranes, which extends for several quarters. I would like to caution that a down cycle takes several years to reach the bottom and the positive side of the cycle takes 7 years to recover -- several years to recover. We believe we're at the beginning of a multiyear gradual recovery in our industry. And as is always the case during the early phase of recovery, some of our suppliers are very cautious and slow to expand capacity. Thus the speed of our increase in production is dictated by the lead times of certain suppliers.

However, we now see our suppliers expanding in their capacity as the market improves and we're seeing progress in the second quarter in this regard. And we're experiencing an increase in our production for the second quarter. With this increase, we believe we will see improvement in our margins even after reporting the best adjusted gross margins in this quarter for us for some time. We reported today a small operating loss, which is not acceptable. We'll only adjust for the one-time cost associated with our recent, very successful, ConExpo show, which occurs once every 3 years plus the cost of producing orders which we booked early in the fourth quarter at low margins incurred during the bottom of the cycle, we reported a reasonable EPS for the first quarter. And with production levels increasing, along with the strategic rules we have made over the last several years to simplify our company and concentrate in our higher-margin areas, we believe we are very well positioned for better results in the near term and successful improvements on a quarterly basis.

Our expectations for this year are that we will continue to reduce our overall debt levels, primarily utilizing proceeds from our previously announced decision to explore strategic alternatives on our ASV joint venture. And the potential effects of the deconsolidation of ASV from our balance sheet. This will have a significant impact on our debt levels on our balance sheet, and our debt-to-EBITDA ratios. Upon completion of this event, and with the steady improvement of our EBITDA throughout the year, we will return to levels of a debt-to-EBITDA ratios, which are more consistent with the historical ratios for our company. Also our goals for this year do not include expansion through acquisitions. But rather as we enter this market expansion with an excellent product position, we anticipate to continue growing our market share in mobile cranes on a worldwide basis. We entered the last market expansion with a product mix of approximately 50% material handling and 50% mobile crane products. With our divestiture of material handling companies during the last year and a half, we have now the opportunity to regain a substantial earnings power at peak sales in our current group of crane businesses which we believe will eventually reach $350 million in worldwide sales. We believe that the execution of this plan will provide a significant benefit for our shareholders.

With that opening overview, I would like to turn over to Michael to summarize our financials, after which we will welcome any questions. Michael?

Thanks, David, and good afternoon. Moving to financial results. Today we reported a Q1 2017 GAAP net loss from continuing operations attributable to Manitex of $3.4 million or $0.21 a share compared to a GAAP net loss of $1 million or $0.06 a share in the first quarter of 2016.

On Slide 4, I will concentrate on discussing the adjusted results for the quarter as compared to Q1 2016, which adjusts for normalizing plant absorption levels, tri-annual trade show expenses, restructuring fees and other expenses. Our adjusted results for Q1 2017, for net income from continuing operations is $0.5 million or $0.03 per share. Net revenues for the first 3 months ended March 31, 2017, decreased $17.5 million or 25.8% year-over-year. However, compared to the fourth quarter of 2016, net revenues were up $2.2 million or 3.3%, reflecting the growing order book that occurred during Q1 2017. Many of these orders originated later in the quarter after a successful ConExpo show in Las Vegas that occurs every 3 years. These orders were unable to be converted into revenues during the quarter. Although production began to ramp up during the first of quarter of 2017, constraints on the supply chain, specifically the availability of chassis units, prevented higher revenues from being recognized in the current quarter. The order increase was primarily related to straight mast cranes from our Georgetown facility. ASV segment revenues were down slightly, 1.6% year-over-year, as ASV continued to focus on higher capacity machines, which offset lower sales of undercarriages to Caterpillar. The Equipment Distribution segment sales were down $2.4 million or 43.2% year-over-year due to less sales of used equipment, which was a result of the push to reduce used inventory that occurred throughout 2016. Adjusted gross profit for the first quarter of 2017 was $14 million or 20.6% of sales compared to $14.8 million or 17.4% of sales on a year-over-year basis and $13.6 million or 20.7% of sales on a quarter-over-quarter basis. Adjusted net income for the quarter was $0.5 million or $0.03 a share compared to adjusted net loss of $0.2 million or $0.01 a share in Q1 2016 and net income of $0.3 million or $0.02 per share in Q4 2016. Adjusted EBITDA for the first quarter of 2017 was $5 million or 7.4% of sales compared to $5.4 million or 6.3% of sales in the first quarter of 2016 and $4.4 million or 5.5% of sales in the fourth quarter of 2016.

Slide 5 is a bridge table showing movement in sales and adjusted net income for the first quarter of 2017, compared with the first quarter of 2016. The principal items on this reconciliation are lower sales of $17.5 million from volume. We had a net gross margin reduction of $0.9 million, a result of $3.1 million in margin impact due to reduced volume offset by $2.2 million in improvement of margin related to normalized absorptions. We saw $0.8 million pickup related to reduced operating expenses. The interest savings of $0.9 million was due to lower borrowings. These savings were offset by an increase in forex and minority interest costs of $0.1 million.

Slide 6, shows that our working capital remained flat at $54.5 million for both March and December. Our current ratio remains at 1.6x and is consistent with December 2016. Adjusting for PM working capital facilities, that are recorded in current liabilities, the current ratio would have been 2.1x in March versus 2.0x at December.

Operating working capital increased by $3.8 million at March 31, as production ramped up to meet demand generated by higher backlog.

Slide 7 provides a breakout of the $142.9 million of total debt at March 31, 2017. Of the total debt, $93.6 million or 65.5%, is nonrecourse to Manitex. In total, $57.2 million is related to working capital financing that is either transactional or collateral based and a further $21.4 million is in the form of convertible notes.

Slide 8 shows our capitalization, net debt and liquidity position. Net debt is down $19.3 million on year-over-year basis. Adjusted EBITDA for the quarter was $5 million and is $17.1 million on a trailing 12-month basis. And with that, I would like to turn it back to David for any final comments.

Thank you, Michael. Operator we would now like to open it up for questions.

(Operator Instructions) And will take our first question from Matt Koranda with Roth Capital.

Just wanted to start off with a backlog question for you guys. So if I look at backlog as it stood January 31, I think you guys had said $51.9 million and if I try to kind of back into order flow during the last couple of months, I'm getting to a level of around, call it $53.8 million or so in new orders, is the directionally correct? And then could you kind of talk about is that a good monthly -- like mean if we divide that by 2 should we consider that to be the kind of the monthly cadence that you're currently at? And then maybe you could also talk about April as well and how things trended there?

Sure, of course. So our backlog, as we've commented on consistently from the end of the year, what happened was at the end of the fourth quarter, we started to see a lot more inquiries and then the orders come in, we made an announcement, we put out a release that we were converting inquiries to orders, and then we obviously had the opportunity during the quarter because of the continuation once with ConExpo orders and then another time with just a continued expansion in our orders to where we reached the level at the end of the quarter of $60 million. And most of those -- 2/3 of them really relate to our straight mast crane businesses, which is really the primary business that we have that's backlog related. ASV and PM are much tighter, have smaller backlogs, they deal much more in short-term turnarounds of their units. The PM one, which is the crane piece that's associated with our knuckles is one where they receive an order and in a couple of weeks the order goes out, whereas we know on our straight cranes, the order requires a significant amount of material that has to come in, we typically mount almost -- exclusively mount on either our chassis or our customer chassis, so it's just a very long process. But most of those relate to the straight mast cranes business, which again is our most profitable, and as I said in my remarks, is going out now into the third quarter and it consistently grew as we went through the first quarter. So it's a good time for us because it has been years since we've had this experience.

Okay. And then any comment on April, on sort of how things have trended since...

Yes. The orders are continuing to come in. We don't -- we will probably do some further announcement, as I like to keep the information that we have fluid in the market and be transparent to the market. So as we see events that occur, either new dealers or new products, or new orders, you should expect for us to continue to make that information known.

Okay, got it. And then it sounded like, you talked about it a little bit in your prepared remarks that Q1 revenues were constrained by the supply of truck chassis. So could you help us understand, maybe just, to quantify the impact of that on your revenue run rate during Q1?

Sure. The lead time on chassis started to expand and that went out into beyond a 3 month period. So orders that we received at the end -- and again chassis come from several different sources, so it's not just us ordering the chassis, primarily it's our customers ordering the chassis. So to a certain extent, we're obviously -- and it's not just chassis, I mean there's other long lead time items that we receive from suppliers from around the world. And again as you know, we're primarily a variable cost model company, so we really are at the -- we don't fabricate ourselves, we get all our fabrications from outside, we get all the components from outside and that helps us during -- helps us survive during down periods like we had over the last few years, so we were able to flex well to make sure that we enjoy the up years. But that's all starting to correct itself. So you had modest increases, if you look at our increases, we're $62 million in sales in the third quarter, $64 million, $65 million in the fourth quarter, $67 million in the first and obviously, now we'll get into apples-to-apples, I'm sure we'll get into the 70s in the second just because we're starting to increase production as we go into the second quarter.

Okay, so is chassis no longer a constraining factor...

Yes, it's still a longer than normal lead time, but it's coming down. The delivery dates are coming down.

Okay. What -- maybe could you put some numbers on that maybe if you could, Dave, like...

Well, you're getting them a week or 2 sooner than you could at the beginning of the year. So rather than being 13, 14 weeks, or -- 11 weeks, 12 weeks. And as I said, this is common. This happens every single time, if you go back to 2010, this was a big issue, we had 4 years of up years, '10, '11, '12, '13, where we -- each year grew and of course that same thing happens, you look at the chassis manufacturers. And other ones as well, I don't want to just be pointing out one, there's other ones as well. But that was a major one that we could point out.

Okay. So that seems like probably the main gating item for you guys. So just maybe could you talk about how that sort of impacts the lead time? So for a customer ordering a straight mast boom truck today, what would be the lead time that you would quoting them?

Well, right now what we're quoting is August, September.

Got it. Okay. So you are filled through August, September, essentially.

Yes. And again we're -- you say we're filled, we're filled at gradual and consistent increases, we're not anywhere close to where we were in our peak years. And so we're just moving up, so you'll see an increase in the second, you'll see an increase in the third, but they're gradual progressive increases, not spikes. And the PM business is very consistent. So that doesn't -- that hasn't seen the volatility that we saw on the straight mast cranes obviously. So we believe we are well positioned between the straight masts and the knuckles now to consistently expand our business.

We'll go next to Mike Shlisky with Seaport Global.

I guess, I want to follow up on some of the chassis questions.

Sure.

So this is something that’s been affecting the entire industry and not just Manitex.

Of course. That's right.

And it's not just 1 model of truck or 1 OEM, it's something that's -- it's an industry-wide...

It's across. It's across all of the lines, all the different brands that you can think of. So it's not just 1 person, no. Or 1 company.

And to your knowledge, Dave, in the quarter or since have any customers canceled because they just couldn't wait any longer and were hoping to get to a different crane maker instead? Or everyone is sticking with the orders until you can deliver them?

No, I'm not aware of anyone, again as you know, it's not just us. And again, we're a small -- as you know we have a small niche in a very big arena, so -- and our market share is very strong. So we kind of pretty much stick to what we know and what we're doing. But I don't believe it's any different for anybody else. I don't want to talk for anybody else, but I don't think it's any different. In this particular area, in mobile cranes.

Got it. And following up on the market share question, you had obviously very strong orders. Do you have a sense that you are -- that you are on the verge as you deliver these cranes, to start gaining share, additionally, in 2017 after having a good 2016? Or are you (inaudible)...

We believe in market -- we believe in market share we are -- of the reported entities, to the manufacturing association that gives us this information, that we are continuing to build market share, yes. Again in our little niche in the world.

Got you. And then on the margin side, I generally try and ask about year-over-year operating leverage or perhaps maybe because you're going to be having your revenues potentially ramp up quarter-over-quarter, could you give a sense, if you were to see an extra dollar in revenues quarter-over-quarter, what might be the operating profit pull-through be going forward in your estimation?

Yes, so we -- if you look quarter-over-quarter, and again the bottom was the third quarter, so we had a very significant amount of operating losses, third quarter, fourth quarter and insignificant -- now still loses, so it's not something that you start to say, "Okay, well that's good." No, it's not good. And -- but in those -- in that $9.5 million operating loss for our crane segment in the first quarter was over $1 million in costs associated with ConExpo. So you wipe that out, you add some reasonable margins for some of the orders that we took, and as you know that margin differential between the peak and the valley are huge and each quarter-over-quarter you'll see 1 point or 2 increase in our gross margins as we start to call back some of the margins that we give up when we're discounting more and more during the bottom of the cycle. So you would think that we would enter into the low-single digits from an unadjusted basis in the near term, going back up into the -- up into the 10% to 12% range, which is where, even with our material handling businesses, we've been on a consistent basis during the last cycle, in our crane segment.

Just to be clear though that, that 10% to 12% might not be in '17. It's just (inaudible)

No, no, it's not going to be -- no, no, geez, no, it's not -- this is eventually, this isn't '17 because we're not going to -- we're not going to see those kind of levels in this year, no. Thanks, for correcting myself, my comments, Mike.

I guess no problem. I just -- can I squeeze one more in here about PM. Have there been any issues with manufacturing and disruptions as you slot those into your Georgetown facility or is that running pretty smoothly at this point?

Well, it’s running better. We had fits and starts over the -- start of the process, we had drawings that were in Italian, we had -- and again, this was not anybody's fault, that's where the drawings were done. We've had conversion of those drawings. We've had obviously, learning cycles, but it's getting better and better, and I think our position in the U.S. is growing on a percentage basis dramatically, on a real term basis modestly. But when you have 2% market share and you go to 4% market share, I mean it's not very much, yet, but it's a good start and we're making good progress and I expect as we now are less diversified with less companies, we'll have a lot more concentration on the implementation and execution of that program because that's critical for us going forward.

And we will go next to Seth Weber with RBC Capital Markets.

This is Brendan on for Seth. Just kind of looking at the overall market, what do you seen in terms of pricing? Have they been trending up, down, somewhat stable? And then also what are you seeing related to just used crane inventories right now?

So just on the areas that we deal in, so cranes in the market that we serve, because that's all we really know, we have been seeing prices improve. But remember, we run off of discounts. So you just have a less discounts as you gain market share and as you gain market power and pricing power, and as the recovery improves. So we are seeing -- we are seeing that come through and we will see that and are seeing that at our backlog and then in the production in the future, as we stated. On the used side, clearly all this is indicating to us that, there's still is a used market, there's always been a used market, but it's back to a more of a normalized used market and not the aberration that we saw during the boom and bust of the energy world, where you had a great number of cranes, some slightly used, some not used at all that poured into the energy market during '15 and '16. That seems to have now run its course.

Okay. And then looking at the U.S. market versus some of the international markets that you operate in, any specific areas of strength or is that kind of broad-based do you think?

Fortunately and positively it's much more broad-based at this point, as you've heard me say before, we had a 2004 to 2008 real estate boom, we had a 2010 to 2013 energy boom and now what I would really hope for is a mix, at a broader, gradual increase and not so much of a boom and bust. But so far we're seeing it broadly based, including energy, but other categories as well.

And we will go next to Jeff Morrison with Evercore ISI.

This Jeff Morrison on for David Raso. Just another question back on the backlog and pricing. I guess what you're saying is you're getting -- having to offer fewer discounts.

That's right.

But are you getting any pricing in any maybe of the areas of the country that are a little bit stronger, maybe some of the recent oil patch activity or is it more still just a question of less discounts?

It's all -- it's pretty broad. What happens and again, Jeff, it's hard for sometimes guys who deal in thousands of units and very large markets to understand, that we're a pretty small concentrated group, on the straight mast cranes mounted on trucks. So if we give a discount to 1 dealer, that seems to have a -- we might as well put an APB out, because it seems like it has -- it travels through the marketplace pretty quickly, and so that's why we're trying to be very disciplined in our pricing as we continue to gain strength in our backlog.

What about from the supplier side, I mean with steel ramping up and some of the other commodities more -- over the last several months, and we've seen some price increases from the suppliers, are you seeing that, and is that any sign -- any reason for getting nervous about going forward in terms of your margins?

What we saw was at the beginning part of the year, steel prices went up. Our material component of our cost of goods sold is 65%. And obviously, the biggest material of that cost of goods sold component is steel. So we saw prices going up, but then the wonderful free market system that we operate in generally, it -- the commodity used to produce that started to increase, and so now what we're seeing is the prices are going down. So it seems like we are okay, we've been able to increase our prices or decrease our discounts sufficient to absorb the increases up to this point.

Okay, got it. And just looking at the jump up in backlog, with the price, I guess maybe -- question for what happened today in oil coming down, any cause for concern that there may be any cancellations within the -- in the backlog or is it -- how are -- are the orders locked in?

No orders are ever locked-in. We've had 100% of our backlog canceled over the years, so it's a very -- it's always a concern. But we're also seeing, we sell to dealers and we're seeing dealers that had gotten their fleets down to such low levels that they now -- and it's not just energy-related, of course, that's the other good thing, is it's much more of a broader market recovery, and in many different categories. So to answer your question, yes, it's a concern, but not a great concern at this point.

And we will go next to Andy Casey with Wells Fargo.

Just to follow on, on that last question, and just kind of more broadly looking at investor concerns around sustainability of recent improvements, including in your business. In the release, you commented about how you felt this improvement had some legs, can you kind of give some context behind that given all the ups and downs in the commodity market and understanding what you just said about your dealer restock?

Sure. So I think, Andy, yourself and a lot of other people on this call have as much or better macro abilities to assess what's happening from a macro standpoint as we go through, through this cycle. But it seems to me that we don't have -- we don't have a lot of bubbles, rapid expansion, anything that would indicate that things are well overheated. So based upon all that, and the markets seem to be stable to slight growth, you just don't see if you look at GDP, if you look at anything around the world, it just doesn't seem like we're in a complete bust -- boom to bust environment right now. So for all those reasons and also the -- as I mentioned, the situation with our individual independent dealers, it gives me some confidence that we'll be okay for a while. But who knows, who knows beyond what we have in visibility of orders.

Okay. And then I apologize if you got asked or addressed this, I jumped on the call a little bit late. But the commentary about some constraints that are limiting your ability to raise production in line with the backlog growth, it sounds like that's coming from your chassis providers. Are they doing anything to address that or is that just something you got to live with for now?

I know, I know that I've seen over the last 90 days, the chassis delivery time periods decrease, so I have to imagine that they are increasing their production order to meet some of the demand. But again, everybody is hesitant to, as we all know, to put a lot of people on and to try to -- certainly there's a lot of bandwidth to expand, I mean everybody is -- in our business is operating at very low levels compared to where they were during the peak periods.

And we'll go to [Jeffrey Owen with Tuxedo Road Associates].

I believe that I heard you say, that you anticipate in the next few quarters, that gross margins would stay at current levels or potentially improve, and historically, correct me if I'm wrong, these kind of margins were incurred at a timeframe when Liftking was going gangbusters and you were -- the mix of orders in the backlog was oriented towards higher tonnage cranes. Can you give us a idea of what the composition of the backlog is relative to the type of crane market that, that backlog is in, i.e., 20 or 60?

Sure. You are absolutely right. Historically, we only saw these type of margins when, and you are exactly correct, when Liftking was doing a significant amount of military business. And again, as I’ve said many times it wasn't that they were -- we were gouging the military, it was just that they had very, very strong specifics that they were ordering. But now I've also said, historically, if you excluded the times when that occurred, all of our material handling businesses, if you cross the line at 20%, so that's where you are trying to go, is 20% of gross margins. All of our crane businesses, all the ones that we have currently, including the knuckle cranes, which we didn't have historically, but it's relatively new to us, all are above that 20% gross margin level. And all the material handling businesses, generally speaking, expect for the exclusion that you mentioned, were below 20%. So now we're of course -- what we are trying to -- and I'm sure some on this call have looked at the filings that we did when we summarized the discontinued businesses and the businesses that we sold off, all that became verified when we broke those businesses out. So now, we're left with our highest margin businesses. And what I'm hoping is, right now it's a fairly broad-based backlog between -- because we have construction cranes, some of them new that we've introduced in the last year, so some of those are in the 20 to 30-ton range, but we still have a good mix of 40, 45, 50 ton cranes also in the mix. So it's a good mix backlog right now.

We will now go to F.L. Kirby with Morgan Stanley.

I missed the whole first half of the call and I'll catch up with you later because the operator said you weren't starting till 4 even though (inaudible)

I know. I apologize for that, F.L. We had -- generally we always do it at 3:30 our time, but for some reason someone wanted to do it at 4:00 our time, so here you are. I'm glad you were able to catch up, thanks. And then we can always talk as you know, F.L.

I've been listening since about 3:55. But I missed the whole early entree, and I -- you can either give me a brief or...

What I'll do is when we're finished I'll -- over the next day or so we'll reconnect because you missed the best part F.L., you missed all the excitement. The big summary is, we have orders and hallelujah we've got orders again. We haven't had this in years.

Got it. Well, your demeanor is positive and I'll catch up with you in a few days.

(Operator Instructions) We will go back to Mike Shlisky from Seaport Global.

I only have 2. One I wanted to touch on the SG&A run rate going forward, the $12 million you had in this quarter included a little over $1 million in -- every 3-year trade show costs.

That's correct.

So are we looking at more like a little bit below $11 million going forward, or are there any -- anything that kind of ramps up as we go forward? (inaudible) something else.

Obviously, the one aspect of that which does vary with production, as you know is the selling piece. But that's not a -- that's not a very large percentage of the total. So if you want to slightly bump it up as sales go up, and by slightly, I mean 0.5 point or something like that, it's not something that's in the 4% or 5% range as it relates to selling as a total cost. So generally speaking, what we have is a number you could use except for a slight adjustment due to the selling cost.

So perhaps we're down, a little less than $1 million, but still down from this first quarter here, going forward.

That's correct. We don't need more G&A to get back to the peak the levels and a growing levels of where we are. So as you know that percentage goes down as our sales go up dramatically compared to the total cost and again the only variable part of that is the selling piece.

Got you. And then the other thing I wanted to ask about was, I know you said that there was some truck chassis delays that were causing some issues with delivery times, but you alluded to other components that were causing supply chain issues elsewhere. Could you kind of dive into a little bit of color there, are there any major areas that are also holding up things and if you do get the truck -- the truck schedules back on track, are there risks of other area really holding you up in a material way going forward?

It was very -- it was really very unique to the fact that we had a very, very, very low backlog, as you know, entering the third quarter. So if you get -- if you receive items from Asia or from Eastern Europe, as part of your components or fabrications from those areas and now you put in an order for a much bigger number. They don't -- that just doesn't happen in a day, of course. What has to happen, of course, is they produce it, they put it on the container, it gets to the port, it gets shipped, it gets sent to Houston, it gets shipped from Houston to Georgetown, it just takes weeks. And so those are not anything specific other than just the normalized ramp up that you have when you start ordering at higher levels as a result of increasing backlog.

Those components you are pretty much caught up on now, now that, that lead time...

Yes. So that's what I'm saying. You shouldn't see -- we've been able to increase in anticipation of a build out over the next 2 quarters, so we know what -- we know what we're ordering today, and we know when they are being delivered, so it's much easier to roll out your production.

And that concludes our question-and-answer session for today. I'll turn the call back to Mr. Langevin for any additional or closing remarks.

Okay. Thank you very much for your interest in Manitex. Look forward to future calls in the near future. Thanks again.

And ladies and gentlemen, that does conclude today's conference call. Thank you for your participation.