Manitex International Inc (MNTX) 2017 Q3 法說會逐字稿

Good day and welcome to the Manitex International Conference Call Third Quarter 2017 and Shareholder Update. Today's conference is being recorded.

At this time, I would like to turn the call over to David Langevin, Chairman and CEO. Please go ahead, sir.

Thank you, Glenn. Good afternoon, ladies and gentlemen, and thank you for your interest in Manitex International. On the call with me today is Steve Kiefer, President and Chief Operating Officer. Steve is in Europe today and will be available to assist with any questions.

Please refer to our safe harbor statement in our release, which we ask that you to review the 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 on this call, which will be available until February 13, 2018.

I will begin with a brief overview, after which we will open it up for questions.

First, I would like to express our appreciation to our many shareholders and all the other stakeholders in our company for the patience exhibited by everyone over the last 3 months during this investigation period. A special mention needs to be made to the many accountants, lawyers and their support members for the many hours they put in to expedite this review and the many hours they spent away from family during the holiday periods.

As reported today, the investigation is substantially complete, and we are able to report our financials for the third quarter of 2017. To remind everyone, we reported on November 6, 2017, that we were restating certain previously issued financial statements resulting from the change in accounting for a sale of a net of 29 cranes with a total crane value of approximately $12 million, the original transaction all occurring in the first quarter of 2016.

The investigation confirmed what we estimated would happen in our early November release, which was that the transaction qualified as a variable interest entity and more importantly, that there were no other transactions of this nature prevalent in our operations. You can also confirm another estimate from our November release, which is at all the related cranes were sold, all that the financings for this equipment were paid off, all by the end of 2017.

With the release of these third quarter financials, everyone involved will now be working to file all the restated SEC reports starting with the 2016 10-K. And as could be expected from an announcement involving a reinstatement of prior periods, we received an informal inquiry from the SEC concerning the restatement only, and we are complying completely with this request.

To conclude on this matter and hopefully to put a lot of folks' mind to rest on this subject, you have to remember we make cranes. All the cranes involved in this transaction were accounted for, all the money involved with renting or selling of these cranes were accounted for and all the cranes were eventually sold to our very fine-dealer customers.

Finally, we were able to complete this work without disrupting our organization, which allowed our operating teams to concentrate on growing our business during this long overdue expansion.

So let's talk about current business. Our markets are expanding in every geographical area where we participate. A solid indicator of this is our backlog was up 22% from the third quarter to the end of the year and even more significantly, was up 32% in the first months of this new year from the end of the year. Yes, that was up in 1 month. However, we do not want expectations to get off the charts, but it certainly was a good start to 2018.

We reported today fourth quarter 2017 sales of $64.5 million, which is an approximate 16% increase over the third quarter. With the disclosure today of our fourth quarter sales, we can now frame 2000 (sic) [2018] sales results and recognize the improvement.

In 2016, we had approximately $175 million in sales with minimal adjusted EBITDA. Adding up the 4 quarters of 2017, we recorded annual sales of approximately $210 million and adjusted EBITDA we estimate in the approximate range of $15 million to $16 million. Further, if we annualize the fourth quarter sales, our run rate would be in excess of $250 million with annualized adjusted EBITDA, we believe, now crossing over into the 20s. Obviously, with our accelerating backlog, we will be working on further increasing of our production levels in 2018.

In summary, our balance sheet has greatly improved over the last 3 years with more opportunities in front of us to apply proceeds from surplus asset sales and excess cash flow to further reduce our debt. Our markets are expanding, and we are well positioned with our products, all of which allows us to be optimistic as we look forward to the prospects of 2018.

And with that overview, Glenn, I would like to now welcome any questions.

(Operator Instructions) And we'll go first to Matt Koranda with Roth Capital.

To start off with timing of when you think maybe you guys will be able to release the revised 10-K and quarterly filings? Any sense for when that could be?

Well, I know that everyone is working as quickly as possible. I would guess that -- we will try to get everything filed by the due dates in March. And I'm not positive, but I think they are trying to file everything at one time, but that might change as we go, but I would say you have the 10-K from last year, first 3 quarters of this year. Again, I know all the numbers are done, but now they have to go through the changes in the reports. But I would say, I hope by the middle of March is kind of a deadline -- maybe a way to look at it.

Okay. Got it. And then in terms of, I mean, I know this may not be possible to talk a great deal about it. But in terms of the informal SEC inquiry, could you give us a little bit more color on just the nature of sort of what they are looking at? And then just the time line of how that proceeds?

Well, that's obviously very difficult. I mean, it's an informal inquiry. I can tell you what the letter said. It was a informal inquiry, which, I guess, is less rigorous than a formal inquiry. So -- and it just referred to only the restatement, which again, is what you would expect. But since the work is done and finished on the -- from the audit committee and auditor standpoint, I would hope that it would not be that rigorous on the SEC because, again, as I stated, every crane was -- every crane has been accounted for, every crane has been -- and I'm not just talking about we're involving the investigation, but every other crane has been accounted for and every other crane has been paid for and every other crane has -- so we don't have any -- we don't have anything that would require a whole lot of work at this point, I don't believe. But again, that's not up to me.

Okay. I know there is no sort of concern that, that could hold up any other -- the restatements -- the formal filing of the restatements.

We would not be able to release these numbers if everybody hadn't signed off on it.

Okay. Got it. Let's leave that stuff -- leave it there for now. Now let's talk about the results. So in terms of Q4 results, I just wanted to confirm so the preannounced revenue figures and your kind of highlight of overall EBITDA for the year suggests that Q4 EBITDA was in probably at the $5 million to $6 million range and so you're sort of pushing up into the 9% EBITDA margin range. Is that the fair way to think about how Q4 proceeded?

Your numbers work.

Okay. Got it. And then in terms of the backlog, I just wanted to confirm the January calculation kind of results in a pretty large number for bookings within the month. So I'm sort of backing into something, depending on what you delivered in January, somewhere around the $40 million level for bookings. Is that a fair number to sort of back into? Or is there -- are there sort of things that would bring it down a little bit lower?

I guess, they have to -- January is -- I'll state it this way, January is the inventory month. And in Europe, January is still tail end of a holiday period. So you don't have a particularly strong -- usually they don't start the quarter or the year with a typically strong number in January. So I would think that your sales accelerate as we go through January, February, March. Historically, that's what's happened. And you also take, as I said -- take inventory in the first week of January at all of our plants around the world. And again, some of the European plants still have holiday in the first week plus inventory. So you always start out a little sluggish in January. So I think that while a month was phenomenal, you might ratchet down a little bit the book, the bookings for January. And I don't know, Steve, I don't want to give out -- we've given enough information, so.

Got it. That's fair. I was just -- I guess I was taking my Q1...

Yes, you're just taking annualized and say, okay, divided by 12 and then -- yes, exactly.

Essentially, that's not the right way to think about. There is seasonality.

Yes, you just have to kind of think about January. People come back from the holidays and all that kind of stuff. So it just starts slow. Always seems that way forever.

Okay. So then, if I take sort of the results in Q4, the run rate and apply that margin to 2018, is that the right way to start thinking about sort of the consistency of EBITDA margin through 2018? What's in the backlog, I guess, that gives you visibility into the margin profile of delivering and gives you confidence and sort of hitting kind of that run rate that you hit in Q4?

Well, Steve -- I will speak for Steve because he's way too modest. But then Steve has been doing a very good job of fighting the margin improvement as we go because I am sure just as in your business and everybody else's business whatever order they had last time, they want to order it at the same price, but obviously, that's not the case. So we've been pushing back on the discounts as we've been going through the re-up of new orders. New orders are coming in very strong. I think everybody knows that. And so the margins have improved as we've placed those in the backlog.

Got it. Any sense for mix between straight mast versus knuckle boom in the backlog?

Our backlog is still skewed more towards the straight mast because there are usually longer lead times on the components. However, Europe and South America, which is where the main areas where PM participates primarily are Europe, South America and North America. And especially, Europe as well as South America have had shown some very strong growth over the last couple of months. So their backlogs are at levels that they haven't seen in many, many years.

Got it. An update on knuckle boom selling within North America. I mean, how is that tracking relative to your expectation? I know last time...

It's continuing to -- it continued to expand. We continue to -- Steve keeps -- and his organization keeps adding more dealers. But obviously, from a penetration standpoint, it's -- the greatest opportunity for us going forward is, as we all know, the knuckle crane market is an expanding, growing, multibillion-dollar market of which we have a far less than 5% market share, whereas on the stick cranes in the United States, we have very significant market share. So it's something we're really concentrating on, which is part of the reasons why Steve is getting a lot of frequent flyer miles to Europe.

Okay. Maybe just one last one on the balance sheet. Could you just help us understand -- it looked like a VIE note payable on there that sort of drove overall debt higher relative to the last quarter. Is the (inaudible)

That's correct. That's exactly right. So what happened was you're seeing the third quarter numbers. And if you remember, we said that the total VIE was approximately $12 million. That include the implied debt that was associated with that, even though we had not signed on those loans. Those were implied and when you enter into a restatement like this. So we had $12 million of assets, new assets and $12 million of new debt. And at the end of the third quarter, I believe, there was $6.7 million left of that and that was retired in the fourth quarter. So you're right. You're right. The debt changed primarily, almost exclusively from the VIE accounting changes.

And we'll go next to Mike Shlisky with Seaport Global.

It's Jordan Bender, on for Mike today. I was wondering with the order and backlog growth in 2017 accelerating like it did. Are you guys looking at tougher comps in 2018? Or like how do you look at the growth going into 2018 compared to 2017?

Well, the comps for the first couple of quarters of '17 are easy because we started in '17 with roughly $40 million in sales in the first quarter. So not really at a run rate that's comparable to where we are now. But I'm sure, as we go through the year, but again, we're all hopeful that because of the work that we've done or reductions that we've made, the margins that have improved that we will be not have an issue with the comparables on a quarter-to-quarter basis.

Okay. And then, I was wondering how the pricing has been on some of your most recently booked units?

Steve, do you want to discuss that a little bit because I know you've been working a lot on pricing?

Yes. Pricing has been favorable, Mike, versus last year. And with all the deals that we've booked in the fourth quarter and going into first quarter, there is sequential year-over-year pricing improvements consistent with overall or general market activity as well. So the price realization is moving forward as you would expect in this point in the cycle.

And then one more here. Can you give us an update on the -- can you give us an update on the order performance of the new A62, AWP and related products that you announced a few months back? I was kind of wondering if you guys are still targeting that $20 million in sales for 2018?

Good question, Jordan. I'm sure Steve is anxious to speak about that because he is very excited about the introduction of those products. Go ahead, Steve.

Yes. Absolutely. There is a number of products, Jordan, as we announced last year. The A62, the [Trolley] Boom, the 2085, the 22101S, all those products are performing well in the marketplace. We've placed initial orders with our dealers, and we have received a number of replacement orders and stock orders as reflected in our backlog. Our backlog, overall, is quite stratified between Europe on the knuckle booms as well as Manitex on the straight mast. However, the anticipated improvements, specific to your question about growth in the new products, are right on track. It's exciting stuff. The market is receiving these products well. It's very timely within this stage of the economy and for the need for these type of products to support the various residential and nonresidential constructions infrastructure. And we think, overall, we're in the right place, with the right products to support market growth and the backlog is rewarding those efforts accordingly.

And we'll go to next to Charles Neuhauser with Mainwall Investment Management.

Back on the EBITDA margin question. The company is somewhat different than it was when times were good in the past and especially, with the potential for the knuckle boom business in North America to keep expanding as you add dealers, and you divested a couple of things. I can go back and look at what the margins where when times were good in the past. But is it -- I mean, should things be markedly different now? I mean, I gather you've rationalized the business in a way that you would consider to be better -- a better mix of businesses than you had in the past. And so should the margins be higher than they had been? Or how should I look at that?

Yes. So as you -- it's difficult because you're looking at the third quarter of last year. So you don't -- we started in the first quarter a slow number then moved it up in the second, moved it up in the third. But you should, Charles, start to see some deviation from what we've had historically because as we stated, historically, we were -- and we had the information recorded and public. So you could see that the divisions and subsidiaries that we're selling off, while they had some sales associated with them several hundred million in total, they had very little margin. And so we've been saying all along that the real margin was in our cranes. So you're absolutely right. As we cycle through this expansion, you should see -- we've always said we wanted to get to 10% EBITDA. You should see us reach there and then go beyond there as we mature in this expansion over the next couple of years. And we didn't see that historically. So you should see the difference this time.

(Operator Instructions) We'll go next to F.L. Kirby with Morgan Stanley.

Yes, I noticed late Friday that there was a -- an announcement after the close that you had a resignation with the, I believe, CFO.

That's correct.

And what could that relate to? Was that part of the issue with the recalculation of the '16 first quarter? Or maybe you could comment on that. And then, I have...

F.L., it's a tough one because obviously, whenever you have these situations or these complexities and lot of things involved, and I feel very uncomfortable trying to discuss that in an open area, on an open call. So I really would rather pass on that one, I apologize, F.L. But it is a difficult one.

Okay. I just -- we can our imaginations and draw our conclusion. But Steve was touching on, and I think there was a comment that you made that -- the markets are expanding and the prospects are looking good. Is this a European thing? Is it domestic or a combination? Can you comment on a little bit more on that?

Sure. Sure, of course. So the European markets after '09 or after '08, I guess, they never had the expansion because obviously they didn't have the oil and gas expansion that we had principally in the U.S. after '09 because, as you've heard me say many times in the '10, '11, '12 period, if we didn't have oil and gas, we didn't have anything. And fortunately, a lot of us in the equipment business participated in that from a very largest companies to the smaller ones like us. But Europe didn't have that expansion. So Europe has been down in the doldrums for a long, long time. So when I said that their backlogs are at levels they haven't seen in years, I mean like 2008. So it's a long time. And so the people that -- the people on the equipment business that have survived and prospered during this time and obviously, a lot of people have left the markets. But now that equipment that they were purchasing, and they had good periods, '06, '07 and '08. So the people that were buying during that '06, '07, '08 period used to have a natural replacement cycle, plus while their growth levels are not off the charts in Europe, as we all know, positive growth levels is very positive for them. So I would say that Europe has expanded, South America, which is a -- which we have a good market share down there in certain countries, is very commodity oriented, the commodities are doing much better. So the principal areas where we are participating in growth is Europe, South America and then, of course, in North America.

Is the energy business making a turnaround for you? And are you still fulfilling orders like you did in the past? Or is it -- I know you went into housing construction or infrastructure. Is there a focus going back to the energy sector because it's growing, again?

Yes. Certainly -- fortunately, the energy sector is, as we all know, especially in Texas, where we have a big presence with our facility down there and some very fine dealers down there. As you know, we sell primarily through dealers. So the energy business is restoring itself, again, as we all know because of the cost reductions that they have gone through and the fact that oil prices, of course, are much higher off the bottom with still probably some room to go over the next couple of years. But for us, at one point in time in the '10, '11, '12 period when we didn't have PM, we had very high concentration in the energy side, and we reported that. So we told our shareholders that we had a very high concentration in energy. And that includes utilities and other parts of the energy equation, but we -- fortunately, we have that benefit still so that's improving. It's obviously, part of our crane business. But with PM being 50% of our business now, that 50% that does not have that much exposure to the energy side. So that really diversifies our end markets and diversifies our products. So we're not so vulnerable to the volatility of the energy world. So to answer your question, we are enjoying some nice orders now in the energy side that's certainly participating in our growth, but it's not -- it's not a huge part of our business anymore, which is good because it allows us diversification and better growth.

And we'll go next to Lenny Dunn with Mutual Trust Company of America.

Third quarter is probably understood by me, at least. And you alluded to some things about January. But you have to pretty much know what you did in the fourth quarter and without preannouncing. Can you give us a little color about the fourth quarter quickly, the balance sheet was cleaned up from what you said?

Yes, so we -- as you mentioned, we reduced some further debt in the fourth quarter on our balance sheet. We retired the rest of the implied debt from the transaction in the fourth quarter. We had good sales in the fourth quarter. I don't have -- believe it or not, I don't have all the numbers I expect improvement in the fourth quarter over the third. But we finished -- we announced on Friday that we were doing the third and literally, they were finishing the work on Friday. So that means that we pushed all this through over the weekend. And so I'm just not prepared to comment a lot on the fourth quarter, other than I expect it to improve.

And also clearly, you had an inordinate amount of professional fees associated with all this restatement.

Right.

Will that all be expensed by the end of the fourth quarter? Or how do you plan to...

Well, what I expect is that we would have significant amount of that expense by the end of the fourth quarter. We'll have some, obviously, into January, but it, certainly, is primarily behind us at this point.

Okay. And would you be allocating some of the expenses to the various quarters that you're restating?

I think it's expensed in the period in which it's incurred. That would be the fourth quarter as opposed to spreading it out, I believe, it's a period -- cost expensed in the period in which it's incurred.

Okay. It looks like this has all turned around. But to get a clean picture, we're almost going to have to wait until you...

I think '18 is going to -- what I'm trying to set up is '18 to be clean. We get all as much as we can behind us in '17. We took some unusual adjustments in the third quarter. I am not aware of anything in the fourth other than what you have identified already, which will be we'll have some expenses related to accountants and lawyers in the fourth quarter, but it should start to diminish as we get into the first quarter.

(Operator Instructions) And there are no other questions at this time. I'd like to turn the conference back to our speakers for any closing remarks.

Thanks, Glenn. Thanks, everyone, for your patience and understanding. And we look forward to very shortly getting to the end of the year and into what we hope will be a good 2018. Thanks, again.

Thank you, everyone. That does conclude today's conference. We thank you for your participation. You may now disconnect.