Manitex International Inc (MNTX) 2018 Q2 法說會逐字稿

Good day, and welcome to the Manitex International, Inc. Second Quarter 2018 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to David Langevin, Chairman and CEO. Please go ahead, sir.

Thank you, Justin. Good afternoon, ladies and gentlemen, and thank you for your interest in Manitex International. On the call with me today is Steve Kiefer, our President and Chief Operating Officer. Please refer to our safe harbor statement as well as 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, which will be available until August 14, 2018.

I will begin with a brief overview followed by comments from Steve. And then we will welcome any questions.

Today, we reported a good increase in sales, a significant increase in operating profits, and we were close to reporting unadjusted net income, except for primarily a $1.6 million noncash mark-to-market adjustment on marketable securities and a $600,000 charge for restatement expenses relating to the filing of April of our restated 10-Qs and our restated 10-K.

Our backlog held up well in the second quarter, even though we are in the normal selling season, and it is up over 59% from a year ago at this time. Also, we received orders in the first quarter at a level which we had not seen in several years. However, as I mentioned in our release, the most important event in the quarter was not necessarily the improved operating results, but the approximately $33 million invested in our company by Tadano Corporation.

I'm sure many of you are not that familiar with all the crane companies of the world, but Tadano is one of the premier crane companies, with -- which what many believe has the highest quality product standards in the industry. So it is a significant achievement for them to select our company to make an investment. Strategically, there's not a better partner for our company. We see synergies in distribution and marketing, technology and engineering as well as in component sourcing. Tadano's strengths are in the Asian markets, where we have almost no presence, and Tadano also has some of the best components in the industry, many of which they produce internally, whereas we buy almost all of our components from many independent suppliers. These many factors give us the opportunity to improve our quality, reduce our component costs and expand our distribution.

Further, with the influx of capital through the Tadano investment, we saw a large step forward in the multi-year process, where we have been transforming our balance sheet. As we mentioned in our release, our net debt has been reduced by approximately $144 million over the last 3 years. Our debt-to-EBITDA ratios are back to much more acceptable levels. This is a significant achievement and a benefit to our shareholders. We have no borrowings on our U.S. line at the end of the quarter. In fact, we reported today that we had $21 million in cash on our balance sheet. We now have the working capital to grow our business and to take advantage of all the opportunities which will be presented by the Tadano partnership.

We believe we have much more room to grow. The primary markets we serve with our straight mast cranes, which are utilities, energy and infrastructure, continue to grow, and reports from our dealers provide us with confidence this growth will continue into '19 -- into 2019. And as we have reported on a number of occasions, our market share is extremely small in the knuckle boom crane market. Now, with the additional emphasis from Tadano in our knuckle boom products, we have significant growth potential in the largest markets we participate in and also where we have the lowest market share. Steve will elaborate further on these opportunities in his remarks. Finally, I truly believe this is the most exciting time to be part of Manitex, and we all look forward to realizing our potential for the benefit of our stakeholders.

With those opening comments, I'd like to turn it over to Steve for a more detailed operational discussion. Steve?

Thanks, Dave. Good afternoon, ladies and gentleman. Today, we reported second quarter revenue of $63.9 million, which was up 23% versus the second quarter of 2017 and up 13% versus last quarter. Adjusted EBITDA of $5.2 million was up 40% from the last quarter, and compared to the second quarter of 2017, adjusted EBITDA increased 187%. Our gross margin of 19.5% improved 140 basis points versus the comparable period from last year. Like many global companies, our gross margin experienced currency and inflationary pressure during the quarter. To offset these challenges, we are currently executing the necessary cost reductions and operational improvements that we are confident will allow us to achieve our near-term target of gross margin exceeding 20% and EBITDA margins of 10%. Overall, we are pleased with the results and execution from the hard work of the entire Manitex International team, with the second quarter being one of solid revenue growth; increasing EBITDA; margin expansion; and a significant strengthening of our balance sheet.

We ended the quarter with net debt of approximately $51 million, including $22 million in cash, largely due to the second quarter Tadano investment, which Dave previously discussed. Comparatively, net debt is down 43% since the beginning of 2018, and it's down significantly from over $195 million 3 years ago. We are continuing efforts to further reduce debt as we progress through the ongoing upcycle within our end markets. Our backlog at the end of the second quarter of $76 million was up 60% compared to the end of the quarter a year ago. Compared to the beginning of 2018, our backlog finished the quarter up 23%.

After beginning the year with particularly strong order levels, bookings moderated in the second quarter, and we finished the quarter with an increase of 4.5% versus orders in the comparable quarter of 2017. Solid market activity combined with market share gains for our core products, new dealers and new products all contributed towards favorable order levels for our global operations. Throughout the quarter, we saw demand for many of our core products benefiting from the overall strength within the industrial goods market.

Regarding the Manitex straight mast crane business, many of our dealers reported strong rental activity during the quarter, with utilization rates over 80% at several locations. Retail sales also continued to be robust during the quarter, with particularly active demand from the utility, energy and nonresidential construction sectors. For the first half of the year, industry orders were approximately 800 units, which is an increase of 23% versus the first half of 2017. And as we've said, after a very strong start to the year, industry orders moderated somewhat in the second quarter compared to first quarter levels.

As mentioned during our last call, we believe 2017 was the last year of a deep 3-year down cycle for the straight mast crane market, and going forward, we believe the market is in the early stages of a strong multi-year up cycle driven by an aging fleet, solid economic activity and operators increasingly recognizing the versatility and cost benefit of cranes mounted on commercial chassis. Furthermore, end market demand for straight mast cranes has exhibited mix patterns that are very favorable to Manitex. Specifically, 65% of the straight mast crane backlog is comprised of cranes with ratings of 30 tons and higher, with this demand being driven by activity within the energy, utility, infrastructure and general rental segments. This backlog bias towards the larger cranes is approximately 7 percentage points higher than the percentage of 30-ton cranes and higher in 2017.

To properly execute the opportunities associated with such an up cycle, we are further sharpening our focus in three areas: first, operational excellence; second, product portfolio enhancements and additions; and third, customer support. We're confident that increased focus in these three areas will strengthen our financial returns and allow us to continue reducing our already significantly lowered debt levels and achieve our gross margin and EBITDA targets.

Regarding our European group, which primarily consists of our PM knuckle boom crane business, we continue making progress towards a substantial revenue and margin expansion opportunities that exist, primarily through growing top line revenue while optimizing our internal cost structure. In total, PM orders currently comprise over 34% of our total backlog, which is 11 percentage points higher than PM's contributions to our total backlog in early 2017. Continued growth of the PM knuckle boom line is a top priority for our company, especially since the global knuckle boom market is over 10 times larger than the straight mast crane market.

As I previously mentioned, each point of market share in the knuckle boom crane market translates to approximately $20 million of gross revenue. So continuing to build out our north American dealer network while strengthening our positions in other parts of the world remains a significant growth opportunity for our company and, again, one that we're pursuing diligently. Additionally we're excited about the opportunities to accelerate our growth for our relationship with Tadano.

Key members of the global Tadano team recently completed extensive training at our facilities in Europe, and our teams are working together in establishing detailed plans for our sales, marketing and operational collaboration globally and particularly in Asia, where Tadano has exceptional distribution.

Looking at other areas of the company, we saw continued strength in demand for products produced at our Badger and Sabre facilities, and we are focused on improving the operational execution of both facilities to beat their production schedules. Additionally, production of the Manitex-branded A62 truck-mounted aerial work platform in North America continues ramping up, and sales of the Manitex-branded trolley boom loader and TM200 tractor-mounted straight mast crane are performing acceptably. Going forward, we will roll out a new carry deck industrial crane during the third quarter. This product will have a capacity rating of 11 tons and offer a number of differentiating features that will deliver compelling performance, advantages and value to the marketplace.

In closing, executing to meet the higher level of demand is our single most important objective as we move through the rest of 2018. We are confident the overall company's product portfolio, manufacturing footprint and distribution network find us well positioned for increased strength and shareholder returns. We remain focused on operational execution, revenue expansion and new product development, and we're working hard to increase value for our customers, shareholders, employees and other stakeholders.

Thank you for your time today and your ongoing interest in Manitex International. And thank you to the entire Manitex team for solid gains, hard work and execution. We now welcome your questions.

(Operator Instructions) Our first question today comes from Mike Shlisky with Seaport Global.

I know that you mentioned that backlogs were down from the previous quarter, but just so everyone's clear, that happens most second quarters, correct? And the more important thing to watch is the year-over-year, right?

Correct. Yes, there's seasonality, particularly in the second quarter, and a number of our dealers, as you recall, ordered a lot of inventory in the first quarter, with significant orders coming in. So a number of those orders were being digested in the second quarter as well.

Yes. That was my other question, about the orders. I mean, did you guys sense in Q4 and Q1 that people just wanted things delivered in advance of the U.S. construction season more than normal? And now we're back -- we could be back to a more normalized pattern going forward? Or could you see this fourth quarter and the first quarter coming up here be also strong quarters?

With the changes to the tax law and as folks make those considerations here at year end, I expect that there'll be normal order patterns to some possible increase as we close out the year.

Okay. And as far as the backlog goes, is what you put out there for the quarter, does any of it have to do with Tadano or Asia? Or is it still too early to have anything to do with their initiatives and their dealerships at this point?

Yes. The current backlog doesn't include any activity from Tadano yet.

Okay. And then perhaps, broadly speaking, can we get a sense of sort of how you feel about 2018 as of today compared to last quarter perhaps? Excluding the effect of Tadano, just the overall feel for the business now versus before.

The -- overall, we continue to see very strong activity in North America. We see good activity in Europe. As you know, Mike, we don't have much historical participation in Asia. So we're excited about the opportunities to work with the Tadano distribution there. Latin America has been a little slow in the second quarter and, in particular, in Argentina, where some of the currency issues have been well publicized. So overall, again, Mike, good strength in North America, good opportunity and strength in Europe. We're excited to be growing in Asia. And Latin America, there's been some softness year-over-year.

Okay. And then, perhaps, one more from me. Your leverage ratio this quarter is actually kind of in line with what many companies in the sector have and to have no balance sheet issues whatsoever, which is great news. I'm curious, can you tell us what is the current target or your ideal leverage ratio going forward?

Maybe I'll tackle that one, Steve. I think, Mike, we were at, once upon a time, in the 2.5x to 3x range debt-to-EBITDA, and I think as our EBITDA moves up, we'll obviously surpass that. So we're -- you're right. I think we were off the charts as far as debt-to-EBITDA during the depths of the downturn. So it's very comforting for us and our shareholders to be back in, as you say, normalized range.

Next will be Matt Koranda with Roth Capital.

I apologize for any background noise here. I'm in an airport, so if there's any background noise, apologies. So -- Just in terms of the backlog being down, I just had one other follow-up question from Mike's line of questions, which is, could you give sort of your book-to-bill or your order rates as they tracked in July? And then how did they hold up after the quarter?

Yes. So in the quarter, order rates were up about 4.5% versus the second quarter of last year. Our book-to-bill for the second quarter was roughly 8 -- 0.81 for the second quarter, which was -- as you may recall, in the first quarter, our book-to-bill was 1.44 after very strong order activity at the beginning of the year. In July, we continued the pattern that we saw in June, which was the typical seasonality that we see during summer, with some lower activity as people are out working and cranes are busy and then some acceleration [then] anticipated as we wrap up summer and begin fall's -- the normal seasonality that we see.

The trends we're seeing more and more, Matt, is summer months, July, August, you have -- we obviously have good production periods because of the backlog that we have. But you wait again towards the end of the year till we see the acceleration of orders. At least that's what happened last year. And our expectation is we'll see a similar pattern this year because business -- I mean, the good thing is the units that are going to our customers, which are our dealers, are then going out to end customers. So we don't know of inventory buildups. I don't know, Mike -- or Steve, if you've heard of any of that, but I haven't heard of any inventory buildups among customers.

No, no. Many of the machines, though -- yes, that's absolutely correct. Many of the machines that are leaving our factory are already -- have been committed to an end user.

Got it. Okay. So sell-through has not changed in any material way. It's basically just seasonality and order flow for you guys?

Correct.

Okay. All right, great. And then just in terms of -- maybe you could speak to the mix in the backlog. And I know that your commentary in the release talked about sort of 20% gross margin or north of 20% gross margin targets and north of 10% EBITDA margin, which I think does imply a pickup for the second half. So could you maybe talk us through more specifically the cadence of improvement in Q3, Q4?

Yes. So our backlog for the straight mast cranes is particularly biased to the larger cranes, which generally have higher margins than the smaller cranes. Throughout our operations, there's been ongoing cost reduction activity and efficiency improvements. So those things in combination, Matt, production efficiencies, cost reduction, favorable mix patterns is what's guiding our optimism about our gross margins approaching 20% as we exit the year and a near-term EBITDA target of approaching 10%.

And our -- as you know, Matt, our -- we finished the quarter at 19.5%. So I think that's a putt even I could make, but we'll see what happens.

Great. And just -- last one from me. I mean, in terms of the Tadano investment and the potential for sort of putting some of your product through their distribution, I wanted to get a sense for what you thought maybe the timing was for that? I mean, obviously, we're pretty far through 2018 here. So I'm assuming that it's more impactful to 2019. But could you maybe help us with sort of thinking about the magnitude of that opportunity in 2019? And maybe just the market size, roughly, in Asia for knuckle boom and straight mast?

Well, obviously, the market potential is extreme. But I think we have to allow for a normal process. With a large company like Tadano, we have to make sure that the distribution in the Asian markets are trained on the product. We'll be working on that through the rest of '18, introduction to the -- to their network, introduction to the company. As Steve mentioned in his remarks, we've done some of that already, even though the investment is relatively new. So I think you're right. I don't think that's something that we'll see anything on in 2018. We surely will see something in 2019. And as we get further along, we'll be able to give you some parameters around that.

And then anything on the market size, I mean, to help us out on sort of how that global slice is...

What you think the market is in Asia, Steve? It's big. I don't know what -- I'm not familiar with what the exact size is in the Asian markets.

Globally, Matt, the total market, as we've shared, is about $2.3 billion. Regarding the different breakdown, I'd have to pull up all that information, Matt, and then get back with you on that, just how big Asia is. As you know, we haven't had much participation there previously, and the sales and marketing teams between Tadano and Manitex International are putting their detailed plans together. So as Dave mentioned, as they get through that process, we'll be able to speak up in more detail about market sizes, plans, et cetera going forward.

It's certainly hundreds of millions because your biggest market, obviously, is Europe. And the second biggest market would be Asia, and the third would be the U.S., so the -- it's certainly hundreds of millions, if not approaching a billion.

Next will be Charles Neuhauser with Mainwall Investment Management.

I was actually going to -- I was going to focus on the Tadano potential, which seems like the biggest new development and potential for revenue growth next year, but you just talked about that. I guess the other new-ish or source of incremental revenue growth would be the knuckle boom cranes in the U.S.A. And I've been under the impression that not only do you not have -- or have you not had your distribution network fully in place in the United States, but also that the type of -- that those cranes in specific are not as much in use or accepted or whatever as they are in Europe. So I guess I'm curious how far along do you think you are in realizing the potential of the PM cranes in the United States?

I think we've done a good job of training our people, establishing a workforce that understands knuckle cranes in the U.S. Obviously, Steve has mentioned over the last few quarters a number of new dealers that we've appointed. Those dealers have begun to stock and repeat some of their purchases with some of the dealers. So we've been at it for 3 years. I think that we've seen progress. But I think we still have a long way to go to cover the market. And as you said, Charles, the market is -- it has been gaining in the utilization because it's -- it fits very well with the growth in the United States because a knuckle crane, contrary to a stick crane, is used in a lot of different applications than what we have on the stick crane market, which is a fairly small application in the marketplace. So I think it gives us a lot of opportunity. But I don't think we're -- I think we're scratching the surface and starting to -- we'll obviously gain momentum as we go. I don't know, specifically, if you want to mention any targets, Steve, but that's kind of an overview.

Yes. No, over the past 2 years, we've gained several points of market share in the North American market. But our overall market share for PM in North America still remains under 10%. So there's lots of opportunities for upside. And we'll continue building out our dealer network with more announcements to follow on an ongoing basis.

So you continue to add -- I mean, there's still new dealer opportunities to continue to add to that product line?

Absolutely.

Okay. And then on a more picky note, when you talk about the near-term target of gross margin exceeding 20%, I guess we covered that and the EBITDA margin of 10%. What you mean by near term is sort of at a run rate by the end of this year?

As soon as possible. This -- end of this year would certainly be a good result but as soon as possible.

And I think, Charles, as you say, the gross margin is 19.5% 2 quarters in a row. So that one, we have a much -- our near term is much nearer. And the EBITDA margin is 8.1%, which is the highest it's been in a very long time. So that gives us some hope. But we've still got a couple of points there. So that's still a challenge. So I guess it would be great if we, in the near term, in the next couple of quarters, crossed the line on both of them, but as you also know, we're in a cost environment that is challenging. So we have to keep trying to stay ahead of the stuff that's thrown at us from all kinds of places around the world.

And next will be Mike Shlisky with Seaport Global.

Back to my last question there on your EBITDA margin goal, is it possible that you can get to 10% on a full year basis next year or maybe 2020?

Certainly, the models show that, but as you know, models are models. So we have to -- you have to execute, and Steve and the entire organization is committed to that.

Okay. And just to get a sense for the top line as well. Since last year, you've been saying it's going to ratchet up a little each quarter throughout the year. Is that still the case for this year and for the foreseeable future?

So for the third quarter, there's typically, as you're aware of, Mike, a slowdown in Europe, as in August, in particular, a number of the countries there go on extended holidays and so forth. So I expect in the third quarter, our total results for revenue and gross margin will be flat-ish with the second quarter. And then I would anticipate some type of modest pickup in the fourth quarter. And that's the normal seasonality that you're aware of that we see in our business.

(Operator Instructions) And we'll go ahead and take the next question from John Serafini [with -- private investor].

As you know, I've been on many of these quarters and going through the cycles up and down for a lot of years here. And it's wonderful to hear that we're clearly in an up cycle, and you folks are really gaining stride. So again, congratulations. One specific question I had is, is there a problem, or are you getting any headwinds from the price of steel or other raw materials, especially in light of trade tensions we're going through?

Yes. Do you want me to take that one, Dave, or do you want to speak to that or...

[Go right ahead, Steve].

Absolutely. That certainly has been a headwind for our business that we've been managing closely. We did, of course, mention that we maintained our gross margin in the second quarter. And going forward, we expect to maintain or expand our gross margin based on what we're seeing in the business and how we're managing the different material dynamics. Overall, we're probably seeing, for the raw material component of our costs of goods sold, we're probably seeing right now in aggregate about a 3% increase. And as an offset, we did earlier in the year announce a 3% price increase. So that is the most high-level way to look at how we're managing our material inflation headwinds that everyone has experienced, obviously, in the industrial marketplace. But as we go through this and some of the different surcharges and tariffs and things have come at us, we've been working hard to defer those as long as possible, to pursue discounts from the different suppliers to offset some of the near-term inflationary pressures. We've been displacing some suppliers as a part of our ongoing supplier management process. And lastly, we've been, to the extent possible, disseminating the costs to the marketplace in a responsible way. But the most -- again, the most high-level way to look at it is we maintained our gross margins in the second quarter, and we expect to maintain or expand on a forward basis. But there's -- as you can appreciate, there's a lot of work that goes into it. And that's what our teams are paid to do, to manage that effectively.

And that does conclude the question-and-answer period. I will now turn the conference back over to David Langevin, CEO.

Thank you, Justin. Thank you everyone for your interest in Manitex. We look forward to future calls. Thank you, again.

Well, thank you. That does conclude today's conference. We do thank you for your participation.