Manitowoc Company Inc (MTW) 2016 Q4 法說會逐字稿

Good day, everyone, and welcome to this Manitowoc Company Q4 2016 earnings conference call.

Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Ion Warner, Vice President of Marketing and Investor Relations. Please go ahead.

Thank you, Matt, and good morning, everyone, and welcome to Manitowoc's fourth-quarter 2016 earnings conference call. With me today are Barry Pennypacker, our President and Chief Executive Officer, and Dave Antoniuk, Senior Vice President and Chief Financial Officer.

On today's call, we will provide details of our fourth-quarter 2016 results and our 2017 full-year business outlook as outlined in last evening's press release, which was posted on the Investor Relations section on our website, at manitowoc.com. Today's call includes a slide presentation, which can also be found on our website.

Please turn to slide 2. Before we begin, please note our safe harbor statement. During today's call, forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, will be made during each speaker's remarks and our question-and-answer session. Such statements are based on the Company's current assessment of its markets and other factors that affect its business. However, actual results could differ materially from our implied projections, due to one or more of the factors explained in our filings with the Securities and Exchange Commission. Manitowoc does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or other circumstances.

We will be sure to reserve time for questions and answers after our remarks. I would like to request that you limit your questions to one and a follow-up and return to the queue for further questions, in order to ensure everyone has an opportunity to ask their questions. And with that, please refer to slide 3, and I will now turn the call over to you, Barry.

Thanks, Ion, and good morning, everyone. It's been an incredibly challenging year and our team is working hard to transform Manitowoc into a stronger, more resilient and profitable crane Company, guided by the principles of The Manitowoc Way.

On our last call, we indicated that cash generation was our number one priority. We targeted an inventory reduction of $60 million, and I'm very pleased to report that our fourth-quarter reduction amounted to $100 million. This allowed us to fully repay all borrowings under our asset-based revolver and end the year with $70 million in cash. I'm really proud of our team for delivering this result and we will expand on this later in our remarks.

Generally, worldwide market conditions remained unchanged from the last quarter. In the Americas, demand remained soft and at historically low levels, due to depressed used-crane values and weak rental rates. We mare cautiously optimistic regarding the priorities of the new US administration to invest in infrastructure. But this may not quickly translate into new crane orders, given the nature of the potential projects. Additionally, the supply of underutilized cranes needs to be absorbed into the market before we will see any inflection in our mobile business. That said, as a result of our restructuring activities in the past year, we are much better positioned today to swiftly react to increases in demand, and we are not expecting or including any impact from the infrastructure build in our 2017 guidance.

In Europe, revenue for the quarter was slightly better than the previous quarter and prior year. We continue to see favorable customer demand, driven by strength in residential and commercial construction projects. Our new product introductions have contributed to our European growth. Customers continue to receive our new self-erecting hup and [cop sluing] city-class tower cranes extremely well. In addition, our new all-terrain cranes that were introduced at [Bahma] have done extremely well in the market.

The Middle East crane market remains depressed. While we have seen prolonged weakness in the region, we remain confident that the market will eventually recover and grow, particularly as oil prices continue to stabilize.

Moving to slide 4. We have made significant progress in the implementation of The Manitowoc Way to drive our four key strategic priorities. The first key element of our strategy is margin expansion. We continue to align our manufacturing capacity and our build schedule to the current demand levels. Our relocation of crawler crane manufacturing in the US is substantially complete, and the tower crane relocation in Portugal remains on schedule. We continue to assess the overall headcount of the business and ended the year with slightly under 5,000 employees, down approximately 1,500 from a year ago.

Our next strategic priority is growth. Product quality and reliability are key to a crane operations buyer's decision. I'm pleased to report that we've made significant improvements in these two areas. In fact, throughout the year, we've even delayed the launch of our GRT8100 and our GMK4100 to ensure that these products would meet the quality expectations of our customers. This is a cultural shift for our organization, but we are already seeing the benefits in the eyes of our customers.

In terms of growing the business in new markets, as I noted last quarter, three test cranes were delivered to the US Army. These units are undergoing testing at Aberdeen, Maryland Proving Grounds, which will last approximately six months. We continue to work closely with the US government to ensure this crane meets their expectations. Upon successful completion of this project testing, we anticipate beginning serial production in the fourth quarter of 2017.

Our third strategic priority is innovation. In 2016, we continued to invest in innovation while increasing our focus on the voice of customers. Through this process of listening to crane operators, I, for one, have learned over the last 12 months that innovation in the crane industry is an elegant balance of reliability, simplicity and advanced technology. Our commitment to product development is unwavering, and I am particularly excited to showcase several new cranes at the CONEXPO trade show in Las Vegas next month.

We have a couple of surprises to unveil at the show, one of which will be the new crane that I referred to in past conference calls. If you remember, I challenged our team last February to develop the best-in-class crane from scratch in six months. I'm proud to say that the team has exceeded my expectations. In fact, we have already received several orders for this new truck-mounted crane.

Lastly, our fourth key strategic priority is velocity. Simply put, velocity refers to creating a culture of continuous improvement, adding value in every aspect of every job, every day. Velocity touches all of our key priorities, using the principles of The Manitowoc Way. We continue to hold Manitowoc Way summits, where we train our employees to use Lean tools, which will continue to deliver results in eliminating waste and improving productivity.

The best example I can provide on velocity came from my recent visit to Wilhelmshaven, Germany, where we manufacture all-terrain cranes. The team has been doing a lot of work improving the manufacturing of booms. We recently invested in some new machining and roboting technology that significantly reduce the amount of changeovers, as well as improves flow in the plant.

However, much to my surprise, after training, the team created four small feeder cells in early January. They moved four machining centers 1,000 meters from the machine shop into the fabrication shop. In doing so, they integrated the fabrication of the manufacturing processes, created a pull system with the main boom manufacturing line, and eliminated all the transactions in between. Thank you to the team for a job well done, and I look forward to the continued transformation of this location, as well as all of our others.

Before I turn the call back to David, I'd like to comment on our revenue guidance for 2017 that you received last evening. As you may recall, a portion of our backlog, a significant portion of our backlog, entering 2016 was VPC crawler cranes that have been booked in prior years. When I joined the Company, the first priority of my new-assembled operationally-focused team was to shift these late orders so customers could experience the benefits of this new crane. In doing so, in the first half of 2016, our revenue included these cranes, which unfortunately, due to current market conditions, we are not expecting to repeat in 2017.

For the past few quarters, I've said that market conditions are basically stable, however at a very low base. In support of our revenue guidance for 2017, if you annualize the second half of 2016, you arrive at approximately at our 2017 revenue guidance. This fact was the major driving force in the decision to relocate crawler production to Shady Grove, Pennsylvania. And with that, I'll turn the call over to David and he can walk us through the financials. David?

Thanks, Barry, and good morning, everyone. Let's move to slide 5. For the fourth quarter, orders were $348 million, compared to $310 million in the third quarter of 2016 and $425 million in the fourth quarter of 2015. We reported net sales for the fourth quarter of $378 million, which decreased $165 million, or 30.4% from a year ago. The year-over-year revenue decrease was attributable to softness in the Americas, Middle East, partly offset by higher sales in Europe.

SG&A costs for the fourth-quarter 2016 were $61.9 million, which is $15.1 million lower than the prior year and $11.1 million lower than the third-quarter 2016. Compared to the prior year, SG&A cost benefited from lower headcount, a net benefit of approximately $5 million mainly due to incentive compensation, lower depreciation, and general reductions in discretionary spending. Third-quarter 2016 SG&A costs included a nonrecurring charge related to declines in the fair market values of used cranes which did not repeat in the fourth quarter. Additionally, the fourth quarter also reflected lower compensation costs as compared to the previous quarter.

GAAP operating loss in the fourth quarter was $23.8 million, compared to a loss of $13.9 million for the fourth quarter of the previous year. On a non-GAAP adjusted basis, our operating loss in the fourth quarter was $16.4 million, or negative 4.3%, compared to a non-GAAP adjusted operating income of $11.1 million, or 2% in the prior year. This result was on the better end of our guidance of negative 4% to negative 6%.

Non-GAAP adjusted operating income was negatively impacted by the year-over-year sales decline of $165 million, coupled with manufacturing-related costs caused by a significant reduction in the production of our mobile cranes to improve our inventory levels. The costs associated with the sales decline of reduced plant activities were partly offset by the reductions in SG&A.

Starting in 2017, the Company will begin to provide guidance on a non-GAAP adjusted EBITDA. The sole difference between non-GAAP adjusted operating results and non-GAAP adjusted EBITDA is depreciation. We have provided a quarterly schedule for 2016 in our press release to bridge non-GAAP adjusted operating results to non-GAAP adjusted EBITDA for your reference. Our non-GAAP adjusted EBITDA for the fourth quarter was a loss of $5.7 million, compared to income of $22.6 million for the previous year and a loss of $20.9 million in the third quarter.

Historically, the Company accounted for its inventory at the Manitowoc crawler facility under the LIFO method. As part of the relocation of its crawler crane manufacturing operations from Manitowoc to Shady Grove and to become consistent across the enterprise, the Company elected to adopt the FIFO method of accounting for these inventories in the fourth quarter of 2016. Accordingly, all schedules in the press release have been updated to reflect this change.

During the fourth quarter, net cash flows from continuing operating activities was $57.8 million, versus $51.3 million in the prior year. Inventory and declines in the fourth quarter of both 2015 and 2016 were the main contributors to the positive cash flows in each quarter.

Capital expenditures for the fourth quarter totaled $11.1 million, which was in line with our expectations and compared to $23 million in the prior year.

Backlog at quarter end was $323.8 million, a decrease of $29.8 million, or 8%, from the third quarter of 2016 and a decrease of 36.8% from the prior-year period.

At December 31, 2016, our total liquidity was approximately $214 million, comprised of $70 million in cash and $144 million in net availability on our asset-based revolver. This compares to our total liquidity of approximately $189 million of September 30, 2016. The increase in liquidity was due to our effective working capital management during the fourth quarter, in which we reduced our inventory levels by approximately $100 million.

Turning to slide 6, we are providing our 2017 full-year guidance to reflect the realities of the current macroeconomic environment and market. Accordingly, our 2017 full-year guidance is as follows. Revenue down approximately 8% to 10% year over year; non-GAAP adjusted EBITDA of approximately $41 million to $59 million; non-GAAP adjusted operating income percent of approximately 0% to 1%; depreciation approximately $40 million to $45 million; amortization of intangibles approximately $2 million to $2.5 million; and capital expenditures approximately $30 million. I will now turn the call back to Barry for some closing remarks. Barry?

Thanks, David. While the current market conditions remain challenging, we are controlling every aspect of cost that we can. We are improving the quality of our products. We're expanding our market position. We continue to roll out our Lean initiatives in a way that benefits us now and into the future. We continue to have a disciplined approach to new product development, which is working.

In November, we had the opportunity to show 40 investors some of the things that we're doing to transform our Shady Grove facility. I want you to understand that Shady Grove is not unique. This is happening in all of our operations, positioning us to realize substantial incremental profit improvement when the market recovers.

The organization is embracing our new culture, driven by customer feedback. This new level of commitment to listening to and acting upon customers' needs will be evident at CONEXPO. In addition to the new truck crane that I've been talking about over the last couple of conference calls, our team has also developed a 30-ton fixed-counterweight lattice boom crane that complements our VPC product offering, and one other product that you'll have to come to the show to learn about; another crane that was developed from scratch in less than six months.

My only hope is that you can see what I can see, a great Company in the making. With that, I'll turn the call back over to Ion and introduce the question-and-answer session.

All right. Thank you, Barry and Dave. Operator, please provide instructions.

Certainly.

(Operator Instructions)

Steven Fisher, UBS.

Thanks. Good morning.

Good morning, Steven.

What is your expectation for cash to be generated in 2017 after the nice quarter in the fourth quarter, and how much of that would be inventory reduction specifically? And then as part of that, how much cost do you expect for cash restructuring in 2017?

I'll let David give you the cash number, but from an operational standpoint I can tell you that we have targeted an incremental $30 million over the year in inventory reduction to contribute to our overall working capital reduction and ultimately, our cash flow. But David, you can provide more color.

Yes, Steve. Thanks very much for the question. Overall, we anticipate being cash positive for the year, as Barry has indicated. We have a focus on working capital management. We do have some headwinds in our Project Green budget, moving the crawler manufacturing from Manitowoc to Shady Grove. But we anticipate that we will be cash positive at the end of the year. Now that being said, we will be cash negative in the first quarter, which is consistent with prior years.

Okay. That's helpful. And back to the Investor Day, you were talking about some of these sizable projects that had the potential to come through any time now. What does the bid pipeline of sizable projects look like at this point, projects where you could maybe see crane packages of $50 million plus? And then to what extent are you finding that these projects are specking in used cranes versus new cranes?

Excellent question. With regards to the actual market for the large packages, there are still a number of those out there. Unfortunately, they're moving to the south, as far as timing is concerned. In fact, I'm not sure if everyone has seen or not that Ryan, Paul Ryan came out this morning and said that they're not even going to be talking about infrastructure to the mid-spring. So that's going to cause the large projects that are counting on that funding to continue to move to the south.

And we're continuing to go after those. I'm pleased to say that in the quarter, there was a large India order in excess of $20 million for a large package of cranes. And due to technology, due to support, due to overall expectations of this large customer, we were able to land that order. So we're being very aggressive globally on these large packages. And for the first time, I think we've got a product portfolio that puts us in the game.

Great. Thank you very much.

You're welcome.

Seth Weber, RBC Capital Markets.

Hi. Good morning, everybody.

Good morning, Seth.

Wanted to ask, the production cuts on the mobile crane business in the fourth quarter, are you right sized there currently or do you anticipate more production cuts here to start the year, is my first question.

No. We are exactly where we thought we would be. We have the production lines producing at the lower levels that we anticipated. We are utilizing some government activities that allow us to work short weeks in places like Germany. So the answer to your question is where we wanted production cut and inventory out of the system; that has been accomplished.

Okay. Terrific. Thank you. And at the Analyst Meeting, you talked about a bigger, or you've been talking about a bigger push towards the aftermarket in the crane care business. Can you comment, was crane care revenue up in the quarter year over year and can you just talk about if it was, is that a function of tower rebuilds or what's driving that still? Thank you.

Well, I can tell you that our percentage of revenue in the quarter was up in aftermarket, and I'm very pleased by that. We continue to build our team globally to take what aftermarket is available to us. We continue to work with our supply base to privately brand some of the products that have been historically branded by our suppliers and that our ultimate customers are able to go to their local stores and buy the things directly from them.

But I think you've also heard me talk about that I think it's extremely important that in order to build a long-term successful aftermarket, you have to build the hook in at the sale. And what I mean by that is that as you're developing a new product, you have to have the aftermarket in mind so that you can build things into the aftermarket, into the product that are going to allow the aftermarket to not only come back to you for those products, but how to be proprietary. I think you'll find in some of the technology, in particular, in two of the new cranes that we are introducing at CONEXPO we'll have aftermarket built into them as a result of the development effort.

And that's the first time that I can say that we've got a product out there where we can say that. And I will tell you that this technology that we developed has the potential to go across the entire product portfolio on rubber-based mobile cranes. And I'm extremely, extremely impressed with what the teams are doing, and I think it's just going to take a while longer before we can actually see that revenue stream truly affect our long-term P&L.

Sure. That makes a lot of sense there. I appreciate all the color. Thanks a lot, guys.

You're welcome.

Robert Wertheimer, Barclays.

Hi. Good morning.

Hi, Robert.

So I just wanted to ask, obviously you guys used a much higher grade steel than some of the headline indices. And so have you seen steel cost inflect up yet? And does it seem -- is it a headwind within your outlook? And I guess I missed the change, if I heard it right on the call, from LIFO to FIFO in the press release. But does that mean -- so you've done that, I guess, for 2016 and would it have been materially different if you had done LIFO? In other words, did you already see the steel cost starting to come in?

I'll let David handle the LIFO/FIFO deal. But I will tell you that there are some headwinds in our forecast for 2017, particularly in some higher grade steels that only come from a few steel mills around the world. And we are very aware of that. And where that has happened, we have activities in place to ensure that we don't see margin degradation as a result of that. And David?

Robert, with regard to the change from LIFO to FIFO for the Manitowoc inventories, really had nothing to do with the raw material costs of the business. It had more to do with the fact that this facility was the only facility that was on LIFO. As you are aware, we have significant net operating losses, and the amount of taxable income generated by this is not going to result in any tax impact at all. So it will be a non-cash transaction, for the most part.

So it puts us on one platform as a FIFO Company. It enables us to use one ERP system, where we had actually duplicate ERP systems between the two locations. So from a simplistic standpoint, it adds to the simplicity, as well. But really, nothing about raw material input cost was involved in that.

Got it. That makes sense. Okay. Helpful. And then if I can ask a general and a specific question, you monitor the used-crane pricing much more closely than we would. What's your sense as to whether to anything's being mopped up in some of the optimism that's coming, whether or not real yet, maybe rental companies are. And then generally speaking, on boom cranes, do we have chance of actually starting to age out the 405, 06, 07, 08 stuff yet and thus starting to get more replacement over the next three or four years, or when do you think that actually might start to become a positive dynamic rather than maybe over-saturation? Thanks.

Okay. Very good question. I will say that used prices are still down. You're absolutely right. It's one of the key metrics that we monitor. And I will tell you that the first big opportunity to understand where used-crane pricing is going to be for this year is the upcoming Orlando auction in February by Ritchie Brothers. That historically has set the tone for the year and we're anxious to see where that ends up.

With regard to boom trucks, I can honestly say that we are seeing increased activity in boom trucks. And that's a positive. And as you know, sometimes that is a leading indicator. But we're just remaining cautiously optimistic and sizing our operations to the revenue guidance that we gave. And if there's upside in that, that will be a wonderful thing.

Thank you.

You're welcome.

Mike Shlisky, Seaport Global.

Good morning, guys.

Good morning, Mike.

Just following up on your last couple comments there, one of your big competitors in the smaller truck mounted crane category has been seeing some pretty meaningful backlog improvements and is looking for some pretty good growth to start the year here. I know that National Crane is not your biggest brand, but could you maybe comment on the order and the outlook for National Crane as a whole here?

Yes, when I talked about boom trucks, and that is our National Crane offering to the market, as I said, it is getting better. And to move our total backlog, when it is not a large portion of our overall revenue, would be crazy to say. But our orders are picking up and they're substantial for us. And fortunately for us, we have spent a substantial amount of time when the boom truck market was depressed in investing in the manufacturing operations there. So while historically us, as well as others, may build backlog, due to our transformation of the manufacturing operation, we're able to ship much quicker. So that's being known by our customers. And as it's known by our customers, they have a tendency to now allow us to not have the significant backlog like we've always had. It's more or less a call, we produce and ship.

It is important also to recognize that although this is a smaller portion of our business, it's one that we continue to invest in. We've recently introduced two new units to the market and they're being received extremely well.

Got it. So it's a bit more book-and-burn within the quarter or a few months.

Correct.

And earlier you had touched on that this could be something, an early indicator, if we do see some of these smaller cranes get better. As you look back through history, can you just give us a sense as to what kind of lag time it takes on the smallest truck when the cranes pick up, how long it might take for some of the bigger categories to improve, in your experience?

When we see -- it's a multifunctional approach. But I think one of the things that we have to look at first in order to understand where we're at with regards to the market is rig count. And as we follow rig count, we see boom trucks go first, and then after boom trucks, that's when the balance of the market of our RTs really starts to kick in. So rig count's the leading indicator, which will increase, show an increase, logical increase in boom trucks. And once rig count passes a certain level, then we bring in truck mounts and our AT product line. Good question.

Got it. That's excellent color. Thanks, Barry.

You're very welcome.

Jamie Cook, Credit Suisse.

Hi. Good morning.

Hi, Jamie.

Hello. A couple questions. One, just in terms of the profitability improvement, the cadence for the year, is there anything unusual this year? Should we expect you're more profitable in the back half of the year or lose more in the first half of the year? I'm just trying to understand how we should think about that, with savings rolling in or how we're thinking about material costs and being able to capture that. And then my second question, on your sales guidance, do you assume any market-share gains to hit your numbers or is that just more market related?

Yes, Jamie. So I'll take the first, the profitability. So historically, and it's going to be no exception for 2017, the first quarter will be the most -- will be challenging relative because where our backlog is at this point, and the sales mix that we'll have there. And far as profitability goes, the first quarter will be a little bit challenging for us. And in going forward, we would anticipate that Q2, Q3 and Q4 will be better months, enabling us to get to the long-term goal. We'll provide some color on the quarters later on, as we get through the first quarter.

Okay.

Go ahead.

I was going to say, I know I asked what's implied with 2017 with market share versus end-market demand. But I'm just trying to think about, too, how do you think CONEXPO plays into order activity this year? It generally tends to be a larger event. Do you think that distorts orders for the year? If you could give more color on that. Thanks.

Well, what I would say about CONEXPO is that we're presenting to the market a new Manitowoc. We will have a total of nine cranes on display at the show this year. Seven of those cranes have been developed within the last six months. The other two have been within the last 12 months.

So we're showing the market that we are a Company that listens to their needs, develops what helps them improve their return on invested capital, and I believe that this show will be an order taking show. However, we cannot forget what the true underlying market conditions currently are. And in past CONEXPOs, we've looked, and yes, it's been a huge order taking shows. But market conditions have been different.

Okay.

But I do believe, I do believe, and we will report, as I think is necessary, we'll report an impact of CONEXPO in our new products on our order intake rate in the first quarter when we do the call.

Okay. Thank you.

You're very welcome.

Jerry Revich, Goldman Sachs.

Hi. Good morning, everyone.

Good morning, Jerry.

I'm wondering if you could bridge for us the $30 million in guided EBITDA improvement 2017 versus 2016, just the underlying components. What are you folks assuming for price versus raw material costs and the structural cost improvement actions? Can you just flesh that out a bit for us, the underlying pieces on that bridge?

Yes. At a high level, Jerry, I think our sales obviously are down significantly, so we have the headwind from the down sales. However, we believe that we can make a lot of that up from our improvements that we made in our manufacturing facilities. And then our SG&A cost, we believe that we can still get double-digit improvement in our SG&A cost, which is going to lead us to the improvement in the EBITDA results year over year.

And in terms of the cadence of the SG&A and manufacturing cost savings, can you just help us understand how the momentum is expected to build over the course of the year? Your exit rate in the fourth quarter will be how much higher than the savings in the first quarter, or if you want to frame it another way, just for context for us?

Yes. I think when you look at where we're going to be, we're going to be probably a little bit up on SG&A in the first quarter, just because of a few items that are impacting us. But we anticipate those coming down throughout the year. Our overall -- we anticipate some consulting fees going down, as well as some salary still continuing to go down. So we'll have a nice gain there.

As far as the manufacturing side, with lower production, we have lower earned hours. So a lot of the benefits that we have in the production are going to be eaten up by the simple fact that our earned hours on a year-over-year basis are going to decline, mainly because of the sales decline that we have, as mentioned in various prepared remarks, associated with the carryover of the crawler manufacturing.

Okay. And lastly, one of the big items you spoke about was standardization of components post the product rollout that you've spoken about at CONEXPO. How far along are you in that process? What's the overall SKU or platform reductions that you folks will be targeting? And where are you in that process post the products you're introducing at CONEXPO?

I think you need to give us a little bit more time to give you accurate data on SKU reduction. However, I think you'll see, with these seven new cranes that are mixed between tower, RTs, ATs and crawlers, I think you'll see that the commonality of components that we are speaking about are evident on these new products. So you need to just give me a little bit more time to quantify that, and I think within the next quarter, I think we'll be able to report on that.

Okay. Thank you.

But I will tell you that you will see, when you go to, if you have the opportunity to attend CONEXPO, you will see the commonality of components across the platform.

Look forward to taking a look. Thank you.

Thank you.

Stanley Elliott, Stifel.

Hello, guys. Good morning. Thank you for taking my question. A quick question for you on the new products at CONEXPO. Obviously, in the past it has been a good order show for you guys. When would these products be able to start shipping? Is that by the end of the year or is that going to be fall into early 2018? And then I'd be curious, what are your expectations or how does this show going to factor into the down 8% on the revenue base, if it does at all?

Well, I don't think the show factors into it very much at all. One of the new products that I talked about, that I mentioned it and I kind of gave a little bit more color as to what it was, I mentioned the word truck-mounted crane. And that is the crane that we developed in six months with superior, I think, lifting technology for the industry. That crane in and of itself is in production today, and so that impact will be immediate. The new RT that will be talked about at the show will be in the second half of the year. The tower cranes that you will see are immediate. And the new all-terrain crane will be in the second half of the year, also.

Great. That's all I had. Thank you.

You're very welcome.

Ann Duignan, JPMorgan.

Good morning. This is Tom Sinovich on behalf of Ann. Can you give us some color on your balance of US imports and exports, both in terms of finished products and raw materials?

Yes. So I think that when you look at our balance, obviously the steel component, we source from overseas into the US. For our product lines that are produced in Germany, primarily the ATs, we come in from Germany. And then in the US, we ship RTs from the Middle East. So generally, that's where we're at.

I think on the balance, when you look at things, when you look at the RTs that we produce in the US for the US market and what we export, and you look at the ATs that we produce in Europe for the European market and what we export to the US, I think in general when you look at our revenue base, we're pretty well balanced. As David mentioned, I think on the raw materials side, however, due to some of the steel that we use that is not produced in the US, we have an imbalance there on the raw materials side.

That's very helpful. Thank you. I'll pass it on.

Nicole DeBlase, Deutsche Bank.

Yes. Thanks. Good morning, guys.

Good morning, Nicole.

So in your revenue guidance, what have you assumed for currency headwind?

More or less flat from where we ended the year.

Okay. Got it. And then from a backlog perspective, I understand the methodology that you're using to get to your 2017 guidance, basically annualizing the second half of 2016. But it seems, based on the backlog decline that we've seen in 2016 and the 13% decline in orders, that you are embedding a bit of an improvement in order activity. So I'm just curious, if you look across your product lines and geographies, where you're most optimistic about improvements?

Well, I will tell you that we are expecting improvement to continue in our tower business in Europe. That's very evident by our incoming order rate thus far in January. We are expecting improvement in Europe in some of our AT business, due to the new products that we introduced.

I happened to have the opportunity to be in Europe and visit with some of these large customers a few weeks ago, and I will tell you that while on the large crawler side of the business, which happens to be affected by lack of public funding after this year, which would affect crawler business which we don't have currently in Europe, it's good. Though, for maintenance, which is the AT product line that we have a good position in and where we have spent a significant amount of our new product development activity, and I think now are proving to the customers that I've met with that we have a very viable product line for them. And as they make their decisions to redeploy crawlers to other win markets, it should drive some substantial increases for us in the second half of the year for our AT product line.

Okay. Got it. Thanks. I'll pass it on.

You're very welcome.

Mig Dobre, RW Baird.

Good morning, everyone. It's Joe Grabowski on for Mig this morning.

Morning, Joe.

Good morning. You mentioned earlier that once the US rig count reaches a certain level, it drives demand for a broader range of cranes. And we've seen the US rig count improve from 400 to 700 over the last seven or eight months or so. I'm just wondering, how close are we to reaching that certain level and what's the cadence of what types of cranes come back once the rig count goes up from here?

Well, what we've looked at in the history of our correlation of revenue to the oil and gas business is not directly tied to rig count. Indirectly, it is. But the more driving factor for our business is $60 a barrel.

I see.

And historically, from where we're at today, if you look at where rig count is to price of oil and the number of rigs that would be put into the market should oil go above $60, that could account for as many as 200 rigs. And that 200 rigs would definitely drive demand for our RT product line, even in the current marketplace of oversupply.

I see. Okay. That makes sense. That's very helpful. I'll pass it along. Thank you.

You're welcome.

With no further questions in the queue, I'd like to turn the call back over to Mr. Warner for closing remarks.

Thank you. Before we conclude today's call, please note that a replay of our fourth-quarter conference call will be posted later this morning by accessing the Investor Relations section of our website, at Manitowoc.com.

Thank you, everyone, for joining us today and for your continuing interest in The Manitowoc Company. We look forward to speaking with you again on our next call. Have a good day, everyone.

And once again, that concludes our call for today. Thank you for your participation. You may now disconnect.