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Edited Transcript of MNTX earnings conference call or presentation 8-Aug-19 8:30pm GMT

Q2 2019 Manitex International Inc Earnings Call

Bridgeview Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Manitex International Inc earnings conference call or presentation Thursday, August 8, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David J. Langevin

Manitex International, Inc. - Chairman & CEO

* Ruoru Yu

Manitex International, Inc. - Senior VP, CFO & Treasurer

* Steve Kiefer

Manitex International, Inc. - President & COO

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Conference Call Participants

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* Michael Shlisky

Seaport Global Securities LLC, Research Division - Former Director & Senior Industrials Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Manitex International Second Quarter 2019 Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Dave Langevin. Please go ahead.

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David J. Langevin, Manitex International, Inc. - Chairman & CEO [2]

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Thank you, Leone. 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; as well as Laura Yu, our Senior VP and CFO.

Please see our website or our release for replay instructions for this call, which will be available until August 15.

Now please refer to the first slide regarding our safe harbor statement. We ask that you review this statement and also refer to our SEC filings for further guidance on the many risk factors associated with our company.

I will begin with a brief overview. Laura will present a financial summary, followed by operating commentary from Steve. After which, we will welcome questions.

Please now turn to Slide #4. In the second quarter, while we saw an increase in sales as compared to the first quarter of 6%, it is clear that the demand environment in the U.S. has been volatile with bookings for our straight mast cranes slowing in the last month of the quarter after getting off to a very good start in the first quarter of 2019. While the long-term trends in orders are uncertain for the U.S. market in straight-mast boom trucks, we did note that orders picked up in July. And our backlog was up to approximately $63 million at the end of July.

It's important to point out to shareholders that as our company becomes more oriented towards the PM-type products, our company as a whole becomes less driven by long-term backlog and this is for several reasons.

First, the production cycle for PM knuckle-type products are about as half as short as the cycle for Manitex straight-mast boom products.

Second, the cyclicality for knuckle cranes are less dramatic as compared to U.S.-driven straight mast cranes. And also, as we've consistently stated in the knuckle boom market, it is a global market with multibillion-dollar sales per year compared to our straight-mast cranes, which are primarily a North American product with a market of approximately $250 million.

Further, we have a significant market share in the straight-mast crane market compared to a 2% to 3% market share in knuckle cranes, giving us a lot more room to grow in the knuckle market. We are seeing growth in knuckle cranes in all the markets we serve, specifically South and North America, Europe and, of course, Asia, which for us, excludes China.

Finally, the overall growth rates for knuckles is much higher than the large straight-mast cranes. And a few more comments about the specific attributes of our knuckle business. Overall, the margins for this business are consistently in the 20 -- the plus-20% range. The real key to our execution in the knuckle business is for us to reduce our SG&A in order for us to report consistent 10% operating profits.

To that end, we made a change at the top in our PM managed -- operating management in the second quarter. This new structure will allow us to take more control over our operating cost and should show improvement in our operating profits.

On the balance sheet, we did see solid reduction in the quarter on our net debt from $49 million at the end of the first quarter to $44 million as reported today for the second -- for the end of the second quarter. Our inventory did increase by approximately $13.5 million from the end of last year, which we believe we will flow through by the end of this year, thereby allowing us to make further progress on debt reduction for the rest of this year.

In addition, the approximate $7.5 million proceeds from the sale of our holdings in ASV will further strengthen our balance sheet when the transaction closes, which is expected in the third quarter.

A few more comments regarding this quarter. We reported today a metric called value-add margins and noted that they remain in the 20% range. The schedules accompanying our release show the impact of low-margin chassis sales as a component of our total sales. And as we reported in recent quarters, we expanded our company-owned chassis and inventory in order to offset the long lead times in receiving chassis. As you would expect, these long lead times have diminished, and we will sell-off the remaining excess chassis inventory by mounting them on sold cranes over the next several quarters.

Other areas of concerns that come up from our shareholders, such as tariffs, which are not an issue for us; material and price -- and component price increases, which are diminishing; and lastly, we will continue to manage the reduction of our expenses, especially at our PM operation.

Finally, as we reported today, we completed shipping the first 2 containers to Tadano dealers in the second quarter. More importantly, the second container in our shipment was made under the PM Tadano equipment label. This labeling with the Tadano brand cannot be overemphasized as a major breakthrough for our future development in the Asian markets. Tadano is a premier brand, which is widely known and accepted in Asia while PM is not. This branding gives us a significant advantage in expanding our sales in this market over the long term, a very exciting opportunity for our company and for our shareholders.

With those opening comments, I would like to turn it over to Laura and finish with Steve discussing operations. Laura?

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Ruoru Yu, Manitex International, Inc. - Senior VP, CFO & Treasurer [3]

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Thanks, Dave. Good afternoon. Thanks for joining the call today.

Let me direct your attention to Slide 5, which is Q2 operating results. Revenue was $61 million, an increase of $3.5 million or 6% compared to the first quarter of this year, down 5% compared to the same period last year primarily due to the market softness, which we have been experiencing in the U.S. for the straight-mast cranes as well as an unfavorable currency impact due to a weaker euro, which declined versus the U.S. dollar. Revenue decreased by approximately 2%, excluding the unfavorable currency impact of $1.5 million compared to the second quarter of 2018.

Gross margin was 17.8% compared to 19.5% from the same quarter last year primarily driven by the mix of sales, with higher pass-through revenues from the current quarter on chassis and trucks with low margins compared to the same quarter last year.

Adjusted value-add margins, as Dave mentioned earlier, remains in the 20% range, which was a result of continued effective execution of the team in managing our costs.

Our second quarter 2019 net income was $3.2 million or $0.16 per share, which was impacted substantially by the increase in value of our holdings in ASV, resulting from the announcement of the pending sale of ASV to Myanmar.

Adjusted net income was $1.1 million or $0.06 per share, flat compared to the first quarter of this year. Adjusted EBITDA in the quarter was $3.8 million, also flat compared to the first quarter of this year or 6.2% of sales.

The second quarter 2019 results included $2.4 million onetime nonrecurring adjustment to EBITDA, of which approximately $750,000 was related to severance and related costs recorded in the second quarter this year at PM, and $281,000 was related to the Bauma trade show that takes place every 3 years.

Our cash from operating activities for the first half of the year improved by almost $6 million compared to the same period a year ago. Our global teams are constantly looking for ways to improve our working capital position. The main focus for the second half of 2019 is to reduce inventory to improve the company's cash conversion cycle.

Let's move to Slide 6, net debt update Q2 2019. This slide provides a breakout of the net debt by quarter. Net debt decreased by $5.2 million compared to the first quarter of this year to $44.4 million, the lowest level we have seen in many years. Management will continue to control costs, improve working capital performance, especially our inventory management, and take other necessary actions to further reduce net debt for the rest of the year. In addition, when the sale of ASV is completed, we will receive approximately $7.5 million in cash to pay down our debt further.

With that, I will now turn the call to Steve.

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Steve Kiefer, Manitex International, Inc. - President & COO [4]

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Thank you, Laura, and thanks to everyone on the call for joining us today. As reported during our first quarter earnings call, our production teams were taking the necessary operational steps to prepare for increased shipment levels. Overall, our teams continued to effectively manage the various surcharge, supply chain capacity, freight costs and tariff issues that are well understood in our marketplace while delivering a 6% revenue increase versus the first quarter. While our input costs were flat to slightly declining, our adjusted gross margin of 18.6% was negatively impacted by an increase in pass-through sales of truck chassis, as mentioned by Dave and Laura, as well as production and efficiencies related to chassis deliveries at 2 of our production facilities.

As we move through the third quarter, we have seen much of this problem alleviated with more timely chassis deliveries and our production teams responding in a more flexible and efficient manner to schedule changes.

Shifting to an update on market and commercial activity. Our internal channel checks, combined with data from outside sources, show overall stable rental fleet utilization for the various mobile crane markets within our product offering. The end markets in which we participate that show continued strength are the construction, utility and government segments, where we generate over 70% of worldwide revenue. And we saw a decline in the energy sector, where we generate approximately 15% of worldwide revenue.

Regarding new equipment orders, our book-to-bill ratio of 0.71 during the quarter slightly reduced from the 0.81 level we achieved during the second quarter of 2018. Full year industry orders for straight-mast cranes moderated to an annualized rate of approximately 1,200 units during the quarter, which is similar to the full year industry build level of 2018.

An important development for Manitex during the quarter was the launch of a new 60-ton straight-mast crane branded the TC600 Series. This crane is a welcome addition to our industry-leading line of heavy-tonnage cranes, and we look forward to the public unveiling of this product at the International Construction and Utility Exposition in Louisville, Kentucky in early October.

Order patterns for knuckle boom cranes remained stable throughout the quarter, which is important to our company on a forward basis as increased penetration of this expanding multibillion-dollar market is our largest opportunity in 2019 and a key element of our multiyear growth plans.

As I've previously mentioned, each point of market share in the knuckle boom crane market from our low global base translates to approximately $25 million of growth revenue. So this is a significant growth opportunity for our company and again, one that we're pursuing diligently.

Recent highlights from PM includes securing a $1 million order from a military customer in Asia. Going forward, our efforts to expand PM's presence in the global military market continues, and I anticipate additional announcements over the coming months.

In addition to new products and new market segments, growing our distribution network remains a critical part of our growth plans, and we're pleased to add 4 new dealers for Manitex and PM lines during the quarter.

Lastly, growing our operating margins at PM remains an important opportunity for our company and shareholders. And in addition to growing our top-line revenue, we're focused on continued improvement of our cost structure. In support of this initiative, we consolidated senior management during the quarter to realize both current and ongoing reductions in SG&A.

In closing, executing to meet our revenue growth, margin expansion and new product development goals in 2019 while being agile and responding to the various opportunities and challenges of our end markets, is our primary objective. We're working hard to increase value for our customers, shareholders, employees and other stakeholders.

Thank you again for your time today and your ongoing interest in Manitex International. And thank you to the entire Manitex team for solid gains, continued hard work, customer service, operational discipline and overall execution. Dave, Laura and I would now like to open the line and start our question-and-answer session. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll take our question from Mike Shlisky with Dougherty & Company.

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Michael Shlisky, Seaport Global Securities LLC, Research Division - Former Director & Senior Industrials Analyst [2]

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Wanted to touch first on the order patterns in the backlogs into July that you outlined. You did say that orders were -- that they were a bit better backlog than July. I'm kind of curious, is that kind of how things go for you normally in your July? And were there any kind of cadence of orders throughout the quarter that maybe improved as you kind of went through it?

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David J. Langevin, Manitex International, Inc. - Chairman & CEO [3]

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So the second quarter, we started -- the first quarter was good. Obviously, our backlog was up. We -- in the 70s, and we ended the quarter strong. And so we were anticipating a strong year, similar to what we started out in 2018. But also similar to 2018, it's hard to slow down, and this is primarily the straight-mast market that we serve in North America. I'm not talking about the PM market so much, just the straight-mast market. So that started to slow down in the second quarter. And again, it's primarily North America, and it was particularly slow in June.

But then it picked up again in July, and we got a nice order pattern because we shipped pretty good in July. So we obviously had a better book-to-bill in July. But I don't know -- typically, the August period is slow because we seem to have accepted the European practice. For example, our plant in Europe will shut down for 2 weeks starting next week. And it seems like we've accepted that practice in The States, and there's an awful lot of holiday taking during this period of time, which is understandable. And so we really generally don't see a pickup in orders again until the fourth quarter. But we're in good shape from a production standpoint in the North American plants for the third quarter. And again, we expect that we will see a pickup, which generally occurs in the fourth quarter.

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Michael Shlisky, Seaport Global Securities LLC, Research Division - Former Director & Senior Industrials Analyst [4]

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Okay. Got it. Can you also maybe just touch on the market share trends so far this year? Would you say you gained share in either straight mast or in knuckles? Or is this still to come here?

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David J. Langevin, Manitex International, Inc. - Chairman & CEO [5]

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I would say that we're probably holding steady in all of our markets. I don't know, Steve, you better handle on this, on the straight mast side, on the knuckle side. Mike, it's very hard to get the readings on that because we don't have the information flow like we have on straight mast. Straight mast, as you know, we have a very good source that provides us and everybody in our industry with information. So we have good handle on that, but the knuckles are so large, there has not been a source that's developed the information to provide to us on the knuckle side.

So it's a little harder to gauge, but I would say that it appears to us the market around the U.S. -- or around the world, as I said, between Europe, South America, North America, and of course, Asia, we just seem to continue to have a good order trend there and a consistent order trend, whereas in the U.S. in our straight mast market, it seems to have been a little more volatile. And -- but I don't know of any material changes in our market share. And Steve, again, I don't know if you have any idea?

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Steve Kiefer, Manitex International, Inc. - President & COO [6]

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Yes. The -- last year, Mike, we announced a record market share of a little over 40%. And year-to-date, from a shipment standpoint, from some of the recent data we've seen, our market share continues to hover approximately around that high level of 40%.

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Michael Shlisky, Seaport Global Securities LLC, Research Division - Former Director & Senior Industrials Analyst [7]

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Okay. And speaking of Asia, can you give us just some color as to what to expect in the back half as far as any big shipments you think might happen in the orders? And in addition, anything to tell us about some of your sourcing around some of the parts that they use over there to put in your cranes for some -- pass their cost structure going forward?

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David J. Langevin, Manitex International, Inc. - Chairman & CEO [8]

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Sure, Mike. We're still working on the last part. We're still working on putting together quality reviews and cost reviews for components. So I'm not aware of any components of recent. But we are studying that, and I think there will be some developments as we go forward in that area. Because we're getting a lot of cooperation and everyone in the crane business knows that there's no better componentry than the Tadano product. So we're actively seeking access to that -- to their componentry. But again, that hasn't developed in a big way yet, but we are continuing to work with them. And I think there will be developments going forward.

On the Asian market, we didn't have a very high bar. We had done -- out of the sales over the last few years, if we had $240 million in sales last year, we had $1 million that go -- went into Asia. So it wasn't a very high bar. On that basis, we multiplied this year because some of the things that we announced even this quarter, was a $1 million order with the Singapore military or an agency that represents the Singapore military. We've put our first 2 containers into Tadano's dealer network. I know we're going to receive another large order shortly from another dealer in that network. And I expect that we'll receive another Asian order by the end of the year.

So the penetration has started. I did mention in my remarks that the last container had a PM Tadano brand on it, which is very exciting for us because we had to go through a lot of quality review checks from their standpoint in order to allow that. And they don't -- I don't know of any other products, maybe the Manitex product. I don't know Manitex -- or not Manitex, but the Manitex products have Manitex Tadano. Do you know if that's true, Steve?

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Steve Kiefer, Manitex International, Inc. - President & COO [9]

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Yes, it is true.

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David J. Langevin, Manitex International, Inc. - Chairman & CEO [10]

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Okay. So a Manitex product, which they own 100% of, is Manitex Tadano product.

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Michael Shlisky, Seaport Global Securities LLC, Research Division - Former Director & Senior Industrials Analyst [11]

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Great. Certainly, of course, having that brand attaches (inaudible) certainly great development [evaluation] on that. Perhaps one last one from me about the chassis availability. Steve, you kind of talked about that. Given that Class 8 truck markets are kind of -- truck orders are in decline right now, it sounds like some of the truck OEMs are kind of catching up on their backlogs and looking out of the outlook.

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David J. Langevin, Manitex International, Inc. - Chairman & CEO [12]

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That's correct.

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Michael Shlisky, Seaport Global Securities LLC, Research Division - Former Director & Senior Industrials Analyst [13]

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Yes. And then for next year, we're looking at a more normalized truck market given some of the freight trends out there. So you think you'll have any kind of chance to be able to beat issues of between now and the end of 2020? Or are there individual parts or individual pieces that are just on -- just quite out there right now to (inaudible) trucks right now?

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Steve Kiefer, Manitex International, Inc. - President & COO [14]

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Yes. The component-related disruptions we experienced in the second quarter were related to chassis. And as you know, Mike, chassis have been tight over the past 6 quarters, in particular. And we've been managing it very closely, manage it very well overall.

Production levels right now at the factories are at -- in the first and the second quarter were, in particular, at a very high level, what might turn out to be peak level for Class 8 truck factories. And we did experience some shipping delays, some changes in the Class 8 schedule. That's alleviated now during the third quarter, as I shared in my prepared remarks and from our conversations with the various dealers from which we buy trucks. We don't anticipate reoccurrence of some of the chassis disruption we saw during the quarter.

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David J. Langevin, Manitex International, Inc. - Chairman & CEO [15]

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I might add, Mike, what I said in my remarks, I'll reemphasize is that we had stated in previous calls last couple of quarters that as a result of this issue, we bought more chassis than we normally would. So we expanded our chassis inventory so that we had a better offering to our customers if they wanted to mount them on our chassis.

So now it would be reduction or the diminishing of some of this problem. We are actively mounting our chassis like our own chassis on sold units so that we can reduce our inventory as well.

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Michael Shlisky, Seaport Global Securities LLC, Research Division - Former Director & Senior Industrials Analyst [16]

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So that's just a part of the inventory reduction for the back half, not all of it. Correct?

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David J. Langevin, Manitex International, Inc. - Chairman & CEO [17]

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Now that's part of -- yes, that's part of the inventory increase that we've seen. Part of it was that we bought chassis. And that's part of the reason for the increase that you saw in the first 6 months of our inventory, and that's what we say will flow through in the second 6 months.

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Operator [18]

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And this concludes today's question-and-answer session, and this concludes the conference. Thank you for your participation. You may now disconnect.