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Edited Transcript of MTW earnings conference call or presentation 10-May-19 2:00pm GMT

Q1 2019 Manitowoc Company Inc Earnings Call

Manitowoc May 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Manitowoc Company Inc earnings conference call or presentation Friday, May 10, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Barry L. Pennypacker

The Manitowoc Company, Inc. - President, CEO & Director

* David J. Antoniuk

The Manitowoc Company, Inc. - Senior VP & CFO

* Ion M. Warner

The Manitowoc Company, Inc. - VP of Marketing & IR

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Conference Call Participants

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* Ann P. Duignan

JP Morgan Chase & Co, Research Division - MD

* Benjamin J. Burud

Goldman Sachs Group Inc., Research Division - Research Analyst

* Jamie Lyn Cook

Crédit Suisse AG, Research Division - MD, Sector Head of United States Capital Goods Research, and Analyst

* Mircea Dobre

Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst

* Seth Robert Weber

RBC Capital Markets, LLC, Research Division - Analyst

* Steven Fisher

UBS Investment Bank, Research Division - Executive Director and Senior Analyst

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Presentation

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Operator [1]

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Good day, everyone, and welcome to this Manitowoc First Quarter 2019 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, Marketing and Investor Relations of The Manitowoc Company. Please go ahead.

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Ion M. Warner, The Manitowoc Company, Inc. - VP of Marketing & IR [2]

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Thank you, and good morning, everyone, and welcome to the Manitowoc conference call to review the company's first quarter 2019 performance and updated 2019 full year business outlook, as outlined in last evening's press release. With me today are Barry Pennypacker, President and Chief Executive Officer; and David Antoniuk, Senior Vice President and Chief Financial Officer.

Today's webcast includes a slide presentation, which can be found in the Investor Relations section of our website under Events and Presentations. We will be sure to reserve time for questions and answers after our prepared remarks. (Operator Instructions)

Please turn to Slide 2. Before we begin, please note our safe harbor statement in the material provided for this call. During today's call, forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, are made based on the company's current assessment of its markets and its -- and other factors that affect its business. However, actual results could differ materially from any implied or actual projections due to one or more of the factors, among others, described in the company's latest SEC filings. The Manitowoc Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or other circumstances.

And with that, please refer to Slide 3. And I will now turn the call over to Barry.

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [3]

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Thanks, Ion, and welcome, everyone. Manitowoc had a great start to the year. The strong earnings performance was driven by sales growth of 8% and our eighth consecutive quarter of year-over-year adjusted EBITDA percentage improvement. This also marks our fourth consecutive quarter of positive adjusted DEPS, another significant milestone for Manitowoc.

I'm very pleased that our LEAN transformation continues to drive improving financial results. However, we are always analyzing and identifying areas for improvement. While there was an inventory build for the first quarter, this was expected, and we are confident, as the year progresses, we will consume this build. Our top line results were driven by sales growth in North America and our aftermarket business. Gross margins improved 150 basis points year-over-year driven by increased sales volume, a favorable mix, coupled with the benefits of strategic pricing actions initiated in 2018.

I'm extremely pleased with our progress, particularly with the growth in our aftermarket business. Our transformation to a higher-margin crane company using the principles of The Manitowoc Way continues to produce improving results. We are operating the business by aggressively managing costs, utilizing multiple sourcing strategies, outsourcing non-core activities and optimizing manufacturing capacity, to name just a few.

As I am sure you're aware, additional tariffs on Chinese imports have been in the news the last few days. Like any industrial company, Manitowoc is not immune. However, I am proud to say that we have proactively partnered with our supply chain to ensure that any additional tariff impact to our financial results will be negligible. This quarter, I see a mixed picture of the demand within the crane market. On a positive note, the U.S. continues to perform very well with encouraging customer sentiment and steady project work. Rental utilization rates are strong primarily driven by strength in the energy and commercial construction end markets. We are encouraged to see used crane values continue to stabilize as well.

Based on our first quarter results and proven ability to deliver on our commitment, we're raising our outlook for the balance of 2019. David will provide more color on this shortly.

In March, we completed the long-anticipated refinancing of our debt. The interest savings are substantial, and we have significantly increased our flexibility to deploy capital. While our preferred option is growth and increasing our recurring revenue as a percentage of sales, we are also pleased that our Board has authorized a $30 million stock repurchase program, allowing us to buy back our significantly undervalued stock. Rest assured, we will deploy our capital in the most efficient way to provide superior returns to our shareholders. We remain committed to our long-term goal of transferring -- transforming Manitowoc into a stand-alone crane company with double-digit margins.

And with that, I'll turn the call over to David to walk us through our financial results and updated 2019 guidance.

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [4]

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Thanks, Barry, and good morning, everyone. Let's move to Slide 4. I'd like to start off by discussing a transformative milestone for Manitowoc. As previously announced on March 25, we issued $300 million of 9% notes due April 1, 2026. In addition, we entered into a new ABL credit facility with an initial borrowing capacity of up to $275 million. We used the proceeds to retire our previous 12.75% $260 million 2021 notes and the domestic accounts receivable securitization program. As noted by Barry, this transaction significantly lowers our annual interest cost and provides us flexibility to execute our strategy of focusing on growth and shareholder return. The first step in this strategy was announced on Tuesday, with our Board authorizing a $30 million share repurchase program.

Our first quarter results gave us a great start to the year. Net sales were $418 million, an increase of $32 million or 8% from a year ago. On a currency-neutral basis, sales increased $48 million or 12% year-over-year. Sales grew organically in the North American and European markets and were favorably impacted by the realization of global price increases from last year.

First quarter orders totaled $441 million and were in line with our expectations. On a currency-neutral basis, our first quarter orders would be down 15% year-over-year. The decline in our year-over-year orders was primarily driven by a softening of commercial and residential construction demand in Europe and continued weakness in the Middle East. As I mentioned in the previous call, we did anticipate some orders moving out to Q2 because of the bauma trade show, and our April orders indicate that our assumptions were correct.

Ending backlog increased $23 million from December 2018 to $694 million at March 31. Compared to the prior year, backlog decreased $63 million or 8%. Excluding the impact of foreign exchange, backlog decreased $42 million or 6% year-over-year. The year-over-year backlog decline is primarily in the EURAF and MEAP business units partially offset by the increase in the Americas.

Our non-GAAP adjusted EBITDA in the quarter was $30 million versus $17 million in the prior year, a 73% increase. The flow-through margin of 39% on the sales increase was stronger than our typical realization. This elevated level was primarily due to improved aftermarket margins, favorable mix, global pricing initiatives and cost reductions. We anticipate a flow-through rate of approximately 25% on incremental sales for the full year compared to 16% in the prior year.

GAAP net loss in the quarter was $27 million or $0.75 per share as compared to a net loss of $10 million or $0.28 per share in the prior year. The first quarter 2019 included a $25 million charge related to the refinancing of our credit facilities. Approximately $17 million of this charge represented the call premium on the redemption of the 2021 notes, and the remaining $8 million represented noncash charges for the write-off of deferred financing fees and the unamortized original issue discount on the 2021 notes. In addition, the first quarter 2019 net loss included restructuring expenses of $4 million. This was predominantly related to headcount reductions in the U.S. and Europe. Adjusting for these items, net income for the quarter was $3 million or $0.08 per share, an improvement of $7 million or $0.20 per share as compared to the first quarter of last year.

Cash flows used by operating activities on a GAAP basis were $267 million for the quarter and $141 million on a non-GAAP basis. The use of cash in the quarter was driven by the termination of the domestic accounts receivable securitization program, effectively buying back $75 million of receivables, and an increase in inventory, which is consistent with historical seasonal working capital needs as we build inventory in anticipation of the upcoming construction season. As of March 31, our total liquidity was $270 million, which included cash on hand of $49 million.

Turning to Slide 5. We are updating our full year 2019 guidance as follows: revenue of approximately $1.9 billion to $1.975 billion; adjusted EBITDA of approximately $130 million to $150 million; depreciation of approximately $35 million to $37 million; restructuring expense of approximately $12 million to $15 million; interest expense of approximately $29 million to $33 million; income tax expense of approximately $12 million to $16 million, excluding discrete items; and capital expenditures of approximately $35 million for the year.

With that, I will now turn the call back to Barry.

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [5]

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Thank you, David, and let's move to Slide 6. Our goal is clear. We are committed to continuously improving shareholder value by executing on our key 4 strategic priorities, those being margin expansion, growth, innovation and velocity. I'd like to highlight the progress we are making on 2 of the strategic priorities: innovation and growth.

First, innovation is the engine that delivers increasing value by providing solutions to meet diverse customer needs in different markets around the world. This was most evident at the bauma trade show in Munich, Germany last month. The contrast between bauma in 2016 and the last month was extraordinary. Three years ago, I heard from customers firsthand about the product quality and reliability challenges we faced. In addition, they told us that we were behind on our innovation pipeline versus the competition. In fact, customers wondered if Manitowoc would even survive the industry downturn.

Fast forward 3 years, it was remarkable to hear from customers who value the swift and decisive actions we took to fix our quality while accelerating our velocity to bring new products to the market. Our product quality and reliability have demonstrably improved, and customers have taken notice, and we continue to build their confidence in the new Manitowoc. The 6 new products introduced at bauma showcased our continued investment in developing industry-leading products with great quality that deliver excellent total cost of ownership and provide a product portfolio to enable market share growth.

Customer reception was exceptional at bauma, which is proof that the revolution is real at Manitowoc. For example, we introduced the Grove GMK5250XL, a new 250-ton all-terrain crane. With 3.5 meters more boom length and the strongest load capacities in the 5-axle crane segment, this crane gives customers additional reach, less rigging and the ability to command higher rental rates.

On tower cranes, we introduced the Potain MDT 809, which, for the 40-ton max load and a tip load of 9 tons at 80-meter jib length is the largest and strongest topless crane ever built by Manitowoc. A key benefit incorporated through the Voice of Customer process was ease of transport. This new crane can be shipped in 30% fewer containers than our other similarly sized crane, saving customers time and money and is twice as fast to assemble versus the competition. The first one of these cranes will soon be utilized in Washington, D.C. at a very challenging job site, where I'm confident that it will exceed our customer's expectations.

Both of these market-leading products have the crane control system known as CCS, an industry-exclusive software that enables us the easier operator use, which drives higher crane productivity.

Next, on growth. As we noted earlier, our new capital structure unlocks exciting new options for long-term profitable growth. To reach our stated goal of becoming the world's leading crane company, we now have the ability and flexibility to pursue acquisitions to grow Manitowoc in a number of ways and in an accelerated time frame. Our team is energized to begin writing the next chapter of the Manitowoc story.

This next chapter must include meaningful growth to capture stable, recurring revenue streams that provide superior returns with a focus on parts and service. This quarter was a great start to 2019. Manitowoc continues to perform well, and our business is poised to keep delivering on our commitment as we execute our key priorities.

On a final note, we're all aware of the unfortunate fire that struck the Notre Dame Cathedral in France last month. Our Potain tower crane brand originated in France and has a nearly 90-year history of excellence, supporting the global tower crane market, including France. As we previously announced, Manitowoc will provide tower cranes and related services in support of the reconstruction of one of the most emblematic works of French architecture. We are very proud to be a participant in the reconstruction of this cathedral.

With that, operator, please open up the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Ann Duignan of JPMorgan.

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Ann P. Duignan, JP Morgan Chase & Co, Research Division - MD [2]

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Barry, would you expand on your pursuit of acquisitions? Is that something that's going to be more aggressive going forward? And would you be looking for diversification of your portfolio by product or by geography? If you could just expand on that, that would be great.

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [3]

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Yes. Ann, great question. As you know, when we spun off the food service business, this was 3 years ago, we were stuck with an indenture that basically gave us 0 flexibility. Now with this new refinancing, we have the ability to do acquisitions and deploy our cash in a much different way than we have in the past. As I said in the prepared remarks, if this journey that we're taking with regards to acquisition does not include a substantial portion of recurring revenue, then we're not enacting the strategy the way we need to. With 20% recurring revenue in a cyclical business, that is not necessarily a long-term design for success. So the acquisition strategy that we're enacting stays very close to the core, in the crane market, but really will be focused on how we can provide more parts and services and continue to build our revenue streams to weather the cycle.

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Ann P. Duignan, JP Morgan Chase & Co, Research Division - MD [4]

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And theoretically, I agree with you that recurring revenue for a cyclical business is very important. So that said, we will watch carefully, I guess. And then follow-up question, more technical. Just on days on hand, you had 145 days versus last year, 135 days. And I know you said you had anticipated building inventory, but that seems higher than we might have forecasted. So did you build more inventory? Were you not able to ship as much as you thought you could ship? If you could just give us a little bit more color on the inventory side, I'd appreciate it. And I'll leave it there.

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [5]

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Sure. Two primary drivers. One, last year, we didn't have pre-buy of engines for the Tier 5 transition that's happening in Europe, so we needed to do that for our GMK product line. And secondly, quite frankly, we have a lot more prototypes in our inventory as a result of all the product development. So if there are 2 major areas of driving the increase, I would say it's because of prototypes and the pre-buy of engines. And I am confident that as we analyze the balance of the inventory, it's really just the building of seasonal inventory to hit on the upcoming construction season.

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Ann P. Duignan, JP Morgan Chase & Co, Research Division - MD [6]

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And any way to size the impact of the engines or the prototypes versus normal seasonal?

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [7]

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Yes. Ann, this is David. I would just say, in general, it's to meet our needs. So from a size standpoint, it's a number that is big enough to be material but not an overly sizable number.

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Operator [8]

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We'll take our next question from Seth Weber of RBC Capital Markets.

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Seth Robert Weber, RBC Capital Markets, LLC, Research Division - Analyst [9]

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I'm just wondering if you could help frame for us the confidence in the raised revenue outlook against the lower backlog. I mean maybe just give us some idea of the impact of the bauma show, how successful was it. Would you expect bookings to be up year-over-year versus the $430 million or so from last year? I guess that's my first question.

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [10]

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Yes. I mean the bauma show is exactly as David had indicated in his prepared remarks. I mean it was reflected in our April orders. They were up substantially. We continue to evaluate where there is slowing. Everyone knows there is slowing in Europe, and we're evaluating that very handedly. But we are very confident that the incoming order rate that we're currently experiencing will definitely carry us throughout the year and not have any problem affecting our overall ability to deliver the guidance that we've just put forth.

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Seth Robert Weber, RBC Capital Markets, LLC, Research Division - Analyst [11]

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Okay. So you would expect orders to be up year to year versus 2Q '18?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [12]

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Yes.

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Seth Robert Weber, RBC Capital Markets, LLC, Research Division - Analyst [13]

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Okay. And then maybe just a question for Dave. The implied incremental margins kind of narrowing here as you go through the year, which seems -- I'm trying to foot that versus the improved pricing and mix commentary from the release. Is there something in the order book that's making you just less positive on the incremental margins going forward? Or what's going on there?

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [14]

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Yes. So Seth, I think Q1 was really a great quarter in terms of the items that were shipped from a product mix point of view and a couple of other items in there relative to the overall gain. So we've always said that incrementals should be 20% to 25% on a year-over-year basis. And when you categorize where we come out in 2019, it'd be 25%, 26% at the midpoint at that level. So we're looking at it over the whole year versus one quarter. And I would say that product mix is probably the biggest impact in the margin decline for the rest of the year.

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Seth Robert Weber, RBC Capital Markets, LLC, Research Division - Analyst [15]

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So the mix is getting less rich as you go forward? Just so I'm understanding. Is that what you're saying?

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [16]

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Correct.

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Seth Robert Weber, RBC Capital Markets, LLC, Research Division - Analyst [17]

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Okay. Is that a function of region or is it...

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [18]

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A little bit of both. It's both. It's regions and products.

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Operator [19]

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We'll take our next question from Mig Dobre with Baird.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [20]

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Nice job on margins this quarter. I guess my question is back to bauma. Barry, can you give us a sense for how this trade show compared to prior trade shows from a demand perspective? Obviously, I understand the comment that you got from customers that your product seems to be improving, which is great. But how do you think demand shaped up?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [21]

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Our orders at bauma were up over '16.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [22]

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Okay. And I'm kind of going back a few trade shows here. And it sort of looks to me, if I'm looking at my model, that oftentimes, you would see $150 million maybe even as much as $200 million worth of orders coming from a trade show like that. And obviously, I'm trying to pin you down here in getting more of a sense as to how big of a trade show this was. Can you help me here?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [23]

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No. Nice try, but no. All I can say is that the number of units that we booked this year was up over the number of units that we booked in '16. And I think the product mix was -- what I would say is favorable. And again, I would also say that we are -- these orders that we have put on our books in April as a result of bauma are at higher prices also.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [24]

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Okay. And then maybe last question for me. I'm sort of trying to understand how -- or what you're communicating here. You've got this $30 million buyback that you've announced. You're also raising guidance a little bit on the top line, and you talked about diversifying the business. So I'm trying to understand how you're thinking about your priorities at this point, especially given this buyback announcement, and some of the puts and takes on the macro.

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [25]

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Yes. The buyback, again, I would say, is a confidence level in our Board that we will deploy our capital opportunistically in the best interest of our shareholders. That does not mean that as a result of that, that at noon today, when our blackout is lifted, we're going to go buy $30 million worth of our stock. We will certainly do that opportunistically because we do believe and we remain committed that we have the ability now to go after acquisitions that will finally prove to the industry that we know what we're doing. And we will enact a strategy that will allow us to continuously build our recurring revenue as we go through the cycle. And that, I hope, will be evident, certainly, within the next 6 months. And I think as we unveil that strategy and we continue to evolve it, I think the world will finally see that double-digit operating margins are in the future.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [26]

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Okay. Just to clarify, though, when you're saying that we're -- it's going to be evident in the next 6 months, are you saying that you're -- something is imminent, and you're contemplating something here in terms of potential acquisition?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [27]

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Yes.

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Operator [28]

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We'll take our next question from Jamie Cook of Crédit Suisse.

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Jamie Lyn Cook, Crédit Suisse AG, Research Division - MD, Sector Head of United States Capital Goods Research, and Analyst [29]

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Nice quarter. I guess just following up on your commentary in terms of increasing your recurring earnings stream. I mean I think you said your aftermarket, which is more recurring, is 20% of sales. And at your Analyst Day, you targeted 25% of sales, and that probably seems right for a crane company. So I guess my question is like, one, is there a target in terms of recurring that you're -- is there a target percent of sales that you're trying to get to? And I don't understand how you could really get there without staying sort of core to the crane -- sorry, without getting outside of the crane business because structurally, I would just think aftermarket sales for a crane business is 25%. So that's my first question. And then second question, and sorry if I missed this, have you guys talked this year -- I know you talked about the cash flow dynamics in the quarter, but how do we think about sort of free cash flow for the year?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [30]

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Thank you, Jamie. Very good question. The answer to the first part of the question is we are absolutely convinced that we can raise this recurring revenue as a portion of our revenue stream to 25% to 30% range. Yes, you are correct that these cranes are designed to not fail. And the amount of spare parts that are necessary are a lot different than other businesses that have built-in consumables. However, what I will say is that crane uptime and crane availability through service is absolutely imperative as this industry evolves. And we want to make sure that we are at the forefront of being able to capture that service as a result of what we're seeing from our larger customers as we become closer and closer to them. And we look at the original cost of the crane. That's really, over time, only 1/3 of the total cost of ownership in the life of a crane. So 65% of the cost that an operator utilizes over the life of a crane is outside the original equipment cost. So we must, as we continue to evolve and become a premier stand-alone crane company, we must participate in that 65% of the pie, and that's exactly what our strategy is to do. And with regards to the second part, I'll let David answer that.

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [31]

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So Jamie, when we look at cash flow for the year, as you know, the one dynamic that's a little bit different is our accounts receivable securitization program that was in existence at the end of last year. Outstanding on that facility was $75 million. When we collapsed that facility into the new ABL facility, we, in essence, paid off that facility, which we show as a use of cash on our cash flow statement within the accounts receivable line, which is why there's such an increase in the receivable line. So adjusting for that, we would anticipate that our full year cash flow from operating activities is probably going to be in the vicinity of $20 million to $30 million negative. Excluding that accounts receivable, of course, it would be positive. So that's kind of what we're targeting for the year.

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Operator [32]

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We'll take our next question from Jerry Revich of Goldman Sachs.

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Benjamin J. Burud, Goldman Sachs Group Inc., Research Division - Research Analyst [33]

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This is Ben Burud on for Jerry. I just wanted to touch on orders a little bit more. So if we just think about orders and how they're trending year-to-date over last year, can you kind of give us a flavor for how those are looking maybe ex bauma? And obviously, that's a predominantly European trade show. Can you kind of give us a feel for how orders have shaped up in North America specifically as well?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [34]

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Yes. North America orders are up year-over-year. I mean we're continuing to grow in North America. The market is growing. There's a lot of activity in the Gulf Coast, which is driving future demand that we're in a very good position to start capturing. So as far as the Americas are concerned, I feel pretty strong that we're going to continue to see growth. I mean Europe, I mean, a lot of people sat on their checkbooks while they were at bauma, just waiting to see what would evolve over the next 6 months. There's so much uncertainty, as you know, with Brexit still out there, the yellow jackets in France and all the other things that are happening throughout the European Union, that there's not a high level of confidence. But that being said, I mean we took a good portion of tower orders, which -- for the European market, which indicates to me that our customers still believe that the construction activity in Europe is going to continue for the next few years anyway.

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Benjamin J. Burud, Goldman Sachs Group Inc., Research Division - Research Analyst [35]

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Got it. And then can you give us an idea of how competitive intensity stacked up at bauma, both at the trade show and as well as maybe some color on recent transactions in the crane industry and how those have impacted the competitive environment?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [36]

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The recent transactions haven't impacted the competitive environment at all. I think consolidation is always a good thing in an industry, and I think that will ultimately help the industry. I will say that competitive dynamics in the U.S. are exactly what we thought they would be. But in Europe, when there are signs of slowing demand, sometimes, people decide to do crazy things. And we've worked really hard, as you can see, over the last 3 years to get our standard margins to the point they're at that we're not going to participate in the silliness. So we'll continue to book orders that we know we can grow our margins in. And the ones that these guys want to chase [to fill their plants], we'll let them chase it and do it. But we're going to have discipline throughout the cycle.

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Operator [37]

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(Operator Instructions) We'll take our next question from Steven Fisher of UBS.

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Steven Fisher, UBS Investment Bank, Research Division - Executive Director and Senior Analyst [38]

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Wondering if you can just give us a little more detail on your view of the tariff impact. I know you said it's negligible. Maybe could you just talk a little bit about how you protected your procurement costs from here and then kind of a view on price versus cost for the rest of the year?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [39]

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I'll talk about our strategy, and David can give you a little more color on the actual detail. But when this whole thing set out, I mean, 2 years ago, when Trump was elected, we knew this was going to happen. We had a very -- one portion of our product cost was severely impacted by the tariff. And we as well as others have gone to alternative sources that still have high quality, still have low cost and are not subject to the tariffs. So we have been changing our supply base. We have been moving production around the world. We've in-sourced some. We've outsourced some. But overall, we did the analysis in great detail. We see 0 impact from the new tariffs in the U.S. And do you want to comment on the...

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [40]

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Yes. Steve, I think we're looking at it from an incremental standpoint of what was already in the books and what was there. So as Barry indicated, a, number one, a lot of the items that we bought were already at the higher-level tariffs; and b, when we looked at our supply chain, we started working on our supply chain, understanding that this could be here for quite some time. So the next go around, that was just instituted early this morning is not going to have an effect on us to any material size.

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Steven Fisher, UBS Investment Bank, Research Division - Executive Director and Senior Analyst [41]

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Okay. That's helpful. And then if you could just comment a bit more on the North American market demand for cranes, in particular, what you're seeing, say, from industrial construction markets versus infrastructure versus building construction, kind of where you're seeing the markets have relative strength and what are the ones that are kind of relatively lagging.

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [42]

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I would say infrastructure's still lagging. As you know, there's a lot of renewed talk in D.C. about that from both parties, and we're anxiously awaiting the outcome of those decisions. And I think that will certainly be very good for our overall demand. But if you want to know where the strength in the U.S. market is, it comes down to one region, and that's the Gulf Coast. The Gulf Coast, with all the LNG actions that are happening and pipeline that are happening, activities, there's going to be a strong need for, in particular, RT cranes over the next 3 to 5 years. Some of our customers that we talked to at bauma were upwards of 1,000 cranes short in their projection over the course of the next 3 years. So that bodes very well for us, particularly with the technology that we've introduced. There is shortage of trained operators. And when you look at our technology and with our CCS, it's much easier to understand and to learn than a manual system. So we're extremely encouraged by what we see in the Gulf Coast.

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Operator [43]

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We'll take our next question from Seth Weber of RBC Capital Markets.

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Seth Robert Weber, RBC Capital Markets, LLC, Research Division - Analyst [44]

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Just Barry, last quarter, you mentioned you kind of hinted at some additional restructuring in Europe and elsewhere. Is there any updates there?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [45]

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As you can see, we spent $4 million in the first quarter, and our guidance was $14 million. So we've got $10 million more to spend, and I would say that's primarily going to be targeted at the European market.

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Seth Robert Weber, RBC Capital Markets, LLC, Research Division - Analyst [46]

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Okay. But nothing incremental to what you were thinking last quarter then?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [47]

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Not at this point.

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Operator [48]

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Thank you. At this time, there are no further questions in the queue. I would like to turn the floor back over to Mr. Ion Warner for closing remarks.

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Ion M. Warner, The Manitowoc Company, Inc. - VP of Marketing & IR [49]

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Before we conclude today's call, please note that a replay of our first quarter 2019 conference call will be available later this morning by accessing the Investor Relations section of our website at www.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 next quarter. Have a good day, everyone.