Manitex International, Inc. (NASDAQ:MNTX) Q2 2023 Earnings Call Transcript

Manitex International, Inc. (NASDAQ:MNTX) Q2 2023 Earnings Call Transcript August 4, 2023 Operator: Greetings and welcome to the Manitex International Second Quarter of 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Paul Bartolai. You may begin. Paul Bartolai: Thank you. Good morning, everyone and welcome to Manitex International's second quarter 2023 results conference call. Leading the call today are CEO, Michael Coffey; and CFO, Joseph Doolan. We issued a press release earlier today detailing our second quarter operational and financial results. This release together with accompanying presentation materials are publicly available in the Investor Relations section of our corporate website at www.manitexinternational.com. I would like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements, which, by their nature are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results could differ materially.

rommma/Shutterstock.com For a discussion of some of the factors that could cause actual results to differ, please refer to the Risk Factors section of our latest filings with the SEC. Additionally, please note that you can find reconciliations of historical non-GAAP financial measures in the press release issued earlier today and in the appendix of this presentation. Today's call will begin with prepared remarks from CEO, Michael Coffey; we'll provide a review of our recent business performance, including an update on the progress we have made on our new elevating excellence initiative, followed by a financial update and outlook from our CFO, Joseph Doolan. At the conclusion of these prepared remarks, we will open the line for your questions. With that, I'll turn the call over to Mike. Michael Coffey: Thank you, Paul, and good morning to everyone joining us on the call today. Please turn your attention to Page 3 of our presentation, where we will begin with a discussion of our second quarter results. Our team delivered another quarter of strong financial performance, highlighted by solid organic growth in both lifting equipment and rental, continued margin expansion, and further execution against our elevating excellent value creation initiatives. Demand is trending favorably across the end markets, contributing to continued new order momentum in the second quarter with backlog increasing above prior year level. While backlog growth did decline modestly from the first quarter, this is largely due to the timing of orders and improved manufacturing output. Second quarter revenue increased 6% versus last year, driven by organic growth in both lifting and rentals. As was the case last quarter, second quarter revenue was impacted by a decline in pass-through sales of truck chassis. This is, however, a positive indicator of our overall improved manufacturing output, while aiding our overall margins. Lower chassis sales will continue through the remainder of the year, which will benefit gross margin as a result, given the low generated margin on these sales. Demand for our lifting equipment products has remained strong in both North America and Europe, largely driven by key end markets such as infrastructure, energy, electrical distribution and general construction. Much of the new order intake is believed to be directly or indirectly related to increased infrastructure and energy-related activities. Our Rental segment reported another strong result during the second quarter, including the contributions from our recently opened branch in Lubbock, Texas. This brings our total branch count to four locations and now gives us access to a larger customer base and larger markets. Construction activity in North Texas remains robust, driven by strong backlog of infrastructure, commercial and industrial projects that are bolstering demand for our fleet of specialty rental-focused equipment. During the second quarter, we progressed on our productivity and efficiency initiatives. This is evidenced by our year-over-year margin improvement. Critical progress was made in throughput efficiencies, particularly at our Italian operations and strong margin realization in our rental business, where we are already seeing efficiency gains from our new ERP system. In North America, manufacturing process improvement initiatives remained on schedule. These efforts, however, were hampered by lingering supply chain headwinds during the quarter. We are working hard to improve our manufacturing throughput in North America, and we expect to improve results in the coming quarters. Despite these challenges, our second quarter gross margin was 20.3%, up 250 basis points from the second quarter last year. Our gross margin did decline sequentially, however, this was largely a result of an impact of higher steel prices, which were up nearly 30% in the early part of the year. We have put in place product surcharges to offset these costs and have also implemented price increases on new orders, which will begin to benefit gross margin in the back half of the year. As announced today, we reported second quarter EBITDA of $6.8 million, which is up 32% from last year, bringing our trailing 12-month adjusted EBITDA to a run rate of more than $26 million annually. This reflects a $16 million adjusted EBITDA improvement over the prior 12-month period. Our second quarter EBITDA margin of 9.3% was up 180 basis points from last year. We remain encouraged by the progress on our operating efficiency initiatives and remain confident that we are well on track to achieve our longer-term margin goal of between 300 and 500 basis points of EBITDA margin improvement by 2025. Demand trends continue to be supportive of our lifting equipment products and customer sentiment remains positive. Our dealers are experiencing impacts of higher interest rates and associated operating costs yet report record high fleet utilization and high customer demand. North American construction is strengthening due to the stimulus dollars from the Infrastructure Investment and Jobs Act. And it's important to note that the stimulus is benefiting markets outside of traditional roads and bridges and impacts markets such as electrical transmission and distribution. The broader energy sector in this area is a strength for Manitex and should be important as a positive driver for our business going forward. An Energy Research Group at Princeton estimates that domestic electricity demand will increase by nearly 40% by the year 2035. This is due in large part to the increased penetration of electric vehicles. Many believe this will put a strain on our national aged electric grid. The California Public Utilities Commission estimates that California alone will need to spend U.S. $50 billion by 2035 in distribution upgrades to meet current EV targets. This should result in continued strength in electrical transmission and distribution markets for years to come, and our lifting products are ideally suited to support the upgrade of our nation's electrical grid. We are also fortunate to have just released the SC electric crane boom truck, a product enhancement we expect to be favored by electric transmission and distribution contractors. Similarly, our international markets are also strong with infrastructure spending being a key driver in Europe. The European Union unveiled infrastructure investment strategy aimed at investing €300 billion by 2027, of which €135 billion is slated for infrastructure projects. We also continue to see benefits from the global demand for minerals such as copper, driving capital goods spend and mining maintenance activities in markets in South America. While we are not immune to macroeconomic forces, we remain encouraged by our favorable demand tailwinds across the globe for our products. Overall, our backlog ended the quarter at $223 million with 56% slated for North American sales and 44% slated for international sales. Last quarter, we unveiled our new strategy called Elevating Excellence. This is a multiyear business transformation initiative designed to drive targeted commercial expansion and sustained productivity improvements across the organization. As a reminder, Elevating Excellence is the focus on targeted commercial expansion, sustained operational excellence, and disciplined capital allocation. I am very proud of the progress that we've already made since we've rolled out this strategy, which is evident in our recent margin performance. An overview of Elevating Excellence can be found on Pages 4 through 7 of our presentation. I'd like to highlight some of the progress we've made against these key initiatives during the second quarter. Firstly, let's have a look at our commercial growth strategy. A key component of our targeted commercial expansion strategy is market share growth as we focus on leveraging our leadership in straight mast cranes to grow articulated cranes, industrial lifting, and aerial work platform sales through North America. An important driver of this initiative, one critical to our overall strategy, is the support and partnership of our dealership network. One of these dealers is ABM Equipment of Hopkins, Minnesota, which recently joined Manitex as a new dealer one year ago. ABM provides lifting solutions to customers in Minnesota and the Upper Midwest. They specialize in general construction support as well as wind energy generation construction projects. ABM has quickly made significant investments in our products, including an order for 10 50-ton truck-mounted cranes. Manitex looks forward to continuing in its partnership with ABM and other dealers to execute on this commercial growth strategy. I'd like to take a moment to recognize the importance of our dealer partners. Other manufacturers in our industry have implemented a go-direct strategy, bypassing the dealer and building their own rental fleet to service the market. We are taking a different approach, seeking to support strong local levels of service and support and leverage the trust and customer experience our dealers have built over decades. We aren't selling a product that can be repaired and maintained with a flash update over the internet, and we are grateful for the expertise and care and local commitments of our dealer partners. The second part of our strategy centers on enhancing our operating performance. This is the fifth earnings report that I've issued since joining Manitex. The management team has delivered year-over-year improvements in all five quarters. We are proud of the significant progress made addressing operational improvements yet we believe we are in the early innings of our transformation, and there remains considerable opportunities for further improvement. We recently committed the upgrade of our ERP systems with the installation of our new manufacturing ERP system for our European businesses. This follows the upgrade of our Rental Solutions ERP system, which was completed at the end of 2022. Both of these investments are integral to our process improvement initiatives. The investments were made to enable our ability to scale the business and help us attain the margin improvements we are targeting. The third and final initiative of our plan is a focus on disciplined capital allocation. As we have discussed in 2023, our capital allocation will continue to prioritize debt reduction, select investments in organic growth, and maintenance capital to support our existing operations. Our short-term goal is to lower our net leverage ratio below 3 times. We made further progress during the second quarter, driven by our strong operating results with our net leverage ratio declining to 3.3 times as of June 30th, down from 3.9 times at year-end. We expect our strong operating results and working capital focus in the back half of the year to allow us to drive leverage towards our target. As part of our elevating excellence strategy, we introduced three-year financial targets that reflect our confidence in the underlying strength of our end markets, coupled with our commercial and operational benefits we expect to generate through our strategic initiatives. These objectives can be found on Page 8 of our presentation. While there's a lot of hard work left to do, we believe we remain on the right track to achieve these targets. Before I turn the call over to Joe, allow me to provide a few concluding remarks around our outlook for 2023. Customer demand has remained strong through July and the team continues to make meaningful progress on our strategic initiatives. Our priorities for 2023 remain focused on putting the processes and systems in place to build a platform for growth, while reducing our financial leverage through improved operating performance and debt reduction. Given our solid first half results, favorable end market trends, and sustained margin improvements, we believe Manitex is on track to deliver low double-digit adjusted EBITDA growth in 2023. I will now turn it over to Joe for a detailed review of our results. Joseph Doolan: Thank you, Mike, and good morning, everyone. I will provide some additional details on the quarter, give an update on our liquidity and balance sheet, and conclude with commentary around our outlook for 2023. Turning to Slide 11, net revenue for the second quarter of 2023 was $73.5 million, up 5.7% compared to the same period last year, driven by contributions from the Rabern Rentals acquisition, which was completed in April of 2022, along with growth in our lifting equipment business. Second quarter revenue growth was negatively impacted by a decline of $2.6 million or approximately 4% of lower truck chassis sales, which are largely pass-through revenue items. We expect full year 2023 chassis sales to decline relative to last year, which will be a headwind to reported sales growth. As a reminder, the sales decline will have a limited impact on our gross profit dollars but will benefit the gross margin percentage for the full year of 2023. Lifting Equipment segment revenue was $66.3 million during the second quarter, an increase of 4.6% versus the prior year period. As I just discussed, lower truck chassis sales impacted second quarter results and Lifting Equipment segment revenue would have increased nearly 9%, excluding the chassis sales. Lifting Equipment revenue growth was driven by improving demand trends in international markets, coupled with improved throughput in manufacturing facilities. Rental Equipment segment revenue was $7.3 million in the second quarter of 2023, supported by strong end market demand in key North Texas markets, including a full quarter of contribution from our Lubbock, Texas location, which opened in March of 2023. Momentum is continuing to build from expansion of the Lubbock facility and volumes have been strong in recent months. The rental business benefited from the deployment of new rental fleet acquired in 2022 and market share gains in its Texas market. As of June 2023, backlog was $223.2 million, up 4.4% from a year ago, driven by continued favorable trends in key end markets in North America. Backlog in our U.S.-based straight mast crane business was up 12% from the prior year, while backlog for articulated cranes increased 9%. Our backlog did decline from the first quarter largely reflecting the increased manufacturing throughput Mike discussed as well as order timing. Gross profit was $14.9 million during the second quarter of 2023, up from $12.4 million during the prior year period or an increase of 21%. The increase in gross profit was a result of contributions from Rabern, organic growth in both rental and lifting equipment, as well as benefits from our operational improvement initiatives. As a result of these factors, gross profit margin increased 250 basis points to 20.3% during the second quarter. As Mike discussed, rising steel prices were a headwind during the quarter and contributed to a sequential decline in gross profit margin from the first quarter. We have successfully implemented surcharges and price increases on new orders and expect these measures to benefit gross margins in the coming quarters. SG&A expense for the second quarter of 2023 was $10.8 million compared to $11.4 million for the comparable period last year. The decrease was primarily a result of some onetime costs incurred last year related to the Rabern transaction and restructuring activities. R&D expense was $0.8 million during the second quarter, up modestly from $0.7 million during the same period last year. Operating income was $3.3 million during the second quarter compared to a loss of $1.7 million for the same period last year. Operating margin in the second quarter of 2023 was 4.5%. The year-over-year improvement in operating income was driven by the contribution from Rabern, organic revenue growth in both segments, and our improved gross profit margin in addition to the onetime costs incurred last year. Adjusted EBITDA was $6.8 million for the second quarter or 9.3% of sales compared to $5.2 million or 7.4% of sales for the same period last year. Net income was $0.5 million or $0.02 per diluted share for the second quarter compared to a net loss of $2.1 million or $0.10 per diluted share for the same period last year. Adjusted net income was $1.7 million or $0.08 per diluted share in the second quarter of 2023, up from adjusted net income of $0.9 million or $0.05 per diluted share for the same period last year. Adjusted net income for the second quarter of 2023 excludes $600,000 of stock compensation expense and $700,000 of other nonrecurring expenses. Now turning to our balance sheet on Slide 12. As of June 30th, net debt was $87.8 million, which is up from the end of the first quarter due to normal seasonal working capital uses, and some modest inventory growth in Italy due to the recent ERP system migration. As a result of the strong operating results, net leverage improved to 3.3 times at the end of the second quarter of 2023 compared to 3.9 times at the end of the fourth quarter of 2022. As of June 30th, total cash and available liquidity was $31 million. As Mike detailed, we remain confident in our ability to achieve our targeted EBITDA growth in the low double-digit range during 2023 as compared to the $21.3 million in adjusted EBITDA we reported in 2022. Our target is supported by continued new order momentum, optimism on end market trends, as well as expected margin improvements resulting from our elevating excellence initiatives. That completes our prepared remarks. Operator, we are now ready for the question-and-answer portion of our call. See also 12 Best Summer Stocks To Buy Now and 10 Oversold Large Cap Stocks to Buy.

Q&A Session

Operator: Thank you. [Operator Instructions]. Our first question comes from Matt Koranda, ROTH Capital Partners. Matthew Koranda: Hey guys, good morning. Just wanted to touch on the new order commentary that you talked about in the prepared remarks. Like you said down year-over-year in the second quarter, but then you saw some larger orders come through after the quarter ended. I assume that would be sort of in the July time frame. Maybe could you discuss the seasonality of order flow this year and just what you saw after the quarter closed in terms of bookings? Michael Coffey: Yeah, hey Matt, good to talk to you. This is Mike Coffey. So yes, it was more or less a timing issue where we got, obviously, orders in June and we're happy with the results there. But there were some pending orders that carried over into July, and we're early in the season at this stage. So the second quarter and third quarter are typically good in North America, a little bit weaker in Europe because of the August holiday season. But what we're seeing is the larger dealers are actually placing stock orders for 2024, specifically Q2 and Q3 of last year. So generally, we saw that as a positive, and we're pretty optimistic, our customers remain optimistic going forward. Matthew Koranda: Okay. And then any breakdown in the current backlog between sort of products, if you could comment on the mix that you're seeing whether that be the breakdown between straight mast versus knuckle boom or just general size dynamics of the backlog to give us a little bit of flavor of what that looks like. Michael Coffey: Yes. Well, I think the biggest change for us, and we see this as a positive is that our strategy is calling for favorite end market in North America. The European business is moving along nicely. We're doing really well in the mining area of South America, which is fantastic for articulated booms. But what's happening is we're seeing more of the end deliveries occur in North America, and that's by design. And so you remember, we want to drive articulated our knuckle boom activity in North America in a much bigger way. And so Joe was indicating that we're looking at backlog roughly about 56-44 ratio. The output has remained consistent with one exception. We actually were able to move our production levels up in Europe during the first and second quarter. Those supply chains have eased there a little bit. There's less trauma with regard to energy. And we're really, really pleased with the production capacity in Italy this year. That's going to help us feed the future growth that we want to do in North America. So it's -- in general, the ratios haven't changed dramatically. What is changing is the end market exposure. And again, that's by design. We want to see more of our products find a home in North America going forward. Matthew Koranda: Okay. And then is it possible for you guys to elaborate on the supply chain issues that you felt in the quarter, I know you mentioned steel costs expanded, but any other like component availability issues or any supply chain issues that we should be thinking about the constraint production? Michael Coffey: Yes, it was unusual, Matt, that we actually called out steel pricing as a culprit, but that's what happened, honestly. So we buy several grades of steel, plate steel, fabricated steel, etcetera, rolled steel. A couple of the categories just had a tremendous increase, and we were not able to offset that and/or find an alternative supplier to not incur that cost in the first quarter. That happened in North America. We did not see that in Italy. We saw that as an issue with the mini mills. And if you look up rolled steel commodity prices, you'll see a 29% increase from about February to May. Thankfully, that appears to be stabilizing. We did have to offset that with some surcharges. The customers understood what was happening, but it also delayed some of our production. With regard to generalized supplier, there are still issues, we are not dealing with an efficient supply chain overall. But what has changed is we found methods to address that. And in some cases, as you can see from the balance sheet, we've actually brought some temporary working capital stock up to keep production moving in the right direction. So dynamically, that's what we dealt with in the quarter. We think that's a temporary issue. We found a workaround. And I would say that overall, the supply chain that we're dealing with has improved, and in particular, the Manitex team has done a very good job at finding a way to both schedule around and find alternate suppliers. Matthew Koranda: Okay. That's helpful. Just on the surcharges that you put in place, maybe could you talk about the timing of when those were put in place in the second quarter, I guess, why didn't they fully offset the price increase, I'm imagining it's just the timing and magnitude is you the steel surcharge, but then how do we think about it for third quarter and sort of the recovery there in the lifting gross margin?

Michael Coffey: Yes. The charges went in place in June, and they went in place for open orders. And then as is typical, we adjust pricing in June for new orders. So new orders that we've received have adjusted pricing for next year. We did have surcharges that vary by content and exposure. And honestly, we -- we're fortunate to have exceptional dealers that understand some of these challenges. In some cases, they had sold units. They weren't going into their fleets. They were sold, and we made adjustments to accommodate that. So it's not a full recovery by any means, but we are expecting improved profitability going forward because of these charges and quite frankly because of the work that we're doing with the suppliers to adjust costs or find alternate supplies. Matthew Koranda: Okay, alright, that's great. And then just shifting over to Rabern, just wanted to see if maybe you guys could comment a little bit more on the opening progress in Lubbock. Maybe, where you are on utilization and just thoughts around demand in that region as it pertains to the expansion in Rabern? Michael Coffey: Yes. I appreciate the question. So let me just -- a quick refresher. The way to think about Lubbock is, Lubbock is about 130% of the size of Amarillo, and Amarillo is our base, our home operation. So the first thing to know about Lubbock is we are about four months delayed in opening just due to construction delays and various challenges that contractors are dealing with these days. But the opening has gone exceptionally well. Although we're behind in our schedule, the revenue projections are coming in exactly where we wanted them. We're thinking that the business may actually close above forecast this year. Customer sentiment has been very positive. But we have our eyes wide open. We're going -- we're the new kids in the market. And we need to prove ourselves as the better supplier for the contractor. But thus far, it's working out really, really quite nice. The overall fleet utilization has held steady or improved over the last year, and that's also a good sign. So we're really pleased with how Lubbock is coming together. Matthew Koranda: Okay, great. And then just how do we think about expansion at Rabern like in a broader way after Lubbock is sort of up to speed and fully utilized. Are there incremental locations we should be thinking about, what's the thought process for expansion on that front? Michael Coffey: We have some interesting markets that we have been studying that we're excited about. At this stage, we're not ready to expand but the Rabern model is perfect for market fee size. Rabern, we're competing in a very -- as you know, the North American rental market has had a very robust few years. The projections are strong and the competitors that are in that space are significant. We're operating in smaller markets where we can differentiate ourselves very nicely. We bring a high level of service to bear for our customers, and that's really paying dividends. And the good news is there are a great many smaller markets that we believe are underserved and right for Rabern, we're just not ready to pull the trigger there. We want to prove to our investors that this investment is working, get a good foundation laid in Lubbock and then look at other markets. But the supposition that we can do this in other locations is 100% correct, and that's one of the reasons we like Rabern. Matthew Koranda: Okay, excellent. Maybe just last one for me. On the low double-digit EBITDA growth commentary for the full year. I just want to check in on sort of what that implies for the back half of the year because like there's a range, I guess, in terms of low double-digit, and what that would imply on the lower end or low double digit, it would suggest that you are kind of maybe flat to down on adjusted EBITDA in the back half of this year. But just wanted to give you the opportunity to maybe talk about how you're thinking about the growth in the back half, specifically on adjusted EBITDA. Michael Coffey: Yes. This is one that -- let me own this myself. The reality is, is that we're already running at our projection. We just -- we closed TTM at 26-plus million. We've already achieved the early onset. And I am -- I guess, if I'm going to be faulted, we're going to be faulted on being more conservative in our growth. The reality is we're looking very optimistic at our future and our ability to continue to perform. You may remember in December of last year, as we closed out the year, we achieved one quarter of 10% adjusted EBITDA. And that's been a long-standing objective before I came to Manitex something that we wanted to achieve. And we finally got there, but we also offered some guidance. Listen, we're going to be at the 10%.

We're going to dip down and head back up again because we're improving this company, and that's a transformation effort that will take some time. But I can tell you unequivocally, the foundation is laid, the management team is doing very, very good work. They're transforming the business quite nicely. So in fairness, Matt, we're being perhaps too conservative in our approach, and we're not -- I think there's a tremendous opportunity towards the second half of next year into next year. We're just -- you and I are still getting -- I guess, I'm just too conservative, forgive me for that. Matthew Koranda: Yup, conservative is okay. I will turn it over to. Thank you. Thanks Mike. Michael Coffey: Thanks Matt, thanks very much. Appreciate the questions. Operator: There are no further questions at this time. I would like to turn the floor back over to Michael Coffey for closing comments. Michael Coffey: Alright, thank you very much, operator and thank you to our investors for joining the call and for your interest in Manitex. We appreciate that very much. Just a quick announcement, we're fortunate that we'll be participating in several investor events in the coming months, including the Northland Capital Markets Conference, September 19th and also D.A. Davidson, Diversified Industrials & Services Conference that's scheduled for September 22nd. So we hope to see many of you there. If we don't get an opportunity to connect during the quarter, we look forward to meeting you at one of these events. Thank you again for your time and your interest in Manitex. This concludes our call. Operator: This concludes today's Manitex International Conference for today. Thank you very much for your participation. You may disconnect your lines at this time.