Manitex International, Inc. (NASDAQ:MNTX) Q4 2023 Earnings Call Transcript
Manitex International, Inc. (NASDAQ:MNTX) Q4 2023 Earnings Call Transcript February 29, 2024
Manitex International, Inc. beats earnings expectations. Reported EPS is $0.31, expectations were $0.12. Manitex International, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings. Welcome to Manitex International's Fourth Quarter and Full-Year 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. I will now turn the conference over to your host, Paul Bartolai, of Investor Relations. You may begin.
Paul Bartolai: Thank you. Welcome to Manitex International's fourth quarter and full-year 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 fourth quarter and full-year 2023 operational and financial results. This release, together with the 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.
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, who'll provide a review of our recent business performance, including an update on the progress we have made on our new Elevating Excellence initiatives as well as our key priorities for 2024, 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, everyone, who is joining us on the call today. Our fourth quarter results were a strong finish to a transformative year at Manitex. One year ago, we introduced Elevating Excellence, a strategy focused on growth, operational efficiency and a disciplined approach to capital allocation. In one year of Elevating Excellence, we delivered 40% year-over-year growth in adjusted EBITDA, nearly 240 basis points of adjusted EBITDA growth, margin expansion and a significant reduction in our net leverage profile. In a relatively short period of time, we've created a more competitive, more efficient and more profitable organization, and we're just getting started. In a few minutes, I will discuss in more detail our accomplishments under our Elevating Excellence strategy during 2023 as well as our key priorities for 2024.
But suffice it to say, I'm very excited about our progress, which enabled us to drive strong results in 2023 and position us for continued success in 2024 and beyond. With that, please turn your attention to Page 3 of our presentation. We will begin with a discussion on our fourth quarter highlights. Our fourth quarter performance reflects the second highest quarterly revenue run rate in at least five years, driven by continued strength in our core Lifting segment. While revenue was flat versus the prior year, given an elevated prior year comparison, gross margin increased more than 160 basis points to 20.9% in the fourth quarter. We had another solid quarter in our rental segment as well with revenues up 7% in the fourth quarter as compared to the prior year period.
Construction activity and demand trends in our North Texas markets remain favorable. In addition, our recently opened branch in Lubbock, Texas continues to ramp up ahead of plan. Our team in Lubbock is quickly building a strong position in that market. At a consolidated level, our fourth quarter adjusted EBITDA margin remained flat versus the prior year at 10.2%, but well above the low single-digit percentage we delivered pre-pandemic. We believe the strategic actions taken over the last year have resulted in a structural positive step change in our margin profile for the business. As outlined within Elevating Excellence, we continue to focus on developing a higher value mix of backlog, one that prioritizes higher-margin products and geographies.
As we've implemented this approach across the organization, combined with our increased manufacturing velocity, our backlog has declined, but this is expected. We have discontinued certain products which do not meet minimum margin hurdles. This has strengthened the quality of our backlog, something that we will continue to focus on. Our current backlog remains 3x that of pre-pandemic levels and represents nine months of Lifting Equipment sales. We are pleased with the visibility that we have entering 2024 and our outlook. Entering 2024, demand conditions remain strong. And we have been encouraged by early order confirmations across our core Infrastructure, Energy and Mining Market segments. This is supported by healthy indications of interest from various customers as many of our larger dealers are still operating with very limited inventory levels.
Looking at some of our key end market trends, the outlook in North American infrastructure market is strengthening due in large part to the stimulus dollars from the Infrastructure Investment and Jobs Act. This program added over $0.5 trillion in new funding. And while the Act was signed in late 2021, we are just beginning to see the majority of these funds benefit in our markets. Outside of the traditional infrastructure, electrical transmission and distribution continues to be a strong growth for us. The U.S. electrical grid is aged and growing energy demands are putting significant pressure on the system. A recent Department of Energy report found that over 70% of transmission lines in the United States were more than halfway through their 50-year useful life span, while the average age of large transformers exceeded 40 years.
Manitex is well-positioned to benefit from the growing investments being made by utilities, and we believe much of the infrastructure spending in the coming years will benefit the business as well as the investment cycle that will continue to drive spending by our customers. Traditional energy markets and mining activity remains robust. There is still a significant need to invest capital for traditional fossil fuel development and Manitex is benefiting from this trend. Our mining customers have a strong appetite for production and maintenance equipment. This is most visible in Chile where we closed a record year in 2023. The global demand for copper is expected to continue to drive this growth, and we are optimistic with our prospects in Chile, Mexico and Southwestern United States.
European markets have similar demands for infrastructure spending to that, that we are seeing in the U.S. We are expecting stable demand in 2024 with increased growth opportunities for European products from certain Mid East countries and also the Americas. Turning now to our progress update on our Elevating Excellence strategy and how we are using this framework to guide our business in 2024 and beyond. In 2023, from a high level, we executed on our commercial growth priorities, resulting in share gains within our North, South American markets, together with the continued strengthening of our dealership network. From an operational perspective, the progress made in 2023 included new foundations for growth, improved business analytics and an ability to scale the newly implemented and modern systems.
We now have a meaningful runway to continue our improvements in scale of the business. 2024 and 2025 should be growth years for the company, something that is easier now that we have newer systems to operate with and improved processes. I would like to take a few minutes to update you on our progress with Elevating Excellence. But first, I want to recognize the talented team at Manitex. We are very fortunate to have these dedicated professionals who are realizing these improvements and bringing creativity and new ideas to the job every day. Please turn your attention to page 5 of our presentation. Let's begin with a few updates on our commercial expansion strategy. During 2023, we repositioned our organization for long-term growth, which included the restructuring of our sales organization and strengthening of our dealer network.
We made notable progress growing share in the Americas. This is most notable in Chile, where we opened a new branch and laid the groundwork for further crane sales expansion. Our Lubbock branch had been delayed earlier in the year, but far outceded its first year sales expectations. The team in Lubbock is now performing at 100%, and we are very pleased with our progress there. We successfully launched new products in 2023. Innovations were introduced within every product group at Manitex, and we look forward to updating the market on further product developments in the coming months. We made good progress on our commercial growth initiatives during 2023. But much of what we accomplished was laying the groundwork for future growth opportunities.
Our commercial growth objectives were always more weighted to our 2024 and 2025 in Elevating Excellence, and we are excited about the growth opportunities as we look forward. Let's turn our attention to operational excellence, the second pillar of Elevating Excellence, which is highlighted on Page 6. As you've heard me say on prior calls, 2023 was a year of the process at Manitex. And it was a good year. In 2023, we replaced two of our operating systems and updated a third system. The business is now operating on integrated contemporary business processes. By design, this will help us reduce cost, increase our production and standardize our processes. These investments were a critical part of our strategy to enable our ability to scale the business and help us attain the margin improvements we are targeting.
Manitex is now operating on these new systems. We are positioned for scale, improved responsiveness and better global cooperation. We are pleased that the supply chain pressures that had plagued the industry have continued to ease across our business. We have seen more progress in Europe in 2023, while conditions in the United States there. We fully expect to realize continued global supply chain efficiencies gained in 2024, resulting in reduced costs and additional margin improvements. We have also made tremendous progress on our objective to improve manufacturing velocity. We improved unit production and production capacity at our facilities, enabling us to drive growth and improve order fulfillment. In 2024, we expect further improvements to our manufacturing velocity.
It is important to understand that up till now, all of the increased manufacturing velocity has been accomplished with no additional square footage additions and minimal capital expenditures. We are developing future plans for facility expansions that will propel the growth in the future. But for now, we are focused on a CapEx-light model that is well-equipped to support existing customer demand. In combination, these actions positioned us to deliver more than 310 basis points of gross margin expansion, enabling us to exceed 10% adjusted EBITDA margins for the first time. Our third and final pillar of Elevating Excellence is disciplined capital allocation. We highlight this on Slide 7. As we have discussed in 2023, our capital allocation strategy prioritized debt reduction, select investments in organic growth and maintenance capital to support our existing operations.
Our short-term goal was to lower our net leverage ratio below 3x. We are very pleased that we exited the year with a net leverage ratio of 2.9x, down from 3.9x at the end of 2022. We were able to accomplish this despite the need to maintain higher-than-normal working capital. This is directly related to supply chain headwinds. We are now seeing opportunities to safely lower these inventory stocks as Joe will discuss in more detail. We expect this will result in our ability to unlock much of the elevated working capital that we are operating under in 2023, resulting in further debt reduction in the coming quarters. As part of Elevating Excellence in our strategy, we introduced three-year financial targets that we detail on Slide 8 of the deck.
These goals reflect our confidence in the underlying strength of our end markets and the benefits we expect from the improvements in our operation. Our targets include 25% revenue growth and nearly doubling our EBITDA and EBITDA margin expansion of 300 basis points to 500 basis points range, resulting in 11% to 13% adjusted EBITDA. On Slide 9, we highlight our progress against these targets. And as you can see, we are trending nicely relative to our goals. As a result of our strong execution during 2023, we came in ahead of our year-end targets, putting us well on track to achieve these long-term goals. Joe will cover our 2024 financial targets, but we are excited by the continued progress against our goals and are confident that we are on track for another solid year in 2024.
We are grateful for the progress made in 2023. These early successes are fueling our resolve and validating that Elevating Excellence is the right direction for our company. The results in 2023 were strong but we are really just getting started. Many of these initiatives launched in the past year will have multiple year impacts to our performance year forward. We are also grateful for our customers and dealers and expect another year of solid growth as we continue with our margin expansion. With that, I'll turn it over to Joe.
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 2024. Turning to Slide 11; net revenue for the fourth quarter of '23 was $78.7 million, essentially flat from the very strong fourth quarter results we generated last year. Fourth quarter revenue growth was negatively impacted by a decline of $1.6 million or approximately 2% from lower truck chassis sales, which are largely pass-through revenue items. At this point, the contribution of chassis sales to our overall revenue has stabilized at a more normalized levels and we don't expect a meaningful comparison issue as we move into 2024.
Lifting Equipment segment revenue was $70.8 million during the fourth quarter, a decrease of 1% versus the prior year period. And as I just discussed, lower truck chassis sales impacted fourth quarter results and Lifting Equipment segment revenue would have increased about 2%, excluding the chassis sales. While the difficult comparison impacted the reported growth, our Lifting Equipment business continued to benefit from end market strength as well as improved throughput in manufacturing facilities. Rental Equipment segment revenue was $7.9 million in the fourth quarter '23, supported by strong end market demand in key North Texas markets, including contributions from our Lubbock, Texas location, which opened in March of '23. We continue to see the activity in our Lubbock facility grow and volumes have remained strong in recent months.
While we took a bit of a pause related to fleet expansion in 2023, we expect to put capital towards new fleet expenditures in 2024 and expect to see continued strength in our rental business, owing to the favorable demand trends in our key markets and strong execution. As of December 31, total backlog was $170 million, down from $230 million a year ago, driven by increased production velocity, the shift in focus to higher-margin products and geographies that Mike discussed and some modest weakness in certain verticals that are more exposed to the elevated interest rates. Our backlog ended the quarter with North America representing approximately 60% of the total and international, the remaining 40%. As Mike discussed, while our backlog is down from last year, our overall business momentum remains strong and our current backlog remains at roughly nine months of sales, which is a very healthy level and gives us good visibility into 2024.
Gross profit was $16.4 million during the fourth quarter of '23, up from $15.2 million during the prior year period or an increase of 8%. The increase in gross profit was a result of increased manufacturing throughput, pricing benefits and more favorable mix. As a result of these factors, gross profit margin increased 160 basis points to 20.9% during the fourth quarter. SG&A expense for the fourth quarter was $10.8 million, up modestly from $10.1 million for the same period last year. R&D expense was $0.9 million during the fourth quarter, flat from the prior year period. We are pleased to be able to maintain our operating expense levels despite the revenue growth and investments that we are making in the business. Operating income was $4.8 million during the quarter compared to $4.2 million for the same period last year or an increase of 14%.
Operating margin in the fourth quarter was 6.1%, up 80 basis points from last year. The year-over-year improvement in operating income was driven by the improved gross margin performance and operating leverage. Adjusted EBITDA was $8 million for the fourth quarter or 10.2% of sales, which is essentially flat from the same period last year. Net income was $5.2 million or $0.26 per diluted share for the fourth quarter compared to net income of $500,000 or $0.02 per share for the same period last year. Net income for the fourth quarter of '23 includes a benefit related to the reversal of an income tax valuation allowance. Adjusted net income was $6.3 million or $0.31 per diluted share in the fourth quarter of '23, up from adjusted net income of $1.8 million or $0.09 per diluted share for the same period last year.
Adjusted net income for the fourth quarter of '23 excludes $0.5 million of stock compensation expense and $0.7 million of other nonrecurring expenses. Now turning to our balance sheet on slide 13; as of December 31, net debt was $85.5 million, which is a decline of roughly $1 million from the end of the third quarter. And as a result of the strong operating results, net leverage improved to 2.9x at the end of the fourth quarter of '23 compared to 3.9x at the end of the fourth quarter of '22. We expect to begin to see our working capital usage normalize in the coming quarters, which could result in a reduction of inventory levels, leading to improved free cash flow conversion and even further reduced leverage levels. As of December 31, total cash and available liquidity was approximately $31 million.
Now turning to our outlook; we continue to make tremendous progress on our strategic initiatives, and we remain on target to achieve our 2025 Elevating Excellence financial targets. Based on the continued momentum in our end markets and our expectation for ongoing execution against our strategic goals, we are providing full-year 2024 outlook as follows, which we detail on Slide 14. We expect 2024 revenue to be in a range of $300 million to $310 million and adjusted EBITDA in a range of $30 million to $34 million. That completes our prepared remarks. Operator, we are now ready for the question-and-answer portion of our call.
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