Manitex International [MNTX] Conference call transcript for 2022 q3
2022-11-06 10:55:51
Fiscal: 2022 q3
Operator: Greetings, and welcome to the Manitex International, Inc. Third Quarter 2022 Results Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Coffey. Mr. Coffey, you may begin.
Michael Coffey: Thank you, operator. Good afternoon, ladies and gentlemen, and thank you for your interest in Manitex International. We appreciate you taking time to join our call. My name is Mike Coffey, and with me today is Joe Doolan, our CFO. Joe will take you through the financial details of our third quarter, which we announced earlier today. Following our prepared remarks, as is our custom, we'll be happy to open the line for questions. Please see our website for our release and other information, including a brief presentation for this call. A telephone replay will be available for 7 days and the slides we cover will also be available for the next year. On today's call, we will focus on our third quarter 2022 results, covering financial highlights, our business performance, margin trends and key drivers being leveraged for our stakeholders. I'm going to provide some opening remarks in tandem with the deck of slides we provided. And then I'll turn the call over to Joe Doolan, our CFO, and then we'll have a Q&A session. This marks my third quarterly call as CEO, and I'd like to take a moment to express my appreciation to the Board and to our shareholders for the faith placed in me. I'm excited to report the positive results and progress being made during the past 3 quarters. Your management team is delivering on improved margins, and we are optimistic about our short and midterm outlook. Together with our dealers and customers, we are positioning ourselves for growth and efficiency improvements. This quarter, we moved closer to our stated goal to perform above 10% adjusted EBITDA. The team is working hard to attain this goal, which is now within sight. On Slide 2 is our safe harbor statement, which reminds you that everything we discuss is subject to change as described in our SEC filings, which you can refer to further details on the many risks associated with our company. Now let's move straight to Slide 3. Third quarter revenues, despite being a historically slow quarter due to 2 weeks of summer downtime at our European operations, was $65 million, just slightly below Q2 sales and representing a 27% year-over-year increase. We had a 320 basis point increase to gross margin at 19%, and we elevated our adjusted EBITDA significantly as compared to historical averages. Our backlog kept pace with sales growth and stood at $207 million at quarter end. During our first quarterly call, we highlighted the newest addition to the Manitex team, Rabern Rentals. Rabern continues to perform above expectations with robust sales and EBITDA contributions. Our planned Lubbock expansion is on track, and I am pleased to report new customer sales are occurring with a Lubbock-based customer base. This is happening in advance of our scheduled opening early 2023. We achieved third quarter adjusted EBITDA of $5.2 million or 8% of sales. Our annualized adjusted EBITDA for the past 2 quarters now exceeds $20 million and as compared to full year results in 2021 to $8 million in adjusted EBITDA. Our balance sheet grew in the quarter, increasing our total net debt. During third quarter, we completed a long-term growth in manufacturing-based inventory. This growth is directly associated with a tripling in our historic backlog. We also completed the acquisition of expansion rental fleet, which will be used for our Lubbock expansion as well as our Amarillo rental businesses. With these investments, we are now well situated to meet our short-term growth objectives and anticipate a reduction in debt during the fourth quarter moving forward. We remain well positioned with $32 million in total cash and credit availability. Finishing up Slide 3, I want to talk about some operational highlights. Last quarter, we discussed higher international shipping costs and other supply chain inefficiencies presenting headwinds to the business. The management team is proactively addressing these challenges, and we have expanded our list of qualified suppliers to consolidate global purchasing where possible. We also spoke about price increases made to recover costs during the past year. We are now seeing favorable price to cost trends as we work through backlog, which was booked at higher and more favorable pricing. During the second quarter, we announced the reorganization of our Italian operations. This was the first step to reorganizing our PM crane, oil and steel and Valla manufacturing companies to leverage our resources and improve the velocity of our production. Earlier this month, we named Richard Mills, Head of our North American manufacturing companies. We also announced a new distribution channel for Valla and oil and steel product lines in North America, allowing more meaningful market penetration and higher levels of customer services. Our global manufacturing businesses are now better aligned and organized to attain improved market share, lowered costs and increased throughput. We look forward to sharing additional plans in preparation for fiscal year 2023 that will better position the company for growth and improve profitability. Let's move to Slide 4. We've provided a short summary of our performance of each of the company's product groups. We already touched on the exceptional performance of our rental division. Our articulated or knuckle boom crane division closed another improved quarter, increasing both sales and order backlog. Backlog increased to 51% over the prior year. Our European and U.S.-based backlog is evenly split, and we are fortunate to have grown our straight mass product sales again in the quarter. Sales were up 38% year-over-year, and production is focused on larger tonnage frames. The backlog in our Manitex crane line is at about $100 million. As for aerial work platforms, we are ramping up production and seeing orders come in at a very healthy level with backlog double what it was a year ago. At this point, I'd like to turn it over to Joe to discuss our financial performance for the third quarter. Joe?
Joseph Doolan: Thank you, Mike. Please turn to Slide 5 in the presentation. You can note that this is our second financial report in which we reported consolidated results that include Rabern Rentals performance, the acquisition having closed in early April, as you may recall. Revenue for the third quarter was $65 million, an increase of $14.1 million or 27.7% versus the prior year period. The improvement was driven mainly by revenue from Rabern Rentals and an increase in sales of our straight mast cranes in the United States. Increased sales of our articulated cranes from our European operations were offset by foreign currency charges of $4.6 million. Our backlog of $207 million remains strong and represents an 82% increase from September of '21. This reflects continued strong orders within the straight mast cranes, articulated cranes in aerial platforms businesses. Our straight mast crane backlog has increased 130% year-over-year. Aerial work platforms have more than doubled year-over-year, while articulated cranes are up 44% since the prior year period. Our book-to-bill ratio was 0.9:1 for the quarter, indicative of continued strength in our orders. Gross profit of $12.3 million is up $4.3 million from the prior year period of $8 million. Gross margin of 19% in the third quarter represents an increase of 320 basis points over the prior year and a sequential increase from 17.8% in Q2. The gross margin percentage is at the highest level we've had in over a year and is trending as we had anticipated. We anticipate gross margins will continue to tick higher as we look ahead. Adjusted EBITDA increased to $5.2 million or 8% of sales for the third quarter of '22 versus adjusted EBITDA of $1.6 million or 3.1% of sales in the third quarter last year. The improvement was largely due to Rabern Rentals contribution to the results and higher profitability at Manitex cranes. We anticipate improved margins for manufacturing as well as the positive contributions of Rabern Rentals. Now please turn to Slide 6 for a comparison of our operating results to the prior quarter and prior year. I've already addressed sales and gross margin, but I wanted to speak to operating expenses and other expenses. Operating expenses, as reported, were $11.1 million for the quarter, inclusive of approximately $1.3 million of stock compensation and severance costs. Adjusting for these and other onetime items, our non-GAAP adjusted operating expenses were $9.8 million or 15.1% of sales compared to $7.6 million or 14.8% in the last year's similar period. Rabern Rentals contributed approximately $1.3 million to operating expenses for the quarter. Other expenses were $4.1 million, comprised of interest expense and a legal settlement charge of $2.9 million related to the sale of a business in 2015. This charge will be paid in monthly installments over 10 quarters. Net loss for the quarter was $3.1 million or $0.15 per share compared with a net loss of $1.1 million or $0.06 per share in last year's third quarter. Adjusted net income was $1 million or $0.05 per share compared to a loss of $219,000 or $0.01 per share last year. There were several onetime items in the results, including the legal settlement that I mentioned, which significantly impacted our earnings. Now moving to Slide 7. Net debt at the end of the quarter was $85.6 million, up from the prior period due to rental fleet acquisitions related to the Rabern expansion and funding of material orders to meet our current demand. The $32 million of credit availability, we are well positioned to meet current funding requirements. We anticipate utilizing our cash flow in the fourth quarter to begin to reduce debt, and we are striving to continue to lower our debt level throughout 2023. With that, I will now turn the call back to Mike Coffey. Mike?
Michael Coffey: Thank you, Joe. As it pertains to our financial goals, Slide 8 indicates how close we are to reaching our milestones with $300 million in sales and 10% adjusted EBITDA margins. This slide outlines how our long-term financial goals have now become shorter-term targets. And this is just a status check, but we are closing in on $300 million in sales and presently operating at an annualized adjusted EBITDA run rate of $21 million. As I've said in the past, I believe that we have the products, the brand strength, resources to sustain this momentum, transforming Manitex into a much larger company. While we aren't giving guidance, we are setting our sights on much larger numbers. The short-term target to the right of the slide is now well within reach. While we are improving our short-term performance, you can expect us to work on steady, reliable, planned and coordinated improvements to our operations. In the quarter, we returned gross margins to 19%, which was a pre-COVID normal for our manufacturing businesses. The margin improvement is reflective of gains made within our manufacturing processes but also due to the positive influence of Rabern Rentals. As we continue to realize cost and margin improvement to our manufacturing businesses, we will see margins excel beyond 20% in future quarters. Please turn to Slide 9. I'd like to summarize both the progress made by our management team this year and why we are optimistic about the future of Manitex International. As a company, we are fortunate to have our current dealer network. Our customers and dealers are great partners for the business. This is best reflected in our backlog, which has remained strong and kept pace with our increased sales. The Rabern Rentals investment has proven a great success. Sales have grown to record levels and rental sales are approximately 40% higher year-over-year. This will accelerate again in 2023 and 2024 as we expand operations in North Texas. Manitex is a company with great products and a very dedicated people. The story of our transformation to a high-performance company is a story about operational excellence and process improvements. This is reflected in the progress made to our manufacturing operations, improvements, which are now just beginning to produce results. We completed a reorganization with relative ease, and our employees are motivated and engaged to making Manitex a thriving and profitable enterprise. The results can be seen in this year's improved gross margins, which are tracking to exceed 20% in the near term and will be further bolstered by more favorable pricing reflected in our upcoming backlog. Our outlook in the fourth quarter is very positive, and we are looking forward to steady improvements for our production throughput, cost structure and operational efficiencies. With that, operator, would you please open the lines for questions from our investors?
Operator: Our first question comes from Matt Koranda with ROTH Capital.
Michael Zabran: It's Michael Zabran on for Matt. Congrats on the quarter. Maybe if we could just start with the breakdown of the revenue segment, specifically boom truck, AWP, part sales and other equipment?
Michael Coffey: Sure. Thanks very much. Mike Coffey here. Joe, can you touch on the quarter revenue segments by product line?
Joseph Doolan: Yes, you're looking like to understand the split out of the revenue by each of the segments? Or are you looking for...?
Michael Zabran: Yes. Yes, correct. Just the mix of revenue contribution per segment.
Joseph Doolan: Okay. Per segment, the majority of the revenue for the segments came from the manufacturing business. The lift business was the bulk of the revenue. I think the revenue from the rental segment was about $7.5 million. So at $7.6 million came from Rabern and the rest of it $57.7million, came from the lifting segment.
Michael Zabran: So third quarter, I'm just looking at third quarter results, European operation --
Joseph Doolan: Is that what you're looking for, Mike, are you trying to understand boom trucks, platforms, parts?
Michael Zabran: Yes, correct.
Joseph Doolan: Okay, sorry. So in terms of the segments, that's where it came from, it was mostly lifting and the rest was rental. On the boom trucks, we had about $32 million came from the boom trucks and knuckle cranes. Aerial Platforms was around $7 million. As I said, the rental was -- $7.5 million was total rental, including merchandise sales. And then we had some other equipment was around $10 million.
Michael Zabran: Okay. Got it. That's helpful.
Joseph Doolan: We'll have a chart in the 10-Q where you can see more of the details of the components of the revenue, and that should be filed a little bit later this afternoon.
Michael Zabran: Right. Okay. Sounds good. I'll look out for that. So great to see the planned repurposing of the Italian business at the start of next year. I think it makes a lot of sense. Maybe just -- maybe just give us an update on time line for when we can expect to see Valla products available in the U.S. and when we're expecting to see fulfilled orders?
Michael Coffey: Yes. Well, we're actually seeing those today. And we're developing plans for next year, but there'll be a heavy increase with Valla, oil and steel and PM products next year in the U.S. market. The pull-through demand is good. We're actually attending 2 trade shows in the next few months. They are actually heavily populated. So we're looking favorably toward growth in North America from the European product segment. And the Valla product, for example, has been very, very well received, but the heavy growth over the next few years is going to come through PM in the knuckle boom cranes.
Michael Zabran: Right. That makes sense. And some of that growth from Valla, can we -- would we expect to see that in Q1 kind of in unison with the rollout? Or is that going to take a quarter or maybe 2 quarters?
Michael Coffey: No, they're -- they've got -- I don't have the backlog specific for Valla, but it -- we've been selling that product line all year in the U.S. and appointing new dealers, and it's been well received. So generally, Q2 and Q3 are bigger delivery months, but there'll be sales in every quarter.
Michael Zabran: Okay. Got it. Mike, maybe just if you could speak a little bit further to kind of the state of backlog right now? And specifically, have we seen any order cancellations?
Michael Coffey: I appreciate that. That's a question that we're asking ourselves all the time. Great news to report, actually. The backlog has held up with our increased sales. And so we've had almost 4 quarters of robust order increases, and then we're increasing our production rate as quickly as we can to meet those demands. But the backlog is holding firm. We closed at $207 million. And actually, as the fourth quarter started, took another wave of orders in. So backlog is holding steady. We're not seeing any cancellations whatsoever. And we've got a great customer base.
Michael Zabran: Okay. Got it. That's great. Last one for me, guys, if I can. In terms of the margin improvement, the sequential improvement, can you just help us maybe parse out how much of that improvement sequentially is from the higher-margin Rabern business versus operational efficiencies that we called out versus just higher backlog filtering through? Just help us get -- wrap our head around what is really moving that margin higher?
Michael Coffey: Yes. So here's the way to think about that. So there's elasticity with manufacturing. The margin gains follow the long production cycle, which is 6 to 9 months when things are working well, if the supply chain is slowing you down, it's a little bit longer. So I would look at the margin gains as roughly 2/3, 1/3 coming from Rabern's influence and 1/3 coming from manufacturing. But both are improving well, and we're expecting that our manufacturing operations will excel beyond that as manufacturing is addressing backlog that is priced more favorably. And as the initiatives that we're putting in place to improve throughput and to improve margin come into their own. So manufacturing, we're moving at a pretty good clip, but it's a slower process than rentals, but we're really happy to see the margins improving in both segments. And the way I'd broadly characterize it is about 2/3 of the margins are coming from Rabern, which is an instant gain in improvement, 1/3 coming from manufacturing. But we're expecting manufacturing due to its size to have a larger impact as quarters progress.
Operator: Since there are no further questions at this time, this concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
