Q3 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to the Manitex International incorporated third quarter 2019 results Conference call. Today's conference is being recorded at this time I turn the conference over to Steve Philip off Chief Executive Officer. Please go ahead.
Thank you Keith good afternoon, ladies and gentlemen, and thank you for your interest and Manitex International on the call with me today is seakeeper, our president and CEO as well as Laura you are senior VP and CFO .
Please see our web site <unk> press release for the replay instructions for this call, which will be available until November 14 2019.
Additionally, our slides that accompany our remarks will be available in the Investor relations sections of our website Www Dot Manitex International Dot com.
Do you have any trouble finding them just send Peter an email and he'll sins of the slide right over.
Now please refer to slide two regarding our safe Harbor statement, we ask that you're either statement and also refer to our as he see filings for further guidance on many on the many risk factors associated with our company.
I will begin with a brief overview Laurel present financial summary.
By an operating commentary from Steve after which we will welcome questions.
Please now turn to slide three.
Hi, I'm pleased to be speaking to you today on my first conference call as CEO of Manitex International and I'm excited to be part of the Mannatechs leadership team.
As many of you know I've been in a heavy equipment industry for many years and I've had the opportunity to meet with many of you were on the call today.
Listed in describing my experience with 10 rigs as I think it is important you all get a sense that the person who Dave and the board chose to bring in comes in with the exact resources and experience that it will take to advance this company to becoming a global leader.
You have antares is evolution sincerely 19, nineties I've been able to manage many different businesses from forklift to construction and mining equipment to port equipment and overhead cranes and to almost every type of mobile crane that you can think of.
Enjoy leading small and large divisions the terex.
Both domestically internationally alongside some of the industry's best leaders.
So let me just say before getting into the results that I came into this was my eyes wide open I'm ready to get to work and yes. There is plenty that we need.
To get done.
Most importantly, I know our customers.
At the end of the day. This is a relationship business and customers need to have access to the top management of the company and Trust you will do what you say.
This is what I'm focused on accomplishing with our team simply said.
We will be much more customer focused in the coming years.
In the past 60 days I've traveled to most of our locations and that many of our dedicated and passionate team members.
We have a great team and we will continue to build on the excellent work they have done in the past years.
I've attended several trade shows in the past few weeks, which is great opportunity to engage with our customers and dealers to understand where we're doing well and where we need to do better.
I recently participated at the G D L trade show in France, and with over 4000 articulated cranes sold per year in this market. It presents a great opportunity for us to growth.
I wanted to understand how we can increase our share.
Regulated cranes and truck mounted aerials, and we have an excellent opportunity going forward, we have a well capitalized dealer great brand presence and now we need to turn this into market share gains for us.
It's all about focus we produce cranes in Italy, and one of the biggest opportunities is right next door.
We will do more in France in 2020.
I was also die Q show in Louisville, Kentucky.
Which is a show dedicated to utility and rental industry.
I was able to meet many as manitex as dealers many of whom I've known from my past, but also many new customers.
We launched a new 60 tons stick boom and our new line of Manitex articulated cranes at the show, which we are now branding as Mac and they see in the U.S.
We also held our first Mac dealer meeting, where I was able to speak about our new strategy envision.
North America presents another opportunity for us in 2020.
I have also held several several town halls at our facilities and I've been able to engage with our team to share our new vision and direction.
We truly have a passionate team that everyone has been very welcoming and helpful. During the past several weeks.
However in locations like PM, we have lacked direction and focus we've already made the necessary changes to our leadership structure in order to be focused on our customers and our end markets.
Please turn to slide four.
We clearly have solid foundations and global brands that are positioned to drive better shareholder returns.
We are going to improve our free cash flow conversion have increased the focus with our team starting in Q4.
This year.
We will continue to strengthen our balance sheet.
David the team has done an excellent job cleaning up any old issues and we have more opportunity to improve this going forward.
I will that lower speak to some of the upcoming initiatives, we are making to continue to reduce our debt.
Mannatech has an excellent position in the stick boom market in North America, and we need to continue to drive innovation as an industry leader.
We have some opportunity in other markets and we will start to look and see what we can do to diversify our business outside North America.
As I will be spending a significant amount of my time with the P.M. team in Europe .
I have asked Steve keeper to keep focused on our Manitex operations in the U.S. and you'll hear from in later on in our prepared remarks.
We are all going to stay focused on the PM group. This is our diamond in the rough.
It has global reach and different Diversifies, our revenues outside of North America, and it's a more industrial markets.
Very excited about our new branding approach to the PM business, we have lost a three brand strategy, which will better position us for success.
As I mentioned before look better way to get market penetration than by using Manitex in North America, Toronto PM in Asia, and keeping PM, where we already have a strong presence in places like Europe and Latin America.
We also have a nice based to work off off of and in 2020 with the military contract, which we announced last month and will provide our facility in Georgetown, Texas with additional assembly work in Q2 of next year.
Lastly, we need to grow our margins by more focus on our parts business and installed base, we have thousands of cranes in the field, which all represent a parts revenue opportunity for us.
We also have an excellent potential.
Truck mounted aerials business and zero emission valla picking carry cranes.
These two product lines alone with these two product lines alone we have the potential to increase exponentially in a market like North America with special and tailored applications.
Please turn to slide five.
What are the key successes of any turnaround is communication and keeping this communication simple, especially in global organizations.
PM is our growth engine and we have already started to implement our priorities for the next few years in our first step will be to refresh our core competencies.
We are global producer lifting an aerial equipment and everything starts with people we.
We didn't make sure we are the right people in the right place at the right time and the magic will happen.
We have now aligned our team around dedicated business lines.
We have flattened the structure and put in place to business leaders of PM.
One focused on cranes the other on aerials, both to reporting directly to me.
As you know the channels to market are very different one of the dealer model and the others are rental model.
We need a passionate and dedicated team to be accountable and have a sense of urgency to problem solving in each of these businesses.
Manufacturing excellence is all about process, we will start with simple things like five S and making sure our facility show, how we build and assemble the highest quality products. We have started to track on time delivery first pass quality and we have work to do but this provides an opportunity for productivity.
And profitability improvement.
Improving our parts execution is also that process, but more importantly about uptime for our customers were not tracking our fill rates distribution stocking plans and online parts ordering systems by executing well on this we have the opportunity to improve our customers experience, but also our profitability.
Once we have demonstrated we can do these things well and consistently we will look at expanding and innovating.
Many of the process initiatives, we will put in place will help us improve our safety and quality, but this is also a major cultural change which will take time.
We have to manage our portfolio and fill gaps.
Simplify the portfolio by using tools like modular designs and also develop new products for new markets.
I mentioned earlier about a new branding strategy for pm.
This will help us get focused distribution.
And expand our network to new markets.
But auto is a good example of that as is using the Manitex brand in North America.
We are manufacturing company and we by 70% of what we build.
Managing our supply chain is critical to our success in improving our margins.
We have to make sure we get the best quality at the best price and just in time.
We also need to review, our core competence and our make by strategy.
These are clearly processes.
There are clearly processes, we want to keep in house, but others, we can outsource and keep our fixed costs down.
Lastly, but most importantly is our parts and service offering will be looking in other areas to expand our offering in parts and refurbishment of equipment, we produce thousands of cranes, a year and getting more revenue from this installed base will drive better margins.
Clearly anyone following our company's progress or any of the players in the industrial equipment space can see that we're operating in a challenging period right now.
And our results were number one number we expected to be and number two not indicative of where we said where we are set to accomplish through the execution of our growth plans.
Our vision at Mannatechs is clear, we will deliver improved returns to our shareholders over the coming months in years.
And I remain very excited about our future and even as we report a challenging Q3, we see Q4 looking better.
With those opening comments I would like to turn it over to Laura and finish with Steve discussing operations Laura Thanks, Steve Good afternoon. Thank you for joining economy.
Let me direct your attention to slide.
Thanks.
Due to the findings from the absence some operating results.
Revenue for the quarter were 51.9 years.
Great fit.
To conclude quarter last year.
Please primarily due to the mountain softener Cooley UAN.
Canada further trademark.
And our regional weakness in the European markets.
The revenue decline with Don.
Unfavorable currency.
Occupying a weaker euro which declined four come from.
Thanks for your lifestyle.
Chris content for 2% Arbor 15 comes from further revenue increase.
The negative revenue impact driven by the market softness further remarks, we matched with Luna month fiber growing articulating Oregon.
Our book to Bill ratio for the quarter with one.
Improvement from the 0.7 from second quarter.
Backlog.
63 young.
As of October 31st.
10% increase from the quarter.
The current backlog from the PM group increased over.
Well, approximately 60% compared to the young.
This increase was constantly off from Cuba decline through Mark.
Thank you.
Adjusted gross margin was 17.2 performance.
300 basis points compared to the accrued quarter lax.
No. Our adjusted gross margins were primarily result of NOLA revenue.
Also negatively impacted by the mix or from now.
We originally sold fewer high timing to crew.
Compared to your a year ago.
Second higher passenger revenue on taxes on track with low margin compared to the same quarter last.
Okay, good value had margin rich poor Doug Parker.
Recurring Thompson.
With almost 19%.
Slightly below the 20 preferred route we work.
Looking at the production schedule for the fourth quarter.
Objective.
Not.
Projected value have gross margins from Toronto.
Our third quarter 2019, which after dinner loss working slight loss of 30 pounds.
Dear friends loss per share adjusted EBITDA with 1.9 million.
Down 3.1 million compared to the third quarter last year.
Primarily driven by the decrease in gross margin.
Third quarter, 2009, including cash, including 9.5 million onetime nonrecurring pre packed okay.
Ugly.
We are working noncash charge relating to the impairment of intangible PM group and feedback.
The company normally performed on your impairment Kirkman Inc. fourth quarter.
We are getting October from Arkansas.
Excellent.
Based on their current forecast, we do not expect triggering events to occur in the fourth quarter.
Prior to perform another valuation.
Ftn, Inc.
Excluding non recurring charges for the quarter.
Please slightly year over year.
This was achieved despite incurring incremental costs associated with finding Garcia.
To help support the Mac and other new product line.
Our team has demonstrated.
Yes.
Thanks, Steve Thank.
Fusion of managing our costs.
How do we have said our target long term.
And they have presented GYMCL 18 or low to.
This will take some time, but we will continue to seek the necessary.
The company also booked a noncash tax expense of 2.2 million.
Related to the deferred tax valuation.
Allocation allowance Inc. third quarter of 2019.
For the first nine months from 2019.
Cash used by operating activity increased by 4.1 million compared to the same period in the prior yet.
This is primarily driven by the decline operating income in 2019.
Slightly increasing cash consumed for working capital year over year.
Steven of cash flows through nine months projects.
Inordinately high usage of cash.
Experience in paying down back accounts payable balance.
By the higher inventory purchases.
From the first half of the year, which is that trend that is abating as we speak.
Our team continues to work together to decrease the working capital by effectively managing inventory.
Accounts receivable to improve the company cash conversion cycle.
As a result, we have seen any reduction in our inventory by 3.6 million chemotherapy quota.
Thank you we're about halfway through the final quick okay. Yes, we are confident that we will see this trend of inventory reduction in faction continue for the rest of that year.
Let's move to slide.
Not that popped into Q3 2019.
This slide provides a freak out of the net debt by quarter.
Our goal is to improve the balance sheet with back reductions.
However, net debt increased in the third quarter compared to the prior quarter from this year, primarily due to the cash consumed in the operating activities as previously motion.
We have pay downs occur by approximately 1 million in 2019.
We will be reducing the debt further on your home by making a 3 million principal payments on a county and come back.
Management will continue to control costs.
Any working capital performance to generate more cash, which will allow us to make further progress on debt reduction.
At the end of third quarter, the company amended revolving credit facility in the U.S.
Pizza loan commitment to 30 deals.
And extend the maturity date to July Twentyth 2023.
We said 20.3 kneeling cash we have on can the company has over 50 million available liquidity.
Yes, I have mentioned previously we believe we will expand on that John liquidity position in the fourth.
With that I'll now turn the call.
Hi.
Thank you Laura and thanks, everyone on the call for joining us today.
Overall, our team spent a third quarter and are now moving to the fourth quarter focused on efficient production at our facilities.
Wouldn't working capital management, and ongoing product and commercial development.
Despite challenging and softening conditions in some of our end markets. We're pleased to see our knuckle boom crane products, becoming an increasingly larger component of our backlog.
While we maintain a leadership position with our north American straight mast Crane products.
While year to date industry orders for straight mast cranes are down over 30% versus 2018.
Our year to date results of the topline are down just 15%. Thanks to the diversification in our portfolio, which as I mentioned is delivering a higher proportion of our total revenue from knuckle boom.
Cranes and spares.
During the third quarter, our global sales teams performed well given the sluggishness in the market and we ended the quarter with a book to Bill ratio of one which was a positively from the second quarter fix book to Bill ratio of 0.7.
We entered the fourth quarter with most of our fourth quarter factory build slots filled and began booking some 2020 orders.
As of October 31st our backlog was 63.1 million.
Which is up 10% since the end of the third quarter and it is up 4.3% since the end of third quarter 2018.
Our operating teams continued to effectively manage the various surcharge supply chain capacity freight cost and tariff issues that are well understood at our marketplace, while our adjusted gross margin of 17%, 0.2% being impacted by a read.
Production and revenue.
Sales mix of lighter capacity tonnage cranes and higher sales of pass through Chasses at our Manitex straight mast Crane business.
Due to availability constraints of North American truck chassis.
It had been particularly prevalent the last 18 months, we've maintained a higher level of chassis and our inventory to ensure we can appropriately response and market demand.
With the commercial Chelsea market now, becoming more balance in terms of supply and demand.
Reducing or safety stock of commercial chassis and focused on free cash flow and net debt reduction as we move through the fourth quarter and enter 2020.
Laura mentioned already how this will favorably play out into our balance sheet with working capital reductions expecting expects it in the coming periods.
Shifting to an update on market and commercial activity.
Our internal channel checks combined with data from outside sources. So overall stable rental fleet utilization for the various mobile cranes within our product offering.
The end markets in which we participate that showed continued strength of the construction futility and government sectors, where we generate over 70% a worldwide revenues.
But the energy sector, where we generated approximately 15% of our world wide revenue exhibiting softness in the quarter.
Other market.
In commercial activity of note.
As orders for our PM knuckle boom cranes, showing increasing strength as we move through 2019.
This is both in terms of going deeper into our core geographical markets as as Steve mentioned earlier.
And expanding into adjacent market segments, such as military.
After being awarded a 1 million dollar order from a military customer in Asia. During the quarter. We were pleased to recently announced the award of a new contract valued at $4.5 million to to supply articulating cranes to an international military organization.
We will begin supplying cranes for this contract in early 2020 and complete shipments early in the third quarter.
The contract also provides for an OS optional 4 million in deliveries, which could represent additional opportunity for the second half of 2020 and early 2021.
Our with our mobile Crane subsidiary in Europe was pleased to begin production and sales of the new V 80, our remote control electric crane with a rated capacity of eight metric tons.
This niche product addresses a rental and ownership opportunity for industrial facilities and construction companies.
And represents one of several growth opportunities we are pursuing for a valid subsidiary.
In addition to new products and new market segments growing or global distribution network remains a critical part of our global growth plan.
We're pleased to have added five new dealers from Manitex and PM lines during the quarter.
This includes the dealers to distribute the Max cranes in Canada, and three former Terex straight mast crane dealers to represent our mannatech straight mast cranes.
Looking ahead to the rest of 2019 in early 2020, we will remain very focused on generating cash and further nets that reduction.
Operational excellence, new product development and the pursuit of global revenue expansion for our core brands.
We're working hard to increase value for our customers shareholders employees and other stakeholders. Thank you for your time today and your ongoing interest of Manitex International.
Thank you to the entire Mannatechs team for solid gains continued hard work customer service operational discipline and overall execution.
I'll now turn the call back to see flip up for closing comments that take your questions.
Steve.
Please turn to slide 10.
In summary, I'm excited about the opportunity we have in front of US we have a very solid foundation of Manitex, we have a great team loyal customers global brands and excellent products are Mannatechs business in North America is stable and we're holding our ground in a challenging market.
RPM business is our diamond in the rough and will be our growth engine.
We will diversify our portfolio with p. them into the industrial space and a higher margin business.
As in any company, we have the opportunity to reduce our costs in both SGN a material costs, we will target our history at any cost to be in the low teens and also focus on reducing our material cost by 2% to 3% over the next 24 months.
We want to be a stable and solid business delivering over 10% EBITDA consistently over the next few years.
Now before I turn the call over to the operator for Q and eight I would like to thank the entire team here at Manitex and in particular, Dave Landrigan, who has been the CEO of Manitex since its IPO back in 2006.
As most of you know Dave is led the company's through many ups and up and down business cycles at a spearheaded the growth strategy strategy since that time.
With his team he has built what we have here at Manitex today, a company with an exciting portfolio of niche time tested industrial cranes and lifting equipment.
I have no one day for more than 25 years dating back to our mutual time, a tariffs that are passive cross numerous times since.
I've known him to be a driven straightforward and committed leader.
As our executive Chairman he remains a key part of our team and I appreciate his confidence and trust.
I'm excited about the opportunity to lead the team on behalf of all of our stakeholders and partners and prove worthy of the trust. He is placed at me to take this company to a new level of execution and growth I'm looking forward to meeting with our investors at upcoming conferences and showing you that there is plenty.
Anti of value ahead of us to unlock at our shares for our shareholders. Keith Please open the sort any questions.
Thank you, ladies and gentlemen, if he would like to ask a question. Please signal by pressing star one on your telephone keypad using a speaker phone. Please make sure in your mute function has turned off to like your signal to reach our equipment again. Please press star one to ask a question.
POS for just a moment hello, everyone an opportunity to signal for questions.
Well take our first question from Mike Shlisky with Dougherty and company.
Hey, good afternoon, Hi, guys good afternoon.
Hi, Mike.
Yes, I appreciate the commentary about about PM retrograde.
You went to Italy, you've made some assessing the what's going on there I was hoping for just a bit more color.
As to what you learned the last two months and I'm sure you've been there at least once or twice.
Maybe just a bit more of of detail about what do you think needs to be repaired or change there.
As far as is there or is there a cultural change has it has to happen other enough people working there.
The print issue.
I guess, just more color as to what has to kind of change and how how difficult but I'd be.
Sure sure Mike. Thanks for the question and I would I would say that I've, probably been to a P. M. Every other week for the past a couple of weeks as it's a big priority for us.
As I stated in my prepared remarks.
First thing is in my view was to align the organization.
Yeah, we didnt have a lot of focus.
We really have to different businesses.
I mentioned in the Crane business is a lot more different.
A lot different than the air truck not an aerial business and if you're going to be successful in each of those you kind of have to have separate teams focused on them. So I think that was the first the first step.
The other comment I'll make on the product itself, which I took back to the team I'll use this wanted to explain a little bit where we are on quality, but.
Well to a couple of customers and you know the comments to me was.
Where we have issues is quality of the comes out the door and there's a lot of small issues with the product and then once you get two or three months down. The road you don't hear from the product again and it works very well, which is good news because then that means we just need to control our quality really inside the factory and make sure that.
When we ship a product and it's 100%. So what we've done is starting to put in place as I mentioned.
Quality throughout the production line, so that when it gets to end test, we make sure that we tested and its completeness and make sure that has a 100% when it leaves the doors. So the good news is as customers like the product we have quality issues like many many others do but I.
I didn't see a lot of issues I think the other question you had Mike was around you know footprint.
A little bit and maybe product.
We don't have a product issue I actually think we've got a great portfolio.
We probably need to simplify a little bit where we're trying to deliver cranes to every market and as I mentioned I want us to kind of focus on the few that we can be successful in which represents still a big opportunity for us.
On the footprint side, we have some a couple of facilities that are very focused on our products I don't I don't see us needing a lot more people to increase our production.
I don't see us needing.
To add more facilities I think we've got enough brick and mortar as we say to continue the growth in and PMSO right now I I don't see a lot of investment needed in the business.
Okay, that's still a kind of going to come and get a bridge from where where it was a few quarters ago to where you wanted to be it sounds like certainly the quality of the doors, it's obviously very very important.
As I read is that really it or is there is there a sales if you ask the change is there more partnership with two done other has to change I I, just I'm trying to get a sense for.
For the.
Scale or what your.
Oh.
So I get a sense for the scale.
Oh, what you're trying to do here is it.
Just small changes or is it very very large changes in your opinion.
Yeah.
Thanks, Mike and let me maybe take it a little deeper right now I think it comes back to to the slide that that I had about a.
Reef refreshing, our core competence right and the first part of that.
What I was explaining is a dedicated team I think the other piece on quality is manufacturing excellence and you know that's a process improvement that we need to do and it doesn't take a lot of investment. It just takes time and effort to make sure that we're implementing the highest quality and process improvements and then you know the power.
Arts pieces, probably I would say the biggest dollar investment that we probably need to make right that means getting more parts on the shelf that means more training for our dealers and.
That's going to take a little bit at times. So you know I think it's.
All of the above and as in any capital goods business. None of this happens overnight I mean, it takes effort is going to take some time.
For us to get there, but in my first 60 days I guess my Big message to you is you know there there are.
Some big dark clouds above above the PM business that I'm concerned about four that we can't fix and I think thats.
That's something.
Big message that I have for for the investment community is it's a good business. We've got to focus on it we've got rooms room to improve it.
And that I think it's going to be a great business first going forward.
Great Okay.
Okay. That's good color and then just kind of.
Shifting to to Dunno can you update us as to have you given more shipments to Asia of back of European cranes have you accelerate any.
Best practice sharing horse or supply sharing them with them or stuff and kind of maybe put on hold while you're trying to get controllers.
You know nice exercise it kind of stand today.
Yeah. That's a good question like and you know obviously had spoken to a lot of investors about that did not a relationship.
I'll start with.
The main message right, which is today auto is that and it has invested in house and they've invested in us because they think that there's potential.
Tend to sell our product in Asia. Unfortunately.
You know Toronto also recently made a big acquisition and obviously, they it's a big one for them and they need to be focused on that so I think that we've been I'd say they've been a little distracted.
But the same time you know the I would say the focus is still there we've shipped.
Ah two containers of product into Asia.
We have a badge those products P M to dano.
They are now getting into I'd say the market, so into Indonesia, Thailand and into Vietnam. So the good news is this product is starting to take it out there.
We also have a potential deal with they put out a dealer in Saudi a that is starting to kick off and I'm pretty confident that will sign up that deal a fairly quickly and then on the plan going forward like what I would say is I've got to meeting next month in Singapore with a data.
Team and that actually Dave and I are traveling to Japan in January to meet with the senior leadership it to data. So it's a really start to put some numbers to what does this really mean over the next couple of years and that's I'd say that's the piece that is lacking right now is what does it look like in the next.
12 months. The next 24 months, so I'm working on that and a I'd say more to come in the next couple of months on on that.
Okay, maybe just talking more or near term and close to home I think you commented briefly that that Q4 is looking better.
Can you just little more detail about what you meant by that is it better from a sales earnings or.
Margin standpoint et cetera.
Yes, sure Mike. So, yes, Q4 is going to be a little bit better I would say you know where we're halfway through the quarter I think as we mentioned before we've got good backlog.
It's been listening to a lot of.
Other companies and competitors and actually I think that's a piece of very good news, we've got a growing backlog.
As you know in places like P. M. As Laura mentioned, you know, it's substantial really the growth that a than we've had in the backlog I'm. So we're pretty much sold out for the fourth quarter, which gives us confidence.
We're going to see a better quarter on the topline.
And then I think from a profitability perspective.
You know I think will be a bit better from a profitability perspective, but we still kind of have to go through the detail on the numbers and everything but it Q O Q4 is gonna be better than Q3 on the topline out on the bottom line for sure.
For for Mannatechs.
Okay.
Great and squeezing one more here and I'll pass it along but it looks like in its not a perfect math, but when you back out to book to Bill and what was shipped in the quarter in the backlog looks like for the first time in four quarters, you had been up quarter for earnings over the four forum for orders over the over the prior year.
I guess first of all is that true based on just kind of back out the.
The backlog in the shipments and then secondly, I mean do you think we actually could be how they had a question Glenn and you're.
And your backlog here because it could actually be up modestly just shifting this coupon keep as long as they are to the first quarter 2020.
So just wanted to be clear Mike on your question is related just to the backlog trend is that your main questionnaires.
Well I want to confirm that in fact.
On the orders were up year over year in the quarter and then on the on the backlog side certainly has an effect a quarter over quarter is there a chance for there to be a some additional upside from here.
We've seen.
The worst of it on the backlog you think.
Yeah, I think I would say and maybe Steve can give some color on this but you know as we mentioned in his prepared remarks, you know mannatechs backlog is down a bit right. The big growth in the backlog has been in PM cranes and.
No you articulated crane business scenario businesses trucked out an area of business is still growing so I think we feel confident that that trend is going to is going to continue and you know we're going to push for.
More orders in Q4. So then we can fill up Philip Q1, how the Mannatech side as we mentioned.
Right now, it's a stable market, but it's you know off significantly versus prior year, but Steve you want to add some color baby sure I mean that you know the external conditions are challenging and somewhat softening as it is a theme you've heard from others Mike.
But that said you know the thing is within our control as far as developing and introducing new products, what we're doing effectively.
As far as winning new dealers or to grow share for our Mac and P. M and said I know PM brands as well as our Mannatechs brand as continuing to strengthen.
And and third we're maintaining very strong market share for our straight mess mannatechs screens, so whether we're truly or not.
Flexion point and if this is going to consume they continue <unk>. We know the direction is up for us over the next several years, we just don't all of its a straight line or Ah up and down a bit and some of that Mike is related to just salway, because the business cycle again to extend and content.
Continue.
Are we going to take a site depth next year and the U.S. economy, but.
Those issues aside the things were doing of continues to strengthen our dealer network capitalizing on the significant the huge share gain opportunity we have for P M and considering to maintain our mannatech straight mast Crane business is.
Are the right things that we need to be doing for that for the longer term.
Okay, guys. Thanks, I will I'll jump back in Q.
Thank you bye.
Well take our next question from Justin Clare with Roth Capital Partners. Please go ahead.
Hi, everyone. Thanks for taking my questions.
Hi, Justin.
So I guess first off I was wondering if you could just speak a bit more about where you're seeing weakness that like this specific end marks in end markets where.
You know you're seeing weakness and then are there other areas where you're seeing.
Drinks and then how do you see the end markets are changing as you move into Q4 in Q1.
Yeah no. Thanks for the question adjusted I'll start now faceted, Steve maybe on a mannatechs and since I've been spending quite a bit of time, you know on P.M. talk a bit about where the kind of the pluses and minuses are.
As I mentioned in my opening comments I, you know, France is or is it is a big potential for us and we have a very small share.
And and I think that's a big opportunity for US I think you know the UK is a is another big opportunity Brexit has now been pushed out a little bit more so I think the uncertainty there is still there, but you know people are still confident that theres still things to be built and in that.
Okay. So so that's a positive that's a positive sign the Latin America.
Has also been very strong for for the P. M. A the PM products a in Chile.
Cantina couple other in a couple other markets and then as we talked about earlier in Asia that to Dato a branding I think over time, you know that that'll that'll help us I mean, you know every every crane, we sell through the Teradata distribution in Asia is a lot better than we had in the past so it's all.
It's all upside in my view.
And then you know maybe I'll turn it over to Steve on stick boom I talk about kind of the end markets there sure.
Many of the a of the straight mast cranes and Mac knuckle boom cranes that are distributed throughout the throughout the Americas, a north American particular go into the rental market.
And as as you've probably heard from some of the larger rental companies that market is still have healthy and performing well.
With good utilization and that applies also so mobile cranes from what we see in our channel checks and conversations with our various customers.
Getting into some of the the particular end markets that that are particularly strong utility in electrical utility in particular continues to be very active.
Governments of various types federal state and local continue to have many projects.
In process and are launching projects that have been.
Accretive to the rental companies that we sell to and construction still continues to be strong with an ongoing.
Ah Ah backlog of projects in process I would say the biggest.
Part of our business of of our distribution, where we see weakness is in the energy sector.
And and that's about 15% of our overall revenue down much more must dramatically from several years ago and there's some detail in our investor deck on that just than a where revenues are generated by market segments. So Fortunately the segments that are.
Performing well like construction utility and government is about 70% of our global revenue and energy is about 15% of our global revenue will we see some some weakness.
Okay, great. Thanks for all the detail there.
If we could then just shift to margins.
In Q3, you indicated there was some unfavorable mix that contributed to the decline in margins sequentially.
I was wondering if you could just talk about how you see the mix trending in Q4.
Based on the orders that you've booked in your backlog.
<unk> adjusted I'll start and Steve will take that one, but yeah. I mean, clearly we talked about the mix right. So we we sold you know more smaller stick boom products and larger.
Stick boom product. So so that obviously has a margin effect.
You know there's also a the shutdowns.
In Europe or during during the quarter that effect.
You know producing more product from P.M., which actually has a higher margin.
And ER in a in articulated cranes in our aerials business. So.
I think that Ah you know that trend.
Going forward is going to be a little bit better you know, we obviously have holidays and.
Shutdowns going on in the fourth quarter that when we need to we need to deal with.
But I think as I said before it will be it'll be a little bit better as we get through through the fourth quarter, but Steve sure. Yeah that covers it very well, Steve I think the only other thing I'll add to.
To the discussion is commercial chassis for the footprint, particularly the mannatech straight mast cranes and.
As I mentioned that some of my remarks, we did order a significant amount of commercial truck chassis. So late in 2018 and into 2019, we thought it was and is and has proven to be up a prudent thing as we move through the year because many of you are aware.
The significant tightness says occurred in supply of commercial chassis season, we wanted to protect our customers in or dealers to make sure we could respond appropriately to market demand now.
As we've answered and moved through the third quarter, we have seen the supply and demand of commercial chassis start to come more into balance and the supply constraints for chassis as a base. So we're working down and a and having a third quarter already worked down the amount.
The commercial chassis is that we had and and going forward will be relying much war on or on our dealers.
To the extent that they desire to make sure that theres securing chassis for there are four there for their crane deliveries can you want and it's something looking at their Q4 forecasting chassis fairly significantly down compared to the second quarter.
Whose alco lacking.
So if if if if commercial truck chassis has remained very very well on balance where we're going forward going to.
Get back to a very normal ratio lower ratio of chassis is that we keep on hand.
Okay, great. Thanks, Thanks for that or maybe just one more for me.
You mentioned that a you know you plan to continue to reduce the level of debt on the balance sheet.
I was wondering if you could.
Be a bit more specific as to what level of debt you eventually want to reach a you know what you're comfortable with.
Okay. Thanks, Justin I'll take that and maybe a Laura can add some color, but I think we said you know in our remarks right. The next.
Big debt.
Payment, we have is in Italy, where we're going to pay about $3 million in the fourth quarter.
So I think that's a positive that's a positive sign.
You know we're also looking it I'm seeing what else, we can do with the debt in Europe , and that's another opportunity for us to reduce reduce some some debt there.
And Ah and I think you know going forward.
You know <unk>, our leverage in a capital goods business, you know I think should be somewhere in the two to two and a half range and I think you know manitex is kind of been obviously long long time ago, not a very good place, but I think we've kind of trended or in that in that two half times somewhere in that.
Range. So I think if we could stay around there it would be a it'd be good you know for us and I think as Laura mentioned, I mean, where we're at a pretty good place I mean, we've got 20 million $20 million cash, we've got 30 or $30 million in our revolver and we haven't used so we've got $50 million of liquidity. So I think.
That gives us a lot of flexibility to do things and like I said. The first one is we want to reduce the debt first step is Italy, but Laura you want to add to that yeah.
We'll have the convertible note due the end of next year on 77.5 million into December 2020.
Not a 15 year you do like in January 2021.
Well positioned to pay downs.
Cmos you have $50 million liquidity right now right.
Okay. Thanks, very much I will pass it on.
Thank you Justin.
Well take our next question from actually ski with Dougherty and company.
Hey, guys. Thanks for taking out the why is the questions here I'm just going up on that last question. If your sleep book in the fourth quarter and you're selling off some chassis, it's probably in your inventory and as a strict because it makes sense of trucks can you see a good opportunity for really strong fourth quarter free cash flow as well.
Yeah, I'd say, we're a I think as I mentioned bike or you know we've got the team focused have cash for Q4. So I think we've got to we're going to get ourselves in a good position in Q4.
We've got you know if you look at our inventory.
Year over year, we've increased our inventory by 10 million $10 million right. So that's a that's an investment in cash but the good news is as much of that isn't finished goods. So we're going to pull through the.
Through the production line, so yeah, I mean, I I think for sure.
We're going to we're going to focus on generating more free cash flow in the fourth quarter.
Great.
Steve I.
So proud you're a rival the company put out some some multi year targets.
I want to get us steel for how you feel about those turn as today you had mentioned in your remarks on the current spot today, they want a 10% on margin or higher.
Does the outlook, we had before was within two or three years to be a $3 million obsessed with 50 of topline with 10% plus margins.
Any sense as to whether that's still something anything we can kind of rely on or what kind of thinking about either as a broad target.
So I I think like I'm still a aligned with what Dave on on those targets I think that you know we've got the portfolio today.
I think to get us probably somewhere in a $300 million range now.
Some of that big part of that growth is going to come from P. M.
Clearly, we need you know mannatech stick boot business that kind of come back a bit right were off a little base, we feel that that's kind of the lowest space a of the business. So hopefully that starts to a at least a pickup.
Pick up a bit, but clearly we need to be that 300 350 million dollar revenue range and somewhere you know in the range of 10, 10% EBITDA I still see those as valid and as I said, you know leverage kind of somewhere between two two and a half I think that's a that's a safe place to be for.
For our business.
Yes, and sometime this summer timeframe perspective.
It was earlier this year, so they're saying two to three years from then so.
First quarter says 2020 to US I was wondering three if that's still.
Well good time to think about these contribute to be to be reached.
I think so like somewhere 20 to 22, writing that there's some fundamental where's it was we were talking about earlier.
How about slides a fundamental things that we need to fix on the business are gonna take 12 to 24 months for sure.
Good you know get the low hanging fruit when it comes to revenues when it comes to cost.
But we're talking about a big change in the business, but I feel confident in a couple of years, we can still get those numbers.
Great and then elsewhere I get a little more clarity on the path ahead for PM.
When the company arrive in the portfolio. It was about $9 million topline ethic was 9% EBITDA margins are 9 million.
Preliminary that's been eroded quite a bit I would guess the topline by quarter and your deadline by half.
I can just Nick and estimate there do you think ticket do you think it's a big stretched to get back to the 100 million $9 million EBITDA margin again within a couple of years or is there a whole new sets versus got now put it on T.
Yeah I mean.
You've done your meth ER, Mike So I think you're not too far off of where the businesses today right. It's in that you know 80 million Euro range.
And Ah.
You know you like you said, it's probably about half of what do you used to be from a EBITDA perspective, you know I think we can get to the 100 million dollar a range and we talked about next year. You know we have some nice orders are in place for that business to continue to grow we talked about today.
No we talked about the two military orders you know those are for 2020, a you know I think the Manitex team in North America under the Mac brand.
I've got a plan to definitely do a lot more 30, 40% more than they did they did this year.
As I said, you know Latin America continues to perform to perform well so.
We're going to get there you know next year probably not.
But but I think that you. After a we can you can definitely get getting that range.
Excellent thanks, very much I appreciate it.
Welcome.
At this time this will conclude today's question and answer session I would like to turn the conference back to Steve Philip off for any additional or closing remarks.
Thank you Keith and thank you everyone for your time today, we look forward or to give you more positive news over the next to the next couple of quarters and a and again if you need anything please reach out to myself or Peter.
If you need more information and again, thank you for your time appreciate it.
Ladies and gentlemen. This concludes today's discussion we appreciate your participation.