Q4 2019 Earnings Call

Please standby.

Good day, and welcome to the Manitex International fourth quarter and full year 2019 results conference call.

Today's conference is being recorded.

I'd like to turn the call over to Steve Filippo Chief Executive Officer of Manitex International. Please go ahead.

Thank you Matt.

Ladies and gentlemen, thank you for interest in Manitex International.

Oh.

My voice yet.

The second call.

Okay.

Easily Bob.

So you don't Manitex international on the call with me.

For our President and Chief operating officer, as well as Laura you are senior VP and CFO.

Please see our website.

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Functions for this call, which will be available until March existing twentytwenty.

Please refer to slide two regarding our safe Harbor statement.

The statement and also referred <unk> filings for further guidance, although many restacking associated with our company.

I will begin with a brief overview Laurel will present, the financial summary problem by operating commentary from Steve After which we welcome questions.

Please now turn to slide three.

Very good about where we are their journey to profitably grow grow mannatechs over the coming years.

Our global team for delivering a strong fourth quarter of 2019 before going deeper on our Q4 2000, Nike results I want to remind everyone on the longer term priorities, we've been putting in place at Mannatechs over the past few months.

Innovation is only up most important sustainability, our business and we need to deliver the innovations and functionality and our customers need.

And keep ahead of our competition.

We are heading at Conexpo each week.

New straight mast cranes knuckle boom cranes, aerials and industrial cranes for our customers probably do products on displayed a will be 24 times tragic boom truck with a six section for four Lou.

I do 50 ton boom trucks with removable kinda waiting for better reliability I do 60, count boom trucks to access the higher lift capacity segment. The full line of <unk> product line with a new wallboard application and several new industrial cranes, including a new nine klien zero emission remote control valid crane.

For access to calm black and indoor applications.

Let me outline silver a high level objectives for the company and our shareholders.

First we will run this business to maximize our future cash generation profitability.

Requires maintaining a keen eye on working capital management.

Efficiency in production.

Our balance sheet at the end of the quarter indicate some improvements, particularly on working down our inventory by $9 million. In Q4. We believe there are still additional opportunities ahead of us.

Further reduce our overall inventory to improve throughput in our facilities.

Second we will continue to strengthen our balance sheet and pay down debt.

We feel we can engage in the fourth quarter last year. We ended the year was $41.2 million in net debt.

7.3 million from the end of 2018.

As part of our strategic review or product portfolio, we determined that the divesture of sabre aligns with our longer term vision for Manitex International This transaction will allow us to increase our focus on our core higher margin businesses enhance shareholder value.

In Korea, and adjusted EBITDA and earnings per share and Twentytwenty I want to thank everyone and saver for being a part of the Mannatechs team.

Well my tenure here is relatively new the largest opportunity in primary mission for our company, namely in establishing ourselves as a key player in the knuckle boom Crane market is not new.

Can you just spend a significant amount of my time at RPM facilities.

EMS partners suppliers and dealers.

We have focused our team on growth and process improvement.

Firm believer when if you want to grow you have to invest in the team. So we're investing an additional support and quality production parts and service nothing happens overnight and we've just started on our journey, we've already started and see the benefits in Q4.

Revenues were up 29% in Q4 versus Q3 and closer to 10% EBITDA.

What's your test of the fact that our global branding strategy is starting to gain traction we're still starting to increase in markets like Italy, France, Chile, Mexico in Peru.

Mac launch in North America started to pay dividends as we build out our distribution network and ramp up Assembly Georgetown, Texas facility.

Significantly increase our focus with Donald.

And its importance on our overall strategy I will have already I will have more detailed comments in a moment.

We announced the award of a military contract last year for articulating Crane products, which will start delivering in the second quarter of 2020.

We are assembly needs and George South, Texas or provide a good things and production for our teams we had further into 2020.

We are much more opportunity with our parts and services businesses, so not only grow margins, but to make sure we're delivering the highest uptime for our products.

We have consistently communicated that we enjoyed close to 50% gross margin on our parts business and we see continued opportunity there for sales and margin pickup I.

I am proud of the team at oil and steel aerials, which is part of our business that we havent spent much time talking about in the past, but is it. It is indeed, an important nice part of the PM acquisition.

We have put an aggressive plan in place to grow this business and we're already seeing significant growth in markets like France, Spain.

In the U.S., our backlog is up 40% as a result of this effort and we expect to see this translates to increase revenues in 2020.

Last but not lease we how are valid zero emission industrial cranes.

New leadership in place and expand our distribution and customer network. This is a very specialized markets that presents an opportunity for us to diversify into aviation rail transportation lining in Petrochem I mentioned a few in the past 70 years now has produced over 10000 industrial cranes and I'd.

Confident we can be much more with his business.

Turning to slide four.

We have the strongest partners in the crane industry with the Didonna group, but as I told maybe on the call.

We needed to get a more aggressive plan in place to expand RPM Fernando articulated crane business.

First I spent time with that on his leadership team in Japan and in Singapore to put this plan in place and we're also starting to see the benefits we have put a strong operational team in place with clear deliverables on objectives.

Now these on a monthly basis to report to report out on where they are and where they need support to grow our international business.

Conducted in many training sessions for our new distributors in Asia, and starting to see more orders come in.

That auto has also opened the door to dealers in the middle East Rev purchase or first units and we'll take delivery early in Twentytwenty. Most importantly, though.

Impressed to see Mannatechs Manitex international teams working much closer together and building a much closer relationship.

We'll go from a few hundred thousand dollars in business last year to close to $1 million in 2020, a much more opportunity.

Now, let me turn it over to Laura discuss these financials in more detail Laura.

Steve Good morning, Thank you for joining the call.

Direct your attention to slight side. Thanks.

Q4 financial Watson.

Revenue for the corner, where 64.4 million.

Andy.

Third quarter 2019.

The increase was primarily driven by higher.

Premature.

That's really awesome. Thanks Nancy.

Okay.

Into the market softness in North America.

We had a strong quarterly revenue.

29 come from.

Into the third quarter 2019.

Other revenue company lines in accordance declines.

Okay excellent.

On the revenue decline was on therapy.

Currency.

Weaker euro from your side.

It's competing for 1% came consent total revenue decrease.

Our book to Bill ratio for the quarter was 1.1.

The improvement from the one please.

Third quarter 2000 rooms.

Our backlog remained flat year over year.

Between Q.

Yes.

Good luck.

Increase over 8 million.

Thank you.

Yes.

This increase.

She will decline.

Thanks.

I don't know February 20 firms.

Backlog sequentially improved to 71 million.

7% increase.

Adjusted gross margin was 18.4.

120 basis points.

Third quarter 2019.

Our adjusted gross margin was high not only in south of margin improvement.

Even back then.

This was partially offset by lower margins.

To that decline.

And on Super Bowl.

Now.

Hello.

Sales and non recurring charges.

90 point.

It was 80 basis points higher than both third quarter 2019, and fourth quarter two banks.

Finally, the mountain 20% lanes.

Oh I'm sorry.

Looking at the production schedule for the first quarter 2020.

Adjusted very excellent margin from time to 20%.

Our fourth quarter 2019, adjusted net income was 20 million.

One cents earnings per share.

Adjusted EBITDA was 2.8 million.

Your your entire on computers in third quarter 2009.

I really driven by improved gross margins.

John Candy.

Excluding nonrecurring charges for the quarter.

Decreased slightly compared to the third quarter.

I believe parents on positive long term.

Perfect and John.

In the low teens.

We'll take some time, we will continue to pay for necessary.

Turning to slide seven.

Operating income.

Full year revenue was down 7.2 components from 224.8 million compared to the prior year.

Yes, exactly that works margin was 20.3 things.

Brian I mean, lower compared to 2000.

This was a result on referencing here she and her team.

Hi, everyone cost side are extremely volatile demanding buying back shares and unlocking.

Particularly North America.

And lighting component prices in the years.

Oh here in 2019, adjusted net income was 3 million or 15 cents per center.

Compared to 6 million already please.

Sure from 2000.

Full year 2019, adjusted EBITDA was 12.3 million.

Downtime between 1 million compared to 2000.

The decrease was primarily driven by lower margin increased revenue.

Let's move to slide eight feedback on the floor caliber until year end Johnson.

Uh huh.

No not.

The board of directors has improved.

Patrick feature or completely.

Classified sabre has counseling sale.

The first quarter in 2020 financial report.

We do not expect to record any material charges in future quarters hurdle diner.

Management believes the divestiture loan pools, our operating legal and bottom line stability going forward.

Full year revenue for 2019 from Citibank with approximately 4% health and company total average.

Excluding the dog some feedback I guess is there you had gross margin would have improved by 100 basis points.

The 20.6% for the fourth quarter.

And that by 110 basis point for the full year 2019 to 21.4.

Yes, so the net income for the full year would have increased by 1.8 million feedback.

The downstream earnings per share would Hanson, who excites me, Tim Robinson for share for the fourth quarter.

Earnings per share for 2019 would have improved to 25 cents per share.

Okay.

Moving to slide nine net that's happening in Q4 2019.

Slide provides a breakdown of the next quarter.

We reviewed magnetite 7.3 million year over year.

41.2 million and yet.

The lowest level, we have seen since 2011.

Made a 3 million principal payment on Italian terms accident years.

In addition, we've got comes in from the convertible note Hogan management made the decision to start making only principal payment parallel long.

Thanks payment of 2 million with me on February 17, this year.

They've done a plan to continue making early principal payments throughout the year before their maturity date.

Our goal.

Proves that balance sheet and debt reduction.

I could last I wouldn't call, we mentioned that college chemo pretty strong focus.

Working together to decrease the working capital by effectively managing inventory and accounts receivable to prove the company cash conversion cycle.

I'm pleased to announce that we have been lives I think of exhausting the fourth quarter with a 9 million inventory these actions and 2 million reductions in accounts receivable.

Management will continue to control costs.

Two of working capital performance essentially on inventory management.

Other necessary actions to further reduce net debt.

With that I'll now turn the call two feet Keysight.

Thank you Laura please turn to slide trends.

I was under 19 was a significant here for Mannatechs as we strengthened RPM business maintained strong market share for industry, leading mannatech straight mast crane business.

And introduced a number of important new products.

The various new product development operations improvement and commercial development initiatives, we've pursued throughout the year allowed us to end 2019, with a flat backlog versus the prior year, notwithstanding the uncertainty and many of our end markets.

Frankly, strengthening RPM and Mannatechs product offerings and distribution was a key focus throughout 2019 and as we enter 2020.

We introduced a number of new products at the Bauma trade show in April of last year and those products begin, adding some backlog in revenue as we moved throughout the year.

In September of last year, we announced a 4.5 million dollar order from an international military customer for PM knuckle boom Crane.

We began production of these cranes in late 2019 and shipments will begin in the second quarter 2020.

We are pursuing additional military orders for PM cranes, and anticipate announcing additional contract awards as we move throughout 2020.

Additionally, we added three new dealers for our PM group products in the fourth quarter last year and began customer shipments of our metrics branded knuckle boom cranes in North America.

These efforts drove or 50% increase and RPM backlog.

Since the end of 2018, while our mannatech straight mast crane backlog declined 5%, reflecting general market conditions.

With the fourth quarter book to Bill ratio of 1.16, we filled many of our first quarter 2000, and Twentys flocks late last year and began booking some slots for the second quarter.

Going forward.

Our channel checks indicate that sales and rental activity. Other dealers remain stable. We have noted an increased level of cautiousness.

All of our end markets.

Additionally, we continue to monitor developments are associated with it for Corona virus and our factories continue operating well with no line stoppages experience today.

Overall, we're confident our key initiatives of customer focus new product innovation.

Commercial market development operational improvement and debt reduction will contribute to long term shareholder value creation.

We look forward to the Con Expo trade show this week and announcing a number of new products from each of our core businesses <unk>.

We'll also meeting with customers suppliers and trade media.

Thank you for your time today.

And I'll turn it back to Steve Philippa.

Thank you Steve Please turn to slide 11.

The first phase of our turnaround strategy P. M is starting to get traction and some of the numbers. We mentioned earlier speak for themselves, but the results are not happening because of one person, but because we now have a very focused dedicated and engage leadership team and pm.

We also put some more process into the business and track our progress to specific deliverables, which had been established for twentytwenty around improved quality cost and delivery of our products.

Early in the beginning of our journey and focus on improving our core competence as a manufacturer of articulated cranes aerials and industrial cranes, but I hope you can see.

Potential and APEA portfolio and why we are confident this is the next growth opportunity for Manitex.

Please turn to slide 12.

In summary, I'm excited about the opportunity we havent frivolous Manitex International has built a solid foundation of global brands rig products loyal customers committed investors and an excellent leadership team.

Our Manitex business in North America is stable and we're holding our ground in a challenging market by continuing to innovate lending products and services for our customers.

And business is our diamond in the rough and we will.

We'll be our growth engine going forward the growth this growth will allow us to become a more global company delivering higher returns to our shareholders as in any company, we have an opportunity to reduce our costs in both as DNA and material costs. We will target I ask you can a cost of being low teens, and then also focus on reducing our material costs.

Well we're in 2020.

We want to get a stable and solid business delivering over 10% EBITDA consistently over the next few years.

Lastly, I want to comment on the Corona virus situation.

We have taken precautionary measures for our team in Italy, and made a decision to not have a team travel for Conexpo and limited travel to and from Italy until further notice.

We're not aware of any any of the TV affected.

By the virus.

This time and we're still working at our facilities.

We've not had any line stop so far in production is continuing.

Daily standup meetings to assess the situation as it evolves and we'll keep the safety of our team members at the top of the list.

Matt.

Go ahead and open the floor for any questions.

Thank you she would like to ask a question. Please signal by pressing star one on your telephone keypad.

You are you seeing speaker phone things make sure. Your mute function is turned off to about your signal to reach our equipment.

Again that is star one if you would like to ask a question.

Our first question will come from Justin Clare with Roth Capital Partners.

Good morning, everyone. Thanks for taking my questions.

Hi, Justin.

So I guess first I was wondering if you speak more about what's driving the increase sales in your PM business is the growth due primarily to expansion into new markets here or are you also seeing increasing demand in established markets.

And then I was wondering if you could comment on what you see a heading into 2020 do you expect this business to grow in 2020.

Sure Jason So yeah, I would say you know our growth is really twofold first of all.

The knuckle boom Crane business isn't growing market globally. If you look at our competitors. They're also there are also growing so we're benefiting from.

The market growth and here I think the second piece of the equation is we are gaining share in some in some markets and we put more focus in.

In France, we have I mentioned, France, our first call. We've got a good deal. It's there we're taking up a lot more business just because you know we're more focused on selling more products there Italy.

We also increased.

Our share.

There and then in Latin America, where we have.

I think engage here in Chile and Argentina.

We're also picking up some business there. So again, it's that's really twofold right now knuckle boom that Google market is not not too bad when you compare to other crane markets and and we're focused on growing our share where we can be a leader in.

Those markets.

Okay great.

And then.

Shifting to margin.

Can you share how much higher your margins were for your P.M. business relative to Manitex and in Q4, and then speak to how you see those margins for each of those businesses trending as we move into 2020.

Yeah sure. So from a lot Lora answer that question LER and feel good gross margin targets, yeah, typically higher then monetize and you're like locations in the low 20.

HM.

Movies long legs for the Q1, we expect gross margins.

I've seen muscle function yet.

Okay great.

And then one last one here.

You're talking about the supply chain it sounds like you're currently not seeing any shortages, but just wondering if.

Have any concerns about.

Components are materials that you think could become an issue in the near term here just wondering what you're seeing.

Yeah.

Thanks, Justin.

Look.

Right now we haven't seen you know really any shortages and you know we do have some components from China and gets shipped to the U.S., but we havent.

At any shortages, yet I think there's.

Just more inventory and the pipeline.

From that perspective.

But you know there's a lot of uncertainty Justin it's hard right and as an example in Italy.

So as I said, we've got daily calls with the team.

That includes weekends just to assess the situation right now we haven't had any any line stops.

We're still shipping cranes.

We're still getting our parts into the facilities.

But you know that that May change if.

You know if things don't.

Don't line up.

Right now, we're still feeling confident that at least for Q1.

That that we're producing cranes to our plan and haven't seen haven't seen any any drop off from.

From my perspective.

Okay. Thanks, I'll pass it on Uh Huh.

Thanks.

As a reminder for those on the phone it is star one if you'd like to ask a question.

We will hear from Mike Shlisky with Dougherty and company.

Good morning, guys.

Bye bye.

Hey, so.

Some of the telling the market was little cautious here in the first quarter.

You get a sense of the caution due to the clear about itself or are there other and mark I like oil prices are construction trends that though.

Grabbing that cost and right now.

I didn't get the first part of that question right. You are asking that the costing of the product Cautiousness co Cos Hill ROM internationalism some caution among your customers here in the first part of the year.

Due to the current alaris or does that maybe more due to end market conditions in oil or well construction et cetera.

Yeah, So, let's let's take it in two parts right will slow, let's talk about Manitex and P.M. I'll, let I'll, let Steve comment about Mannatechs, but.

As I said before the knuckle boom Crane market is still doing fairly well.

Globally.

If you go today like it's hard to.

It really judge what the Corona viruses, what impact is going to have the message you know that I have for our investors and our team is.

We've got a focus on what we can control and that's basically our operations I think the other opportunity. We have is we've got a good backlog as we as we came into 2020.

You know as an example, and PM, we grew our backlog by 50, 50%.

So that's good for Q1 in Q2, we haven't seen any order cancellations, we haven't seen.

I'm really really anybody backing up ticking taking product. So right now are still feel pretty confident that the orders and we have on hand, we're going to be able to ship them. According to plan and then.

On the Mannatech side on the Street two markets, Steve maybe comment about surely be as you know like construction has been and continues to be performing well and North America.

Energy energy prices, certainly a a concern among certain dealers that have a high concentration in the energy market.

As you know like over the years, we've significantly diverse diversified our end market mix and energy is currently or last year was about 15%.

Total revenues, including Sabre and so while energy remains important to us.

It's it's something that is a much smaller component of our business.

We really began the year with.

More.

Cautiousness that occurs every four years like as a result will be election in the U.S. and.

Ed Ed at at this time krona viruses that concern, but some of the cautiousness that we see this year and began the year with is really what we as you know experience every four years associated with an election here.

Okay.

Perfect.

But wanted to touch our inventories as well I see it in dollars flat year over year backlogs are also flat year over year. So I guess I. My my question there is.

Do you feel like is that you're in the correct, creating your inventories or is the balance between pn and mannatechs still little bit off their Mexican changes.

The inventory side here.

Yeah sure, Mike well inventory, we still got opportunity I think Kevin team did a good job in Q4, because we put in focus on it and and I think the team really going to the nice job getting a meeting.

Inventory now.

But we still got me opportunity I mean, we have right now we're at about $50 million on inventory.

You know I'd say about $20 million or that is finished goods around around the company about half of that is at PNM and.

No I think PM has opportunity.

You don't Mannatechs as we said before has a good backlog.

We feel good about Q1 order slots, but we still have opportunity to reduce so.

That is part of our 2020 cash generation plans and we've got to continue to.

To reduce our inventory so it's still presents an opportunity for us.

Beside the level people, who are in couple of years businesses inventory.

He kind of.

With 211 inventory obsolescence or just older across everything billings inventories.

I recall.

Is that problem almost gone at this point if.

That's because of our effort here.

Yes, so we I think Laura in Q4, we had a.

There was a write down of some inventory.

But I think essentially what I'd say like is I think we're through most of that but I think there was a one product that we.

Yeah, We think we took a return on some of the discontinued buybacks and when we are no.

On todays comments, you can see John that young Alina.

Hello.

Well like.

We will see I think adjustment today no reason.

Okay.

One last one touch on the on net debt as well honestly say below that you said it.

So I go Secretary.

I think so I guess my my other question. There is there is there a next step beyond that.

30 million are.

Do you think you need to.

Take that.

Is that kind of further here.

The question, you're saying is our net debt at the right level like it broke up a little bit yeah. I mean, if you if you take out that he got paid or you're at roughly two and a half times and so I think net debt to EBITDA and kind of curious if that's available for you or.

Will you be taking the cash if you get any from saver to put towards debt and just kind of what's your overall net debt next steps there.

Yeah sure. So so yeah as we said as we said before you know we're going to take out our our converge.

There's a piece of that institute at the end of this year and another piece. That's due in January of 21, and we said in our prepared remarks, we repaid.

We paid down 2 million and if that Mary on the Perella notes. So we're going to continue to work worked that down like.

That answers your question and then you know the second piece is what do we do it saver.

When we sell saver and the funds that come with that yeah, that's essentially going to be used to pay down debt or or use for working capital as if we feel we needed but those are the two avenues that we'll look at when we close to when we close the transaction.

Okay.

One last one for me about the Dunno mentioned this in working or no well so far this business and regular meetings.

What's going on there.

But.

Just some more color as to exactly where does that you're doing where you stand today, and then kind of a little bit more just like.

Detail about where to dunhill.

Sorry, outperformed going forward and what are your challenges going forward.

Sure.

Yeah, I mean are as I said in my opening comments, yeah, I think as or just lack of direction and we didn't have a team that was really focused on driving driving the business, but what we put in plant is put in place is a lot of trading for.

For the to the auto dealers and out.

The first priority use Asia I mentioned, the middle East I'll come to that in a moment, but you know Asia presents a really good opportunity for us because.

As you know very strong dealers. So I think number one is making sure that we've got trading for those dealers because it is a much different product than anything else that they're selling.

Number two is you don't get product into the market through stocking program, which we've done.

We've done some of that I've never three is you know parts and service right, we need to make sure that we've got parts on the ground and you know we've shifted.

Some inventory to to the dealer intend to Singapore, So that we can support.

The product so.

All of those fundamental are foundational things like things kind of what were lower really doing and once those things get done.

I think we'll continue to see machine business there, but it just it takes time right like I said, it's a much different sales process.

Then selling it all terrain crane.

As an example.

So there's just a lot of education that that needs to happen, but you know we've got our team is focused on it now I spent time with the but auto team. That's focused on the P. entered auto relationship and very good team I mean very thorough.

And I really feel feel good about both of those teams working much much closer together and as I said you know the middle East is now opened up.

Opened up a bit we sold some products into Saudi.

And we're looking at a couple of other markets, where it's at auto has good representation. There. So you know we will we will expand the PMT Donald branding as much as weekend.

But I want to make sure that we do it in a in a way that we can support the product going forward.

But the answers your question.

Yes, that's great I appreciate it I will customer on thank you.

Thank you like.

And with no more questions in the queue I'd like to turn the call back over to Steve sleep outs for any additional or closing remarks.

Thank you Matt. Thank you for everyone for your time, a and your investment in Mannatechs. We appreciate your support and look forward to reporting on a another good quarter or early in 2020. So thank you all very much.

Appreciate your time and hopefully, we'll see a conexpo like you.

Once again that does conclude our call for today. Thank you for your participation you may now disconnect.

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