Q4 2020 Manitex International Inc Earnings Call
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Ladies and gentlemen, thank you for your patience the teleconference will begin momentarily.
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Greetings and welcome to the Manitex International fourth quarter and full year 'twenty 'twenty results conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference.
Please press Star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the call over to your host Steve Phyllopod, Chief Executive Officer Manitex International. Please go ahead.
Thank you operator, good morning, ladies and gentlemen, and thank you for your continued interest in Manitex International I Hope, everyone is safe and healthy and appreciate you taking the time to listen to our call.
Today on the call with me I have Joe Dolan, our CFO, who will discuss in more detail our financial results for the fourth quarter and full year 'twenty 'twenty.
Please see our website or our release for replay instructions for this call, which will be available until March 18th 2021.
Moving past slide two which is our safe Harbor statement and remind you that everything we discuss is subject to change and described in our SEC filings for further guidance on the many risk factors associated with our company.
I will begin with a business update for the fourth quarter, followed by Jos who will present, a financial summary, after which we will welcome your questions.
So please let's begin on slide three.
I want to thank our global teams for a strong quarter and their continued resilience and dealing with the current COVID-19 pandemic and all the challenges this brings to continuing to deliver the highest quality products and services to our customers.
The safety of our team their families and our customers remain top of mind for salt.
We have clearly seen a turnaround in our business and I'm glad to see the improvements we have made in our revenues and a significant improvement in our backlog as we closed out 2020.
During the fourth quarter, we saw an improvement in orders for our North American Manitex straight mast cranes, which was the first time since the pandemic that we trended in a positive direction.
Having visited and spoken to several customers during the quarter. It is clear that our dealers have done an excellent job in managing their inventories and now purchasing product for an expected uptick in energy environmental and general construction markets.
Sticking to North America, our Mac knuckle boom team continues to make progress in adding new dealers and customers in a market that has continued to be a high demand.
Even in a challenging year like 2020, we had revenue improvement of over 50% from 2019 somewhat driven by our military order, but clearly this is a growing segment for us.
Our backlog continues to grow and we recently announced a record three year high of $82 million, which was driven mainly by our PM knuckle boom in oil and steel aerial products, but also in our push into the zero emission industrial cranes with a valid product.
We also continue to drive new product development and launch several new products in 2020, and we will continue to accelerate this initiative in 'twenty 'twenty. One we will have some very exciting new product launches in the second half of 2021.
For the first time since the end of 2019, we have good visibility to our production schedule and we are working to ramp up and many of our facilities.
I've seen many challenges with the availability and commodity pricing increases, but we are managing these very tightly and I'm confident the team is making every effort to mitigate them as best we can.
We have made great progress in strengthening our balance sheet and our net debt is down to $30 million, which was over $50 billion in Q3 of 2019 and a significant improvement since the company has been operating.
Please turn to slide four.
The P. M group had another solid quarter and this will continue to be the headline as we have commented in the past. This is a global business with many different end markets and even and then in the middle of the pandemic. The team has done an excellent job in executing our strategy to focus on the markets and products, where we see growth.
We continue to work on the profit profitability improvements at P M and with the cost reductions we executed in late 2019, and the strict cost controls we've put into place for 2020, we delivered close to a 200 basis point improvement in adjusted EBITDA over 2019.
Our oil and steel Arrow's business is making significant improvements in new product development, but more importantly in the quality and delivery to our customers.
What are the key initiatives. This year was to improve product costs, but to also significantly improve the quality of our products by streamlining our manufacturing facilities and improving our supply chain.
The development of our Valla zero emission product has been exciting to see as we are also in the middle of rejuvenating This business with new products and new customers as we all know there was a strong push for this technology globally and the industrial Crane space is no different.
Our manitex business in North America remains challenging and a major focus for us even if we see some light at the end of the tunnel with a recent uptick in orders we are not happy with the profitability we delivered in 2020.
We executed a major major restructuring program in Q3 of 2020 and reduced our head count by 30% and our Georgetown facility to align with the drop in the overall street mass market.
But the market volume volumes around 800 units today, we hope to see some stabilization around 1000 units in 2021 to deliver the profitability. This business has seen in the past.
Let me now turn it over to Joe to discuss our financial performance Joe.
Thanks, Steve Good afternoon, everyone and thank you for joining the call today first I'd like to start by mentioning that my comments today will address results from continuing operations.
As you know during the third quarter the company sold the Sabre industrial tank business.
Favre results are included in discontinued operations and the company's financial statements about the results that I'll discuss will exclude favor not my following remarks will discuss changes in results from continuing operations versus Q3 2020, which.
Which we believe is most meaningful in the current environment.
With that please turn to slides five and six for the fourth quarter operating results and financials.
Our revenues for the quarter were $45 2 million, an increase of 24 per cent compared to the $36 5 million from the third quarter of 2020.
This increase was driven mainly by higher sales of knuckle booms and R. P M business.
The sale of zero emission cranes in our valve business unit.
Sales of straight mast cranes in Q4 were consistent with sales in Q3.
Our fourth quarter loss from continuing operations was $1 8 million.
Which is an increase from the third quarter net loss of $1 4 million.
Higher loss was driven by higher tax expense of zero point $8 million driven mainly by strong earnings in the fourth quarter from our PM business, which offset the $500000 improvement in operating income quarter over quarter.
The loss per share was nine cents for Q4 compared to a loss of seven cents per share in Q3.
The adjusted net loss was $1 3 million or seven cents per loss per share for Q4 compared to a loss of 1 million or <unk> <unk> per share in the third quarter.
Again with the increase in tax expense was the main driver for the decline in the earnings per share.
Our gross margin was $18 seven per cent for the quarter, which is an increase from the 18, 3% for the third quarter.
Increased gross margin is primarily due to the sale of knuckle cranes and R. P M business unit, which generally have a higher margin.
Adjusted EBITDA was $1 5 million or three three per cent of sales. This is an increase of half a million from the third quarter, which reported adjusted EBITDA of $1 million or two six per cent of sales.
The increase was driven by increased sales in our knuckle boom Crane business.
Our backlog was approximately 68 million as of December 31, 2020, and as you'll note in the press release, we saw orders in January that took our backlog to $82 million, which is a 63% increase compared to September 30th.
This increase was driven by higher orders across all of those issues.
Straight mast crane backlog more than doubled from September 30th and platforms are up nearly 75% from September 30.
Our book to Bill ratio was 139 to one for the fourth quarter up significantly from the ratio of 1.17 to one for the third quarter.
As we talked about on prior calls we have taken initiatives in our Manitex business unit to reduce costs and production and SG&A.
Restructuring actions were taken in June and July and include head count reductions in the North American Crane business.
Interior and other cost reductions.
These cost reduction initiatives have resulted in $1 1 million of cost savings in Cogs and recurring SG&A expense in Q4 and is consistent with our performance for Q3.
We expect these initiatives will deliver annualized savings of $4 5 million.
We believe that these cost reduction actions will strengthen our gross margins and reduced SG&A expenses.
While annualized savings are not as high as we initially expected. The decrease is attributable to our strong backlog, which required us to maintain higher head count than we originally expected.
Now moving on to slide seven I'll provide an update on our debt position.
For the fourth quarter net.
That was approximately $30 million at quarter end, representing a $5 million decrease from September 30th.
The company had two convertible notes totaling one point $15 5 million that we paid off in December through a combination of borrowings under our revolver and the usage of cash.
In addition, we made a 2 million dollar annual repayment on our term debt in Italy at the end of the year.
He was confident the company will have the liquidity through cash and other credit lines open to meet our obligations and any others that are scheduled over the next 12 months.
And we remain in compliance with all of our debt covenants.
Company generated free cash flow of $5 million for the quarter. This was driven mainly from improvements in working capital and in particular related to inventories.
At the end of the fourth quarter, the company had available liquidity of approximately $29 million, including $17 million of cash.
Revolver availability at December 31, 2020 in the United States was $9 million.
With the outstanding revolver balance.
$12 6 million.
With that I will now turn the call back over to Steve.
Thanks, Joe Please turn to slide eight and let's turn our attention to our outlook for Q1 2021 we.
We continue to be challenged by the current COVID-19 situations globally we.
We have seen an uptick in some of our facilities in both the U S and in Europe, but we're also seeing several markets, taking a much stricter position to corn teens. Unfortunately, we cannot control what happens outside of our facilities. So our every effort today is on the safety of our team and their families. This will continue to be a challenge for us.
All of us in 2021.
Given our backlog strength, we should see a sequential growth in our revenues for 2021.
This will be driven by the European businesses until we can see some growth in the north American straight mass business that said, we still have significant opportunity to grow our business in North America with the Mac envelope products, which we have started to do already.
We are ramping up and although this is a good problem to have we still have challenges and availability of material commodity pricing volatility and we are working every day to mitigate these.
The importance of cash generation is critical and we will continue to drive free cash flow by reducing our working capital and improving the overall liquidity of the company are.
Our European operations are now generating positive cash flow and no longer a drag on our corporate cash needs, which is the first time since we acquired the business in 2015.
Let me summarize by saying this we have a positive outlook and we must continue to work diligently to maintain our focus and execution by continuing to take advantage of a large global market for articulating cranes, taking share through P M product sales and running our businesses efficiently.
Coming out of a 12 month period of contraction here in North America, we aggressively moved to take $4 million of cost out of our business and expect to see benefits from these actions and our financial results as we begin to scale up here in 2021.
It is projected that we will see a nice bounce in North American unit volumes. This year and we are hopeful that we'll see further improvement and certainly it's been reported that replacement cycles and an infrastructure bill here domestically could provide some additional tailwind for us.
Regardless of the cycle, we will continue to find additional opportunities to align our costs with our revenues so that we reach our margin targets.
And to remind everyone. Our executive team's incentive program is tied to the achievement of certain EBITDA dollars and margin goals and this is how we're managing the business.
Our ultimate goal as a company is to deliver 10% adjusted EBITDA to our shareholders and while we have some businesses that are very close to this goal we need to work on the remainder of the portfolio to deliver the necessary improvements in 2020 one.
With that operator could you. Please open the lines for the Q&A session.
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Our first question comes from Mike Schlitt ski with Colliers Securities. Please go ahead.
Good afternoon, guys. Good afternoon, Mike and Mike I was wondering if you can give us from a fishing as to what's driving the backlog in both straight masking any articulated is it construction utilities rentals or something else.
Well all of the above bike utilities I would say has always been pretty strong when you talk to customers that run utility fleets are they really haven't slowed down and being maintenance.
It continues to be a priority I think he knows transmission and distribution development. It also is an area of focus I would say the other area that is pretty strong right now as the tree trimming industry. So that's really on the knuckle side, where.
Where we're seeing a lot of demand for knuckle booms, because you can put us all on the end of the knuckle boom and tree trimming becomes a lot safer and easier to manage the other area for knuckled loans would be for me. So a lot of forming a is going on in for example, the Midwest area.
Also driving the knuckle boom business and that other straight mast.
Business, Mike I think it's you know non residential residential I think you know our dealers have done a really good job in managing their inventories and now they're in a place where they are replenishing to get ready for <unk>.
You know infrastructure demands in development that are that are going to happen I'm sure in the next couple of months and to be honest with you have already started.
So so I think those are kind of other areas you know we talked a about our government.
Deal that are that we also are delivering on and that obviously helps our backlog to a certain extent. So it's it's kind of across the board to be honest with you I'm on on all of our products, whether it's straight best cranes knuckle boom cranes are you know our aerials.
Truck mounted aerials out of out of Italy or are you almost doubling in revenue.
And they're doing a really really good job, we talked about valla and you know the electric crane.
Crane demand continues to be very buoyant right now so hopefully.
Hopefully that gives a little bit of color, Mike, but I think it's across the board.
And that's that's great color Steve.
I also wanted to turn to some of the some of the final points on your margin commentary.
You you've taken out quite a bit of cost.
Over the last couple of quarters and most of it will be fully baked in in 2020 one.
You seem to have.
Yeah.
I acknowledge that you've kind of get more get more profit out of the business. But then you're also talking about some other challenges on availability of materials and the cost of some raw materials can you give us a sense on a net.
Net basis do you see a chance for some decent expansion in your margins in 2021 zone.
Kind of a timing as to when that might start to show up I would appreciate it.
Sure.
Let me tackle the availability question and challenges that we're all having right now with supply and then I'll turn it over to Joe to just talk about margins and kind of how we see that progressing the rest of this year. So.
We've seen this movie before right we were in a cyclical business and you know my message to the team as you know keep calm and carry on a we've always had challenges as we ramp up and we're ramping up in most of our facilities and you know.
That's always going to be a challenge and what I would say is is that you know where we are on a day to day I'm involved are on many of suppliers, making sure that we can get delivery of components on time.
But I think we have a very strong supply chain team in place that are helping to address any issues that we have you know we talked a lot about steel right now and you know we don't have one steel supplier we have several steel suppliers. So if we do run into a jam you know we go in.
And opportunities to go other places and you know I think right now.
There are certain challenges, but you know those become opportunities you know at the end of the day. So right now there hasnt been any major line stoppages anywhere in the in the business.
But you know, it's it's a day to day.
Day to day fight to make sure that we get our components on time, and we will do that I mean at the end of the day, that's our that's our job and other nice thing is is that you know.
With a backlog at you know 80 plus million dollars, we're able to forecast a lot better to our supply chain to say look you know this is what we're gonna be a building in the second and third quarter of this year. So that's a that's a benefit that we haven't had in the past 12 months and I think that's a you know that's a benefit that will help us manage our pork.
Casting at our what we call our S. L P. Our sales and operations planning.
Process. So so that's all on kind of the availability of <unk>.
Our components and then you know on the margin side, Joe you want to take that.
Yeah, that's fine.
And the margins like you know where we're at about $18 seven for the fourth quarter we.
We talked about the growth in the backlog and much of that is coming from across all businesses, but a bigger bigger percentage of that is coming from P. M, which generally have higher margins. So as we look out into the next several quarters I.
I think we're looking at a slight upward trend in and what are what our gross margins will be.
Okay.
Anyway on order from me here.
For us on the progress you've made.
With.
Expansion into Asia, other with Teradata or just keep you on track.
Sure sure. So first of all I'll start with Toronto, I mean, very good work with the Toronto tea, but I would say.
As I've mentioned on several of our calls you know I mean, we went from doing a couple of hundred thousand dollars in revenue through the Toronto channel.
This year will be above a $1 billion or so is the plan a we're now into Asia, the middle East and the plan. This year is to expand into Australia with it.
Auto team.
So we'll continue to leverage that as much as possible, Mike and then yeah. I mean, we have our other dealers that are present not only in the middle East, but also in Asia through the P. M products and those businesses are going well and I would say you know the middle East with oil and gas was a was it a bit.
Down, but things have started to pick up with oil prices increasing.
Increasing in the Middle East is starting to come back for for Us on knuckle boom. So hopefully that gives you kind of a state of play.
Sure sure. Thanks, so much Steve I'll pass along.
It takes place.
Thank you. Your next question comes from Matt Koranda with Roth. Please go ahead.
Hi, guys.
From that kind of attacking all its Tom.
Talking about other gross margin I'm looking at the front quarter in your commentary kind of safe to assume a sequential jump there, but down year on year and just understanding that.
And as a higher mix of higher margin products, what's driving the sales from backlog.
Where can we see the gross margin or maybe another way to ask it.
See the mix of the backlog at least for you Sam.
Sure.
Joe you I mean at the end of the day you know, it's gonna have to start with the two.
I'll I'll put it that way and will start to trend towards <unk>.
20% margins is as we continue to shift to your point the portfolio because of higher margin products and you know it'll be a sequential shift, but it's not going to happen overnight, but I think you'll see us over the course of this year trend towards.
You know that 20% gross margin target Joe anything you want to add to that no I think that's right, Steve and you're right. It won't be I don't think we're expecting a big jump immediately but more of a gradual gradual growth in that as we work our way through the backlog.
Got it. Thank you really helpful and just opex side of things is it safe to say kind of like a seven 5 million per quarter on just SG&A as kind of a.
Third a number of the pull forward.
Yeah. Scott look are you know our SG&A today is about $30 million.
We don't need to add a lot of SG&A as we grow the company and obviously 2021 is gonna be a year of growth for US you know that there's obviously some variable expenses it'll settle change a bit but you know we were not going to have to add a lot of SG&A would be how it.
To answer the question then you know as you grow the revenues.
On the top line, we'll we'll continue to see that percentage go.
Go down so that's the objective that we have and I would say the other the other piece of the equation is as you know we continue to look at cost reductions and to see where we could save money.
2019, we did a restructuring program in Europe are up and that obviously benefited us in 2020 and it will benefit us. This year in 2020, we did restructuring program in North America. So that will also start to.
Help us as we grow in 2021, but I think you know Joel I think that numbers are.
Pretty good to kind of count on.
Joe.
Yeah, I think that's right, Steve I think that's pretty consistent with the with what we had in the past and I think what we're expecting so yeah I wouldn't I wouldn't change that.
Alright, Thanks, guys I'll jump back in the queue.
Sure. Thanks.
Once again, if he would like to ask a question. Please press star one on your telephone keypad.
Yes.
Thank you I will now turn the call over to Steve Silverpop for closing remarks.
Thank you Stacy and thank you everyone for your time today. We appreciate you you attention to Manitex and Oh my message to everyone. On the call is as were to continue to drive the Manitex business forward and move to grow our business globally, and we will do that profitably. So thank you all and be safe.
Out there thank you.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Okay.