Q2 2021 Manitex International Inc Earnings Call
Greetings and welcome to the Manitex International second quarter 2021 results conference call. At this time all participants are in a listen only mode. A brief 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.
Reminder, this conference is being recorded it is now my pleasure to introduce your host Steve fairly tough Manitex International Chief Executive Officer. Thank you, Steve you may begin.
Yeah.
Thank you operator, good afternoon, ladies and gentlemen, and thank you for your continued interest in Manitex International.
Hope everyone is safe and healthy and we appreciate everyone, taking the time to listen to our call.
I'm, Steve sleep up CEO of Manitex International and with me today is Joe Dueling, our CFO, who will take you through the financial details of the second quarter update we announced today.
Following our prepared comments as is our custom we will open up the line for Q&A.
Please see our website for our release for replay instructions for this call.
A telephone replay will be available until August 10th 2021 and the slides we cover with audio broadcast or webcast will be available for 30 days.
Slide 2 is our safe Harbor statement, which reminds you that everything we discuss is subject to change and described in our SEC filings, which you can refer to for further details on the many risk factors associated with our company.
So please now let's begin on slide 3 and get started with our Q2 business update.
The global Manitex team delivered an excellent quarter and I want to thank everyone within the organization for executing our plan.
It was $60 million in revenue for the quarter and 7.1% adjusted EBITDA margin. It was our fourth consecutive quarter of significant improvement since last year's second quarter, which we experienced the peak impact of the global pandemic of COVID-19.
We're forging ahead towards our longer term goal of 10% adjusted EBITDA, which now seems to be within reach though there are some hurdles for for.
For us to overcome and factors not in our control, but we will get to later in the presentation.
Maintaining a sharp focus on the bottom line, we delivered adjusted net income of $2.2 billion or 11 cents per share with our business is ramping up production to meet higher demand.
I would add that our team did an excellent job procuring what we needed to meet our delivery schedules for our customers.
Product mix at Manitex and PM were favorable in the quarter as we sold more higher tonnage cranes at Manitex straight mast.
Orders globally remains strong and we finished the quarter with a backlog of $111 million, which is a 5 year high net up nearly 65 per cent since the end of 2020.
Consequently.
We have good visibility as to how the back half of that you will look and we anticipate higher production and continued strong sales in the second half of 2021 and beyond.
Looking at how the business has changed in 2019, we're now seeing the benefits from our multi year strategic plan that we developed for Manitex.
We've dramatically improved our European businesses from higher market penetration and sales growth margin expansion from sourcing facility and other operational improvements and new product introductions are also now contributing to the growth in knuckle boom aerial work platforms and valid range.
For those of you that had been long time holders you are likely aware that we are no longer in the tank business the trailer business, nor anything that isn't crane or lifting related.
While we're pleased with the consistent progress we've made in particular, particularly our earnings of over $2 million in the quarter.
To be clear that there is still some hurdles to overcome as I briefly mentioned earlier with respect to supply chain.
We continue to see lead times lengthening due to material availability, such as steel and some difficulties in procuring hydraulic systems and truck chassis.
So while our teams that they have done an excellent job in doing what it takes to get our products built on time and deliver to our customers who would have to say that the supply chain poses a risk to our results in the next few quarters.
The demand picture is bright, but the readout reality tells us that there could be some volatility in the near term until the supply chain bottlenecks are worked out as more production comes online.
Joel discussed discuss further our balance sheet improvements, but I would comment that 1 of our significant cash flow improvements has been the shift of the PM group being a consistent cash user since the acquisition in 2015 to a strong net cash contributor in 'twenty 'twenty 1.
Please turn to slide 4.
All of our businesses showed improvement in the quarter. So let me start with the commentary on the PM group.
As I've stated in the past the global knuckle boom market is growing at today the market is over 50000 units globally.
The work, we've been doing to improve our product quality improve our production efficiency and launch new and innovative products is taking hold and we're getting share in several markets.
We have more to do here, but given that we're a small player in most markets. We have the opportunity to grow further in the first in the coming years.
Our leadership in the straight mast market has always been the foundation of Manitex and following a difficult market in 2020, we're now seeing.
Market improvement and share gains across all of our North American market.
I would add that our north American knuckle boom. Max strategy has also started to gain traction and we have started to deliver several large knuckle boom customers.
In the year and having have good prospects for 2022.
The team at oil and steel aerials is making excellent progress and continues to ramp up to meet the band for aerial equipment.
We have made good progress in several of our core markets, like Italy, Spain, France, and Germany, with the rental utility and distribution distribution channels, all showing positive signs of improvement for the rest of the 'twenty 'twenty 1.
Value remains our diamond in the rough that we're investing in this business to support the shift to zero emission cranes, we have signed up several new dealers in Italy, and increasing our visibility to larger crane rental companies in the U S.
Our onsite product demonstrations and rentals.
We also attended a trade show in France in June and displayed several new products that our order intake continues to be very strong for our valla cranes.
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.
I'd like to start by discussing our net income for the quarter.
Our second quarter net income was $5.4 million and included the benefit of a $3.7 million dollar loan forgiveness of our paycheck protection program loan.
Excluding this and other onetime items, our net income as adjusted was $2.2 million or <unk> 11 per share.
This is a significant improvement from Q1's net losses 0.1 million 4.1 cents per share adjusted.
The improvement was driven by higher gross margin of $2.6 million due to increased sales of nearly $13 million.
Slides 5 and 6 from the presentation reflect our financial performance for the quarter.
Trends from the most recent quarters.
Please turn to slide 5 and I'll address my comments from this slide.
Our revenues for the quarter were $60 million, an increase of $12.8 million or 27% compared to the $47.2 million for the first quarter of 2021.
The increase was driven mainly by higher sales of straight mast cranes in our manifest business.
Knuckle cranes and R. P M business and aerial platforms in our oil and steel business.
Our gross margin was $11.4 million or $2.6 million higher than Q1, driven by the increased sales that I just mentioned.
The gross margin percentage improved to 19, 1% of sales for the quarter or 0.4% improvement over Q1 and continues to trend towards our target of 20%.
The higher gross margin was driven by the sales mix of our Manitex business unit, which sold higher tonnage cranes in Q2 than in Q1.
The higher tonnage cranes typically generate a larger gross margin.
Also increased sales of our knuckle cranes and R. P. M business contributed to the higher gross margin for the quarter.
As you can see from the chart. Our gross margin continues to trend higher that's P. M sales represent a growing portion of our total revenue and sales mix in the U S reflected higher tonnage cranes.
As Steve mentioned and as has been noted throughout the industry supply chain challenges such as increasing steel costs and chassis availability are situations that need to be monitored and we are doing that.
Our global purchasing sales and manufacturing teams are all doing an excellent job of managing through this environment as capacity starts to build again.
Operating expenses were $8.9 million for the quarter up slightly from Q1, driven mainly by increased incentive compensation.
Operating expenses as a percentage of sales declined significantly from $18.1 per cent in Q1 of 14, 8% in Q2.
We were able to leverage our existing expense base supporting increased revenue for the quarter.
We will continue to take action to maintain prudent expense control and strive to lower SG&A as a percentage of sales and our operating model.
Yeah.
Adjusted EBITDA was $4.2 million or 7.1% of sales for the quarter.
This is more than double our adjusted EBITDA $1.9 million for Q1 and is an increase from the 3.9 percentage of sales for Q1.
The increase was driven by higher sales in our straight mast crane and knuckle boom businesses.
Just that EBITDA percentage reflects the fourth consecutive quarter of margin improvement as Steve has mentioned.
Our backlog was $111.2 million as of June 30th which is a 5 year high and represents a 33% increase compared to Q1 and nearly a 64 per cent increase from year end.
This increase was driven by higher orders in the straight mast crane knuckle cranes and aerial platform businesses.
Straight mast Crane backlog has increased 60% since Q1.
Knuckle Crane orders have increased by nearly 33% from Q1 and backlog for the aerial work platforms has increased by 12% from the first quarter.
Now moving to slide 7 I'll talk a little bit of a net debt update for Q2.
Our net debt was $25.4 million at quarter end, representing a $5.7 billion dollar improvement from year end.
The improvement was driven by strong free cash flow of over $9 million for the quarter.
And led to a higher cash balance and decline in short term financing at our international locations.
Our leverage ratio improved to less than 3 times as of June 30.
At June 30 quarter. The company had available liquidity of approximately 37 million, which consisted of $17.4 million of cash $12.6 million availability on our revolver and $7 million and working capital facilities.
The team is confident that 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.
We remain in compliance with all debt covenants.
With that I'll now turn the call back over to Steve.
Thanks, Joe Please turn to slide 8 please.
We feel confident about the improvement in our end markets and we're staying close to our customers to understand how we can continue to meet and exceed their needs and be their preferred provider of lifting in access equipment.
While our outlook remains positive for the rest of the <unk> 2021 at $110 million backlog supports continued improvements.
We have to balance our expectations given supply chain challenges and European seasonal facility closures in Q3.
Our strong balance sheet and liquidity liquidity will enable us to support our global production ramp up and we have more opportunity to improve our working capital ratios for the rest of the year and generate further cash generation in the back half of the year.
In summary, we were building a larger and more global manitex for the longer term and with the support of our customers our suppliers and our shareholders.
We see a much brighter future ahead of us.
We're going to be cautious on the outlook here given the shortages on supply chain.
Our strong backlog is moving us towards our longer term goals and we have said, we ought to be a company with $300 billion in sales and 10% EBITDA margins. However.
The reality is that we expect to see some lumpiness given the the global environment, which is beyond our control and that said, we're forging ahead with a better backlog balance sheet margins and forward looking sales forecasts that we've not had in quite some time.
With that operator could you. Please open up the lines for the Q&A session.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star 1 on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star 2 if he would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick up.
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Our first question comes from the line of Matt <unk>.
With Ross Roth Capital Partners. Please proceed with your question.
Hey, guys. Thanks for taking the questions and nice job on the bookings this quarter they looked really solid.
Wanted to see if you could maybe discuss any notable trends there.
Bookings this quarter.
Maybe just maybe you could threaten you know some some thoughts on the cadence of bookings by month during the quarter.
Product mix it did sound like a straight mass is pretty strong and then just any end market drivers that youre seeing that when you talk to your dealers that may be sort of driving some of that product mix that you're seeing in the backlog.
Maybe specifically if you could talk a little bit about maybe energy versus kind of general construction in the straight mast side of the backlog would be helpful.
Sure Yeah, you bet. Thanks for the question appreciate it.
I would start by saying that you know across the board we've seen good trends on orders.
And most significantly as you mentioned you know the straight mast market has accelerated really since Q1 of this year. So I think the biggest shift has really been a been there.
Oh booms has been pretty steady and pretty constant which is good news for us and looking forward through the rest of the year I feel pretty good about the knuckle boom business I would say the aerials.
And Europe is the other 1 that continues to perform.
Very well and I mentioned some of the markets that.
We're performing well, Italy, Spain, UK, Italy, obviously, so we're seeing good good growth there.
And then <unk> was obviously the other piece that we see significant growth. So I think from a product portfolio.
Really across the board, we're seeing a nice order intake and pick up in demand there.
If I take a shift then go through some of the markets, Matt I'd say given the mobile business is now our larger business Europe.
Kind of driving the growth there and as we've mentioned in the past a lot of that is driven by the stimulus that's going into infrastructure utilities, just general construction demand. So that's obviously, helping that piece of it I think when you look at North America.
The straight mast market.
Just coming off of a very low base and.
Our dealers are customers or or getting more demand from the product from a pretty difficult 2020, when it comes to when it comes from the straight mast market and then.
We've got a couple of areas that surprisingly there being you know very well you know, Chile, obviously with commodity demand that has you know almost a almost doubled their and we haven't.
So a little easier that does installation of knuckle booms.
That's been a very strong I think.
When you look at also our Max strategy in North America on the knuckle booms, that's starting to get some more traction I mentioned you know.
Getting into a couple of new customers that have had that have had competitive knuckle booms.
And that's also been I think a significant piece of it so.
I'd just say in summary that it's it's it's it still seems like our products are in are in high demand and end right now.
With $111 million backlog sitting here at the beginning of August I think we feel pretty good about about the rest of the year.
That's great Okay.
And then I know you mentioned.
Certain components that are relatively tight in the supply chain, but I'm curious what.
What are you currently quoting to dealers in terms of just order to delivery cycles. What are your current lead times and help those have been impacted given some of the supply chain challenges.
That'd be helpful to kind of hero book are about.
Okay, So Matt I'm going to be.
You know as transparent as I can obviously, you get a whole lot of our competitors listen to these calls so.
I don't want to get down to the month, where we see current deliveries, but you know our lead times.
Given the different product portfolios are still I think within.
Normal demand.
You know the the knuckle boom business has a higher volume product.
Product.
And and the throughput there is a lot higher than for example, the street mass market.
A little longer lead times because of obviously, you know chassis demand and all of that and I'll talk about that in a moment, but I think in general our lead times right now are not too bad in comparison with our competitors and at the end of the day you know our customers are our customers demand and when.
They need product on the constraints.
What I'd say.
We mentioned this in the prepared remarks, but I'll.
I'll go a little bit deeper into the detail steel I would say is getting a bit better. When we spoke you know the first quarter of this year. There was you know a lot of gaps to be honest with you with steel I think that's normalizing itself that could change obviously, but right now.
I think the team's done a really good job to get better forecasting out there to our steel suppliers hydraulics.
Valve blocks those types of things continues to be a bit of a challenge, but I can tell you that we had our team in 1 of our valve suppliers yesterday going through in person the detail around what are we going to get our our valve blocks and we're adjusting our production schedule.
So kind of neat what they can deliver to us. So I think at the end of the day.
We have to work together on this we need to work with our customers our suppliers and obviously you know the the production teams will be able to deliver products. So we work at all that the biggest issue we have today to be honest with you as truck chassis, mainly in North America I don't think that's a secret from anyone that listens to.
<unk>.
The industrial space that continues to be a challenge for us and.
We're working on it but it but it's you know it's not it's not easy and I think that's why we're being a little bit more cautious on the north American business because of the lift that chassis.
Supplies, so that's probably.
The largest issue that we have I think per day.
Okay. That's helpful.
And then lastly, I guess I wanted I wondered if you could talk a little bit about price cost and just I mean given.
Some of the extended lead times and component availability challenges I assume you may have some excess freight.
Some other additional costs associated with that so what's the pricing environment look like are you able to capture.
At least a portion of that that increase in cost and pass it on maybe you could sell a little about that.
Okay sure, Matt I think you know on the price side and I'll.
Start and turn it over to John maybe to make some commentary looking forward a bit but you know I mean at the end of the day. Our objective is to offset you know.
Any of those input.
Input costs to our customers and to be honest with you we're being transparent with our customers I think our customers understand where we're coming from.
And then we're working with our suppliers the pushback on an as much of those costs as we can so at the end of the day, we're trying to balance.
All of that but I think that.
The team is doing the best job they can I think our supply or our customers.
Or an understanding of that and we're going to pass those costs on it at the other day.
That's our net objective now you know I think that given to your point the inefficiencies those are you know.
Further challenges that we have I think going forward.
With Recalibrating some of our production schedules in various facilities, but we'll get through it I mean again I think you know Q2 is a.
Good demonstration of what we're capable of in a tough environment. I mean, you know all of those constraints existed in Q2, and we worked through as many of those as we can and I think at the end of the day, we continue to you know to.
Do that but you know Joe you want to comment anything else kind of on the pricing dynamic and what we're trying to do there.
Yeah, the only thing I would I would add to it Steve as you know we have regular calls with the team to talk about pricing talk about costs and we'd like to push through as much of the cost increases as we can to try to maintain the margins that we have you know we've been targeting the increase in margins and the costs.
Passed along to US obviously are eating into that and we're doing what we can to try to maintain the gross margins that we have but we know there's a there's a little bit of a hit that that's happening there, but we're doing everything we can to minimize it.
Okay, and then just to tie it all up in a nice little neat bow here, but does that mean, we hold serve on the gross margin from relative to <unk> levels.
We shouldn't necessarily count on huge margin expansion in the back half of the year or can we see a little bit of additional margin expansion just given the backlog strong mix looks pretty solid. So you still get some fixed cost absorption, but that should help you a little bit.
Yeah, I think a good joke gotcha gotcha.
I was just going to say and I'll turn it over to Joe I mean, you know that what we have in front of US. Obviously is the supply chain headwinds you know that could potentially impact. Some you know the margin we've got the seasonal shutdowns in Europe, you know for a couple of weeks, obviously, there's going to be some impact day remember.
<unk> you know the knuckle boom the aerial business those are all performing very well. So we're going to have to deal with a couple of weeks shutdown in Q3.
And I think that's those are the headwinds that we have and.
We just want to be conservative kind of looking forward, but we're not we're not taking our eye off of the objective of getting north of 20% margins and you know I think you see also the SG&A then were keeping.
At a relatively low level and we don't again, we don't need to add a lot of SG&A.
To get the growth that we did just look you know between Q1 and Q2 you know the revenue growth. There we didn't add a lot of a lot of cost to be able to do that but Joe you want to add.
No I was going to say, Steve you pretty much touched on everything I was I was going to mention you know the seasonality. We know that that's got an impact in Q3 and you're right on the SG&A.
You know the expense base, we really don't need to add anything to cover increased revenue. So as long as as long as we can drive the revenue up you know, we're not going to be adding expenses too.
To cover that.
Okay. That's it from me guys I'll jump back in queue. Thanks.
Thank you Matt.
Thank you. Our next question comes from the line of Mark Jordan with Twins Capital. Please proceed with your question.
Okay. Thanks very much.
Gentlemen, it was great to see sales in the $60 million range and some real net income in Q2 report.
The gross margin moving really shows some progress there as well I have 2 questions related to the supply chain, which you mentioned earlier on the call and.
Which macro Rhonda spoke to a bit.
So perhaps you can elaborate a little bit more and touch on some other areas within that.
So 2 part question here is what if anything is within your control in terms of component availability.
And in connection with your efforts here, how did you folks navigate this type of situation or when you were at <unk> and your previous position that's with respect to how this may play out and whether we can maintain a nice growth trajectory that we're on.
Sure Mark Thanks for the question I appreciate it.
I'll start with really the constraints and how we're working through those so obviously, we do have some vertical integration will we make are in several from our facilities in our own booms, our own chassis our own columns so with.
With the availability of steel and the vertical integration that obviously helps us helps us get there but.
But remember the business model.
As you know, we buy 70 per cent of what we build so there's a lot of work on supply chain I think that the team has done a really good job.
In the past 12 months too.
Work on our not having single sourced components are finding alternatives trying finding low cost alternatives in other places and I think that's helped us.
So far so those are when I mentioned, mark the strategic things that we worked on I mean, you know.
A lot of that we've done really in 2020, and that's been a benefit.
I think look at the end of the day. This is daily management and the comment I had about well hydraulic supplier ones 1 of yesterday and last week. There was you know a couple of other ones and you know I think we were addressing them as best we can and we're working with our suppliers.
Just to make sure that we can meet our demand you know, there's obviously things you can do on the production floor.
To where you can pull when we say you don't pull things off into the hospital.
Got to work on those products as the components come in we're obviously doing all of those things to be able to not shut down any of our facilities and I would say that.
We have not had any facility shutdowns up to now are with any supply chain shortages. We've obviously had to shift production from different lines as material availability comes up but.
I feel pretty confident that we're doing everything we can to manage to manage through those and.
On your comment about my past experience and those are a lot of the planes that.
We're working on to be able.
You know to improve and true improve our production turns.
Yeah.
I'd venture to say that your.
Logistics channel procurement and planning group.
Are doing phenomenal work.
Because I know, it's tough out there.
And it really it's hard it's hard it's hard for sure work, but you know those are the things we gotta do in and we'll get that done yeah. It's not you know on the surface zone. So behind the scenes. There are some people that are working very very hard at manitex.
Yeah.
Well, we appreciate that it's our investments and.
Looking at the company that people want to stick with would.
Would you acquire or make a strategic investment in 1 of your key suppliers. If it if it came down to it is there.
As your operations presently strong enough to support an acquisition and if so what would you want to acquire assuming you do.
Come to the inappropriate financing.
Sure Mark Yeah, right now I don't see.
Our need to buy you know supplier I mean, most of our suppliers are doing well, they're financially solid they're trying to ramp up as much as much as we can as they can you know to supply us and obviously other or their suppliers, but there's nothing that I.
I'd say.
Right now that we need to we need to look at Barb I think look the company is.
Is financially strong and if we had to given our balance sheet, we could but that's not something that we need to we need to do today and I mentioned, a little bit the vertical integration that we have I mean remember.
Knuckle boom business, that's produced in Italy, we actually have a facility in Romania net does all of the welding of many of our components and that has helped us.
Quite a bit to get the ramp up because we're not.
You know single source to to any certain suppliers. So I'd say, that's kind of helped us there.
Like our own booms and in Georgetown, Texas, and I think that's helped US again as we get the steel. So there's nothing that I would say is imminent in front of a smart and we need to deal with from a supply chain perspective.
Sounds good alright, thanks for taking my questions and let's continue the great work.
Thank you very much Mark I appreciate it.
Yeah.
This does conclude the question and answer session I'd like to turn the floor back over to management for closing comments.
Thank you operator, and thank you for your time of day in and your interest in Manitex I think.
We feel good about our progress in continuing to grow manitex into a larger and more global lifting business. Please reach out to Peter Joe or myself for any follow up questions and with that we'll end the call and thank you operator for your help we appreciate it.
Thank you everybody be safe.
This does conclude today's teleconference. You may disconnect. Your lines now. Thank you for your participation and have a wonderful day.