Q2 2022 Manitex International Inc Earnings Call
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Good afternoon ladies and gentlemen and welcome to the Manatex International Inc. 2nd Quarter 2022 Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone keypad. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, today's conference is being recorded. I would now like to turn the conference over to Mr. Mike Coffey, Chief Executive Officer.
Please go ahead sir. Thank you operator. Good afternoon ladies and gentlemen and thank you for your interest in Manatex International.
We appreciate you taking time to join our call.
My name is Mike Coffey and with me today is Joe Doolin, our CFO , who will take you through the financial details of the second quarter, which we announced earlier today.
Following our prepared remarks, as is our custom, we will be happy to open the line for questions.
Please see our website for our release and other information, including a brief presentation for this call.
A telephone replay will be available for seven days.
And the slides we cover will also be available for the next year.
Slide two is our safe harbor statement which reminds you that everything we discuss is subject change as described in our SEC violence.
which you can refer to for further details on many risks.
associated with our company.
On today's call, we will focus on our second quarter 2022 results.
covering financial highlights.
our business performance,
margin trends and key drivers being leveraged for our shareholders.
This is the first earnings call including Rayburn Rental's financial results.
You may be aware that we acquired 70% of Rayburn rentals on the 11th of April 2022.
Rayburn rental's performance is right in line with what we anticipated.
supporting our goal to improve operating margins.
This is my second earnings call and with only four months with the company.
Allow me to offer a short, high-level introduction again.
I was appointed CEO in April to help the company improve its profitability and growth.
Since April we have identified areas for cost control.
efficiency improvement.
and collaboration between the Manatec operating entities.
I'm pleased to report that some of these changes are already showing results.
Others will take time to fully implement and realize their full potential.
I've spent most of the past four months getting acquainted with the company.
its employees, and our capabilities.
I've also had the fortune to meet many of our customers gaining their direct feedback in Outlook for 2022 and 2023.
The senior leadership, Joe and I, are making adjustments to our strategy to make a meaningful impact to the company's financial performance going forward.
Manatex has the enviable position of having a tremendous customer base.
with ample opportunities for growth and share in key markets.
together with our customers.
We are positioning ourselves for growth and have not moved from our stated goal to improve adjusted EBITDA performance above 10%.
The team is working hard and we are confident in our ability to improve both sales and operating margins.
So let's talk about the results.
The second quarter was highlighted by continued gains in both our sales and our backlog.
The company's adjusted EBITDA as a percentage of sales also improved meaningfully during the quarter.
as discussed in today's press release.
We are pleased with our progress.
on each of these fronts.
And we also believe that we are well positioned to continue to see improvements in these and other key performance indicators throughout the year.
Our Q2 results reflect Rayburn Rental's financial contribution since April 11.
We look forward to the positive impacts of Rayburn's contribution for the entirety of the third quarter and beyond.
Second quarter consolidated sales were up 16% year over year.
And our second quarter backlog closed at a record $214 million.
Despite inflationary pressures and supply chain challenges,
that are affecting our entire industry.
We were able to move our adjusted EBITDA margin up to 7.4% of sales.
Encouraged with these results, the team and I are accelerating efforts to attain our stated goal of double digits adjusted EBITDA performance.
Joe will speak to the specifics of our financial results in a few moments.
An operational review indicates Manatec's capacity to increase throughput at all sites.
This includes the already announced organic expansion of Rayburn rentals into the Lubbock, Texas market.
Despite consecutive quarter over quarter increases in manufacturing sales.
Our throughput capacity is heavily constrained by our supply chain.
Our suppliers have been impacted by the same inflationary pressures challenging every industrial and materials business.
This is impacted cost.
slow deliveries, and force the company to increase its working capital in response.
For example... All right, okay...
During the first six months of 2022, international shipping costs were three and a half to four times more expensive than prior years.
but also encumbered with delays and unreliable performance.
We are addressing the realities of the supply chain shortcomings.
by expanding the list of qualified suppliers.
and via price increases or surcharges where they're possible or reasonable.
In reality, as previously stated, it will take several quarters for us to see more stable supplier performance and cost structures.
The recent inflationary pressures and economic recession in the United States point to future softness in the market.
To date, however, we have not seen any marked impact to our customer sentiment, border variance, or changes in our customer outlook.
To the contrary,
Recent meetings with four large customers indicated 2023 order forecasts.
at similar levels to the orders obtained in 2022.
We have also not seen any order cancellations.
but we believe that it's only prudent that we prepare for the unknown.
We are working with our suppliers and our customers to that end.
I'll have more comments on that later, but for now I'd like to turn it over to Joe.
discuss our financial performance.
Joe?
Thanks, Mike. Good afternoon, everyone, and thank you for joining the call today.
Please turn to slide six in the presentation.
As Mike noted, this is our first financial report in which we were reporting consolidated results that include Raver and Reynolds performance.
The acquisition having closed in early April , as you may recall.
Revenue for the second quarter with $69.6 million, an increase of 16% versus the prior year period.
The improvement, which was also up sequentially from $60.4 million in the first quarter, was driven mainly by revenue from Rayburn rentals and an increase in sales of our straight mass trains in the United States.
These were partially offset by lower sales of articulated cranes from our Italian business driven by the lower euro.
Our backlog was a record 214 million as of June 30th, which is 92% higher than it was at the end of June 2021 and is up 13% since year end.
This reflects continued strong orders within the straight mass crane, articulated cranes, and aerial platform businesses.
Our straight mass crane backlog has increased 152% year over year.
Aerial work platforms have more than doubled year over year, while articulated cranes are up 50% since the prior year period.
Our book to bill ratio was 1.1 to 1 for the quarter, indicative of continued strength in our order pool.
Gross profit of $12.4 million is up 8% from the prior year.
The gross margin of 17.8% in the second quarter is the highest level we've had in a year and is trending as we had anticipated.
While we continue to see inflationary pressure and supply change challenges in the form of higher materials and logistics costs.
We have been extremely active in 2022 in addressing these increases with surcharges and pricing adjustments.
along with sourcing and efficiency gains.
Adjusted EBITDA increased to 5.2 million or 7.4% of sales for the second quarter of 22 versus Adjusted EBITDA of 4.2 million or 7.1% of sales in the second quarter last year.
and also represents sequential improvement of 290 basis points from Q1 of 22.
The improvement was largely due to Rayburn Rental's contribution to the results.
and higher profitability at Manatex cranes and oil and steel aerial work platforms.
We anticipate improved margins for manufacturing as well as the positive contributions of Rayburn KyCard Roman LCD
improvements to manufacturing margins could be offset by unforeseen inflationary impacts.
and therefore maybe slower, but will be said.
Please turn to slide 7 for a comparison of our operating results with the prior quarter and prior year.
Operating expenses as reported were $14 million for the quarter, inclusive of approximately $3.1 million in non-recurring acquisition and severance costs.
Adjusting for these and other one-time items.
Our non-GAAP or adjusted operating expenses were 10 million or 14.3 percent of sales.
a level that is in line with historical operating expenses.
The acquisition of Rayburn rentals contributed approximately $1 million of operating expenses for the second quarter.
Net loss for the quarter was $2.1 million, or $0.10 per share, compared with net income of $5.4 million, or $0.27 per share, in last year's Q2.
As I have mentioned previously, this quarter includes over $3 million in acquisition costs and severance charges, which reduced net earnings.
Last year's Q2 included a $3.7 million gain from the forgiveness of the PPP loan, which benefited
Adjusting for these and other items.
Adjusted net income for the quarter was $1.1 million, or $0.05 per share.
compared to $2.2 million, or $0.11 per share, in the prior year, and is up from $900,000 for the first quarter of 2022.
Net income for the quarter was driven by profitability from the Rayburn Rentals business and higher sales of straight mass cranes in the Manatec business.
Our profitability was impacted by material cost increases.
It's continued to rise and put pressure on operating margins.
despite price increases that we were able to implement.
Now moving to slide eight.
Next at the end of the quarter was 78.7 million.
up from prior periods due to the Rayburn acquisition.
The increase in debt was due to the use of $41 million in debt financing to acquire Rayburn and assume their debt obligations.
In addition, we have funded equipment purchases to expand the Raver business operations.
Our leverage ratio is approximately four times trailing 12 months adjusted proforma.
and the company has available liquidity of approximately $42 million, consisting of cash and availability in the U.S. and PM working capital facilities.
The team is confident that the company will have the necessary liquidity through cash and other credit lines to meet our obligations that are scheduled over the coming 12 months.
and we remain in compliance with all debt covenants.
With that, I will now turn the call back to Mike Coffey.
Thanks, Joe.
Please turn to slide 9.
I wanted to take a moment to summarize where things stand before we begin the time of Q&A.
We are pleased with how the year is progressing, our sales and backlog growth and steady progress toward attaining our margin targets.
As previously discussed, we are targeting revenues of $300 million and adjusted EBITA that reflects double digit performance.
We believe this is within reach.
Sales at Rayburn continue to improve with revenue growth of 13% in a quarter on a pro forma basis.
Rayburn's adjusted EBITDA is also meeting expectations.
contributing to our consolidated results.
Our expansion in Lubbock, Texas.
which includes a new operating facility, is on target. The site preparation and construction are underway, and we look forward to serving this market in early 2023.
We began the integration of Rayburn during the quarter.
This included strategic meetings with product design and engineering departments in Italy.
The meetings are producing valuable intelligence.
needed for us to address the market expansion of electric aerial work platforms and industrial cranes commonly used in the rental industry.
Both product lines are well suited for North American expansion.
and it is our intention to substantially grow our market share in the US and in Canada.
Access to Rayburn's team and their product feedback is proving valuable.
in helping us attain this goal.
Manatext remains committed to improving our overall financial performance.
The Rayburn acquisition directly reflects this commitment.
and this quarter's results post-acquisition are fulfilling this commitment.
Our focus on improved margins extends beyond our interest into the general construction rental industry.
We continue to address inflationary headwinds.
supply chain constraints, and material delays.
We are looking forward to closing out the year in a stronger company both operationally and financially.
I do want to caution that we will see some seasonality in Q3 results.
with the PM group having a few weeks off in August .
This is going to be mitigated by Rayburn, of course.
But it's important to note to our shareholders that we'll likely see some effects here
We look forward to reporting our progress on these initiatives as well as our goal to retain double-digit EBITDA performance in the coming quarters.
With that operator, could you please open up the lines for questions and answers.
Thank you. If you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a 3 tone prompt to acknowledge your request.
If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3.
And our first question is from the line of Koronda with Ross Capital. Please go ahead.
Hey, guys, it's my favorite on from that.
So backlog and implied bookings for the quarter look really strong. Maybe just speak to booking seasonality in the back half of the year and provide some color on where bookings stand quarter to date for Q3.
Well, thanks very much for the good question. So this is Mike Coffey. It's really, we had an order value through July , which was consistent in keeping pace with sales. So we haven't seen any change with regard to order behavior. To the contrary, Q3 is typically a light.
part of the year from an order standpoint.
just because of summer holidays and so forth, and generally it picks back up again in the fall. We haven't seen any changes at all in any deterioration in the backlog.
Got it. Very helpful. And I'm on Rayburn.
Last quarter we kind of highlighted that rental equipment is reserved almost immediately as it's available. Any change there or is is a are we still struggling to keep up with demand on the rental front?
Yeah, I'm actually calling you from Amarillo right now, where Rayburn is headquartered and we had meetings today with the team. There's quite a bit of demand. As a matter of fact, traditionally what the industry does to take up demand is we will temporarily re-rent a fleet.
from other customers and at this stage we have record levels of re-rental fleet filling those orders. So demand has been very, very good in both Amrillo and despite the fact that we don't have an operation open, a formal operation open in Lubbock, we do have a temporary operation there and we're beginning to build relationships with customers in Lubbock in light of opening our expansion early next year.
Got it.
Makes sense and apologies if I missed this earlier, but did you guys provide anything on Rayburn revenue contribution for the quarter?
I don't think it's formally outlined. Joe, can you respond to that or?
I was going to say, Mike, we didn't put the information into the presentation, but it will be in our 10Q. We're going to report segment information so you'll be able to see the contributions for Rayburn. Rayburn's revenue was just over $6 million for the quarter, and that's our portion since the date of acquisition. You can
Another way to look at that is manufacturing quarter over quarter grew about 6%. So most of the growth in the quarter was from Rayburn, which is understandable. But manufacturing grew about 6% quarter over quarter.
Got it. That's helpful. Thanks, guys. So, still on Rayburn, I know we've called out before December , January as kind of the stronger months, but maybe just touch on how we're thinking about expectations for revenue contribution in the back half of the year for Rayburn.
Well, we really don't see any changes. I mean, we're seeing rental growth month after month over the last four months, and we don't see that. It's not going to look right, just look.
I just want to clarify, you said December and January being the stronger.
December and January , because of the holidays and the winter construction season, those are typically light months from a rental standpoint, and then it picks up in
as the year progresses.
Okay, got it.
Appreciate the clarification there. And last one for me, in terms of chassis availability, I think this this earnings cycle we've seen a handful of companies kind of note that they're finally seeing some improved chassis flow through. Are we seeing the same? Maybe just provide some commentary on how chassis availability has kind of trended since last quarter.
It's definitely improved. The chassis availability has improved. We're seeing that with both our customers and the chassis we had on order for our order our book of orders. There's still some challenges with regard to that. The chassis have been held up not so much by scheduling and labor demand but held up based on internal suppliers and late deliveries.
But it has improved and we're anticipating that will continue to improve through the remainder of the year
Got it. Very helpful. That's all from me, guys. I'll hop back in the queue. Thank you.
All right, thank you very much.
And as a reminder, if anyone has any questions, you can press the 1 followed by the 4 on your telephone keypad.
And we.
Do have a question from the line of.
Rainer with Adirondack funds, please go ahead.
Can you just lay out a little bit of your goals for, you know, your goals or for, you know,
handling debt reduction and whatnot, like where you start seeing the business generating more cashflow and where do you, you know, what your.
I guess goals for leverage, you know, I think where you said four times, like what's your ultimate goal and when do you think you can get there?
Yeah, this is Mike Coffey. So let me answer that question with Joe. The categories for debt reduction are primarily gonna come through working capital efficiency. So in light of the supply chain challenges that we've had, the timing of orders and the amount of orders have had to address that. So we have more working capital to address the order bank.
than what is normal and that's an issue of timing.
So if normally you'd have three to four months of working capital in the category, we've had to add one or two additional months to address the production demands that we've had and address the backlog. We see that as an opportunity for us to improve the efficiency of working capital and have plans to do that through the remainder of this year.
We're seeing really good EBITDA generation and cash flow production from Rayburn. We see that as a positive and we see that as something that will occur through the next 12 months. As far as
gearing ratio target. We don't have a specific target that we're setting but we are very sensitive.
to paying down debt. Joe, do you have anything to add?