Q2 2023 Manitex International Inc Earnings Call
Greetings and welcome to the money Pax International second quarter 2023.
<unk> conference call at this time, all participants are in a listen only mode.
If anyone should require operator assistance during the conference please spreads as far as zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. Full Barclays you may begin.
Yeah.
Thank you good morning, everyone and welcome to manifest International's second quarter 2023 results conference call.
Leading the call today are CEO , Michael coffee and CFO Joseph doing.
We issued a press release earlier today detailing our second quarter operational and financial results.
This release together with accompanying presentation materials are publicly available in the Investor Relations section of our corporate website at Www Dot Manitex International Dotcom.
I would like to remind you that management's commentary and responses to questions on today's conference call May include forward looking statements.
Which by their nature are uncertain and outside of the company's control.
Although these forward looking statements are based on management's current expectations and beliefs actual results could differ materially.
For a discussion of some of the factors that could cause actual results to differ please refer to the risk factors section of our latest filings with the SEC.
Additionally, please note that you can find reconciliations of historical non-GAAP financial measures in the press release issued earlier today and in the appendix of this presentation.
Today's call will begin with prepared remarks from CEO , Michael Coffey, who will provide a review of our recent business performance, including an update on the progress we have made on our new elevating excellence initiative.
All of them by a financial update and outlook for our CFO just doing.
At the conclusion of these prepared remarks, we will open the line for your questions with that I'll turn the call turn the call over to Mike.
Thank you Paul and good morning to everyone joining us on the call today.
Please turn your attention to page three of our presentation, where we will begin with a discussion of our second quarter results.
Our team delivered another quarter of strong financial performance highlighted by.
Solid organic growth in both lifting equipment rental.
<unk> margin expansion and.
And further execution against our elevating excellent value creation initiatives.
Demand is trending favorably across key end market contributing.
Contributing to continued new order momentum in the second quarter.
With backlog increasing above prior the prior year level.
While backlog growth did declined modestly from the first quarter.
This is largely due to the timing of orders and improved manufacturing output.
Second quarter revenue increased 6% versus last year.
Driven by organic growth in both lifting in rentals.
As was the case last quarter.
Second quarter revenue was impacted by a decline in pass through sales of truck chassis.
This is however, a positive indicator of our overall improved manufacturing output.
While eating our overall margins.
Lower chassis sale will continue through the remainder of the year.
Which will benefit gross margin as a result give.
Given the low generated margin on these sales.
Demand for lifting equipment products has remained strong in both North America and Europe .
Largely driven.
I can't market such as infrastructure.
Energy <unk>.
Electrical distribution and general construction.
Much of the new order intake is believed to be directly or indirectly related to increased infrastructure and energy related activity.
Our rental segment reported another strong result, during the second quarter, including the contributions from our recently opened branch in Lubbock, Texas.
This brings our total branch count to four location.
And now gives us access to a larger customer base and larger market.
Construction activity in North, Texas remains robust.
Driven by strong backlog of infrastructure.
Commercial and industrial products projects that are bolstering demand.
Our fleet of specialty rental focused equipment.
During the second quarter, we progressed on our productivity and efficiency initiatives.
This is evidenced by our year over year margin improvement.
Critical progress.
It was made.
Throughput efficiency.
Particularly at our Italian operations.
And strong margin realization in our rental business.
Wherever you are already seeing efficiency gains from our new ERP system.
In North America manufacturing process improvement initiatives remain on schedule.
These efforts however were hampered by a lingering supply chain headwinds during the quarter.
We're working hard to improve our manufacturing throughput in North America.
And we expect improved results in the coming quarters.
Despite these challenges our second quarter gross margin was 23% up 250 basis points from the second quarter last year.
Our gross margin did decline sequentially.
However, this was largely a result of an impact of higher steel prices.
Which were up nearly 30% in the early part of the year.
We have put in place product surcharges to offset these costs and have also implemented price increases on new orders, which will begin to benefit gross margin in the back half of the year.
As announced today, we reported second quarter EBITDA of $6 $8 million.
Which is up 32% from last year.
Bringing our trailing 12 month adjusted EBITDA to a run rate of more than 26 million annually.
This reflects a $16 million adjusted EBITDA improvement over the prior 12 month period.
Our second quarter EBITDA margin of nine 3% was up 180 basis points.
Last year.
We remain encouraged by the progress on our operating efficiency initiatives.
And remain confident.
305 hundred basis points of EBITDA margin improvement by 2025.
Demand trends continue to be supportive of our lifting equipment products.
And customer sentiment remains positive.
Our dealers are experiencing impacts of higher interest rates and associated operating costs, yet report record high fleet utilization.
And high customer demand.
North American construction is strengthening due to the stimulus dollars from the infrastructure investment and jobs Act.
The broader energy sector. In this area is a strength for manitex and should be important positive driver for our business going forward.
And in Energy Research group at Princeton estimates that domestic electricity demand will increase by nearly 40% by the year 2035.
This is due in large part to the increase penetration of electric vehicles.
Many believe this will put a strain on our Nash and Nash.
National aged electric grid.
The California Public Utilities Commission estimates that California alone.
Spend 50 billion U S dollars by 2035 and distribution upgrades to meet current EV targets.
This should result in continued strength in electrical transmission and distribution markets for years to come.
<unk> products are ideally suited to support the upgrade of our nation's electric grid.
We are also fortunate to have just released the S E electric Crane boom truck product enhancement.
Spec to be favored by electric electric transmission and distribution contractors.
European Union Unbilled infrastructure investment strategy aimed at investing 300 billion euros by 2027.
Of which 135 million euros slated for infrastructure projects.
We also continue to see benefits from the global demand for minerals such as copper.
Driving capital goods spend in mining maintenance activities.
In markets in South America.
While we are not immune to macroeconomic forces.
We remain encouraged by our favorable demand tailwind across the globe for our products.
Overall, our backlog ended the quarter at $223 million with 56% slated for North American sales and 44% slated for international sales.
Last quarter, we unveiled our new strategy called elevating excellence.
This is a multiyear business transformation initiative designed to drive targeted commercial expansion.
Sustained productivity improvements across the organization.
As a reminder.
Elevating excellence is focused on targeted commercial expansion.
Sustained operational excellence.
And disciplined capital allocation.
An overview of elevating excellence can be found on pages four through seven of our presentation.
I would like to highlight some of the progress we've made against these key initiatives during the second quarter.
Firstly, let's have a look at our commercial growth strategy.
A key component of our targeted commercial expansion strategy is market share growth.
As we focus on leveraging our leadership in straight mast crane to grow articulated crane industrial lifting and aerial work platform sale through North America.
An important driver of this initiative.
One critical to our overall strategy.
Is the support and partnership of our dealership network.
One of these dealers is E. P M equipment of Hopkins, Minnesota, which recently joined man attack as a new dealer one year ago.
A b M provide lifting solutions to customers in Minnesota.
And the upper Midwest.
They specialize in general construction support as well as wind energy generation construction project.
A b M has quickly made significant investments in our product, including an order for 10 50 ton truck mounted cranes.
Manitex looks forward to continuing and its partnership with a b M and other dealers to execute on this commercial growth strategy.
I'd like to take a moment to recognize the importance of our dealer partners.
Other manufacturers in our industry have implemented go direct strategy.
We are taking a different approach seeking to support strong local levels of service.
In support and leverage the trust and customer experience our dealership built over decades.
We arent selling a product that.
That can be repaired and maintained with a flash update over the internet.
And we are grateful for the expertise and.
Care and local commitment of our dealer partners.
The second part of our strategy centers on enhancing our operating performance.
The management team has delivered year over year improvements in all five quarters.
We are proud of the significant progress made addressing operational improvement.
Of our transformation and there remains considerable opportunities for further improvement.
We recently committed the upgrade of our ERP systems with the installation of our new manufacturing ERP system for our European businesses.
The investments were made to enable our ability to scale the business.
Help us attain the margin improvements we are targeting.
The third and final initiative of our plan as they focus on disciplined capital allocation.
As we have discussed in 2023.
Our capital allocation will continue to prioritize debt reduction.
Select investments in organic growth and.
And maintenance capital to support our existing operations.
Our short term goal is to lower our net leverage ratio below three times.
We made further progress during the second quarter driven by our strong operating results.
With our net leverage ratio declining to three three times as of June 30th.
I don't from three nine times at year end.
We expect our strong operating results and working capital focus.
In the back half.
The year to allow us to drive leverage towards our target.
As part of our elevating excellence strategy, we introduced three year financial targets that reflect our confidence in the underlying strength.
Our end markets, coupled with our commercial and operational benefits.
We expect to generate through our strategic initiatives.
These objectives can be found on page eight of our presentation.
Well, there's a lot of hard work left to do we.
We believe we remain on the right track to achieve these targets.
Before I turn the call over to Joe allow me to provide a few concluding remarks.
And our outlook for 2023.
Customer demand has remained strong through July and the team continues to make meaningful progress on our strategic initiatives.
Our priorities for 2023 remain focused on putting the processes and systems in place to build a platform for growth, while reducing our financial leverage through improved operating performance and debt reduction.
Given our solid first half results favorable end market trends.
And sustained margin improvements, we believe manitex is on track to deliver low double digit adjusted EBITDA growth in 2023.
I will now turn it over to Joe for a detailed review of our results.
Thank you, Mike and good morning, everyone I will provide some additional details on the quarter give an update on our liquidity and balance sheet.
Turning to slide 11.
Net revenue for the second quarter of 2023 was $73 5 million up five 7% compared to the same period last year.
Driven by contributions from the Rayburn rentals acquisition, which was completed in April of 'twenty two.
Along with growth in our lifting equipment business.
Second quarter revenue growth was negatively impacted by a decline of $2 6 million or approximately 4% of lower truck chassis sales, which are largely pass through revenue items.
We expect full year 2023 chassis sales to decline relative to last year, which will be a headwind to reported sales growth.
Will benefit the gross margin percentage for the full year of 'twenty three.
As I just discussed lower truck chassis sales impacted second quarter results.
Lifting equipment segment revenue would have increased nearly 9% excluding the chassis sales.
Lifting equipment revenue growth was driven by improving demand trends in international markets coupled with.
Improved throughput and manufacturing facilities.
Rental equipment segment revenue was $7 3 million in the second quarter of 'twenty three supported by strong end market demand in key north, Texas markets, including a full quarter of contribution from our Lubbock, Texas location, which opened in March of 'twenty three.
Momentum is continuing to build from expansion of the Lubbock facility and volumes have been strong in recent months.
The rental business benefited from the deployment of new rental fleet acquired in 2022 and market share gains and its Texas market.
As of June 23 backlog was $223 2 million up four 4% from a year ago, driven by continued favorable trends in key end markets in North America.
Backlog in our U S based straight mast Crane business was up 12% from the prior year.
While backlog for articulated cranes increased 9%.
Our backlog did decline from the first quarter, largely reflecting the increased manufacturing throughput, Mike discussed as well as order timing.
Gross profit was $14 $9 million during the second quarter of 23 up from $12 4 million during the prior year period or an increase of 21%.
The increase in gross profit was a result of contributions from raber organic growth in both rental and lifting equipment as.
As well as benefits from our operational improvement initiatives.
As a result of these factors gross profit margin increased 250 basis points to 23% during the second quarter.
As Mike discussed rising steel prices were a headwind during the quarter and contributed to a sequential decline in gross profit margin from the first quarter.
We have successfully implemented surcharges and price increases on new orders and expect these measures to benefit gross margins in the coming quarters.
SG&A expense for the second quarter of 'twenty, three was $10 8 million compared to $11 4 million for the comparable period last year.
The decrease was primarily a result of some one time costs incurred last year related to the rayburn transaction and restructuring activities.
R&D expense was <unk> 8 million during the second quarter up modestly from <unk> 7 million during the same period last year.
Operating income was $3 3 million during the second quarter compared to a loss of $1 7 million for the same period last year.
Operating margin in the second quarter of 'twenty three was four 5%.
Organic revenue growth in both segments and our improved gross profit margin. In addition to the one time costs incurred last year.
Adjusted EBITDA was $6 8 million for the second quarter or nine 3% of sales compared to $5 2 million or seven 4% of sales for the same period last year.
Net income was <unk> 5 million or two cents per diluted share for the second quarter compared to a net loss of $2 1 million or 10 cents per diluted share for the same period last year.
Now turning to our balance sheet on slide 12.
As of June 30th net debt was $87 8 million, which is up from the end of the first quarter due to normal seasonal working capital uses and some modest inventory inventory growth in Italy due to the recent ERP system migration.
Third to three nine times at the end of the fourth quarter of 'twenty two.
As of June 30th.
As Mike detailed we remain confident in our ability to achieve our targeted EBITDA growth in the low double digit range during 2023.
Compared to the $21 3 million in adjusted EBITDA, We reported in 2022.
Our target is supported by continued new order momentum.
Has them on end market trends.
As well as expected margin improvements, resulting from our elevating excellence initiatives.
That completes our prepared remarks, operator, we are now ready for the question and answer portion of our call.
Thank you well now be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is another question in queue.
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Our first question.
From Matt Koranda Roth capital.
Capital partners.
Hey, guys good morning.
Just wanted to touch on the new order a commentary that you talked about in the prepared remarks, I think you said.
Down year over year in the second quarter, but then you saw some larger orders come through after the quarter ended but I assume that would be sort of in the July timeframe, maybe could you discuss the seasonality of order flow. This year and just what you saw after the quarter close in terms of bookings.
Yeah, Hey, Matt good to.
Could you talk to your good morning. This is my coffee.
So yes, we it was more or less a timing issue, where we got obviously orders in June and we're happy with the results there, but there were some pending orders that carried over.
The second quarter and third quarter are typically good in North America.
Bit weaker in Europe , because of the August holiday season.
But what we're seeing is the larger dealers are actually placing stock orders for.
2024, specifically Q2, and Q3 of last year. So generally we saw that as a positive and where.
Or.
We're pretty optimistic our customers remain optimistic going forward.
Just some general size dynamics of the backlog to give us a little bit of flavor of what that looks like.
Yeah, well I'll tell you the biggest change for us and we see this as a positive is that.
Our strategy is calling for Favoured and market North America.
The European business is moving along nicely, we're doing really well.
And so.
You remember, we want to drive articulated or knuckle boom.
Activity in North America, and a much bigger way.
So Joe is indicating that we're looking at backlog roughly about a 50 644 ratio.
The output.
<unk> has remained consistent with one exception.
We actually were able to move our production levels up in.
Europe during the first and second quarter, so supply chains have eased there a little bit there's less drama with regard to energy.
And we're really really pleased with the production capacity and in Italy. This year.
That's going to help us feed the future growth that we wanted to do in North America. So it's in general the ratios haven't changed dramatically.
Is changing is the end market exposure and again, that's by design, we want to see more.
All of our products find a home in North America going forward.
Okay, and then is it possible for you to elaborate on the supply chain issues that you felt in the quarter. I know you mentioned steel costs expanded but any other like component availability issues or any any supply chain issues that we should be thinking about yeah.
Yeah.
Reduction.
Yeah. It was unusual Matt that we actually called out our steel pricing as the culprit, but that's what happened honestly.
You know plate steel fabricated steel et cetera rolled steel.
Couple of the categories, just had a tremendous increase and we were not able to.
Offset that or.
Or find an alternative supplier.
To not incur that cost in the first quarter that happened in North America, we did not see that in Italy, we saw that as a.
An issue with the mini mills, and if you look up rolled steel commodity prices, you'll see a 29% increase.
From about February to May thankfully that appears to be stabilizing we did have to offset that with some surcharges and customers understood.
With regard to generalize a supplier theres still issues, we're not dealing with an efficient supply chain overall, but what has changed is we found methods to address that and in some cases as you can see from the balance sheet, we've actually brought.
Some temporary working capital stock up to keep production moving in the right direction.
That's what we dealt with in the quarter. We think that's a temporary issue we found to work around and I would say that overall the supply chain.
That we're dealing with has improved and in particular the manitex team.
Has done a very good job at finding ways to both schedule around and find alternate suppliers.
Okay. That's helpful. Just on the surcharges that you put in place maybe could you talk about the timing of when those were put in place in the second quarter I guess why didn't they fully offset the price increase.
Imagining, it's just a timing or magnitude this year the steel surcharge, but then how do we think about it for third quarter and in sort of a recovery, there and and the lift in gross margin.
Yeah. The charges went in place in June .
And they went in place for open orders and then as is typical we have.
Just pricing in June for new orders, so new orders that we've received.
Have adjusted pricing for next year.
We did.
Content and exposure.
And honestly, we worked we're fortunate to have exceptional dealers that understand some of these challenges.
In some cases, they had as sold units they werent going into their fleets they were sold and.
And we made adjustments to accommodate that so it's not a full recovery.
By any means but we were expecting improved profitability going forward because of these charges and quite frankly because of the work that we're doing with the suppliers to adjust cost or find alternate supply.
Okay, all right that's great.
And then just shifting over to her to Rayburn just wanted to see if maybe you guys could comment a little bit more on the opening progress in Lubbock.
Maybe where you are on utilization and just thoughts around demand in that region as it pertains to the expansion at Redburn.
Yeah I appreciate the question. So let me just a quick refresher the way to think about Lubbock is Lubbock is about 130% of the size of Amarillo and amarillo's our base our home.
Our home operation.
So first thing to know about Lubbock is we're about four months delayed in opening.
Just due to construction delays and.
Various challenges that cause.
Contractors are dealing with these days.
But the the opening has gone exceptionally well.
Although we are behind in our schedule the revenue projections are coming in exactly where we wanted them.
Thinking that the business may actually close above forecast this year.
Customer sentiment has been very positive.
But we have our eyes wide open of course were the new kids in the market.
And.
We need to prove ourselves as a.
Better supplier for the contractor, but thus far it's working out really really quite nice.
The overall fleet utilization has held steady or improved.
Over the last year and that's also a good sign so we're really pleased with Olympic is coming together.
Okay, Great and then just how do we think about expansion at raeburn like in a broader way after Lubbock is sort of up to speed and fully utilized.
Are there incremental locations, we should be thinking about what's the thought process for expansion on that front.
We we have a we have some interesting markets that we have been studying that we're excited about.
At this stage we're not.
Ready to expand.
But the Rayburn model is perfect for market size.
We're competing in a very as you know the the North American rental market has had a very robust few years. The projections are strong and the competitors that are in that space or cigna.
Significant we're operating in smaller markets, where we can differentiate ourselves very nicely, we bring a high level of service to bear for our customers and that's really paying dividends and the good news is there are.
A great many smaller markets that we believe are underserved and Reits four rayburn, we're just not ready to pull the trigger there we want to prove to our investors that this investment is working.
Get a good.
Foundation laid in Lubbock and then.
Look at other markets, but.
The supposition that we can do this in other locations into 100% correct and that's one of the reasons, we like <unk>.
Okay excellent.
Maybe just last one for me on the the low double digit EBITDA growth commentary for the full year I just wanted to check in on sort of what that <unk>.
Plies for the back half of the year.
Because like there's a range I guess in terms of low double digit and what that would imply on the lower end up low double digits. It would suggest that you know you're kind of maybe flat to down on an adjusted EBITDA in the back half of this year.
But just wanted to give you the opportunity to maybe talk about how youre thinking about the growth in the back half specifically on adjusted EBITDA.
Yes. This is one that let me open this myself.
The reality is is that we're already running at our projection.
We just we closed TTM at 26 plus million, we've already achieved the early onset.
And.
And I am.
I guess, if I'm gonna be faulted, we're gonna be faulted out and being more conservative in our growth the reality is.
We're looking very optimistic at our future and our ability to continue to perform.
You may remember in December of last year, as we closed out.
The year, we achieved.
One quarter of 10% adjusted EBITDA and that's been a longstanding objective before I came to Manitex something that we wanted to achieve and we finally got there, but we also offered some guidance listen where we're going to be at 10%.
Dip down and head back up again, because we're improving this company and that's the transformation effort that will.
It takes some time.
But I can tell you unequivocally. The foundation is laid the management team is doing very very good work.
They're transforming the business quite nicely so in fairness, Matt we're being.
Perhaps too conservative.
And our approach.
Sure.
And we're not.
I think theres, a tremendous opportunity towards the second half of next year into next year. We're just.
Even though we're still getting I guess I'm, just too conservative forgive me for that.
Yep Conservative is okay on our in our book here I'll turn it over to someone else Sir. Thank you. Thanks, Mike.
Matt Thanks, very much appreciate the question.
There are no further questions at this time I would like to turn the floor back over to Michael Kauffman for closing comments.
Alright, Thank you very much operator, and thank you to our investors for joining the call and for your interest in Manitex. We appreciate that very much just a quick announcement, we're fortunate that we'll be participating in several investor events in the coming months, including the Northland capital markets.
September 19th and also D. A Davidson diversified industrials and services conference scheduled for September 20, <unk>. So we hope to see many of you there.
If we don't get an opportunity to connect during the quarter. We look forward to meeting with one of these events.
Thank you again for your time and your interest in Manitex. This concludes our call.
This concludes today's Manitex International conference for today. Thank you very much for your participation you may disconnect your lines at this time.
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