Q3 2024 The Manitowoc Co Inc Earnings Call

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Sarah: Good morning, my name is Sarah and I will be your conference operator today. At this time I would like to welcome everyone to the Manitalk 3rd Quarter, 2024 earnings conference call.

I will turn the call to Ion Warner, Senior Vice President, Marketing, and Investor Relations. You may begin your conference. Please proceed. Good morning everyone and welcome to the Medical Conference Call to review the company's third quarter, 2024 Financial Performance in Business Update as outlined in last evening's press release.

Participating on the call today, Aaron Ravenscroft, President and Chief Executive Officer and Brian Regan, Executive Vice President and Chief Financial Officer.

Today's webcast includes a slide presentation which can be found in the best-er-relation section of our website under events and presentations. We will reserve time for questions and answers after our prepared remarks.

Sarah: I would like to request that you limit your questions so one and a follow-up and every turn to the queue to ensure everyone has an opportunity to ask their questions. Please, for this slide too.

Sarah: Please note our safe harbor statement in the material provided for this call. During today's call, forward-looking statements as defined in the private spirities litigation reform act of 1995 are made based on the company's current assessment of its markets and other factors that affect its business.

However, actual results could differ materially from any implied or actual projections due to one or more of the factors among others describing the company's blaze at the sea violence.

The Mattertweller company does not undertake any obligation to update or revise any forward-looking statement, whether the result of new information, future events or other circumstances. And with that, I will now turn the call over to Aaron.

Thank you, I am and good morning, everyone. Please move to slide three. Here we go. I stated that 2024 would be predicated on two major factors. Number one, whether European government would address the escalating housing crisis, and number two, how resilient business activity would be in the face of the U.S. election.

Sarah: Starting with Europe, it was great to see the European Central Bank reduced their interest rates with back to back cuts in September and October.

Sarah: However, this is probably not enough and will take time to impact our business. The government's in France and Germany remain at a stalemate after the recent elections, and no fiscal action has been taken to address the well-publicized housing shortages.

Moving to the US market, although it seems like a lifetime ago, it's only been five months since our cranial event where customer sentiment was very positive.

Unfortunately, this positive attitude evaporated as we entered the summer months in a presidential election started to heat up. In fact, during the third quarter, we missed our book and shipped sales target by more than $40 million.

As Fred Poses is American Standard used to say, when it's light, you can't see the dark, and when it's dark, you can't see the light. Given that we are only five days from the US election, there's plenty of uncertainty on our near-term outlook. So as I go through each region, I think it's important to contrast the current discouraging tone to the favorable long-term outlook.

Sarah: Starting with the Americas, even though demand for new cranes has been slow, the overall attitude of the crane industry can best be described as cautiously optimistic. All the utilization slowly bent during the summer months is still been pretty resilient. As a general statement, the alarm inventory in total is okay, but say a little more complicated when I dig into the details.

While there are areas where inventory is light, feedback from this channel suggests the high levels of RPO activity is weighing on the balance sheet of many of our dealers.

At the core, however, most folks in the US are sitting on the sidelines, waiting for further interest rate cuts and to see the outcome of the election.

Sarah: Nevertheless, the infrastructure and tips fields are still in the early innings. In addition, the average age of trains at most large rental houses is greater than 15 years. Clearly, crane-flates continue to age, and we believe the replacement cycle is inevitable.

Sarah: Turning to Europe, the situation is similar as they also grapple with political uncertainty, a third quarter of a seasonably slow, which is typical, but since throughout the industry remains quite negative, in a tower crane market while we did see an optic in order, so in the corner, none of the major crane rental houses are signaling in your term rebound.

The general tone is that we are bouncing along the bottom and we will continue to do so until there is some sort of stimulus, whether the government intervention to address the housing shortages or an end of the conflict in Ukraine.

Similar light, over all view of the mobile crane market is fairly muted, with customers remaining very quiet over the summer months. Orders were down nearly 30% year over year in the third quarter.

An a more positive note, looking over the long term, there are a lot of accrain rental fleets, both mobiles and towers that are long on the tooth. Additionally, we see more large infrastructure projects in the horizon, like offshore wind and nuclear work that requires newer cranes.

And of course, there's a significant housing shortage in almost every country in Europe.

Sarah: We've started to see interest rates decline, and at some point all of these trends will provide the tailwind required for a rebound in the tower crane market as well as a robust mobile crane market.

Sarah: and the Middle East, the market remains very strong. Saudi projects continue to move forward and Dubai expects to nearly double its population by 2040 which is driving residential construction activity.

At the same time, the Chinese competition in the region is intense. In terms of mobile cranes, Chinese competitors are aggressive with inventory and payment terms. In fact, one Chinese manufacturer loan has stopped several hundred cranes in Saudi. Fortunately, in terms of tower cranes while the competition is tough.

We are in a much stronger position, our engineering teams continue to launch new machines for the market, and our long-term dealer partner NFT has the world's biggest fleet of large tower cranes, and they are best in class to be application engineering required for such large projects.

Moving to Asia Pacific, the prolonged economic stagnation in China is overshadowing the entire region. Similar to the Middle East, Chinese manufacturers are heavily discounting their machines throughout Asia to keep their factories running.

In South Korea, the market has been stalled by Samsung's recent decision to delay its fab 5 expansion, and overall sentiment has been very cautious.

year-to-date arm machine orders in South Korea are down over 50%. Lastly, Australia seems to be following the same pattern as North America, but the man's slowing during the summer months. Here too, we've started to see interest rates come down, which should help OE the crane market. Please turn to slide four.

who remain focused on what we can control, which means continuous movements are the Manus Walkway and the ongoing execution of our Crane Plus 50 strategy.

Sarah: So, starting with the Manitalk Way, I recently visited our factory in Willem's Garden Germany, where we manufacture our altering cranes. I'm super proud of the team, they just keep getting better and better.

On this slide, we have highlighted two exciting improvements.

First on the left, through kidding, we've simplified the fabrication of our booms, by kidding all of our raw material and using what the team calls a Christmas tree, they significantly simplify the material management. Thus reducing material flow by 93% which is equivalent to 70 miles of forklift traffic per year.

The color of each Christmas tree relates to a specific crane model. The one shown in the picture is for the GMK 6300. When this is delivered to the Boom Fabrication line, the operators have everything they need so they don't have to chase parts, and the supervisor can easily tell which the Boom's are in process.

Sarah: Second, on the right is a picture of Eddie Kale with a test device that he created at home. Eddie is a longtime employee who assemble superstructures. His prior job at a plant was to fit the superstructure on the truck portion of the crane, and during this process, it he observed that there was always a lot of troubleshooting to ensure the electrical components between the superstructure and the chassis communicate properly.

Sarah: and his new position, he moved one step earlier in the process and is assembling the super structure.

Sarah: A design and program that's simple test box to confirm all electrical connections during the super structure assembly rather than hunting a problem to the next assembly process.

Sarah: The saves the team a huge amount of time and aggravation. Thank you very much, Eddie.

Closing with Crane's Pacifici are non-New Machine sales for the third quarter, $169 million up 9% year earlier. A couple of points to Highlight. First, I'd like to spotlight our mobile efforts in the UK.

Sarah: One of our four breakthrough initiatives is to reinvigorate our all-terrain product line to grow our aftermarket business.

Sarah: Since launching several new machines over the past couple of years, the team has fully capitalized on our expanded range with several nice customer wins. To support these cranes in the field, we've added six service technicians in the UK, bringing the total to 15, and we've opened a second service center and barnsley to better support our customers in Northern England, Scotland and Wales.

Next, I'd like to recognize the progress that we've made at MGX. If you recall, when we acquired the crane business and the H&E equipment, we had a couple of branches that were co-located. We are currently in the process of moving into new stand-alone locations in the Manhattan Rouge of the Phoenix.

These new branches are larger and give us more capacity to grow our service work in these markets.

Sarah: I big thank you to the H&E team. They have been great partners throughout this transition.

In addition, MGX is embarked on its first major men-flock wage-arning to improve productivity. Currently, we are conducting a chizen to more effectively rebuild men-flock crawler cranes. In the old days, we rebuilt cranes more on an ad hoc basis without standard work procedures and by relying on individual skill levels.

Moving forward, we are creating detailed works sequences and breaking down the bill of materials to support each work segment. This allows us to create specific material kits delivered on a just-in-time basis for each segment in the workshop.

Sarah: The team understands that the faster and more cost effective we become at these rebuilds, the more competitive we will be in generating more projects like this. This is a groundbreaking chizen for our NGX sites, and I'm looking forward to continue progress on this lean journey. With that, I'll turn it over to Brian.

Thanks, Aaron, and good morning everyone. Please move to slide 5. I'd like to start by thanking my team for the hard work associated with the refinancing of our debt, great job team.

Brian: During the quarter we completed the refinancing of our debt by first, a Mending our ABL Credit facility to increase our barn capacity from $275 million to $325 million and extending the tender to $229 and second, we refinanced our bonds that were doing $226 by you're showing new $300 million notes.

and 9.25% do October 231.

Brian: It is important to note that the credit risk portion of the interest rate went down almost a full point.

since we last financed in 2019. This is a good sign that the debt market appreciates the heavy lifting done on our strategy to reduce the sick of quality and improve our margins by focusing on the recurring higher margin after market side of the business.

Turning to our results.

During the quarter, we had orders of $425 million. A decrease of 20% compared to a year ago.

The year over year decreases primarily driven by the Americas.

where we saw order intake down to 28% year over year as the U.S. presidential election and interest rates continue to weigh on demand.

We ended the quarter with a backlog of $742 million. Net sales in the third quarter were $525 million. Flat versus the prior year. However, as Aaron mentioned, we missed our book and ship target by over $40 million in the Americas.

Not new machine sales increase 9% year over year, and $169 million.

The increase was primarily driven by used crane sales, which, if you recall, lagged during the first half. From a traveling 12-month perspective, non-new machine sales reached $618 million, reflecting great progress by the team on our crane's plus 50 strategy.

After adjusting for charges related to a legal matter with the EPA, SGA expenses as a percentage of sales were 15 percent flat year over year. Our adjusted EBITDA for the quarter was $26 million.

a decrease of 21% year over year.

Brian: Our European Towers Business drove roughly half of this decline. Adjusted Evid on margin was 5% a decrease of 140 basis points over the prior year. Product mix was the primary driver for this lower margin. Please move to slide 6.

Sarah: Networking Capital ended the quarter at $579 million and is elevated due to higher inventory as a result of the mist in the book and ship sales. As mentioned on the last call, we reduced our 2024 build schedules with the impact on inventory expected to be seen in Q4.

Moving to cash flows, we used $44 million of cash from operative activities in the quarter, primarily driven by the increase in working capital and acceleration in our semi-annual introspectionment related to the debt refinance.

Capital expenditures were $9 million of which $3 million was for the rental fleet. As a result, our free cash flow was a used of $53 million in the quarter.

At September 30, our cash balance was $23 million and total liquidity was $222 million. Our net leverage ratio was 3.4 times with the plan reduction in inventory. We expect to be below our targeted three times by year end.

Sarah: Given our performance in the third quarter, we expect full-year results to come in at the low end of our Adjusted Even.guides. This has been $50 million in new machine-spoken chip sales, which is not a big number in a normal environment.

Sarah: As you would expect, a lot of uncertainty surrounds the US election and how customers will behave during the remainder of the year.

As a reminder, accelerated appreciation for tax purposes drops from 60% to 2024.

to 40% in 2025, which could also stimulate your end-cran demand and cash collection.

As it relates to cash, we need approximately $130 million of free cash flow to hit the low end of our guidance.

Sarah: What we have a line of sight to get there will take some items moving in our favor to hit it. With that, I will now turn the call back to Aaron. Thanks Brian, please turn to Sight 7. I have to say 2024 has felt like deja vu.

During the third quarter, it became evident that the construction industry is distracted by the election, and 2024 is unfolding very much like 2016.

Mark Twain once said, history doesn't repeat itself, but it does rhyme. During the second quarter of 2016, we heard a lot of positive customer sentiment at the Bama Trade Show in Germany.

But as the U.S. election approach that year, the favorable sentiment faded and orders waned. This year has been very similar, in spite of great positivity that we heard from our customers at Crain Days, order in takes slow dramatically as we entered the summer months.

On this slide, you can see that the shark decline in orders leading up to the 2016 presidential election quickly reversed the November.

Sarah: To me, this is the Million Dollar Question as we consider the remainder of 2024 and the first half of 2025. We'll award us pop after the election on Tuesday. I guess time will tell just how wise Mark Twain was.

Speaker Change: At Manitwock, we remain committed to focusing on what we can control. Our top priority is safety, followed by strengthening our balance sheet to ensure that our net leverage is below our target of three times. To achieve this, we are focused on reducing our inventory and increasing cash generation during the fourth quarter.

Speaker Change: Additionally, we've adjusted our first quarter 2025 build schedules to minimize the inventory rebound that we seasonally see as we begin a new year.

Fortunately, with the terms of our new ABL credit facility, our liquidity is a strong $222 million.

Speaker Change: While we remain very tactical and managing our cash, we are also resolute in our efforts to go our aftermarket and non-num machine sales. We've recently opened several new branch locations and we have plans for a few more next year.

Speaker Change: Strategically, increasing the number of locations and service technicians as vital to driving our non-immigiene sales and enhancing long-term shareholder value. In closing, despite the headwinds mentioned earlier, we see glimmers of optimism.

Interest rates are declining around the world, the monies from the infrastructure and chip bills are beginning to flow and earnest. The Middle East remains strong, cranes fleets are aging to historic levels, and we continue to grow our service footprint and launch new cranes.

Speaker Change: Manus Walk is well positioned to execute our Crane's Plus 50 strategy and deliversterholder value. With that, I'll open it up for questions.

Speaker Change: Thank you. At this time, I would like to remind everyone in order to ask a question, press star, the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Sarah: i

Speaker Change: Your first question comes from the line of Jerry Revich with Goldman Sachs. Your line is open.

Jerry Revich: Morning Jerry, I'm Jerry.

Hey, this is Clion on for Jerry. Clion, one question for me, can you provide some, can you come up with a potential for margin improvement when volumes return, you know, given the productivity improvements you outlined in this quarter at some of the prior quarters?

Yeah, and that's a complicated one to answer just because it depends a lot on the mix. So if you look at the tower crane business given that it's at it, bottom the contribution margins are going to be great in that business as we move forward.

Ryan, you have anything? Yeah, I think we need that volume as well, because as we talked about, we've reduced our build plans, and that's impacted our flow through negatively. So both from a tower standpoint as well as a mobile standpoint as we get our inventory right.

Speaker Change: Thanks, and then just as a follow-up, how has the, you know, on the non-nune machine sales? How has the, you know, parts performance been as a part of that? Thanks.

Yeah, parts has been good, I mean, actually with the thing that's pleased me the most with respect to our non-new machine cells, is our MGX business continues to grow, it was up nice to your rear.

which is mostly parts and service and...

Speaker Change: The European Tower Cream Business, even though the whole good business is down dramatically, we were actually up in the quarter, so that's a good sign that our Chinese work. Yeah, and I mentioned in the prepared remarks that youth was a little bit heavier during the quarter, which definitely impacts our margins long through that side of the business.

Speaker Change: Thanks, I appreciate it.

You're next question, comes from the line of make go-brew with beard, your line is open.

Speaker Change: Morning, hey, good morning guys, it's actually, it's Joe On for make this morning.

Hey, good morning. So my first question, you know, you're highlighting election uncertainty that makes perfect sense. Do you think that there is an outcome of the election that would help you know more than other outcomes or is it just?

Sarah: you know moving from uncertainty to you know more clarity.

Yeah, that's a tough question, they answer, put me on the line like that, so I mean, I think if you look back at that 2016 bump that was driven by Trump's win, I mean the industry is

and I'm very conservative, I would say so. Now I'm being completely honest, I think that I'm from Valkyms, the best for the Crain Industry.

Speaker Change: Yeah, no, that makes sense. And my next question would be, and you touched upon this a little bit in your prepared remarks, but you know, what series of events would have to happen?

To get the European Tower crane jump started again. And again you touched upon some of these but maybe kind of expand upon you know what we need to happen to get the market going.

Yeah, I mean, from my perspective, we're at the bottom year of a year, we were better in a third current in terms of orders, fourth quarters, a little bit different, bit more difficult comps. We get in the next year every quarter that we call easy comps. So to me, that's the first

and staff building sort of the base of the service. I think any work that any one of the countries would do in Europe to help the housing shortage would go along the way. But I mean, inventory is a low. People dial back, even on the rental fleets. I feel like we're at the bottom, we just...

I think it was slowly filled back over the next 12 months. It may not happen in the 4th quarter now, or the 1st quarter, but I think when you look at the 2nd half of the next year and you start to set yourself up.

for 2026, we'll start with these some actions. The other thing I'd say is Germany's had election in September, so anything could happen in terms of their geopolitical environment if they're not able to hold the coalition for the current government that can move things faster, too.

Got it. Okay. I mean, I want to get straight. We watch how linked permits and we keep an eye on how these geoplytical.

Speaker Change: I think as a basis of the industry is at its bottom and it's gunna build familiar.

and maybe if I can sneak in one more quick one, you guys mentioned $130 million of free cash flow in the fourth quarter to hit the low end of the free cash flow range. I guess what, you know, what,

What are the levers that would have to be pulled to get close to that number?

Speaker Change: Yeah, we're looking to bring down Cash CapEx a little bit, but also a lot of it's going to be dependent upon that book and ship rate and whether or not we're able to get those units out the door and then it's going to come down a cash collection by the end of the year.

Speaker Change: The cash flow versus it's sitting in a R. I'm less concerned about, you know, if we've got an elevated AR at the end of the year and we missed our task, I feel a whole lot better than if it's sitting in an inventory obviously.

We've brought the build plans down enough so when I look at the $770 million inventory that we've got sitting on the balance sheet at September, we've got enough inventory to sell.

So you know, we've got that line of sight, but it's all going to come down to what the book and ship rate is.

Sure, okay, thanks guys, good luck in the fourth quarter.

Thank you, open.

Your next question comes from the line of Tammy's Aquaria with JP Morgan. Your line is open.

Good morning, Tammy. Good morning.

Speaker Change: Good are you?

So my question is a little backward looking actually.

Tammy: Can you remind us what Harry's son imports or even steal in the past?

Tammy: Impacted Year Business. The reason I ask, you know, it's election season, I think, tires are top of mind for a lot of investors. Can you sort of refresh or give us the recap of what happened?

Last time and how you're preparing for it should that be the case again.

Yeah, so I mean our biggest challenge in the past was when they put in the steel tariffs. If you look at the steel prices in the United States, they're 25, 30% higher than they are in Europe.

which is even higher than Asia so...

to me that sort of already built.

and the war system. I know there's so many variations of this terror of discussion that's been thrown out there. In fact, the terror across all of cranes would be a positive force when you consider this challenge as we have with steel prices and FX.

But I have no idea what will actually be implemented to this point. We continue to manage our sourcing. We always have multiple sources and we'll manage through it.

I think it's probably the opposite direction right because they're talking about applying tariffs to everything.

Tammy: Game.

I think in the end it'd actually be favorable for us because we've already taken the biggest hit with steel. Brian, what do you think? Yeah, I think one of our big competitors has been seeing favorability from a currency rate in the US. So, you know, I think...

That's to me a bigger concern because they got both the benefit of the steel price as well as the currency. So I think continuing to monitor that and see what happens. I think it's our US interest rates are going to impact that as well as what happens in Japan.

and I think that's the other big factor.

Got it, okay, thank you.

Speaker Change: Again, if you would like to ask a question, please press star then the number one on your telephone keypad.

Your next question comes from the line of Steven Fisher with UBS. Your line is open.

Thanks for the interview. Good morning. I just wanted to ask about follow up on margins and I'm not sure if you're...

Speaker Change: The commentary on the guided low end applies to the revenues as well as trying to impute what the implied margins are for Q4. Seems like they might be pretty steady on an EBITDA basis with

The margin that 5% margin in Q3, or the firm, if that's correct.

Speaker Change: and then just sort of thinking about Ed.

to show we consider the sort of the bottoming of margins from here. Or do we think there could still be some more pressure as we go into 25 depending on how things play out.

Yeah, I think in the short term, so a big portion of our margin issues in the third quarter is related to our build schedule reductions. I mean, there was some impact in the towers, which was worth a couple million bucks.

and we had some mixed challenges. I think those mixed challenges will continue in a fourth quarter, as well as more absorption because we actually have more shutdowns in a fourth quarter to adjust our build schedules. And then looking into the first quarter, I mean we've adjusted our build schedules in the first to protect our balance sheet.

Speaker Change: I mean, I think the next two quarters will continue to be challenged on the margin side, just purely for the fact that we're not driving as many hours to ourselves.

Yeah, your assumption that Q4 looks similar to Q3, I'd say that's pretty fair. Maybe a slide up tick, but I think relatively flat from a margin standpoint.

Speaker Change: is this word we're thinking about it.

Jerry Revich: Okay, that's great. And then just on, you gave some of the market color in the beginning, just curious about Quitting activity, particularly in the Americas, anything that you can comment on in terms of how you've seen that in the last.

and full of months relative to early in the years, it's still fairly active even if there's not as much ordering, what are you seeing in sort of the quoting activity?

Yes, so our orders for October will probably be the last one, one, 50. So just to give you some indication of work for this passports, this play-out. That being said, in my normal reviews with the team, I had one on Monday morning, and actually some of the sales guys were saying they're quoting it to be picked up.

So I know that's anecdotal, but to me that's a pretty good sign because the last several months have been pretty slow in terms of the talk about order activity.

or at least quoting activity of Scott.

Speaker Change: Right, okay, thank you very much.

Speaker Change: Thank you.

There are no further questions at this time. Mr. Warner, I turn the call back over to you.

Mr. Warner: Thank you. Before we conclude today's call, please note that a replay of our third quarter, 2024 conference call will be available later this morning by accessing the investor relation section of our website at manethelock.com. Thank you everyone for joining us today and for your continuing interest in the Manethelock company. We look forward to speaking with you again next quarter.

Speaker Change: This concludes today's conference call, you may now disconnect.

Speaker Change: The End.

Speaker Change: The End.