Q2 2019 Earnings Call
Good day and welcome to the Manitex International second quarter 2019 results Conference call.
Today's conference is being recorded at this time I would like to turn the conference over to Dave Benjamin. Please go ahead.
Thank you Leon.
Good afternoon, ladies and gentleman and thank you for your interest and that takes international.
Other calls me todays to people, who are president and Chief operating officer as well as lower you are see senior VP and CFO .
Please see our website or our release for replay instructions for this call, which will be available until August 15th.
Oh, please refer to the first slide regarding our safe Harbor statement.
We also to review this statement and also refer to <unk> filings for further guidance on the many risk factors associated with our company.
I will begin with a brief overview.
Lauren will present, a financial summary, followed by operating commentary from Steve.
After which we will welcome questions.
Please now turn to slide number four.
In the second quarter, while we saw an increase in sales as compared to the first quarter of 6%.
It is clear that the demand environment. The U.S. has been volatile.
With bookings for our straight mast cranes slowing in the last month of the quarter.
After getting off to a very good start in the first quarter of 2009 King.
Well the long term trends in orders are uncertain for the U.S. markets going straight mast boom trucks.
We didn't know that orders picked up in July .
And our backlog was up to approximately 63 million at the end of July .
But it's important it's important to point out to shareholders.
Those are company becomes more oriented towards a P M type products.
Our company as a whole becomes less driven by long term backlog. This was for several reasons.
First the production cycle for PM knuckle type products.
I bought a tough as short as a cycle for mannatech straight mast boom products.
Second the cyclicality for knuckle cranes are less dramatic.
As compared to U.S., driven straight mast cranes.
And also as we've consistently stated in the knuckle boom market. It is a global market with multibillion dollar sales per year.
Compared to our straight mast cranes, which are primarily a north American product or the market of approximately 250 million.
Further we have a significant market share in the straight mast crane market compared to a 2% to 3% marketshare knuckle cranes.
Giving us a lot more room to grow in the local market.
Where we're seeing growth in knuckle cranes and all the markets, we serve specifically south and North America, Europe and of course, Asia, which for us excludes China.
Finally, the overall growth rates for knuckles is much higher than that there's a large straight mast cranes.
Got a few more comments about the specific attributes of our local business.
Overall the margins for this business are consistently in the play.
The plus 20% range.
The real key to our execution in the medical business is for us to reduce our SGN day.
In order for Us to report consistent 10% operating profits.
To that end, we made a change at the top and our P.M. manage operating management in the second quarter.
This new structure will allow us to take more control over our operating cost and should show improvement in our operating profits.
On the balance sheet, we did see solid reduction in the quarter, our net debt.
From 49 million at the end of the first quarter to $44 million reported today for the second for the end of the second quarter.
Our inventory did increase by approximately 13 and a half million from the end of last year.
Which we believe we will flow through by the end of this year.
Thereby allowing us to make further progress on debt reduction for the rest of this year.
In addition, the approximate seven and a half million proceeds from the sale of our holdings and ASV will further strengthen our balance sheet.
When the transaction closes which is expected in the third quarter.
A few more comments regarding this quarter.
We reported today, a metric called value add margins.
And noted that they remain in the 20% range.
The schedules accompanying our release show the impact of low margin <unk> chassis sales.
As a component of our total sales.
And as we reported in recent quarters, we expanded our company on chassis that inventory.
In order to offset the long lead times and receiving Chelsea's.
As you would expect these long lead times have diminished or we will sell off the remaining excess chassis inventory.
By mounting them unsold cranes over the next several quarters.
Other areas of concerns that come up from our shareholders.
Such as tariffs, which are not an issue for us.
Material at a price and coupon or price increases which are diminishing.
And lastly, we will continue to manage the reduction of our expenses, especially at our PM operation.
Finally, as we reported today, we completed shipping the first two containers, which is Donald dealers in the second quarter.
More importantly, the second container ship and was made under the P M to Donald could been label.
This labeling with the Dol brand cannot be overemphasized as a major breakthrough for our future development in the Asian markets.
Didn't know is a premier brand, which is widely known and accepted in Asia, while P.M. is not.
This branding gives us a significant advantage and expanding our sales in this market over the long term.
A very exciting opportunity for our company and for our shareholders.
With those opening comments I would like to turn it over to Laura.
And finish with Steve discussing operations Laura.
Thanks, Dave Good afternoon, Thanks for joining the call today, let me direct your attention to slide.
We can.
Ideally Dom.
Revenue were 51 million, an increase of 3.1% compared to the first quarter of this year.
Down 5% compared to the same period last year.
Primarily due to the market.
Which we have been experiencing in the U.S. pedestrian that clean.
As well as unfavorable currency impact due to a weaker euro which decline decline versus the U.S. dollar.
Revenue decreased by approximately 2%, excluding the unfavorable currency impact of 1.5 million compared to the second quarter of 2017.
Gross margin was 17.8% compared to 19.7% from the same quarter last year.
Primarily driven by the mix of sales with higher cost to revenue from the current quarter on sharpie trucks, and we can all imagine compared to the same quarter last year.
Adjusted value add margin as Dave mentioned earlier remains in the 20% range, which was a result, that's continued effective execution of that team managing our costs.
Our second quarter 2019, net income was 3.2 married.
Or 16 cents per share.
Which was impacted substantially by the increased value of our holdings in here.
He's asking from the announcement of the pending sale of ASV to Genmark.
Adjusted net income was 1.1 million or six cents per share flat compared to the first quarter of this year.
Adjusted EBITDA in the quarter was 3.8 million also flat compared to the first quarter numbers.
For 6.2% of sales.
The second quarter 2019 yourself included 2.4 million onetime nonrecurring adjustments to EBITDA.
Of which approximately 750000, what do they need it to seven.
And related costs recorded in the second quarter of this year.
Yeah.
And 281000, whether they are related to the Bauma trade show that takes place every three years.
Our cash from operating activities for the first half of the year improved by almost 6 million compared to the same period a year ago.
Our global teams are constantly looking for ways to improve our working capital position.
The main focus for the second half of 2019 is to reduce inventory to improve the company's cash conversion cycle.
Let's move to slide six net back up in Q2 2019.
This slide.
Provides a breakout someday nektar Frank corridor.
Net debt decreased by 7.2 million compared to the first quarter this year to 44.4 million.
The lowest level, we have seen in many years.
Management will continue to control huh.
Improved working capital performance.
Especially on inventory management and seek other necessary actions to further reduce America and for the rest of the year.
In addition, with the sale of ASV is complete and we will receive approximately 7 million in cash to pay down all at that time.
Uh huh.
With that I will now turn the call to Steve.
Thank you Laura and thanks to everyone on the call for joining us today.
As reported during our first quarter earnings call. Our production teams, we're taking the necessary operational steps to prepare for increased shipment levels.
Overall, our teams continue to effectively manage the various surcharge supply chain capacity freight cost and tariff issues that are well understood in our marketplace, while delivering a 6% revenue increase versus the first quarter.
Well, our input costs were flat to slightly declining.
Our adjusted gross margin of 18.6% was negatively impacted by an increase in pass through sales of truck chassis is as mentioned by Dave and Laura.
As well as production inefficiencies related to chassis deliveries at two of our production facilities.
As we move through the third quarter, we have seen much of this problem alleviated with more timely chassis deliveries and our production teams responding in a more flexible and efficient manner to schedule changes.
Shifting to an update on market and commercial activity.
Our internal channel checks combined with data from outside sources show overall stable rental fleet utilization for the various mobile crane markets within our product offering.
The end markets in which we participate that show continued strength other construction utility and government segments, where we generate over 70% a worldwide revenue.
And we saw a decline in the energy sector, where we generate approximately 15% of worldwide revenue.
Regarding new equipment orders or book to Bill ratio of <unk> 0.71 during the quarter slightly reduced from that 0.81 level, we achieved during the second quarter of 2018.
Full year industry orders for straight mast cranes moderated to an annualized rate of approximately 1200 units during the quarter, which is similar to the full year industry build level of 2018.
An important development for Manitex during the quarter.
What's the launch of a new 60 ton straight mast crane branded that she sees 600 series.
This crane is a welcome addition to our industry leading line of heavy tonnage cranes, and we look forward to the public unveiling of this product at the international construction and utility Exposition in Louisville, Kentucky in early October .
[noise] order patterns for knuckle boom cranes remained stable throughout the quarter, which is important to our company on a forward basis. It's increased penetration of this expanding multibillion dollar market is our largest opportunity in 2019 and a key element of our multiyear growth plans.
As I previously mentioned.
Each point of market share and the knuckle boom crane market from our low global base translates to approximately $25 million of growth revenue. So this is a significant growth opportunity for our company and again, one that we're pursuing diligently.
[noise] recent highlights from P.M. includes securing a 1 million dollar order from a military customer in Asia.
Going forward, our efforts to expand <unk> presence in the global military market continues and I anticipate additional announcements over the coming months.
In addition to new products and new market segments growing our distribution network remains a critical part of our growth plans and we're pleased to add four new dealers for Manitex and P.M. lines during the quarter.
Lastly, growing or operating margins at P. M remains an important opportunity for our company and shareholders and in addition to growing our top line revenue. We're focused on continued improvement of our cost structure.
In support of this initiative, we consolidated senior management during the quarter to realize both current and ongoing reductions in S Tonight.
In closing.
Executing to meet our revenue growth margin expansion and new product development calls in 2019, all been agile in responding to the various opportunities and challenges of our end markets is our primary objective.
We're working hard to increase value for our customers shareholders employees and other stakeholders.
Thank you again for your time today and your ongoing interest in Manitex International.
And thank you to the entire Manitex team for for solid gains continued hard work customer service operational discipline and overall execution.
Dave Lawler and I would now like to open the line and start our question and answer session.
Operator.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off tillerson outreach our equipment again, Please press star one to ask a question.
And we'll take a question from Mike Shlisky with Dougherty and company.
Hi, guys good afternoon.
Hi, Mike.
Good to hear from me.
[laughter] since here.
As well come back [laughter], it's good to be back. Thank you.
Want to touch first on the order patterns in the backlog into July .
It's you outline why did you just say that orders were.
But if there were a bit better backlogs and you know in July what Congress is that kind of.
How things go up you're normally not you know July and were there any kind of a cadence of orders throughout the quarter that.
Maybe improved as you kind of went through it.
So the so the second quarter.
We started the first quarter was good obviously, our backlog was up.
We are in the seventies and we.
We ended the quarter strong and so we are anticipating a strong year similar to what we started out in 2018.
But also similar to 2018, it's hard to slow down and this was primarily the straight mast market that we serve in North America I'm not talking about the yeah markets. So much the straight mast market.
So that started to slow down in the second quarter and again, that's primarily North America.
And it was particularly slow in June .
But then it picked up again in July and we got a a nice up order pattern, because we ship pretty good in July so we obviously.
I had a better book to Bill in July , but I I don't know typically the August period of slow.
Because ah Ah we seem to have accepted the European practice for example, our plant.
In Europe , all she will shut down for two weeks starting next week.
[laughter] seems like we've accepted that practice and the states and there's an awful lot of holiday taking during this period of time, which is understandable.
And and so we really generally don't see a pickup in orders again until the till the fourth quarter, but we're in good shape.
From a production standpoint in the North American plants.
For the third quarter, and and again, we expect that we will.
See a pickup which generally occurs in the fourth quarter.
Okay, Okay got it.
Oh, no let me just touch on the market share trends. So far this year or would you say your gainshare in either straight mass or in Nichols or still to come here.
I would I would say that we're probably holding steady at all of our markets.
I don't know Steve are you have a better handle this on the straight mast side on the medical side.
Like it's it's very hard to get a readings on that because we don't have the information flow like we have on a on a straight mouse straight mast as you know we have a we have a very good source that provides us on everybody in our industry with information.
So we have good good handle on that but knuckles are so large there has not been a source and develop the.
The the information to provide to us or the knuckle side. So it's a little harder to gauge, but I would say that it appears to us.
The market around the U.S. or around the world as I said.
Between Europe .
South America North America.
And of course Asia, we just seem to continue to have a good order trend there at a consistent order trend, whereas in the U.S. with our straight mast market.
It seems to have been a little more volatile and but I don't know of any material changes in our market share and Steve again, I don't know if you have any idea.
Yeah. The you know last year, Mike, We had we announced a record market share of a little over a 40%.
And a year to date from a shipment standpoint from some of the recent data we've seen our market share continues to hover approximately around that that high level of 40%.
Okay.
And sticking to basically I guess to some color as to what to expect in the back half as far as any or any big difference you're thinking might happen I have the orders. In addition, and you could tell us about.
Some of your sourcing around some of the parts that they use over there it's putting your cranes for some you know after cost or cost structure going forward.
Sure like we're still working on the last part we're still working on a on putting together a quality reviews and cost reviews for components.
So I'm not aware of any components. So reason, but we are we are studying that and I think there will be some.
There there will be some developments as we go forward in that area, because we're getting a lot of cooperation.
And everyone at Doe and the Crane business, though is that there is no better component component tree than on the Dano product.
So we are actively seeking access to two to that.
Their component tree, but again that that hasn't developed in a big way yet, but we're we are just we are continuing to work with them and I think there will be developments going forward.
On the Asian market.
We didnt have a we didn't have a very high bar we had done.
A a lot of the sales over the last two years.
If we had the 240 million in sales last year. We had 1 billion that go that went into Asia. So it wasn't wasn't a very high bar on that basis.
We have multiplied.
This year because of some of the things that we announced even this quarter.
Was a a million dollar order with a with the Singapore Oh military.
Or an agency that represents the secret to Singapore military we've we've put our first two containers.
And to to Donald Steeler dealer network.
I know, we're going to receive another large order firstly from another dealer and their network.
And I expect that we'll receive another Asian.
Order by the end of the year, so that and so the.
Penetration has started a I did mentioned in my remarks that.
The last container had a P M to Donald brand on it which is a very exciting for us because.
We had to go through a lot of quality review checks from their standpoint in order to allow that and they don't I don't know of any other products.
Maybe that might at Manitex product I don't know if bad techs are not bad textbook that met those products.
Ventas to Donald you know if that is that's true Steve.
Yes. It is true okay, so them, a mattress product, which they own on a percent of his ventas is auto product.
Great certainly of course, having having that brand attaches certainly yep, great, though I guess.
Perhaps one last one for me about the chassis availability asking you kind of talked about that given that class eight truck markets are kind of orders are in decline right now it sounds like someone is truck Oems are kind of catching up on their backlogs.
And then let's go back to the outlook, Yeah, and then for and then for it for next year, we're looking at a more normalized truck market given some of the freight turns out there. So you think you'll have any kind of a chassis availability issues between now and the end of 2020 or their individual parts of initial pieces there just on.
[laughter] just aren't really quite.
I'll out there right now to like to.
[laughter] truck right now.
Yeah. They like components go ahead, how do you go ahead I'm sorry go ahead. So the the component related disruptions, we experienced in the second quarter were related to chassis and as you at all Mike to chassis as had been had been tight over the past six quarters in particular and we've been managing it very closely.
Managing it very well overall production levels right now at the factories are at at in the first and second quarter were in particular at a at a very high level, what what might turn out to be a peak level for class eight truck factories, and we did experience some shipping delays some changes in the in the class eight schedule. That's alleviated now during the third quarter.
As I shared in my prepared remarks, and from our conversations with the various dealers from which we buy trucks or we don't anticipate a recurrence of some of the chassis disruption we saw during the during the quarter.
I might I might add Mike what I said in my remarks.
Oh Ria reemphasize. It was that we had stated in previous calls the last couple of quarters that as result of this issue we bought.
Ward statues than we normally would so we expanded our chassis inventory.
So that we had a we had a better offering to our customers.
If they wanted about them on our chassis so no.
It with the reduction or the diminishing of some of some of this problem.
We are actively marketing our chassis is our own chess is unsold units.
So we can oh, we can reduce our inventory as well.
So that's just a part of the inventory reduction for the back half now that as part of that but yeah. That's part of the inventory increase that we've seen.
Part of it was that we bought tattoos and that's that's part of the reason for the increase that you saw in the first six months over inventory.
And that's the that's what we say we will flow through in the second six months.
Hey, guys. Thanks, very much I will pass it along I appreciate it. Thank you. Thanks, Mike. Thanks, Thank you Mike.
And this concludes today's question and answer session and this concludes the conference. Thank you for your participation you may now disconnect.
[laughter].
[noise].