David Langevin - CEO Steve Kiefer - President and COO.

Matt Koranda - Roth Capital Partners Jordan Bender - Seaport Global.

Good day, and welcome to the Manitex International, Incorporated Fourth Quarter and Full Year 2017 and Shareholder Update Conference Call. [Operator Instructions] Today's conference is being recorded. At this time, I'd like to turn the conference over to Dave Langevin, CEO. Please go ahead, sir..

Thank you, Renée. Good afternoon, ladies and gentlemen, and thank you for your interest in Manitex International. On the call with me today is Steve Kiefer, our President and Chief Operating Officer. Please refer to our safe harbor statement as well as our SEC filings for further guidance on the many risk factors associated with our company.

Also, please see our Company website or our release for replay instructions for this call, which will be available until April 4, 2018. I will begin with a brief overview, followed by comments from Steve, and then we would welcome any questions.

As many of you know, there were plenty of accounting distractions swirling around our company over the last 6 months. These resulted from a sale of cranes to a broker of approximately $12 million in the first quarter of 2016.

The accounting was deemed incorrect for that sale in the third quarter of 2017, all of which resulted in a restatement for 2016, the full year, and 2017. This action also resulted in a thorough review by our external accountants, followed by an informal inquiry by SEC.

And as we reported in February in our third quarter results, the external accounting review was substantially complete and informal review is just getting started. We will, we expect that we will be submitting all of our restatements by Friday of this week and our 2017 10-K by next Friday, April 6.

Again, as I said on the last conference call that we did, I'd like to say that we appreciate everyone's patience during this period and the hard work of so many to get us through this process. Fortunately, the business has seen a marked improvement over the same 6 months, and we'll exit this period as a stronger and better company.

We reported today continued improvements in backlog, operating results, debt reduction, net income and earnings per share. That in spite of some fourth quarter liquidation of the remaining broker cranes we referred to as well as normal year-end liquidation of finished goods in South America, North America and Europe.

Steve Kiefer, our President and CEO, will provide more details on the operations.

But in general, our goals for 2018 at Manitex are to execute on the significant market position we have established in the mobile crane markets as well as to continue to increase our EBITDA margin to our targeted goal of 10% of sales, use our excess cash flow to grow our business and further reduce our debt.

And with regard to debt, we may further reduce the [indiscernible] in 2018 other debt by carefully reducing our position in nonstrategic assets. We're carefully building one of the worldwide premier mobile crane companies.

We've made tremendous strides during our, toward our goals in 2017 and believe that 2018 will only be better with much more integration process between PM and Manitex.

And with our strong backlog and expectations that demand will stay strong for the rest of this year, our objective is to increase production quarter-over-quarter in 2018 as we did in 2017.

With, and with steady improvements in our pricing power, we should see gross margin steadily expand as well as expecting significant advances in our operating profits and earnings per share.

I think it would be good for us to remind everyone that the last time our company was in the $250 million in sales range, we had gross margins in the 19% area and EBITDA of approximately 9%.

And this was at a time when 50% of our business was in the lower-margin material handling space, when compared to today, where we are in the higher-margin crane focus of Manitex today.

In summary, we enter 2018 with a strong and growing backlog, which provides Manitex the foundation to execute on our plan and to continue towards our long-term goal of being one of the best mobile crane companies there are. With that brief overview, I'd like to send it to -- turn it over to Steve to talk about operations in detail. Go ahead, Steve..

Thanks, Dave. Good afternoon, ladies and gentlemen, and thank you for joining us today. Overall, we're pleased to report that the fourth quarter was a continuation of the increasing production and new order intake that we reported on in each of the previous 3 quarters.

Fourth quarter net revenue of $64.5 million grew 56.9% versus the fourth quarter of 2016 and 14.2% versus the third quarter. Full year revenue of $213.1 million was up 23% versus 2016.

Increasing market activity combined with share gains for our core products, new dealers and new products all contributed towards an increasing backlog for our global operations as we moved through the fourth quarter and entered 2018.

After ending the third quarter with a backlog of $50.3 million, backlog reached $62.2 million at year-end, and we recently reported that our backlog stood at $87.3 million as of February 28. Our company-wide book-to-bill ratio in the fourth quarter of last year was 1.25.

Considering our quarterly sales of $64 million that we reported today, we're encouraged about what we see lining up for 2018. The strengthening backlog and book-to-bill ratio is primarily being driven by increasingly robust market activity for our core straight mast and knuckle boom crane product lines.

Regarding general market activity for Manitex' straight mast cranes business, industry orders were up 63% in the fourth quarter of 2017 versus the fourth quarter of 2016 as reported by the Association of Equipment Manufacturers. Industry orders in the fourth quarter totaled 406 units.

The implied annualized run rate of 1,600 units, which is simply 400 and 4 for 4 quarters, approaches the healthy levels last experienced during the 2012 to 2014 time frame and is over 60% higher than the total 2017 industry build of 956 units, per AEM.

Industry orders continued to increase into 2018 and are increasingly indicative of a strong, multiyear up cycle, which is a recurring pattern with past straight mast crane market cycles.

Against the backdrop of strengthening market activity, Manitex also gained additional market share in 2017 with our full year market share up 320 basis points versus 2016. These market share gains were driven in part by acceptance of our new products as well as new customer acquisition.

Favorable product mix order trends were also encouraging throughout 2017. Specifically, 54% of straight mast crane orders during 2017 were for the large 30-ton and higher weight classes. This is 9 percentage points higher than 2016.

As we enter 2018, orders for straight mast cranes continue to increase versus the strong levels experienced in the fourth quarter of 2017. Regarding other Manitex branded products, initial shipments of the Trolley Boom Loader began in early 2018, and initial customer feedback has been positive. Shifting to our PM knuckle boom crane business.

We continue making progress towards significant revenue and margin enhancement opportunities that exist, primarily through expanding top line revenue while optimizing our internal cost structure. In total, PM orders currently comprise over 35% of our total backlog.

This is over 10 percentage points higher than PM's representation within our total backlog at this time last year. Continued growth of the PM knuckle boom line is a top priority for our company, especially since the global knuckle boom market is over 10x larger than the straight mast crane market.

As many of you know, the market share of our PM knuckle boom line is much lower than the strong market position of our Manitex straight mast cranes. Each point of market share in the knuckle boom crane market translates to approximately $20 million in revenue.

So continuing to build out our North American dealer network while strengthening our position in other parts of the world remains a significant growth opportunity for our company and, again, one that we're pursuing rigorously. In North America, we announced 8 new dealer locations during the fourth quarter of 2017.

Dealer acquisition remains a key strategic initiative as we enter 2018 and 7 more new dealer locations have already been added year-to-date. More new dealer locations are in various stages of discussion, and more announcements will follow.

Additionally, we began initial shipments of the A62 truck-mounted aerial work platform in 2018, and we're pleased with customer feedback and interest. As announced during our third quarter earnings call, this product represents Manitex' first entry into the North American truck-mounted aerial work platform market.

Going forward, we are certainly pleased to move beyond the 3 trough years in our straight mast crane market and satisfy the increasing market demand for both our straight mast and knuckle boom crane products. Our improved product portfolio offers leading products to a diverse mix of end-market verticals.

On a global basis, we estimate that over 75% of our total 2017 sales were to 4 market segments. With those market segments being, first, the residential construction; second, nonresidential construction; third, infrastructure/government; and fourth, the utility sector.

We estimate the remaining 25% of revenue serve the energy market, rail and other applications. Sales to these various market segments are to satisfy the market demands of a growing economy as well as a strong replacement cycle. Also of key importance to us is raw material inflation.

Price levels are being monitored on a consistent basis, and price recovery is being managed in a fair and diligent manner. In summary, executing to meet increasing demand is our single-most important objective as we move through 2018.

We're confident the overall company's product portfolio, manufacturing footprint and distribution network find us well positioned for increased strength and shareholder returns in 2018 and beyond. With that, we'll open it up for questions..

[Operator Instructions] And our first question comes from Matt Koranda with Roth Capital Partners..

Just wanted to start off and clarify, embedded in the $64.5 million in revenue from Q4, how many units were recognized as revenue that were previously recognized. I'm getting to about 15.

But could you clarify that?.

Steve, do you know what the number was in the fourth quarter? It was $5 million or something like, that's what I recall..

Yes. We'll have to get that to you, Matt, and release that....

It wasn't anything as significant as what you were saying. Because we had $12 million in total. Some came in, in '16, some in '17 in the third and fourth quarter with the largest percentages. But I want to say the total in the third and fourth quarter was like $10 million in total..

Got it. Okay, so roughly $5 million, though, is kind of....

Yes. That's what I believe, yes..

That's helpful. And then just wanted to clarify in terms of the adjustments that were in the release, could you clarify what's the warranty reserve and restatement fees line item? I mean, I assume that's mostly....

We took a large warranty reserve in the fourth quarter that was because of our increase in business, and so it really flips over to a number of other quarters. So we took out a piece of that warranty reserve in the fourth quarter that was allocable to the other quarters..

Okay. Okay, got it.

And then, when I look at the gross profit line item, I mean, in terms of adjusted gross margins, what are those, what are the items in the adjustments that we should be adding back to the gross margin line just to get to a normalized gross margin because it seemed a little light relative to kind of what we're targeting for the remainder of 2018? So just wanted to get your sense for what we [indiscernible] gross margins? And then were there liquidation sales that you mentioned at the beginning...?.

Yes, so we had, we probably had a couple of points in Europe, South America and the U.S.

that related to liquidation of finished goods because our finished goods, fortunately, we generated $9 million, and when you see the cash flow and the filings, et cetera which will be forthcoming shortly, you'll see that we generated good cash from operations in 2017. And most of that came from liquidation of inventory.

We had high levels of inventory, which finished goods, which we mentioned as we were coming out of the trough because of building out finished goods or building out raw material finished goods. And fortunately, throughout the fourth quarter, we were able to move some year-end pricing on some of those, which meant we lost a couple of points.

And the quality of our -- what we're trying to transition from the trough where you have a lot of adjustments to your numbers to a period where we won't have many adjustments going forward.

So you should see less and less adjustments, and we should gradually improve as we go through 2018, as we mentioned, so that we can return back to 20% gross margins and closer, much closer to our EBITDA targets that we expect. That's what our models show as we roll out the backlog because we have, obviously, a very significant position in backlog.

So we know first quarter, second quarter what we're producing.

And so we're gradually -- now the first quarter, you don't make it up all in one quarter, especially, the first quarter, as I mentioned on the last conference call that we did in February that first quarter is a slow start because of January, but you'll see improvements as you roll from the first to second to the third.

And typically, our second and third are our biggest quarters, as you know..

Okay, got it. And I assume, I just wanted to ask one more on this quarter, just in terms of the -- I think when you preannounced the headline numbers last call, you had mentioned $15 million to $16 million in full year adjusted EBITDA. I guess, it actually came in a little lower, so.

Yes, it came in lower, and that was because of the inventory selloffs that I mentioned. And really, as you know, we're scrambling as fast as we can to get information to our shareholders so we can stay current and everybody can stay current as close as we can. And so what we would normally have scrubbed through.

And it was really my fault because I'm the one that gets the information, and I didn't have that completely built in when I gave you that number, so that was my error..

Okay. All right. Got it. And just -- I guess, it's fair to say your book-to-bill has been running well over 1 throughout this year..

That's correct. That's right..

And obviously, the backlog that you guys released for pretty much the month of February indicates that.

Just wondering if you can kind of speak to what you've seen since then? Give us a sense for sort of how that's tracking in March as well?.

Steve, do you want to comment on that?.

Yeah, order activity in January and February and March month-to-date are up over the levels that we experienced in the fourth quarter of last year.

So at this point, Matt, the news that we saw in the fourth quarter and reported on with our book-to-bill ratio 1.25 for the fourth quarter, it's only strengthening from there on a month, on a quarter-to-date basis..

Got it. Okay, That helpful. And then PM, I was interested in hearing your comments on sort of PM and the backlog because I was under the impression that that's not as much of a backlog business for you guys typically, but that's now representative of -- I think, you guys had mentioned something like 35%....

35%..

35% of your backlog at this moment.

So what -- I guess what explains that and that's up 10 points year-over-year, but qualitatively, could you help us understand why that's up so much higher in terms of the mix?.

Well, a couple of things. Obviously, they are getting hit with -- fortunately, this is a good problem -- a lot of orders. And -- but you're right. Historically, over the period that we owned PM, it was not a large backlog company, but that has just expanded because of the business -- the time of the business.

And then -- and I assume that it'll stay -- I don't know, Steve, if you think it's going to continue to grow or not. You're closer, obviously, to -- you've made many trips over to Europe recently, so you know what's going on. I assume they're going to be ramping up their production as well..

Yes. They'll be ramping up production. But at the same time as we build out our dealer network in North America as well as increase our market share in Europe and Latin America, I would anticipate that, on a forward basis, that PM's representation within our backlog will see some modest growth..

Got it. Okay. So it's associated primarily with the build-out of the dealer network in North America.

Is that maybe fair to say?.

That's in part. A portion of the increase, absolutely..

Okay. Got it. And then you mentioned -- I know, how you guys did talk about in your prepared remarks how you are monitoring raw material input and with the understanding that you guys aren't really buying a whole lot of raw material, you're buying a lot more components and finished goods.

Could you just help us understand sort of how the increased steel pricing filters through to you? And obviously, you've had, sort of, a competitor put out the fact that there are surcharges to recover higher steel pricing, maybe not in directly competing products but at least that competitor has put out surcharges.

So just wondered if you could sort of comment on what your approach will be in the steel market?.

Sure.

You want me to take that Dave? Or do you want to provide an overview?.

Yes, go ahead..

So Matt, I guess I'll break it down into PM and then Manitex, which are the 2 primary users of steel within our business globally. PM implemented a 2.3% price increase January 1st of this year. That pricing started to come into effect late in the fourth quarter but was implemented across the board January 1.

And as you're fully aware, Matt, steel price inflation really is a global issue and has been occurring even since some of the recent announcements within North America. Regarding Manitex, we've reported previously that we have been reducing the discounts as we move through 2017.

And that remained unchanged in 2018 in the sense that we continued to reduce discounts on our machines every extent possible. Then in -- we just recently announced to our dealer network that in March -- right around mid-March, March 15th, a 3% price increase went into effect for Manitex products. That is in part to cover the steel price escalation.

And additionally, the last time Manitex had a stated price increase was in 2015. So there's a number of factors that went into that. So overall, on a global basis, we continue to monitor commodity price movements. And going forward, we'll flex up or down with surcharges as others in our marketplace are doing..

And then steel as a percent of your cost of goods sold, could you give us a rough....

Yes, it's less than 50%, Matt. It really varies by product, so I can't give you a one-size-fits-all answer, but it varies by product, but overall less than 50%..

Okay. Got it. Lastly, maybe Dave, you guys have mentioned both in the written release and in your prepared remarks the desire to prune nonstrategic assets. So I assume part of that may refer to the stake in ASV.

But are there other elements of the business that can be pruned and generate cash for you to kind of continue to drive down that debt line item on your balance sheet?.

Yes, we have other products that our model, as you know, over the last few years has been to really concentrate on our mobile crane business, and we have products within our portfolio that do not fit that, those categories. So we will identify those, and just as we've done in the past privately, take care of those as we go through '18 and '19.

So just, our goal is to really reduce our debt down to a negligible level. We've made great progress to go from $225 million in debt down to slightly less than $90 million, but we want to take it down even further so that we have no problems with the downturns or with funding the cycles that we're in now, which is during the upturns..

[Operator Instructions] And we move next to Mike Shlisky with Seaport Global..

It's Jordan Bender on for Mike.

So from a balance sheet perspective, do you think you'll need more working capital later this year? Do you feel that the first half sales can help fund the second half production?.

Yes, we believe that we have, obviously, through all of our sources, we've got good availability on our lines. You'll see some of that as we start to file our public filings. And obviously, we've announced recently that we've extended our European loans, our South American loans, our U.S. loans.

So we're in good position, we believe, to fund our growth, yes..

Okay.

And then without getting into too much detail, given the strong growth this year, are you, can you give us any color on how adjusted EBITDA margins might fair this year? Could you get into the 25% to 30% incrementals?.

In some product categories, yes. Across-the-board, I just want to hit one goal at one time, and the first goal is hit 20%. So we're focused on that and, certainly, that will happen this year. And then as far as how deep we can go beyond that, our models show that we can. But as Steve said, our main goal right now is execution..

Got it.

And then are you guys having any supply chain constraints at all?.

Well, we're a component variable cross-company. So in other words, as Steve mentioned, we pretty much assemble all of our products everywhere around the world. So it's always a challenge for us to make sure that our supply chain is current with our production levels. That goes hand-in-hand with the model that we work under.

So we have issues every day, and our job is to make sure that we recognize those issues in advance and that they don't become a problem..

Alright, guys. I think I passed it off. Thank you..

Thank you..

Thank you. And it appears there are no further questions at this time. Mr. Langevin, I'd like to turn the conference back to you for any additional or closing comments..

Okay. Thank you, Renée. Thank you, everyone, for your interest in Manitex, and we look forward to getting our filings current and having further calls in the very near future to report our first quarter earnings. Thanks a lot..

Thank you. This does conclude today's presentation. We thank you for your participation..