David Langevin - Chairman & CEO Steve Kiefer - President & COO.

Brad Noss - Roth Capital Partners Mike Shlisky - Seaport Global Michael Shlisky - Seaport Global.

Good day, and welcome to the Manitex International Incorporated First Quarter 2018 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Dave Langevin, Chairman and CEO. Please go ahead, sir..

Thank you, Melissa. 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, which will be available until May 16, 2018. I will begin with a brief overview, followed by comments from Steve, and we will then welcome any questions.

In our first quarter update call of a year-ago, we stated our optimism that the demand environment for our equipment were showing signs of recovery after several years of decline triggered primarily by the energy price reductions and a lot used equipment in the market.

We can now say with confidence that the recovery has arrived and we are participating in what appears to be a multiyear upcycle. Also with the distraction of our restatement largely behind us, we can focus now on the improved business environment and the pursuit of the selling our straight-mast and knuckle boom cranes.

We've announced a number of new knuckle boom distributors in North America recently, including Walter Payton Equipment, Fallsway, Cobalt Crane and many others. And we continue to see increase in order patterns from our straight-mast crane dealers as well.

Our backlogs are up, our production schedules are increasing, and we look forward to what we believe will be a solid year of growth. First quarter revenues were up substantially from a year-ago and in line with our first quarter expectations.

Our gross margins showed good growth over the last quarter, and as we stated today in our release, we expect continued improvement in our EBITDA percentages throughout this year. The largest potential for growth for the Manitex group of companies remains the knuckle boom crane market.

As we have stated in previous releases the knuckle market is 10x the size of straight market. As we noted in today's release our knuckle backlog represent an increase in percentage of our overall backlog. So we believe we are on the right path.

And with our backlog of over $85 million and with consistent strength in orders, our expectations are for sales expansion in the second quarter, and steady production increases throughout this year.

We have consistently maintained that our strategy of divesting lower margin businesses as we did over the last several years would lead us to EBITDA margins, which exceed 10%, and we should achieve this goal as we proceed in this recovery.

Organizationally, I'm pleased to mention today that we recently hired a senior-level corporate financial executive in the capacity of VP Finance and Corporate Controller. She has more than 20 years of operational experience. We look forward to her future contributions and her starting date will be May 15.

I like to finish by reaffirming that debt reductions remain a strategic priority in the long term, and our short-term goal is to maximize sales and profits, which require current working capital.

We further believe that with the simplification and transformation of our company over the last several years, we are in a great position to maximize shareholder value through this upcycle. With those opening comments, I would like to turn it over to Steve for more detailed operational data.

Steve?.

Thanks, Dave. Good afternoon, ladies and gentlemen, and thank you for joining us today. We are pleased to report today that the sequential strengthening and demand for our key products and geographies that we reported during each quarter of last year continued in the first quarter of 2018.

First quarter net revenue of $56.7 million was up 41.3% versus the same period last year. Increasing market activity, combined with market share gains for our core products, new dealers and new products, all contributed towards an increasing backlog for our global operations.

We ended the first quarter with a backlog of $88 million, which was up $26 million or over 40% since the end of 2017, versus September 30, of 2017, our backlog was up 75%. Our company-wide book-to-bill ratio during the first quarter also experienced significant growth and was 1.44 versus the book-to-bill ratio of 1.25 in the fourth quarter of 2017.

Based on the strengthening market and backlog, we are increasing production levels at our key global facilities as we have reported on the last few quarters, and we are anticipating second quarter net revenue to exceed $60 million with an EBITDA margin to exceed 8%.

The strengthening backlog and book-to-bill ratio is primarily being driven by increasingly robust market activity, for both our core straight-mast and knuckle boom crane product lines. Regarding general market activity from Manitex' straight-mast crane business, industry orders were up 7% in the first quarter versus the fourth quarter of 2017.

Total industry orders in the first quarter of 461 units translates to an annualized run rate of over 1,800 units. This level of straight-mast crane market activity has not been experienced since the 2012 to 2014 period. Additionally, an annualized build of 1,800 units is 88% higher in the 2017 and its rebuild of 956 units.

We believe 2017 was the last year of a deep 3-year downcycle for the straight-mast crane market, and going forward, we believe the market is entering a strong multiyear upcycle that is being driven by an aging fleet, solid economic activity, and operators increasingly recognizing the versatility and cost benefit of cranes mounted on commercial chassis.

Furthermore, continued strengthening of straight-mast crane demand has been accompanied by mix patterns that are very favorable to Manitex. Specifically, 62% of straight-mast crane orders during the first quarter were for the large 30-ton and higher capacity ratings.

This is approximately 8 percentage points higher than the 54% level experienced in 2017, and 17 percentage points higher than market levels in 2016. We are encouraged that upcycles in the straight-mast crane market are typically several years in duration.

To execute the opportunities associated with such an upcycle, we are further sharpening our focus in 3 areas. First, operational excellence; second, portfolio enhancements and additions, and the third customer support.

We are confident that increased focus in these areas will strengthen our financial returns and allow us to continue reducing our already significantly lower debt levels. We believe that our performance in these areas will significantly benefit our shareholders.

Regarding our PM knuckle boom crane business, we continue making progress towards a substantial 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 38% of our total backlog, which is over 10 percentage points higher than PMs contribution to our backlog in early 2017. Continued growth of the PM knuckle boom line is a top priority for our company, especially since the 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. Comparatively, the market share for our straight-mast crane products exceeded 50% in the first quarter and the market share for our knuckle boom crane products was less than 3% in the first quarter.

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 positions in other parts of the world remains a significant growth opportunity for our company, and again, one that we are pursuing diligently.

Looking at other areas of the company. We saw growing demand for products produced at our Badger and Sabre facilities. These businesses were severely impacted over the past few years by a decline in the respective end markets.

We are encouraged the Sabre and Badger businesses have the right mix of products and opportunities to resume their long-awaited return to accretively impacting Manitex earnings, and we made the appropriate operational adjustments to prepare accordingly.

Additionally, we began initial shipments of the Manitex-branded A62 truck-mounted aerial work platform in North America and the Manitex-branded trolley boom loaders. These products -- these product launches experience typical sort of an efficiencies in the first quarter that were quickly understood and resolved.

We are excited about the future prospects for both of these products. Going forward, we are certainly pleased to be moving past the 3 trough years in our straight-mast crane market and satisfy the increasing demand for both our straight-mast and knuckle boom crane products.

As Dave mentioned in his remarks, we are pleased with our strategy and the direction of our company. Our improved product portfolio offers leading products to a diverse mix of end-market verticals.

On a global basis, we estimate that over 70% of our backlog is serving 4 market segments, with those segments being the residential, nonresidential construction, infrastructure and government, and electrical and telecom utilities. We estimate the remaining 30% of backlog will enter service targeted towards energy, rail and other applications.

Sales to these various segments are to satisfy the market demands of a growing economy, as well as strong replacement demand. Also of key importance to us is raw material inflation.

Price levels are being monitored on a consistent basis and the appropriate surcharges and price increases were implemented in the first quarter and are 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 are 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. Thanks for your time and interest in Manitex International. We will now open up the line for questions..

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

This is Brad Noss on for Matt.

I just wanted to just start looking at the inside orders, and it looks like sort of inside orders are trending pretty strongly this quarter, I just want to kind of see what your -- what you've seeing just since quarter end through beginning of May here? Do you continue to see similar levels of orders, kind of in that continued high single-digit quarter-over-quarter growth or what the dynamics are there?.

I believe....

Go ahead Dave..

Okay. I was going to say, I believe that our production levels in this quarter are increasing and I think we are a little bit ahead as far as orders to -- production at this point. But Steve you're closer to it, so you might have a better response..

Yes. We don't have any industry data yet to report since the beginning of the second quarter, however, internally, our order patterns remain positive and growing, and as broad-based just like we saw in the first quarter..

Okay, got it. That's helpful. And then just looking at the 11% market share increase.

I think you said since the end of 2017, like can you just talk about what's really has been the main driver of being able to gain back that market share?.

I believe, probably the single biggest driver would be some of the disruptions in the supply chain. And the work that goes into ramping up production at some of our competitors facilities and I'm speculating -- I don't know all the reasons, obviously, we believe we have a terrific product, the best in the market in our view.

Backed by in our view, one of the best if not the best dealership networks. But I would, I would speculate, Brad, and assume that another key driver and part of the significant Q1 market share increase would be some of the supply chain disruptions we've heard about in other calls..

Okay.

And I think, we've heard sort of similar things regarding some of your competitors seeing tightness in their supply chain, but have you seen any tightness in your supply chain specifically? Or have you seen freight or labor causing any issues during the quarter or since quarter end?.

No -- we reported, previously that we saw the supply chain for some of our key items like, like truck chassis, for example, starting to tighten in the second quarter of 2017. And we applied increased resources at that time to manage it appropriately.

And that's -- we reported that's what we get paid to do it, so manage the supply chain and prepare accordingly. We have seen additional tightness in other areas. We haven't experienced any shutdowns in our facilities due to the tightness.

So we have it time to time experience interruptions to the extent that we have to move cranes and slots around to reslot machines at a given point in the week or the month to accommodate a delivery of a certain component we know it's going to be delayed in some way.

But we've put a lot of resource into managing our supply chain and continue to do so..

Okay. And then just maybe one more here from me. Just regarding the pricing environment, you had mentioned some price increases as well as surcharges that you put through in Q1. It seems like some other competitors, sort of have a specific approach for going to a full-price increase relative to just doing a surcharge.

Can you just talk about how you approach the dynamic there? And just how well those price increases have seem to stick so far?.

Well, throughout the industry and beyond the crane industry, the issues with steel pricing are well understood. So even though our dealers and customers aren't happy with the dynamics of the steel market and how it's impacting pricing, they have accepted the pricing because they know it's a problem that we all share together.

We have for our crane businesses, which as you know, comprised primarily PM and Manitex, we have implemented price increases in the first quarter of this year. And that the other businesses were managing primarily through a mix of pricing and surcharge depending on some of the smaller businesses and the dynamics of those specific end markets..

We will next take a question from Mike Shlisky with Seaport Global..

So I wanted to follow-up on your last comment there about the pricing.

If I was reading your release and kind of hearing your comments directly, did you go back into the backlog that was existing and reprice some of your older orders for the current environment? And if so, that leaves any customers who may have canceled their orders? Or is this also pretty firm in the backlog here?.

No. We -- we did not go back into the backlog and reprice units and we communicated very proactively earlier in the year, how we're going to manage this.

So there is transparency about how the backlog was going to be handled and we stress that this was going to be a forward-looking action in that cranes that customers have previously ordered would not be impacted.

But keep in mind Mike, the conversations we've had on previous earnings calls about how we are managing is that, we have sequentially quarter-over-quarter been reducing the discounts for our cranes, which is very meaningful because as we are doing that, we were -- reducing those discounts, based on what we are seeing in the steel market and sharing that with our dealers.

So the transition from reduced discounts to a price increase do not necessitate going into the backlog and we would not want to put existing orders at risk anyways. So it's all forward-looking..

Mike, the improvement that you're seeing in the first quarter, fairly dramatic improvement in our gross margin and getting much closer to what our stated goals have been is really the results of many quarters of work that Steve has done and his team has done to build profits in that backlog.

So we are hopeful that obviously the backlog we have now will have -- those are greater as we go forward..

Okay. Got it. Kind of moving on here.

I wanted to check in with you on the A62, could you gives us little bit more color about kind of how that's going? Maybe how many dealers have taken it on, if you got any great orders on it so far? And could you confirm or update us on whether that plus new trolley booms can still add additional $20 million to top line this year?.

Yes. So the -- we started orders in the first quarter, those will accelerate in the second quarter, Mike, for both of those products.

We are still early in the year and, but for both of those products as well as the -- trust crane that we talked about the 2085C, we talked about in previous calls, I'm just still optimistic that we're going to meet the objectives we talked about in previous calls for those. They are performing well in the market.

They are being received well and I expect they're going to have great prospects going forward..

Okay. And then going back to the knuckles and mast and the straight-mast.

Are you at this point pretty much fully booked you think for 2018? Are you already taking orders for delivery in 2019 at this point? Or are your comments that we are in a sort of a multiyear upcycle more just coming from your customers as to what their thoughts are (inaudible) international orders yet?.

Now looking at our backlog at the beginning or the end of the first quarter would that be $88 million. There is a lot of open slots in the second half of the year and the other thing to take note of is the PM products. They tend to be a shorter sales cycle.

So they don't book out as long typically as some of the other cranes that larger cranes that you may follow in the industry from some of our competitors. So we have opened flat (inaudible) a sales store in the second half of the year, and our teams, internal teams and dealers are hard at work doing so..

To comment about the multiyear cycle. It's really around the macro environment that obviously, we've not had a huge replacement cycle at this point. You are seeing that in Europe, because they did not have the -- they have not seen this kind of orders for 10 years. So it's -- they did not have an energy upcycle, so they didn't experience any of that.

So that's clearly into the replacement cycle and we are seeing orders in the U.S. and North America, which also go back to prior to the year 2009 significant downturn.

So what our expectations are is that we will because of just a natural process that you go through that we will see a multiyear cycle, as well as discussions with dealers who are telling us that their customers are working on 2019 orders..

But in the end here guys, I mean, having empty wheel slots at this point of the year is totally normal, it sounds like for your business?.

Yes. Especially as Steve mentioned on the PM side because that's a much shorter cycle process. So you get those orders and process some through, but they are experiencing backlogs they haven't seen in a long time. And -- they have some visibility, they haven't seen in a long time.

So it's -- they will have a good period as we go into the second quarter..

Perfect. That's great. Just 1 last 1 from me. About the outlook on Q2, I think first of all, I want to thank you for giving us an outlook on Q2, you haven't done that in the past. And I imagine that there is some good visibility. I'm trying to get a sense for the tax rate in Q2 and for the rest of the year.

Are there any unusual lumps, we should be concerned about in Q2 or even in Q3 or Q4 about when some of your -- if you have any book losses that might be offsetting or is that still going to be a pretty smooth tax rate for the rest of the year..

The NOLs that we generated in the last couple of years, of course, will help alleviate cash taxes for this year more so in the U.S. then around the rest of the world because most of our NOLs were based in our U.S. markets over the last couple of years.

But our effective rates from a book standpoint will be consistent with the statutory rates in the respective country. So I would expect in -- this is somewhat new to all of us because of the change in the tax laws in the U.S. But I would assume that we would be closer to the statutory rates going forward because of just booking differed liabilities.

Our excess taxes paid will be minimized because of carryovers..

[Operator Instructions] We will next go to Michael Shlisky with Seaport Global..

I'm back, 1 or 2 more questions, if you don't mind. FX, I was curious if that impacted -- if that increased your debt at all just because of the transition in Q2? And was there any sales impact in Q2 as well? Sorry in Q1. I apologize Q1..

Yes, we did show a small FX loss in the first quarter that's attributable to South America, but it was not -- it was $100,000 a little over $100,000 so that's significant. But it was nothing like we've experienced in the past, which has been many times that amount.

And obviously, we hedge everything all over the place, except for Argentina, because it's not cost efficient to hedge in Argentina. But we think we haven't managed there, so we do not have any further FX impacts there, but most of our European product ends up in Europe and most of our North American products ends up in North America.

So we have a pretty clean FX impact..

Okay. I just wanted to get a sense as to how to model 2019, not just for guidance numbers. But you're looking at Q3 and Q4 potentially being sequentially better than Q2. You kind of mentioned that for quite some time. But was the Q1 numbers in the low '50s here or -- sorry in the mid-50s on top line.

Was there anything unusual or is the kind of '60s, high '50s run rate for top line beyond 2018, the appropriate way to kind of look at it..

Well, let's kind of build this up with one year at a time. If -- and as you know, we had some restatements, but if you look on a pure statement basis in '17 we are $213 million top line basis realizing that $12 billion (sic) [$12 million] of that $213 million related to last year or to '16 that fell into '17 because of the restatements.

But if you start at $213 million and we expected because of fourth quarter some liquidations and year-end aggressive pricing that we did, which was reflected again in the margins in the fourth quarter, which we didn't do. We did less sales, but more margin in the first, so that's good.

But I expect that each quarter this year, if we hit the midpoint of what we've guided to then we'll be at a $236 million annualized rate for, if we just don't do anything else other than second half, same as the first half, but I expect the second half will continue to build because that's we are planning to as something that cycle continues as we expect.

And then I would expect another up year in '19. So we should end the year, again this is not guidance, but just some math from the numbers that we have indicated.

Somewhere I would assume $240 million to $250 million, which would be up substantially from '17, and then obviously, our goal is to continue to grow market share and breadth of our products in -- especially in knuckle side because as Steve said, a point there means a lot to us.

So we are obviously aggressively going after the knuckle side in the markets that we participate..

Dave, just to kind of clarify on that one last time here. So what's left on the comping now that ASV is off the books, and now that other trailers and other stuff is now sold to other parties. It's all gone.

I was just kind of wondering is the Q1 revenue this year, is this year's potential seasonality give much of an outline for 2018, is that the way it is supposed to be going forward, where Q1 is a much lower core than the rest? Or is this more of a ongoing run rate business here starting in 2019?.

Well, in 2017, we did $40 million in the first quarter that was -- and at that point as you know we still had ASV, but we carved out the discontinued businesses. So and it was a different market at that point.

Obviously, it was going up from -- if you go back further in 2016 on a pro forma without all the other businesses, we are in the 170 range, so we went 170 to 213. First quarter as you say, is always a slower quarter, it's always a slow start. So our expectations where there would be.

January is always a difficult month because of inventory and other issues. But then the second and third quarters are your biggest quarters typically.

So I would expect that we will be up second and third quarter, and then the fourth is always hard to handicap because sometimes we get year-end pushes is always as good, as you know to -- if we're close to $250 million, we will probably push to get $250 million in '18, and that's way things tend to operate when you're in a good environment like we are now..

Thank you. That concludes today's question-and-answer session. At this time, I will turn the conference back to Dave Langevin for any additional or closing remarks..

Thank you, Melissa. And thanks, everyone, for your interest in Manitex. We look forward to future quarters. Thank you very much..

That concludes today's conference. And thank you for your participation.+.