Good day, and welcome to the Manitex International, Inc. Fourth Quarter and Full-Year 2018 Results Conference Call. 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 very much, Sebastian. 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; as well as Laura Yu, our Senior VP and CFO.

Please see our website or our release for replay instructions for this call, which are available until March 21, 2019. Now please refer to the first slide regarding our Safe Harbor statement. We ask that you review this statement and also refer to our SEC filings for further guidance on the many Risk Factors associated with our company.

I will begin with a brief overview. Laura will present a financial summary, followed by an operating commentary from Steve, after which we will welcome any questions. Please now turn to Slide number 3.

Manitex really had a significant year in 2018, and as a shareholder I take great comfort in the substantial improvement on our balance sheet over the last couple of years. We've been on a steady path to improvement, carefully and methodically reducing our debt over several years as well as simplifying our operations and product concentration.

We are now a focused company in the mobile crane lifting area with a product offering of straight and knuckle mast cranes. We also have to compliment our organization for expanding gross margins in a period where component costs were constantly increasing.

We believe much of these increases have been absorbed and are behind us, which should allow for further margin expansion in 2019. I also wish to communicate that while we have seen overall operational improvement, we believe that we're not even close to our peak sales or profits.

And we do believe we still have a long way to go in enhancing value for our stakeholders. We will continue to grow sales while reducing costs as well as continue to improve -- prune non-strategic assets.

Our plans are to combine these steps with the successful introduction of internally developed products which will be delivered over a larger geographical landscape. Now, let's review some specifics on our year-end results.

Our revenues were up 14% year-over-year, our full-year adjusted EBITDA was up 26%, our full-year adjusted earnings per share was up 65%, and as I alluded to earlier, our net debt ended the year at $48.5 million, down from the year ago balance of $90 million.

Our bottom line was impacted primarily by non-cash, non-operating adjustments such as a decrease in the holding value of our marketable stock, goodwill impairment charges, and changes in estimates, along with other items all of which are detailed in our release. A significant indicator of the future is our reported backlog.

Business was particularly sluggish in the fourth quarter of last year, especially in our European and South American markets. However, as we reported today, January and February saw a nice bounce back, and our backlog stood slightly over $80 million at the end of February.

This is the first time we've been back in the 80s in backlog since the first quarter of 2018. Orders were particularly strong in February, and as a result of this very strong booking month, we can expect the usual seasonal strong second quarter.

And as we saw last year and which is normally the case, the second and third quarters of the year are our best quarters. This year, so far is shaping up to be a normal year with production starting slowly during the winter months with backlog building which produces second and third quarter results.

We are rapidly filling up our production slots for the second quarter of this year at our U.S. plants, and we are planning solid increases in production in the second quarter over the first. We're also planning for production expansion in our European plants for the second quarter of this year based upon robust first quarter orders.

However as many of you know, the European products have a shorter manufacturing cycle, which reduces the long-term visibility when compared to our U.S. built products.

Some other details in 2018 which we thought might be of interest; slightly over 60% of our 2018 sales were generated in North America with 20% plus coming from Europe, which leads us into our Tadano relationship. We continue to make solid progress with our Tadano partnership.

As we reported today, we signed an outline for commercial agreements for the Asian markets with Tadano in January, and they placed an initial starter order at the end of February, early March, with delivery to the Asian markets in April of this year.

Finally, we agreed to start reviewing the process of eventually selling PM products in Asia under the Tadano brand. However, I do want to caution everyone regarding this branding opportunity, while this is a significant event for PM, the process is rigorous and lengthy, but it will be well worth the effort.

Finally, I would again like to thank the entire Manitex team for extraordinary efforts in 2018, where we achieved very positive results under very difficult conditions and kept focused on our primary goal of creating value for our shareholders.

With those opening comments, I would like to turn over to Laura for financial review and finish with Steve discussing operations.

Laura?.

Thanks, Dave, good afternoon. Thanks for joining the call today. Let me direct your attention to Slide 4 which is Q4 operating results. Revenue was down 6% at $60.6 million compared to the fourth quarter last year primarily due to lower PM sales in Europe. Adjusted gross margin was 17.3%, up 70 basis points versus the same quarter last year.

Our fourth quarter 2018 adjusted net income was $1.2 million or $0.06 per share and adjusted EBITDA was $3.5 million, up 13% compared to the fourth quarter last year.

The fourth quarter 2018 results include $12.1 million one-time, non-recurring adjustment, of which $7.6 million was a non-cash charge related to the impairment of goodwill and tradenames at PM and inventory E&O reserve as a result of changes in accounting estimates.

Also included in the $12.1 million adjustment was a $3.2 million charge related to the change in fair market value of the ASV shares owned by Manitex. Turning to Slide 5, full-year 2018 operating results. Full-year revenue was up 14% to $242.1 million compared to the prior year.

Our backlog was $80 million as of February 28, 2019, a 30% increase compared to year-end 2017. Adjusted gross margin was 19.4%, almost flat compared to 2017, which was a result of effective execution of the team despite the headwinds caused by rising component prices in the year.

Full-year 2018 adjusted net income was $6 million or $0.33 per share, up 65% compared to $0.20 per share from 2017. Full-year 2018 adjusted EBITDA was $17.4 million, up 26% compared to 2017. In 2018, we grew sales, improved adjusted EBITDA margin, and significantly increased adjusted EPS.

Overall, our team executed well and completed a strong year for Manitex. Turning to Slide 6, net debt update. This slide provides a breakout of the net debt by quarter. We reduced net debt further in the fourth quarter by almost $1 million to $48.5 million, the lowest level we have seen in many years.

Compared to year-end 2017, we have reduced our net debt by $42 million. With that, let me turn it to Steve..

Thanks, Laura. Hello everyone and thanks to all of you for joining us today. After closing a solid year of improvement in revenue, adjusted EBITDA, and adjusted EPS, our global markets remain strong as we enter 2019.

Overall our key businesses are well positioned to deliver ever improving results, while we have limited cautiousness regarding factors such as Brexit and growth for parts of South America where we participate.

After generating 14% year-over-year revenue growth in 2018, and realizing a book-to-bill ratio of 1.1 in the fourth quarter, we are targeting revenue gains in 2019 approaching double-digit percentage levels.

Regarding operational details, our teams continue to effectively manage the various surcharge, supply chain capacity, freight costs, and tariff issues that we reported on throughout 2018. We worked diligently to both offset these costs and pass them on to the marketplace in an appropriate manner.

The total impact of these factors normalized in the latter part of 2018 and we're pleased to enter 2019 with the aggregate impact of these costs fully reflected in our backlog pricing. Shifting to an update on market and commercial activity, the positive metric markets that we discussed throughout 2018 continue into early 2019.

Our internal channel checks combined with data from outside sources show continued robust rental fleet utilization for the various mobile cranes within our product offering.

Regarding our Manitex branded line of straight mast cranes, we finished the year with over 40% market share and begin 2019 with an outlook for increasing activity and a number of important market opportunities. Industry shipments for straight mast cranes in 2018 were up 24% versus 2017.

More importantly as we move into 2019, with industry orders last year which were 24% higher than the industry shipments. This positive order trend continued into 2019 with January orders exhibiting an annualized rate of 1,500 units. This annualized rate is 29% higher than 2018 shipment levels.

Additionally, orders continue a healthy pattern of diversification across the various weight classes with 60% of the total orders biased towards the heavier 30-ton and higher weight classes which drives positive mix for Manitex.

The Manitex's team in Georgetown, Texas, has been taking the necessary operational steps to prepare for increased shipment levels in 2019 with headcount in January up 14% since the end of the third quarter last year.

In general, we believe we remain in the early period of a multi-year replacement cycle with an increasing number of cranes being replaced from the 2004 to 2007 period when industry volumes were over 2,000 units per year.

Regarding our PM knuckle boom business, increased penetration into this expanding multi-billion market is our largest opportunity as we enter 2019 and a key element of our multi-year growth plans.

As I previously mentioned, each point of market share in the knuckle boom crane market from our low global base translate 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.

The build out of the North American dealer network continued in 2018 with 14 dealer locations added throughout the year. We are taking steps to properly manage increasing order and shipment momentum by completing a dedicated knuckle boom design, assembly, and mounting facility in Georgetown, Texas.

Additionally, we are launching a Manitex branded line of knuckle boom cranes to leverage the strong Manitex brand in North America. The PM Group in Europe also remains focused on strong order growth, margin expansion, and new product development.

In the fourth quarter of 2018, we launched restructuring activity pertaining to our PM knuckle boom crane and oil and steel truck mounted Aerial Work Platform businesses.

This initiative will be completed in the second quarter of 2019 and provide annual savings over $1.6 million with restructuring costs of $1.2 million primarily related to severance costs.

Regarding growth and new product development, a number of new product development programs are progressing satisfactory for our Valla, Oil & Steel, and PM product lines. Each of these brands will be introducing important new products at the Bauma Trade Show next month in Munich, Germany.

These products will serve a number of market segments including distribution, construction, utility, and military. In closing, executing to meet our revenue growth, margin expansion, and new product development goals in 2019 is our primary objective.

We're confident our internal actions of investing during the down cycle and a competitive product portfolio, optimizing our manufacturing footprint, and expanding the distribution network for all of our product lines finds us well positioned for increased strength and shareholder returns.

We are working hard to increase value for our customers, shareholders, employees, and other stakeholders. Thank you for your time today and your ongoing interest in Manitex International and thank you to the entire Manitex team for solid gains, continued hard work, customer service, operational discipline, and overall execution.

Dave, Laura, and I would now like to open the line and start our question-and-answer session.

Operator?.

Thank you. [Operator Instructions]. We will now take our first question from Matt Koranda from ROTH Capital. Your line is open. Please go ahead..

Just wanted to start off with the bookings figure, so Q4 bookings did look a little off I guess year-over-year during the December quarter, but it looks like things picked up in January and February given that that backlog number you shared is up quite a bit there.

So what were the drivers of that increase and have the better order rates sustained into the March month thus far?.

So the breakdown was -- thanks Matt, thanks for the question. The breakdown for January and February was low 20s in Europe, so the increase was up into the low 20s of the $80 million and the balance was the U.S. market, so in the high 50s.

And it was in the fourth quarter -- it just -- when we reported in the first part of November, things look pretty good, but things move fast in the European markets.

And again, as I mentioned in my prepared remarks, we don't have the visibility there, so we had to adjust quickly, and it just I think was with the year-end all the year-end issues around the world, people just were not buying in the European markets, but unfortunately that seems to have abated which is great.

And as far as I know, it's continuing because I think Steve you got more up-to-date information. But the March numbers so far have been good week-to-week..

Yes, yes they have. The March numbers have been a continuation of the February trend..

So what happens, Matt, as you know, is we -- we're not going to build those units in the first quarter, but we're certainly going to build them in the second quarter in Europe. So that bodes well for a nice second quarter and of course since we have been building backlog steadily on the U.S. side, that also bodes for a good, strong second quarter..

Okay, that's helpful. Just curious to get your take on sort of the strength in Europe that you're seeing.

I mean you mentioned the pickup in February and maybe in the end of March here, seems to kind of go against I guess some of the wider macro data points coming out of Europe lately, but just any thoughts there on sort of what's driving the confidence among your customer base there?.

Well I guess you always have to consider that we are a small player in the European markets. As you know, overall, we believe we have something like 3% market share. So I think -- and it is a growing market, so the knuckle business just keeps growing in the U.S., it keeps growing in Europe, it keeps growing in Asia.

So, I think just participating in a growing market because you're right, there are a lot of a -- lot of negative factors in Europe.

And I have to say we have not seen unless you've seen it, Steve, I haven't seen it yet in South America, but it is picking up a little bit in Chile because we're primarily in the Chile, Argentina region and in the surrounding countries there, we're not in Brazil.

So businesses, I don't want to give you the impression business is terrible, but it's -- has not kept pace with Europe and the U.S..

Okay, that's fair. And just to tie it altogether, I know you guys don't always give annual guidance. But if I think about sort of order flow down a bit in 2018 versus 2017 in order to grow into 2019, I guess what we're relying on is a strong first half of bookings to sort of eclipse the $242 million of revenue that you achieved in 2018.

I mean is that the right way to sort of think about the cadence of bookings in the first half of the year..

Yes, so Matt. We were up 14% from 2017 to 2018. In Steve's remarks, the indications are we're trying internally to go up again by that level or somewhere near that level, so that would get us into the 270 range -- somewhere in that neighborhood. But it is dependent on exactly what you said having momentum carry through.

Last year, we had, as you know, a very good start to the year and then the momentum died or slowed in the third quarter here in the U.S. and the fourth quarter in Europe, so that's why I alluded to a very inconsistent demand pattern last year and a very consistent cost pattern. Costs are always going up.

So, it was a tough year, but we managed through it. We executed well, our teams executed well, and we expect the same execution in 2019 and we hope we have a more consistent demand pattern..

Okay. Understood on that front. On the knuckle boom product, I just wanted to touch on the Tadano opportunity for a second if I could here. It sounds like initial stocking orders are probably modest in size here.

But any color on sort of where that's being put through in Asia? Where the product would be produced? And then, what do they need to see, I guess in terms of product performance or other items that are under your control to place additional orders, and could we see those within 2019?.

Very good question, Matt. And those are very important issues for us, the ones that we're putting a lot of attention on. And it is good that they give us an initial small stocking order with Indonesia and Thailand, those markets.

And it makes sense because obviously they want to start as they've been doing all along since they made their investment last May, cautiously and steadily.

So they want to see how the parts or how the machines are introduced into those countries, how the parts and service support those products because you don't want to go in with a large order, and because you have to build this up and you have one opportunity to do a good job, and it's often hard to resurrect that opportunity.

So, it really is the right thing to do. We all agree on it. And of course now, they're looking at follow-up orders but as I said in my remarks, we'll be delivering those units in April. And I expect that we'll be seeing follow-up orders throughout this year. We have a modest amount of business for Tadano in our 2019 budget and plans.

They know of our plans and I think they can exceed those plans. But we obviously want to take this one step at a time, so we do it the right way from the very beginning..

Got it. That's helpful.

Maybe just to quickly follow-up on that, I mean, within your plans do you envision an additional order coming from them this year or is it probably more likely [indiscernible]?.

In our plans, we anticipate several additional orders this year. But again that'll be -- we've had one in the first, delivery in the second. I would hope that we could get one in the second and third but again we'll have to make sure we do a good job from the beginning. But yes, we're expecting follow-on orders of course..

Okay, perfect. Got it. And then on the Manitex-branded knuckle booms launching this year, could you remind us sort of the timing of the start-up of that initiative. And I guess, how is the distribution or dealer network going to work with that brand.

I mean is it going to be essentially the same network or are we looking at sort of augmenting the existing PM dealer network that that we're going through?.

So I'll comment -- I'll comment on those questions and then Steve can follow-up because he's always very close to the operating side. So we had additional space, independent space in our facility which is a large facility down in Georgetown, Texas.

We continue to improve the efficiency and the operations of the straight mast cranes because they keep increasing their production there on a consistent basis.

So we outlined putting a separate -- our separate facility was in two facilities, so now we have one facility that's concentrating on PM and then one facility concentrating on the straight cranes, Manitex-branded cranes.

And as Steve mentioned, we have a number of dealers that we've announced this year, we expect follow through on those dealers this year. And we also have a well historical solid distribution network which was already built up by PM and that continues to perform.

So I don't know, Steve, if you have anything else you want to comment on that?.

Yes, Matt. Regarding the question about shipment timing, we started shipping some cranes under the Manitex brand and new color scheme in January. The first ones went out. Regarding the dealer network, many of our Manitex dealers are selling the articulated cranes.

However with some of our longstanding Manitex dealers and in some cases not the best fit because their business is more focused on construction and crane type work rather than distribution which is more along the lines of the knuckle boom line.

So where in areas where we have a dealer where that carries a Manitex line where it makes a lot of sense to bring on the knuckle boom crane, we do that together whereas if in areas where the dealer doesn't see it as a good fit for their business and their area of focus, then we sign on a knuckle boom specialist or hydraulic specialist to be the dealer that has a good understanding of product distribution and knuckle boom cranes..

Got it, that's helpful guys. Just moving on to gross margin expectations for the year. I think you had mentioned in the backlog an improving mix that's in the backlog. So I assume that's a positive for 2019. But could you talk a little bit about price cost for 2019, it sounds like you guys have put some pricing action through for the year.

So do you expect that to offset any sort of component headwind that you still face in 2019, I will leave it at that one for now..

We don't expect any type of component increases that we had in 2018, reoccurring in 2019 at this point. So we expect the favorable cost environment for our products. We have obviously implemented several price increases, and as Steve commented, those price increases are layered into our backlog.

And so we expect -- we've been in the 19s for the last year-and-a-half and we -- as far as gross margins and we would love to cross over into the 20s..

Got it, got it, that's very helpful. And then I guess just lastly, Dave, from a capital allocation perspective, I guess net debt is seemingly at pretty healthy levels here in the mid-2s.

Are there any additional sort of portfolio simplification actions that you can take during the year or I guess just from a pure organic free cash flow perspective where do you expect to kind of deploy cash toward further net debt reduction or building another opportunities this year?.

So what our plans are this year from a capital standpoint is obviously we want to continue to grow our business that requires capital because as you know especially on the Manitex side, the cycle is very long, so working capital cycle is very long from start to finish. So we need additional -- we need capital which we obviously have.

So we have nothing borrowed on our $25 million line plus we have substantial cash. So we're a good position to grow our company. However as I mentioned in my prepared remarks, we will continue to look at our product portfolio and our group of companies.

I don't think a lot will be done in 2019 but we will be because these things all take time but we will be setting ourselves up for possibly some pruning again in 2020.

But again it will only be pruning because there's nothing big that we have in our portfolio just a couple of products that we could probably somebody else would be more valuable than they are to us..

Okay, perfect. I'll get back in queue guys. Thank you very much..

Thank you, Matt. Thank you very much for your questions..

Thanks, Matt..

[Operator Instructions]. It appears there are no further questions at this time. Mr. Langevin, I'll now return this conference..

Thank you, Sebastian. Thank you for everyone for your interest in Manitex International. We look forward to 2019 year and we look forward to having further discussion with all our shareholders. Thanks again..

This concludes today's call. Thank you for your participation. You may now disconnect..