Good day and welcome to the Manitex International Fourth Quarter and Full Year 2019 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Steve Filipov, Chief Executive Officer of Manitex International. Please go ahead..

Thank you, Matt. Good afternoon, ladies and gentlemen, and thank you for your interest in Manitex International. For those who don't recognize my voice yet, it is just the second call I've led on behalf of the team here at Manitex. My name is Steve Filipov.

I'm the CEO of Manitex International and today on the call with me we have 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 will be available until March 16, 2020.

Now, please refer to slide 2 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 the financial summary, followed by operating commentary from Steve, after which we welcome questions. Please now turn to slide 3. I feel very good about where we are in the journey to profitably grow Manitex over the coming years.

And I'm proud of our global team for delivering a strong fourth quarter of 2019. But before going deeper our Q4 2019 results, I want to remind everyone on the longer term priorities we've been putting in place at Manitex over the past few months. Innovation is of the utmost importance for the sustainability of our business.

And we need to deliver the innovations in functionality that our customers need, in order to keep ahead of our competition. We are heading to CONEXPO this week to demo our new straight mast cranes, knuckle boom cranes, aerials and industrial cranes to our customers.

Some of the new products on display will be a new 24-ton tractor mount boom truck with a 6-section form boom, a new 50-ton boom truck with removable counterweight for better rotability, and a 60-ton boom truck to access the higher lift capacity segment.

The full line of our MAC product line, with a new wallboard application, and several new industrial cranes including a new 9-ton zero emission remote control Valla crane, for access to compact and indoor applications. Now, let me outline some of our high level objectives for the Company and our shareholders.

First, we will run this business to maximize our future cash generation and profitability. This requires maintaining a keen eye on working capital management and efficiency in production.

While our balance sheet at the end of the quarter indicates some improvements, particularly on working down our inventory by $9 million in Q4, we believe there are still additional opportunities ahead of us to further reduce our overall inventory, to improve throughput in our facilities.

Second, we will continue to strengthen our balance sheet and pay down debt. We have shown we could do this. And in the fourth quarter of last year, we ended the year with $41.2 million in net debt, down $7.3 million from the end of 2018.

As part of our strategic review of our product portfolio, we determined that the divestiture of Sabre aligns with our longer term vision for Manitex International.

This transaction will allow us to increase our focus on our core, higher margin businesses, enhance shareholder value, and will be accretive to adjusted EBITDA and earnings per share in 2020. I want to thank everyone at Sabre for being a part of the Manitex team.

While my tenure here is relatively new, the largest opportunity and primary mission for our Company, namely in establishing ourselves as a key player in the knuckleboom crane market is not new. I continue to spend a significant amount of my time in our PM facilities with PM partners, suppliers, and dealers.

And we have focused our team on growth and process improvement. I'm a firm believer that if you want to grow, you have to invest in the team. So, we're investing an additional support in quality, production, parts and service. Nothing happens overnight and we have just started on our journey, but we have already started to see the benefits in Q4.

PM's revenues were up 29% in Q4 versus Q3 and close to a 10% EBITDA, which attests to the fact that our global branding strategy is starting to gain traction with sales starting to increase in markets like Italy, France, Chile, Mexico and Peru.

Our MAC launch in North America started to pay dividends as we build out our distribution network and ramp up assembly in our Georgetown, Texas facility. We have significantly increased our focus with Tadano. And given its importance on our overall strategy, I will have more detailed comments in a moment.

We announced the award of a military contract last year for articulating crane products, which will start delivery in the second quarter of 2020. We are assembling these at Georgetown, Texas and will provide a good pace of production for our team as we head further into 2020.

We have much more opportunity with our parts and services businesses to not only grow our margins, but to make sure we're delivering the highest uptime for our products. We have consistently communicated that we enjoy close to a 50% gross margin on our parts business and we see continued opportunity there for sales and margin pickup.

I am proud of the team in oil and steel aerials, which is part of our business that we haven't spent much time talking about in the past, but it is indeed an important and nice part of the PM acquisition.

We have put an aggressive plan in place to grow this business, and we are already seeing significant growth in markets like France, Spain and in the U.S. Our backlog is up 40% as a result of this effort, and we expect to see this translate to increased revenues in 2020. Last but not least, we have our Valla zero-emission industrial cranes.

We have put new leadership in place to expand our distribution, and customer network. This is a very specialized market and presents an opportunity for us to diversify into aviation, rail, transportation, mining and petrochem to mention a few.

In the past 70 years, Valla has produced over 10,000 industrial cranes, and I'm confident we can do much more with this business. Please turn to slide 4. We have the strongest partners in the crane industry with the Tadano group.

But as I told many of you on the call, we needed to get a more aggressive plan in place to expand our PM-Tadano articulated crane business. I have personally spent time with Tadano's leadership team in Japan and in Singapore to put this plan in place, and we are also starting to see the benefits.

We have put a strong operational team in place with clear deliverables and objectives. This team now meets on a monthly basis to report out on where they are and where they need support to grow our PM-Tadano business. We have conducted many training sessions for our new distributors in Asia and starting to see more orders come in.

Tadano has also opened the door to dealers in the Middle East. We have purchased our first units and will take delivery early in 2020. Most importantly though, I'm impressed to see the Manitex and Tadano teams working much closer together and building a much closer relationship.

We will go from a few hundred thousand dollars in business last year to close to $1 million in 2020, and much more opportunity down the road. Now, let me turn it over to Laura to discuss these financials in more detail.

Laura?.

Thanks, Steve, and good morning. Thank you for joining the call today. Let me direct your attention to slides 5 and 6. Q4 financial update and operating results. Our revenues for the quarter were $54.4 million, up 4.8% compared to the third quarter of 2019.

The increase was primarily driven by higher sales at PM Crane & machinery Valla, partially offset by sales decline in Manitex due to the market softness in North America for straight mast cranes. PM had a strong fourth quarter with revenue up approximately 29% compared to the third quarter 2019.

Total revenue companywide in the quarter declined by 10% compared to the fourth quarter 2018. Part of the revenue decline was also due to an unfavorable currency impact marked by a weaker euro against the U.S. dollar. This counted for 1% of the 10% total revenue decrease.

Our book to bill ratio for the quarter was 1.16, an improvement from the 1.2 from the third quarter 2019. Our backlog remained flat year-over-year at $66.2 million at year-end. Backlog at PM increased over $8 million or approximately 50% year-over-year. This increase was an offset to the decline in straight mast crane order in the U.S.

As of February 21st, total backlog sequentially improved to $71 million, a 7% increase from the year-end. Adjusted gross margin was 18.4%, up 120 basis points compared to the third quarter 2019. Higher adjusted gross margin was primarily a result of margin improvement from PM, driven by higher revenue.

This was partially offset by lower margins from Manitex due to the declined revenue and unfavorable sales mix. Adjusted value-add margin which pulls out pass-through sales and non-incurring charges was 19.6%.

This was 80 basis points higher than both the third quarter 2019 and the fourth quarter 2018, primarily below the 20% range, which was our objective. Looking at the production schedule for the first quarter 2020, we expect adjusted value-add gross margin to trend to 20%.

Our fourth quarter 2019 adjusted net income was $0.8 million or $0.04 earnings per share. Adjusted EBITDA was $2.8 million, $0.9 million higher compared to the third quarter 2019, primarily driven by improved gross margin. Adjusted SG&A expense, excluding non-recurring charges for the quarter decreased slightly compared to the third quarter.

As we said, our target long-term SG&A as a percentage of sales is in the low teens. This will take some time, but we will continue to take the necessary steps. Turning to slide seven, full year operating results. Full year revenue was down 7.2% to $224.8 million compared to the prior year.

Adjusted value-add gross margin was 20.3%, slightly lower compared to 2018. This was a result of effective execution of the team, despite the headwind cause by the extremely volatile demand in the industrial equipment market, particularly in North America and rising component prices in the year.

Full year 2019 adjusted net income was $3 million or $0.15 per share, down compared to $6 million or $0.33 per share from 2018. Full year 2019 adjusted EBITDA was $12.3 million, down $5.1 million compared to 2018. The decrease was primarily driven by lower margin from decreased revenue. Let's move to slide 8.

Sabre impact on the fourth quarter and full year adjusted operating results. We announced last week that the Board of Directors has approved the divestiture of Sabre. We will classify Sabre as held for sale beginning with the first quarter 2020 financial report. We do not expect to report any material charges in future quarters for the divestiture.

Management believes that divestiture will improve our operating results and bottom-line stability going forward. Full year revenue for 2019 from Sabre was approximately 4% of the Company's total revenue.

Excluding results from Sabre, adjusted value-add gross margin would have improved by 100 basis points to 20.6% for the fourth quarter, and up by 110 basis points for the full year 2019 to 21.4%. Adjusted net income for the full year would have improved by $1.8 million without Sabre.

Without Sabre, earnings per share would have improved by $0.03 to $0.07 per share for the fourth quarter. Full year earnings per share for 2019 would have improved to $0.25 per share, compared to $0.15. Moving to slide nine, net debt update Q4 2019. This slide provides a breakout of the net debt by quarter.

We reduced net debt by $7.3 million year-over-year to $41.2 million at year-end, the lowest level we have seen since 2011. We made a $3 million principal payment on the Italian term debt at year-end. In addition with the consent from the convertible noteholders, management made a decision to start making early principal payments on the Perella Notes.

The first payment of $2 million was made on February 3rd this year. It is our plan to continue making early principal payments throughout the year before the maturity date. Our goal is to improve the balance sheet with debt reduction.

At the last earnings call, we mentioned that our team will put a strong focus on working together to decrease working capital by effectively managing inventory and accounts receivable to improve the Company's cash conversion cycle.

I'm pleased to announce that we have delivered the results in the fourth quarter with a $9 million inventory reduction and $2 million reductions in accounts receivable. Management will continue to control costs, improve working capital performance, especially our inventory management, and take other necessary actions to further reduce net debt.

With that, I'll now turn the call to Steve Kiefer..

Please turn to slide 10. 2019 was a significant year for Manitex as we strengthened our PM business, maintained strong market share for industry-leading Manitex straight mast crane business and introduced a number of important new products.

The various new product developments, operations improvements, and commercial development initiatives we've pursued throughout the year, allowed us to end 2019 with a flat backlog versus the prior year, notwithstanding the uncertainty in many of our end markets.

Strengthening our PM and Manitex product offerings and distribution was a key focus throughout 2019 and as we enter 2020. We introduced a number of new products at the Bauma Trade Show in April of last year and those products began adding to backlog and revenue as we moved throughout the year.

In September of last year, we announced a $4.5 million order from an international military customer for PM knuckleboom cranes. We began production of these cranes in late 2019 and shipments will begin in the second quarter of 2020.

We are pursuing additional military orders for PM cranes and anticipate announcing additional contract awards as we move throughout 2020. Additionally, we added three new dealers to our PM Group products in the fourth quarter last year and began customer shipments of our Manitex-branded knuckleboom cranes in North America.

These efforts drove a 50% increase in our PM backlog versus the end of 2018 while our Manitex straight mast crane backlog declined 5%, reflecting general market conditions. With the fourth quarter book-to-bill ratio of 1.16, we filled many of our first quarter 2020 slots late last year and began booking some slots for the second quarter.

Going forward, while our channel checks indicate that sales and rental activity at our dealers remain stable, we have noted an increased level of consciousness in some of our end markets.

Additionally, we continue to monitor developments associated with the coronavirus and our factories continue operating well with no line stoppages experienced to-date.

Overall, we are confident our key initiatives of customer focus new product innovation, commercial market development, operational improvement, and debt reduction will contribute to long-term shareholder value-creation.

We look forward to the CONEXPO Trade Show this week, and announcing a number of new products from each of our core businesses, while also meeting with customers, suppliers and trade media. Thank you for your time today. And I will now turn it back to Steve Filipov..

Thank you, Steve. Please turn to slide 11. The first phase of our turnaround strategy at PM is starting to get traction, and some of the numbers we mentioned earlier speak for themselves. But, the results are not happening because of one person, but because we now have a very focused, dedicated and engaged leadership team at PM.

We have also put some more process into the business and track our progress to specific deliverables, which have been established for 2020 around improved quality, cost and delivery of our products.

We're only in the beginning of our journey and focus on improving our core competence as a manufacturer of articulated cranes, aerials, and industrial cranes, but I hope you can see the potential in the PM portfolio and why we are confident this is the next growth opportunity for Manitex. Please turn to slide 12.

In summary, I'm excited about the opportunity we have in front of us. Manitex International's built a solid foundation of global brands, great products, loyal customers, committed investors and an excellent leadership team. Our Manitex business in North America is stable.

And we are holding our ground in a challenging market, continuing to innovate with new products and services for our customers. Our PM business is our diamond in the rough, and we will -- will be our growth engine going forward. The growth -- this growth will allow us to become a more global company, delivering higher returns to our shareholders.

As in any company, we have an opportunity to reduce our costs, and both SG&A and material costs. We will target our SG&A costs of being low teens and also focus on reducing our material costs over in 2020. We want to be a stable and solid business, delivering over 10% EBITDA, consistently over the next few years.

Lastly, I want to comment on the coronavirus situation. We have taken precautionary measures for our team in Italy and made a decision to not have the team travel for CONEXPO, and limited travel to and from Italy until further notice.

We're not aware of any of the team being affected by the virus at this time, and we are still working in our facilities. We have not had any line stop so far and production is continuing. We have daily standup meetings to assess the situation as it evolves. And we'll keep the safety of our team members at the top of the list.

Matt, let's go ahead and open the floor for any questions..

Thank you. [Operator Instructions] Our first question will come from Justin Clare with Roth Capital Partners..

So, I guess first, I was wondering if you'd speak more about what's driving the increased sales in your PM business.

Is the growth due primarily to expansion into new markets here, or are you also seeing increasing demand in established markets? And then, I was wondering if you could comment on what you see heading into 2020? Do you expect this business to grow in 2020?.

Sure, Justin. So, yes, I would say, our growth is really twofold. First of all, the knuckleboom crane business is a growing market globally. If you look at our competitors, they're also growing. So, we're benefiting from the market growth that's there.

I think, the second piece of the equation is, we are gaining share in some markets that we put more focus in. In France, we have -- I mentioned France in our first call. We've got a good dealer that’s there. We're picking up a lot more business just because we're more focused on selling more product there. Italy, we also increased our share in there.

And then, in Latin America, where we have I think a good share in Chile and in Argentina, we're also picking up some business there. So again, it's really twofold. Right now, knuckleboom market is not too bad when you compare it to other crane markets. And we're focused on growing our share where we can be a leader in those markets..

Okay, great. And then, shifting to margins.

Can you share how much higher your margins were for your PM business relative to Manitex in Q4, and then speak to how you see those margins for each of those businesses trending, as we move into 2020?.

Yes, sure. So, I'm going to let Laura answer the question.

Laura?.

Yes. So, the gross margin for the PM typically is higher than Manitex in U.S. locations, in the low-20s. And moving forward for Q1, we expect gross margin to be at the same level for PM..

Okay, great. And then, one last one here. I was wondering if you could talk about the supply chain. It sounds like you're currently not seeing any shortages. But just wondering if you have any concerns about components or materials that you think could become an issue in the near term here, just wondering what you're seeing..

Yes. Thanks, Justin. Look, right now, we haven't seen really any shortages? We do have some components from China that get shipped to the U.S., but we haven't had any shortages yet. I think, there's, just more inventory in the pipeline from that perspective. But, there's a lot of uncertainty, Justin.

It's hard, right? As an example in Italy, as I said, we've got daily calls with the team; that includes weekends, just to assess the situation. Right now, we haven't had any line stops. We're still shipping cranes. We're still getting our parts into the facilities. But that may change if things don't line up.

But right now, we're still feeling confident that at least for Q1 that we're producing cranes through our plan and haven't seen any drop off from that perspective..

Okay, thanks. I'll pass it on..

Thanks. Justin..

[Operator Instructions] Next, we will hear from Mike Shlisky with Dougherty & Company..

So, you had mentioned some of the tone in the market was little bit cautious here in the first quarter.

Can you give us a sense that the caution is due to the coronavirus itself or are there other end market items, oil prices or construction trends that are driving that caution right now?.

I didn't get the first part of that question, Mike.

You're asking the costing of the product?.

Cautiousness..

Oh! Cautiousness….

No.

You mentioned there was some caution amongst some of your customers here in the first part of the year due to the coronavirus or you think that might be more due to end market conditions in oil or construction et cetera?.

Yes. So, let's take it in two parts. Right? Let's talk about Manitex and PM. I'll let Steve comment about Manitex. But, as I said before, the knuckleboom crane market is still doing fairly well, globally. At the end of the day, Mike, it's hard to really judge what the coronavirus is, what impact it’s going to have.

The message that I have for our investors and our team is, we've got to focus on what we can control. And that's basically our operations. I think, the other opportunity we have is, we've got a good backlog. As we came into 2020, as an example of PM, we grew our backlog by 50%. So, that's good for Q1 and Q2. We haven't seen any order cancellations.

We haven't seen -- really anybody backing off taking product so product. So, right now, still feel pretty confident that the orders that we have on hand, we're going to be able to ship them according to the plan. And then, on the Manitex side, on the straight boom market, Steve, maybe comment about the market..

Sure. As you know, Mike, construction has been and continues to be performing well in North America. Energy prices certainly are a concern amongst their dealers that have a high concentration in the energy market. As you know, Mike, over the years, we've significantly diversified our end market mix.

And energy is currently -- or last year was about 15% of our total revenues, including Sabre. And so, while energy remains important to us, it's something that is a much smaller component of our business. We really began the year with more cautiousness that occurs every four years, Mike, as a result of the election in the U.S.

And at this time, coronavirus is a concern, but some of the cautiousness that we see this year and began the year with, is really what we, as you know, experience every four years associated with an election year?.

I wanted to touch on inventories as well. I see it in dollars, it's a flat year-over-year. Backlogs are also flat year-over-year.

So, I guess, my question there is, do you feel like you're in the correct place in inventories or is the balance between PM and Manitex still little bit off? There might be some changes to be had on the inventory side here?.

Inventory, we still got an opportunity. I think, the team did a good job in Q4, because we put focus on it. And I think the team really did a nice job getting our inventory down. But, we still got opportunity. I mean, we have -- right now we're at about $50 million of inventory.

I'd say about $20 million of that is finished goods around the company, about half of that is at PM. And I think PM has opportunity. Manitex, as we said before, has a good backlog. We feel good about Q1 orders last, but we still have opportunity to reduce. So, that is part of our 2020 cash generation plan as we got to continue to reduce our inventory.

So, it still presents an opportunity for us..

I think, over the last couple of quarter -- and couple of years, there's been some inventory that had to be kind of worked through it, whatever inventory obsolescence or just older products that were in the inventories, as I recall.

Is that problem almost gone now at this point, after your last few quarters of effort here?.

Yes. So, we -- I think, Laura, in Q4, we had a -- there was a write-down of some inventory. But, I think, essentially, what I’d says, Mike, is I think we’re through most of that, but I think there was one product that we....

Yes. We took a reserve on some of the discontinued products and then we also put a policy procedure on the AML [ph] reserve. So, going forward, we will see a big adjustment to the AML reserve..

Okay. I wanted to touch on the net debt as well. Honestly, there's been a -- I think you said and it seems like low 6. [Ph] I think so.

I guess, my big question there is, is there a next step on net debt? Do you feel good at where you are or do you think you need to take the debt down further here?.

The question, you're saying, is our net debt at the right level, Mike? It broke up a little bit..

Yes. I mean, if you take out the Sabre, you're at roughly 2.5 times or so I think net debt to EBITDA.

And I was of curious, if that's available for you, or will you be taking the cash if you get any from Sabre to put towards that, just kind of what's your overall net debt next steps there?.

Yes. Sure. So, yes, as we said before, we're going to take out our converts, right? There's piece of that is due at the end of this year; there is another piece that’s due in January of '21. As we said in our prepared remarks, we paid down $2 million in February on the Perella Notes.

So, we're going to continue to work that down, if that answers your question.

And then, the second piece is, what do we do with Sabre when we sell Sabre and the funds that come with that? Yes, that's essentially going to be used to pay down debt, or use for working capital, if we feel we need it, but those are the two avenues that we'll look at when we close the transaction..

Okay. And then, one last one for me about Tadano. You have mentioned it's been working out well so far. There have been regular meetings on what's going on there.

But, could you put just more color as to exactly what it is that you're doing, where you stand today? And then, could you highlight a little bit more just detail about where Tadano outperforms going forward and what your challenge is going forward?.

Sure. Yes, I mean, as I said in my opening comments, I think, there's just lack of direction. And we tend to have a team that was really focused on driving the business. But, what we put in plan is -- put in places a lot of trading for the Tadano dealers. And I'll -- the first priority is Asia.

I mentioned the Middle East but I'll come to that in a moment. But, Asia presents a really good opportunity for us because Tadano has very strong dealer. So, I think number one is making sure that we've got trading for those dealers because it is a much different product than anything else that they're selling.

Number two is to get product into the market through stocking program which we've done some of that. Number three is parts and service, right? We need to make sure that we've got parts on the ground and we've shifted some inventory to the dealers and to Singapore, so that we can support the product.

So, all of those fundamental or foundational things, Mike, is kind of what we're really doing. And once those things get done, I think, we'll continue to see business there. But, it takes time, right? Like I said, it's a much different sales process than selling an all terrain crane training as an example.

So there's just a lot of education that needs to happen. But, we've got our team that’s focused on it now. I spent time with the Tadano team that's focused on the PM-Tadano relationship and very good team and very thorough and I really feel good about both of those teams working much closer together.

And as I said, the Middle East is now opened up a bit. We sold some products into Saudi. And we're looking at a couple of other markets where Tadano has good representation there. So, we will expand the PM-Tadano branding, as much as we can. But, I want to make sure that we do it in a way that we can support the product going forward.

Hopefully, that answers your question..

Yes. That’s great. I appreciate it. I’ll pass it along. Thank you..

Thank you, Mike..

And with no more questions in the queue, I'd like to turn the call back over to Steve Filipov for any additional or closing remarks..

Thank you, Matt. And thank you for everyone for your time and your investment in Manitex. We appreciate your support and look forward to reporting on another good quarter, early in 2020. So, thank you to all very much. I appreciate your time. And hopefully we'll see you at CONEXPO. Thank you..

Once again, that does conclude our call for today. Thank you for your participation. You may now disconnect..