Greetings. Welcome to the Manitex International Fourth Quarter and Full Year 2020 Results Conference Call. [Operator Instructions] Please note, this conference is being recorded..

I will now turn the call over to your host, Steve Filipov, Chief Executive Officer, Manitex International. Please go ahead. .

Thank you, operator. Good morning, ladies and gentlemen, and thank you for your continued interest in Manitex International. I hope everyone is safe and healthy, and appreciate you taking the time to listen to our call..

Today on the call with me, I have Joe Doolan, our CFO, who will discuss in more detail our financial results for the fourth quarter and full year 2020. Please see our website or our release for replay instructions for this call, which will be available until March 18, 2021..

Moving past Slide 2, which is our safe harbor statement and remind you that everything we discuss is subject to change and described in our SEC filings for further guidance on the many risk factors associated with our company..

I will begin with a business update for the fourth quarter; followed by Joe, who will present a financial summary; after which, we will welcome your questions..

So please now let's begin on Slide 3. I want to thank our global teams for a strong quarter and their continued resilience in dealing with the current COVID-19 pandemic and all the challenges this brings to continuing to deliver the highest-quality products and services to our customers.

The safety of our team, their families and our customers remain top of mind for us all. We have clearly seen a turnaround in our business, and I'm glad to see the improvements we have made in our revenues and a significant improvement in our backlog as we close out 2020..

During the fourth quarter, we saw an improvement in orders for our North American Manitex straight mast cranes, which was the first time since the pandemic that we trended in a positive direction.

Having visited and spoken to several customers during the quarter, it is clear that our dealers have done an excellent job in managing their inventories and now purchasing product for an expected uptick in energy, environmental and general construction markets..

Sticking to North America, our MAC knuckle boom team continues to make progress in adding new dealers and customers in a market that has continued to be in high demand. Even in a challenging year like 2020, we had revenue improvement of over 50% from 2019, somewhat driven by our military order, but clearly, this is a growing segment for us..

Our backlog continues to grow, and we recently announced a record 3-year high of $82 million, which was driven mainly by our PM knuckle boom and Oil & Steel aerial products but also in our push into the zero-emission industrial cranes with our Valla product.

We also continue to drive new product development and launch several new products in 2020, and we will continue to accelerate this initiative in 2021. We will have some very exciting new product launches in the second half of 2021..

For the first time since the end of 2019, we have good visibility to our production schedule, and we are working to ramp up in many of our facilities.

We have seen many challenges with the availability and commodity pricing increases, but we are managing these very tightly, and I'm confident the team is making every effort to mitigate them as best we can..

We have made great progress in strengthening our balance sheet, and our net debt is down to $30 million, which was over $50 million in Q3 of 2019 and a significant improvement since the company has been operating..

Please turn to Slide 4. The PM Group had another solid quarter, and this will continue to be the headline as we have commented in the past. This is a global business with many different end markets.

And even in the middle of the pandemic, the team has done an excellent job in executing our strategy to focus on the markets and products where we see growth. We continue to work on the profitability improvements at PM.

And with the cost reductions we executed in late 2019 and the strict cost controls we put into place for 2020, we delivered close to a 200 basis point improvement in adjusted EBITDA over 2019..

Our Oil & Steel aerials business is making significant improvements in new product development but more importantly, in the quality and delivery to our customers.

One of the key initiatives this year was to improve product costs but to also significantly improve the quality of our products by streamlining our manufacturing facilities and improving our supply chain..

The development of our Valla zero-emission product has been exciting to see as we are also in the middle of rejuvenating this business with new products and new customers. As we all know, there is a strong push for this technology globally, and the industrial crane space is no different..

Our Manitex business in North America remains challenging and a major focus for us. Even if we see some light at the end of the tunnel with the recent uptick in orders, we are not happy with the profitability we delivered in 2020.

We executed a major restructuring program in Q3 of 2020 and reduced our headcount by 30% in our Georgetown facility to align with the drop in the overall straight mast market. With the market volumes around 800 units today, we hope to see some stabilization around 1,000 units in 2021 to deliver the profitability this business has seen in the past..

Let me now turn it over to Joe to discuss our financial performance.

Joe?.

Thanks, Steve. Good afternoon, everyone, and thank you for joining the call today. First, I'd like to start by mentioning that my comments today will address results from continuing operations. As you know, during the third quarter, the company sold the Sabre industrial tank business.

Sabre results are included in discontinued operations in the company's financial statements, but the results that I'll discuss will exclude Sabre, and thus, my following remarks will discuss changes in results from continuing operations versus Q3 2020, which we believe is most meaningful in the current environment..

With that, please turn to Slides 5 and 6 for the fourth quarter operating results and financials. Our revenues for the quarter were $45.2 million, an increase of 24% compared to the $36.5 million for the third quarter of 2020.

This increase was driven mainly by higher sales of knuckle booms in our PM business and the sale of zero-emission cranes in our Valla business unit. Sales of straight mast cranes in Q4 were consistent with sales in Q3..

Our fourth quarter loss from continuing operations was $1.8 million, which is an increase from the third quarter net loss of $1.4 million.

The higher loss was driven by higher tax expense of $0.8 million, driven mainly by strong earnings in the fourth quarter from our PM business, which offset the $500,000 improvement in operating income quarter-over-quarter. The loss per share was $0.09 for Q4 compared to a loss of $0.07 per share in Q3.

The adjusted net loss was $1.3 million or $0.07 per loss per share for Q4 compared to a loss of $1 million or $0.05 per share in the third quarter. Again, with the increase in tax expense was the main driver for the decline in the earnings per share..

Our gross margin was 18.7% for the quarter, which is an increase from the 18.3% for the third quarter. The increased gross margin is primarily due to the sale of knuckle cranes in our PM business unit, which generally have a higher margin..

Adjusted EBITDA was $1.5 million or 3.3% of sales. This is an increase of $0.5 million from the third quarter, which reported adjusted EBITDA of $1 million or 2.6% of sales. The increase was driven by increased sales in our knuckle boom crane business..

Our backlog was approximately $68 million as of December 31, 2020. And as you'll note in the press release, we saw orders in January that took our backlog to $82 million, which is a 63% increase compared to September 30. This increase is driven by higher orders across all business units.

Straight mast crane backlog more than doubled from September 30, and platforms are up nearly 75% from September 30. Our book-to-bill ratio was 1.39:1 for the fourth quarter, up significantly from the ratio of 1.17:1 for the third quarter..

As we talked about on prior calls, we have taken initiatives in our Manitex business unit to reduce costs in production and SG&A. Restructuring actions were taken in June and July and include headcount reductions in the North American crane business and material and other cost reductions.

These cost reduction initiatives have resulted in $1.1 million of cost savings in COGS and recurring SG&A expense in Q4 and is consistent with our performance for Q3. We expect these initiatives will deliver annualized savings of $4.5 million..

We believe that these cost reduction actions will strengthen our gross margins and reduce SG&A expenses. While annualized savings are not as high as we initially expected, the decrease is attributable to our strong backlog, which required us to maintain higher headcount than we originally expected..

Now moving on to Slide 7, I'll provide an update on our debt position for the fourth quarter. Net debt was approximately $30 million at quarter end, representing a $5 million decrease from September 30.

The company had 2 convertible notes totaling $15.5 million that we paid off in December through a combination of borrowings under our revolver and the usage of cash. In addition, we made a $2 million annual repayment on our term debt in Italy at the end of the year..

The team is confident the company will have the liquidity through cash and other credit lines open to meet our obligations and any others that are scheduled over the next 12 months. And we remain in compliance with all of our debt covenants..

The company generated free cash flow of $5 million for the quarter. This was driven mainly from improvements in working capital and, in particular, related to inventory. At the end of the fourth quarter, the company had available liquidity of approximately $29 million, including $17 million of cash..

Revolver availability at December 31, 2020, in the United States, was $9 million with the outstanding revolver balance as $12.6 million..

With that, I will now turn the call back over to Steve. .

Thanks, Joe. Please turn to Slide 8, and let's turn our attention to our outlook for Q1 2021. We continue to be challenged by the current COVID-19 situations globally. We have seen an uptick in some of our facilities in both the U.S. and in Europe, but we are also seeing several markets taking a much stricter position to quarantines.

Unfortunately, we cannot control what happens outside of our facilities, so our every effort today is on the safety of our team and their families. This will continue to be a challenge for all of us in 2021..

Given our backlog strength, we should see a sequential growth in our revenues for 2021. This will be driven by the European businesses until we can see some growth in the North American straight mast business.

That said, we still have significant opportunity to grow our business in North America with the MAC and Valla products, which we have started to do already..

We are ramping up. And although this is a good problem to have, we still have challenges in availability of material, commodity pricing volatility, and we are working every day to mitigate these.

The importance of cash generation is critical, and we will continue to drive free cash flow by reducing our working capital and improving the overall liquidity of the company. Our European operations are now generating positive cash flow and no longer a drag on our corporate cash needs, which is the first time since we acquired the business in 2015..

Let me summarize by saying this. We have a positive outlook, and we must continue to work diligently to maintain our focus on execution by continuing to take advantage of a large global market for articulating cranes taking share through PM product sales and running our businesses efficiently..

Coming out of a 12-month period of contraction here in North America, we aggressively moved to take $4 million of costs out of our business and expect to see benefits from these actions in our financial results as we begin to scale up here in 2021.

It is projected that we will see a nice balance in North American unit volumes this year, and we are hopeful that we'll see further improvement. And certainly, it's been reported that replacement cycles and an infrastructure bill here domestically could provide some additional tailwinds for us..

Regardless of the cycle, we will continue to find additional opportunities to align our costs with our revenues, so that we reach our margin targets. And to remind everyone, our executive team's incentive program is tied to the achievement of certain EBITDA dollars and margin goals, and this is how we're managing the business.

Our ultimate goal as a company is to deliver 10% adjusted EBITDA to our shareholders. And while we have some businesses that are very close to this goal, we need to work on the remainder of the portfolio to deliver the necessary improvements in 2021..

With that, operator, could you please open the lines for the Q&A session?.

[Operator Instructions] Our first question comes from Mike Shlisky with Colliers Securities. .

I was wondering if you can give us some information as to what's driving the backlog in both straight mast and articulated.

Is it construction? Is it utilities, rentals or something else?.

Well, all of the above, Mike. Utilities, I would say, has always been pretty strong when you talk to customers that run utility fleets. They really haven't slowed down. I mean maintenance continues to be a priority. I think transmission and distribution development also is an area of focus..

I would say the other area that is pretty strong right now is the tree-trimming industry. So that's really on the knuckles side where we're seeing a lot of demand for knuckle booms because you can put a saw on the end of the knuckle boom, and tree trimming becomes a lot safer and easier to manage..

The other area for knuckle booms would be forming. So a lot of forming is going on in, for example, the Midwest area, that's also driving the knuckle boom business. And then on the straight mast business, Mike, I think it's down residential.

Residential, I think our dealers have done a really good job in managing their inventories, and now they're in a place where they're replenishing to get ready for infrastructure demands and development that are going to happen, I'm sure, in the next couple of months. And to be honest with you, they've already started..

So I think those are kind of the areas. We talked about our government deal that we also are delivering on, and that obviously helps our backlog to a certain extent. So it's kind of across the board, to be honest with you, on all of our products, whether it's straight mast cranes, knuckle boom cranes.

Our aerials, truck-bedded aerials out of Italy are almost doubling in revenue, and they're doing a really, really good job. We talked about Valla, and the electric crane demand continues to be very buoyant right now. So we'll see, I guess, a little bit of color, Mike, but I think it's across the board. .

And that's great color, Steve. I also wanted to turn to some of the final points on your margin commentary. You've taken out quite a bit of costs over the last couple of quarters, and it looks like that will be fully baked in, in 2021. You seem to have acknowledged that you've got to get more profit out of the business.

But at the same time, you're also talking about some higher challenges on availability of some materials and the cost of some raw materials. Can you give us a sense, on a net-net basis, do you see a chance for some decent expansion in your margins in 2021? And is there any kind of timing as to when that might start to show up? I would appreciate it. .

Sure. Let me tackle the availability question and challenges that we're all having right now with supply, and then I'll turn it over to Joe to just talk about margins and kind of how we see that progressing the rest of this year..

So we've seen this movie before, right? We're in a cyclical business. And my message to the team is keep calm and carry on. We've always had challenges as we ramp up, and we're ramping up in most of our facilities. And that's always going to be a challenge. And what I would say is that we're on it day to day.

I'm involved on many suppliers, making sure that we can get delivery of components on time. But I think we have a very strong supply chain team in place that's helping to address any issues that we have..

We talk a lot about steel right now, and we don't have 1 steel supplier. We have several steel suppliers. So if we do run into a jam, we go and find opportunities to go other places. And I think right now, there are certain challenges, but those become opportunities at the end of the day.

So right now, there hasn't been any major line stoppages anywhere in the business. But it's a day-to-day fight to make sure that we get our components on time, and we'll do that. I mean at the end of the day, that's our job.

And the nice thing is that with the backlog at $80-plus million, we're able to forecast a lot better to our supply chain to say, look, this is what we're going to be building in the second and third quarter of this year..

So that's a benefit that we haven't had in the past 12 months. And I think that's a benefit that will help us manage our forecasting and our -- what we call our S&OP, our sales and operations planning process. So that's on kind of the availability of components..

And then on the margin side, Joe, you want to take that?.

Yes, that's fine, Steve. Yes, on the margins, Mike, we're at about 18.7% for the fourth quarter. We talked about the growth in the backlog, and much of that is coming from across all businesses, but a bigger percentage of that is coming from PM, which generally have higher margins.

So as we look out into the next several quarters, I think we're looking at a slight upwards trend in what our gross margins will be. .

Okay. Maybe one other one for me here.

Can you just hit us on the -- any progress you've made with the expansion into Asia, either with Tadano or just with your own product?.

Sure. Sure. So first of all, I'll start with Tadano. I mean very good work with the Tadano team. I would say, as I've mentioned on several of our calls, I mean, we went from doing a couple hundred thousand dollars in revenue through the Tadano channel. This year, we'll be above $1 million-or-so is the plan. We're now into Asia. They've been leased.

And the plan this year is to expand into Australia with the Tadano team. So we'll continue to leverage that as much as possible, Mike..

And then, yes, I mean, we have our other dealers that are present, not only in the Middle East but also in Asia through the PM products, and those businesses are going well.

And I would say the Middle East with oil and gas was a bit down, but things have started to pick up with oil prices increasing, and the Middle East is starting to come back for us on knuckle boom. So hopefully, that gives you kind of a state of play. .

Our next question comes from Matt Koranda with ROTH. .

This is [indiscernible] on for Matt. Just backing on, talking a little bit about the gross margin, looking at the front quarter in your commentary, kind of safe to assume a sequential jump there but down year-on-year.

And just understanding PM is a higher mix, higher-margin products, which is driving the sales of the backlog, where can we see the gross margin? Or maybe another way to ask it see the mix of the backlog at least for PM stand?.

Sure. So Joe -- I mean, at the end of the day, it's going to have to start with the 2. I'll put it that way. And we'll start to trend towards 20% margins as we continue to shift, to your point, the portfolio to the higher-margin products. And it will be a sequential shift.

It's not going to happen overnight, but I think you'll see us over the course of this year trend towards that 20% gross margin target..

Joe, anything you want to add to that?.

No, I think that's right, Steve. And you're right, it won't be -- I don't think we're expecting a big jump immediately but more of a gradual growth in that as we work our way through the backlog. .

Got it. Really helpful.

And just on the OpEx side of things, is it safe to say it's kind of like a $7.5 million a quarter on just SG&A is kind of a fair number to pull forward?.

Yes. [ Scott ], look, our SG&A today is about $30 million. We don't need to add a lot of SG&A as we grow the company. And obviously, 2021 is going to be a year of growth for us. There's obviously some variable expenses that will change a bit. But we're not going to have to add a lot of SG&A would be how I'd answer the question.

And as you grow the revenues on the top line, we'll continue to see that percentage go down. So that's the objective that we have..

And I would say the other piece of the equation is we continue to look at cost reductions and to see where we could save money. In 2019, we did a restructuring program in Europe, and that's obviously benefited us in 2020 and will benefit us this year.

In 2020, we did a restructuring program in North America, so that will also start to help us as we grow in 2021..

But I think, Joe, I think that number is pretty good to kind of count on.

Joe?.

Yes, I think that's right, Steve. I think that will be consistent with what we had in the past and I think what we're expecting. So yes, I wouldn't change that. .

[Operator Instructions] Thank you. I will now turn the call over to Steve Filipov for closing remarks. .

Thank you, Stacey, and thank you, everyone, for your time today. We appreciate you -- your attention to Manitex. And my message to everyone on the call is we're going to continue to drive the Manitex business forward and move to grow our business globally, and we will do that profitably..

So thank you, all, and be safe out there. Thank you. Thank you, Stacey. .

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation..