Greetings, and welcome to the Manitex International Second Quarter 2021 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. .

It is now my pleasure to introduce your host, Steve Filipov, Manitex International's Chief Executive Officer. Thank you, Steve. You may begin. .

Thank you, operator. Good afternoon, ladies and gentlemen, and thank you for your continued interest in Manitex International. I hope everyone is safe and healthy, and we appreciate everyone taking the time to listen to our call. I'm Steve Filipov, CEO of Manitex International.

And with me today is Joe Doolan, our CFO, who will take you through the financial details of the second quarter update we announced today. Following our prepared comments, as is our custom, we will open up the line for Q&A. .

Please see our website or our release for replay instructions for this call, a telephone replay will be available until August 10, 2021, and the slides we cover with audio broadcast or webcast will be available for 30 days. .

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

So please now let's begin on Slide 3 and get started with our Q2 business update. The global Manitex team delivered an excellent quarter, and I want to thank everyone within the organization for executing our plan.

With $60 million in revenue for the quarter and 7.1% adjusted EBITDA margin, it was the fourth consecutive quarter of significant improvement since last year's second quarter, which we experienced the peak impact of the global pandemic of COVID-19.

We are forging ahead towards our longer-term goal of 10% adjusted EBITDA, which now seems to be within reach, though there are some hurdles for us to overcome and factors not in our control that we'll get to later in the presentation. .

Maintaining a sharp focus on the bottom line, we delivered an adjusted net income of $2.2 million or $0.11 per share, with our businesses ramping up production to beat higher demand. I would add that our team did an excellent job procuring where we needed to meet our delivery schedules for our customers.

Product mix at Manitex and PM were favorable in the quarter as we sold more higher tonnage cranes at Manitex straight mast. .

Orders globally remain strong, and we finished the quarter with a backlog of $111 million, which is a 5-year high and up nearly 65% since the end of 2020. Consequently, we have good visibility as to how the back half of the year will look, and we anticipate higher production and continued strong sales in the second half of 2021 and beyond. .

Looking at how the business has changed since 2019, we are now seeing the benefits from a multiyear strategic plan that we developed for Manitex. We have dramatically improved our European businesses from higher market penetration and sales growth, margin expansion from sourcing, facility and other operational improvements.

And new product introductions are also now contributing to the growth in knuckle boom, area work platforms and Valla cranes. For those of you that have been long time holders, you are likely aware that we are no longer in the tank business, the trailer business nor anything that is in crane or lifting related. .

While we're pleased with the consistent progress we've made and particularly our earnings of over $2 million in the quarter, we want to be clear that there is still some hurdles to overcome, as I briefly mentioned earlier, with respect to supply chain.

We continue to see lead times lengthening due to material availability, such as steel and some difficulties in procuring hydraulic systems and truck chassis. .

So while our teams today have done an excellent job in doing what it takes to get our products built on time and deliver to our customers, we would have to say that the supply chain poses a risk to our results in the next few quarters.

The demand picture is bright, but the reality tells us that there could be some volatility in the near-term until the supply chain bottlenecks are worked out as more production comes online. .

Joe will discussed further our balance sheet improvements, but I would comment that one of our significant cash flow improvements has been the shift of the PM Group being a consistent cash user since the acquisition in 2015 to a strong cash contributor in 2021. .

Please turn to Slide 4. All of our businesses showed improvement in the quarter, so let me start with commentary on the PM Group. As I've stated in the past, the global knuckle boom market is growing. And today, the market is over 50,000 units globally.

The work we have been doing to improve our product quality, improve our production efficiency and launch new and innovative products is taking hold, and we are getting share in several markets. We have more to do here, but given that we are a small player in most markets, we have the opportunity to grow further in the coming years. .

Our leadership in the street mass market has always been the foundation of Manitex. And following a difficult market in 2020, we are now seeing market improvement and share gains across the North American market.

I would add that our North American knuckle boom max strategy has also started to gain traction, and we have started to deliver several large knuckle boom customers in the year and have good prospects for 2022. .

The team at oil and steel aerials is making excellent progress and continues to ramp up to meet demand for aerial equipment. We have made good progress in several of our core markets like Italy, Spain, France and Germany with the rental, utility and distribution channels, all showing positive signs of improvement for the rest of 2021.

Valla remains our diamond in the rough, and we're investing in this business to support the shift to zero-emission cranes. We have signed up several new dealers in Italy and increasing our visibility to larger crane rental companies in the U.S. through on-site product demonstrations and rentals.

We also attended a trade show in France in June and displayed several new products, and our order intake continues to be very strong for our Valla cranes. .

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. I'd like to start by discussing our net income for the quarter. Our second quarter net income was $5.4 million and included the benefit of a $3.7 million loan forgiveness of our Paycheck Protection Program loan.

Excluding this and other onetime items, our net income, as adjusted, was $2.2 million or $0.11 per share. This is a significant improvement from Q1's net loss of $0.1 million or $0.01 per share adjusted. The improvement was driven by higher gross margin of $2.6 million due to increased sales of nearly $13 million. .

Slides 5 and 6 in the presentation reflect our financial performance for the quarter and trends for the most recent quarters. Please turn to Slide 5, and I'll address my comments from this slide. Our revenues for the quarter were $60 million, an increase of $12.8 million or 27% compared to the $47.2 million for the first quarter of 2021.

The increase was driven mainly by higher sales of straight mast cranes in our Manitex business, knuckle cranes in our PM business and aerial platforms in our Oil & Steel business. .

Our gross margin was $11.4 million or $2.6 million higher than Q1, driven by the increased sales that I just mentioned. The gross margin percentage improved to 19.1% of sales for the quarter or 0.4% improvement over Q1 and continues to trend towards our target of 20%.

The higher gross margin was driven by the sales mix of our Manitex business unit, which sold higher tonnage cranes in Q2 than in Q1. The higher tonnage cranes typically generate a larger gross margin. .

Also, increased sales of our knuckle cranes in our PM business contributed to the higher gross margin for the quarter. As you can see from the chart, our gross margin continues to trend higher as PM sales represent a growing portion of our total revenue and sales mix in the U.S. reflected higher tonnage cranes. .

As Steve mentioned and as has been noted throughout the industry, supply chain challenges, such as increasing steel costs and chassis availability are situations that need to be monitored, and we are doing that.

Our global purchasing, sales and manufacturing teams are all doing an excellent job of managing through this environment as capacity starts to build again. .

Operating expenses were $8.9 million for the quarter, up slightly from Q1, driven mainly by increased incentive compensation. Operating expenses as a percentage of sales declined significantly from 18.1% in Q1 to to 14.8% in Q2 as we were able to leverage our existing expense base, supporting the increased revenue for the quarter.

We will continue to take action to maintain prudent expense control and strive to lower SG&A as a percentage of sales in our operating model. .

Adjusted EBITDA was $4.2 million or 7.1% of sales for the quarter. This is more than double our adjusted EBITDA of $1.9 million for Q1 and is an increase from the 3.9% of sales for Q1. The increase was driven by higher sales in our straight mast crane and knuckle boom businesses.

The adjusted EBITDA percentage reflects the fourth consecutive quarter of margin improvement, as Steve has mentioned. .

Our backlog was $111.2 million as of June 30, which is a 5-year high and represents a 33% increase compared to Q1 and nearly a 64% increase from year-end. This increase is driven by higher orders in the straight mast crane, knuckle cranes in the aerial platform businesses. Straight mast crane backlog has increased 60% since Q1.

Knuckle crane orders have increased by nearly 33% from Q1 and backlog for the aerial work platforms has increased by 12% from the first quarter. .

Now moving to Slide 7. I'll talk a little bit of a net debt update for Q2. Our net debt was $25.4 million at quarter end, representing a $5.7 million improvement from year-end.

The improvement was driven by strong free cash flow of over $9 million for the quarter and led to a higher cash balance and decline in short-term financing at our international locations. Our leverage ratio improved to less than 3x as of June 30.

At June 30, the quarter -- the company had available liquidity of approximately $37 million, which consisted of $17.4 million of cash, $12.6 million availability on our revolver and $7 million in working capital facilities. .

The team is confident that 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. We remain in compliance with all debt covenants. .

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

Thanks, Joe. Please turn to Slide 8. We feel confident about the improvement in our end markets, and we're staying close to our customers to understand how we can continue to meet and exceed their needs and be their preferred provider of lifting and access equipment.

While our outlook remains positive for the rest of 2021 and our $110 million backlog supports continued improvements, we have to balance our expectations given supply chain challenges in European seasonal facility closures in Q3.

Our strong balance sheet and liquidity will enable us to support our global production ramp-up, and we have more opportunity to improve our working capital ratios for the rest of the year and generate further cash generation in the back half of the year. .

In summary, we are building a larger and more global Manitex for the longer term. And with the support of our customers, our suppliers and our shareholders, we see a much brighter future ahead of us. We're going to be cautious on the outlook here given the shortages on supply chain.

Our strong backlog is moving us towards our longer-term goals, and we have said we are to be a company with $300 million in sales and 10% EBITDA margins. However, the reality is that we expect to see some lumpiness given the global environment, which is beyond our control.

And that said, we're forging ahead with a better backlog, balance sheet, margins and forward-looking sales forecasts that we've not had in quite some time. .

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

[Operator Instructions] Our first question comes from the line of Matt Koranda with ROTH Capital Partner. .

A nice job on the bookings this quarter, they looked really solid. I wanted to see if you could maybe discuss any notable trends there within bookings this quarter. Maybe just if you could thread in some thoughts on the cadence of bookings by month during the quarter, product mix, it did sound like straight mast is pretty strong.

And then just any end market drivers that you're seeing when you talk to your dealers that may be sort of driving some of that product mix that you're seeing in the backlog. Maybe specifically, if you could talk a little bit about maybe energy versus kind of general construction in the straight mast side of the backlog could be helpful. .

Sure. Matt, thanks for the question. I would start by saying that across the board, we've seen good trends on orders. And most significantly, as you mentioned, the straight mast market has accelerated really since Q1 of this year. So I think the biggest shift has really been there.

Knuckle booms has been pretty steady and pretty constant, which is good news for us. And looking forward through the rest of the year, I feel pretty good about the knuckle boom business. .

I would say the aerials business in Europe is the other one that continues to perform very well. And I mentioned some of the markets that were performing well. Italy, Spain, U.K., Italy, obviously. So we're seeing good growth there. And then Valla was obviously the other piece that we see significant growth.

So I think from a product portfolio, really across the board, we're seeing nice order intake and pickup in demand there. .

If I take a shift and go through some of the markets, Matt, I'd say given the knuckle boom business is now our larger business, Europe is kind of driving the growth there. And as we've mentioned in the past, a lot of that's driven by the stimulus that's going into infrastructure, utilities, just general construction demand.

So that's obviously helping that piece of it. .

I think when you look at North America on the straight mast market, we're just coming off of a very low base. And our dealers, our customers are getting more demand for the product from a pretty difficult 2020 when it comes to the straight mast market. And then we've got a couple of areas that surprisingly have been doing very well.

Chile, obviously, with commodity demand has almost doubled there. We have a facility there that does installation of knuckle booms. That's been very strong. .

I think when you look at also our max strategy in North America on the knuckle booms, that's starting to get some more traction. I mentioned getting into a couple of new customers that have had competitive knuckle booms, and that's also been, I think, a significant piece of it.

So I'd just say in summary, Matt, it still seems like our products are in high demand. And right now, with the $111 million backlog, sitting here at the beginning of August, I think we feel pretty good about the rest of the year. .

That's great. Okay. And then I know you mentioned certain components that are relatively tight in the supply chain.

But I'm curious, what are you currently quoting to dealers in terms of just order to delivery cycles? What are your current lead times? And how have those been impacted given some of the supply chain challenges, that would be helpful to kind of hear a little bit more about. .

Okay. So Matt, I'm going to be as transparent as I can. Obviously, a lot of our competitors listen to these calls. So I don't want to get down to the month where we see current deliveries. But our lead times, given the different product portfolios are still, I think, within normal demand. The knuckle boom business is a higher volume product.

And the throughput there is a lot higher than, for example, in the straight mast market, a little longer lead times because of obviously chassis demand and all of that, and I'll talk about that in a moment. .

But I think in general, our lead times right now are not too bad in comparison with our competitors. And at the end of the day, our customers demand, and they need product. On the constraints, Matt, I'd say, we mentioned this in the prepared remarks, but I'll go a little bit deeper into the detail. Steel, I would say, is getting a bit better.

When we spoke the first quarter of this year, there was a lot of gaps, to be honest with you, with steel. I think that's normalizing itself. That could change, obviously. .

But right now, I think the team has done a really good job to get better forecasting out there to our steel suppliers. Hydraulics, valve blocks, those types of things, continues to be a bit of a challenge.

But I can tell you that we had our team and one of our valve suppliers yesterday going through in person, the detail around when are we going to get our valve blocks. And we're adjusting our production schedules to kind of meet what they can deliver to us. .

So I think at the end of the day, we have to work together on this. We need to work with our customers, our suppliers and obviously, the production teams will be able to deliver products. So we're working on all of that. The biggest issue we have today, to be honest with you, is truck chassis, mainly in North America.

I don't think that's a secret from anyone that listens to the industrial space. That continues to be a challenge for us, and we're working on it, but it's not easy. And I think that's why we're being a little bit more cautious on the North American business because of that chassis supply.

So that's probably the largest issue that we have, I think, today. .

Okay. That's helpful. And then lastly, I guess, I wondered if you could talk a little bit about price cost and just -- I mean, given some of the extended lead times and component availability challenges, I assume you may have some excess freight, some other additional costs associated with that.

So what's the pricing environment look like? Are you able to capture at least a portion of that increase in cost and pass it on? Maybe you could say a little bit about that. .

Okay. Sure, Matt. I think on the price side, and I'll start and turn it over to Joe maybe to make some commentary looking forward a bit. But I mean, at the end of the day, our objective is to offset any of those input costs to our customers. And to be honest with you, we're being transparent with our customers.

I think our customers understand where we're coming from. And then we're working with our suppliers to push back on as much of those costs as we can. .

So at the end of the day, we're trying to balance all of that. But I think that the team is doing the best job that they can. I think our customers are understanding that, and we're going to pass those costs on. At the end of the day, that's our net objective.

Now I think that given, to your point, the inefficiencies, those are further challenges that we have, I think, going forward with recalibrating some of our production schedules in various facilities. But we'll get through it. I mean, again, I think Q2 is a good demonstration of what we're capable of in a tough environment.

I mean all of those constraints existed in Q2, and we worked through as many of those as we can. And I think at the end of the day, we're going to continue to do that. .

But Joe, you want to comment anything else kind of on the pricing dynamic and what we're trying to do there?.

No. Yes, the only thing I would add to it, Steve, is we have regular calls with the team to talk about pricing, talk about costs, and we'd like to push through as much of the cost increases as we can to try to maintain the margins that we have.

We've been targeting the increase in margins and the costs being passed along to us, obviously, are eating into that, and we're doing what we can to try to maintain the gross margins that we have. But we know there's a little bit of a hit that's happening there, but we're doing everything we can to minimize it. .

Okay. Maybe just to tie it all up in nice little bow here, but does that mean we hold serve on the gross margin front relative to 2Q levels, we shouldn't necessarily count on huge margin expansion in the back half of the year? Or can we see a little bit of additional margin expansion, just given the backlog strong, the mix looks pretty solid.

Do you still get some fixed cost absorption that should help you a little bit?.

Yes. I think -- go ahead, ahead, Joe. Go ahead. .

That's fine. Go ahead, Steve. .

Yes, I was just going to say, and I'll turn it over to Joe. I mean, Matt, what we have in front of us, obviously, is those supply chain headwinds that could potentially impact some the margin. We've got the seasonal shutdowns in Europe for a couple of weeks. Obviously, there's going to be some impact there.

Remember, the knuckle boom, the aerial business, those are all performing very well. So we're going to have to deal with a couple of weeks shutdown in Q3. And I think that's -- those are the headwinds that we have. And I think we just want to be conservative kind of looking forward. .

But we're not taking our eye off of the objective of getting north of 20% margins. And I think you see also the SG&A that we're keeping at a relatively low level. And we don't -- again, we don't need to add a lot of SG&A to get the growth that we did.

Just look between Q1 and Q2, the revenue growth there, we didn't add a lot of cost to be able to do that.

But Joe, you want to anything?.

No, I was going to say, Steve, you pretty much touched on everything I was going to mention. The seasonality, we know that, that's got an impact in Q3. And you're right, on the SG&A, the expense base, we really don't need to add anything to cover increased revenue.

So as long as we can drive the revenue up, we're not going to be adding expenses to cover that. .

Our next question comes from the line of Mark Jordan with [ Twins Capital ]. .

So gentlemen, it was great to see sales in the $60 million range and some real net income in Q2 report, the gross margin movement really shows some progress there as well. I have 2 questions related to the supply chain, which you mentioned earlier on the call and which Matt Koranda spoke to a bit.

So perhaps you can elaborate a little bit more and touch on some other areas within that.

So a 2-part question here is, what, if anything, is within your control in terms of component availability? And in connection with your efforts here, how did you folks navigate this type of situation when you were at Terex in your previous position? And with respect to how this may play at and whether we can maintain a nice growth trajectory that we're on?.

Sure, Mark. Thanks for the question. I appreciate it. I'll start with really the constraints and how we're working through those. So obviously, we do have some vertical integration where we make in several of our facilities, our own booms, our own chassis, our own columns.

So with the availability of steel and a vertical integration that obviously helps us get there. But remember, the business model is we buy 70% of what we build. So there's a lot of work on supply chain.

I think that the team has done a really good job in the past 12 months to work on not having single-sourced components, finding alternatives, finding low-cost alternatives and other places. .

And I think that's helped us so far. So those are what I mentioned, Mark, the strategic things that we worked on, I mean, a lot of that we've done really in 2020, and that's been a benefit. I think, look, at the end of the day, this is daily management. And the comment I had about the hydraulic supplier was one of yesterday.

And last week, there was a couple of other ones. And I think we're addressing them as best we can, and we're working with our suppliers to make sure that we can meet our demand.

There's obviously things you can do on the production floor to where you can pull, what we say, pull things off into the hospital and then work on those products as the components come in. .

We're obviously doing all of those things to be able to not shut down any of our facilities. And I would say that we had not had any facility shutdowns up till now with any supply chain shortages.

We've obviously had to shift production from different lines as material availability comes up, but I feel pretty confident that we're doing everything that we can to manage through those. And on your comment about my past experience, those are a lot of the things that we're working on to be able to improve our production terms. .

I venture to say that your logistics and procurement and planning group are doing phenomenal work because I know it's tough out there. .

It's hard. It's hard for sure, Mark. But those are the things we got to do, and we'll get that done. .

Yes, it's not seen on the surface. So beyond the scenes, there's some people that are working very, very hard at Manitex. So well, we appreciate that as investors and looking the company that you want to stick with.

Would you acquire or make a strategic investment in one of your key suppliers, if it came down to it? Is there -- is your operation presently strong enough to support an acquisition? And if so, what would you want to acquire, assuming you could come to the inappropriate financing?.

Sure, Mark. Yes. Right now, I don't see a need to buy supplier. I mean, most of our suppliers are doing well. They're financially solid. They're trying to ramp up as much as we can -- as they can to supply us and obviously, other suppliers. But there's nothing that I would say right now that we need to look at, Mark.

I think, look, the company is financially strong. And if we had to, given our balance sheet, we could, but that's not something that we need to do today. .

And I mentioned a little bit the vertical integration that we have. I mean, remember, the knuckle boom business that's produced in Italy, we actually have a facility in Romania that does all the welding of many of our components. And that has helped us quite a bit to get the ramp-up because we're not single source to any certain suppliers.

So I'd say that's kind of helped us there. .

We make our own booms in Georgetown, Texas. And I think that's helped us again as we get the steel. So nothing that I would say is imminent in front of us, Mark, that we need to deal with from a supply chain perspective. .

This does conclude the question-and-answer session. I'd like to turn the floor back over to management for closing comments. .

Thank you, operator. Everyone, thank you for your time today and your interest in Manitex. I think we feel good about our progress and continuing to grow Manitex into a larger and more global lifting business. Please reach out to Peter, Joe or myself for any follow-up questions. And with that, we'll end the call. And thank you, operator, for your help.

We appreciate it. Thank you, everybody. Be safe. .

This does conclude today's teleconference. You may disconnect your lines now. Thank you for your participation, and have a wonderful day..