Greetings. Welcome to Manitex International Inc. Fourth Quarter and Full Year 2022 Results Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Paul Bartolai, Managing Director with Vallum Advisors. Thank you. You may begin..

Thank you. Welcome to Manitex International’s fourth quarter and full year 2022 results conference call. Leading the call today are CEO, Michael Coffey; and Chief Financial Officer, Joseph Doolan. We issued a press release earlier today detailing our fourth quarter and full year operational and financial results.

This release together with the accompanying presentation materials, are publicly available in the Investor Relations section of our corporate website at www.manitexinternational.com.

I would like to remind you that management’s commentary and responses to questions on today’s conference call may include forward-looking statements, which by their nature are uncertain and outside of the company’s control.

Although these forward-looking statements are based on management’s current expectations and beliefs, actual results could differ materially. For a discussion of some of the factors that could cause actual results to differ please refer to the Risk Factors section of our latest filings with the SEC.

Additionally, please note that you can find reconciliations of historical non-GAAP financial measures in the press release issued earlier today and in the appendix of this presentation.

Today’s call will begin with prepared remarks from CEO, Michael Coffee, who will provide a review of our recent business performance, including an introduction of our new elevating excellence initiative, followed by a financial update and outlook for our CFO, Joseph Doolan.

At the conclusion of these prepared remarks, we will open the line for questions. With that, I will turn the call over to Mike..

manufactured lifting solutions under the Manitex and PM brands; Aerial Work Platforms under our oil and steel brand; industrial electric cranes under the Vale brand; and rental solutions under the rental Rabern Rentals brand.

Our rebranding will play a critical role in simplifying our go-to-market value proposition ensuring that our customers understand the unique capabilities and end market application of our product portfolio.

As part of the process, we have discontinued the MAC product brand and are selling our articulated truck lines under the Global PM brand going forward. Importantly, these actions will also be critical in supporting our more than 230 dealers in driving product distribution.

We are fortunate to have a strong dealer network, a network we remain committed to as part of our growth and success. Next is our focus on organizational structure. Manitex is building a high-performance culture focused on driving profitable above-market growth.

In practice, we are streamlining reporting structures, reducing redundancies and implementing a data-centric culture that seeks to ensure accountability at every level of the organization.

Last year, we made several key personnel changes, consolidating our operating structure to include dedicated business unit leaders across our North American and Italian manufacturing operations. We also improved our operating structure at Rabern Rentals preparing for future growth.

These actions will allow for economies of scale and process efficiencies across the organization. We are now better aligned with a collective approach toward customer service, inventory management, manufacturing best practices and improved supply chain management.

In combination, these actions are intended to drive sustainable operating efficiencies while providing us ample capacity to support incremental commercial growth. Next is new product innovations. Manitex has a long history of innovation within our industry.

We remain committed to bringing new, more efficient and technologically advanced products to the global market in an effort to maintain and grow our market share. Our new product initiative is focused on core lifting equipment product categories that the company can market in both North America and Europe.

We will be showcasing some of these new products, along with a broad array of market-leading products at ConExpo 2023 in Las Vegas from March 14 to the 18. In particular, we are introducing ECSY, an Electric Crane System designed to decrease emissions and operating costs.

We would encourage any of the analysts or investors attending the show to stop by and take a tour of our display. At a commercial level, organic market share expansion is a top priority for us. Manitex currently holds a leading share for straight mast cranes under its Manitex brand in North America.

We believe there is a significant opportunity to leverage this position and expand our share in high-growth articulated crane, industrial lifting equipment and aerial work platform markets in North America.

The company has implemented an enhanced distribution model using North American resources to sell and support products traditionally supported from Europe. This new operating structure enables improved sales, support and upfitting of our PM branded truck cranes in North America.

We will support current and new dealers with upfitting capabilities to further expand the PM truck brain product offering in North America. Management is working towards common goals to meaningfully increase share, especially in North America. Along with organic growth, we also remain focused on product mix optimization.

Over time, Manitex has developed a broad global portfolio of lifting equipment and solutions. As we introduce new innovative and more efficient product lines, we plan to optimize our portfolio to focus on the highest growth and most profitable areas of our business.

Additionally, we will continue to focus on driving high-value aftermarket parts and services which currently represents about 14% of our total lifting equipment business. We have an aim to increase our aftermarket support business by 10% over the next 3 years.

Our growth will be positively impacted by our ability to increase levels of product support and maintenance solutions for our dealers. Our final area of focus involves continued disciplined capital allocation.

In 2023, our capital allocation priorities will include debt reduction, select investments in organic growth and maintenance capital to support our existing operations.

We intend to reduce our net leverage ratio closer to our long-standing target at or below 3x, driven by a combination of improved operating cash flow and planned decline in maintenance capital expenditures.

In summary, we are building a strong platform for sustained profitable growth, positioning Manitex to expand its leadership within the global lifting solutions and domestic equipment rental markets, consistent with our long-term focus on shareholder value creation.

Today, we are introducing 3-year financial targets that reflect our confidence in the underlying strength of our end markets, coupled with the commercial and operational benefits we expect to generate through elevating excellence.

Between yearend 2023 and 2025, we expect to deliver revenue between $325 million and $360 million or 25% growth at the midpoint range and total EBITDA between $35 million and $45 million or a growth of 65% to 110%, between 300 to 500 basis points of adjusted EBITDA margin.

In February, we began to roll out elevating excellence across our site locations. Our entire team is energized by the initiative, and I’m encouraged by the evident progress we’ve already made. Even so, we remain in the early innings of a multiyear business transformation. Our work together is just beginning.

Before I turn the call over to Joe, allow me to provide a few concluding remarks around our outlook for 2023. Customer demand remained strong into the first quarter. Infrastructure spending in the U.S. remains well above pre-pandemic levels and the federal stimulus is beginning to flow.

We expect the infrastructure to be strong in the market for the U.S. Utility spending is also expected to remain favorable with utility CapEx expected to grow driven by a need to replace aging infrastructure. New renewable projects as well are benefiting from this federal spending and the associated programs.

Construction demand is also strong in Europe, and our European businesses are directly supporting operations in South America, where demand is robust, fueled by global demand for raw materials, namely hopper. This year, we will seek to grow market share in key product areas in North America.

We will further establish our rental footprint optimize our manufacturing operations and reduce net leverage with 22% year-over-year backlog growth, solid end market fundamentals and improvements to our manufacturing throughput, we believe we are on track for low double-digit adjusted EBITDA percentage growth in 2023.

I’d now like to turn it over to Joe for a detailed review of our results..

Thank you, Mike, and good morning, everyone. I will provide some additional details on the quarter give an update on our liquidity and balance sheet and conclude with commentary around our outlook for 2023.

Net revenue for the fourth quarter of ‘22 was $78.8 million, up 47.6% compared to $53.4 million for the fourth quarter of ‘21, driven by organic growth in lifting equipment and contributions from the Rabern Rentals acquisition, which we closed in April of ‘22.

Lifting Equipment revenue was $71.5 million, up 33.8% compared to $53.4 million in the fourth quarter of ‘21.

The revenue growth was driven by both strong demand in domestic and international markets as well as better throughput in manufacturing facilities, owing to improved labor efficiency, better coordination with suppliers and benefits from other recently implemented operating efficiency measures.

Rental equipment revenue was $7.3 million during the fourth quarter as Rabern has continued to generate solid results since the acquisition driven by strong end market demand in key Northern Texas markets and additional support from Manitex.

Northern Texas has a strong backlog of infrastructure, commercial and industrial projects, which are bolstering demand for Rabern Rentals. We invested in additional rental fleet and expanded into the Lubbock market in the summer, serving customers from a temporary location.

A new permanent branch is complete, and we are excited to open our new Lubbock facility this month. As of December 31, 2022, total backlog was $230.2 million, up 22% from the end of ‘21 and up 11% from the end of the third quarter of driven by continued favorable trends in key markets in both North America and international regions.

Backlog in our U.S. straight mast crane business is up 38% from the prior year while demand for articulated cranes has increased 21%. In addition, the company continued to gain share with key North American dealers and added an important new dealer in the Midwest.

Gross profit was $15.2 million during the fourth quarter of ‘22, up from $4.7 million during the prior year period.

Excluding one-time adjustments during the fourth quarter of ‘21 related to the disposition of the Badger business, gross profit during the fourth quarter of ‘22 increased 93% over the prior year period, owing to the strong revenue growth, benefits from the company’s operational improvement initiatives and improved mix due to the contribution from Rabern Rentals.

As a result of these factors, gross profit margin increased 450 basis points to 19.3% during the fourth quarter of ‘22 after adjusting for one-time items during the fourth quarter. Operating income was $4.2 million for the fourth quarter of ‘22 compared to an operating loss of $7.1 million for the same period last year.

Operating margin in the fourth quarter of ‘22 was 5.3%. The year-over-year improvement in operating income was driven by strong revenue growth, contribution from Rabern and our improved gross margin performance.

Adjusted EBITDA was $8.1 million for the fourth quarter of ‘22 or 10.3% of sales compared to $0.3 million or 0.6% of sales for the same period last year. Net income was $0.7 million or $0.04 per diluted share for the fourth quarter of ‘22 compared to a net loss of $8.1 million or $0.40 per diluted share for the same period last year.

Adjusted net income was $2 million or $0.10 per diluted share in the fourth quarter of ‘22, a significant increase compared to a net loss of $1.7 million or $0.08 per diluted share for the same period last year.

Adjusted net income for the fourth quarter of ‘22 excludes $0.6 million of stock compensation expense and approximately $0.8 million of other non-recurring expenses. Now turning to our balance sheet. As of December 31, ‘22, total debt was $90.3 million compared to $97.5 million at the end of the third quarter, ‘22.

Cash and cash equivalents as of the end of the year were $8.2 million, resulting in net debt of $82.1 million compared to $85.6 million at the end of the third quarter of ‘22 and $23.8 million at the end of the fourth quarter of 2021. Net leverage was 3.9x at the end of the fourth quarter compared to 6.4x at the end of the third quarter of ‘22.

As of December 31, total liquidity was $36 million. As Mike detailed, during 2023, we expect to grow adjusted EBITDA in the low double-digit percent range compared to the $21.3 million in adjusted EBITDA that we reported in ‘22.

Our target is supported by our strong backlog entering the year, continued optimism on end market trends as well as expected margin improvements resulting from our elevating and excellence initiatives. That completes our prepared remarks. Operator, we are now ready for the question-and-answer portion of our call..

[Operator Instructions] Our first question is from Matt Koranda with ROTH MKM. Please proceed..

Hey guys. Good morning. Just wanted to start out with backlog, you mentioned bookings were sustainably strong year-to-date. And I think you said, Mike, that there were some larger cranes in the mix.

So, I just wanted to see if you could provide any further color just on what you are seeing on the bookings front, either based on end market, regions, products, however you kind of want to break it down?.

Yes. Thanks Matt. Good morning to you, and I appreciate the question. So, a couple of things. One is we have been increasing our productivity pace and the velocity of production throughout the last year. Backlog is keeping and outpacing that, which we are really grateful for that. So, we have got a lot of positive sentiment from our customers.

The ratio is almost 50-50 between European articulated products and North American products. And the general trend is favoring larger capacity cranes and that’s consistent with both the straight boom and the knuckle boom segments.

We don’t have any themes with industry, but some growing orders have come through the energy market, and that’s both electric transmission, primarily in Europe and then upstream markets. And these are primarily cranes that are being delivered to distributors that cater to oil and gas, for example, in the upstream market segments.

And so they are looking to expand their fleets to cater to those segments. But again, we are highly aligned with our dealer network. So unfortunately, we are a little bit insulated initially on where they are going, but that’s what we are hearing from our dealers, and that’s consistent with what we are reading in the markets..

Okay. Helpful. And then also, I think in the release, you guys had talked about very favorable pricing to sort of cost and supply chain headwinds that you faced that used to be embedded in the backlog, but it looks like maybe no longer is.

So, just curious about the implications for gross margins, especially as we think about the lifting segment heading into ‘23 and how we should be thinking about margin improvement there?.

Yes. Well, that’s consistent with what we are experiencing now. And we are seeing – obviously, there is a long order trend, and that’s consistent with manufacturers in our space.

And our customers have been very patient as we have received the orders and then put them into queue, but generally, it’s a 9 months to 12 months cycle to get it in order of completion. Thankfully, the pricing is now being reflected in the work that we are performing.

So, we have increased pricing over the last 1.5 years and the current work that we are doing is at higher pricing.

We are also finding ways to either stabilize and/or decrease material costs, and that will be a long process that always is, but we are looking very favorable towards 2023 at a better cost structure, higher volumes and obviously better pricing..

Okay. And then any further contemplation of price, just curious how you are thinking about sort of the appetite of your dealers and the end markets for additional price increases in this environment? It seems like you have taken a fair bit of price so far that’s embedded in the backlog now.

Are there additional opportunities for price? How are you thinking about that?.

Well, we want to stay as economically focused as possible. I mean our costs have gone up well over 25% over the last 2 years. And that’s consistent with what’s happening. I mean our customers have been fantastic. They understand the situation. They are seeing it with Class 8 trucks.

They are seeing – well, we are seeing it with pretty much everything we are having to buy right now. But we want to stay as economical as possible while delivering the correct margins, and we think we can do both.

So, we are monitoring the indices very closely and have prepared our customers that, for example, if steel indices go up, then we will have to address that with a surcharge basis. But at this stage, we feel like we are pretty well positioned, and we are just looking at how the market performs and what the cost structure is..

Okay. And then I just wanted to ask a couple on the outlook, and then I will jump back in queue here. But on the low-double digit EBITDA growth front, I think was what you said for 2023.

I guess just how should we be thinking about the framework for revenue growth within that context? And then just maybe a little bit more on the composition of Rabern and the rental contribution to EBITDA this year versus the lifting side?.

Yes. Let me take a stab at that, and I am going to ask Joe to also add some color on that as well. So, the revenue growth for the next 3 years will be much heavier in ‘24 and ‘25. However, the content of our revenue in 2023 will be more purely defined by internal manufacturing product.

So every year, we always have a component of Class 8 trucks that we attach our cranes to and this year, more of our backlog is aligned with customer supply Class 8 trucks, meaning that we are going to have more of our internally produced product revenue this year than last year.

So, we are looking at a top line growth that’s a little bit difficult with currency and FX changes to predict exactly where we are going, but we are going to look at some pretty good growth in 2023, but what’s fantastic about it is we will be selling less low-margin chassis and more Manitex manufactured product.

Rabern is also looking at some good growth entering Lubbock. Joe had mentioned and I had mentioned that we are actually opening the new branch in March this month to soft opening. The grand opening will happen in the summer.

But this year is more of a year of process of getting the systems in place, and we will make another infusion of rental asset investments in ‘24 and ‘25 to accelerate that growth.

Do you have any clarifications that you would like to offer, Joe?.

Yes. I was going to say there is not a whole lot I could expand on that. I think you are right, a big driver of it is going to be that we are going to see less chassis sales in ‘23 than we did in ‘22. So, the revenue growth itself will be impacted by that, but the margins will benefit by not having as much of our revenue coming from the chassis sales..

Yes. That’s great.

Any way to frame up how much kind of revenue in ‘22 was kind of that pass-through chassis sale just so we have a baseline to think about as we head into ‘23?.

Yes. Matt, I have got it. The chassis sales in ‘22 were about – somewhere between $25 million to $30 million. It was probably closer to about $27 million in chassis sales for the year. It’s really on the – that’s in the oil and steel lines..

Yes. Okay. Makes sense. And then just last one for me and then I will jump back in queue. The EBITDA margin improvement that’s embedded in the 2025 outlook looks like just under 400 basis points relative to where you were in ‘22.

It seems to me that just a basic contribution from the rental side of things gets you a good way, a good amount of the way there in terms of improvement.

Maybe is there any way to bucket out the improvement that you are kind of expecting between mix versus just the core lifting EBITDA margin improvement that you contribute to that?.

Actually, Matt, most of that improvement we are expecting through the manufacturing, which is the core business. What we saw – so one way to look at this historically is pre-pandemic level, we had gross margins of about 19% and the manufacturing business dipped significantly with cost structure and COVID supply chain delays, etcetera.

When we acquired Rabern, we had a really nice bump in gross margins and we have enjoyed that and that will continue. What’s happened through the last three quarters is we have been fundamentally improving the operational performance of our manufacturing business.

We returned the business to ‘19 and most of those margin improvements are going to come through manufacturing, process efficiency, blocking and tackling the operations in a way our manufacturing business performs.

And those are organic improvements that we have been studying over the last six months to nine months, and then we have implemented a strategy to execute on that..

Okay. Appreciate that clarification. Thanks guys..

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Mike Coffey for closing comments..

Okay. Thank you very much, operator and thanks everyone for joining the call today. We really appreciate your attention and interest in Manitex. In addition to our participation next week at CONEXPO, we will also be attending the 35th Annual ROTH Conference in Dana Point, March 13. We are hoping to connect with many of our investors and analysts there.

And if we miss you, at either the ROTH call or at CONEXPO, we look forward to speaking to you next quarter. With that, we will conclude our call. And again, we would like to thank everyone for joining..

Thank you. You may disconnect your lines at this time..