Good day, everyone, and welcome to Manitowoc Third Quarter 2021 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Ion Warner, Vice President, Marketing and Investor Relations. Please go ahead, sir..

Good morning, everyone, and welcome to the Manitowoc conference call to review the company's third quarter 2021 financial performance and business update, as outlined in last evening's press release.

Participating on the call today are Aaron Ravenscroft, President and Chief Executive Officer and Dave Antoniuk, Executive Vice President and Chief Financial Officer. Today's webcast includes a slide presentation, which can be found in the Investor Relations section of our website under Events and Presentations.

We will reserve time for questions and answers after our prepared remarks. I would like to request that you limit your questions to one and a follow-up and return to the queue to ensure everyone has an opportunity to ask their questions. Please turn to slide two. Please note our Safe Harbor statement in the material provided for this call.

During today's call, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 are made based on the company's current assessment of its markets and other factors that affect its business.

However, actual results could differ materially from any implied or actual projections due to one or more of the factors, among others, described in the company's latest SEC filings.

The Manitowoc Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or other circumstances. And with that, please turn to Slide three and I will now turn the call over to Aaron..

Thank you, Ian, and good morning, everyone. Our third quarter reminds me of a book written by Chuck Klausing. Chuck was a legendary football coach from Western Pennsylvania. He had a 45 year storied coaching career which started in 1948 and concluded with his induction into the College Hall of Fame.

When Chuck retired, he wrote a book about his trials and tribulations titled Never lost a game, Time just ran out. The title of Chuck's memoir is a good description of Manitowoc's third quarter. I've yet to see a quarter where our team executed so well that came up short of our financial expectations.

Frankly, I think it was one of the most accomplished quarters our team has achieved since I joined the company in March of 2016. Beginning as always with safety, our journey to a zero harm workplace continues to evolve using the principles of the Manitowoc way. Internally we track our IR or recordable injury rate on a rolling 24-month basis.

During the third quarter we set a record low for this metric with an average RIR of 1.46. The significant milestone is a testament to the growing maturity of our safety management system, and our employees daily hazard observation practice.

And particular the National Crane Boom Truck value stream in Shady Grove recently celebrated one year without any injuries. Congratulations to Justin Pilgrim and his team on this fantastic achievement. Also, in the quarter we finalized the acquisition of Aspen Equipment and the H&E crane business for approximately $180 million.

This translates to an all in EBITDA multiple of roughly six times. The integration of these acquisitions are progressing as planned and we welcome the Aspen and H&E Crane teams to Manitowoc.

Moving to the Manitowoc way, during the quarter, we revitalize the workshop at our factory in Niella Italy, and integrated the assembly of chassis for self-correcting tower cranes, which significantly improves the safety and process flow on site. I look forward to visiting the team in two weeks to see these improvements.

Looking at our financial results for the quarter, our orders were $535 million. Overall markets for our products and aftermarket services remain robust. And North America dealer inventory levels are in line with current demand and continues at a same pace.

In Europe, we're beginning to see recovery in the all-terrain products and the tower crane business remains at elevated levels. In the Middle East and South America confidence is building as a result of sustain higher commodity prices.

Finally, in Asia, while China continues to soften other key markets, including South Korea, and Australia remain strong. I would note however, that we did see a moderate slowdown in orders during September October.

However, it's too early to say whether this was a result of our orders coming in ahead of price increases during July and August, or if price elasticity has finally caught up with the increases. Regardless, our sales teams have worked tirelessly to implement price increases to offset inflation.

Until this fall crane demand has proven resilient to rising input costs. Only time will tell whether inflation will hinder demand. Finally, I'd like to discuss our supply chain. Although our supply chain and operations teams have never worked so hard to keep the factory rolling.

We are facing the same supply chain crisis that many of our peers have already reported. These supply chain constraints are broad based. Every factory and product line we have is battling shortages, every day we are confronted with different issues.

As a result of these supply chains disruptions, sales in the third quarter were approximately $405 million which was more than 15% below our expectations. The combination of these lower volumes and the cost of price lag which we discussed last quarter resulted in an adjusted EBITDA margin of 4.9%.

Overall, I was extremely proud of how our team executed during the third quarter. Our financial results however, don't give a complete picture of our progress on safety ESG strategic initiatives and the overall effort to battle the current supply chain and inflationary environment, as Chuck Klausing would say, time simply ran out on us.

With that I'll pass it to Dave to provide further details on our financial results.

Dave?.

Thanks, Aaron. And good morning, everyone. Let's move to Slide four. As Aaron mentioned, our third quarter orders totaled $535 million, an increase of $145 million, or 37%, compared to the same period last year. On a currency neutral basis, Q3 orders were up $143 million.

The increase in orders was mainly driven by a robust European market, exacerbated by weak demand in the prior year due to the COVID pandemic. The Americas regions continued at a steady pace and improved year-over-year primarily as a result of low order intake in the prior year. These gains were partly offset by lower orders in the segment.

Our third quarter backlog of $891 million increase 92% over the prior year. Backlog increased across all of our segments. Sequentially backlog increased $155 million due to strong Q3 orders, coupled with the late shipments due to supply chain issues, while over 50% of our backlog is scheduled to ship within the year.

Material shortages due to supply chain issues will impact our fourth quarter shipments. Compared to year-end backlog was up 64%. Net sales in the third quarter were $405 million, an increase of $49 million or 14% from a year ago.

The year-over-year increase resulted from a combination of entering the quarter with a higher shippable backlog and a low prior year comparable due to COVID. In spite of the year-over-year increase, we estimate that our net sales were negatively impacted by approximately 16% due to the supply chain issues and labor constraints.

Third quarter engineering selling and administrative expenses increased by approximately $10 million year-over-year. The increase was primarily driven by higher employee related cost, inclusive of short term incentive compensation expense and acquisition related costs.

Our adjusted EBITDA for the third quarter of $20 million decreased approximately $5 million year-over-year. As a percentage of sales, adjusted EBITDA margin declined to 4.9% 210 basis points lower than the prior year.

As has been the theme with most industrial manufacturers, our financial results for the quarter were substantially impacted by supply chain issues, material cost increases, logistics and labor constraints. Third quarter depreciation of $10 million was flat compared to the prior year.

Our benefit for income taxes in the third quarter was $1 million, primarily related to a refund in Europe from a prior year tax audit. GAAP diluted net loss per share in the quarter was $0.01. On an adjusted basis, diluted earnings per share of $0.06 declined by $0.04 from the prior year.

Moving to liquidity, we generated $18 million of cash from operating activities in the quarter compared to a cash generation of $28 million in the prior year. Capital spending in the quarter amounted to $7 million, resulting in free cash flow of approximately $12 million. Year-to-date we have generated $46 million of free cash flow.

We ended the quarter with a cash balance of $222 million, which included $100 million from borrowings under our ABL facility for the acquisition of the H&E Crane business on October one. During the quarter we spend approximately $51 million for the purchase of Aspen Equipment. Our total liquidity as of September 30 was $389 million.

Turning to slide five. As a result of the previously discussed market dynamics, we are updating our 2021 full year guidance, which now includes the acquisitions of Aspen Equipment and the H&E Crane business. The guidance is as follows; Revenue approximately $1.725 to $1.775 billion. Adjusted EBITDA approximately $100 million to $110 million.

Depreciation approximately $40 million to $45 million. Interest expense approximately $28 million to $30 million. Income tax expense approximately $10 million to $14 million, excluding discrete items, and capital expenditures, approximately $40 million. With that I will now turn the call back to Aaron..

Thanks, Dave. Although the clock ran out on us in the third quarter, we're still fighting to achieve the low end our previous full year EBITDA guidance of $105 million to $115 million. Clearly, given our new guidance, we're concerned that we haven't seen the worst of the parts shortages.

We have four major headwinds supply chain, transportation, inflation and labor. As I constantly preach to our team, our competitors face the same issues. During the tough times like these the great companies earn the trust of their customers and gain market share.

We have made this our focus, whether it is safety, productivity, quality, new product development, acquisitions, or ESG, the Manitowoc way is our family recipe for solving problems and driving continuous improvements.

The true to the testament to this is how we're able to make progress on our four strategic initiatives during this difficult environment. With that, please turn to slide six. And let's take a moment to review our progress on each initiative. Number one, our European tower crane rental fleet strategy continues to progress as planned.

Since we embarked on this strategic initiative 18 month ago, we've doubled the size of our rental fleet and maintained a very high asset utilization rates. Additionally, we continue to make inroads by serving key accounts both our new larger capacity top slowing tower cranes.

Our strategy of growing our rental fleet also improves our flexibility when pursuing new sales. For example, we recently won an order for an MDT 569 on the HS2 high speed train project in the UK, where we were able to offer a buyback option.

This provides the customer with flexibility on the project and an opportunity when exercised for us to utilize this crane in our rental fleet. As another example, we've recently won four cranes and a stumble on a canal project to relieve the boat traffic on the Bosphorus with the use of a buyback option and the rental of additional mass sections.

We've been able to position our cranes on these projects in the initial phases, which we expect to give us an advantage as the projects mature. Moving the number two, we are making meaningful progress on our Chinese tower crane business by locally engineering and producing models to effectively compete in the Belt and Road region.

Last month, we launched the six new model designed by our China team since 2019. The Photon MCT 385A. I am continually impressed by our team's ability to quickly translate the voice of the customer and bring to market highly productive cranes that serve the unique needs of customers and the Belt and Road markets.

In spite of the Chinese market softening, we are seeing stronger adoption of these new models in several other key markets, such as the Middle East and Russia.

Number three, our all-terrain crane business our five-year strategy to expand our product line is on track with the public introductions of our new models scheduled for next fall at the Bauma trade show. Last month we hosted over 180 customers at our factory in Wilmington, Germany as a special voice of the customer event.

Customer saw our two most recent product launches and a few of our latest technology innovations. We received excellent feedback on our new product development roadmap. Lastly, number four.

Regarding our strategic initiative to grow aftermarket activities in North America, I would like to express my sincerest gratitude to the project teams upon closing the acquisitions of Aspen Equipment and the H&E crane business. As part of the H&E crane acquisition we created a new business called MGX equipment services.

Additionally, we implemented a new ERP system prior to closing in order to support the new business. The new ERP system went live on October 1 with minimal disruptions. Jim Glenwright and his IT team did a fantastic job working cross functionally, to map out the new ERP system to include lean processes.

We will continue with a disciplined approach in our North American aftermarket strategy through organic and inorganic growth opportunities. In closing as the saying goes tough times don't last but tough teams do. The current environment is not easy. Our supply chain teams and shop floor supervisors are experiencing unprecedented challenges.

I'm inspired by the resiliency and passion they bring to work each day.

That passion is pervasive in Manitowoc, where we are all motivated by the opportunity to transition the business from a low margin crane manufacturer riding the crane cycle to a dynamic company that is customer driven, focused on aftermarket and is able to thrive even during the tough times.

This is how we will bring greater value to our customers and drive the long-term value of our enterprise. With that operator, please open the line for questions..

Hi, this is Ashok Sivamohan on for Jerry Revich.

I'm wondering, can you provide some details on what the cadence of your pricing actions have been so far this year? And at this point on new orders coming in? Are you able to match price with locked in steel and component costs?.

Good morning Ashok. So the first way as I started looking at this is just looking at commodity pricing. And it's really starting to flatten out during the last couple months. So when I look at the way we've increased prices, we've done it three or four times depending on product lines over the last six months.

So right now we feel like we're in good shape that the last price increase that we're on top of it, and we're matched up. It's just a question of working through our backlog now.

As Dave said in his opening remarks, if more than 50% is shippable, during the fourth quarter, but in all likelihood with the supply chain issues that we have some of that, obviously, a lot of that's going to fall into next year, too. So we still have probably two more quarters to work through the backlog that's got the tougher pricing..

Okay, got it.

And can you describe how your M&A pipeline looks today? How much runway do you have to continue to make the types of acquisitions like the H&E Crane business?.

Yes, I feel really good about our funnel right now. I think our focus right now is just to keep the funnel going. But it's really our internal focus is on the integration of the two deals we did. We want to make sure that they're good and well vetted before we move on to the next acquisition..

Understood, thank you..

Thank you..

Thank you. We'll now take our next question from Stephen Volkmann with Jefferies..

Good morning, guys. Aaron, your little story reminds me of saying you might remember from your earlier days where the sell side, we're never wrong, we're only early, it applies to us as well.

Can I just ask you about this pricing, just sort of the mechanisms? I mean, it seems like steel has maybe started to roll over if it continues to go down, do you get to keep the pricing you've put in so maybe second half of '22, you could see some real margin expansion..

Yeah, so I think part of the trick here is how we buy this deal, because we buy it in some cases, six months out. So obviously, three months ago when we were buying. So we have this dilemma to work through and we historically have really never done surcharges in the crane industry have always done price increases.

So that does give us a little bit of buffer. But it's really too early to tell, how sticky these price increases are going to be. If we really see a massive reduction in steel..

Okay, all right. Fair enough. And then, can you just talk a little bit about I guess, maybe more H&E but Aspen, if you want, as you kind of are starting to integrate these things.

How is it sort of fitting in with your expectations and I guess specifically, I'm trying to think about how we should sort of model these things coming into the business through '22..

Yes, so it sounds like your question is really a financial question. Dave want you..

Yes, so Steve, great question. So correct. The impact for Aspen in the quarter was minimal. So it didn't have any material impact on our third quarter results, however, we will get to see the impact in the fourth quarter and for full year '22. And as Aaron indicated, for both companies were approximately $180 million of acquisition price.

And our expectations are that, that will be a six EBITDA multiple. So you can do the math of what we expect in 2022 on that. And as a reminder, both Aspen and H&E were customers of Manitowoc.

So during the first quarter of ownership, which is the fourth quarter, we have to eliminate intercompany profit and then ending inventory as we move the equipment from a Manitowoc location to an H&E or Aspen appointment. And as a result, our net EBITDA impact in the fourth quarter is going to be minimal, roughly about $3 million.

But from a top line point of view, we think that acquisitions are going to add about $30 million in the fourth quarter..

Okay, great. Thank you, guys..

Thank you. And next from Jamie Cook with Credit Suisse..

Hi, good morning. Just a couple of questions. I think you noted that the cadence of orders slowed throughout the quarter. So if you could just give a little more color on the cadence and sort of what you're seeing, post the quarter close.

My second question, sort of what's the level that steel prices need to be at, for you guys to generate solid margin, given the price increases that you have? So I guess - and then last, I guess you made some commentary in 2022 is still going to be sort of challenge from a cost margin perspective, if you could just give any more color on that? Thank you..

Yes, so when I look at the backlog, call it it's roughly $900 million. So from my point of view, the last month of the quarter, we had all the price increases and it's roughly $100 million. So that's completely covered with price increases.

Probably $200 million of that is from four or five months ago, which is not very well covered, then you got the mess the rest of that's covered. So my view is that yes, fourth quarter is going to be tough, the first quarter is going to be tough, but when I really looked at next year, and my bigger concerns are supply chain.

We know we'll work through the backlog. Maybe some will drag into the second quarter but then we've got a lot of coverage on the outstanding backlog that will pick up between here and there. I think your second question is relative to steel prices..

Yes..

Yes. So as far as material input costs, we believe that effectively in September, our price cost dynamic is covered for 2022. So, when we look at order intake from September forward, we think that we're in a good position for all those orders.

As Aaron indicated, really the issue is going to be not only the supply chain, but also the labor constraints that not only us, but everybody's facing at this point in time as well. So the 2022 dynamic, while we're not ready to talk about, anything financially, we can - we're just looking at how that backlog is going to impact 2022.

Because there's a lot of dynamics that'll happen between now and when we start the next year.

I'm sorry, what was your third question, Jamie?.

Just the sorry, the cadence of orders?.

Okay. So, ahead of the price increases, we saw a lot of orders. So normally, we have our winter campaign in this quarter, it would appear that some of that winter campaign came before the price increases. So September and October had been lighter than what we've seen in the prior few months.

And we just really need to look out over the next couple months to see how it plays out to be honest with you..

Okay, thanks. I'll get back in queue..

[Operator instructions] We'll hear next from Mig Dobre with Baird….

Thanks. Good morning. I appreciate a collar on a cadence of pricing and what's in the backlog? So, if we were to stay reach price cost parity, sometime in the second quarter of '22.

What will the core incremental margins on your business? And some even now the acquisitions here? What would the core incremental margins look like, based on where you currently have the cost structure set up?.

Yes. So I mean, because of the way the backlogs priced, when I think about 2022, I really think that it's the inverse of 2021, where we have these lower margins in the first half, but then we get back to more normalized margins and contribution margins in the second half..

That I do understand, I'm just curious on the magnitude of what incremental margins should look like in an environment like that?.

Oh, I'd say it's always under normal 20% to 25%..

And then, my, my follow-up, sort of has to do with China. You talked about demand getting a little bit softer here. I'm curious if you can size this business for us. And I'm also wondering, in North America, it doesn't seem I mean, you call them in steady, so I'm sort of trying to understand as to what that means.

Does that mean it's growing at a low rate? Does that mean that it's flattish? And based on what you're hearing from your customers, how do you think demand in North America can progress going forward? I mean, oil and gas seems to be getting better. And obviously, infrastructure is, seems to be pending. So thoughts on that I would appreciate..

Okay, with respect to China. It's our smallest region by far. So I'd say that it's pretty minimal in terms of the overall performance of the company. And it's somewhat offset by strengths and other Belt and Road countries like Russia and Korea. So I'm not overly stressed out about the situation there.

It is tough and getting tougher, especially getting payment terms correct. With respect to North America, first of all, dealer inventories, we feel really good about they're back to normal, which we probably have said for two years now.

And I was just at a big industry event last week, and the sentiment was very positive for the exact reasons that you mentioned that, hey, there's still an infrastructure program out there that might get passed. And oil prices are now looking sustainable about $80.

And, even when I often follow copper prices, too, because that helps drive has done Latin America and some of the other mining countries like Australia. So, I mean, if we can get through this inflationary period, I think there's reason to be optimistic out there, but we're not there yet..

Great, thanks..

Thank you. And that does conclude today's question and answer session. I'd like to turn the conference back over to management for any additional or closing remarks..

Thank you. Before we conclude today's call, please note that a replay of our third quarter 2021 conference call will be available later this morning by accessing the Investor Relations section of our website at www.manitowoc.com. Thank you everyone for joining us today and for your continued interest in the Manitowoc Company.

We look forward to speaking with you again next quarter..

Thank you and that does conclude today's conference. We do thank you all for your participation. You may now disconnect..