Manitex International Q1 2024 Earnings Call Transcript

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May 2, 2024

There are 5 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Manitex International's First Quarter 20 24 Results Conference Call. And this call is being recorded on Thursday, May 2, 20 24. I would now like to turn the conference over to Paul Bertolai from Balm Advisors. Please go ahead.

Speaker 1

Thank you. Good morning, everyone, and welcome to Manitex International's Q1 2024 results conference call. Leading the call today are CEO, Michael Coffey and CFO, Joseph Doolin. We issued a press release earlier today detailing our Q1 2024 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.

Speaker 1

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 Coffey, who will provide a review of our recent business performance, including an update on the progress we have made on our new Elevating Excellence initiative, followed by a financial update and outlook from our CFO, Joseph Doolin.

Speaker 1

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

Speaker 2

Thank you, Paul, and good morning to everyone joining us on the call today. I am very pleased with our strong start to the year as we delivered solid Q1 results highlighted by an 8% organic revenue growth and margin expansion owing to operational improvements made last year.

Speaker 1

As a

Speaker 2

result, our Q1 EBITDA increased 33% year over year. We are performing at a high level and building a track record of successful execution consistent with the priorities outlined within our Elevating Excellence value creation strategy. With that, please turn your attention to Page 3 of our presentation, where we will begin with a discussion of our Q1 performance. Despite macroeconomic uncertainty, we delivered strong organic growth during the Q1. Our 1st quarter lifting equipment revenue increased 8%, driven by strong growth from our North American operations.

Speaker 2

The improved output is a result of new processes put in place during 2023. An important aspect to our commercial growth strategy is to drive increased adoption of our PM Group portfolio of articulated crane products in North America. We are in an active discussions with several new dealer partners to adopt the PM knuckle boom cranes into their product offering. This is part of our elevating excellence strategy in 2024 and the discussions to date have been very promising. Last month, we announced the launch of our newest offering from the PM Group, the PM 70.5 articulated truck mounted crane.

Speaker 2

The model was designed for global use, but we are looking forward to launching this innovative product in North America later this year. We expect that this product will be integral in our expanding our distribution of PM Group's our PM Group products in North America. We had another solid quarter in our Rental segment as well. Revenues were up 9% in the Q1 as demand trends in North Texas and the associated markets remain robust. Our Lubbock location just finished its 1st full year of operation and we are very pleased with the progress at this newest location.

Speaker 2

As it pertains to elevating excellence, our 3 year value creation strategy, you may recall that we labeled 2023 the year of process improvement. Our company needed to update its systems and processes before considering capital expansion projects. We worked hard on this, upgrading 2 ERP systems, implementing global standards, a new balance scorecard, all while improving operating processes. These investments were designed to prepare Manitex for scale, improve our efficiency and margin attainment. The results have been promising.

Speaker 2

1st quarter gross margins were up nearly 180 basis points from the same period last year. The progress made is a direct result of our Elevating Excellence initiatives as well as business transformations that are underway. I am particularly excited by the cost reductions we are beginning to realize from our sourcing and supply chain measures. Cost increases from the supply chain pressures have been a constant headwind for both Manitex and the industry. Last year, we reorganized our global supply chain structure.

Speaker 2

We implemented new initiatives and our team's work are now producing positive results. New suppliers have been added, and we are following a collaborative and coordinated approach. We began to see meaningful results in the Q1 and look forward to further efficiencies as the year progresses. Our balanced sales growth and operational improvements enabled us to generate 1st quarter adjusted EBITDA of $8,400,000 an increase of more than 33% from the same period last year. Our adjusted EBITDA margin was 11.4% during the Q1, up nearly 2 20 basis points.

Speaker 2

We are proud of this result as it represents the 2nd highest quarterly adjusted EBITDA margin performance in the past 5 years. This is particularly notable given that it came from a seasonally adjusted slower first quarter. During the last few quarters, our backlog has declined. The decline is coming from a historically high post COVID level. As we've reported previously, lower backlog is due to improved production velocity as well as the elimination of certain lower margin products from our portfolio.

Speaker 2

Our order to delivery timelines have shortened a much welcome trend that has enabled us to improve customer satisfaction as well as margin attainment. However, the lower backlog is also the result of market unease. Dealers have been delaying new orders as they assess the impact of rates as well as inflationary pressures facing their businesses and their customers. While we are seeing these near term headwinds, this is offset by powerful spending drivers in infrastructure, power generation and government works, which are now just being let into the market. For example, just last week, we delivered a series of new cranes to a Southwestern U.

Speaker 2

S. Utility company as they are preparing for system wide updates as well as service expansion. We do expect infrastructure projects in particular to bolster demand as government works projects begin. We have witnessed a decline in new order intake, but we are expecting this to correct itself as dealer inventories remain low and overall rental utilization has been healthy. In the meantime, Manitex is taking an aggressive position on our overall market.

Speaker 2

We are aiming to grow share through 2025, and we will continue to improve our operations, supply chain, efficiency and margins in keeping with elevating excellence and our strategy. Current backlog ranges between 6 8 months depending on the product category. This is a healthy level of backlog providing ample work to fill capacity at our plants, while providing us visibility well through the end of the year. In 2023, we released Elevating Excellence and it's becoming clear that this is proving to be the right strategy for Manitex. We are tracking ahead of schedule and our work last year directly contributed to our Q1 results.

Speaker 2

We are very pleased with our Q1 adjusted EBITDA margin of 11.4%, which brings our trailing 12 month adjusted EBITDA margins to nearly 11%. This is putting us nicely on track to achieve our 2025 targets. I'm very proud of the management team at Manitex and its employees and their work last year and this year has been exceptional. Joe will provide some more detail regarding our capital allocation strategy, but suffice it to say, we are very pleased that our leverage ratio of 2.7x remains below our targeted range. We are positioned for a strong year of cash flow conversion as we expect to reduce our working capital levels, allowing us to drive further reduction in net leverage.

Speaker 2

Looking to the remainder of the year, conditions remain solid across our key end markets, our products and solutions are resonating with our customers, and we see opportunity to further reduce costs within our business, supporting profitable growth. To that end, we are reiterating our full year 2024 financial guidance. And with that, I'd like to turn it over to Joe.

Speaker 3

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 2024. Turning to Slide 9, net revenue for the Q1 of 2024 was 73,300,000 dollars an increase of 8.1% compared to the same period last year. The growth during the Q1 was all organic and was driven by solid growth from the U. S.

Speaker 3

Operations as well as continued strength in our rental operations. As expected, truck chassis sales were down only modestly from last year and had a negligible impact on the revenue comparison during the Q1 and we expect this to be the case moving forward throughout 2024. Lifting Equipment segment revenue was $66,000,000 during the Q1, an increase of 7.9% versus the prior year period with growth driven by the U. S. Operations.

Speaker 3

Rental equipment segment revenue was $7,400,000 in the Q1 of 2024 driven by continued positive momentum in our North Texas markets, including contribution from our Lubbock, Texas location, which opened in March of 2023. In the year since we opened Lubbock, we continue to see activity in our facility grow and volumes have remained strong. As we have discussed, we took a pause in fleet expansion in 2023. However, we expect to invest in growth capital to expand our rental fleet in 2024. In fact, based on the favorable market trends, we have pulled forward much of our expected capital spending for the full year of 2024 into the first half of the year.

Speaker 3

As of March 31, our total backlog was $154,000,000 down from $170,000,000 at the end of 2023. Our backlog ended the quarter with North America representing approximately 53% of the total with international the remaining 47%. Gross profit was $16,900,000 during the Q1 of 2024, up from $14,400,000 during the prior period or an increase of 17%. The increase in gross profit was driven by the sales increase, increased pricing, improved material costs in Europe and a more favorable mix. As a result of these factors, gross profit margin increased nearly 180 basis points to 23.0% in the Q1.

Speaker 3

SG and A expense for the Q1 was $11,100,000 essentially unchanged from the same period last year. R and D expense was $900,000 during the quarter, up very modestly from the prior year period. We have been able to hold our operating expense levels basically flat in recent quarters despite the revenue growth and investments we are making in the business and we expect this trend to continue moving forward driving continued margin benefits. Operating income was $4,900,000 during the quarter, up meaningfully compared to $2,600,000 for the same period last year. Operating margin in the Q1 was 6.7%, up nearly 300 basis points from last year.

Speaker 3

The year over year improvement in operating income and operating margin was driven by the improved gross margin performance and operating leverage. Adjusted EBITDA was $8,400,000 in the 1st quarter or 11.4 percent of sales, up from $6,300,000 or 9.3 percent of sales from the same period last year. Net income was $2,300,000 or $0.11 per diluted share for the Q1 compared to essentially breakeven profitability for the same period last year. Adjusted net income was $3,400,000 or $0.17 per diluted share in the Q1, up from adjusted net income of $1,500,000 or $0.07 per diluted share for the same period last year. Adjusted net income for the Q1 of 2024 excludes $600,000 of stock compensation expense and $500,000 of other non recurring expenses.

Speaker 3

Now turning to our balance sheet on Slide 10. As of March 31, net debt was $86,400,000 which is up modestly from the end of the 4th quarter due to the timing of working capital payments and the pull forward of some capital spending. As a result of the strong operating results, net leverage improved to 2.7 times at the end of the Q1 of 2024 compared to 2.9 times at the end of the Q4 of 2023. We continue to expect our working capital usage to normalize in the coming quarters, which could result in a reduction in inventory levels, leading to improved free cash flow conversion and even further reduced leverage levels by year end. As of March 31, total cash and available liquidity was approximately 30,000,000 dollars Now turning to our outlook.

Speaker 3

Based on the continued momentum in our end markets and our expectation for ongoing execution against our strategic goals, we are reiterating our full year 2024 outlook. As we detail on Slide 11, we expect 2024 revenue in a range of $300,000,000 to $310,000,000 and adjusted EBITDA in a range of $30,000,000 to 34,000,000 dollars That completes our prepared remarks. Operator, we are now ready for the question and answer portion of our call.

Operator

Thank you, presenters. And thank you, ladies and gentlemen, we will now begin the question and answer Your first question comes from the line of Matt Grande of ROTH. Your line is now open.

Speaker 4

Hey, good morning guys. I wanted to start on the bookings. I guess book to bill has been under 1 for a couple of quarters now. And I know Mike, you referenced the hesitance at dealers to take on a lot of inventory in this environment. But just curious in your view, if you could just unpack the factors that push that book to bill back above 1, and maybe the timing in your view in terms of when we might see that and the order flow turn back on in a more robust way?

Speaker 4

And then what's a healthy level of backlog in your view that gives you visibility into the year, but also the ability to deliver within sort of reasonable lead times?

Speaker 2

Yes. Yes. Matt, really good question. Good morning. Good to hear your voice.

Speaker 2

So it's complex. There's hesitancy with regard to commercial construction and smaller businesses in both Europe and North America that is directly related to inflation and interest costs. And that's really not a surprise. We're just seeing generalized hesitancy in those areas. There's a bit of an offset there and that is it pertains to the infrastructure projects that were funded years ago, but they're just coming online right now.

Speaker 2

And that's happening in both Europe and North America. North America is a little more pronounced. That has not driven new order uptick yet, but we're expecting it to. I can't honestly tell you when that will happen. But if you look at the dynamics of leading indicators concrete, asphalt construction materials and then also what's happening with vocational trucks that are used in concrete delivery and all and or asphalt and construction material delivery.

Speaker 2

That part of the industry is very robust and it all speaks to an anticipated uptick in infrastructure. And when we speak of infrastructure for Manitex, what we're looking at is generalized infrastructure that most people think about highways, bridges, the things that we see when we're driving around town that are very visible. But the other classification of infrastructure that we're anticipating is going to be significant and actually we're delivering on some of those orders and that pertains to power gen and transmission. And those activities are substantial. There's a lot of maintenance that's happening to the grid.

Speaker 2

And quite frankly, our grid is aged. It's going back 50, 60, 70 years. So that is a bit of an offset and there's a dance that's being played back and forth. Do we have the proper inventory that's in the rental fleets and that is outstanding to meet that demand. We don't know when that will turn, but you're correct, we've seen several quarters of decline and we're anticipating that that will turn around.

Speaker 2

When, I don't know. The last part of your question is what we might expect as far as a healthy level. And part of the reason that our backlog grew was because of supply chain delays that slowed our ability to deliver, which has sped up considerably in the last year. It also scared many of our customers with regard to when they could get orders. And there was just a mounting delay that was exacerbated by post COVID supply chain issues.

Speaker 2

Those issues are still affecting the business, but to a much lesser degree. So I think healthy backlog is going to range between 4 8 months of backlog. We're moving into that healthy range right now. And what we're seeing dynamically is we're able to fill orders faster than we had been in the last 2 years. That's good for customer satisfaction.

Speaker 2

Frankly, it's also good for keeping our stated standard margin. And that's as you know, that has been a huge headwind for us in the last 2 years, booking an order and then trying to manage cost to fill it within the projected margins. That's improving and I think we're seeing that in the Q1 results.

Speaker 4

Okay. Super detailed. Appreciate that, Mike. And then maybe just a follow-up on that, which is, what are the implications for product mix if we see more of the incremental order flow coming from that infrastructure side and less from the commercial construction side? Are there any implications for the lifting mix that would either be positive or negative for margins and just general pricing?

Speaker 2

Yes. So we don't think the mix will change over terribly over what we've had in the last 2 years. Things that we did with regard to our strategy, we've had to make a couple a few difficult decisions to mothball or terminate a few products that did not have margin profiles that favored the business. In some cases, we were able to substitute the product need with another products in our portfolio that had acceptable margins. In some cases, we just had to stop taking orders in a few classes.

Speaker 2

And so that part has been done. What we're expecting is heavier class straight boom orders will continue and the demand for that product will be strong. And then what we'll see over the next 12 months to 24 months is a layering in of the articulated cranes that we specifically want to bring into North America. And that is a very healthy story. It's a story that we're excited about.

Speaker 2

And what we said in the a couple of quarters ago and then we reiterated it in this earnings release, we've had some very positive discussions with new distribution partners in North America. We're not prepared to announce those yet, but those are directly correlated to bringing the articulated product into North America in a meaningful way. And that's going to favor our margin profile as well. So we're pretty excited about that.

Speaker 4

Okay, great. That dovetails well with another question I had and maybe Joe can address this one as well. But the adjusted EBITDA for this quarter, I guess, is actually above the high end of your guidance range for the full year. So maybe just why the conservatism in the guide, I know we're only in Q1, so it's probably fair, but just maybe why can't we sustain these levels of margin performance for the remainder of the year? Maybe just talk about seasonality, if you could, for the year in terms of EBITDA or even on margin, and just address sort of how it fits into the outlook?

Speaker 3

Yes, Matt, you're right. Couple of things with it, right? It's kind of early in the year to start taking up our guidance. On our trailing 12 month, our adjusted EBITDA is 10.7%. So it's still a little bit below the 11% to 13% that we've been targeting.

Speaker 3

We do see seasonality in the Q3, particularly coming out of Europe. So that's typically been a down quarter for us. This quarter was a significantly improved quarter for us over the prior year, but we will have some seasonality in the Q3 and we know that's going to affect us. So I think it's just a little early to start changing our guidance at this point. We really want to kind of see how Q2 plays out.

Speaker 2

Yes. And Matt, we do not want to disappoint our investors. But in the last 2 years, we've been grateful to be able to beat our forecast. So I don't want that to be read as a cavalier level of optimism. There's a lot of good work to be done.

Speaker 2

But we are just being we're being routinely cautious and if we're going to disappoint, we want to disappoint by over delivering.

Speaker 4

Okay, got it. Respect the conservatism there. And then maybe just one last one. You mentioned growth capital for the rental fleet and expansion there and pulling some of that into the first half.

Speaker 3

Could you just quantify for

Speaker 4

us what you spend in the Q1 in growth capital on the rental fleet? And then maybe just full year plan versus kind of what you're spending in the first half and what that does for expansion capabilities and revenue there?

Speaker 2

So the expansion number in North Texas for the rental fleet is $7,000,000 and the bulk of it's coming in, in the 1st two quarters. And that's by design to take advantage of the market dynamics in that area in what's happening in Lubbock. We've had the Lubbock, our 4th branch open now for a full year, full 12 months. So we're a little bit late in getting that branch open due to construction delays, but it's performing very well. We're happy with utilization curves.

Speaker 2

We're happy with our ability to price into the market and to deliver results. And we're very happy with how Lubbock is growing ahead of our expectations. So Joe made the comment correctly that we've pulled those capital budget items forward to take advantage of how the market is performing and how our customers are treating us at Raybern.

Speaker 4

Okay, excellent. I'll take the rest of mine offline guys. Thank you.

Speaker 2

All right. Thanks, Matt.

Speaker 1

Thanks, Matt.

Operator

Thank you so much. And there are no further questions at this time. I would like to turn the call back to Michael Cofi for closing remarks.

Speaker 2

Thank you, operator, and thank you to our investors for your faithfulness with Manitex. We really appreciate that. During the Q2, we will be attending the Sidoti Small Cap Conference. Our attendance will be on May 8, and we're also fortunate to be attending the Northland Investor Conference, which is scheduled for June 25. So hopefully, we will connect with you there.

Speaker 2

But if we don't, this quarter, we look forward to meeting with you during our next quarterly call. And at that, we want to thank you for your interest in Manitex and conclude our call.

Operator

Thank you, presenters. And thank you, ladies and gentlemen. This concludes today's conference call. Thank you for your participation, and you may now disconnect. Have a good day.

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Manitex International Q1 2024
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