Manitex International Management Discusses Q4 2013 Results - Earnings Call Transcript

Mar. 6.14 | About: Manitex International, (MNTX)

Manitex International (NASDAQ:MNTX)

Q4 2013 Earnings Call

March 06, 2014 4:30 pm ET

Executives

David J. Langevin - Chairman and Chief Executive Officer

Andrew M. Rooke - President and Chief Operating Officer

Analysts

Philip Shen - Roth Capital Partners, LLC, Research Division

Thomas Finan - Avondale Partners, LLC, Research Division

Les Sulewski - Sidoti & Company, LLC

Robert A. Johnson - Sedgwick Claims Management Services, Inc.

Matthew S. Dodson

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Manitex International, Inc. Fourth Quarter 2013 Results Conference Call. [Operator Instructions].

I would now like to turn the conference over to our host, Mr. David Langevin, Chairman and CEO. Please go ahead, sir.

David J. Langevin

Thank you, Taga. Good afternoon, ladies and gentlemen, and thank you for your interest in Manitex International. On the call with me today is our President and CEO, Andrew Rooke. Please see our website or our release for replay instructions for this call, which will be available until March 13, 2014. We will again be using slides in this presentation, which are available through the webcast or directly from the Investor Relations section of our website. Refer to the first slide regarding the Safe Harbor statement. Please review this statement and refer to our SEC filings for further guidance on the risks associated with our company.

We've organized our call today, as in the past, with my leading off by making a brief opening statement, followed by a review of our results by Andrew, and a closing statement by me. Andrew and I will then be happy to respond to any questions.

So now please refer to Slide #3. I would like to first let everyone know that Andrew and I are reporting today from Con Expo, the largest North American equipment show held every 3 years in Las Vegas. The attendance at this year's show is up substantially from 3 years ago, reflecting the optimism for future improvement generally felt in the industry. It has been a very productive week filled with positive meetings, with many current and prospective future customer, partners and others who are in a position to contribute to our company's continued success and growth.

Our entire product portfolio looks great, and the daily traffic at our display has been outstanding. And we are confident that our participation at the show is going to be a great success on several fronts. I look forward to Andrew and I reporting on further strengthening our backlog in future quarters beyond the solid increase that we reported today, as our organization brings to fruition the leads developed at this show.

Now to the summation of today's annual earnings report. As I said, I'll give you the headlines and Andrew will go through the numbers more specifically. The year finishes as we expected with fourth quarter record sales of $65 million and record annual sales of $245 million. We're pleased with the results and more importantly, subsequent to the quarter end as we head into 2014, based primarily on our order patterns and other factors, we continue to see positive and improving fundamentals in our business. At the bottom line, we were 26% higher for the year, reporting $10.2 million on earnings or earnings per share of $0.80 per share. In dollar terms, for the quarter, we recorded the highest level of sales, EBITDA and earnings for any quarter, with EBITDA margins at 9.5%, which is towards the higher range of our historical performance.

So again, we're satisfied with these results, particularly considering that global market conditions for capital equipment can only be described as lackluster. These new record levels are the results of day-to-day efforts, hard work and sacrifice made by every member of our organization. And though our year ended as we expected, and our company reached many new higher levels during the year, by no means do we feel satisfied. Nor do we lack the motivation to move to even higher levels. We are still a very young company in the early stages of our growth and are encouraged by our organization, by the introduction of new products and by adding companies, such as our recent announcement of Valla, which moves us into the very exciting and growing area of electric technology.

As we mentioned, Valla was a very small company at the time of our purchase on December 1. Valla sells in the industrial lower-ton crane market. But with the boom and acceptance and demand for electric technology, we do not expect that this will stay a small company for long. With the gradual expansion of crane production at our Badger Crane Minnesota plant, and a significant amount of available capacity at that plant, it is logical for us to use that facility for future electric expansion, as well as the increased production at the present European Valla facility. We will also take the Valla technology and apply this to other products in our portfolio, such as our present gas-powered material handling equipment to also include electric options. While this type of migration expansion will not happen overnight, we're excited about the possibilities presented by these opportunities and the further success it will bring to our company.

With that brief overview, I'd like to turn it over to Andrew to review in more detail our results. Andrew?

Andrew M. Rooke

Thanks David, and good afternoon, and welcome to everyone. Following our usual format, I'll start out by providing an update about the state of our markets that we serve and make some remarks relating to our performance, and then I'll get into the comparative financials.

So let's start with Slide 3. While the results show that 2013 was another year of good growth for us, I think it's also fair to say the 2013 markets, on the whole, fell short of the expectation and promise that existed at the beginning of the year coming out of 2012. Rather than the economy and our markets pushing on from 2012 with faster growth in demand, they were characterized by much slower and erratic levels of activity.

In North America, we saw markets where significant degree of uncertainty continue to impact buying decisions, with a slow improvement in general demand for our equipment. However, we remain a long way from the 2007 to 2008 peak, and experienced a generally slow year for new equipment demand managing. The challenges of new 0 economic growth and lack of credit in Europe persisted throughout the year, and our international market showed variable activity, although there has been improvement at the start of the new year.

Softness in the energy sector continued evidenced by North American rig counts, which ended the year, and which are currently approximately flat with 1 year ago. This contributed to a decrease in order intake compared to the early parts of 2012 for our higher capacity equipment that is widely used in the energy sector. We believe this softening has bottomed out, and also that this sector remains a source of significant growth potential for our products in both the short and the long term.

With regards to the markets in quarter 4 of 2013, this was consistent with the previous 3 quarters of the year. The result of all this was that for 2013, our main market for boom trucks was actually down largely year-over-year. So given the somewhat lower level of activity and the backdrop of just mediocre end market demand, we have to say we are pleased with our 2013 results. As David mentioned earlier also, we have seen an increase in order activity as we start 2014, pushing our backlog back above $100 million and improving conditions in Europe, which are nice positives and give us some visibility into 2014.

North America remains our strongest geographic market. And in 2013, the level of demand from these commercial and general construction markets continued to edge slowly forward, and that has been reflected in sales and in order intake for lower capacity and less specialized boom truck cranes. As we've discussed previously, we incorporated this production into our batch facility, and we have been able to respond to this demand quickly, which has been favorably received in the market.

During the year, we invested in our sales organization and added new distribution in order to solidify and grow our presence. And as we have previously announced, we made several key new product introductions including the Manitex 70-ton crane on the commercial truck chassis. In aggregate, the combination of all these factors resulted in year-over-year increase in our boom truck unit sales with approximately 30%.

The other significant market item regarding the fourth quarter of 2013, our container handling equipment operations, CVS, were able to secure additional distribution and penetration into Latin America. This region has historically received CVS product very well and these distribution gains were not only a benefit in quarter 4 of 2013, but should provide a positive growth opportunity going forward.

With regard to our backlog at the end of the year, it was $77.3 million, a reduction from the $130.4 million that we entered the year with due to our increased production rates and the lower level of order intake from market conditions and customers absorbing the increased level of shipments for us. In 2013 as a whole, our book to orders ratio to sales, or our book-to-bill ratio, was 78%. The backlog at December 2013 remains broad-based with strong representation in boom trucks with varying capacities. And again, as we noted, the increase since 2013, the year end that we have seen so far, also, being positive and on a similar representation. CVS contained the handling equipment and military orders for the second half of 2014 also comprised a significant part of the backlog.

Now turning to the financial results, Slide 5 shows the key figures for 2013 with comparatives for 2012 and 2011. 2013 revenues increased $39.8 million or 19.4% from 2012 to $245.1 million, resulting from production increases implemented in response to the high level of crane order backlog at the start of the year, together with the impact of the Sabre and Valla acquisitions in the second half of the year. Excluding acquisitions, 2013 revenues increased 15.8%, driven substantially by increased crane and container handling revenues, partially offset by a reduction in material handling and specialized trailer revenues.

Equipment distribution revenues were flat year-over-year. Our higher tonnage crane products targeted the to the energy and power line distribution sectors, benefited from our order book in these sectors and our lower tonnage equipment increased its market penetration. Our CVS container handling products benefited from the expansion improved distribution into overseas markets.

EBITDA for the year was another record of $21.5 million or 8.8% of sales, and is slightly higher as a percentage of sales than we achieved with the $18 million, and 8.7% of sales in 2012. Net income for 2013 of $10.2 million, or $0.80 per share, was an increase of $2.1 million, 26% or $0.12 per share over 2012.

Slide 6 is a bridge for the $2.1 million increase in net income from 2012 net income of $8.1 million to the net income for 2013 of $10.2 million.

Moving to the reconciliation table. The $39.8 million improvement in revenue resulted in a gross profit benefit of $7.8 million, which was reduced by $1.8 million, the effect of the reduction in the gross margin percent from 19.7% in 2012 to 19% in 2013. This is principally a result of higher manufacturing costs at our material handling facilities due to lower volume and absorption, and all these changes in product mix and sales. The combination of volume and mix provided a net gross profit increase of $6 million.

The year-over-year increase in operating expense was $1.9 million, excluding $1 million in expenses related to the businesses acquired in 2013 and the cost of acquisition. In total, SG&A as a percent of revenue declined in 2013 to 10.6% from 11.5% in 2012, we maintained close control of our operating expense.

Interest expense increased $0.5 million as a result of an increase in outstanding debt and a 50 basis point increase in interest rates on our North American credit facilities, which we increased and extended in August 2013.

Finally, our tax cost increased from an increase in pretax income. Our 2013 effective tax rate was favorably impacted by the domestic production activities deduction and further research in development tax credits, which resulted in an effective tax rate for 2013 of 29.5% compared to 32.1% for 2012.

Slide 7 shows the results for the fourth quarter 2013 with comparatives for the fourth quarter of 2012 and the third quarter of 2013. Fourth quarter 2013 revenues was $65.4 million, an increase year-over-year of $8.9 million or 15.8%, of which 60% was from acquisitions. Gains in container handling and crane products, were year-over-year increases of 77% and 16%, respectively, partially offset by reduced material handling and equipment distribution revenues due in part to the timing of order shipments at the year end.

Net income for the fourth quarter of 2013 was $3 million or $0.22 per share, compared to $2 million and $0.16 per share for the fourth quarter of 2012, an increase in net income of $1 million or 48.5%. The sales improvement of $8.9 million resulted in a gross profit increase of $2.5 million, which offset additional operating expenses of $0.7 million, other expenses of $0.2 million and an increase in tax of $0.5 million.

Gross profit was equal to 19.5% of sales, an increase from 2012 quarter 4 of 120 basis points, resulting from improved mix in sales and improved production efficiencies. Operating expenses, excluding the impact of newly acquired businesses, increased $0.5 million compared to the fourth quarter of 2012, largely from increased selling expenses.

In total, SG&A in quarter 4 of 2013 declined as a percent of sales -- of revenues to 10.6% compared to 11.5% in the same period for 2012. EBITDA was another quarterly record at $6.2 million, and was at 9.5% of sales when compared to $4.1 million and 7.3% of sales for the fourth quarter of 2012.

Moving to Slide 8. Our working capital has increased from $61.4 million at December 31, 2012, to $74 million at December 31, 2013, largely results of organic and acquisition growth and inventory increased to support the level of activity. Our key working capital ratios, DSO, DPO and inventory, will remain relatively consistent with prior years.

Slide 9 shows our capitalization and liquidity position. Total debt, net of cash at the end of the quarter was $48.1 million, and our net debt to capitalization ratio has improved 18% from 44.2% at December 31, 2012, to 36.2% at December 31, 2013. Our interest coverage ratio was equal to that of 2012 at 7.3%, and our debt-to-EBITDA ratio improved from 2.7x in 2012 to 2.5x in 2013.

And now I'd like to hand back to David for his final summary.

David J. Langevin

Thank you, Andrew. As we mentioned several times on today's call and in today's release, we entered 2014 with a significant increase in orders. With this is expansion in our backlog, we should see an increase in production in the second and third quarters for 2014. And while the current worldwide economy is not booming, it also does not appear to be a bust. Therefore, with steady growth and new products, a reasonable economy and a full year benefit of last year's acquisitions, we believe we will continue to experience new record sales and profits in 2014, all for the benefit of our company's stakeholders.

In addition, we will continue to try and develop new products and acquire additional companies consistent with our acquisition history. This, along with the superior effort of every member of our organization, remains, we believe, the right formula for future success.

With that, Taga, we would like to open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Philip Shen with Roth Capital.

Philip Shen - Roth Capital Partners, LLC, Research Division

I was wondering if we could explore 2014 more. Obviously, we got your comments just now, but what is it -- what will it take to -- any color on 2014 would be great. Let's start with that.

David J. Langevin

Okay. Phillip, thanks for the question. Generally speaking, obviously, if you look at our company, with $245 million of sales, we have a couple of add-ons that we made towards the latter part of the year that will obviously add some future sales for next year so those numbers would add into. And then it's always hard to handicap exactly how much we will grow from some of the new products internally, as well as the economy. But as I mentioned, I would expect us to expand production. Usually what happens is, based on the previous quarters' orders, they don't go out in the same quarter that we received them, depending on when they came in the quarter, they'll go out in the subsequent quarter or the quarter after that. So based on the increase in the order book back over $100 million that we reported today after the year end, those orders will start being filled in the second and third quarter. So again, it looks like, with that, plus with the acquisitions, we should have built in a good 2014.

Philip Shen - Roth Capital Partners, LLC, Research Division

Okay. Good. And speaking of acquisitions, can you talk to us about what you see for 2014? Can you imagine more acquisitions on an international basis, perhaps you can talk about the number that you might -- that we might see in '14 and perhaps the size as well?

David J. Langevin

Okay. Philip, the -- what we tried to communicate is consistent with the past practices. As long as we see -- a regular slow economy is not bad for us because that's a steady growth economy, it's something that's easy for us to manage. As we mentioned, we believe some of the pricing of companies and also the type of companies that we want to expand, which is in the crane area, Europe is a good environment for us. But again, it's always very difficult to handicap exactly when you do those, but we're going to continue to try to build our company based on our history, which is product development, further market penetration with our new products. As I mentioned, we would like the electric technology, so we think that has a very strong future for us through Valla, and also through some of our other products as we introduce that technology to our other products. So we will try to continue to do, again, what we have done in the past. The size -- it's going to be -- we obviously, want to try to move up a little bit in size. We have the financial capability, our ratios are in very good shape. But again, that's all kind of dependent on the opportunity.

Philip Shen - Roth Capital Partners, LLC, Research Division

Great. One last question here and I'll jump back in queue. Can you comment on the pricing environments? Since it was a bit slower earlier, has the pricing been rational? Although I think your competitors or some of your peers are talking about seeing some improvement in activity, so any comments on pricing?

David J. Langevin

We're always very sensitive to the pricing because we don't believe we can build a small quality company by being overly aggressive on pricing. We've tried historically not to do that. And we believe that some of the pricing outside of the U.S. is better than it is in the U.S. And it also fits from a geographic standpoint. We, obviously -- again, this is not bad, but we're heavily exposed to North American market. That's not bad. Our plans are mostly in North America, which again, is not bad. But we realize that we have to expand that geographic footprint as we grow.

Operator

Our next question comes from the line of Tom Finan with Avondale.

Thomas Finan - Avondale Partners, LLC, Research Division

Dave, I'm in for Kristine. So we were wondering, in the first quarter, have you seen the weather affecting any of your customers or deliveries?

David J. Langevin

The weather has been an impact. I don't think it's -- you would describe it as being material. So it has been an impact, but only on the margin. It's not something that -- by margin, I'm not talking about gross margin, I'm just saying that around the edges, it's been a nuisance. But I'd have to say the quality of our team and our organization has allowed us to continue to work around the -- the continuation of the winter, which will be over in July, I think.

Thomas Finan - Avondale Partners, LLC, Research Division

I think that's about right. So on the -- Russia, enterprises called, CEO said that they're starting to see orders come in on the energy side, I just wanted to see if you guys could provide any color on that as well.

David J. Langevin

Yes. It seems like the -- again, obviously, we're biased because we're at this huge show and you try not to get too hung up on the enthusiasm of everyone. But generally speaking, it seems like the activity is starting to come back again. It isn't being reflected in the rig counts yet, but it certainly seems like the processes are starting to perk up. And so we're optimistic that we'll start to see some further follow through on the energy side. And then, of course, as we've commented in previous quarters, the commercial side is -- has not seen any activity for many, many years, and that's also starting to resurrect itself. So it seems like, as I said, the atmosphere and the attitude and the enthusiasm for '14 seems to be positive.

Operator

And our next question comes from the line of Les Sulewski with Sidoti & Company.

Les Sulewski - Sidoti & Company, LLC

First, can you tell me what the revenue was attributed to the acquisition for Sabre and Valla for the fourth quarter?

David J. Langevin

They were relatively small. I believe it was in the $7 million range. Is that reasonable, Andrew for the...

Andrew M. Rooke

Yes. It was a little bit over that but yes, that's fair.

David J. Langevin

A little bit higher than that? Okay.

Les Sulewski - Sidoti & Company, LLC

That's $7 million combined for the 2?

Andrew M. Rooke

That's correct.

David J. Langevin

A little bit higher. Or as Andrew said, a little higher. But we just added -- we added Valla in December, December 1, so we only had 1 month, and then we had 3 months of Sabre.

Les Sulewski - Sidoti & Company, LLC

Okay. And then backlog. You mentioned 50% up from year end, is that in cranes alone or is that a total...

David J. Langevin

No. As Andrew said, the concentration is kind of standard with our backlog. The concentration, the biggest section or area that we have is in cranes, of course. But it was fairly broad. I mean, we haven an increase. I'm just looking at it now. We have an increase in CVS, increase in -- pretty much across-the-board. So there's -- everything is up, but with the substantial increases being, as Andrew mentioned, Manitex and CVS.

Les Sulewski - Sidoti & Company, LLC

Okay. And that's something that will be -- you're looking to ship the next maybe 4 to 8 months or so?

David J. Langevin

Yes. As we mentioned, that's why we think that the second and third quarters will be stronger production level because, again, fourth quarter was not -- we had a lot of activity, but we didn't have follow through of the orders. And maybe that was just the carryover into the first quarter. But now that you have the orders, we, of course, will continue to expand our production.

Les Sulewski - Sidoti & Company, LLC

And what kind of -- what do you think would be optimal margin for Manitex? High-20s? Where do you see margin as likely to fall?

David J. Langevin

Well, we've always fought, and I assume you're talking about a gross margin line.

Les Sulewski - Sidoti & Company, LLC

Yes, gross margin line.

David J. Langevin

We've always fought the try to reach this goal of 20% plus. We have quarters where we get real close or go slightly over. We have quarters where we're slightly under, like we are in the fourth quarter. And again, that's -- our goal is to get to 20% plus. But that's amongst a very broad line of many different products, so we keep trying to, obviously, add products that exceed that number so we can gradually get that number up higher. So it's very meaningful for us, especially since we've done, I think, a good job of controlling our SG&A. But we have to do a better job of controlling our cost of goods sold.

Les Sulewski - Sidoti & Company, LLC

And then you mentioned some investments last year in sales force and distribution networks, maybe if you could give a little bit more color on that.

David J. Langevin

Yes. We just -- we try to take our sales organization, get it better organized. We -- as you add businesses and companies, you obviously have some crossover potential and benefit. But if you don't have the entire sales organization involved in that process, it's just talk, it's not reality. So what we're trying to do is really take advantage of, to a company like Valla, we look huge. We have large distribution compared to them, and so we want to make sure that their product and their technology gets recognized throughout our organization. So therefore, we've consolidated the organization, we've added more people. And when you do that, you challenge those people to go out and add more dealers because those are the real end customers that are dealing with the actual customers in the marketplace. That's who our customer is, the dealer, the independent dealer. So we've tried to -- and we've become -- as we become larger, we become more, as a group that a dealer wants to represent. So we bring more opportunity to that dealer. So we're just trying to expand that from 2 sides, the benefit of the dealer and the benefit of our salesman.

Les Sulewski - Sidoti & Company, LLC

Okay. And maybe 1 or 2 more. Actually, for -- when you're mentioning the introduction of the electronics from Valla, what kind of a cost can we see when you, let's say, integrate it into some of the products you currently have on board?

David J. Langevin

We'll end up having more engineering cost, of course, as we try to take that technology. We've started now in the material handing area, so we'll have to dedicate some more of our current engineering costs allocated to, but I don't expect a significant increase in our G&A or R&D as a result of that.

Les Sulewski - Sidoti & Company, LLC

Okay. And then last one. You talked a little bit about energy markets and then construction, I guess, you're seeing a little bit of improvement now. When you're mentioning construction, do you -- are you referring to railroad or aerospace as well or is that kind of a separate think you look at? I mean, maybe you can kind of talk about that market if you could.

David J. Langevin

Now we, specifically, we generally look at commercial market outside of the specific markets like railroads and -- but our railroad market's, primarily, focused in Load King and Badger, have seen improvements. Andrew, I don't know if you generally agree with that, but I think we've seen more pick up in our orders on the railroad side in the first quarter, rather than last year, which we found -- while it seems like the railroad industry was doing very well, in our particular sector, they were not ordering a lot of equipment, but they seem now to put some orders in, in the first quarter, which will be good for us this year.

Operator

And our next question comes from the line of Bob Johnson with Sedgwick Capital (sic) [Claims] Management.

Robert A. Johnson - Sedgwick Claims Management Services, Inc.

I wanted to just follow-on, on the earlier question in regards to dealers. And I'm looking primarily at the crane and truck boom sector. And I'm assuming that those leaders carry the same lines. They probably are not exclusive dealers, they carry other lines for other manufacturers. But what prompted my question is I happened to look at the geographic location of the dealers, and in Massachusetts, there was only one in Hopedale. And I'm wondering what kind of build up there might be in the next couple of years in regards to the dealer network, because as you go to 50-ton and 70-ton cranes, it seems to me that, that looked a little sparse to me as I look at the map. So maybe if you could give us a little flavor in that regard.

David J. Langevin

Yes. Bob, I think that's very good comment, one that we're totally aware of. And we have, again, when you think of our salesmen, primarily the reps to the dealers, and we fortunately have a very good rep in that area or a salesman in that area, but he started with a very poor level of distribution in that area. So the Northeast was one of our weakest areas, historically. But by putting more strength and putting more capacity and more products in our portfolio, as I said, we are more attractive to dealers where previously we may not have been, because as you commented, it's true, our dealers represent, as independent dealers, often not multiple product lines. We are not exclusive, they're not exclusive to us, so that gives them and us a lot of flexibility. We have to prove ourselves every day to our dealer that our product is -- should be top shelf for them, should be front and center because it presents the greatest opportunity for them to make money as a product for their customer. So I think we will see improvement in the Northeast as we go forward. But again, from a -- our strengths have been, and as you would imagine, in the heart of the country and in Canada, and those are not bad areas to be, especially with all the development that's going on in a Texas, Oklahoma, et cetera. But we do have pockets where we're weak and we need to expand, and we intend to do it. Thank you, Bob.

Operator

And our next question comes from the line of Matthew Dodson with JWest LLC.

Matthew S. Dodson

Can you guys talk a little bit more about kind of -- where you see strength in the United States, just geography whether it's West Coast in the South, where all the petrochemicals are going? That would be great.

David J. Langevin

Yes. As we've said, Matthew, as we just were mentioning in the last question, geographically, I think our strength are more in the mid part of the United States, up and down. But principally, in the Southwest. West Coast is not bad, pretty good there. We also have some better and improved coverage on the Southeast. Canada, we're extremely strong, specially up in the Alberta energy markets. I don't know, Andrew, if you want to expand on that at all, areas that might be more...

Andrew M. Rooke

Yes. Not really, Dave. I think you've hit the big ones there. And with Texas, obviously, is perhaps the one specifically to call out. I think that's about right.

David J. Langevin

Our plant has always been -- the main plant for the crane production has always been in Texas. And as we know, there has been a very good expansion in the Texas markets and the economy, so that's totally one of our base markets.

Operator

[Operator Instructions] And I'm showing no further questions in the queue. Please continue.

David J. Langevin

Thank you, Taga. Thank you, everyone, for your interest in Manitex. And if, for some reason, you want to follow-up, of course, we're available at any time. Thank you again for your interest. Bye-bye.

Operator

Ladies and gentlemen, that does conclude our conference for today. You may now disconnect.

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