Manitex International's (MNTX) CEO David Langevin on Q2 2016 Results - Earnings Call Transcript

| About: Manitex International, (MNTX)

Manitex International, Inc. (NASDAQ:MNTX)

Q2 2016 Earnings Conference Call

August 04, 2016 4:30 PM ET

Executives

David Langevin - Chairman and Chief Executive Officer

Andrew Rooke - President and Chief Operating Officer

Analysts

Michael Shlisky - Seaport Global Securities, LLC.

Matthew Koranda - ROTH Capital Partners

David Raso - Evercore ISI

Operator

Good day, everyone, and welcome to the Manitex International Incorporated Second Quarter 2016 Results Conference Call. Today’s call is being recorded.

And now your host for today’s conference, the Chairman and Chief Executive Officer, Mr. David Langevin. Mr. Langevin, please go ahead, sir.

David Langevin

Thank you, Lukas. Good afternoon, ladies and gentlemen and thank you for your interest in Manitex International. On the call with me today is Andrew Rooke, our President and COO. Please see our website or our release for replay instructions, which will be available until August 11, 2016.

Now please refer to the first slide regarding our Safe Harbor statement. We ask that you review this statement and also refer to our SEC filings for further guidance on the many risk associated with our Company.

I will start with a brief overview, followed by a quick summary of our results by Andrew, and then we will welcome any questions.

Let’s begin with Slide number 3. As we all are aware commercial markets particularly for new equipment remain sluggish. Largely resulting from the falloff in energy prices we saw last year. What we have seen and have discussed in the past is some of the equipment that has gone into the energy markets has returned to serve a fairly stable and growing construction market.

With this backdrop we are in a transition year where we are concentrating our efforts on streamlining our Company, paying off acquisition debts and reducing our cost. All as we’ve said in our release controlling everything that we can control. Our results reported today represent a focus by our team and the continued execution of our stated goals for the year.

The $13.1 million that we retired in debt in the quarter was the second largest amount that we have retired in a quarter in our Company’s history. And thus we ended the quarter with net debt of approximately $166 million of which $55 million is recourse net debt. We also completed retirement of all of our recourse term debt this year.

Further we are continuing in the process of selling off non-strategic businesses within our portfolio. And now believe that with proceeds from these sales combined with working capital reductions, operating cash flow we may exceed our stated goal of reaching $45 million in debt reductions for this year. An additional benefit to selling off non-strategic companies is to increase our overall margins by concentrating our businesses on products when we have the most strength in the marketplace and the highest margins.

Lastly, we are controlling our cost in a very challenging environment. We have posted adjusted gross margin of 18.3% for the quarter and we’ve already reached 92% of our stated annual cost savings for the year of $5.5 million.

Now for a few more specifics. Recently we announced a new credit facility. The importance of this event is that with this new bank line we have less bank covenants and a lower interest rate. This new facility allows us to proceed in a deliberate and measured processing selling non-strategic subsidiaries and while these are tough times for equipment companies and for our team to put together such a solid facility is a real tribute to our organization.

We discussed in several occasions our focus on strategic rationalization. That is our divesture of our lower margin product lines and a continued investment and support in our higher margin product lines. We define our strategic businesses, our crane businesses where we primarily mount cranes on commercial truck chassis.

In this area we’re developing a strong worldwide franchise with market shares in certain categories exceeding 40% and growing market shares in all categories in which we participate. These are most consistent and highest margin products under Manitex, PM, Badger and Valla brands. And include straight-mast, knuckle boom, railroad, industrial and rapidly growing electric cranes.

These brands and categories are where we have the most strength and have the best option for scale within our Company. With our own distribution and independent dealers. Additionally our portfolio includes the ASV joint venture, which you believe over time has the potential to be one of our best overall investments that will generate a solid return for the Manitex shareholders.

On the cost control side, we take a numerous actions which have led us to report gross margins significantly higher than in other periods of difficult markets. Our organization is doing an excellent job of controlling our cost of goods sold. And while our competitors are quite rational, pricing was very difficult.

Also we have smaller non-strategic subsidiary for our competitors to take irrational actions resulting in lower sales and very low absorption in these facilities. This was part of the reason why we made the difficult decision of consolidating two of our plants as we previously announced.

As we streamlined our operations, we should also expect further savings in the SG&A areas of our operations. Finally, while we did see slight increases in our material costs early in the year at the current levels of business activity we do not believe that we will see material price increases for the rest of this year. Therefore, we should see further reductions in our cost of goods sold.

Finally, a few specifics about PM and ASV. PM had a difficult sales period as compared to the first six months of 2015, but in spite of that it was our best overall performer in all other categories. The sales were difficult because except for the European markets, every other market in which PM participates was down on a year-on-year basis. ASV continues to make steady progress in the areas it can control. It continues to grow on ASV branded sales and we saw a nice increase in operating earnings. Andrew will discuss in more details the progress of ASV.

We described on several occasions our goals for 2016. Now with five months remaining in 2016, our objectives for the rest of the year are clear. We will produce cash from our working capital. We believe we will complete our planned non-strategic business sales. And by being extremely focused on our costs, we will maintain operating profitability through this bottom of the cycle.

In summary, we know we are on the right path for our shareholders. The equipment markets where we participate are very soft and while we do not expect anything to change between now and the end of the year.

We are taking all the necessary steps to make sure we are a strong and successful Company for the long-term because we know after many years of being in this business; the key is to really work hard during the downturns to expand market share, strengthen the Company and its balance sheet as well as to reap the rewards for our shareholders during the up cycles which we know always come.

With that overview, I would like to turn over to Andrew.

Andrew Rooke

Thanks, David. And good afternoon and welcome everyone. Let’s start with market conditions on Slide 4. First half 2016 and quarter two 2016 market conditions in North America continue to trend from the end of 2015 with very low demand for new straight mast and industrial cranes created by the downturn in the energy sector.

As we have noted before, this adversely affects the sales of our higher capacity straight mast cranes with above-average margins in particular. In the second quarter, the redeployments of equipment from energy markets that has also diverted demand from new equipment purchases appears to be into the similar right to that of the first quarter of 2016.

As a result of these factors, the straight mast market is currently operating at levels approximating to 2009 which is relatively low for the industry and where we’d expect the bottom to be. Our estimate remains for the overhang of equipment to work its way through the market during 2016. And that would translate into new crane demand from the other sectors of the economy such as residential and commercial construction and general highway and construction activity whether appeared to be more positive trends.

We continue to aggressively pursue all opportunities in the place, but this is reflected in our estimated increase in market share so far this year. With a focus increasingly on construction markets, we also launched a new crane, straight mast crane targeted at this sector for the end of the quarter which will strengthen our competitive position.

As previously stated, our knuckle boom crane acquired through the PM acquisition in the first quarter of 2015. There is very little exposure to the energy sector and it’s a growing market as it increasingly gains wider acceptance for many applications particularly here in North America.

With our international presence provided not only by export, but also from sales and distribution locations in 10 countries across the world. Our knuckle boom product can benefit from improvements in several world economists. In quarter two of 2016, Italy, West Europe and North America were the strongest contributors for PM sales and help to offset low demand from the Middle East and South America.

In North America in the period since the acquisition, we have focused on establishing a network of service and daily support that will provide the foundation for expanding our knuckle boom crane presence. During the second quarter, we signed additional day list and so far this year, we have added 11 PM locations to network in the USA alone.

For our ASV segment, which is a reminder consists of compact truck loaders and skid steer loaders and it’s focused more on North American and Australasia construction. While demand will subdued coming into the year, we saw improvements during the second quarter. We continue to see a competitive pricing environment in North America, but continue to emphasize the very strong product capabilities and differentiate will be ASV brand that is well received.

We are making good progress, we are introducing the ASV brand and establishing new distribution in previously unserved geographies. With the expansion of our ASV brand distribution now to over a 119 locations signed up in North America the additional potential tailors in the pipeline for approval.

In quarter two, ASV branded product comprise more than 60% of machine shipments, up 23% on a sequential quarter basis. Other products during the second quarter, sales as military material handling equipment under our long-term contracts with the U.S. Navy continue to the healthy rate. Market conditions for container handling equipment from our CVS business remain positive and have benefited from improving European economies, some targeted opportunities in Russia and its domestic market in particular.

With regard to our orders in our backlog, at the end of the quarter, our continuing operations backlog was $63.6 million, a decrease of 19% from the $78.6 million at the end of quarter one, reflecting the continuing low levels of demand. The backlog is broadly based and includes 19% of PM product and 16% of ASV product. For the second quarter of 2016, our booked orders ratios to sales or book-to-bill ratio decreased to 85% compared to 96% for the first quarter.

Moving to the financial results slide, on Slide 5. Today, we reported a net loss of $1.8 million or $0.11 a share compared to net income of $0.1 million or $0.01 a share in the second quarter 2015.

I am now going to concentrate on discussing the adjusted results for the quarter and the comparable period as presented here, which is just a strategic - restructuring cost this quarter including $1.4 million that was previously announced associated with the rights of deferred financing fees as we renewed our long-term credit facilities.

The adjustments in quarter two, 2016 increased reported earnings and EPS by $2.1 million or $0.13 a share and the adjustment for the quarter two 2015 increases reported earnings by $0.2 million or $0.01 a share.

Net revenues for the three months ended June 30, 2016 decreased $4.2 million or 4.2% year-over-year. Compared to the second quarter 2015, Lifting segment sales were up 2%. Straight mast and industrial cranes were down year over year, knuckle boom crane were flat overall and military material handling and container handling equipment sales were up.

Equipment distribution sales were down from low new and used equipment sales. ASV segment revenues were down $4.9 million of which $4.4 was from lower demand from an OEM for undercarriages and parts. Adjusted gross profit of $17.7 million or 18.3% of sales compared to $19.2 million or 19.1% of sales in quarter two of 2015 and improved from the 18% in quarter one of 2016.

Those were some varying sales mix impacts in the quarter with positive mix from ASV, knuckle boom and military units helping to offset adverse mix and volume from straight mast and industrial crane products and distribution.

Our cost reduction actions that I will discuss later also help to offset the volume mix effect. Adjusted net income for the quarter was $0.4 million or $0.02 a share compared to adjusted net income of $0.3 million or $0.02 a share compared to adjusted net income of $0.3 million or $0.02 a share in quarter two of 2015. Adjusted EBITDA for the second quarter was $6.2 million or 6.4% of sales compared to $7.9 million or 7.8% of sales in the second quarter of 2015.

Slide 6, is the bridge movement in sales and adjusted net income for the second quarter of 2016 compared with the second quarter of 2015. On the adjusted income reconciliation, the principal items with the sales volume reduction of $4 million resulting in a gross margin decrease of $1.5 million. Modest $0.2 million reduction in interest expense and a tax benefit of $1.3 million. The benefit from tax is resulted from a higher effective tax rate for the year, including a valuation allowances against U.S. deferred tax assets for the quarter.

As previously mentioned, our cost reduction program is contributed to mitigating the adverse impacts of lower volume going through our facilities as well as a competitive pricing environment. Our target for 2016 was incremental reductions of $5.5 million and year-to-date we’ve achieved 92% of that target with some focused actions across material, personnel and facilities in particular.

Slide 7 shows our working capital increased from $82.7 million at December 31, 2015 to $85.5 million at June 30, 2016 principally from a $11.6 million increase in receivables from increased sales and the timing of sales in the quarter. As expected in the quarter working capital increased $3.1 million from March 31, 2016. Our current ratio of 1.7 times for the current quarter is consistent with last year. Adjusting for the Italian working capital facilities that are reported in current liabilities, since these are transactional based, the current ratio would be 2.2 at the end of second quarter.

Slide 8 provides a breakout of $176 million of total debt at June 30, 2016 and the reduction in net debt of $13.1 million in the second quarter. Of the total debt $111.2 million is non-recourse to Manitex. In total $81 million is related to working capital financing is either transactional or collateral-based and the further $21 million is the form of convertible notes. Repayments on term debt of $3 million were made in the second quarter of 2016 bringing the total to $9.7 million year-to-date. Including the full repayments of the U.S. recourse term debt originally taken for the PM acquisition.

Slide 9 shows our capitalization net debt and liquidity position with our net debt to capitalization ratio remaining relatively consistent in the quarter compared to December 31, 2015. Adjusted EBITDA for the quarter was $6.2 million and is $22.7 million on a trailing 12-month basis. As we are previously announced we are very pleased to renew our North American credit facility at the end of the quarter. We should provide increased flexibility as well as a lower interest rate for that debt.

And with that, David and I would now like to open up the call for any questions.

Question-and-Answer Session

Operator

Thank you, sir. [Operator Instructions] And for our first question we go to Mike Shlisky with Seaport Global.

Michael Shlisky

Good afternoon, guys.

David Langevin

Hi, Mike.

Michael Shlisky

Maybe just very board view first in the first question here. Do you think I mean overall I think you [indiscernible] what we’re thinking for the quarter. Does the rest of the year seem like you end up at a full-year kind of flattish topline with our cost cuts leading to a minus EBITDA improvement that’s kind of what your point towards last couple of quarters. Is that kind of still intact?

David Langevin

Well, obviously Mike thanks for the question Mike. Appreciate it. It’s hard to predict we are obviously running at low levels as Andrew reported. Fortunately this isn’t 2009 from an economic standpoint so the markets are in much better shape and the Company has much better shaped than when we had in 2009. So that’s fortunate.

But were $387 million in sales last year, it would seem that we are kind of on the track to be to be flattish, our best guess at this point for the rest of the year. So that statement is true. And obviously we want to continue to grow - just try to grow our franchise. Make sure we pick up as much as we can at theses low levels so that we have a stronger Company as we go forward, as we retire debt.

We will have plenty of capacity to add sales as the rebound starts to occur, as we flush through the rest of the equipment in the marketplace. So certainly our hopes and belief are that we’ll have higher EBITDA, but again that’s somewhat dependent on factors outside of our control which we will try to just manage as we always have.

Michael Shlisky

Okay. Great. Then this new mast crane you’ve got coming out geared towards the construction industry if I heard that correctly.

David Langevin

That’s right.

Michael Shlisky

Does that have any sort of the impact you think in 2016 or you think you still have potentially some kind of modest material impact to your sales growth levels in 2017?

David Langevin

It seems that as you know Mike, the construction market obviously has different applications than some of the inventory that’s in some of our dealers lot at this point. So as I’m sure anyone could go around and look at dealers inventory, there’s still a large quantity of 40, 45, 50 ton cranes that is the higher end of our capacity and the demand is for the 17 to 30 ton crane.

So this fits into the area where customers and dealers have been telling us they need the crane, they want the crane. So I expect it will have some sales and delivery of those sales, because fortunately right now a lot of our products are shorter cycle so we’re turning things a lot faster and of course with the ability to produce on a quick level because of the circumstances. If you order a crane today, we can get that crane out for you for this quarter. So I would expect that will have some impact on 2016.

Michael Shlisky

Okay. And Dave, I guess what kind of comments and thoughts, the latest and greatest on the used truck - crane market the last quarter. So you said kind of hopefully improving in the first quarter was the kind of latest year in this quarter?

David Langevin

Well, as you know Mike, we had a quarter - in the first quarter where orders and backlog and our book to bill was all kind of in line and so our hope at that time was that we are hopeful that we had reached the bottom, but that didn’t occur as we all know because the second quarter continued to have inventory cranes that were stacked up or on the sidelines that continue to come in and service the market certainly not at the pace of anything that we saw at the beginning of 2015, so nothing like that. But it’s just a continuation as Andrew stated of the flow that we saw in the first quarter.

The construction markets as we all know are growing. So that’s a good indicator. And so I assume that we will continue to absorb and that we will eventually, of course see a rebound of new inventory and new equipment that has to be replaced, but we haven’t reached that equilibrium yet.

Michael Shlisky

But from a pricing standpoint in the U.S. market, how do you feel?

David Langevin

I think that pricing of the used equipment that I’m aware of is holding up, so you’re not seeing a flood of new equipment coming into the market now. It’s just a continuation of the trends that we saw in the first quarter rather than a - it hasn’t flipped to the positive side.

Michael Shlisky

Okay. Let me ask one more one on the PM rollout in North America from a dealership plan A perspective, do you think where you want to be? Or what inning are you in getting PM properly rolled out across the distribution at this point?

David Langevin

Well I think Andrew mentioned some of the new distributors. When we first started after the acquisition of PM, we started with our own dealerships, as we all know some of those dealerships had other European competitors in the distribution. A lot of them did not, so we had some acceptance as we came out of the box, but now we’re getting down into where we’re growing after new dealers outside of our group and in that process Andrew mentioned some numbers and compared to ASV as we know since in the very early stages, so we compared ASV numbers with PM numbers and you can tell we’re just getting started on a PM side expanding beyond our distribution. Anything to add to that Andrew. Anything else.

Andrew Rooke

No, I think you’ve said it fine Dave, we started some movement, we signed some nice new dealers and service centers which is obviously very important for making sure that everybody has full support and it’s an activity that we’re focused on and continuing to do, but is it finished? No, it is not.

David Langevin

Nothing to add to your analogy. Mike, we’re just getting started, first innings.

Michael Shlisky

Okay. Perfect. I’ll leave it there and hop back in queue. Thanks guys.

David Langevin

Thanks, Mike.

Operator

And for our next question, we go to Matt Koranda with ROTH Capital Partners.

Matthew Koranda

Hey, Dave and Andrew.

David Langevin

Hey, Matt.

Matthew Koranda

Good afternoon. Just wanted to cover the cost reductions I mean the $2.9 million in the quarter and the $5.1 million year-to-date looks like you guys are really tracking nicely. Could you just talk about sort of the buckets that that’s coming from and maybe is there still more to come I guess in terms of the number showing up from the consolidation in the plants that you’ve done so far. Or is that all kind of showing up in these numbers here?

David Langevin

Obviously as you know you get some those cost coming through after the closure, so you had closures finished in the second quarter, so that you’ll see some more benefits from that going into the third. And we will expect to continue to do some - we’ve done some restructuring, we had some redundancy cost in Europe, some redundancy cost in the U.S. that was part of the charges that we booked in the second quarter.

And I don’t know if anything dramatic there. That’s left, but there certainly is going to be more of that. It will split more on the material side like it has been in the past, but certainly more also on the direct labor, indirect labor, so we had of that $5.7 million, we probably had 25%, 30% on the labor side and the bulk of the rest is on the material side.

Matthew Koranda

Got it. That’s helpful. And then to what extent I mean how much is that the savings that you’re getting from those cost reduction program just counteracting kind of the negative pricing environment that you’re seeing. I mean it looks like you’re getting a little bit more leverage than just counteracting the pricing, but maybe if you could just talk about that briefly?

David Langevin

Yes. I mean obviously it’s having an impact because we don’t see the degradation of our margins like we’ve seen in other cycles that we’ve looked through, so as you know we’ve gotten down substantially lower than this on a gross margin basis and previous cycle or previous cycles when we’ve got towards the bottom because some of our business has half of what it was at the peak. And the peak for orders was in 2012, peak production was in 2013, but we certainly didn’t have more orders in 2013 that we did production.

So we’ve been down 2013, 2014, 2015 and it looks like 2016 is going to be down over 2015, so it’s four years in a row. So it’s fairly dramatic and I would expect pricing as I mentioned has been very rational in the main competitors that we serve. But in some of the smaller subsidiaries that we have it’s been terribly irrational.

So you just obviously, we don’t want to be selling products with no margin, so we just exit those for the time being. It’s part of the reason why as we said we consolidated some plants unfortunately and we’ll continue to address those issues as we go and use those facilities for some of our higher margin products as we go.

Matthew Koranda

Got it. So in terms of the cost reductions for the full-year are you guys going to put a number on it may be in the next quarter or so in terms of ratchet it…

David Langevin

We put a number on it last year, what we said was a three-year goal. If I recall $15 million if that’s correct Andrew.

Andrew Rooke

Yes.

David Langevin

And we wanted to obviously do it over a three-year plan. We’re well ahead of that plan and will discontinue to drive to exceed anything that we've given to the marketplace.

Matthew Koranda

Got it. Okay that make sense. And then in terms of the debt reduction goals for this year. It sounds like you guys are pretty optimistic that you'll exceed that $45 million target that you said…

David Langevin

That’s right.

Matthew Koranda

Maybe you could just talk about some of the specific swing items that would allow you to get well over and above that $45 million goal. I mean is it a divesture of specific businesses and maybe just talk about potential timing there where we can measure against on that?

David Langevin

We are hoping that we're not - last year when we did Load King we closed at the last week of the year. So we are hopeful that we’re well ahead of that this year because it makes for a very brutal year-end. So we're hopeful that we started this process much earlier this year. We’ve gone through the process were down towards the later stages of the process.

So that's why we have more confidence that we will potentially exceed that $45 million because clearly between now and the end of the year there will be some lumps of proceeds from those that we will be realizing, we expect to continue maybe not to the level that we did in the second quarter because obviously that was a - $13 million was a significant amount we still have plenty of working capital to work through.

We decreased our inventory of this in the second quarter, but not on receivables we expect our receivables to go down as the business goes down, our balance sheet from receivable to payable standpoint is in very good shape. So we should have excess cash in order to retire more debt. So that’s why for all those reasons we expect between now and the end of the year. If were at $13 million to 145 basis, $37 million to hit that level and we expect to achieve that between now at the end of the year but we will see what happens.

Matthew Koranda

Got it. Okay. And the $45 million that is somewhat contingent upon getting these actual - these transactions?

David Langevin

The reason why we stated is because [indiscernible] and so we’re in - as I say we’re in stages where now we have agreements and we’re just you just have to go through the contracts or due diligence all things that happen towards the later stages of these transfers where the businesses end up in people hands that could do a better job and we can concentrate on the businesses that we have.

Matthew Koranda

Got it. Okay, perfect. Just maybe one or two more on the end markets here. I think the press release and then your prepared remarks alluded to some market share gains. Despite kind of some of the pricing pressures in the straight mast, boom truck environment, but maybe you could just talk about which categories you're seeing you know that 40% market share and just talk about sort of just the competitive pricing environment favor you guys just because you tend to be a lower cost provider. Maybe just talk a little bit about that as well?

David Langevin

Yes. I think we have flexibility because of our cost structure that we can more than adequately compete in the marketplace. We concentrate as you know our competitors are much larger than us, but they have a much broader categories of cranes in which they compete so we're very concentrated and as a result we can - we think in the areas that we participate we can do a very good job of competing in those markets.

So I’d certainly think some of that is a reason why. And because of that we are gaining market share, but again you have to remember we’re at very, very low level. So as the levels expand, as the market expands I don’t expect those to hold on to - but if we peeked up in the last cycle on the top end at 30% and now we’re in the 40s. If we give up 5%, 6%, 7% as the market expands that still will allow us to have much larger sales as we go forward.

Matthew Koranda

Right. Got it.

David Langevin

Then of course on the PM side, on the PM knuckle crane side I mean we’re starting it, you know very, very small levels. So if we get to 5% to 10% that’s significant business for us because those markets are expanding.

Matthew Koranda

Okay. That’s helpful. Last one maybe just a bigger kind of fundamental end market question. Maybe you could just help put the straight mast boom truck demand environment context for it as it stands like in the context of where volatility in the energy markets is today. I mean could demand decrease further if we see additional oil price weakness or kind of - we just hit such a floor with a stagnant demand environment that there really isn’t much more room for it to fall off I mean just kind of help us think about what happens?

David Langevin

I wish we all had a much clearer crystal ball and where we’re looking at this a couple of years ago. We can clearly learn from the history, we are approaching 2,000 holes in North American as we all know we’re going to 10,000 holes, of course that didn’t happen, we’ve drilled 300 holes. So now we’re over the last month and half we’ve been steadily increasing very gradually, very slowly.

Clearly the cost for in certain areas, certain geographic areas that been going down significantly. I mean we’ve all - anybody that’s in the business has seen costs being reduced in Texas, Oklahoma to a certain extent in Pennsylvania, Ohio, just a number of things that have undergone, underway so that these producers can compete at these lower levels.

Now it’s been fairly stable then bouncing around in the 40’s and more people are now drilling. Every pad has a couple of cranes, sometimes more depending on the size. So it’s really a - obviously a hopeful opportunity for us. Clearly some of the equipment that’s been set by the side is now being put back into activity, but there is still more equipment to go. So I don’t know, that’s not really a way to answer it directly, we can only look at the numbers.

Matthew Koranda

Got it. Okay. That’s fair. I will jump back in queue. Thanks, Dave.

David Langevin

Thank you, Matt.

Operator

[Operator Instructions] And for our next question, we will go to David Raso with Evercore ISI.

David Raso

Hi, good afternoon. Just one quick question. The way you’re targeting the end of the year, you are obviously trying to draw down some working capital. So I would assume you still looking in and take some inventory out. Where do you expect to be inventory at the end of the year? So whatever we think about demand for next year do you plan on producing in line with retail next year, like how much of this inventory overhang should be gone by year end?

David Langevin

Obviously, it depends on because if you look at our backlog, we’re in a position where we - and it’s certainly because of the cycle that we run much shorter cycles now. And so what we need to do is just make sure that we use all the components that we have in inventory and clearly we could get another 10% out, we are $187 million in inventory and receivables, we did $13 million which a portion of that came out of working capital in the second quarter.

Certainly we can pick out another 10%, so $18 million out of the receivables and inventory between now and the end of the year, I don’t would be anything extreme. Assuming the market is relatively stable like we see now.

David Raso

But the way you’re targeting your production versus what you think for retail is are you under-producing year-over-year retail over the next six months or how…

David Langevin

Well, again it’s probably going to go have - that’s probably going to happen because as you know you have inventory that’s sitting at the dealer lots. So you’re not going to necessarily produce at retail levels because the dealers always will respond to some of that retail market with their own lots, with their own inventory.

David Raso

Sure, but that’s the kind of cost line question, the way you’re targeting your production and what you’re dealers networks alluding to what they think they can sell the rest of the year. Do you expect to end the year dealer inventory, your inventory in a position where if retail was up 10% next year you’re producing in line with it based what I’m trying to figure out?

David Langevin

And that is what we’re going to try to do. Yes, because we have independent dealers, so we’re not totally aligned from the standpoint that we can’t control the inventory dealers - the dealers inventory.

David Raso

Sure. And coordination with them a little bit on our targeted inventory at the end of the year.

David Langevin

And again that depends on the market because right now we produced obviously in the second quarter at a higher book-to-bill then what the market demanded. So we have to get that more in line as we go forward which should allow us to use more of our inventory and collect more of our receivables.

David Raso

And last question you alluded to input cost and you felt the rest of the year was under control. Do you assume that emphasize the term this year.

David Langevin

That’s right.

David Raso

There are some inside into the next year, can you help us a little bit though as the potential cost headwind, what do you hearing already about maybe what your new contracts might look like relative to your cost this year?

David Langevin

We do most everything because we’re smaller than the big guys, we do almost everything on spot. So we really have to luck what’s happening on a current level not necessarily on contracts, because we can’t buy enough at a volume level in order to get contract, so we end up dealing with a lot of regional local warehouses. And for the time being it appears to us that while we had a little spike in the first quarter as you know that seems to have subsided and it seems like for the rest of the year well it should be all right, but we don’t know yet for next year.

David Raso

Okay. That’s helpful. I appreciate it. Thank you.

David Langevin

Thank you, David.

Operator

And with that ladies and gentlemen we have no further questions on our roster. Therefore Mr. Langevin, I will turn the conference back over to you for any closing remarks.

David Langevin

Thank you, Rufus. Thank you everyone for participating in our call today. We appreciate your interest in Manitex International.

Operator

And ladies and gentlemen, this will conclude today’s conference. Thank you for your participation. You may now disconnect.

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