Call Start: 16:30 January 1, 0000 4:58 PM ET
Manitex International, Inc. (NASDAQ:MNTX)
Q1 2019 Earnings Conference Call
May 6, 2019 04:30 PM ET
Dave Langevin - CEO
Steve Kiefer - President & COO
Laura Yu - SVP & CFO
Conference Call Participants
Matt Koranda - ROTH Capital Partners
Good day ladies and gentlemen, and welcome to the Manitex International, Inc. First Quarter 2019 Results Conference. Today's call is being recorded. [Operator Instructions]
Now I'd like to hand the call over to Mr. Dave Langevin. Please go ahead, sir.
Thank you, Lisa. Good afternoon, ladies and gentlemen, and thank you for your interest in Manitex International. On the call with me today is Steve Kiefer, our President and Chief Operating Officer; as well as Laura Yu, our Senior VP and CFO.
Please see our website or our release for replay instructions for this call, which will be available until May 13, 2019. 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 Factors associated with our company.
I will begin today’s call with a brief overview. Laura will present a financial summary, followed by an operating commentary from Steve, after which we will welcome any questions.
Please now turn to Slide #3. We filed and reported our first quarter financials this afternoon with results being well within our expectations. As we stated several weeks ago when we released our year-end 2018 results, the fourth quarter orders were slow, especially in Europe. But fortunately we saw significant pickup in order activity in both Europe and North America throughout the beginning of the new year, which will allow us to pick up production.
While quarterly sales were modestly higher year-over-year, we’ve taken numerous steps on the cost and production side that have had a noble impact on our financials. The backlog in order pattern that we see should allow us to expand production in the second and third quarters of this year with higher sales and continued benefits from the improvement in cost structure as well as pricing for our products, all which should result in continued improvement in our bottom line growth as well.
Consequently we believe that overall we will experience another year of solid year-over-year growth with plans for continued expansion in gross margin, EBITDA, operating earnings and earnings per share when compared to 2018. While we did report today a modest improvement in sales, more importantly, we reported gross margin in excess of 20%. Further, we reported a consistent reduction in SG&A dollars, a significant improvement in operating profits of over 200 basis points, a 68% increase in EBITDA and over $2 million improvement in net income.
With regard to our cost reduction programs as we have consistently stated over the years, we operate our business with the approach of maintaining a lean cost structure. And pruning our cost is a priority which we have done and will continue to do quarter-by-quarter. In an environment where our component and material costs are repeatedly increased by our suppliers, we’ve kept these increases largely in check as evidenced by improvement in our results. This is a real credit to our organizational culture.
Moving on, we increased our inventory in the first quarter in anticipation of increasing demand and we plan to increase our production in the second and third quarters, all which -- all of which resulted in a small use of cash in the first quarter. However, with improvements in sales over the near-term, we expect to see our cash position grow over the next two quarters.
As many of our shareholders are aware, we have made vast improvements in our balance sheet over the last several years to where we are now quite comfortable with our net debt position and our debt to EBITDA ratios. Our overall objective for this year is to consistently increase sales and which report improvements in our major financial metrics. If we can deliver on these goals and believe we can, this should result in a solid increase over 2018 results and provide an excellent opportunity to realize value for our shareholders and other stakeholders.
With those brief comments, I would like to turn it over to Laura and then we will finish with Steve discussing operations. Laura?
Thanks, Dave. Good afternoon. Thanks for joining the call today. Let me direct your attention to Slide 4, which is Q1 operating results. Revenue was up 1% at $57.4 million compared to the first quarter last year, primarily due to increases in straight mast cranes sales, partially offset by a lower order book from the fourth quarter of last year at PM as well as a unfavorable currency impact due to a weaker euro, revenue was -- revenue increased by 5%, excluding the unfavorable currency impact of $1.9 million.
Gross margin was 20.8%, up 70 basis points versus the same quarter last year, which was a result of continued effective execution of the team in managing our costs. On a adjusted basis, gross margin was up 160 basis points compared to the same quarter last year.
Our first quarter 2019 net income improved by $2.4 million to $910,000 or $0.05 per share compared to a net loss of $1.5 million or $0.09 loss per share in the same quarter a year-ago. Adjusted net income was $1.2 million or $0.06 per share, representing a 20% improvement compared to the first quarter of last year. Adjusted EBITDA was $3.8 million or 6.6% of sales, nearly a 100 basis points higher compared to the fourth quarter of 2018.
Turning to Slide 5, Net debt update Q1 2019. This slide provides a breakout of the net debt by quarter. Net debt increased slightly in the first quarter this year, primarily driven by cash spent to purchase equipment and inventory as we prepare for increased production and sales activity. Management will continue to control costs, improve working capital performance, and take other necessary actions to further reduce net debt in 2019.
With that, let me turn it to Steve.
Thank you, Laura. Thanks to everyone on the call for joining us today. After closing a solid year of revenue, adjusted EBITDA and adjusted EPS improvement in 2018, our global markets remain healthy as we enter 2019 with our backlog expanding 12% versus year end to $75 million. Overall, our key businesses are well positioned to deliver improving results as we move into the second and third quarters.
Regarding operational details, our teams continue to effectively manage the various surcharge, supply chain capacity, freight costs and tariff issues that we reported on throughout 2018. We worked diligently to both offset these costs and to pass some on to the marketplace in an appropriate manner. The total impact of these factors normalized in the latter part of 2018 and we're pleased to see the combined results of our many cost reduction and operational improvement actions deliver a gross margin level over 20%.
Shifting to an update on market and commercial activity, the positive market metrics that we discussed throughout 2018 continued into early 2019. Our internal channel checks combined with data from outside sources show continued robust rental fleet utilization for the various mobile cranes within our product offering.
Regarding our Manitex branded line of straight mast cranes, first quarter order intake for the industry was an annualized 1,500 units, which, if realized, would represent nearly 30% growth over 2018 shipment levels. Additionally, orders continue a healthy pattern of diversification across the various weight classes with 60% of the total orders biased towards the heavier 30 ton and higher weight classes, which drives positive mix for Manitex.
In general, we continued seeing our customers expanding their fleet to support their growth needs, while also seeing an increasing number of cranes being replaced from the 2004 through 2007 period when industry volumes were over 2,000 units per year. The Manitex team in Georgetown, Texas has been taking the necessary operational steps to prepare for increased shipment levels during the second and third quarters.
Regarding our PM knuckle boom business, increased penetration of this expanding multibillion dollar market is our largest opportunity in 2019 and a key element of our multiyear growth plans. As I previously mentioned, each point of market share in the knuckle boom crane market from our low global base translates to approximately $25 million of growth revenue. So this is a significant growth opportunity for our company and again one that we're pursuing diligently.
The strengthening of our global distribution network continued in the first quarter with two dealers been added in North America and two in Europe. Additionally, the knuckle boom team in North America is progressing the launch of a Manitex-branded line of knuckle boom cranes to leverage the strong Manitex brand in North America.
A few highlights from the PM group in Europe includes new orders, participation in the Bauma trade show and ongoing cost reduction. The Bauma construction trade show that took place in Munich, Germany in early April was a success for the entire PM Group. We displayed three new PM knuckle boom cranes at the show, two new Valla cranes and three new Oil & Steel truck mounted aerial work platforms.
We received over $7 million of new orders coming out of the Bauma show and PM celebrated its 60th anniversary. PM has a solid heritage as the first Italian producer of truck mounted hydraulic cranes and we're excited about the many growth opportunities for PM in the years ahead.
Additionally, the PM group is currently processing a $600,000 order for a new military customer as we move into the second quarter with annual follow-on orders of over $1.7 million anticipated from this customer. We're presently pursuing other military opportunities and anticipate additional announcements in the near future.
Regarding cost reduction within our European group, current restructuring activity pertaining to our PM knuckle boom crane and Oil & Steel truck mounted aerial work platform businesses will be completed in the second quarter and provide annual savings of over $1.6 million with restructuring costs of $1.2 million primarily related to severance costs.
Additionally, we consolidated two manufacturing facilities in the first quarter with this reduction in our manufacturing footprint generating annual savings of over $175,000 with a one-time consolidation cost of $45,000.
In closing, executing to meet our revenue growth, margin expansion and new product development goals in 2019 is our primary objective. We're working hard to increase value for our customers, shareholders, employees and other stakeholders. Thank you for your time today and your ongoing interest in Manitex International and thank you to the entire Manitex team for solid gains, continued hard work, customer service, operational discipline and overall execution.
Dave, Laura and I would now like to open-up the line and start our question-and-answer session. Lisa, could you please review the instructions and we will begin the session.
Absolutely. [Operator Instructions] We will take our first question from Matt Koranda, ROTH Capital Partners.
Hi, guys. Good afternoon.
Good afternoon, Matt.
Just wanted to start off with the bookings number. It looks like we sort of stabilized in the mid-60s range in terms of implied bookings for you guys on a quarterly basis last couple of quarters. So that looks healthy. Just curious to get your take on seasonality this year. I know the last couple of years, Q2 has been a bit seasonally softer. So wanted to get your thoughts on how that is shaping up this year, and is there any reason to think that it would turn out differently or any reason to be a little bit more positive?
Generally speaking -- thanks, Matt. Generally speaking, our second and third quarters are typically because of the seasonality of our business, the strongest quarters generally. This year, I’m sure it's going to be that way because fourth and first quarter were low. First quarter, of course, was because of what we reported in our last report which was that orders were still coming into the fourth quarter, so then that falls over into production in the first quarter. But now that as you mentioned, orders have stabilized at a good level. We've got -- we've increased -- and of course, we also have to -- we are a variable cost company as you know, so we have to -- not vertically integrated. We have to bring in the material at lead times are important to us. So as a result, our expectations are that this year second and third quarter, and of course what we’re trying to do -- the third quarter is not booked yet, but what we're trying to do is ramp up, so the second quarter is better than the first and third is better than the second. So that’s our -- that’s what we’re working for.
Got it. Yes, I guess the heart of my question is sort of, I guess, where do we need to be in terms of backlog by the end of Q2 to feel comfortable in that higher revenue run rate that you mentioned for the second half, Dave. I mean, I guess, are we relying -- and secondarily to that, I guess, are we relying more on stick cranes picking up further or is it more of a PM story as Europe seemingly gets a bit better quarter-over-quarter here?
Obviously long-term -- because of the growth factor long-term, we have to be more of a PM story as we grow. But in the near-term, our expectations are that we just stay -- we don’t have to have big expansion. We just stay in this range, so we have a solid background or backlog. So we can produce primarily to orders. We don't mind we producing some to stock, but we have to obviously keep that limited because of the nature of our business, because a lot of orders have some specific specs to them that it's hard to build in. But they certainly are standard components that we can build into products, so we can anticipate especially more on the PM side and the Manitex side. So again, we don’t really need huge numbers more than what we have, we just need consistency.
Yes, understood. And then on -- just sticking with I guess the forward-looking order front, is it still our expectation that will get follow-on orders from Tadano in Q2 and Q3? I think as you had expected back in March, any update on that front in terms of what they need to see in the field before replacing their follow-on orders?
Yes, so that -- thanks, Matt. Very good question. As we reported today, we obviously are just finishing up production on the first order which again we described it as being a starter order, which as we discussed last quarter was certainly within our expectations because that’s the way they want to do it, of course, make sure that everything works fine from the beginning and then build from there. And so as that goes into the field, which will happen its being shipped, so that it goes on -- it takes time for it to get to Asia, to get it in. But the most important aspect and we reported on this last quarter was that a number of our dealers and customers in Asia want a Tadano name on it, and the company is open to that. As I said last quarter, we need to manage expectations on that because obviously that’s going to take time and study and analysis, all of which is undertaken now but it's coming together very nicely. So I would expect some more follow-up orders as we go through -- as we roll through this year.
Okay, got it. Then just on the margin front, I mean, pretty solid performance in the quarter. And forgive me if this is in the deck, but I wasn’t able to get a copy of it, but it looks like obviously volume wasn’t a huge a benefit if we were to build a bridge there and I’m assuming price cost is certainly showing improvement for you guys. But anything you need to call out about the mix of product in Q1 that wouldn't be repeatable for the rest of the year or do we feel pretty healthy in terms of the mix that we had in Q1 is pretty repeatable for the remainder of the year?
Yes. Thanks, Matt. As you know, mix is always an issue. Our margins are much more consistent at the PM level and they’re -- they have their -- more variable at the Manitex level because of the fact that as you get into and we’ve talked about this a number of times over the years, as you get into lower tonnage cranes attached to a chassis, obviously that chassis costs doesn't vary as much though the -- if it's a 125,000 lower tonnage crane, you are going to have very little added value in the crane side. And so therefore, lower margins compared to a $400,000 crane that has -- as a percentage of sales, less proportionate increase in the chassis compared to the crane and so that gives us much more of an opportunity to add margin. So it's difficult to totally and completely predict, but our expectations are that the mix, which Steve reported on was solid for the first quarter, obviously, because that’s where we had the good gross margins, our expectations will be that that will continue.
Great. And I guess the timely question of the day would just be sort of the incremental tariffs given yesterday's tweets. Basically my assumption would be that it puts additional pressure on your supply chain, but any initial thoughts on sort of how this sort of puts pressure on your margins through the latter part of the year, preliminary estimates and whatever is quantifiable would be helpful.
All those things are hard to guess because, again, we don't know what is negotiation and what is reality, which, of course, is the reason for the drama on the stock market because they don't either. So we have reported in the past that we don't have a heavy concentration of components coming from tariff-related countries, so we should -- we shouldn't have a huge impact. We've reported on the impact a year-ago, which is when we first started to see that, it was not -- it certainly had an impact, but it was on a materiality standpoint, it wasn't that large. And more importantly, as I said a year-ago, this was all -- it seems like a reason to just increase costs and increase prices all over the place and that did subside as we went through the year. But we are still managing in an environment where component prices are volatile. Right now, obviously, as we all know, steel prices are under control and that’s a big factor of our components. So, Steve, I don't know, you are the one that put all this work together when we were doing the analysis a while back. I don't know if you want to add anything to that question?
The costs were fully mitigated and normalized as we went through the second half of last year. We don't know, Matt, regarding the tariffs that were -- for possible tariffs that were mentioned today, how it may or may not affect our components. And if that action might be included in a possible exemption or not, but I will say, overall, just as the effect was minimal last year and fully normalized, as we entered this year and fully had the effect of all our actions included in the first quarter backlog, as well as supply chain plan, I would anticipate that we will be able to manage any -- if there's an increase, manage that just as we did exiting last year and beginning this year.
Okay. And then is it fair to say the, I guess, the relatively -- the modestly elevated inventory levels are associated more with your efforts to combat the supply chain tightness that’s out there? Is that the reason?
Well, as we stated, Matt, we knew -- we know what our production plans are. We know we have to have the longest lead time items are the ones that we have to bring in, in order to make sure we can realize those plans. And so in the first quarter as order started to come in, we started to place orders for our components. And that’s the reason why you saw the inventory go up and that’s, again, for -- as a result of higher production, that you should expect in the second and now hopefully carrying over in the third quarter, which again is what our expectations are. So, it's all related to finished goods.
Got it. That’s helpful. And then last one is more of a housekeeping question on the restructuring. I think in your prepared remarks, you mentioned expecting about a $1.2 million in total. And I guess, you -- backing out what you spent, in Q1, we’ve probably an incremental $800,000, $900,000 to come in Q2. Is that a fair way to think about it in terms of cash restructuring for the rest of the year?
Yes, we will have -- restructuring is like an ongoing and we tried to emphasize that. We know we are still a long way from where we want to be as a company and as a group because we know we did an awful lot of work getting the company in a position where we are now, where we have a very good position in mobile cranes, both split [ph] and knuckles. And we all know because we’ve mentioned it numerous times that the cost is in the knuckles, the benefits in the knuckles, so the restructuring and pruning will continue on the knuckles, but your assessment for the second quarter is correct.
Perfect. I will leave it there, guys. Thank you.
Thank you, Matt. Thanks for your question.
[Operator Instructions] And everyone, there appear to be no further questions at this time.
Thank you, Lisa. Thank you for everyone for your interest in Manitex. We look forward to future calls and future meetings. Thank you very much.
Ladies and gentlemen, that does conclude today’s conference. We would like to thank you all for your participation today. You may now disconnect.