Manitex International, Inc. (NASDAQ:MNTX) Q1 2023 Earnings Call Transcript May 6, 2023

Operator: Good morning, ladies and gentlemen, and welcome to the Manitex First Quarter 2023 Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 4, 2023. I would now like to turn the over to Paul Bartolai, Managing Director, Vallum Advisors. Please go ahead.

Paul Bartolai: Thank you. Welcome to Manitex International’s First Quarter 2023 Results Conference Call. Leading the call today are CEO, Michael Coffey; and CFO, Joseph Doolan. We issued a press release earlier today, detailing our first quarter operational and financial results, this release, together with accompanying presentation materials are publicly available in the Investor Relations section of our corporate website at www.manitexinternational.com. 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 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 initiatives, followed by a financial update and outlook from our CFO, Joseph Doolan. At the conclusion of these prepared remarks, we will open the line for questions. With that, I’ll turn the call over to Mike.

Michael Coffey : Thank you, Paul, and good morning to everyone joining us on the call today. If you can turn your attention to Page 3 of our presentation, I’ll begin with key highlights from our first quarter. Our team delivered another quarter of profitable growth as first quarter revenue and EBITDA came in ahead of expectations, highlighted by strong new order momentum, continued margin expansion and solid execution against our Elevating Excellence value creation initiatives. During the first quarter, sales momentum increased with each successive [March]. New orders in the quarter contributed to a 16% year-over-year increase in quarter-end backlog. First quarter revenue increased 12% over last year, largely owing to year-over-year addition of Rabern Rentals.

Manufacturing sales increased modestly in the quarter. However, as Joe will discuss shortly, first quarter revenue was impacted by a decline in pass-through sales of truck chassis, which carry very low gross margins. While this will modestly impede our top line growth during the rest of the year, we anticipate gross margin improvements as a result. We continue to experience strong demand in lifting equipment products in both North America and Europe, driven by elevated activity levels across key end markets such as transportation and infrastructure, upstream energy, electrical distribution and general construction. This improved end-market demand and favorable customer reception was evident at the recent CONEXPO trade show. Customer interest in our full line of products was robust.

We received record orders at the show, some of which are not reflected in our first quarter closing backlog. In fact, we sold every piece of equipment that we have on site in Las Vegas, something that’s never happened before. CONEXPO is not generally viewed as a trade show with significant order activity. So we came away from the show encouraged with customer sentiment and grateful for their vote of confidence in our products. Our Rental segment, which is represented by Rabern Rentals, reported another strong result in the first quarter. We benefited from the launch of our new Lubbock, Texas location, which opened its stores in March. This represents our fourth rental location in Northern Texas, where construction activity is robust, benefiting from a strong backlog of infrastructure, commercial and industrial projects that are bolstering demand for our fleet of specialized rental-focused equipment.

During the first quarter, we continued to make significant progress on our productivity and efficiency initiatives across the organization, which resulted in strong year-over-year margin improvement. These actions include a focus on resource optimization, improvements to our procurement and supply chain management and increased fixed cost absorption. Production velocity suffered some headwinds in the quarter on supply chain delivery delays. These delays primarily affected North American manufacturing and were specifically impacted by our steel and fabricated product suppliers. Despite the lower production level, our first quarter gross margin was 21.2%, up from 16.8% last year and up nearly 200 basis points from the fourth quarter. This occurred despite normal seasonal headwinds typically — are typical for the first quarter.

In addition to the margin benefits resulting from our recently introduced efficiency measures, gross margin further benefited from continued price discipline and a more favorable product mix. We reported first quarter EBITDA margin of 9.3%, which is up 475 basis points from last year, despite roughly 150 basis points of incremental expenses, which were related to the CONEXPO trade show, which takes place every 3 years. We are excited by the rapid progress we are making on our operational efficiency initiatives, and I am confident that we are well on track to achieve our longer-term margin goals that were outlined last quarter. These goals include a multiyear margin expansion set of objectives, which target between 300 and 500 basis points of EBITDA margin improvement by the year 2025.

The favorable customer demand witnessed throughout 2022 continued into the first quarter. As mentioned in our press release, our backlog improved to nearly $240 million as our key end markets such as infrastructure, nonresidential construction, energy and mining remain robust. Many of our key verticals are less impacted by general economic swings and are instead driven by infrastructure spending and the energy markets. General infrastructure, electrical distribution and road construction are all benefiting from federal infrastructure and stimulus money. We are also seeing global demand for minerals such as copper, improve capital goods spend and mining maintenance activities. While we are not immune to macroeconomic headwinds, many of our verticals continue to see favorable demand tailwinds.

The composition of our backlog by geography during the first quarter was 52% North American and 48% international. Earlier this year, we launched our Elevating Excellence 2025 strategy, a multiyear business transformation initiative, designed to drive targeted commercial expansion and sustained productivity improvements across our organization. The roadmap is outlined on Page 4 of our presentation. As a reminder, Elevating Excellence is the focus on targeted commercial expansion, sustained operational excellence and disciplined capital allocation. While we are targeting all aspects of the plan for 2023, our primary focus and approach this year is to improve internal processes, which will aid production output and efficiency. I’m very proud of the progress that we have already made since we rolled this strategy out last quarter, and this is evident, given our recent financial performance.

On Page 5, we have outlined our commercial growth strategy. We made good progress in the quarter, launching new products to fuel this initiative. In March, we launched the Electric Crane System, ECSY and the new TC850-series 85-ton truck, both at CONEXPO. Both of these products received a strong reception from our customers. Manitex focus on innovation will result in robust new product introductions in 2023, which will be focused on company core lifting equipment product categories that can be marketed in both North America and Europe. Within our Rental business segment, we generated strong organic revenue growth during the first quarter, owing to favorable end-market demands in North Texas markets, pricing increases and our new Lubbock branch, which opened in March.

In the first year of ownership, Rabern has exceeded expectations, and Manitex is focused on continuing to expand Rabern Rental’s footprint. The second key tenet of our strategy centers on enhancing our operating performance. This is outlined on Page 6. We are very proud of the meaningful improvements already accomplished across our organization, which include manufacturing throughput improvement and supply chain efficiencies that have translated into meaningful margin expansion. At the same time, we still have considerable opportunities to further improve our operating performance. For example, we needed to upgrade our operating systems to improve costs and our ability to scale our growth. We completed this in April with the onboarding of a new manufacturing ERP system for our European businesses.

The system integration was completed smoothly, keeping the ERP project on schedule. As a reminder, we upgraded our Rental Solutions ERP system in December. Both of these investments are integral to our process improvement initiatives. As mentioned previously, the new systems will help fuel efficiency and position the business for growth. We are also beginning to pursue several sourcing initiatives that is successful to generate incremental cost savings opportunities as well. While we continue to see some headwinds from supply chain challenges, overall, we are pleased with the early progress. Our final area of focus involves disciplined capital allocation, which we detail on Page 7 of the presentation. In 2023, our capital allocation strategy will continue to prioritize debt reduction, select investments in organic growth and maintenance capital to support our existing operations.

We are committed to lowering our net leverage ratio closer to our long-term target of at or below 3x, driven by a combination of improved operating cash flow and a planned decline in maintenance capital expenditures. We made nice progress in the first quarter, driven by our strong operating results, with our net leverage declining to 3.5x as of March 31, which is down from 3.9x at year-end. Elevating Excellence was implemented to return value to our investors. Last quarter, we introduced 3-year financial targets that reflect our confidence in the underlying strength of the brand markets, coupled with the commercial and operational benefits we expect to generate through our strategic initiatives. These objectives can be found on Page 8 of our presentation.

Our targets remain unchanged. And as a reminder, between year-end 2023 and ’25, we are targeting revenue between $325 million and $360 million or a 25% growth at the midpoint range, total EBITDA of between $35 million to $45 million or a growth of 65% to 110% and between 300 to 500 basis points of adjusted EBITDA margin expansion. Before I turn the call over to Joe, allow me to provide a few concluding remarks around our outlook for 2023. I can’t say enough about the confidence our customers have placed in Manitex. We are very grateful for the business. Customer demand remained strong through April 2023. Our management team is making meaningful progress with our strategic initiatives, and we have had a positive — and we have a positive and confident outlook toward the future.

Coupled with our focus on improved operating processes in 2023, we will continue to focus on market share growth within North America, expansion of our equipment rental business, improved utilization of our manufacturing facilities and a further reduction in net leverage from current levels. Given our solid first quarter results, continued new order momentum and sustained margin improvements, we believe Manitex remains on track to deliver low double-digit adjusted EBITDA growth in 2023. I will now turn it over to Joe for a detailed review of our results.

Joseph Doolan : 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 2023. Turning to Slide 11. Net revenue for the first quarter 2023 was $67.9 million, up 12.3% compared to the same period last year, driven mainly by contributions from the Rabern Rentals acquisition, which was completed in April of ’22, along with growth in our PM business. First quarter revenue growth was negatively impacted by $1.2 million or approximately 3% due to lower truck chassis sales, which are largely pass-through revenue items. We expect full-year 2023 chassis sales to decline relative to last year, which will be a headwind to reported sales growth.

However, the sales decline will have a limited impact to gross profit, but will benefit gross margin for the full year 2023. Lifting Equipment segment revenue was $61.1 million in the first quarter of ’23, an increase of 1.1% versus the prior-year period. As I just discussed, lower truck chassis sales impacted first quarter results, and Lifting Equipment segment revenue would have increased 3.4%, excluding chassis sales. Lifting Equipment revenue growth was driven by improving demand trends in international markets, coupled with improved throughput in manufacturing facility. Rental Equipment segment revenue was $6.8 million in the first quarter of ’23, supported by strong end market demand in key North Texas markets, including the opening of the company’s Lubbock, Texas location in March of ’23.

The Rental business benefited from the deployment of new rental fleet acquired in ’22 and market share gains in its Texas market. As of March 31, 23, total backlog was $238.1 million, up 16% from a year ago, driven by continued favorable trends in key end markets in North America, with contribution from recently launched products. Backlog in our U.S.-based straight mast crane business was up 32% from the prior year, while backlog for articulated cranes increased 13%. Gross profit was $14.4 million during the first quarter of ’23, up from $10.1 million during the prior-year period or an increase of 42%. The increase in gross profit was a result of contributions from Rabern, benefits from our operational improvement initiatives and improved mix.

As a result of these factors, gross profit margin increased 440 basis points to 21.2% during the first quarter. SG&A expense was $11 million for the first quarter of ’23 compared to $8.8 million for the comparable period last year. The increase was primarily related to SG&A expense of $1.4 million related to the Rabern acquisition, costs related to attending the CONEXPO trade show and increased stock compensation expense, partially offset by the higher transaction costs, which were incurred in the first quarter of 2022. Operating income was $2.6 million during the first quarter compared to operating income of $0.7 million for the same period last year. Operating margin in the first quarter of ’23 was 3.8%. The year-over-year improvement in our operating income was driven by the contribution from Rabern and our improved gross margin performance.

Strong operating income improvement was especially impressive, given we incurred nearly $1 million in operating expenses from the CONEXPO trade show. Adjusted EBITDA was $6.3 million for the first quarter or 9.3% of sales compared to $2.7 million or 4.5% of sales for the same period last year. Net income was essentially breakeven for the first quarter compared to net income of $0.2 million or $0.01 per diluted share for the same period last year. Adjusted net income was $1.4 million or $0.07 per diluted share in the first quarter of ’23, up from adjusted net income of $900,000 or $0.05 per diluted share in the same period last year. Adjusted net income for the first quarter of ’23 excludes $800,000 of stock compensation expense and approximately $700,000 of other nonrecurring expenses.

Now turning to our balance sheet on Slide 12. As of March 31, 2023, total debt was $96.2 million compared to $90.3 million at the end of the fourth quarter of ’22, owing to normal seasonal working capital uses and increased purchases of rental fleet for the Rabern business. Cash and cash equivalents as of March 31 were $10.1 million, resulting in a net debt of $86 million compared to $82.1 million at the end of the fourth quarter of ’22. As a result of the strong operating results, net leverage improved to 3.5x at the end of the first quarter of ’23 compared to 3.9x at the end of the fourth quarter of ’22. As of March 31, total liquidity was $36.6 million, consistent with the end of the fourth quarter. As Mike detailed, during 2023, we expect to grow adjusted EBITDA in the low double-digit percentage range compared to $21.3 million in adjusted EBITDA that we reported in 2022.

Our target is supported by continued new order momentum, optimism on end-market trends as well as expected margin improvements resulting from our Elevating Excellence initiative. That completes our prepared remarks. Operator, we are now ready for the question-and-answer portion of our call.

Q&A Session

Operator: [Operator Instructions] Please, for your first question — your first question comes from Matt Koranda from ROTH.

Operator: Thank you. There are no further questions at this time. [Operator Instructions]

Paul Bartolai: Operator, do we have another question or…

Operator: There are no further questions.

Michael Coffey : Okay. Very good. Well, thank you very much for hosting the call. And we’d like to thank everyone for participating. Joe and I will be participating in several investor events in the coming months, including the Sidoti Small Cap Conference, which is scheduled May 10. If we don’t get a chance to connect during the quarter, we hope and look forward to meeting with you during our next quarterly call. As always, we want to thank everyone for your time and interest in Manitex. And this will conclude our call. Thank you very much.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.