Manitex International Inc. (NASDAQ:MNTX) Q2 2022 Earnings Conference Call August 9, 2022 4:30 PM ET
Company Participants
Mike Coffey – CEO
Joe Doolan – CFO
Conference Call Participants
Matthew Reiner – Adirondack
Operator
Good afternoon, ladies and gentlemen, and welcome to the Manitex International, Inc. Second Quarter 2022 Results Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded.
I would now like to turn the conference over to Mr. Mike Coffey, Chief Executive Officer. Please go ahead, sir.
Mike Coffey
Thank you, operator. Good afternoon, ladies and gentlemen, and thank you for your interest in Manitex International. We appreciate you taking time to join our call. My name is Mike Coffey, and with me today is Joe Doolan our CFO, who will take you through the financial details of the second quarter, which we announced earlier today. Following our prepared remarks, as is our custom, we will be happy to open the line for questions.
Please see our website for our release and other information, including a brief presentation for this call. A telephone replay will be available for 7 days, and the slides we cover will also be available for the next year.
Slide 2 is our Safe Harbor statement, which reminds you that everything we discuss is subject to change as described in our SEC filings, which you can refer to for further details on the many risks associated with our company.
On today’s call, we will focus on our second quarter 2022 results, covering financial highlights, our business performance, margin trends and key drivers being leveraged for our shareholders.
This is the first earnings call, including Rabern Rentals financial results. You may be aware that we acquired 70% of Rabern Rentals on the 11th of April 2022. The Rabern Rentals performance is right in line with what we anticipated, supporting our goal to improve operating margins.
As this is my second earnings call and with only 4 months with the company, allow me to offer a short high-level introduction again. I was appointed CEO in April to help the company improve its profitability and growth. Since April, we have identified areas for cost control, efficiency improvements and collaboration between the Manitex operating entities.
I’m pleased to report that some of these changes are already showing results, others will take time to fully implement and realize their full potential. I’ve spent most of the past 4 months getting acquainted with the company, its employees and our capabilities.
I’ve also had the fortune to meet many of our customers gaining their direct feedback and outlook for 2022 and 2023. The senior leadership, Joe and I are making adjustments to our strategy to make a meaningful impact to the company’s financial performance going forward. Manitex has the enviable position of having a tremendous customer base with ample opportunities for growth and share in key markets.
Together with our customers, we are positioning ourselves for growth and have not moved from our stated goal to improve adjusted EBITDA performance above 10%. The team is working hard and we are confident in our ability to improve both sales and operating margins.
So let’s talk about the results. The second quarter was highlighted by continued gains in both our sales and our backlog, the company’s adjusted EBITDA as a percentage of sales also improved meaningfully during the quarter. As discussed in today’s press release, we are pleased with our progress on each of these fronts.
And we also believe that we are well positioned to continue to see improvements in these and other key performance indicators throughout the year. Our Q2 results reflect Rabern Rentals financial contribution since April 11. We look forward to the positive impacts of Rabern’s contribution for the entirety of the third quarter and beyond.
Second quarter consolidated sales were up 16% year-over-year, and our second quarter backlog closed at a record $214 million. Despite inflationary pressures and supply chain challenges that are affecting our entire industry, we were able to move our adjusted EBITDA margin up to 7.4% of sales.
Encouraged with these results the team and I are accelerating efforts to attain our stated goal of double-digit adjusted EBITDA performance. Joe will speak to the specifics of our financial results in a few moments. An operational review indicates Manitex’s capacity to increase throughput at all sites. This includes the already announced organic expansion of Rabern Rentals into the Lubbock, Texas market. Despite consecutive quarter-over-quarter increases in manufacturing sales, our throughput capacity is heavily constrained by our supply chain.
Our suppliers have been impacted by the same inflationary pressures, challenging every industrial and materials business. This has impacted costs, slowed deliveries and forced the company to increase its working capital in response. For example, during the first 6 months of 2022, International shipping costs were 3.5 to 4x more expensive than prior years, but also encumbered with delays and unreliable performance.
We are addressing the realities of the supply chain shortcomings by expanding the list of qualified suppliers and via price increases or surcharges where they are possible or reasonable. In reality, as previously stated, it will take several quarters for us to see more stable supplier performance and cost structures.
The recent inflationary pressures and economic recession in the United States point to future softness in the market. To date, however, we have not seen any marked impact to our customer sentiment, order variance, or changes in our customers’ outlook. To the contrary, recent meetings with 4 large customers indicated 2023 order forecast at similar levels to the orders obtained in 2022.
We have also not seen any order cancellations, but we believe it is only prudent that we prepare for the unknown. We are working with our suppliers and our customers to that end. I’ll have more comments on that later. But for now, I’d like to turn it over to Joe to discuss our financial performance. Joe?
Joe Doolan
Thanks, Mike. Good afternoon, everyone, and thank you for joining the call today. Please turn to Slide 6 in the presentation. As Mike noted, this is our first financial report in which we were reporting consolidated results that include Rabern Rentals performance, the acquisition having closed in early April, as you may recall.
Revenue for the second quarter was $69.6 million, an increase of 16% versus the prior year period. Improvement, which was also up sequentially from $60.4 million in the first quarter was driven mainly by revenue from Rabern Rentals and an increase in sales of our straight mast cranes in the United States. These were partially offset by lower sales of articulated cranes from our Italian business, driven by the lower euro.
Our backlog was a record $214 million as of June 30, which is 92% higher than it was at the end of June 2021 and is up 13% since year-end. This reflects continued strong orders within the straight mast crane, articulated cranes and aerial platform businesses. Our straight mast crane backlog has increased 152% year-over-year. Aerial work platforms have more than doubled year-over-year, while articulated cranes are up 50% since the prior year period.
Our book-to-bill ratio was 1.1:1 for the quarter, indicative of continued strength in our order flow. Gross profit of $12.4 million is up 8% from the prior year. The gross margin of 17.8% in the second quarter is the highest level we’ve had in a year and is trending as we had anticipated. While we continue to see inflationary pressure and supply chain challenges in the form of higher materials and logistics costs, we have been extremely active in 2022 in addressing these increases with surcharges and pricing adjustments along with sourcing and efficiency gains.
Adjusted EBITDA increased to $5.2 million or 7.4% of sales for the second quarter of ’22 versus adjusted EBITDA of $4.2 million or 7.1% of sales in the second quarter last year, and also represents sequential improvement of 290 basis points from Q1 of ’22. The improvement was largely due to Rabern Rentals contribution to the results and higher profitability at Manitex cranes and oil and steel aerial work platform.
We anticipate improved margins for manufacturing as well as the positive contributions of Rabern Rentals to manufacturing margins could be offset by unforeseen inflationary impacts and therefore, may be slower, but will be set.
Please turn to Slide 7 for a comparison of our operating results with the prior quarter and prior year. Operating expenses, as reported, were $14 million for the quarter inclusive of approximately $3.1 million in nonrecurring acquisition and severance costs. Adjusting for these and other onetime items, our non-GAAP or adjusted operating expenses were $10 million or 14.3% of sales, a level that is in line with historical operating expenses.
The acquisition of Rabern Rentals contributed approximately $1 million of operating expenses for the second quarter. Net loss for the quarter was $2.1 million or $0.10 per share compared with net income of $5.4 million or $0.27 per share in last year’s Q2. As I have mentioned previously, this quarter includes over $3 million in acquisition costs and severance charges which reduced net earnings.
Last year’s Q2 included a $3.7 million gain from the forgiveness of the PPP loan, which benefited earnings. Adjusting for these and other items, adjusted net income for the quarter was $1.1 million or $0.05 per share compared to $2.2 million or $0.11 per share in the prior year and is up from $900,000 for the first quarter of 2022. Net income for the quarter was driven by profitability from the Rabern Rentals business and higher sales of straight mast cranes in the Manitex business. Our profitability was impacted by material cost increases, it’s continued to rise and put pressure on operating margins despite price increases that we were able to implement.
Now moving to Slide 8. Net debt at the end of the quarter was $78.7 million, up from prior periods due to the Rabern acquisition. The increase in debt was due to the use of $41 million in debt financing to acquire Rabern and assume their debt obligation. In addition, we have funded equipment purchases to expand the Rabern business operations.
Our leverage ratio was approximately 4x trailing 12-month adjusted pro forma EBITDA and the company has available liquidity of approximately $42 million, consisting of cash and availability in the U.S. and PM working capital facility. The team is confident that the company will have the necessary liquidity through cash and other credit lines to meet our obligations that are scheduled over the coming 12 months, and we remain in compliance with all debt covenants.
With that, I will now turn the call back to Mike Coffey. Mike?
Mike Coffey
Thanks, Joe. Please turn to Slide 9. I wanted to take a moment to summarize where things stand before we begin the time of Q&A. We are pleased with how the year is progressing. Our sales and backlog growth and steady progress toward obtaining our margin targets.
As previously discussed, we are targeting revenues of $300 million and adjusted EBITDA that reflects double-digit performance. We believe this is within reach. Sales at Rabern continued to improve with revenue growth of 13% in the quarter on a pro forma basis. Rabern’s adjusted EBITDA is also meeting expectations, contributing to our consolidated results.
Our expansion in Lubbock, Texas, which includes a new operating facility is on target. The site preparation and construction are underway, and we look forward to serving this market in early 2023. We began the integration of Rabern during the quarter. This included strategic meetings with product design and engineering departments in Italy.
The meetings are producing valuable intelligence needed for us to address the market expansion of electric aerial work platforms and industrial cranes commonly used in the rental industry. Both product lines are well suited for North American expansion and it is our intention to substantially grow our market share in the U.S. and in Canada.
Access to Rabern’s team and their product feedback is proving valuable in helping us attain this goal. Manitex remains committed to improving our overall financial performance. The Rabern acquisition directly reflects this commitment, and this quarter’s results post acquisition are fulfilling this commitment.
Our focus on improved margins extends beyond our entrance into the general construction rental industry. We continue to address inflationary headwinds, supply chain constraints and material delays. We are looking forward to closing out the year as a stronger company, both operationally and financially.
I do want to caution that we will see some seasonality in Q3 results with the PM Group having a few weeks off in August. This is going to be mitigated by Rabern, of course, but it’s important to note to our shareholders that we’ll likely see some effects here. We look forward to reporting our progress on these initiatives as well as our goal to attain double-digit EBITDA performance in the coming quarters.
With that, operator, could you please open up the lines for questions and answers.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question is from the line of Koranda with ROTH Capital.
Unidentified Analyst
It’s Mike Daverin on for Matt. So backlog and implied bookings for the quarter looked really strong. Maybe just speak to bookings seasonality in the back half of the year and provide some color on where bookings stand quarter-to-date for Q3.
Mike Coffey
Well, thanks very much for a good question. So this is Mike Coffey. It’s really — we had an order value through July, which was consistent in keeping pace with sales. So we haven’t seen any change with regard to order behavior to the contrary.
Q3 is typically a light part of the year from an order standpoint just because of summer holidays and so forth. And generally, it picks back up again in the fall. But we haven’t seen any changes at all in any deterioration in the backlog.
Unidentified Analyst
Got it. Very helpful. And then on Rabern, last quarter, we kind of highlighted that rental equipment is reserved almost immediately as it’s available. Any change there? Or is — are we still struggling to keep up with demand on the rental front?
Mike Coffey
Yes. I’m actually calling you from Amarillo right now where Rabern is headquartered and we had meetings today with the team. There’s quite a bit of demand. As a matter of fact, traditionally, what we — what the industry does to take up demand as we will temporarily re-rent fleet from other customers.
And at this stage, we have record levels of rerental fleet filling those orders. So demand has been very, very good in both Amarillo. And despite the fact that we don’t have an operation open — a formal operation open in Lubbock, we do have a temporary operation there, and we’re beginning to build relationships with customers in Lubbock in light of the opening our expansion early next year.
Unidentified Analyst
Got it. Makes sense. And apologies if I missed this earlier, but did you guys provide anything on Rabern revenue contribution for the quarter?
Mike Coffey
I don’t think it’s formally outlined, Joe, can you respond to that? Or…
Joe Doolan
Yes, I was going to say to, we I didn’t put the information into the presentation, but it will be in our 10-Q. We’re going to report segment information. So you’ll be able to see the contributions for Rabern. But Rabern’s revenue was just over $6 million for the quarter, and that’s our portion since the date of acquisition.
Mike Coffey
Another way to look at it is manufacturing quarter-over-quarter grew about 6%. So most of the growth in the quarter was from Rabern, which is understandable, but manufacturing grew about 6% quarter-over-quarter.
Unidentified Analyst
Got it. That’s helpful. And — so still on Rabern, I know we’ve called out before December, January as kind of the stronger months. But maybe just touch on how we’re thinking about expectations for revenue contribution in the back half of the year for Rabern.
Mike Coffey
Well, we really don’t see any changes. I mean, we’re seeing rental growth month after month over the last 4 months. And we don’t see that ebbing at all. But I just want to clarify, you said December and January being the stronger December and January, because of the holidays and the winter construction season, those are typically light months from a rental standpoint, and then it picks up as the year progresses.
Unidentified Analyst
Okay. Got it. Appreciate the clarification there. And last one for me. In terms of chassis availability, I think this earnings cycle, we’ve seen a handful of companies kind of note that they’re finally seeing some improved chassis flow through. Are we seeing the same? Maybe just provide some commentary on how chassis availability has kind of trended since last quarter?
Mike Coffey
It’s definitely improved. The chassis availability has improved. We’re seeing that with both our customers and the chassis we had on order for our order — our book of orders. There are still some challenges with regard to that. The chassis have been held up not so much by scheduling and labor demand, but held up based on internal suppliers in late deliveries. But it has improved, and we’re anticipating that will continue to improve through the remainder of the year.
Operator
[Operator Instructions] And we do have a question from the line of Reiner with Adirondack Funds.
Matthew Reiner
Can you just lay out a little bit of your goals for handling debt reduction and whatnot? Like where you start seeing the business generating more cash flow? And where do you — what’s your, I guess, goals for leverage, I think now you said 4x, like what’s your ultimate goal? And when do you think it can get there?
Mike Coffey
Yes. This is Mike Coffey. So let me answer that question with Joe. The categories for debt reduction are primarily going to come through working capital efficiency. So in light of the supply chain challenges that we’ve had, the timing of orders and the amount of orders have had to address that.
So we have more working capital to address the order bank than what is normal, and that’s an issue of timing. So if normally, you’d have 3 to 4 months of working capital in the category, we’ve had 1 or 2 additional months to address the production demands that we’ve had and address the backlog.
We see that as an opportunity for us to improve the efficiency of working capital. And have plans to do that through the remainder of this year. We’re seeing really good EBITDA generation and cash flow production from Rabern, we see that as a positive, and that we see that as something that will occur through the next 12 months.
As far as gearing ratio target, we don’t have a specific target that we’re setting, but we are very sensitive to paying down debt. Joe, do you have anything to add?
Joe Doolan
No. The only thing that I would stress is we have a — we don’t have a significant requirement for debt paydowns during the year. We have termed that in Italy that requires a EUR 2 million paydown in December. And so we will be making that payment at the end of the year.
But besides that, I think as we’re able to generate cash, as Mike mentioned, from operations and from working capital efficiencies to the extent we have excess cash, we would use it to reduce our debt.
Operator
And our next question is from the line of Almy from Wedbush Securities.
Unidentified Analyst
Mike, I was hoping you could maybe expand a little bit on the brief mention you had of speaking with the folks at PM Group and the folks at Rabern about possibilities for electric, articulated cranes in North America. And I would — and I took that to mean you were looking at rental possibilities. I wanted to know specifically if that was beyond Rabern.
Mike Coffey
Yes. Well, it is both beyond Rabern and the reference there is actually to the products that are manufactured by Oil and Steel and Valla, which are both electric and diesel electric hybrid drive systems and they’re absolutely perfect for the North American rental market.
Now Rabern has some of this equipment in their fleet, and Rabern will buy some of the equipment. But our key strategy is to ensure that these products are optimized for the North American market that their usage is both commonly understood and accepted to North American.
So let me give you one such example, the controls for certain classes of North American equipment are different than they are in Europe. And so we really want to make certain that what we’re manufacturing is familiar, comfortable, and easy to operate for North American Rentals.
I arrived in Amarillo yesterday, and our senior technician is actually flying to Chicago this afternoon to meet with the engineers to complete part of that process. The PM Group, the articulated cranes it’s a different category, and would not become part of Rabern’s fleet and really not become a big part of the North American construction rental fleet. It’s a different class.
Unidentified Analyst
So there’s no new yet unidentified untapped market for the PM Group’s products here in North America.
Mike Coffey
Well, that actually, we do think there is a tremendous untapped market for the PM Group, and we will be releasing plans toward the end of this quarter, early next quarter. We are — the management team and I are very bullish on our ability to expand market in North America with the PM Group. And in the press release, you’ll notice 3 new products that were released.
They were announced in June and now are hitting the market in July and August. Those were developed to directly address some needs in North America that we’re pretty excited about.
Operator
And we currently have no further questions on the phone line at this time. I will now turn the call back to Mr. Coffey for closing comments.
Mike Coffey
Well, I would just like to thank everyone for your interest in Manitex International. And we are, as we’ve stated before, facing some unique challenges with regard to supply chain. We’re optimistic that those challenges are beginning to wane and we’re putting in efforts and programs to reduce our cost and improve margin.
We’re also thrilled that the backlog has kept up with our increased sales and we’re very optimistic with our customers’ interest in our products going forward. The management team and I look forward to portraying our results in Q3 and Q4 as the year progresses, and we want to thank you for joining the call.
Operator
That does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you, and have a great day, everyone.
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