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spk02: Thank you for standing by. This is the conference operator. Welcome to the Manatex International Inc. 3rd Quarter 2021 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during this conference call, you may signal the operator by pressing star and 0. I would now like to turn the conference over to Mr. Steve Filipov, Chief Executive Officer. Please go ahead.
spk01: Thank you, Operator. Good afternoon, ladies and gentlemen, and thank you for your continued interest in Manatex International. I hope everyone is safe and healthy, and we appreciate you taking the time to listen to our call. I'm Steve Filipov, CEO of Manatex, and with me today is Joe Doolin, our CFO, who will take you through the financial details of the third quarter, which we announced earlier today. Following our prepared remarks, as is our custom, we will open up the line for Q&A. Please see our website for a release for replay instructions for this call. A telephone replay will be available for seven days, and the slides we cover with audio broadcast or webcast will be available for a year. Slide two 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 risk factors associated with our company. So, please now let's turn to slide three for a review of our operating results. Let me start by providing some color on the current business environment and the impact it's having on Manatex. It's clear that we're in an uncommon period of time with robust customer demand for our products while facing one of the most challenging global supply chain environments and period of workforce constraints not seen in decades. These factors are negatively impacting production and also contributing to manufacturing labor inefficiencies for us as well as the entire industry, as I'm sure our listeners are aware. At the same time, we've seen significant material cost inflation since the beginning of 2021. So, you might ask, what are we doing about it? Let me assure you that we are tackling these problems head on. We've implemented multiple price increases and surcharges across all product lines. We are working with our customers to be transparent about why and where are these increases coming from. We are adjusting workflow within our facilities to mitigate production inefficiencies and helping our supply chain partners identify issues and engage new suppliers to meet demand. We are taking all steps available to reduce margin pressure and increase product throughput to meet the demands of our customers. While we view these challenges as temporary, we do not take them lightly and the ongoing uncertainty they've caused worldwide. We're taking the right actions to position our company for success and will emerge from the current environment a stronger, more resilient business. The Global Mandatex team was able to mitigate many of the production constraints this quarter, with year-over-year revenue rising almost 40% to nearly $51 million. Joe will take you through a deeper look at our financials, but our gross profit also increased 20% to $8 million, and adjusted EBITDA was $1.6 million for the quarter. At the same time, we've been working hard to continue to improve our balance sheet and our net debt, is $26.5 million, which gets our leverage ratio to less than three times trailing adjusted EBITDA. Our backlog continues to grow and remains at a five-year record high of $113.6 million, with our European businesses leading the growth and good improvement from our straight mass business in North America. Now, please turn to slide four for some additional color on our operational performance in Q3. As I mentioned earlier, business is robust and demand is high, but we are working daily to manage our supply chain constraints and a volatile pricing environment. Let me start with our PM knuckle boom business, which continues to be robust, with orders up over 100% since the end of last year. Our revenue here rose 22% versus Q3 2020, and global demand is up with our key markets in Europe, North America, and Latin America. We continue to bring new and innovative products to the market and have launched three small and medium sized cranes at a recent trade show in Italy. Our plans continue to accelerate new product launches in 2022 and 2023 with further developments in the higher capacity cranes. The European supply chain team works across PM, oil and steel and valid products to leverage volume and is working on a daily basis to mitigate shortages but more importantly, to find additional suppliers to meet ongoing demand. I have personally met some of these new suppliers, and I am impressed by such high-quality, professional companies that will help us grow in 2022. Our leadership in the straight-max market continues to show strong demand within a more difficult supply chain environment. Revenue rose 43% versus last year, even as our ramp-up has been more challenging than than here than in Europe. We have brought on new steel suppliers, which has helped availability in the past couple of quarters, but prices remain high. In order to offset these costs, we've implemented a steel surcharge on all our products effective 2021, which will remain in place until we see prices start to come back down, which we did not expect to happen until sometime in 2022. As we discussed during our Q2 call, truck chassis supply continues to be a significant challenge. Semiconductor shortages have been a major issue for our truck suppliers, and while there seems to be some improvement in deliveries, we remain cautious about the next couple of quarters. Switching over to our oil and steel aerials business, the team has been doing a stellar job growing our share in Europe, and revenue rose 32% year over year. 2021 will most likely be a record revenue for this business. We are very excited about our new track-mounted, self-propelled aerial work platform. Oil & Steel has been a leader in this business for years, and we have designed a new range of 55 to 68-foot platforms from the ground up. While having just launched these products at a recent trade show in Italy, we have already seen orders come in and recently launched them at a tree care show in the U.S. We see demand from our aerials continue to be strong in the utility, construction, rental, and infrastructure projects, mainly in Europe, but expanding into North America as we develop dedicated distribution. Turning to our VALA zero-emission electric cranes, revenue rose more than 70% versus Q3 2020, and backlog is also growing. There's an excellent demand for electric cranes, and our team has done a great job in launching new products to meet customer demand in this space. Our biggest challenge continues to be our supply chain, and although we will more than double this business in 2021 versus 2020, we have more work to do in margin improvement and integrating the operations within our other European businesses to leverage resources and improve supply chain inefficiencies. Let me now turn it over to Joe to discuss our financial performance. Joe?
spk00: Thanks, Steve. Good afternoon, everyone, and thank you for joining the call today. Please turn to slide five in the presentation. This reflects certain trends in our financial performance for the quarter in previous four quarters. As Steve mentioned, revenue for the quarter was $50.9 million, an increase of $14.4 million, or nearly 40%, compared to $36.5 million for the prior year. The improvement was driven mainly by higher sales of straight mass cranes in our Manatex business, knuckle cranes in our PM business, and aerial platforms in our oil and steel business. Gross profit was 8.0 million, or 1.4 million higher than the prior year period, driven by the increased revenue. The gross margin percentage was 15.8% of sales for the quarter, down from 18.3% for the prior year, driven mainly by increased material costs and steel surcharges, as well as product mix. As can be seen from the chart on gross margin, our margin declined from Q2 2021 to Q3, driven mainly by the increased material costs, as well as an impact from product mix. Adjusted EBITDA was $1.6 million, or 3.1% of sales for the quarter. This is up from adjusted EBITDA of $1 million, or 2.6% of sales for the prior year. The increase was driven by higher sales of straight mass cranes in our Manatex business, knuckle boom cranes in our PM business and aerial platforms in our oil and steel business. The adjusted EBITDA percentage is higher than the prior year, but below our target due to the increased costs and product mix that I mentioned earlier. Our backlog was $113.6 million as of September 30th, which is a five-year high and represents a 67% increase compared to the year end. This reflects higher orders in the straight mass crane, knuckle crane, and aerial platform businesses. Straight mass crane backlog has increased 71% since year end. Knuckle crane backlog has more than doubled since the beginning of the year. And our backlog for aerial work platforms is up 33% from the year end. Our book to bill ratio was 1.05 to 1 for the quarter. and is 1.29 to one for the year, which is a significant improvement over the book to bill ratio of 0.88 to one in the comparable 2020 period. Now please turn to slide six for additional financial results for the quarter. Operating expenses were 8.2 million for the quarter, which is in line with our expectations, and up 0.9 million from the prior year, mainly due to higher professional fees, advertising costs, and sales commissions. Operating expenses as a percentage of sales declined significantly to 16.1% in Q3 compared with 19.9% in the prior year, as we were able to leverage our existing expense base supporting the increased revenue for the quarter. We will continue to take actions to maintain prudent expense control and strive to lower SG&A as a percentage of sales in our operating model. Net loss for the quarter was $1.1 million, and is $300,000 favorable to the prior year. Adjusted net loss of $200,000 for the third quarter is an $800,000 improvement over the prior year. Please turn to slide seven. Our net debt was $26.5 million at quarter end, representing a $3.4 million improvement from the start of the year, but it's a $1.1 million increase versus the second quarter. This increase was driven by higher draws on our working capital facility to support increased inventory purchases to meet our backlog. Our leverage ratio remains less than three times trailing EBITDA as of September 30. At September 30, the company had available liquidity of approximately $33 million, consisting of $17.5 million of cash, $10.6 million of availability on the U.S. revolver, and $5 million in working capital facility. The team is confident that the company will have the necessary liquidity through cash and other credit lines open to meet our obligations that are scheduled over the coming 12 months. We remain in compliance with all debt covenants. With that, I will now turn the call back to Steve Philippoff.
spk01: Thanks, Joe. Please turn to slide eight. I want to take a moment to summarize where things stand before we begin Q&A. The business continues to be in good shape, underscored by a record backlog of $113.6 million. We have excellent visibility into expected robust demand over the coming quarters. The pandemic was a bit of a factor in reducing Q3 activity due to new Delta variant restrictions, but the larger issue, as discussed, involves current supply chain constraints hampering logistics and shipping worldwide. We continue to aggressively work through this on both sides of the coin, managing costs on one hand while, when appropriate, raising prices on the other. We believe our approach and further steps to tighten expense controls and pursue new suppliers is allowing us to ship product as quickly as possible while mitigating margin compression. But more work needs to be done as this issue is not over. We have an active pipeline of solid opportunities ahead of us, and I personally feel we're poised for further growth heading into 2022. Our balance sheet is strong, and our team is working seamlessly to grow the top line, reduce working capital, and enhance returns for our shareholders. With that, operator, could you please open the lines for the Q&A session?
spk02: We will now begin the question and answer session. To join the question and you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then 2. We will pause for a moment as callers join the queue.
spk03: Once again, if you have a question, please press star, then 1. There are no callers currently in the queue.
spk02: I would like to turn the conference back over to Mr. Steve Phillips on closing remarks.
spk01: Thank you, operator. Well, I think the quarter was fairly straightforward. And let me summarize again for everyone on the call. I think the team feels positive about our business. Orders are robust and continue to be robust as we sit here halfway through the fourth quarter. Obviously, the announcement of an infrastructure bill puts winds in our sail, and we feel very good about the opportunity to participate later in 2022 and beyond with an infrastructure bill. And then obviously, as we mentioned, we're working all of our internal costs to make sure that we can neutralize, obviously, the input costs from our suppliers. And we feel pretty good about the next couple of quarters. With that, I'll turn it back to the operator to please close the call.
spk02: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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