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spk00: Ladies and gentlemen, and welcome to the Manatex International Inc. second quarter 2022 results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone keypad. If at any time during the conference you need to reach an operator, please press star 0. 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.
spk07: Thank you, operator. Good afternoon, ladies and gentlemen, and thank you for your interest in Manatex International. We appreciate you taking time to join our call. My name is Mike Coffey, and with me today is Joe Doolin, 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 seven days, and the slides we cover will also be available for the next 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 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 Rayburn Rentals financial results. You may be aware that we acquired 70% of Rayburn Rentals on the 11th of April, 2022. Rayburn 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 four 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 improvement, and collaboration between the Manatex 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 four 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. Manatex 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 has 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 Rayburn Rental's financial contribution since April 11. We look forward to the positive impacts of Rayburn'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 Manatech's capacity to increase throughput at all sites. This includes the already announced organic expansion of Rayburn 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, load deliveries, and forced the company to increase its working capital in response. For example, during the first six months of 2022, international shipping costs were three and a half to four times 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 variants, or changes in our customers' outlook. To the contrary, recent meetings with four large customers indicated 2023 order forecasts 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.
spk04: Joe?
spk02: Thanks, Mike. Good afternoon, everyone, and thank you for joining the call today. Please turn to slide six in the presentation. As Mike noted, this is our first financial report in which we were reporting consolidated results that include Rayburn Rental's 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. The improvement, which was also up sequentially from $60.4 million in the first quarter, was driven mainly by revenue from Rayburn Rentals and an increase in sales of our straight mass 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 30th, 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 mass crane, articulated cranes and aerial platforms businesses. Our straight mass 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 to 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 change 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 2022, 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 Rayburn Rental's contribution to the results and higher profitability at Manatex Cranes and oil and steel aerial work platforms. We anticipate improved margins for manufacturing, as well as the positive contributions of Rayburn Rental. Improvements to manufacturing margins could be offset by unforeseen inflationary impacts, and therefore may be slower, but will be steady. Please turn to slide seven 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 non-recurring acquisition and severance costs. Adjusting for these and other one-time items are non-GAAP or adjusted operating expenses worth 10 million or 14.3% of sales, a level that is in line with historical operating expenses. The acquisition of Rayburn 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 Rayburn Rentals business and higher sales of straight mass cranes from the Manatex business. Our profitability was impacted by material cost increases which continued to rise and put pressure on operating margins despite price increases that we were able to implement. Now moving to slide eight. Net debt at the end of the quarter was $78.7 million, up from prior periods due to the Rayburn acquisition. The increase in debt was due to the use of $41 million in debt financing to acquire Rayburn and assume their debt obligations. In addition, we have funded equipment purchases to expand the Rayburn business operations. Our leverage ratio is approximately four times trailing 12 months adjusted pro forma EBITDA, and the company has available liquidity of approximately $42 million, consisting of cash and availability on the US and PM working capital facilities. 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?
spk04: Thanks, Joe.
spk07: Please turn to slide nine. 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 attaining 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 Rayburn continue to improve, with revenue growth of 13% and a quarter on a performer basis. Rayburn'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 Rayburn 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 US and in Canada. Access to Rayburn's team and their product feedback is proving valuable in helping us attain this goal. Manatex remains committed to improving our overall financial performance. The Rayburn acquisition directly reflects this commitment, and this quarter's results post-acquisition are fulfilling this commitment. Our focus on improved margins extends beyond our interest 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 Rayburn, 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.
spk04: With that, operator, could you please open up the lines for questions and answers?
spk01: Thank you. If you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. And our first question is from the line of Karanda with Ross Capital. Please go ahead.
spk03: Hey, guys. It's Mike Zabrin on for Matt. So backlog and implied bookings for the quarter look really strong. Maybe just speak to booking seasonality in the back half of the year and provide some color on where bookings stand quarter to date for Q3.
spk07: Well, thanks very much for the 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 of the backlog.
spk04: Got it. Very helpful.
spk03: And then on Rayburn, last quarter we kind of highlighted that rental equipment is reserved almost immediately as it's available. Any change there, or are we still struggling to keep up with demand on the rental front?
spk07: Yeah, I'm actually calling you from Amarillo right now, where Rayburn 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 is we will temporarily re-rent fleet from other customers. And at this stage, we have record levels of re-rental 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.
spk04: Got it. Makes sense.
spk03: And apologies if I missed this earlier, but did you guys provide anything on Rayburn revenue contribution for the quarter?
spk07: I don't think it's formally outlined. Joe, can you respond to that or?
spk02: Yeah, I was going to say, 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 Rayburn. But Rayburn's revenue was just over $6 million for the quarter, and that's our portion since the date of acquisition.
spk07: Another way to look at it is manufacturing quarter over quarter grew about 6%, so most of the growth in the quarter was from Rayburn, which is understandable. but manufacturing grew about 6% quarter over quarter.
spk03: Got it. That's helpful. Thanks, guys. So still on Rayburn, 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 Rayburn.
spk07: Well, we really don't see any changes. I mean, we're seeing rental growth month after month over the last four 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 and as the year progresses.
spk04: Okay, I got it.
spk03: Appreciate the clarification there. And the last one for me, in terms of chassis availability, I think this, 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.
spk07: It's definitely improved. The chassis availability has improved. We're seeing that with both our customers and the chassis. We had an order for our book of orders. There's 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 and late deliveries. But it has improved, and we're anticipating that it will continue to improve through the remainder of the year.
spk04: Got it. Very helpful. That's all from me, guys. I'll hop back in the queue. Thank you. All right. Thank you very much.
spk01: And as a reminder, if anyone has any questions, you can press the 1 followed by the 4 on your telephone keypad. And we do. Do you have a question from the line of Rainer with Adirondack Funds? Please go ahead.
spk05: Hey, guys. Can you just lay out a little bit of your goals for, you know, handling debt reduction and whatnot, like where you start seeing the business generating more cash flow and where do you, you know, what you're, I guess, goals for leverage, you know, I think we're at now, you said four times, like what's your ultimate goal and when do you think it can get there?
spk07: Yeah, 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 three to four months of working capital in the category, we've had to add one or two 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 Rayburn. We see that as a positive, and we see that as something that will occur through the next 12 months. As far as... a 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?
spk02: No. The only thing that I would stress is we don't have a significant requirement for debt paydowns during the year. We have term debt in Italy, that requires a 2 million euro pay down 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.
spk04: Okay. All right, thanks.
spk01: And our next question is from the line of Almy from Wedbush Securities. Please go ahead.
spk06: Afternoon, 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 Rayburn about possibilities for electric articulated cranes in North America. And I would And I took that to mean you were looking at rental possibilities, and I wanted to know specifically if that was beyond Rayburn.
spk07: Yeah. Well, it is both beyond Rayburn. And the reference there is actually to the products that are manufactured by Oil & Steel and Vala, which are both electric and diesel-electric hybrid drive systems. And they're absolutely perfect for the North American rental market. Now, Rayburn has... some of this equipment in their fleet, and Rayburn will buy some of this 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 Americans. So let me give you one such example. 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 Rayburn's fleet and really not become a big part of the North American construction rental fleet. It's a different class.
spk06: So there's no new as yet unidentified untapped market for the PM Group's products here in North America?
spk07: 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. Okay. Yeah, no, 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 the three 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. Perfect. That's where I was going.
spk06: Thank you very much.
spk07: No, pleasure. Thank you.
spk01: And we currently have no further questions on the phone line at this time. I will now turn the call back to Mr. Kofi for closing comments.
spk07: Well, we'd just like to thank everyone for your interest in Manatex 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 costs 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.
spk01: 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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