This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk04: 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. Joe will take you through the financial details of our third quarter, which we announced earlier today. Following our prepared remarks, as is our custom, we'll 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. On today's call, we will focus on our third quarter 2022 results, covering financial highlights, our business performance, margin trends, and key drivers being leveraged for stakeholders. I'm going to provide some opening remarks in tandem with a deck of slides we've provided, and then I'll turn the call over to Joe Doolin, our CFO, and then we'll have a Q&A session. This marks my third quarterly call as CEO, and I'd like to take a moment to express my appreciation to the board and to our shareholders for the faith placed in me. I'm excited to report the positive results and progress being made during the past three quarters. Your management team is delivering on improved margins, and we are optimistic about our short and midterm outlook. Together with our dealers and customers, we are positioning ourselves for growth and efficiency improvements. This quarter, we've moved closer to our stated goal to perform above 10% adjusted EBITDA, The team is working hard to attain this goal, which is now within sight. On 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 further details on the many risks associated with our company. Now let's move straight to slide three. Third quarter revenues, despite being a historically slow quarter due to two weeks of summer downtime at our European operations, was 65 million, just slightly below Q2 sales, and representing a 27% year-over-year increase. We had a 320 basis point increase to gross margin at 19%, and we elevated our adjusted EBITDA significantly as compared to historical averages. Our backlog kept pace with sales growth and stood at $207 million at quarter end. During our first quarterly call, we highlighted the newest addition to the Manatex team, Rayburn Rentals. Rayburn continues to perform above expectations with robust sales and EBITDA contributions. Our planned Lubbock expansion is on track, and I am pleased to report new customer sales are occurring with a Lubbock-based customer base. This is happening in advance of our scheduled opening, early 2023. We achieved third quarter adjusted EBITDA of 5.2 million, or 8% of sales. Our annualized adjusted EBITDA for the past two quarters now exceeds $20 million, and as compared to full year results in 2021, $8 million in adjusted EBITDA. Our balance sheet grew in the quarter, increasing our total net debt. During third quarter, we completed a long-term growth in manufacturing-based inventories. This growth is directly associated with a tripling in our historic backlog. We also completed the acquisition of expansion rental fleet, which will be used for our Lubbock expansion as well as our Amarillo rental businesses. With these investments, we are now well situated to meet our short-term growth objectives and anticipate a reduction in debt during the fourth quarter moving forward. We remain well positioned with 32 million in total cash and credit availability. Finishing up slide three, I want to talk about some operational highlights. Last quarter, we discussed higher international shipping costs and other supply chain inefficiencies presenting headwinds to the business. The management team is proactively addressing these challenges and we have expanded our list of qualified suppliers to consolidate global purchasing where possible. We also spoke about price increases made to recover costs during the past year. We are now seeing favorable price to cost trends as we work through backlog, which was booked at higher, more favorable pricing. During the second quarter, we announced the reorganization of our Italian operations. This was the first step to reorganizing our PM Crane, oil and steel, and volume manufacturing companies to leverage share resources and improve the velocity of our production. Earlier this month, we named Richard Mills head of our North American manufacturing companies. We also announced a new distribution channel for Avala and oil and steel product lines in North America, allowing more meaningful market penetration and higher levels of customer services. Our global manufacturing businesses are now better aligned and organized to attain improved market share, lowered costs, and increased throughput. We look forward to sharing additional plans in preparation for fiscal year 2023 that will better position the company for growth and improve profitability. Let's move to slide four. We've provided a short summary of our performance of each of the company's product groups. We already touched on the exceptional performance of a rental division. Our articulated or knuckle boom crane division closed another improved quarter increasing both sales and order backlog. Backlog increased to 51% over the prior year. Our European and US-based backlog is evenly split, and we are fortunate to have grown our straight mass product sales again in the quarter. Sales were up 38% year over year, and production is focused on larger tonnage frames. The backlog in our Manatex crane line is at about 100 million. As for area work platforms, we are ramping up production and seeing orders come in at a very healthy level, with backlog double what it was a year ago. At this point, I'd like to turn it over to Joe to discuss our financial performance for the third quarter.
spk06: Joe?
spk03: Thank you, Mike. Please turn to slide five in the presentation. You can note that this is our second financial report in which we reported consolidated results that include Rayburn Rentals' performance, the acquisition having closed in early April, as you may recall. Revenue for the third quarter was $65 million, an increase of $14.1 million, or 27.7% versus the prior year period. The improvement was driven mainly by revenue from Rayburn Rentals and an increase in sales of our straight mass cranes in the United States. Increased sales of our articulated cranes from our European operations were offset by foreign currency charges of $4.6 million. Our backlog of $207 million remains strong and represents an 82% increase from September of 2021. This reflects continued strong orders within the straight mass cranes, articulated cranes, and aerial platforms businesses. Our straight mass crane backlog has increased 130% year-over-year, Aerial work platforms have more than doubled year over year, while articulated cranes are up 44% since the prior year period. Our book-to-bill ratio was 0.9 to 1 for the quarter, indicative of continued strength in our orders. Gross profit of $12.3 million is up $4.3 million from the prior year period of $8 million. Gross margin of 19% in the third quarter represents an increase of 320 basis points over the prior year, and a sequential increase from 17.8% in Q2. The gross margin percentage is at the highest level we've had in over a year and is trending as we had anticipated. We anticipate gross margins will continue to tick higher as we look ahead. Adjusted EBITDA increased to 5.2 million or 8% of sales for the third quarter of 22 versus adjusted EBITDA of 1.6 million or 3.1% of sales in the third quarter last year. The improvement was largely due to Rayburn Rental's contribution to the results and higher profitability at Manatex Cranes. We anticipate improved margins for manufacturing as well as the positive contributions of Rayburn Rentals. Now please turn to slide six for a comparison of our operating results to the prior quarter and prior year. I've already addressed sales and gross margin, but I wanted to speak to operating expenses and other expenses. Operating expenses, as reported, were $11.1 million for the quarter, inclusive of approximately $1.3 million of stock compensation and severance costs. Adjusting for these and other one-time items, our non-GAAP adjusted operating expenses were $9.8 million, or 15.1% of sales, compared to $7.6 million, or 14.8%, in the last year's similar period. Rayburn Rentals contributed approximately $1.3 million to operating expenses for the quarter. Other expenses were $4.1 million comprised of interest expense and a legal settlement charge of $2.9 million related to the sale of a business in 2015. This charge will be paid in monthly installments over 10 quarters. Net loss for the quarter was $3.1 million, or $0.15 per share, compared with a net loss of $1.1 million, or $0.06 per share in last year's third quarter. Adjusted net income was $1 million, or $0.05 per share, compared to a loss of $219,000, or $0.01 per share last year. There were several one-time items in the results, including the legal settlement that I mentioned, which significantly impacted our earnings. Now moving to slide 7. Net debt at the end of the quarter was $85.6 million, up from the prior period due to rental fleet acquisitions related to the Rayburn expansion and funding of material orders to meet our current demand. With $32 million of credit availability, we are well positioned to meet current funding requirements. We anticipate utilizing our cash flow in the fourth quarter to begin to reduce debt, and we are striving to continue to lower our debt level throughout 2023. With that, I will now turn the call back to Mike Coffey. Mike?
spk04: Thank you, Joe. As it pertains to our financial goals, slide 8 indicates how close we are to reaching our milestones with $300 million in sales and 10% adjusted EBITDA margins. This slide outlines how our long-term debt financial goals have now become shorter term targets. And this is just a status check. But we are closing in on 300 million in sales and presently operating in an annualized adjusted EBITDA run rate of 21 million. As I've said in the past, I believe that we have the products, the brand strength, resources to sustain this momentum transforming Manatex into a much larger company. While we aren't giving guidance, we are setting our sights on much larger numbers. The short-term target to the right of the slide is now well within reach. While we are improving our short-term performance, you can expect us to work on steady, reliable, planned, and coordinated improvements to our operations. In the quarter, we returned gross margins to 19%, which was a pre-COVID normal for our manufacturing businesses. The margin improvement is reflective of gains made within our manufacturing processes, but also due to the positive influence of Rayburn Reynolds. As we continue to realize cost and margin improvement to our manufacturing businesses, we will see margins excel beyond 20% in future quarters. Please turn to slide nine. I'd like to summarize both the progress made by our management team this year and why we are optimistic about the future of Manatex International. As a company, we are fortunate to have our current dealer network. Our customers and dealers are great partners for the business. This is best reflected in our backlog, which has remained strong and kept pace with our increased sales. The Rayburn Rentals investment has proven a great success. Sales have grown to record levels, and rental sales are approximately 40% higher year over year. This will accelerate again in 2023 and 2024 as we expand operations in North Texas. Manatex is a company with great products and a very dedicated people. The story of our transformation to a high performance company is a story about operational excellence and process improvements. This is reflected in the progress made to our manufacturing operations, improvements which are now just beginning to produce results. We completed a reorganization with relative ease and our employees are motivated and engaged to making Manatex a thriving and profitable enterprise. The results can be seen in this year's improved gross margins, which are tracking to exceed 20% in the near term, and will be further bolstered by more favorable pricing reflected in our upcoming backlog. Our outlook in the fourth quarter is very positive, and we are looking forward to steady improvements for our production throughput, cost structure, and operational efficiencies. With that operator, Would you please open the lines for questions from our investors?
spk05: Thank you.
spk00: We will now be conducting a question and answer session. If you would like to ask a question, please press the star 1 on your telephone keypad. A confirmation tone will indicate your lines in the question queue. You may press star 2 if you would like to remove your questions from the queue. We ask that you please limit yourself to one question and one brief follow-up question per caller so that others will have a chance to participate. For participants using feature equipment, it may be necessary to pick up your handset before pressing this hard key.
spk05: One moment, please, while we pull for questions. Our first question comes from Matt Coranda with Rose Capital. Please go ahead.
spk02: Hey, guys. It's Mike Zabrin. I'm from Matt. Congrats on the quarter. Maybe if we could just start with a breakdown of the revenue segment, specifically boom truck, AWP, part sales, and other equipment.
spk04: Sure. Thanks very much. Mike Coffey here. Joe, can you touch on the quarter revenue segments by product line?
spk03: Yeah, you're looking, Mike, to understand the split out of the revenue by each of the segments, or are you looking for?
spk02: Yeah, correct. Just the mix revenue contribution per segment.
spk03: Oh, okay, per segment. The majority of the revenue for the segments came from the manufacturing business. The lift business was the bulk of the revenue. I think the revenue from the rental segment was about $7.5 million. So it's $7.6 million came from Rayburn, and the rest of it, $57.7 million, came from the lifting segment.
spk04: Okay. Third quarter, I was just looking at third quarter results.
spk03: Is that what you were looking for, Mike? Are you trying to understand boom trucks, platforms, parking lots, that kind of thing?
spk01: Oh, okay.
spk03: So in terms of the segments, that's where it came from was mostly lifting. The rest was rental. On the boom trucks, we had about $32 million came from the boom trucks and knuckle cranes. Aerial platforms was around $7 million. As I said, the rental was, you know, seven and a half was total rental, including merchandise sales. And then we had some other equipment was around $10 million.
spk06: Okay, got it. That's helpful. Thank you.
spk02: Okay.
spk03: We'll have a chart in the 10Q where you can see more of the details of the components of the revenue, and that should be filed a little bit later this afternoon.
spk02: Right. Okay, sounds great. I'll look out for that. So great to see the plan repurposing of the Italian business at the start of next year. I think it makes a lot of sense. Maybe just give us an update on timeline for when we can expect to see Vala products available in the U.S. and when we're expecting to see fulfilled orders.
spk04: Yeah, well, we're actually seeing those today, and we're developing plans for next year. but there'll be a heavy increase with Vala oil and steel and PM products next year in the U.S. market. The pull-through demand is good. We're actually attending two trade shows in the next few months. They are actually heavily populated. So we're looking favorably toward growth in North America from the European product segment. And the Vala product, for example, has been very, very well received. But the heavy growth over the next few years is going to come through PM and the knuckle boom cranes.
spk02: Right. That makes sense. And some of that growth from Vala, would we expect to see that in Q1 kind of in unison with the rollout? Or is that going to take a quarter, maybe two quarters?
spk04: No, they've got – I don't have the backlog specific for VALA, but we've been selling that product line all year in the U.S. and appointing new dealers, and it's been well-received. So generally Q2 and Q3 are bigger delivery months, but there will be sales in every quarter.
spk06: Okay. Got it.
spk02: Mike, maybe just, um, if you could speak a little bit further to kind of the state of backlog right now and specifically, have we seen any order cancellations?
spk04: I appreciate that. That's, that's a question that we're asking ourselves all the time. Uh, great, great news to report. Actually, the backlog is held up with our increased sales. And so we've had, um, almost four quarters of robust order increases, and then we're increasing our production rate as quickly as we can to meet those demands. But the backlog is holding firm. We closed at 207 million, and actually, as the fourth quarter started, took another wave of orders in. So a backlog is holding steady. We're not seeing any cancellations. whatsoever, and we've got a great customer base.
spk02: Okay, that's great. Okay, last one from you guys, if I can. In terms of the margin improvement, the sequential improvement, John, can you just help us maybe parse out how much of that improvement sequentially is from the higher margin Rayburn business versus operational efficiencies that we called out versus, you know, just higher backlog filtering through. So let's get a rubber head around what is really moving that margin higher.
spk04: Yeah. So the way that here's the way to think about that. Um, so there's an elasticity with manufacturing. Um, the margin gains, uh, follow the long production cycle, which is six to nine months when things are working well, if the supply chain is slowing you down, it's a little bit longer. So I would look at the margin gains as roughly two-thirds, one-third coming from Rayburn's influence and one-third coming from manufacturing. But both are improving well and we're expecting that our manufacturing operations will excel beyond that as manufacturing is addressing backlog that is priced more favorably. And as the initiatives that we're putting in place to improve throughput and to improve margin come into their own. So manufacturing, you know, we're moving at a pretty good clip, but it's a slower process than rentals. But we're really happy to see the margins improving in both segments. And the way I'd broadly characterize it is about two-thirds of the margins are coming from Rayburn. which is an instant gain and improvement, one-third coming from manufacturing. But we're expecting manufacturing due to its size to have a larger impact as quarters progress.
spk06: Got it. Super helpful. Thanks, guys. I hope I can meet you. Okay. Thank you.
spk00: If there are no further questions at this time, this concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation and have a great day.
Disclaimer