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spk00: Greetings. Welcome to Manatex International Incorporated fourth quarter and full year 2022 results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Paul Bartolet, Managing Director with Valium Advisors. Thank you. You may begin.
spk01: Thank you. Welcome to Manatex International's fourth quarter and full year 2022 results conference call. Leaving the call today are CEO Michael Coffey and Chief Financial Officer Joseph Doolin. We issued a press release earlier today detailing our fourth quarter and full year operational and financial results. This release, together with the accompanying presentation materials, are publicly available in the investor relations section of our corporate website at www.manatexinternational.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 actual results to differ, please refer to the risk factor 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 introduction of our new Elevating Excellence Initiative followed by a financial update and outlook from our CFO, Joseph Dooling. At the conclusion of these prepared remarks, we will open the line for questions. With that, I'll turn the call over to Mike.
spk06: Thank you, Paul, and good morning to everyone joining us in the call today. Our team delivered strong fourth quarter results, highlighted by significant organic revenue growth across our lifting equipment and rental segments. sustained margin expansion, and our fourth consecutive quarter of improved profitability. Fourth quarter revenue increased 48% on a year-over-year basis. Excluding the revenue contribution from Rayburn Rentals, the acquisition we completed in April of 2022, we generated organic revenue growth of 34% in the fourth quarter. driven by the strength of our core lifting segment. We continue to see strong demand in our lifting equipment in both North America and Europe, driven by elevated activity levels across key end markets, such as transportation and infrastructure, upstream energy and electrical distribution, as well as general construction. Our rental segment, which is represented by Rayburn performed ahead of expectations during the fourth quarter, supported by robust rental revenue within the Texas market. Northern Texas has a strong backlog of infrastructure, commercial, and industrial projects, which are bolstering demand for Rain Bird Rentals. As previously disclosed, we are expanding into Lubbock, Texas. Last summer, we opened a temporary location while our new facilities were constructed. The new branch is now complete and we will be open in March. During the fourth quarter, we continue to drive productivity and efficiency improvements across the organization, consistent with the plans shared with you last quarter. These actions include a focus on asset optimization, improvements to our procurement and supply chain management, and increased fixed cost absorption. Last quarter, I reported that we are getting close to achieving our long-term objectives of 10% adjusted EBITDA margins. And I'm proud to share with you, we achieved this in the fourth quarter on strong sales momentum and early success in our operating efficiency initiatives. While quarterly results may vary as we continue to transform Manitest, we are very excited by the progress made related to our operational improvement initiatives and believe that we are well on track to achieve our longer-term margin goals, which I will discuss with you shortly. Last quarter, we reported improvements to our gross margins resulting from improved pricing and efforts to streamline our costs. This momentum carried into the fourth quarter with gross margin increasing 450 basis points versus the prior year, to 19.3%. This excludes one-time adjustments last year related to the disposition of Badger. The group reported adjusted EBITDA margin of 10.3% in the fourth quarter, a significant improvement versus both the third quarter of 2022 and prior year period, and our first double-digit EBITDA margin quarter in over five years. Exiting the fourth quarter, Customer demand remains strong, as evidenced by the 22% year-over-year growth in our total backlog. We are seeing continued favorable demand and growth into the early months of 2023. There is a strong emphasis on heavier cranes used in the energy sector, and we are very pleased with the exceptional demand for articulated cranes in both Europe and South America. The composition of our backlog by geography is 49% North America, 51% international. Since joining Manatex nearly one year ago, I've had the opportunity to visit our sites, meet with our team members, customers, and suppliers. An immersive process designed to provide our entire leadership team with a baseline assessment of where our business is outperforming and where there are opportunities for corrective action and continuous improvement. In a release issued earlier today, we introduced our Elevating Excellence Initiative, a multi-year business transformation strategy designed to drive targeted commercial expansion and sustained productivity improvements across our organization. In application, Elevating Excellence will refine our go-to-market strategy further optimize our resource base, enhance our sourcing and procurement, and ensure a disciplined approach to capital allocation. At a strategic level, Elevating Excellence builds upon the core values and accelerates the management actions we first introduced in mid-2022. At a tactical level, this initiative focuses on several key areas including a purpose-driven operating structure, a focus on process efficiency and operational excellence, new product innovations, organic market share expansion, sales mix optimization, disciplined capital allocation, and a refreshed brand identity reflective of our teamed approach. First, let's begin with our rebranding action. The leadership team and I used the rebranding to symbolize our new team structure and new levels of collaboration among the group. As previously announced, Manatex has consolidated and refreshed its branding across its global product lines into five categories. Manufactured lifting solutions under the Manatex and PM brands. Aerial work platforms under our oil and steel brand. industrial electric cranes under the Vela brand, and rental solutions under the Rayburn Rentals brand. Our rebranding will play a critical role in simplifying our go-to-market value proposition, ensuring that our customers understand the unique capabilities and end-market application of our product portfolio. As part of the process, we have discontinued the Mack product brand and are selling our articulated truck lines under the global PM brand going forward. Importantly, these actions will also be critical in supporting our more than 230 dealers in driving product distribution. We are fortunate to have a strong dealer network, a network we remain committed to as part of our growth and success. Next is our focus on organizational structure. Manatex is building a high-performance culture focused on driving profitable above-market growth. In practice, we are streamlining reporting structures, reducing redundancies, and implementing a data-centric culture that seeks to ensure accountability at every level of the organization. Last year, we made several key personnel changes. consolidating our operating structure to include dedicated business unit leaders across our North American and Italian manufacturing operations. We also improved our operating structure at Rayburn Rentals, preparing for future growth. These actions will allow for economies of scale and process efficiencies across the organization. We are now better aligned with a collective approach toward customer service, inventory management, manufacturing best practices, and improve supply chain management. In combination, these actions are intended to drive sustainable operating efficiencies while providing us ample capacity to support incremental commercial growth. Next is new product innovations. Manatex has a long history of innovation within our industry. We remain committed to bringing new, more efficient, and technologically advanced products to the global market in an effort to maintain and grow our market share. Our new product initiative is focused on core lifting equipment product categories that the company can market in both North America and Europe. we will be showcasing some of these new products along with a broad array of market-leading products at ConExpo 2023 in Las Vegas from March the 14th to the 18th. In particular, we are introducing ESSI, an electric crane system designed to decrease emissions and operating costs. We would encourage any of the analysts or investors attending the show to stop by and take a tour of our display. At a commercial level, organic market share expansion is a top priority for us. Manatex currently holds a leading share for straight mast cranes under its Manatex brand in North America. We believe there is a significant opportunity to leverage this position and expand our share in high-growth articulated crane, industrial lifting equipment, and aerial work platform markets in North America. The company has implemented an enhanced distribution model using North American resources to sell and support products traditionally supported from Europe. This new operating structure enables improved sales, support, and upfitting of our PM-branded truck cranes in North America. We will support current and new dealers with upfitting capabilities to further expand the PM truck grain product offering in North America. Management is working toward common goals to meaningfully increase share, especially in North America. Along with organic growth, we also remain focused on product mix optimization. Over time, Manatex has developed a broad global portfolio of lifting equipment and solutions. As we introduce new, innovative, and more efficient product lines, we plan to optimize our portfolio to focus on the highest growth and most profitable areas of our business. Additionally, we will continue to focus on driving high value aftermarket parts and services, which currently represents about 14% of our total lifting equipment business. We have an aim to increase our aftermarket support business by 10% over the next three years. Our growth will be positively impacted by our ability to increase levels of product support and maintenance solutions for our dealers. Our final area of focus involves continued disciplined capital allocation. In 2023, our capital allocation priorities will include debt reduction, select investments, in organic growth and maintenance capital to support our existing operations. We intend to reduce our net leverage ratio closer to our long-standing target at or below three times, driven by a combination of improved operating cash flow and planned decline in maintenance capital expenditures. In summary, we are building a strong platform for sustained profitable growth positioning Manatex to expand its leadership within the global lifting solutions and domestic equipment rental markets, consistent with our long-term focus on shareholder value creation. Today, we are introducing three-year financial targets that reflect our confidence in the underlying strength of our end markets, coupled with the commercial and operational benefits we expect to generate through elevating excellence Between year-end 2023 and 2025, we expect to deliver revenue between $325 million and $360 million, or 25% growth at the midpoint range, and total EBITDA between $35 million and $45 million, or a growth of 65% to 110% between 300 to 500 basis points of adjusted EBITDA margins. In February, we began to roll out Elevating Excellence across our site locations. Our entire team is energized by the initiative, and I am encouraged by the evident progress we've already made. Even so, we remain in the early innings of a multi-year business transformation. Our work together is just beginning. Before I turn the call over to Joe, allow me to provide a few concluding remarks around our outlook for 2023. Customer demand remains strong into the first quarter. Infrastructure spending in the U.S. remains well above pre-pandemic levels, and the federal stimulus is beginning to flow. We expect the infrastructure to be strong in the market for the U.S. Utility spending is also expected to remain favorable, with utility capex expected to grow, driven by a need to replace aging infrastructure. New renewable projects as well are benefiting from this federal spending and the associated programs. Construction demand is also strong in Europe, and our European businesses are directly supporting operations in South America, where demand is robust, fueled by global demand for raw materials, namely copper. This year, we will seek to grow market share in key product areas in North America. We will further establish our rental footprint optimize our manufacturing operations, and reduce net leverage. With 22% year-over-year backlog growth, solid end-market fundamentals, and improvements to our manufacturing throughput, we believe we are on track for low double-digit adjusted EBITDA percentage growth in 2023. And now I'd like to turn it over to Joe for a detailed review of our results.
spk03: 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. Net revenue for the fourth quarter of 22 was $78.8 million, up 47.6% compared to $53.4 million for the fourth quarter of 21, driven by organic growth in lifting equipment, and contributions from the Rayburn Rentals acquisition, which we closed in April of 22. Lifting equipment revenue was $71.5 million, up 33.8% compared to $53.4 million in the fourth quarter of 21. The revenue growth was driven by both strong demand in domestic and international markets, as well as better throughput in manufacturing facilities owing to improved labor efficiency better coordination with suppliers, and benefits from other recently implemented operating efficiency measures. Rental equipment revenue was $7.3 million during the fourth quarter of 22, as Rayburn has continued to generate solid results since the acquisition, driven by strong end market demand in key northern Texas markets and additional support from Manatex. Northern Texas has a strong backlog of infrastructure, commercial and industrial projects, which are bolstering demand for Rayburn rentals. We invested in additional rental fleet and expanded into the Lubbock market in the summer, serving customers from a temporary location. A new permanent branch is complete and we are excited to open our new Lubbock facility this month. As of December 31st, 2022, total backlog was 230.2 million. up 22% from the end of 21, and up 11% from the end of the third quarter of 22, driven by continued favorable trends in key markets in both North America and international regions. Backlog in our U.S. straight mass crane business is up 38% from the prior year, while demand for articulated cranes has increased 21%. In addition, the company continued to gain share with key North American dealers, and added an important new dealer in the Midwest. Gross profit was $15.2 million during the fourth quarter of 22, up from $4.7 million during the prior year period. Excluding one-time adjustments during the fourth quarter of 21 related to the disposition of the Badger business, gross profit during the fourth quarter of 22 increased 93% over the prior year period, owing to the strong revenue growth benefits from the company's operational improvement initiatives, and improved mix due to the contributions from Rayburn Rentals. As a result of these factors, gross profit margin increased 450 basis points to 19.3% during the fourth quarter of 22 after adjusting for one-time items during the fourth quarter. Operating income was $4.2 million for the fourth quarter of 22 compared to an operating loss of $7.1 million for the same period last year. Operating margin in the fourth quarter of 22 was 5.3%. The year-over-year improvement in operating income was driven by strong revenue growth, contribution from Rayburn, and our improved gross margins performance. Adjusted EBITDA was $8.1 million for the fourth quarter of 22, or 10.3% of sales compared to 0.3 million or 0.6% of sales for the same period last year. Net income was 0.7 million or 4 cents per diluted share for the fourth quarter of 22 compared to a net loss of 8.1 million or 40 cents per diluted share for the same period last year. Adjusted net income was 2 million or 10 cents per diluted share in the fourth quarter of 22 a significant increase compared to a net loss of $1.7 million, or $0.08 per diluted share, for the same period last year. Adjusted net income for the fourth quarter of 2022 excludes $0.6 million of stock compensation expense and approximately $0.8 million of other non-recurring expenses. Now turning to our balance sheet. As of December 31, 2022, total debt was $90.3 million, compared to 97.5 million at the end of the third quarter of 22. Cash and cash equivalents as of the end of the year were 8.2 million, resulting in net debt of 82.1 million, compared to 85.6 million at the end of the third quarter of 22, and 23.8 million at the end of the fourth quarter of 2021. Net leverage was 3.9 times at the end of the fourth quarter, compared to 6.4 times at the end of the third quarter of 22. As of December 31st, total liquidity was 36 million. As Mike detailed, during 2023, we expect to grow adjusted EBITDA in the low double-digit percent range compared to the 21.3 million in adjusted EBITDA that we reported in 22. Our target is supported by our strong backlog entering the year, continued optimism on end market trends, as well as expected margin improvements resulting from our elevating excellence initiatives. That completes our prepared remarks. Operator, we are now ready for the question and answer portion of our call.
spk00: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Matt Caranda with Ross MKM. Please proceed.
spk05: Hey, guys. Good morning. Just wanted to start out with backlog. You mentioned bookings were sustainably strong year to date. And I think you said, Mike, that there were some larger cranes in the mix. So just wanted to see if you could provide any further color just on what you're seeing on the bookings front, either based on end market, regions, products, however you kind of want to break it down.
spk06: Yeah, thanks, Matt. Good morning to you and appreciate the question. So a couple of themes. One is we've been increasing our productivity pace and the velocity of production throughout the last year. Backlog is keeping and outpacing that, which we're really grateful for that. So we've got a lot of positive sentiment from our customers. The ratio is almost 50-50 between European articulated products and North American products. And the general trend is favoring larger capacity cranes, and that's consistent with both the straight boom and the muckle boom segments. Um, we don't have, um, we don't have any themes with industry, but, uh, some, some growing, um, orders have come through the energy market and that's both electric, uh, transmission, uh, primarily in, uh, Europe and then, uh, upstream markets. And these are primarily cranes that are being delivered to distributors that cater to, uh, oil and gas. for example, in the upstream market segments. And so they're looking to expand their fleets to cater to those segments. But again, we're highly aligned with our dealer network. So unfortunately, we're a little bit insulated initially on where they're going, but that's what we're hearing from our dealers. And that's consistent with what we're reading in the markets.
spk05: Okay, helpful. And then also, I think in the release, you guys had talked about pretty favorable pricing to sort of cost and supply chain headwinds that you'd faced that used to be embedded in backlog, but looks like maybe no longer is. So just curious about the implications for gross margins, especially as we think about the lifting segment heading into 23 and how we should be thinking about margin improvement there.
spk06: Yeah, well, that's consistent with what we're experiencing now, and we're seeing obviously there's a long order trend, and that's consistent with manufacturers in our space, and our customers have been very patient as we've received the orders and then put them into queue, but generally it's a 9- to 12-month cycle to get an order completion. Thankfully, the pricing is now being reflected in the work that we're performing, so we've you know, increased pricing over the last year and a half, and the current work that we're doing is at higher pricing, we're also finding ways to either stabilize and or decrease material costs. And that will be a long process. It always is. But we're looking very favorable toward 2023 at a better cost structure, higher volumes, and obviously better pricing.
spk05: Okay, and then any further contemplation of price? Just curious how you're thinking about sort of the appetite of your dealers and the end markets for additional price increases in this environment. It seems like you've taken a fair bit of price so far that's embedded in the backlog now. Are there additional opportunities for price? How are you thinking about that?
spk06: Well, we want to stay as economically focused as possible. I mean, our costs have gone up. well over 25% over the last two years. That's consistent with what's happening. Our customers have been fantastic. They understand the situation. They're seeing it with Class 8 trucks. We're seeing it with pretty much everything we're having to buy right now. We want to stay as economical as possible while delivering the correct margins. We think we can do both. So we're monitoring the indices very closely and have prepared our customers that if, for example, steel indices go up, then we'll have to address that with a surcharge basis. But at this stage, we feel like we're pretty well positioned, and we're just looking at how the market performs and what the cost structure is.
spk05: Okay. And then I just want to ask a couple on the outlook, and then I'll jump back in queue here. But on the low double-digit EBITDA growth front, I think was what you said for 2023, I guess just how should we be thinking about the framework for revenue growth in that context? And then just maybe a little bit more on the composition of Rayburn and the rental contribution to EBITDA this year versus the lifting side.
spk06: Yeah, let me take a stab at that and I'm going to ask Joe to also add some color in that as well. So the revenue growth for the next three years will be much heavier in 24 and 25. However, the content of our revenue in 2023 will be more purely defined by internal manufacturing product. So every year we always have a component of Class 8 trucks that we attach our cranes to. And this year, more of our backlog is aligned with customer-supplied Class 8 trucks, meaning that we're going to have more of our internally produced product revenue this year than last year. So we're looking at a top-line growth. It's a little bit difficult with currency and FX changes. to predict exactly where we're going. But we're going to look at some pretty good growth in 2023. But what's fantastic about it is we'll be selling less low-margin chassis and more Manatex manufactured product. Rayburn is also looking at some good growth entering Lubbock. Joe had mentioned and I had mentioned that we're actually opening the new branch in March this month. The soft opening, the grand opening will happen in the summer. But this year is more of a year of process and getting the systems in place. And we'll make another infusion of rental asset investments in 24 and 25 to accelerate that growth. You have any clarifications that you'd like to offer, Jeff, Joe?
spk03: Yeah, I was going to say there's not a whole lot I could expand on that. I think you're right. A big driver of it is going to be that we're going to see less chassis sales in 23 than we did in 22.
spk02: So the revenue growth itself will be impacted by that, but the margins will benefit by not having as much of our revenue coming from the chassis sales.
spk05: Yeah, that's great. Any way to frame up how much kind of revenue in 22 was kind of that pass-through scenario? chassis sale, just so we have a baseline to think about as we head into 23?
spk03: Yeah, Matt, I've got it. The chassis sales in 22 were, you know, about somewhere between 25 to 30 million. It was probably closer to about 27 million in chassis sales for the year.
spk04: Okay. All right.
spk02: That's really on the oil and steel lines.
spk05: Yeah. Okay. Makes sense. And then just Last one for me, and then I'll jump back in queue. The EBITDA margin improvement that's embedded in the 2025 outlook looks like just under 400 basis points relative to where you were in 22. It seems to me that just a basic contribution from the rental side of things gets you a good amount of the way there in terms of improvement. Maybe is there any way to bucket out the improvement that you're kind of expecting between mix versus just the core lifting, even a margin improvement that you expect to contribute to that?
spk06: Yeah, actually, Matt, most of that improvement we're expecting through the manufacturing, which is the core business. You know, what we saw, so one way to look at this historically is pre-pandemic level, we had gross margins of about 19%, and the manufacturing business dipped significantly with, you know, cost structure and COVID supply chain delays, etc., When we acquired Rayburn, we had a really nice bump in gross margins and we've enjoyed that and that will continue. What's happened through the last three quarters is we've been fundamentally improving the operational performance of our manufacturing business. We've returned the business to 19 and most of those margin improvements are going to come through manufacturing process efficiency, blocking and tackling the operations of the way our manufacturing business performs. And those are organic improvements that we've been studying over the last six to nine months, and then we've implemented a strategy to execute on that.
spk04: Okay. I appreciate that clarification. Thanks, guys.
spk00: We have reached the end of our question and answer session. I would like to turn the conference back over to Mike Coffey for closing comments.
spk06: Okay, thank you very much, Operator, and thanks, everyone, for joining the call today. We really appreciate your attention and interest in Manatex. In addition to our participation next week at ComExpo, we'll also be attending the 35th Annual Roth Conference in Dana Point, March the 13th. We're hoping to connect with many of our investors and analysts there, and if we miss you, at either the Roth call or at ConExpo. We'll look forward to speaking to you next quarter.
spk04: That will conclude our call. And again, we'd like to thank everyone for joining.
spk00: Thank you. You may disconnect your lines at this time.
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