Manitowoc Company, Inc. (The)

Good morning, everyone, and welcome to the Manitowoc Conference Call to review the company's second quarter 2021 financial performance and business update as outlined in last evening's press release. Participating on the call today are Aaron Ravenscroft, President and Chief Executive Officer, and Dave Antonek, Executive Vice President and Chief Financial Officer. Today's webcast includes a slide presentation, which can be found in the investor relations section of our website under Events and Presentations. We will reserve time for questions and answers after our prepared remarks. I would like to request that you limit your questions to one and a follow-up and return to the queue to ensure everyone has an opportunity to ask their questions. Please turn to slide two. Please note our safe harbor statement and the material provided for this call. During today's call, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 are made based on the company's current assessment of its markets and other factors that affect its businesses. However, actual results could differ materially from any implied or actual projections due to one or more of the factors, among others, described in the company's latest SEC filings. The Manitowoc company does not undertake any obligation to update or revise any forward-looking statement, whether the result of new information, future events, or other circumstances. And with that, I will now turn the call over to Aaron.

Thank you, Ion, and good morning, everyone. Please move to slide three. To begin, I would like to congratulate our team on a great second quarter. We delivered a strong financial performance in spite of several big challenges, which included supply chain disruptions, a cybersecurity incident, and the continuing impact of the COVID-19 pandemic. I am extremely proud of how the team has performed. In addition to the better than expected financial results, we announced our first acquisition in over a decade. As we pivot to a growth-oriented company, I'm excited to see how Manitowoc's culture for excellence continues to mature. As COVID restrictions in the United States and Europe eased during the quarter, I was able to visit our production facilities in Shady Grove, France, and Portugal. It was great to finally meet with our team members in person and observe all of the improvements that they've been able to accomplish over the past 18 months as our implementation of the Manitowoc way continues to accelerate. In Shady Grove, I was impressed by the dramatic operational changes in our manufactured shared services value stream. Led by Tom McMurdy, this is our in-house fabrication supplier. Typically, internal suppliers with multiple processes, such as laser cutting, vending, welding, and machining, struggle to manage our inventory levels and to meet delivery schedules. Using one-piece flow, SMED, TPM, and standard work, the team continues to drive improvements in safety, productivity, inventory turns, and on-time delivery. Five years ago, this was a struggling supplier for the Shady Grove campus. Today, they're one of our best. Moving to France, the team in Charu has implemented automated welding to fabricate pivots, which has resulted in an 85% reduction in our cycle times. They've also set the standard for how an internal warehouse should be organized for kidding, and the cleanliness of the maintenance shop rivals the kitchens of most five-star restaurants. Jean-Luc Thibodeau took over this location four years ago, and his team has led an impressive turnaround, making Chariou one of our leading lean facilities. In Moulin, France, the team is implementing a system called Easy Planning. I'm old school and love my paper, but the team is digitalizing everything on the shop floor from production planning to quality to TPM. During my visit, I pressed the quality button on an iPad in one of the cells, and the quality manager was literally standing behind me ready to help before I realized what I had done. In addition, the team is fully automating our process for cutting tubes that are used in welding up tubes. The most significant benefit of this project is the creation of complete kits to reduce material handling costs, inventory, and to save time on jib fabrication. Bertrand Deleuze, who runs the facility, has done a phenomenal job of setting the standard on how to effectively communicate the Manitowoc Way culture on a daily basis. Lastly, and most recently, I visited our facility in Baltar, Portugal, where we've invested over $5 million throughout the last few years to expand the manufacturing footprint. All of our operations in Portugal have been consolidated into Baltar. In addition, we recently transitioned the manufacturing of a few smaller tower crane models from the Moulin facility. This transition has reduced our cost, but equally important, it has created capacity in our Mulan factory to manufacture the larger top-slowing cranes that we've recently launched, like the MDT-489, 565, and 809. Through this process, the team, led by Vasco Rocha, has completely revamped Baltar's safety culture while focusing on the implementation of the Manitowoc Way. Before COVID hit, I challenged the team to create a one-piece flow assembly line for the slewing mechanism. This is the top part of a tower crane with the cab and the electronic cabinets. Through Kaizen, the team replaced overhead cranes with a trolley system. This large assembly is now pulled from one station to the next in a one-piece flow fashion, reducing cycle time by 13% and the number of operators in the cell by 20%. Overall, I was taken aback by how impressive this facility looked. A big congratulations to the team for a job well done. It's been very rewarding to see how our organization has made the most of a bad situation with the COVID lockdowns, with the acceleration of the Manitowoc Way. And frankly, the timing couldn't be better as our end markets rebound. Please move to slide four. With orders of $537 million in the second quarter, it's fair to say that the market strength that we experienced the last few quarters has continued. We saw strength in all major regions, although I remain intrigued by the dynamics of the European market. Our power crane business in the region is as strong as it's been in the last five or six years. However, the recovery of the European mobile crane market is still lagging. In Asia, we continue to see strong demand, although I must say that China has slowed during the summer months. Finally, in the Americas, the business continues to post improving results, and any infrastructure bill that the government may pass will provide good tailwinds for the coming years. We ended the first quarter with a backlog of $736 million, and we remain positive about the overall demand for cranes globally. Before handing the call over to Dave, I would like to make you aware of our latest corporate sustainability report, which is available on our investor relations homepage. Over the last year, we've made significant strides with our ESG strategy and integrating it into our operating system, the Manitowoc Way. With that, I'll pass it to Dave to provide further details on our financial results. Dave? Thanks, Aaron, and good morning, everyone. Let's move to slide five. Our second quarter orders totaled $537 million, an increase of $299 million, or 126% compared to the same period last year. On a currency-neutral basis, Q2 orders were up $278 million. Orders improved in all of our segments, driven by higher customer demand within each region, and was exacerbated by the prior year's order decline due to the significant impact from COVID. Sequentially, orders improved by $64 million due to improving market conditions in the Americas and steady markets in your app and the app. Seasonally, second quarter orders typically come in lower than the first quarter, which indicates strong momentum in all of our regions. Our June 30th backlog of $736 million increased 71% over the prior year and up 66% on a currency-neutral basis. Backlog increased across all of our segments, and over 85% is scheduled to shift within the year. Compared to year-end, backlog was up 36% and on a currency-neutral basis, up 37%. Notwithstanding the challenges in the quarter mentioned by Aaron, we achieved net sales in the second quarter of $464 million, an increase of $135 million or 41% from a year ago. The year-over-year increase resulted from a combination of entering the quarter with a higher shippable backlog, coupled with abnormally low sales in the prior year as a result of the COVID impact. Net sales were favorably impacted by 5% from changes in foreign currency exchange rates. All of our reportable segments reported increases in sales. Second quarter ES&A expenses increased by $14 million year-over-year. This amount included $4 million of costs related to the write-off of the note receivable from the 2014 divestiture of our Chinese joint venture and other acquisition-related costs. Excluding these items, the adjusted $10 million increase in ES&A expenses were primarily driven by higher short-term incentive compensation expense, coupled with unfavorable foreign currency exchange rates. Our adjusted EBITDA for the second quarter of $41 million increased $33 million year over year. Higher volumes and a favorable product mix were the main drivers of the year over year increase. In addition, we achieved a 24% flow through on our incremental sales. As a percentage of sales, adjusted EBITDA margin improved to 8.8%, an increase of 638 basis points over the prior year. This was mainly due to favorable product mix, improved manufacturing performance, and the leveraging of our fixed costs over a higher sales volume. These gains were partly offset by higher input costs, which will have a profound impact on our second half results. Second quarter depreciation of $10 million increased $1 million compared to the prior year, reflecting the higher level of capital expenditures in the second half of 2020. Our provision for income taxes in the second quarter was $4 million and was driven by income in certain non-U.S. jurisdictions. As a reminder, Manitowoc has tax valuation allowances established for certain countries, and therefore, pre-tax losses in those countries are not available to offset pre-tax income and the related tax expense in profitable jurisdictions. Our GAAP diluted earnings per share in the quarter was 50 cents. On an adjusted basis, diluted earnings per share of 60 cents improved by $1.07 from the prior year. Moving to liquidity, we generated $9 million of cash from operating activities in the quarter compared to a use of $20 million in the prior year. Capital spending in the quarter amounted to $7 million, resulting in free cash flow of $2 million. Year-to-date, we have generated $34 million of free cash flow and ended the quarter with a cash balance of $159 million, flat with our March 31 cash balance and up $30 million from year-end. Our total liquidity as of June 30th was $454 million, with no outstanding borrowings on our ABL. As we discussed during the H&E Crane business acquisition call on July 20th, our plan is to fund the acquisition with a combination of cash on hand and debt, utilizing the availability of our ABL facility. Without considering the incremental benefit of the H&E EBITDA contribution, our net leverage as of June 30th would be 2.3 times at the $130 million purchase price. Moving to slide six. We have reinstated 2021 full-year guidance. Please note that the guidance excludes any impact associated with the pending acquisition of H&E Equipment Services Crane's business and is as follows. Revenue, approximately $1.775 to $1.825 billion. Adjusted EBITDA, approximately $105 to $115 million. Depreciation, approximately $38 to $42 million. Interest expense, approximately $28 to $30 million. Income tax expense, approximately $12 to $16 million, excluding discrete items. And capital expenditures, approximately $40 million. With regard to the second half of the year, we will be further impacted by continuation of rising input costs and other inflationary pressures. We have implemented price increases, but we do not anticipate that these actions will fully offset the unprecedented levels of rising input costs for the remainder of 2021. In addition, travel is normalizing in the second half. We provided salary increases to our U.S.-based employees in May, and we continue to accelerate our investment in new product development programs. To summarize, ES&A expenses are normalizing to pre-COVID activity levels. With that, I will now turn the call back to Aaron. Thank you, Dave. Please move to slide seven. In past calls, I said 2021 would be a year of transition. This remains our short-term business case as we return to a new normal from COVID-19, work through supply chain challenges, and deal with ongoing inflationary pressure and skilled labor shortages. Nevertheless, we remain committed to our four strategic growth initiatives. Number one, grow our tower crane rental and aftermarket business in Europe. Number two, build out our China and Belt and Road tower crane business. Number three, accelerate our new product development in all terrains. And number four, expand our aftermarket activities in North America. Moving to slide eight, last month's announcement regarding the acquisition of H&E's crane business is a perfect example of how we are executing our growth strategy. Through this acquisition, we will obtain a strong service network, which has 11 branches and approximately 225 team members, including the largest group of Grove Manitowoc service technicians in the world. The acquisition provides us a platform to grow our service, parts, used sales, and of course, our new product sales through a variety of financing options, such as long-term rent-to-purchase arrangements, which are often referred to as RPOs in the crane business. An RPO is when a customer rents a crane for one to two years before purchasing the outstanding balance. This is similar to how an individual will lease a car for five years and then execute the buyout option. On our last call, a few folks had questions about Manitowoc competing with our customers as a result of its acquisition. This is absolutely not the case. Our goal is to help customers more effectively manage their fleet and assist with greater financing options to ultimately sell more machines and move more iron. While our long-term strategy is growth-focused, the management way remains the fuel for our culture. I've already talked about the significant improvements being made in our manufacturing locations. We have additionally begun to expand the use of lean techniques outside of manufacturing. During our acquisition due diligence and integration processes, we utilize a lean project management tool that we call Eight Keys. In our back office, our legal team and HR teams are using process flow diagrams to improve how we draft our annual proxy statement, and we will further utilize the Manitowoc way to optimize the administrative aspects of our tower crane assets in Europe. We have an unwavering commitment to continuous improvement. Switching gears to our short-term financial performance, I am optimistic about crane demand. That being said, supply chain disruptions and inflation will put us on our margins, particularly in the second half of the year. As a reminder, last quarter, we communicated year-over-year cost headwind of approximately $15 million in discretionary spending and $30 million for steel, logistics, and transportation, primarily impacting the second half. Commodity steel prices are now trading over $1,800 per metric ton, which is well ahead of our 10-year average of approximately $670 per metric ton. As for transportation costs, ocean and land freight continues to rise. For example, the cost to ship Ukraine from China to Russia has increased four times. These cost increases will be unavoidable in the second half of 2021. While our long-term strategy is growth-focused, the Manitowoc Way remains a fuel for our culture. Sorry about that. The team is taking significant actions to adjust pricing, which has and will serve to offset the increased input costs. However, we will experience a delay between when we fully realize these price increases versus when we experience cost increases. The crane market is active, and it's difficult to predict the extent of inflationary pressure, effectively peg pricing, and remain competitive on deals. It's a tough balancing act. As you can deduce from our earnings guidance, our normal annual adjusted EBITDA flow-through of 20% to 25% on a four-year basis is not expected to be achieved due to the dynamics we have discussed. This is my way of saying that our revenue will be stronger in the second half than we had expected, but our margins will be tighter, as Dave outlined. In closing, it's an exciting time at Manifwalk. Although we will face serious supply chain challenges in the next couple quarters, crane demand is on the upswing, and we are in full execution mode on our growth strategy, which will drive the long-term value of our enterprise. With that, operator, please open the line for questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on the telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow the signal to reach our equipment. Again, press star 1 to ask a question. We take the first question from Stephen Walkman at Jefferies.

Great. Good morning, everybody. Aaron, I wonder, you mentioned supplier constraints, but it was hard to tell. Did that actually limit your production in the quarter, or is this more of a price-cost issue?

I'd say it's a combination. In the second quarter, we did have some disruptions in terms of the supply chain where we weren't able to ship a few cranes, but it wasn't a huge number. I think the bigger challenges are in the second half.

Okay, and so you are expecting to have actual supplier issues sort of weigh on shipments in the second half?

Yeah, I mean, today we've been very comfortable with what we've been able to manage. The difficulty is it's a game of whack-a-mole with the challenges on the semiconductor issues.

Understood. Okay. And then just on the price cost, I mean, it sounds like you don't really have a great sense of when this normalizes again. Are the price increases that you've put through or are putting through now, are those sufficient to sort of cover, you know, the known inflation that we have? And if so, you know, is 2022 kind of a more normal price cost year?

Yeah, so I hope that 2022 is more normalized, but I think it's tough to say as Prices or costs continue to rise. As of right now, I feel really good about where our pricing is. The difficulty we have in the second half is just the timing of the backlog.

Okay. And how much of the backlog shifts before year-end? I know you said 85% the next year. By year-end, Steve. Oh, 85% by year-end. Okay. Super. I'll pass it on.

Thanks, Steve.

If you find that your question has been answered, you may remove yourself from the queue by pressing star 2. We will take the next question from Mig Dober at Baird.

Good morning. Thank you for taking the question. So maybe a little more clarification on cost. You talked about the $30 million steel-related drag last quarter. but it sounds like this figure is larger. Maybe you can give us a sense for how much larger. And the $15 million discretionary component, the way I understood it at the time is this is just normal kind of cost coming back into the business, things like salary increases and the like. So I'm looking to confirm this figure and really any other incremental costs that you might have, things like freight and so on and so forth. So Maybe a little help on this to better understand the margins in the back half.

Okay. So let's start with the easy one. The $15 million, that's exactly how you described it. That's basically costs that we didn't have last year because of some of the benefits that were outlaid by the government and some of the other one-time benefits to manage through COVID. So those are sort of back to normal levels. In terms of the $30 million, I would say the difference here is we did okay in the second quarter, much better than we expected. We thought we'd see a bit of that impact in the second quarter. We did have some impact, but it's really moved that all to the second half. So the last time we talked about that, I really thought the $30 million would hit over the second, third, and fourth quarter. Today, I would say it's more heavily weighted to the third and fourth quarter. And then in terms of some additional costs, we have baked in some additional costs in SG&A. for our new product development initiatives. And they really don't start to kick in until the second half.

Oh, OK. Well, then my follow up, I guess, is when I'm sort of looking at the guidance, if I treat the $30 million as, let's just say, this is a factor of the current cost environment and you can offset it, the implied margin here just shy of 8% on call it $1.8 billion of revenue. So going back to your strategy that was outlined by your predecessor, Aaron, that this is a business that's sized to deliver double-digit EBITDA margin on $1.8 to $1.9 billion. How do we think about your progress relative to that goal? And what else is there for you to still do to kind of get the margins there? And kind of what's the path forward to actually getting us closer to that target. Thank you.

Yeah, so my real view, Meg, is how do we grow our EBITDA? Getting to 10 by 20, the old program was called, I'm sure we could get to 10%, but my real objective is how do we grow the business up to $2.5 billion, quite frankly, and that means we've got to invest a little more money and SG&A and new product developments and sales and service. So it's really how do we drive our overall EBITDA while trying to get to that same number. To me, that's how we're going to drive the value of the business. So we continue on the same path, but we probably need, you know, a little more volume to get to that 10% number. Dave, do you have anything to add?

Go ahead. Go ahead, Nick. Well, I'm trying to understand if the framework that you guys have used in the past has been altered by, you know, investments or something that you've done different to the business, or if you're still needing to generate efficiency, whether it's through consolidating facilities or whatever else that you're going to need to do in order for us to get to this target. Because it doesn't sound to me like you're really endorsing that target the way you've done in the past. So I just want to clarify this.

Well, I don't want to get there just by cutting costs because while we can hit the number for a day, you won't be able to hit it forever. So when you look at the all-terrain business, I mean, sure, we could have cut back prototypes and cut back SG&A and cut back engineering, but I don't think that's the best thing for the business long-term in order to drive the real value of the business. So I guess my view is we continue to work hard to manage our costs, but I'd like to invest a little more in the future and make sure we don't take a step back in terms of our product development.

Okay, fair enough. Thank you.

Thanks, Dave.

The next question comes from Jerry Revich at Goldman Sachs.

Hi, this is Ashok Samohan on for Jerry Revich. I'm wondering if you can provide any details on what you're seeing for capacity utilization for cranes in the field by region?

Yeah, so we typically don't talk about it. But if I look, I think in the United States it continues to pick up, which is natural because it's the summertime and it always picks up in the summer, starting to get back to more normalized levels if you're really good about where construction is going. In Europe, it's sort of the tail of two halves. Utilization on power cranes is really strong, which is driving the interest for new machines. where I think it's a little more muted on all terrains. But again, you sort of have this combination where I think some of the large players, big Korean operators in Europe are just being conservative to get through the year, manage their balance sheet. That's why you don't see them jumping into the business. And then in terms of Asia pack, Korea has been super strong. Utilization is good. China is where we've recently seen a step back, I'd say, in the last two months. But in total, I feel pretty good about overall utilization.

Okay, and then just in terms of the orders, I'm wondering if you can provide any color on what the cadence was throughout the quarter and sort of how that evolved.

Yeah, I'd say it was pretty consistent throughout the quarter. There wasn't one month that was surprisingly large or one month that was surprisingly weak. Okay, thank you. Thank you.

The next question comes from Anne Bergman at JPMorgan.

Morning, Anne.

Good morning. Maybe you could just expand a little bit on your comments on both Europe's tower crane strength and China's slowdown. Europe, I guess, you know, how much of that is your own self-help versus the fundamentals and, you know, anything in particular you're seeing with the fundamentals in Europe that we should be aware of? And then, you know, China's slowing in the last two months. you know, again, expand on that a little bit, any color that you can provide will be gratefully appreciated.

Yep. So in the tower crane business, I mean, it's just the self-help has almost become problematic because we're taking build schedule slots. So it is really the demand of the market. And if you look at construction, for instance, in France, it had been down the last couple of years. It's now starting to pick back up. So I think there's several good economic indicators. That's really the strength of the business in China. Um, You know, we're pulling lots of information from different points. But one of the points that I've heard is that excavators are off 30%. Now, I've heard that through the grapevine, and my team seems to have confirmed it. And they felt that the time frame has slowed down, too. So, you know, there's always a delay between when you get the data versus when it's happening. But I've checked it across a couple of different points, and it seems that overall construction in China has slowed down. I wouldn't be surprised if the Chinese government also takes action to help prop it up, too. But we haven't seen that yet.

Okay, so your comments on China are more like anecdotal or what you're hearing from others as opposed to what you're actually seeing with your equipment in the field in China.

Yeah, I mean, some of the issue we have is that we have such low share, so we're You know, we're not effective, I'd say, as much. The issue where we see it is more around making sure that we get paid up front and managing our receivables and protecting our balance sheet. But we have seen that behavior change, and we've been a little more conservative. So I think the rumors that we hear, which I have good sources for some of the data points I have, are real.

Rumors are always real, I guess. Anyway, just as a follow-up on the double-digit margin target question, do you have a revenue in mind that you feel like you would have to achieve now in order to get to the double-digit margin, or is it all totally dependent on the altering business improving from here or Just, you know, where is your head at around that currently?

Yeah, I mean, mix is always problematic for us, but we felt that $2 billion is a decent target. It's as good as any. If we had normalized pricing and costings,

Miss, would you like to ask another question?

I think we lost them.

Oh, sorry. I think we lost Jan.

Can you hear me? Yep. I can't. We lost you, actually.

Oh, can you hear us?

We can hear you now. Yes, I can hear you.

Okay, so my answer to your question, Anne, was I think that $2 billion is good of any number to target for the 10%. Mix is always a challenge, and we have to assume that we're back to this normalized costing pricing situation.

Okay, I appreciate the comments. I'll get back in line. Thanks.

Thanks, Anne.

The next question comes from Jamie Cook at Credit Suisse.

Hi, good morning. I guess just two questions. One, can you talk about what percent of your backlog reflects the price increases that you guys put through and just sort of the markets, you know, how they're reacting to the price increases? And then I guess, you know, Erin, for you, you sound slightly positive about the market, whereas, you know, you're usually very balanced or downbeat, I guess is what I would say. So can you just sort of talk directionally as you're talking to your customers about 2022 and you know, how they're thinking about the market? Are you optimistic that we could see another year of growth? Thanks.

So, first on the pricing, the difficulty that I have in answering that question is just the way that we implemented pricing. So, for instance, in the power crane business, we've actually done three price increases because you always want to be measured and make sure you're not too far ahead of the inflation when you do the price increases. So, it's tough for us to answer that question in a way because Some of the orders earlier don't have the price increases that we needed to cover the entire impact of steel increases, particularly in Europe. With respect to my positivity, yeah, I feel pretty good, especially with the H&E acquisition coming down the pike in the fourth quarter. I think we've got some good things moving in the right direction. Really looking forward to Bama at the back half of next year and Yeah, I think when I talk to customers, they're in a pretty positive mode, too.

And is the market accepting the price increases? Is the competition following?

I'd say yes and yes.

Okay, great. Thank you.

Thank you.

The next question comes from Stephen Borkman at Jefferies.

Hi, Steve. hey guys thanks for taking a follow-up just a quick one how was the uh the parts and service business in the quarter yeah so steve i would say that on a year-to-date basis we're we're up 10 year-over-year okay good i think you were actually only about one percent in the first quarter right if i have that so that's a good acceleration yeah we had we had a good good quarter okay great I guess I had a couple of big picture questions, Aaron, since we're already on to round two here. The first one is, this whole price-cost thing has been whipsawing us all around for 20 years or something. I'm dating myself. As the industry consolidates, you know, there are lots of industries that don't have this problem, right, where you have escalators and de-escalators maybe or some way of kind of balancing this better. Any chance that this gets better over time because people are really seeing such impact right now? Well, I think that's a tough question.

My gut says it doesn't get better for us. I mean, I think one of the challenges that we have in the crane business is You know, our volumes aren't tremendous when you look at some of the suppliers we have, whether it be for engines or transmissions or steel. So it's hard to believe that it gets much better, I guess. Dave, what do you think?

I would agree, yeah. Okay. And then maybe another very big picture question, but I know you guys and Aaron, you've been very focused on lean manufacturing and, you know, all the various pieces of that. And obviously inventory in that kind of view of the world is evil, right? And so we do our best to minimize inventory and do one piece flow and all that. But in this this kind of environment, having a little inventory, whether it's parts or whatever, actually means you can fill more orders. And I just wonder if it's possible that the pendulum has swung a little too far in terms of managing this stuff sort of hour by hour. And in fact, in a really low interest rate environment like this, a little inventory could be a real competitive advantage. And perhaps we can sort of tack back to the middle a little bit.

I love the question, Steve, because that's exactly where my head is for the fourth quarter. I mean, typically we dive off at the end as we try to manage our factories to an inventory number. My goal and what I'd like to believe is that we change that a little bit this year because I think that the beginning of next year will be strong. A lot of times we put ourselves at a disadvantage, particularly in January and February, because of how far we've pulled down our inventory in the fourth quarter. So I'd like to increase it a bit. I'd I'd like to say that we're normally under 400, and this year maybe we have a five in front of it. But I'm spot on with exactly what you said. I think having some more finished goods and having some more units in the pipeline as we get into the beginning of the year will be very beneficial for us with respect to our competitive position.

Awesome. Thank you. Thanks, Steve.

The next question comes from Mary DeMaria at William Blair.

Thanks. Good morning, everybody. Good morning, Larry. On crane inventory in the channel, I assume it's obviously tight like everything. Do you expect that there could be a build next year as supply chains normalize and maybe some of the higher volume categories? That's the first question.

I'd say our dealer inventory right now is in good shape. And it's too early to tell, but it's coming out next year, I think.

Okay, so it's not super tight. Okay, and then secondly, obviously, to the last question too, but you clearly indicated there's a strong market, we can say, with orders. Obviously, price-cost is not super beneficial, especially in the second half. But I guess we kind of struggle to understand if it's so strong, why we can't put in surchargers or escalators and have the balance of power maybe shift towards you guys a little bit more. And, you know, you're making high-quality, highly engineered products. Is the competition that strong that you can't go back and put in, or going forward, put in escalators, or think about putting in surcharges?

Yeah, the business is that competitive, I would say. It will never really come back long. It wouldn't be accepted by our customers.

How about going forward? Going forward, can we put in escalator contracts?

We do. We've tried some different things to try to contain it, but usually that's on orders that have longer You know, someone might come in and place an order that goes two years, and in that situation we'd be able to do some things to protect ourselves. But in the normal course of business, the difficulty you have is you're going to buy a $5 million cream. You want to know it costs $5 million, not $6 million.

Okay. All right. Thank you.

Thanks, Lee.

The next question comes from Stephen Fisher at UBS. Yes.

Good morning, guys. Just one follow-up here. Morning. Not sure if I missed this earlier, but oil and gas has historically been an important factor for demand and also for mix. I guess I'm curious what you're seeing there and what your expectations are over the next year or so. What's happening on quoting in a market today, and what does that tell you about where this market could go? You haven't covered it already.

Yeah, I was down in the oil patch two weeks ago, and the feedback is that oil just slowly keeps creeping up. And for the longest time, people have been, the publicly traded companies get punished every time it sounds like they add rigs into the market. So people have been restrictive. But the general tone from the folks I talked to, and I talked to another person just yesterday, is in that business, and they feel that it's going to continue to creep up. And at some point then, of course, you've got this dislocation, and you end up, man, it's interesting because it's a normal oil cycle. So as much pressure there is against oil and gas in the newspapers, I actually think that prices will continue to creep up, and that will be good for our demand, and that's what I'm hearing from our customers and our contacts.

Are you actually seeing quoting on any – either on the production side or maybe on the larger process industry side as a derivative of high oil prices?

Yeah. I talked to a couple of our dealers down there, and they saw that there was some good quoting, but that doesn't mean it's kicked off yet. And it's a good sign that folks are looking at it and doing the math, but they're still really tentative to pull the trigger yet.

Got it. Okay. Very helpful. Thank you. Thanks.

Once again, if you would like to ask a question, please press star 1. We will take the next question from Mick Dober at Baird.

Thanks for the follow-up. Just to kind of clarify the guidance a little more, as you're looking at the backlog and your scheduled deliveries for the back half, as we think about revenue sequentially, third versus fourth quarter, do we still see that normal seasonality where the fourth quarter is stronger than the third? Or, I don't know, is it different this year?

Yeah, I mean, some of it's driven by the holidays with the August shutdowns. So I think it will follow the same.

Okay, so fourth quarter stronger than the third. And then, you know, from a margin perspective, can you give us a sense, third versus the fourth quarter, like what's embedded in your guidance?

yeah so mig i'd say that you know to add what aaron said you know because of the supply chain issues and everything it's it's a moving target to some extent i you know we're not going to comment on on the quarterly margins which is why i only gave that you know i'd say generally speaking you know we are going to be you know a bit higher in q4 we anticipate being a bit higher in q4 just because of the the way we do things but you know i wouldn't say it's going to be a significant difference between the two uh and i think that you know from a margin impact you know we're going to see you know, kind of the flow-through of costs, you know, impacting Q3 and Q4, and that could be, you know, equally throughout the year because of the amount of backlog we have going through for the remainder of the year.

Yeah, I mean, that's what I was wondering, if somehow the cost headwind actually gets tougher in the fourth quarter relative to the third, just thinking as to how materials might be flowing through WML. A bit, right?

A bit. I would say a bit.

because my last question is, as I'm thinking about 2022, is there any reason for me to think that things get better in the first quarter of 22? Are we lapping some of these issues, or is pricing coming through, or should we think that 2022 is going to start pretty slow, similar base as the fourth quarter?

Yeah, so the way I'd say that is I think we had pretty good visibility when we were talking about this February timeframe. And it's sort of played out, and it hasn't plateaued yet. So I think it's too early to tell. We don't have any good indicators to even consider 2022 yet. Okay. Thank you. Thanks, Mike.

It appears there are no further questions at this time. Mr. Warner, I'd like to turn the call back to you for any additional closing remarks.

Before we conclude today's call, please note that the replay of our second quarter 2021 conference call will be available later this morning by accessing the investor relations section of our website at www.manitowoc.com. Thank you, everyone, for joining us today and for your continuing interest in the Manitowoc Company. We look forward to speaking with you next quarter. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.