Manitowoc Company, Inc. (The)

Good morning and welcome to the Manitowoc fourth quarter 2022 earnings call. My name is David and I'll be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. At this time, I'd like to turn the call over to Mr. Ion Warner, Senior Vice President of Marketing and Investor Relations. You may begin.

Good morning everyone and welcome to the Manitowoc conference call to review the company's fourth quarter 2022 and full year 2022 financial results and business update as outlined in our press release yesterday. Participating on the call today are Aaron Ravenscroft, President and Chief Executive Officer, and Brian Regan, Executive Vice President and Chief Financial Officer. Today's webcast includes a slide presentation which includes a reconciliation of GAAP and non-GAAP financial measures as referenced in the call. This can be found in the investor relations section of our website under events and presentations. We will reserve time for questions and answers after 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 in 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 business. 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 turn to slide three. After a tough third quarter, I was really pleased with how our team rose to the occasion in the fourth quarter to deliver strong results despite significant adversity. As we entered the quarter, we felt confident that our shippable backlog and inventory levels would allow us to hit the low end of our guidance. The hard work of our team and a bit of luck with parts and vessel availability helped us end the year even stronger than we expected. For the full year, we generated slightly above $2 billion in sales and $143 million in adjusted EBITDA, a 23% increase year-over-year. Overall, this is a great achievement in an extremely difficult operating environment. I would like to extend my deepest appreciation to the Manitowoc team for a job well done. From a strategic standpoint, we increased non-new machine sales by 22% to $545 million for the year. Suffice to say, I'm pleased with our progress on cranes plus 50. Concurrently, we continue to invest heavily in new products throughout the year. In 2022, we launched nine new cranes and continue to develop several new digital and energy-saving technologies. These efforts are important because they help grow the number of our cranes in the field, which will inevitably be the foundation of future aftermarket growth. Please turn to slide four. Manitowoc has made big improvements on ESG relatively quickly thanks to our team's creativity and their application of the Manitowoc weigh tools. As we say, what gets measured gets improved. Working around cranes can be high risk, whether on the shop floor or on job sites. So health and safety remains a constant focus of Manitowoc. In 2022, we completed over 87,000 safety observations, the highest number in our history. Our recordable injury rate was 1.53, which is slightly lower than the previous year, and our lost time incident rate was 0.92, or 10% lower than the previous year. While these results are encouraging, we still have more work to do. To be clear, the goal is zero injuries. In addition, we continue to improve our sustainability. As an example, all of our manufacturing facilities have achieved ISO 50001 certification, which is a global energy management standard. And we met our 2025 normalized greenhouse gas emissions target three years ahead of schedule. We also reduced the amount of waste we send to landfills by 36% year-over-year by reusing welding slag and improving waste sorting and recycling among other actions. When it comes to the environment, I am relentless in pushing for real changes to improve our carbon footprint. Manitowoc's greatest asset is its talented team of diverse employees and leaders. In 2022, we expanded our supervisory leadership program to include team members from our acquisitions. We kicked off the Manitowoc Women's Resources Group to assist in professional development and retention of women. And in our Shady Grove facility, we continue to enhance our outreach to the local Hispanic community through ESL grassroots networking and recruiting efforts. And last but not least, we are extremely proud to be named one of America's most responsible companies by Newsweek. This award recognizes our hard work on ESG. Please turn to slide five. In October, we welcomed our board of directors to our facility in Wilhelmshaven, Germany to showcase our lean transformation. As a reminder, this plant comprises 11 buildings, which spread across almost 50 acres. Going to Project Flu seven years ago, we set out to change the entire flow of this factory and embarked on a multi-year capital investment project to improve its overall operating results. By deploying all of the methodologies in our lane toolbox, combined with the team's true metal, we reduced the distance a crane travels through the manufacturing process by 66% or three miles. Thank you to everyone that contributed to this successful transformation. The board was quite impressed with their visit. Lastly, I would like to recognize Dan Guo, engineering project manager in China, and the three operations leaders from the team in Italy, Alessandro Duto, Diego Meraboto, and Alessandro Macario, who all won the 2022 CEO Award for the Manitowoc Way. They are exemplary leaders who embody the Manitowoc Way values. A big congratulations to these leaders. Please move to slide six. Turning our attention to the market, we generated orders of $708 million during the fourth quarter. which was a big jump year over year. Long story short, I don't believe that the fourth quarter signals an inflection point for crane demand. It was more about pricing and mix. In terms of units, our orders for the fourth quarter were relatively flat year over year and included a couple large orders from dealers securing 2023 build slots. Through the first six weeks of 2023, order intake was in line with the monthly run rate of $150 million that we saw for much of 2022. On a regional basis, the Americas is steady. The other inventory levels remain sufficient, utilization rates at the crane operator level have been strong, and rental rates are inching up. That said, there remains a lot of uncertainty driven by rising prices and interest rates. Meaningful projects associated with the infrastructure and semiconductor bills have not yet started in earnest, and the oil patch is still slow. These tailwinds will manifest at some point, whether in 2023 or further in the future. In Europe, our customers remain cautious due to the Ukraine conflict and rising interest rates. The European mobile crane market has been positive, but this is more of a consequence of the delayed COVID rebound rather than an indicator that the market is robust. Additionally, there is a clear lack of confidence regarding the European tower crane market. Residential housing permits, one of the main drivers of tower crane demand, have slowed over the last several months due to rising interest rates and tighter loan conditions. For instance, in France, permits for new single-family homes declined sequentially 30% in the fourth quarter. And in Germany, we are seeing a similar trend. As for Asia Pacific, I returned to the region in December for the first time since the pandemic began and found that market sentiment varied widely between countries. For example, Southeast Asia is still pretty muted. A recent corruption scandal at Vietnam's largest real estate developer, VPT, has led to a crisis. Despite this setback, Vietnam is remarkably similar to China 20 years ago, and we remain optimistic about its future. In the fourth quarter, South Korea and Australia, which were hot the prior few quarters, were largely dormant due to higher interest rates. In South Korea, banks withheld financing in November and December to let the market catch up to the dramatic shift in interest rates. Fortunately, the situation has stabilized in January. We are encouraged that several semiconductor projects are ongoing in country and the Korean EPCs are well positioned to support major projects in Saudi Arabia. Australia is similar in that respect. Interest rates in the country spiked in the fourth quarter, alarming everyone. Since then, it appears that these issues have been resolved and higher commodity prices should bolster the Australian mining industry. Moving to China, the market has been very soft for several quarters. As the market reopens, we are in a wait and see mode. Please turn to slide seven. Finally, in the Middle East, the current environment is the most positive that I've seen in the region since I joined the company seven years ago. Last week, I met with several dealers in the region and visited The Line, which is one of 15 megaprojects underway in the city of Neom as part of Saudi Vision 2030. Saudi Vision 2030 is driving the mood across the entire region as it consumes much of the nearby construction-related resources to execute this immense initiative. To put this into perspective, the line will be a futuristic city that reaches 170 kilometers up and down the coast of the Red Sea. In terms of skyscrapers, it will be the equivalent to 4,000 one-world trade centers. Again, the line is just one of 15 megaprojects in which Saudi will invest more than $1 trillion. NEOM essentially has no population today, and by 2045, it's expected to have the infrastructure to support some 10 million people. This unprecedented initiative is just beginning to take shape, and we are actively working with our partners in the region to support it. Please move to slide 8. Before I turn the call over to Brian, I want to reflect on the progress we made on our 4 breakthrough initiatives during 2022. Our first initiative is to grow our European tower crane rental fleet to complement our new crane business. Over the last 3 years, we've invested $30M in growing our rental fleet, namely in Germany. Most recently, we kicked off a brownfield project in the UK where we'll be adding rental cranes to grow our market share and aftermarket footprint. Our second initiative is to scale up our tower crane business in China to serve the Belt and Road regions. In 2022, our team in China introduced our two largest tower crane models specifically engineered for emerging markets, the Poton MCT-805 and the MCT-1005. In fact, over 60% of our current production in the China factory consists of new models engineered by our local team in the last three years, which reinforces that this initiative is working. Our third initiative is to reinvigorate our all-terrain crane product offerings to grow market share, field population, and aftermarket revenue. Since launching this initiative, we introduced 10 new all-terrain models. Last October, we unveiled a four-axle 70-ton model and a four-axle 100-ton model. hybrid concept crane at the Bama Trade Show. Both models received excellent feedback from customers. Our new Grove Connect telematics solution, designed to equip crane owners and operators with real-time services and information, is getting good traction too. To support our all-terrain cranes in the field, we continue to hire additional service technicians in key markets and added a location in Spain. Additionally, we recently appointed a global leader to bolster our used crane sales, which benefits the aftermarket business. These efforts are part of our journey from being product-oriented to solutions-oriented. Our fourth initiative is to expand the aftermarket activities in the Americas. The Aspen and MGX acquisitions are fully integrated with excellent results. We modeled these two deals to generate $30 million of annual adjusted EBITDA, and they exceeded the target in 2022. The acquisitions were integral to our 22% increase in non-new machine sales year over year and have become a catalyst to drive growth in our aftermarket business. Since closing the acquisitions, we've expanded our regional coverage by opening a branch in Kansas City, and a Denver branch is scheduled to open soon. Our footprint currently comprises 16 branch locations in 13 states and over 150 field service technicians. Our overall strategy to grow the less cyclical, higher margin segments of the business is gaining momentum. With that, I'll pass it over to Brian for a financial update.