Manitowoc Company, Inc. (The)

Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Manitowoc Second Quarter 2024 Earnings Conference Call. I will now turn the call over to Ion Warner, Senior Vice President, Marking and Investor Relations. You may begin your conference. Please proceed.

Good morning everyone and welcome to the Manitowoc conference call to review the company's second quarter 2024 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 Brian Regan, 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 presentation. 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 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 move to slide three. Before jumping into my update on the crane market, I would like to provide some color from our Crane Days event in May. First and foremost, it was a very successful event with over 850 customers and dealers visiting our Shady Grove campus. We hosted attendees from 18 countries and we showcased 35 cranes garnering excellent feedback. It takes an enormous team effort to pull one of these events off. A huge thank you to the team involved and a big thank you to our customers and dealers that showed up in force. Although there was plenty of banter regarding the next six months around the impact of the presidential election cycle, I had multiple customers tell me that they see a wave of infrastructure work on the horizon in the US and they expect a strong market for the next several years. While not reflected in all the public data, Crane folks are actively quoting projects for roadwork, bridges, rail, power generation, and power transmission. And of course, everyone is seeing incredible momentum to build data centers to support the AI boom. These centers will consume massive amounts of electricity, and folks see this as a potential second leg of demand. Unfortunately, however, we haven't started to see this good news translate in orders yet. The current operating environment remains very challenging around the world. For sure, the geopolitical environment and high interest rates are taking their toll, and elections around the world have created even greater uncertainty. Consequently, customers are slow to move forward on orders. In addition, issues such as part shortages and shipping vessel disruptions have improved since the peak of COVID era, but they surely haven't gone away. To recap the second quarter, orders were down 22% year over year, and total backlog ended the period at a still strong $836 million. Please turn to slide 4. Startinging with the market overview in the Americas, the mobile crane industry remains solid with good utilization. Many of the big crane rental houses are talking about buying new iron and our quote logs are very strong. Nevertheless, this positive momentum hasn't yet resulted in customer purchasing activity. First, many customers are struggling to find crane operators. I had multiple customers tell me recently that they can't grow their fleets until they can find additional operators. We, as well as our dealers, have seen an abnormally large number of requests for RPOs or rent-to-purchase deals. I speculate that folks are hesitant to lock in the current interest rates with the expectations that rates will decline. As I've stated many times, the crane industry always slows down as we approach a U.S. election. We clearly saw this in our orders during the second quarter, and I expect to see more of the same in the third quarter. Moving to dealer inventory, current levels in the U.S. are mixed. Rough terrain and all-terrain cranes have been at the high end of the range for several quarters. On the other hand, boom truck dealer inventory is at low levels. In conclusion, crane operators are clearly gaining confidence in the business, and interest in ordering new cranes is strong. At this point, however, we need to get through the election, and any reduction in interest rates would help. It sure feels like a crane renaissance, particularly in the US, is just around the corner. Turning to Europe, it was a tough second quarter. As if the Ukrainian situation wasn't enough upheaval in the region, snap elections and a general concern for previous coalition governments in the UK, France, and Germany have led to more uncertainty. Starting with mobiles, although orders were surprisingly light during the period, crane activity at large crane rental houses remained strong. Similar to the US situation, everyone is talking about large infrastructure projects for energy and rail. While the local daily crane activity has been okay, the continued slowdown in residential and non-residential construction markets, combined with an unclear political environment and higher interest rates, are making it harder and harder for smaller crane rental houses to make purchasing decisions as they look forward. In terms of the European tower crane market, I'm hopeful that we're at the bottom. New crane orders were down 21% year-over-year, and adjusted EBITDA was roughly a $14 million headwind in the quarter. Looking forward, I don't expect any major news in the third quarter given the nature of the summer months in Europe. The fourth quarter should give us some indication of what 2025 will look like. My gut says that the best that we can hope for is a slow recovery. In the Middle East, although there's been some negative reports in the press on project postponements, quoting activity remains extremely high, particularly in Saudi. Orders were slightly up year over year. While many pundits are skeptical of Saudi's current cash flow, We need to keep in mind the immense scope of Saudi Vision 2030. Even if Saudi adjusts projects over time to address this cash flow situation, it's important to keep in mind that projects like Trojanah are underway and the 2029 Asia Winter Games are only a couple years away. Moreover, Trojanah is more than just a ski hill. It's multiple massive projects, of which the centerpiece is a 2.8 kilometer man-made lake that requires building three large dams. The main dam will be 145 meters high and 475 meters long. This is a huge engineering feat. In addition, luxury companies such as Raffles Hotels and the Ritz-Carlton have begun to make commitments to build accommodations. The transformation of Saudi will surely have its ups and downs, but it's underway and happening. Moving to Asia Pacific, I recently returned from a two-week visit to the region. The local China market remains very muted without much new news to report. and this continues to overshadow the region. In addition, delays in South Korean semiconductor facilities and commercial construction projects throughout Southeast Asia have contributed to the regional slowdown. It was good, however, to see that Vietnam and Hong Kong are starting to turn the corner and I'm optimistic that South Korean market will begin to turn in 2025. In Australia, customer sentiment is very similar to the US. Korean activity is good and excitement is starting to grow around the 2032 Olympics The customers are slow to place orders as they juggle high interest rates and wage inflation. Please turn to slide five. The most exciting news from my trip to Asia was our China team's progress on our large tower crane strategy. From a product standpoint, we've sold 14 MCT1105s, which was the first large crane that we launched last year. We've erected the prototype MCT2205, which is currently being tested. and I saw several prototype components for the MCR815, which will be erected in the fourth quarter. To manufacture these massive cranes, the team has held several Kaizens, including our annual Global Kaizen, to increase our physical capacity and to improve our overall productivity. A big thank you to Zhenghua Shi and his team. On the left side of this slide, you can see some pictures of the area in the factory where we retrofitted the plant to meet the lifting requirements for the big cranes. On the right is a picture from our recent global Kaizen, which was focused on improving our flow, kitting, and material presentation to increase our output. Turning to our aftermarket business, it continues to do well considering the softness in the global tower crane market, which underscores that our strategy is working. Our non-new machine sales in the second quarter were $147 million, only slightly down year over year. During the quarter, I visited our MGX Phoenix and Salt Lake City branches, and I was extremely impressed by how these teams are servicing customers such as the local mines through superior field service support. A big thank you to Robert Thomas and Leon Cornevie, our branch managers and their teams. I think this is a good point to summarize where we sit for the balance of the year. Orders were lower than anticipated in the second quarter, and I expect order levels to remain depressed until we get through the U.S. election. After weighing the lower demand with our elevated inventory, we adjusted our build schedule to support our year-end free cash flow target. Although this decision will negatively impact our short-term financial performance, which was reflected in our updated guidance, it will better position us as we enter 2025. With that, I'll turn it over to Brian.