Good afternoon, everyone. Thank you for joining us. My name is Mig Dobre. I am the Baird analyst covering the machinery vertical. It is my pleasure to introduce to you today, Manitowoc. As you might know, Manitowoc is a leading provider of cranes, of lifting solutions, and related aftermarket parts. Joining us today with an update on the company, we have Brian Regan, Chief Financial Officer. Brian, I'm gonna turn it over to you for some remarks, and then we'll do the Q&A.
Sounds good. Thanks, Mig. Hello, everybody. As Mig said, Brian Regan, I'm the Executive Vice President and CFO of the Manitowoc Company. So we're one of the only U.S., crane-only, manufacturers. So, you know, we're a little bit different than, than some of our, our peers because we, we only do cranes. With that said, I think... I'm gonna go to slide seven, on our, on our deck, 'cause I think this is the most important slide and, and really some of the progress we've made over the last few years related to the company. So just recently, we updated our aspirational targets related to the business. So we're about—our, our guidance for 2023 is $2.2 billion. Bless you.
With $170 million of EBITDA is where our midpoint of our guidance is. We've really transformed the company over the last few years from being a products-only company to also being a service company. What I mean by that is we're really trying to be direct to our customers in certain areas. We've, a number of years ago, announced the CRANES+50 strategy, which meant growing our aftermarket, we call it non-new machine sales, our aftermarket business or CRANES+ or non-new machine sales by 50%. That started off of a baseline of $450 million in 2021. So our goal was to get to $675 million by 2026.
We made great progress, where our trailing twelve months at the end of September was $605 million, $606 million, with $155 million in the quarter. And that aspiration of getting to $675 million by 2026, we relooked at and said, "Hey, you know what? The progress we've made with a couple of acquisitions we made in the U.S. in 2021, we really feel like we can update that ambition and go to $1 billion." And that's really driving our business and really how we think about the business.
When we talk about non-new machine sales and aftermarket, that's that runs everything from parts and service, used cranes, refurbishment of cranes, rentals, all of that tend to be less cyclical than just the new machine sales, and at a higher margin. We continue to talk about how do we increase the floor of the business. With the cycle, if I go back to 2020, when COVID hit, we were about $1.45 billion approximately in revenue, and $83 million in EBITDA. The acquisitions we made in 2021, that were mainly on the non-new machine sales side, added $30 million+ of EBITDA to the business.
So we've really transformed the business over the last few years, and our aspirational targets have moved accordingly to be about $3 billion in revenue at a 12% EBITDA margin, with $1 billion of that revenue coming from non-new machine sales. When we talk about those aspirations, really, there's a number of things that have to happen, some of which are out of our control: the market and acquisitions. We have a good acquisition funnel that we continue to look at. And those acquisitions that we execute generally fall in between 4-5x EBITDA. So, you know, good payback and are focused on the non-new machine sales side. With that, Mig, I'll-
Okay
... answer any questions you might have.
All right, sounds good. Thank you for the intro. Reminder here, if you'd like to participate in the conversation, please email questions to sessionsix@rwbaird.com. You know, maybe where I would like to start our conversation is to sort of get a bit of sense from you in terms of what's going on with demand across your various products and geographies. I know you just reported a quarter, but I think it will be good for this group to sort of maybe start there.
Yeah. We, when we came into 2023 and gave guidance, we talked about a couple of different things that were happening in the business. One being the tower business in Europe. So the tower crane business in Europe is one of our higher margin businesses. We started to see softness at the end of last year. We had a nice backlog coming into 2023, that we executed on, and really, the softness that we were seeing persisted, and our order rates in the first half got to a point or got us to a point where we're really hand-to-mouth from an orders to revenue perspective on the tower crane business. So that's impacting our second half, in particular, Q4.
We talked about year-over-year, our EBITDA is being affected by about $15 million, related to that dynamic. The second item that we came into the year looking at was really how we're gonna execute on our mobile business. I think we did a better job than anticipated. Some of it was related to supply chain has alleviated a little bit. Some of it was that the order rates have stayed strong, in particular in the U.S. So, you know, that's where we currently are in 2023. If we look at-
When you say mobile crane, is it like the RTs? Is it the all-terrains? What-
I'd say. So when I break down the different types of mobile cranes, from a U.S. perspective, we sell all of the mobile cranes. So we have crawler cranes, which are the large red cranes, if you see them as you're driving down the road, that have kind of like tank crawlers on the base of them. That's how they get around a job site. You have all-terrain cranes, which are completely roadable cranes, can do pretty heavy lifts, and for the most part, they're kinda like taxi cranes, where they'll go from job site to job site in a particular day and do 2, 3, 4 different lifts in a day. You've got your rough terrain that get shipped to a site, but they can move around that site.
They're generally yellow cranes, and you'll see them a lot at, like, bridges and road construction. Our brand is Grove for that. And then we have boom trucks that are kind of on a back of a Class A chassis and again, are completely roadable. So from a U.S. standpoint, the product and all of those products that we sell in the U.S. have been... our order rates have been really strong, and our backlog is really strong related to that. Which, quite honestly, was a little bit surprising to us when you think about how inflation and interest rates have impacted the industry.
You know, we still haven't really seen the effects of the CHIPS Bill and the Infrastructure Bill that we anticipate seeing some benefit of at some point in time. Our expectation is we start to really see that hit in 2025 with the election year and things like that. The timing of it is expected to kinda draw out a little bit. So really, that's the U.S. market. Sorry, go back to the U.S. market for a second. One of the things we keep an eye out on is really where our dealer inventory is. The one area that we're looking at from a cautious standpoint, I would say, is really the all-terrain business in the U.S.
Right now, the dealer inventory is okay, it's fine, but we've got visibility of what's gonna get shipped in Q4 and into Q1. So it just causes us a little bit of concern with how much that will be shipped into the channel, and ensuring that the retail rates hold up. And we'll be fine, but there is just cause for concern, 'cause our all-terrain cranes could be anywhere from $1 million-$3+ million, and if our dealers are holding on to that level of inventory, obviously, it will impact other decisions on purchasing. So something that we're looking at, but outside of all-terrain cranes, the dealer inventory is okay, and it looks like we'll be okay in the near future.
Okay, so we talked about the North American business, we talked about European, towers. What about the rest of your business?
Yeah, so the mobile business in Europe has been surprisingly strong. You know, when we think about the market itself, the market's been relatively flat. But it appears we've grown some market share, and we really... You know, in 2016, when this management team came into play, there were some concerns about the quality of our cranes. So that was a huge focus of ours, and we did a really nice job of improving the quality of our cranes, to the point where I really believe that we've made some strides on market share, really related to the work that we've done to improve our quality. So that's the European mobile crane business.
The one area that I want to emphasize is really. If you look at slide seven, it's really the second and the green funnel of growing our Belt and Road presence, in particular in the Middle East. So, probably everybody is aware of Saudi Vision 2030 and the investments that are being talked about in Saudi Arabia, which we're really excited about. You know, trying to quantify the volume is really difficult for us because if you look at the mega projects that they're talking about in Saudi Arabia, they're almost from the future. I mean, it's almost fantasy land when you look at those, and I would suggest everybody...
Googling Saudi Vision 2030 and really looking at that, because, you know, there's a lot of opportunity there for us as a crane business. There's a lot of infrastructure build that's gonna happen there. And it's not just a fantasy land. I mean, things are already starting to letting and work is being done. Our CEO had the opportunity to go a number of times to Saudi Arabia and see firsthand some of the projects that are already being worked on. The way we go to market in Saudi Arabia is we've got one of the largest tower crane rental companies in the world. That's our dealer, and they're at the table, making the decisions as to how to design the lifts for all of these infrastructure projects.
So we feel like we're in a good position there. From a mobile side in Saudi and all these projects, China's definitely a competitor of ours there, so we have to be smart about how we attack that. But I think there's a lot of opportunity for all of our competitors, including us, in the region.
It sounds like towers is really probably where you're gonna be most successful in capturing that business. Is that a fair assessment?
I think as of now, yeah, but we'll see, 'cause, you know, we're continuing to look at how we should attack that market.
What about Asia, more broadly?
Yeah, I think Asia's been mixed for us. Obviously, everybody knows what's going on in China. For us, China's, you know, selling into China is not a really big market for us. There's a lot of China crane companies that deal with that market. We sell very small amounts into the China market. With that said, you know, we sell into Australia, into Korea. There was a... You know, we've had cranes on Samsung projects in Korea. And there was a, there's a new Samsung project that we're hoping our cranes will go on. So we've had mixed impact in Asia, but I think it's been okay. Nothing to write home about, but, you know, there's definitely large projects and like I said, sometimes it's really currency...
The currency dynamic plays into that. For our mobile cranes, we produce those in Europe and ship them over to Asia. So sometimes it's the euro, name the currency, FX rate that can play into some of that. But we've been okay in Asia up to this point.
You sort of anticipated a question, mine, which is on FX, how that is changing competitive dynamics, and how that's changing your strategy in terms of how, where you're choosing to produce, export, and so on.
Yeah, and I think the best example of that, obviously, in the U.S., we do ship some cranes that we manufacture in Europe, in particular, the all-terrain cranes into the U.S. market, so we also benefit from that, the stronger U.S. dollar. With that said, a lot of the other cranes that are for the U.S. market are manufactured in the U.S. One area that we've been looking at, and some of it's kind of a twofold dynamic, is our facility in Italy, our only facility that we produce both tower and mobile cranes in, and that's the rough terrain cranes.
So we've been trying to see if as to whether or not we can expand the amount of mobile cranes they can build there and potentially ship some to the U.S. to take advantage of that FX rate. But, you know, and that's coupled also with expanding their mobile production to offset some of the softness in the tower-
Mm-hmm
... business.
I wanna thank you for the overview and kind of going around the world, if you would. I wanna pivot and talk a little bit about margins. As you said, good progress on the margin side. What I've been unable to disentangle is how much of that is owed to structural improvement within your equipment, your crane operations, versus the changes in the business mix that you're having, that you're kind of outlining as part of this slide, the CRANES+50-
Mm-hmm
… +50 strategy. Can you-
Yeah, I mean,
Can you touch on that?
I think it's a combination of the two. You know, $2.2 billion of revenue is not the same $2.2 billion of revenue that it was a number of years ago, just with inflation and the costs that I think a lot of industrial companies have been dealing with. So that volume of $2.2 billion of revenue isn't the same unit volume that it would've been a couple of years ago. With that said, you know, we made the two acquisitions in 2021. For the most part, the revenue growth was $150 million associated with that, but it really is the margins associated with that, with the non-new machine sales. And we've taken those acquisitions...
So we acquired the crane business of H&E, and we acquired another dealer of ours, which was Aspen. And our portfolio, or our straight to the customer, if you go to slide 11, so this looks at where we go direct to our customers, and the red dots show our branches. So before 2021, this would've been an all-white slide, where we were not going direct to our customers. These acquisitions really helped us, like I said, transform the company, and that's really where that CRANES+50 came into play, and definitely is a component, and a pretty significant component of the margin improvement of the business. And it's helping offset some of the headwinds associated with the tower crane cycle. And that's really why we're, you know, focused on this.
It's really to be able to try to balance as much as possible that cycle. You know, we're not gonna do it. We're still a crane company. We'll always be a crane company, but the aftermarket side tends to be less cyclical, and even the way our dealers and at times our dealers kind of interacted with us, you know, sometimes they're ordering in anticipation of a growing market. And that's why looking at dealer inventory is so important to us. If we owned the whole dealership, you know, that could potentially look differently. With that said, we've got great dealers across the U.S. in the white spaces.
So, you know, as we look at what our strategy is, it's really looking at opportunistically at our dealerships and seeing if there's a succession plan, you know, or if there's not a succession plan, we become an option for our dealers to be able to take over those dealerships. So, you know, very opportunistic, but definitely an important part of the business as far as the growth. We've done a really nice job of growing organically since those acquisitions. A big part of the non-new machine sales growth is really our service techs. So over the course of the last year, we've increased our service tech population by about 45, not just in the U.S., but globally.
Which would be what percentage?
I would say maybe 15%-20%.
Okay.
So that's a net number. And, you know, that drives both service revenue as well, as well as parts revenue. And really, quite honestly, it helps our customer service. So it also improves the desire to buy a Manitowoc crane.
You might not be willing to give that level of specificity, but I'm gonna try anyway. When we're looking at new machine sales versus non-new machine sales, can we disentangle the margin of one versus the other? Because, I mean, like, you're what in aggregate doing about 7, give or take, EBITDA this year. Is that what-
Yeah, that's about what the-
That's about what the guidance implies, so-
Yeah
... you know, what's one versus the other?
We don't give that information at that detailed level, but what I would say, and we've got a slide. I might have passed it, sorry. Let me go back. That shows just... here it is. So slide 6. So when you look at each of the different components of the non-new machine sales, you can imagine parts and service, very strong, significant, EBITDA accretive for us. Rent-to-rent and rent-to-purchase, if you can imagine, the vast majority of the costs associated with that is related to depreciation, so from an EBITDA standpoint, highly accretive. The crane remanufacturing, I think this is important, especially if you had a chance to listen to our call.
We talked about a new project as an example of really what we're doing here and why this focus has really transformed the business. So we talked about an agreement with Maxim Crane Works to remanufacture 14 MLC-2250s. So I think it's really important because in the past, prior to that acquisition, the acquisitions we made, and the focus on non-new machine sales, you know, we would sell the parts to our dealer. The dealer would do the service work. And we'd want a certain margin on our parts, they'd want a certain margin on the service. When you combine those two together, now you have a refurbishment that may not make sense economically from a customer standpoint. Too much margin between the two.
Now that we own the whole thing, you know, it's margin accretive for us, and still economic, it makes economic sense to our customer to do the refurbishment versus buy new. And quite honestly, the refurbishment is accretive to our margin versus a new machine sale.
Sure. And look, what I was trying to maybe uncover a bit is, as part of your goals, right, you hope to get non-new machine sales to $1 billion plus.
Mm-hmm.
If that happens, what does that mean for aggregate margins?
So we talked about a 12% EBITDA margin in those aspirational goals. That translates to about a 25% flow-through, going from where we currently are to $3 billion. And-
But I'm sorry to interrupt. Just to, just to be clear, you think you can get there with just... With, with just reaching that billion-dollar goal of non-new machine sales? Or is there something that still has to get done on the new equipment side in order to get you there?
Yeah, I mean, some of the headwinds that we're seeing, obviously, the more the volume, there's flow-through on the volume of new machines as well. We've got the headwind associated with towers that I talked about being impactful. That's gotta turn back around. So yes, there is definitely things that need to be done in order for us to hit that 12% margin on the new machine sales, but a lot of that driver, because you can see the growth going from $600 million to $1 billion in non-new machine sales and a 25% conversion, that's really where the meat of that improvement's coming from.
And that's why when I look at our capital allocation and really where we're investing and where our acquisition funnel is really geared towards, it's really geared towards growing that non-new machine sales. Both from an inorganic side, the acquisition, as well as being an initiator of organic growth through that acquisition.
Understood. Maybe we can talk a little bit about the cost side of the equation as well. Yeah, an update on supply chain, an update on costs. I mean, the stuff that's easy to observe are things like steel prices, right? But I know you guys don't use hot-rolled steel as your true benchmark, so...
Yeah, the high-strength steel does not move in the same direction necessarily as some of the quoted steels, like the hot-rolled. So, you know, I think it's easy to look at that commodity and say: "Hey, everything's improving, so you should be getting flow-through on just the steel costs." You know, the high-strength steel that we buy is in high demand, and therefore, prices are still elevated, is what I would say related to that. Outside of that, I think some of the logistics issues or logistics costs have improved, but we're still having vessel issues as far as availability that we talked about on the call. You know, in particular, out of Europe in the North Sea. So I mentioned that our all-terrain cranes are built there.
We ship them globally, so having availability to those vessels is, has been a difficult time for us, and that's a little bit of some of the range that we have in our revenue as well as our EBITDA and our guidance for Q4. Because you could have one vessel that ends up not making it, and it could have 10 all-terrain cranes on it that would have a pretty significant impact to our end-of-year results.
Understood, and you know, with sort of that thought in mind, how do you think about your ability to continue to price as you look into 2024?
Yeah, again, obviously, you know, demand's gonna drive some of that. When I look at the tower crane business, you know, some of that is just there's no demand, so pricing doesn't really matter, 'cause there's just not enough, you know, demand there. So we've been we've been pretty set to try to keep our pricing what it is, because, you know, if a customer's gonna buy it, a lot of the, the sales that we're having is on the larger, kind of, energy-type stuff, so pricing's not gonna change the, the demand dynamic there. From a U.S. standpoint, pricing's held, and I think, you know, when you look at rental rates and things like that, all of those things have held up.
Obviously, you know, if demand starts to be impacted, we'll have to price according to the market. You know, right now, we feel comfortable about where we are, and, you know, I think we're about at even from some of the inflationary stuff we saw, you know, we've priced so that, you know, we're sort of offset at this point.
You're neutral-
Yeah
that is, at this point.
Mm-hmm.
You know, one question that came up in other meetings like this that we had today was the effect that higher interest rates have on dealers and their ability to carry inventory.
Mm-hmm.
Are you planning any sort of support to the dealers or anything of the sort that might help incentivize them to continue to carry inventory?
Yeah, I would say we, we always look at that, but the last thing we want is just to load up our dealers. That doesn't really help us, and that's again why we're so aware of what dealer inventory is. It really doesn't help us if it's just sitting at the dealer, 'cause it's just... You know, they'll, they'll slow down their order rates and, and things like that. So to give significant incentives to have it just sit at the dealer doesn't necessarily help us. With that said, if there's a, excuse me, a retail project that, you know, needs some support and things like that, we're always working with our dealers to make sure that, you know, we're, we're as competitive as we can be, but still trying to maintain the right price.
Sure. We have three minutes left, and maybe my final question is to sort of get a sense from you, in terms of how you think the crane cycle in the U.S., North America, maybe more broadly, could play out. What I heard a few minutes ago is that you didn't think this could start accelerating until maybe after the election. So I'm curious for you to expand on that, and if you have a view on the magnitude based on where the age of the fleet is currently, that'd be good to know as well.
Yeah, I think that's a really good point, Mig. I mean, you know, when we look at fleets and have conversations with our customers, fleets are on average 15 years old. And when you think about the big projects, like the CHIPS Bill and the Infrastructure Bill, those aren't the cranes that are gonna build those projects. So, you know, the fleet does need to be refreshed. We call it the Crane Renaissance. We believe that that's coming. When it comes, we don't know. But I think the demand cycle, we believe, it needs to come, especially when you think about those dynamics I just talked about in the U.S. In Europe, there's a housing crisis, to be frank, and right now, construction-
Okay
... residential construction isn't happening.
There's a housing crisis here, too.
Yeah.
So-
Mm-hmm
... you know.
The reason why I talk specific to Europe is just the impact it has on the tower crane business for us in Europe, and that's the driver of why we're seeing softness. We're not seeing that construction work happening on the resi side, and the resi side is really what can drive us to come out of the doldrums in the tower crane business and really see the company start to kick off a lot better margins because of that.
In terms of going back to the chips and other types of reshoring projects here domestically, what sort of equipment, what sort of cranes do you think lend themselves best for that? Is it the crawlers? Is it the ATs? Probably not RTs, I suspect.
Yeah, I mean, I think when you look at a project, it's interesting because, you know, some of the chip work that's being done in Korea, they use tower cranes, where here they'd use crawler cranes. So it's interesting, where depending on where you are, depends on the nature of the product that will be used. But I would say when I look at bridge work, road work, the chips, it's across the gamut, including RTs. I mean, if electrification you know, is something that's being talked about, and I believe, like, boom trucks and RTs would be a part of that. So it's across our whole portfolio of products when I look at the infrastructure work that needs to be done.
And, last question is from the audience, actually, on the impact from Chinese imports. I think I already know the answer that you're gonna give, but I'll ask it nonetheless.
So I think right now, especially in the U.S. and Europe, it's not a huge impact. Outside of that, I think, you know, we're dealing with those competitors every day and trying to price accordingly. There are some areas that we struggle competing, quite honestly, because they're giving terms that we can't compete with. With that said, you know, we have a manufacturing location in China that does tower cranes, and like I said, you know, part of that Middle East driver is coming from the builds in China to deal with the Belt and Road.
All right, our time is up. Please join me in thanking Brian for.