Thank you for standing by and welcome to the Hyster-Yale Q3 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I'd now like to hand the conference over to your speaker today, Christina Kmetko. Thank you. You may begin.

Good morning, everyone, and welcome to our 2020 third quarter earnings call. I am Christina Kmetko, and I am responsible for Investor Relations at Hyster Yale. Thank you for joining us this morning. Joining me on today's call are Al Rankin, Chairman, President and Chief Executive Officer of Hyster-Yale Materials Handling; Rajiv Prasad, President and Chief Executive Officer of Hyster-Yale Group; and Ken Schilling, our Senior Vice President and Chief Financial Officer. Yesterday evening, we issued our third quarter 2020 results and filed our 10-Q. Copies of our earnings release and 10-Q are available on our website. For anyone who is not able to listen to today's entire call, an archived version of this webcast will be on our website later this afternoon and available for approximately 12 months. Our remarks that follow, including answers to your questions, contain forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements made here today. These risks include, among others, matters that we have described in our earnings release issued last night and in our 10-Q and other filings we make with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. Also, certain amounts discussed during this call may be considered non-GAAP. The non-GAAP reconciliations of these amounts are included in our earnings release and available on our website. In a moment, I'll discuss our third quarter results. But first, let me turn the call over to our Chairman and CEO, Al Rankin, for some opening remarks. Al?

Thanks, Christie, and good morning, everyone. Thanks for joining us today. The global COVID-19 pandemic continues to [indiscernible] challenges to every aspect of our daily lives, and our first priority continues to be to keep our global workforce safe and to help reduce the spread of the coronavirus. The spread of this virus, as you all know, began in January. It...

I'm sorry, Al, you're breaking up. Al? Al? I'm sorry.

Hello? Christie?

Yes. Al, you're breaking up. We can't hear you. Rajiv, do you want to give Al's remarks?

Sure.

For those listening on the call, we're sorry. We're having some technical difficulties. So we're going to pivot.

Yes. So I'll just continue with Al's remarks. So the spread of this virus began back in January, as you all know. And despite all the progress we've made since then, the questions we're -- we were contemplating months ago regarding the depth and duration of the downturn and the speed and shape of the recovery are still very much with us, especially as we see cases rise again globally. While there are several promising vaccine in process, timing, availability and mass distribution capabilities remain open questions. Despite these ongoing challenges, our global workforce has remained focused, agile during this period, effectively navigating an evolving landscape to meet the needs of our customers and deliver solid third quarter financial results. Christie will provide the financial details next. But overall, our business is still feeling the impact from the COVID-19 pandemic, although the effects have moderated from those realized in the second quarter. The significant decline in global economic activities as a result of the broad measures taken globally to limit this spread of the virus. specifically early in the second quarter, continued to effect demand for our products during the third quarter. As a result, our third quarter consolidated operating profit and net income was significantly lower than in the prior third quarter. Nevertheless, as a result of higher-than-anticipated shape of market growth subsequent to the pandemic related global shutdown and the impact of our cost reduction programs, our third quarter 2020 results significantly exceeded our initial expectations. And we are continuing to make important investments for the future. The third quarter results also included a full quarter's benefit associated with several cost reduction measures implemented throughout the first 6 months of the year. Benefits from these cost containment actions resulted in a decrease in operating expenses of $19.4 million for the third quarter and $47.3 million year-to-date compared with the respective prior year period. In this pandemic related work environment, the resiliency of our workforce has been impressive, and we greatly appreciate their efforts to remain both safe and productive while keeping costs down. Our Hyster-Yale management team and global workforce have responded confidently and successfully to a variety of challenges, thus far. As a result, we believe our employees and our businesses are well positioned to manage through the remainder of this pandemic. Everyone's disciplined execution in the different -- in the current difficult environment has enabled high DL to support our dealers and customers. At the same time, work diligently to ensure the health and safety. After Christie reviews the results of the quarter, I'll discuss our business operations and our strategic program. Ken will then talk about outlook and how we are managing our business through this uncertain and evolving environment. Let me turn the call over to Christie to cover our results for the quarter. Christie?

Thank you, Rajiv. I'll start with the quarter highlights and then discuss the individual segments. Our third quarter consolidated revenues decreased to $652.4 million, down 14.8% from last year's third quarter, mainly due to lower bookings in the second quarter and the resulting lower shipments, primarily caused by the pandemic related global effects and the pace of the subsequent forklift truck market recovery. Our consolidated operating profit also decreased significantly to $7.3 million from $19.5 million in the prior year third quarter due to lower results in all of our segments. However, I want to point out that the 2019 third quarter results included $8.7 million of favorable retroactive tariff exclusion adjustments. If you exclude those out-of-period adjustments from the prior year results, the decline in operating profit associated with the actual business operations was not as substantial, primarily because of lower operating expenses due to the cost containment actions previously implemented. Net income decreased to $5.1 million or $0.30 per share from $12.8 million or $0.76 per share in the prior year quarter. I'd also like to note that the third quarter is generally our seasonally low quarter as a result of normal summer plant shutdowns and customary lower third quarter production schedules at our manufacturing plants. Turning specifically to the Lift truck business. Hyster-Yale Group's third quarter revenues decreased 14.7% to $618.7 million from $725.3 million in 2019, primarily due to fewer shipments in the Americas and EMEA segment. Consolidated shipments decreased by approximately 2,900 units due to fewer shipments than all but Class 1 electric counterbalance trucks in the Americas and JAPIC segment and Class III warehouse trucks in EMEA and JAPIC. Rajiv will provide more detail about our bookings and shipments in a moment. Third quarter 2020 operating profit in the Lift truck business decreased 42.1%…

Thanks, Christie. As I said, I continue to be very proud of the hard work and disciplined execution of our global workforce as we continue to work through the challenges brought on by COVID-19 pandemic. Across the company, we have focused on maintaining the safety of our employees and preventing the spread of the virus. We have a good track record in doing that. However, the recent resurgence in cases is creating new uncertainties and added stress. And it is important as -- it is as important as ever that we are diligent and maintain strong safety procedures despite the pandemic fatigue many of us are experiencing. Let me reiterate, I'm very proud of our workforce for their ability to stay focused and effective in these uncertain times, including maintaining the protocols we have established to keep themselves and those around them safe. Moving on to our operations. As economies continue to reopen in 2020 third quarter, as we mentioned, lift truck market activity improved faster than anticipated, with markets ending the quarter at roughly pre-pandemic levels. Excluding China, which increased 78% over the prior year third quarter, the global lift truck market was down less than 1% compared with the third quarter of 2019. Compared to second quarter of 2020, the global lift truck market increased 22.5% in the 2020 third quarter, driven by 28.8% increase in EMEA and a 25.9% increase in Americas as well as a 19.7% increase in China. These market improvements over the second quarter translated into a solid increase in our 2020 third quarter bookings. During the third quarter, our unit shipments decreased from prior year third quarter but were higher than the second quarter. Third quarter shipments were down because of substantially lower bookings in the second quarter of 2020 due to the…

Thanks, Rajiv. While recent market and booking activity is encouraging and growth since the 2020 second quarter shutdowns has been better than expected, the level of our future bookings is still uncertain. The trend line for bookings is improving, but improvements are occurring at a decreasing rate, and the COVID-19 cases are increasing. Overall, we continue to operate on the assumption that the economic and market environment will remain difficult throughout the remainder of 2020, with COVID-19 cases expected to increase in areas entering the winter season. And in 2021 as well, until an effective COVID-19 vaccination or alternative therapy is widely available. While we may not be able to control the macroeconomic factors that drive the demand for our product, we are aggressively executing on actions that are within our control to keep our employees healthy as COVID-19 cases once again spike in many of the countries around the globe and on moderating any resulting additional near-term financial impact from the continuing COVID-19 pandemic. Beginning late in the first quarter, we put in plans -- we put in place plans to mitigate the impact of declining markets and bookings and the consequential impact of reduced manufacturing activity from pandemic related shutdowns by initiating cost reduction measures, which were designed to lower cost and enhance liquidity. Despite currently improving markets, we expect these measures to remain in place until the market and economic uncertainty dissipates and results improve, which we anticipate will occur over the course of 2021. We expect these cost reduction actions to achieve $60 million to $75 million in operating expense savings in 2020 compared to 2019, of which approximately $47 million have been realized through the end of the third quarter. As Rajiv has mentioned, we also adjusted production levels at our manufacturing plants during the…

Thanks, Ken. Before I turn the call over for questions, let me say that Hyster-Yale is very strong, and we have an outstanding group of leaders and employees who have effectively managed production and supply chain disruptions and kept Hyster-Yale on a positive path in the period since the pandemic began. We can't let up as the pandemic is still with us, but I'm reassured by the strength and resilience of our people and believe we would deliver solid sales and earnings performance over the long term. Now let me open up the call for any questions that you may have.

[Operator Instructions] Our first question comes from [ Ramya Sri with Infosys ].

We can't hear you if you're asking questions. I'm sorry.

Your next question comes from Michael Sesser with DWS.

Can you guys comment on the significance of the -- completing of the -- completing the certification for that 45-kilowatt engine that you remarked about?

Rajiv, do you want to take that?

Yes, sure. So to apply these engines in China, you have to go through 2 types of certification. One is at the engine level and the other one is at the vehicle level. The engine-level certification is called SMVIC and once that's approved, then you can start working with vehicle integrators to integrate those engines and certify the whole vehicle with a fuel cell system, and that's called MMIT certification. So as we stated, we have done that with our 45-kilowatt engine and one OEM in China, which is now available for orders. Now what's also happening in China is there's some changes to the subsidy regulations. So a large number of customers are waiting for that to stabilize. What it may require is a higher power engine, and that's part of the reason why we're developing the 60-kilowatt engine, which is going into the certification process right now -- or going through it right now. Now we feel that the 45 kilowatt is the right solution for these kind of medium-sized buses, so 8- to 10-, 11-meter buses. So we will continue to market that elsewhere. We are talking to other customers in Asia and Europe about that engine. And then we're starting to talk about the 60-kilowatt engines with our customers in China.

So the way -- based on the way things have evolved over the last year or so since you guys did the Analyst Day, how has your long-term outlook for Nuvera change? Or has it not changed at all?

Our outlook for Nuvera is very good. We feel we're at the kind of right point for acceleration. If you've seen in the marketplace, there is hydrogen fuel cells starting to be talked about as the primary replacement for internal combustion engines, particularly in the short to medium-term for heavy duty vehicles, which are buses, vans, trucks, and some of the larger vehicle platforms. And we are having discussions with a large number of OEMs about the solutions. So we feel good about where we are. And I think we're -- as the market turns up, we think we're well positioned to participate in the primary -- in some key platforms that will integrate fuel cells.

Well, given that...

I think I'd just add to that, that the real significance of passing those certification tests is that our commercialization programs can go into high gear. The most immediate markets of volume appear to be in China, but other markets are emerging in segments in both the Americas, North America, and in Europe. But the -- at Nuvera, the focus is beginning to shift from ensuring that we have the right engine and the right engine variance is that -- variance that is a 60 kilowatt engine; 2, our commercialization and really beginning to drive revenue over the next couple of years. So we're moving into quite a different phase at Nuvera as a result of passing those certifications.

Great. And so what should we be looking -- as investors, what should we be -- what milestones should we be looking for to track the progress of this commercialization and the revenue ramp?

Well, we'll be reporting in our regular quarterly meetings on the level of orders and the kind of shipments that we think we may be seeing. Now we'll be very careful how we do that to make sure that the timing of those is fully agreed upon by not only us and our customers but by the end users of the products. So that's what you want to be watching for, but we're not going to forecast way in advance. We're going to let the process work through, get the orders, and then make the shipments.

Okay. And just maybe 2 final follow-up questions. Do you -- given where you are now, where the focus is shifting to commercialization, are you thinking about strategic partnerships? Or is Hyster-Yale the best entity to pursue the commercialization?

Well, we're always thinking about alternatives to move forward in the best possible way. We wouldn't comment on those in advance, except to point out that there are many segments in the total addressable market. And that some sort of alliances will probably be necessary, including sales arrangements -- dedicated sales arrangements with potential customers in different segments as we move forward. So it's going to be an orderly process of figuring out the best way to sort through the most attractive segments of the market and how it best to participate in them. Rajiv, do you had anything to add to that? I think that probably lays out the approach we're taking.

Yes. I think that's a good summary, Al.

Okay. Just final follow-up. Given the increased attention to hydrogen fuel cells as a technology, do you have any thoughts on where Nuvera sits within the competitive landscape?

Yes. Maybe I can take this one, Al. So if you think about the fuel cell, there's some critical attributes that you need to have. And we feel good about the attributes that Nuvera has. For instance, one of the critical one is power density, both from how much power a unit weight of fuel cell can generate and also the unit volume. As you can imagine, both rate and volumes are very critical for OEMS, and we feel we are leading in that area because of our open flow field architecture. The other area is robustness. As you know, our kind of basic structure of the fuel cell is based on stainless steel, where a number of our competitors are using different types of substrates such as graphite, which we feel is less appropriate for motive power. The last area is working within the Nuvera and high steel group, we've applied fuel cells to forklift trucks. And in that process, we've learned a significant amount about how to manage the fuel cell as it transitions into an engine and have significantly increased the robustness of the solution. So I think those 3 parameters we feel we're either leading or amongst the leaders in those parameters, which are critical to both OEM and system integrators.

Well, let me just add to that, that the backdrop for everything that Rajiv just outlined, is a very significant patent position in a fuel cell solution, which is different from many -- from our competitors. And we think that gives us a very good position for long-term success, especially in the heavier duty motive applications of various kinds, but also in other segments of the market.

Your next question comes from Michael Shlisky with Colliers Security.

And I may say great job on the opening comments that the true definition of teamwork [indiscernible] for quite a long time now. Great work on that. I will ask the question about lift truck, but I wanted to follow-up with a few questions on my own on Nuvera. I guess, first of all, just a bit more on the opportunity in the U.S. for some of the on-highway applications of fuel cell systems. I guess, do you have to get a different kind of certification or any of your engines if you wanted to have them on U.S. highways? That's my first question.

Yes, I'll take this one. This is Rajiv. Again, certifications are by region. So kind of a set of requirements drives integration into commercial trucks in North America, a different set of requirements are driven by Europe. And in Japan, Japan has the same set of requirements. And you do need to certify. There is a lot of consistency in certification, but they are a little different for each market.

Okay. And then I would love to hear your comments on the fuel cell fueling infrastructure across the U.S. Have you got any feel for whether there are any major companies out there that are developing the kind of infrastructure that you would need to fuel a fuel cell truck all along a long-distance route? Or are you expecting mostly adopters of any on-highway equipment to be return to base operations with their own infrastructure?

So maybe I'll take this first, and then I'm sure Al will have some comments. From my point of view, the way we should look at hydrogen is a number of stages. Firstly, hydrogen is widely -- is an abundant material. It's in a large number of -- it's in water. It's in a carbon field. So availability of hydrogen is not an issue. The dissociation of hydrogen from a molecule to an atom is also pretty straightforward. You electrolyze it or use something like a reforming methodologies to separate out the hydrogen. So that's well understood. So making hydrogen and -- is not an issue. The third area is around the distribution of hydrogen. Again, hydrogen distribution could be very analogous to carbon fuel to gasoline. You could use the same type of stations to distribute it. So I think there's nothing in the physics, the chemistry, or the economics of hydrogen that's a barrier. It's case of demand driving it. Now, we do feel the biggest application of -- if we take North America as an example, the biggest implementation of fuel cells in North America has been on forklift trucks because you can have local fueling. We expect that to trend out. So we expect hydrogen, as I've talked about, has been around buses, which come back to some sort of central fueling source, delivery trucks, vans, which come back to a central source. So we think in the short to medium term, it is going to be more in vehicles that do have a -- some sort of refueling center to come back to like a depot. But over time, there's a huge amount of work going on with various groups in each of the regions to create a hydrogen infrastructure. And as I said, the barriers to that aren't big. It's just what will drive it is the need of it.

Yes. The only thing I'd add to that is that once hydrogen is produced, it's relatively straightforward to put it under pressure and ship it. So in that sense, it's analogous to gasoline. And as Rajiv suggested, there are going to be these specialized depots and manufacturing plants that have their own refueling systems. And those may be the hubs for further expansion of refueling as hydrogen becomes more adopted. So there's a lot of flexibility. I don't think there's going to be any one solution, but there are no real technical challenges. It's going to be a very practical matter of getting it transported to the end user in the most efficient way possible as the volumes increase. And as the volumes increase, there are going to be more outlets of different kinds. So it's going to be very much an evolutionary process.

Okay. That's great color. I wanted to also turn to some of Ken's comments there at the end. You had mentioned you're just kind of tracking some of your suppliers during the pandemic as some new market shutdown. Can you maybe comment on how your orders there during October? And then how have the orders fared during any particular -- in any particular regions or areas that actually have shut down? Have you seen any kind of shutdown in activity over the last couple of weeks here?

Rajiv, you want to comment on that?

Sure. Thanks for the question. So the -- what we have seen is continued in a market as we've made in our comments, some of that has continued into October. But we have started to see some impact, particularly in Europe, where, as you know, some of the lockdowns have recently taken a significant impact. And what we are seeing is not that our pipeline is deteriorating, but what's happening is that our customers are taking longer to make decisions. So that's pushing out some of the orders that were in our plans. But to a certain extent, we did anticipate this when we saw the initial rise. In Europe, we are in a good position. We have a -- as you can see from the backlog, we have a good backlog in Europe. So we feel that we can go through this in good shape. North America continues to be strong. And then China is -- as we've said, China is very, very strong, and it's driven by some economic drivers that the government is driving as well as some of our competitors are being very aggressive in China, which is increasing the volume in China. Asia is a little split. Some parts of Asia are doing very well. Other parts are essentially shut down. So that's a mixed story.

Let me just add one other backdrop to the answer to that question. In the first round of COVID-19, the disease was obviously not well understood. There were lots of questions. And as a result, the concept of a lockdown tended to embrace almost all elements of the economy, relatively few were left open. I think what we found is that factories, warehouses, physical operations can adjust to COVID conditions. They can have reasonable social distancing, very good health protection measures, testing, strict oversight, and rules. That's certainly what we're doing in all of our plants. But the broader result is that as we look at it in the second round, we don't think the focus of the lockdown of activities is going to be on manufacturing the way it was in the first round. So that gives us real encouragement that any slowdowns that we see are really at the type that Rajiv mentioned, delays and communication processes and sign-offs and things of that nature. But that the need is there. And if the factories continue to work as we think is most likely that the opportunity is going to be increasingly there over the next year.

Okay. That's great color as well. Can I also ask about your parts and service business? Do you get a sense in the quarter that you're seeing enough parts business coming in that you're encouraged that your machines are being used in the field adequately or appropriately and enough? Or you think you've got some more to go, you think, on parts and service in the fourth quarter?

Yes. Maybe I can take that one, Al, and then you could make some comments. We're continuing to see good parts requirements in the marketplace. There's another way we can -- at least in North America, we can have a good sense for what the demand is for our lift trucks in terms of their usage because we have telemetry on around 50,000 units in North America. It's pretty much in every industry. And again, we've seen -- we did see a drop in daily usage on forklift trucks when we were in April and May. But then, since then, we've seen a steady improvement. And now we've -- since around August, September, we've flatlined every day to what would consider to be mature productivity for these customers. So I think that's where we find ourselves. Again, in Europe, as Al said, there is -- the lockdown is much more associated with home and rather than work, and we're continuing to see good demand in Europe as well.

Okay. And maybe I'd just throw one last one in here. I understand in your comments, Rajiv, about introducing some of the modular products over the next year or so. That's been coming for a while now, we see it's only working. Can you clarify maybe 2 things? One, has that project been pulled forward thanks to COVID 19? Have you had more time to focus on it? I wasn't sure if your comments meant that you're going to be able to do this faster or better than your plan? And then perhaps secondly, are any competitors already offering products like this that have these modular capabilities? And are there any changes that you've seen in performance with these products compared to the old versions? And any changes to how you maybe fix them or how you service them?

Yes, that's a big question and long question.

That COVID impacted the development. I think marginally, we've had our development center operating throughout the pandemic. A large number of our engineers are working from home, which has allowed our testing centers to be reconfigured so that people can socially distant and complete that test. And as normal development issues come along, they have resolved it. We do have a ramped introduction planned for this platform. And so it will progressively introduce new versions, the start of it, both in terms of models, but also in terms of geography. So we expect these products to be launched in the first part of 2021 and then throughout over the next 2 or 3 years, depending on geography and the types of models. So it's a pretty extensive program. It'll -- over the next 5 years, it will replace everything we do. So it's very, very significant in terms of the investment the company is making, but also the improvement it brings with it. And so I'll turn to that. With the trucks that we're designing are very customer-centric in 2 ways. The firstly for the operator, the productivity is greatly enhanced, the economics is greatly enhanced. The power sources made available are varied kind of from ICE to fuel cells and different types of batteries. Then on the other side, the modularity side, what it allows us to do is to configure the right solution for our customers' application, an optimal solution, which invariably will give them the lowest cost of ownership. So the modular and scalable nature of this design allows us to do that. Do we have competitors who can do it? There are some competitors who have taken a modular approach, but we haven't come across any competitors that have taken it to the degree we have with our modularity and scalability and the way we are applying it to our complete product range.

[Operator instructions]. Your next question comes from [ Ramya Sri with Infosys ]. We have no further questions at this time.

Okay. Again, thank you, everybody, for joining us today. We do appreciate your interest. And if you do have any additional questions, please give me a call. My phone number and information is on the earnings release. Thanks so much. Have a great day.

This concludes today's conference call. Today's replay will be available starting 2:00 p.m. eastern standard time until Wednesday, November 11th. Participants may listen to a replay by dialing (800) 585-8367, or (416) 621-4642 using passcode 6560609. Thank you. You may now disconnect.