Good day everyone and welcome to The Manitowoc Company Q4 2016 Earnings Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Ion Warner, Vice President of Marketing and Investor Relations. Please go ahead.

Thank you, Matt, and good morning, everyone, and welcome to Manitowoc's fourth quarter 2016 earnings conference call. With me today are Barry Pennypacker, our President and Chief Executive Officer, and Dave Antoniuk, Senior Vice President & Chief Financial Officer. On today's call, we will provide details of our fourth quarter 2016 results and our 2017 full year business outlook as outlined in last evening's press release, which was posted on the Investor Relations section on our website at manitowoc.com. Today's call includes a slide presentation which can also be found on our website. Please turn to Slide 2. Before we begin, please note our Safe Harbor Statement. During today's call, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 will be made during each speaker's remarks and our question-and-answer session. Such statements are based on the Company's current assessment of its markets and other factors that affect its business. However, actual results could differ materially from our implied projections due to one or more of the factors explained in our filings with the Securities and Exchange Commission. Manitowoc does not undertake any obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events or other circumstances. We will be sure to reserve time for questions and answers after our remarks. I would like to request that you limit your questions to one, and a follow-up and return to the queue for further questions in order to ensure everyone has an opportunity to ask their questions. And with that, please refer to Slide 3, and I will now turn the call over to you, Barry.

Thanks Ion and good morning everyone. It's been an incredibly challenging year and our team is working hard to transform Manitowoc into a stronger, more resilient and profitable crane company guided by the principles of The Manitowoc Way. On our last call, we indicated that cash generation was our number one priority. We targeted an inventory reduction of $60 million and I'm very pleased to report that our fourth quarter reduction amounted to $100 million. This allowed us to fully repay all borrowings under our asset-based revolver and end the year with $70 million in cash. I'm really proud of our team for delivering this result, and we will expand on this later in our remarks. Generally, worldwide market conditions remains unchanged from the last quarter. In the Americas, demand remains soft and at historically low levels due to depressed used crane values and weak rental rates. We are cautiously optimistic regarding the priorities of the new U.S. administration to invest in infrastructure, but this may not quickly translate into new crane orders, given the nature of the potential projects. Additionally, the supply for under-utilized cranes needs to be observed into the market, before we will see any inflection in our mobile business. That said, as a result of our restructuring activities in the past year, we are much better positioned today to swiftly react to increases in demand, but we are not expecting or including any impact from the infrastructure build in our 2017 guidance. In Europe, revenue for the quarter was slightly better from the previous quarter and prior year. We continue to see favorable customer demand driven by strength in residential and commercial construction projects. Our new product introductions have contributed to our European growth. Customers continue to receive our new self-erecting Hup and top-slewing City class…

Thanks Barry and good morning everyone. Let's move the Slide 5. For the fourth quarter, orders were $348 million compared to $310 million in the third quarter of 2016, and $425 million in the fourth quarter of 2015. We reported net sales for the fourth quarter of $378 million, which decreased $165 million or 30.4% from a year ago. The year-over-year revenue decrease was attributable to softness in the Americas, Middle East partly offset by higher sales in Europe. SG&A costs for the fourth quarter 2016 were $61.9 million, which is $15.1 million lower than the prior year and $11.1 million lower than the third quarter 2016. Compared to the prior year, SG&A costs benefited from lower headcount, a net benefit of approximately $5 million mainly due to incentive compensation, lower depreciation and general reductions in discretionary spending. Third quarter 2016 SG&A costs included a non-recurring charge related to declines in the fair market values of used cranes, which did not repeat in the fourth quarter. Additionally, the fourth quarter also reflected lower compensation costs as compared to the previous quarter. GAAP operating loss in the fourth quarter was $23.8 million compared to a loss of $13.9 million for the fourth quarter of the previous year. On a non-GAAP adjusted basis, our operating loss in the fourth quarter was $16.4 million or negative 4.3% compared to a non-GAAP adjusted operating income of $11.1 million or 2% in the prior year. This result was on the better end of our guidance of negative 4% to negative 6%. Non-GAAP adjusted operating income was negatively impacted by the year-over-year sales decline of $165 million, coupled with manufacturing related costs, caused by a significant reduction in the production of our mobile cranes to improve our inventory levels. The costs associated with the sales decline…

Thanks, David. While the current market conditions remain challenging, we are controlling every aspect of cost that we can. We are improving the quality of our products. We are expanding our market position. We continue to rollout our lean initiatives in a way that benefits us now and in the future. We continue to have a disciplined approach the new product development, which is working. In November, we had the opportunity to show 40 investors, some of things that we're doing to transformers Shady Grove facility. And once you understand, the Shady Grove is not unique. This is happening in all of our operations, positioning us to realize substantial incremental profit improvement when the market recovers. The organization is embracing our new culture driven by customer feedback. This new level of commitment listening to and acting upon customer's needs, will be evident at CONEXPO. In addition to the new truck crane that I've been talking about, over the last couple of conference calls, our team has also developed a 30-ton fixed counterweight lattice boom crane that complements our VPC product offering and one other product that you will have to come to the show to learn about, another crane that was developed from scratch in less than six months. My only hope is that you can see what I can see, a great company in the making. With that, I'll turn the call back over to Ion and introduce the question-and-answer session.

Alright, thank you Barry and Dave. Operator, please provide instructions.

[Operator Instructions]. We will take our first question from Steven Fisher with UBS.

What is your expectation for cash to be generated in 2017 after the nice quarter and the fourth quarter? And how much of that would be inventoried reductions specifically? And then I guess, you know as part of that, how much cost, do you expect for cash restructuring in 2017?

I'll let David give you the cash number, but from an operational standpoint, I can tell you that we have targeted incremental $30 million over the year in inventory reduction to contribute to our overall working capital reduction, and ultimately our cash flow. But David, you can provide more color.

Thanks very much for the question. Overall, we anticipate being cash positive for the year as Barry has indicated. We have a focus on working capital management. We do have some headwinds in our project green budget, green moving the crawler manufacturing from Manitowoc to Shady Grove, but we anticipate that we will be cash positive at the end of the year. Now that being said, we will be cash negative in the first quarter, which is consistent with prior years.

Okay. That's helpful. Back at the Investor Day, you were talking about some of these sizable projects that had the potential to come through any time now, what is the bid pipeline of sizable projects look like at this point, project where you could maybe see crane packages of $50 million plus and then to what extent are you finding that these projects are specking in, used cranes versus new cranes?

Excellent question. With regards to the actual market for the large packages, there are still a number of those out there. Unfortunately, they are moving to the south as far as timing is concerned. In fact, I'm not sure if everyone has seen or not, that Ryan – Ryan came out this morning and said that, they are not even going to be talking about infrastructure to the mid spring. So that's going to cause the large projects that are counting on that funding to continue to move to the south and we're continuing to go after those. I'm pleased to say that in the quarter, there was a large India order for excess of $20 million for large package of cranes, and due to technology, due to support, due to overall expectations of this large customer, we were able to land that order. So, we're being very aggressive globally on these large packages, and for the first time I think we've got a product portfolio that puts us in the game.

And we will now hear from Seth Weber with RBC Capital Markets.

Wanted to ask the production cut on the mobile crane business in the fourth quarter is that – has that – are you kind of right sized there currently, or do you anticipate more production cuts here to start the year, is my first question?

No we are exactly where we thought we would be. We have the product lines producing at the lower levels that we anticipated. We are utilizing some government activities that allow us to work short weeks in places like Germany. So, the answer to your question is where we wanted production cut and inventory out of the system that has been accomplished.

Then I guess, at the Analyst Meeting, you talked about a bigger, or you've been talking about a bigger push towards the aftermarket in the crane care business. Can you comment if – was crane care revenue up in the quarter, year-over-year? And can you just talk about if it was, is that a function of tower rebuild or what's driving that still? Thank you.

I can tell you that our percentage of revenue in the quarter was up in aftermarket and I'm very pleased by that. We continue to build our team globally to take what aftermarket is available to us. We continue to work with our supply base to privately brand some of the products that you know have been historically branded by our suppliers and that our ultimate customers are able to go to their local stores and buy the things directly from them. But I think you've also heard me talk about that I think it's extremely important that in order to build a long-term successful aftermarket, you have to build the hook-in at the sale. What I mean by that, is that, as you are developing a new product, you have to have the aftermarket in mind so that you can build things into the aftermarket that – into the product that are going to allow the aftermarket to not only come back to you for those products, but have it be proprietary. I think you will find in some of the technology in particular, in two of the new cranes that we are introducing at CONEXPO, we will have aftermarket build into them as a result of the development effort. And that's the first time that I can say that we've got a product out there where we can say that. And I will tell you that, this technology that we've developed has the potential to go across the entire product portfolio on rubber based mobile cranes. And I'm extremely impressed with what the teams are doing, and I think it's just going to take a while longer before we can actually see that revenue stream truly affect our long-term P&L.

And our next participant is Robert Wertheimer with Barclays.

So, just wanted to ask, and obviously you guys used a much higher grade steel than some of the headline indices, and so have you seen steel cost inflect up yet, and does it seem, and is it a headwind within your outlook. And I guess I missed the change if I heard it right on the call from LIFO to FIFO in the press release. But does that mean, so you've done that I guess for 2016 and would it have been materially different if you've done LIFO in other words, you've already see the steel cost starting to come in?

I'll let David handle the LIFO/FIFO deal, but I will tell you that there are some headwinds in our forecast for 2017, particularly in some higher grade steels that only come from a few steel mills around world, and we are very aware of that. And where that has happened, we have activities in place to ensure that we don't see margin degradation as a result of that.

Robert, with regard to the change from LIFO to FIFO for the Manitowoc inventories, really had nothing to do with the raw material cost of the business. It had more to do with the fact that this facility was the only facility that was on LIFO. As you are aware, we have significant net operating losses and the amount of taxable income generated by this is not going to result in any tax impact at all. So, it's not – it will be a non-cash transaction for the most part. So, it puts us on one platform as a FIFO company. Enables us to use one ERP system where we had actually duplicate ERP system between the two location, so from a simplistic standpoint, it adds to the simplicity as well. But really nothing about raw material input cost was involved in that.

Then, if I can ask a general and a specific question, I mean, you guys monitor the used crane pricing much more closer than we would, what's your sense as to whether anything's being mopped up and some of the optimism that coming whether or not, really maybe rental companies are. And then, generally speaking, on boom cranes, do we have a chance of actually starting at age out the 2004, 2005 or 2006, 2007 or 2008 stuff yet in and starting to get more replacement over the next three to four years. When do you think that that actually might start to become a positive dynamic rather than maybe oversaturation? Thanks.

Okay. Very good question. I will say that used prices are still down. You're absolutely right. It's one of the key metrics that we monitor. And I will tell you that the first big opportunity to understand where used crane pricing is going to be for this year is the upcoming Orlando auction in February by Ritchie Bros. that historically has set the tone for the year and we're anxious to see where that ends up. With regard to boom trucks, I can honestly say that, we are seeing increased activity in boom trucks and that's a positive. And as you know sometimes that is a leading indicator, but we're just remaining cautiously optimistic and sizing our operations to the revenue guidance that we gave and there is upside in that that will be a wonderful thing.

And our next question comes from Mike Shlisky with Seaport Global.

So just kind of follow-up on your last comment there, one of your big competitors in the smaller truck-mounted crane category, you're seeing some pretty meaningful backlog improvements, and is looking in for some pretty good growth to start the new year. I know that National Crane is now your biggest brand, so could you maybe comment on the orders you now look for National Crane as a whole here?

Yeah. When I talk about boom trucks and that is our National Crane offering to the market. As I said, it is getting better and to move our total backlog when it is not a large portion of our overall revenue would be crazy to say. But our orders are picking up and there are substantial for us and fortunately for us we have spent a substantial amount of time when the boom truck market was depressed in investing in the manufacturing operations there. So, while historically us, as well as others may build backlog due to our transformation of the manufacturing operation, we're able to shift much quicker. So that's being known by our customers and as it's known by our customers, they have a tendency to now allow us to not have this significant backlog like we've always had. It's more or less a call. We produce and ship. It is important also to recognize that this is – although this is a smaller portion of our business, it's one that we continue to invest it. We've recently introduced two new units to the market and they're being received extremely well.

Got it. So there is more bookings earned within the quarter or within a few months?

Correct.

And just earlier you had touched on that could be something of an early indicator as we do see some of these smaller cranes et cetera. As you look back to history, can you just give us a sense as to what kind of last time takes on the smaller stuff on the crane pickup? How long might it take for some of their categories to improve in your experience?

When we see, it's a multi-functional approach, but I think one of the things that we have to look at first in order to understand where we're at with regards to the market is rig count. And as we follow rig count, we see boom trucks go first and then after boom trucks that's when the balance of the market of our piece really starts to kick in. So rig count is a leading indicator which will increase, show an increase logical increase in boom trucks and once rig count passes a certain level, then we bring in truck-mounts and our AT product line.

And our next participant is Jamie Cook with Credit Suisse.

Hello. I guess a couple of questions. One, just in terms of the profitability, the cadence for the year or anything unusual this year should we expect, you are more profitable in the back half of the year or lose more in the first half of the year. I am just trying to understand how we should think about that with savings rolling in or how we are thinking about material costs and being able to capture that? And then my second question on your sales guidance, do you assume any market share gains to hit your numbers or that's just more market related?

Jamie, I'll take the first the profitability. So, historically and it's going to be no exception for 2017 the first quarter will be challenging relative because where our backlog is at this point and the sales mix that we'll have there. So, as far as profitability goes, the first quarter will be a little bit challenging for us. And in going forward, we would anticipate that Q2, Q3 and Q4 will be better months enabling us to get to the long-term goal. We'll provide some color on the quarters in later on as we get through the first quarter.

Go ahead.

I was going to say, I know I asked what's implied with 2017 with market share versus end market demand. But I guess I am just trying to think about too, how do you think CONEXPO plays into sort or order activity this year? I mean like it's generally tends to be a larger event. I mean do you think that distorts orders for the year, I guess if you can give more color on that? Thanks.

Well, what I would say about CONEXPO is that we are presenting to the market a new Manitowoc. We'll have a total of nine cranes on display at the show this year, seven of those cranes have been developed within the last six months. The other two have been within the last 12 months. So we are showing the market that we are a company that listens to their needs, develops what helps them improve their return on invested capital, and I believe that this show will be an order-taking show. However, we cannot forget what's the true underlying market conditions currently are and in past CONEXPOs we've looked, and yes it's been a huge order-taking shows, but market conditions have been different. But I do believe and we will report as I think is necessary, we'll report an impact of CONEXPO in our new products on our order intake rate in the first quarter when we'll do the call.

And our next question comes from Jerry Revich with Goldman Sachs.

I am wondering if you could just bridge for us the $30 million in guided EBITDA improvements 2017 versus 2016 just the underlying components. What are you folks assuming for price versus raw material costs in the structural cost improvements action? Can you just flesh that out a bit for us the underlying pieces on that bridge.

Yeah. At a high level Jerry, I think our sales obviously are down significantly, so we have the headwind from the down sales. However, we believe that we can make a lot of that up from our improvements that we made in our manufacturing facilities. And then, our SG&A costs we believe that we can still get double-digit improvement in our SG&A costs, which is going to lead us to the improvement in the EBITDA results year-over-year.

In terms of the cadence of the SG&A and manufacturing cost savings, can you just help us understand how the momentum is expected to build over the course of the year, your exit rate in the fourth quarter will be how much higher than the savings in the first quarter or if you want to frame it in another way just for context for us?

Yeah. I think that when you look at where we're going to be, we are going to be probably a little bit up on SG&A in the first quarter just because of a few items that are impacting us, but we anticipate those coming down throughout the year. I mean our overall – we anticipate some consulting fees going down as well as some salary still continuing to go down, so we'll have a nice gain there. As far as the manufacturing side, with lower production, we have lower earned hours, so a lot of the benefits that we have in the production are going to be eaten up by the simple fact that our earned hours on a year-over-year basis are going to decline mainly because of the sales decline mainly because of the sales decline that we have as mentioned in Barry's prepared remarks associated with the carryover of crawler manufacturing.

And lastly, one of the big items you spoke about was standardization of components post the product rollout that you've spoken about at CONEXPO. How far along are you in that process? What's the overall SKU or platform reductions that you folks will be targeting and where are you in that process post the products you are introducing at CONEXPO?

I think you need to give us a little bit more time to give you accurate data on SKU reduction. However, I think you will see with these seven new cranes that are mixed between tower, RTs, ATs and crawlers, I think you will see that the commonality of components that we are speaking about are evident on these new products. So, you need to just give me a little bit more time to quantify that, and I think within the next quarter, I think we'll be able to report on that. But I will tell you that you will see when you go to, if you have the opportunity to attend CONEXPO, you will see the commonality of components across the platform.

And we will now hear from Stanley Elliott with Stifel.

A quick question for you on the new products at CONEXPO, I mean obviously in the past it has been a good order show for you guys. When would these products be able to start shipping? Is that by the end of the year or is that going to be fall into early 2018. And I'd be curious kind of what are your expectations or how does this show going to factor into the down 8% of the revenue base, if it does at all?

Well, I don't think the show factors into it very much at all. One of the new products that I talked about that I mentioned, and I kind of gave a little bit more color as to what it was, I mentioned the word truck-mounted cranes, and that is the crane that we developed in six months with superior I think lifting technology for the industry. That crane in and of itself is in production today, and so that impact will be immediate. The new RT that will be talked about at the show will be in the second half of the year. The tower cranes that you will see are immediate and the new all-terrain crane will be in the second half of the year also.

Our next question comes from Ann Duignan with JPMorgan.

This is Tom Simonitsch on behalf of Ann. Can you give us some color on your balance of U.S. imports and exports best in terms of finished products and raw materials?

So, I think that when you look at our balance, obviously the steel component we source from overseas into the U.S. You know for product lines that are produced in Germany, primarily the ATs, we come in from Germany and then in the U.S. we ship RTs from the Middle East. So, certainly that's kind of where we're at. I think on the balance, when you look at things, when you look at the RTs, that we produce in the U.S. for the U.S. market and what we export and you look at the ATs that we produce in Europe for the European market and what we export to the U.S. I think in general when you look at our revenue base, we're pretty well balanced. As David mentioned, I think on the raw material side however, due to some of the steel that we use that is not produced in the U.S., you know we have an imbalance there on the raw material side.

We will now hear from Nicole DeBlase with Deutsche Bank.

So, in your revenue guidance what have you assumed for currency headwinds?

More or less flat from where we ended the year.

Got it. And then from a backlog perspective, I know you – I understand the methodology that you are using to capture 2017 guidance basically annualizing the second half of 2016, but it seems based on the backlog decline that we've seen in 2016 and the 13% decline in orders that you are embedding a bit of an improvement in order activity. So, I'm just curious if you look across like your product lines and geographies, where you are more optimistic about improvements?

Well, I would tell you that we are expecting improvement to continue in our tower business in Europe. That's very evidenced by our incoming order rate thus far in January. We are expecting improvement in Europe, in some of our AT business due to the new products that we introduced. I happen to had the opportunity to be in Europe and visit with some of these large customers a few weeks ago, and I will tell you that while on the large crawler side of the business which you know happens to be a affected by lack of public funding after this year, there which would affect crawler business which we don't have currently in Europe. It's good though for maintenance, which is the AT product line that we have a pretty good position in and where we have spent a significant amount of our new product development activity. And I think now are proving to the customers that I met with, that we have a very viable product line for them, and as they make their decisions to redeploy crawlers to other wind markets, it should drive some substantial increases for us in the second half of the year for our AT product line.

We will now hear from Mig Dobre with R. W. Baird.

It's Joe Grabowski on for Mig this morning. You mentioned earlier that once the U.S. rig count reaches a certain level, it drives demand for a broader range of cranes, and we've seen the U.S. rig count improve from 400 to 700 over the last seven or eight months or so. I'm just wondering how close are we to reaching that certain level and what's kind of the cadence of what types of cranes come back, once we – once the rig count goes up from here?

We've looked at in the history of our correlation of revenue to the oil and gas business, is not directly tied to rig count, indirectly it is. But the more driving factor for our business is $60 a barrel. Historically, from where we're at today, if you look at where rig count is to price of oil, and the number or rigs that would be put into the market should oil go above $60, that could account for as many as 200 rigs, and that 200 rigs would definitely drive demand for our key product line, even in the current marketplace of oversupply.

And with no further questions in the queue, I'd like to turn the call back over to Mr. Warner for closing remarks.

Thank you. Before we conclude today's call, please note that a replay of our fourth quarter conference call will be posted later this morning by accessing the Investor Relations section of our website at 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 again on our next call. Have a good day everyone.

Once again that concludes our call for today. Thank you for your participation. You may now disconnect.