Good day, everyone, and welcome to The Manitowoc’s Fourth Quarter and Full Year 2019 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, Marketing and Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone, and welcome to The Manitowoc conference call to review the company's fourth quarter 2019 performance and 2020 full year business outlook, as outlined in last evening's press release. With me today are Barry Pennypacker, President and Chief Executive Officer; and David Antoniuk, Senior 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 Presentations. 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 2. Before we begin, 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 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 as a result of new information, future events or other circumstances. And with that, I will now turn the call over to Barry.

Thanks, Ion, and welcome everyone. 2019 was another year of solid financial performance, marking an excellent year of margin expansion and cash generation. We ended the year with approximately $200 million of cash on hand and as a result of good operational execution highlighted by a $91 million second half inventory reduction, which exceeded our initial target of $80 million. On essentially flat year-over-year revenue, we delivered over $40 million of additional adjusted EBITDA. David will provide more color on the financials for the year, but I'd like to bring your attention to the adjusted EBITDA percentage for the year. It was 8.5%. This represented a 220 basis point improvement year-over-year and is evidence that 10% is not too far off if market conditions cooperate. A great tribute to our ability to drive incremental improvement in all that we do. Our financial performance was a result of almost 5,000 employees working together as a team and making day-to-day improvements to the business. I’d like to take a few minutes to highlight some of the most impactful accomplishments in the year. The one accomplishment that I'm most proud of is our 2019 safety results. Our most important goal is to create a zero incident workplace. Our safety measurables have always been better than the industry average, but that's not good enough. We continue to strive for improvement in our workplace through our hazard reduction program called SLAM, which stands for stop, look, assess, manage. Our SLAM activity increased threefold in 2019 to over 18,000 assessments globally. You can find SLAM cards at every value stream throughout all of our factories. While we're not at zero injuries yet, we are absolutely determined to achieve this goal. Last March, we completed the recapitalization of our debt structure, which greatly reduced our borrowing costs…

Thanks, Barry, and good morning everyone. Let's move to Slide 3. Our fourth quarter orders total $472 million, a decrease of 3% compared to $486 million of orders last year. On a currency neutral basis, Q4 orders were down $9 million, or 2%. The Q4 winter campaign in our European Towers business drove an increase in year-over-year regional orders, but this increase was more than offset by declines in the Americas region. Our 2019 ending backlog of $475 million was down 29% over the prior year, 28% on a currency neutral basis. The decrease in backlog was mainly due to a decline in the Americas region. Net sales in the fourth quarter of $463 million were slightly below our expectations and decreased $52 million or 10% from a year ago with each of our three regions incurring a year-over-year decline. Net sales were unfavorably impacted by approximately 1% from changes in foreign currency exchange rates. Our adjusted EBITDA for the fourth quarter was $31 million, essentially flat year-over-year. The decrease in gross profit dollars associated with the sales decline was completely offset by reduced engineering selling and administrative expenses. As a percentage of sales, adjusted EBITDA margin improved to 6.7% of sales, 70 basis points over the prior year and marking our 11th consecutive quarter of year-over-year EBITDA margin improvement. During the fourth quarter, we incurred approximately $2 million of restructuring expenses predominantly related to European severance costs. Our diluted earnings per share in the quarter were $0.26. On an adjusted basis, diluted earnings per share improved $0.19 from the prior year to $0.35 per diluted share. Lower interest expense and tax expense coupled with favorable currency transactions were the main contributors to the year-over-year increase in adjusted EPS. Moving to liquidity, our adjusted operating cash flow in the quarter…

Thank you, David. We all know that the crane industry is a cyclical one, influenced by numerous factors. Looking at 2020, we see continued uncertainty in global economic conditions. The health crisis in China, geopolitical friction in developing regions of the world, the fallout from Brexit and election in the U.S. all contribute to an error of conservatism in demand for our products. In North America, we're not alone in facing what appears to be a softening of construction in oil and gas and market demand. We are carefully monitoring retail activity and expect CONEXPO to be the barometer of market conditions for 2020 in North America. In EURAF, Q4 order activity improved year-over-year. We will continue to monitor market conditions and proactively manage our build schedules as we always have. In the MEAP region, we continue to be encouraged with demand levels, particularly in Australia, but the possibility of further coronavirus spread in China may lead to a longer than expected plant shutdown, which complicates our outlook. Middle East demand continues to lag behind historical levels, but it's starting to show signs of life here in the recent past. We're not sitting idle but rather are proactively following our strategic roadmap to attain our long term goals. By leveraging our flexible cost structure and focusing on the items within our control, we are ready to respond quickly to changes in demand by flexing our production schedules as circumstances warrant. Part of managing a cyclical business is to face the brutal facts. Our guidance reflects our current thinking of market conditions globally, which result in lower revenue expectations for 2020, just like you, we don't like it but our history shows we proactively deal with it and we will. We will play the hand we are dealt and by continuing to focus on our customers, shareholders and employees and by targeting our investments to the ones that yield the highest returns, we will position Manitowoc positively when market conditions improve. With that operator, please open up the line for questions.

Yes sir. Thank you. [Operator Instructions] And we'll take our first question from Jamie Cook of Credit Suisse.

Hi, good morning. I guess just my first question, just on the guidance, I think with the mid-point of the sales decline, it assumed sort of decrementals, in 30% range or so. So can you just walk me through, some of your assumptions on the engineering selling and administrative line and on the gross margin line. I just was hopeful there'd be a little more opportunity to hold a better decremental or maybe it's just we've cut too much. So I guess, first there. And then, I guess, my second question, how you're sort of thinking about free cash flow for 2020. Thank you.

Well, Jamie, there's always opportunity for us within our SG&A for reductions. We are giving you what we think is our best look currently, but rest assured, that with the level of SG&A we have in the business, we certainly are not finished with pulling the levers that we need to pull. And we will, as market conditions dictate, flex this up or down depending upon what we need to accomplish for our customers in the future. With regards to the decrements, I'll turn it over to David and free cash flow.

Hi, good morning Jamie. Just to remind you, we previously communicated an expectation of between 25% and 30% flow through to EBITDA and revenue decreases. And if you recall, in the second quarter of 2019, we recognized a $9 million favorable legal settlement. So after taking this into consideration and using the midpoint of our guidance, we would reflect the flow-through within that range, and I believe it comes to about 26%, whereas excluding it, would give you the decrement of just over 30%. And then with regard to your second question on free cash flow, we're anticipating between $30 million and $60 million of free cash flow in 2020 based on our current revenue assumptions.

Thank you.

Next question will come from Mig Dobre with Baird.

Thank you. Good morning everyone. Wanted to ask a question about guidance as well, on the revenue side, though. So the way I'm kind of looking at it, if I look at 2019 orders, you were at about, call it, $1.64 billion. The midpoint of your 2020 guidance is $1.65 billion. Is it that you're essentially saying that demand is going to be flattish versus 2019 and 2020? Or in your own assumptions, are you baking in some level of backlog erosion as the year progresses?

Market conditions pretty much globally, we believe, will remain constant for the year. But we do believe we'll be eating in the backlog.

So backlog would be modestly lower. I guess, I'm just trying to understand exactly how you're thinking about demand, just pure demand in terms of orders for 2020 versus 2019? And from what you're saying, you're expecting orders to be maybe modestly lower?

Modestly lower to the flat. As I said in my prepared remarks, I mean, a substantial portion of what we will be able to accomplish this year will be dependent upon CONEXPO. CONEXPO historically has been an order taking show. We know from past experience as well as talking to some of the customers that we talk to on a regular basis, that they will be coming with their purchase orders in hand. We don't expect that purchaser in hand to be much stronger than what we exhibited last year. But we certainly do not expect it to be down dramatically.

Very helpful. And then my follow-up, in terms of how you are thinking about your own production cadence through the year given your top line outlook, anything to call out in terms of the first half, second half or first quarter specifically?

We believe our first half – back up and say the full year, we’ll follow pretty much what we have seen from normal seasonality over the course of the last four years.

Alright, thank you Barry.

You are welcome.

We will now take our next question from Stephen Volkmann with Jefferies.

Hi, good morning guys. Actually, I’d like to kind of go back to Jamie’s question, if we could. And Dave, thanks for the view on decremental margins. I guess, many of us and maybe this is our fault, but we sort of assume that base case 25% to 30% decremental, but then you would have the opportunity to add back various restructuring and/or lean benefits on top of that. And obviously, you did that in 2019 and had a great margin performance. And so I guess the question is, are you running out of low-hanging fruit on the margin side, and now you're just sort of at the whim of the market to some extent? Or are there still significant internal improvements that you can make going forward? And if so, why the conservative outlook on margins?

Well, to be honest with you, the conservative outlook on margins is because we're a conservative management team. But for me to sit here and say that I felt long term, and I still believe, long term, we can get 10% operating margins and EBITDA margins in this business, to say that I would believe that we only need market to do that is absurd. Of course, as I said, I visited three of our largest facilities in Europe in the month of January. And there is not one single facility that I went in, where I would say, " Oh boy, we are out of opportunity for margin expansion." So the Manitowoc Way, the culture is alive and well. But when we take the revenue reduction that we have this year coupled with the fact that market conditions are pretty much flat on a global basis, which doesn't lead you to the opportunity, we believe, to lift on price, maybe have to give some price back, we have to offset that with the improvements in the plant. Therefore, that's why I would say that, by no means, will we ever sit here and say that we're out of opportunities for margin expansion from our plant standpoint. David, you can pick up the rest?

Yes. So Steve, thanks very much for your question. I think when we look at where we are right now in the plan, and we look at the phasing of our backlog and where we are right now, I think that it generally reflects our approach that the business continues to operate on a flat to slightly down order backlog. And depending on how that takes out will result in actions later on this year, most likely. So but at this point in time, structurally, the company is as is, and this contemplates where our order intake will be relative to the full year.

Is there anything going on in terms of mix that might be a headwind for margin in 2020?

Absolutely.

Yes, we do have product mix issues that are within the product family. So when I look at where our higher-margin products are, we probably have a decline for -- even within product categories, higher-margin products being substituted for a little bit lower-margin products within that product family. So mix does play an issue within this as well.

Thank you, guys.

Our next question comes from Ann Duignan with JPMorgan.

Sorry, I was on mute. That is just Thomas Simonitsch on of Ann. Good morning. Could you maybe just provide some more color on how Q4 orders trended in the Americas by products, particularly if you saw any further deterioration in oil and gas markets?

Yes. So I mean, we don't typically give out by product line details, but in my prepared remarks, I did indicate that we did have an increase in orders in our Europe region on a year-over-year basis, that were more than offsetting declines in the Americas. And that's why Barry indicated that wait and see how CONEXPO comes out because we're not quite sure how much of the orders are being put on the shelf until CONEXPO comes about. So orders were down in Americas, and they were up in EURAF.

Okay, and just a follow-up on CONEXPO. You noting the potential order patterns around the show. But can you clarify the expected show-related costs in Q1?

It is around $3 million.

Thank you, very much.

You are welcome. Your next question comes from Jerry Revich with Goldman Sachs.

Yes, hi good morning. You guys have been able to -- as you deliver new products, deliver them at a better manufacturing margins. Can you just talk about out of the products that you're going to be delivering for CONEXPO later on this year, what the embedded improved built-in margin, but I'm assuming you're setting up on those products as we head into production?

Well not really, because we don’t really provide that. But what I would say is that we don't – when we introduce the new crane, there's so much overhead associated with the cost of prototypes, in particular, to test those cranes. But we really don't expect that in the first six to nine months to get margin expansion as a result of the new product introduction. And maybe David could provide a little more color on that. But really, what we're doing is we -- the way we account for it is that those prototype costs need to be absorbed from the revenue. And then after that, the six to nine month period is when we truly see margin expansion coming back to us.

And Barry, yes, just to add on to that, Jerry. So what ends up happening is that, we do build prototype cranes that then go into our inventory that we use for all testing for quite an extended period of time and those cranes are probably at a higher cost level associated because of the time requirements and everything. And then once we have a sales plan device for that, what we then do is, we then go outsourcing and we end up with lower sourcing costs for a lot of the material use within that crane. So it's a lower margin on the onset and the margins get better as time goes on.

And David when you say better, does that – I'm assuming that means better than the product line that's being replaced.

Correct.

And then you controlled SG&A costs nicely in 2019. And given the sales outlook for 2020, do you anticipate being able to reduce SG&A savings – SG&A costs, excuse me, in line with the top line decline? Or does that drop a little bit?

We're going to continue to target SG&A reductions. As I said, we're still in the process of transforming the portfolio and we have targeted investments that need to take place, particularly in Europe with regards to emissions. So that will be almost a fixed portion of SG&A for the year which will not allow us to get a substantial reduction out of that. But, rest assured that every dollar of SG&A is under constant scrutiny and we are far from the ability to not pull levers.

And then Jerry, just to add onto what Barry said, just be cognizant of the fact that, in that second quarter our SG&A, was favorably impacted by approximately $9 million.

Okay. Thank you.

Our next question comes from Mike Shlisky with Dougherty & Company.

Hey, good morning guys. In earlier question you had mentioned you have to maybe give back some price this year in some cases. I was wondering if you can give us a sense as to what parts of the world that could be happening in. And whether there are opportunities in other parts of the world to actually get some better price?

Well, we're always looking at the opportunity to increase price. But when you see the things that some of our competition are doing that appear to be irrational. We have to be able to participate in market areas that we targeted for share gains. So I guess that's a winded way of saying that when we believe the revenue in the U.S. is going to be down as much as it is according to our current forecast. It'd be obscene for us to think that we will not have to give some price, but we will fight as hard as we can to keep what we've done in the market. And in some cases, we've walked away from some business already because of a crazy pricing that happens from some of our competition. So it's not a strategy, believe me to give back price, but strategically when we need to, we will.

Sure, sure. Thanks. And my other question, my follow up is, I kind of glad to see that you had a growth of aftermarket in 2019 on a constant currency basis, that was great to see. Do you think there are opportunities for further growth here in 2020 and maybe just kind of take us through a few of your initiatives and strategy for the coming year.

Absolutely. As I tried to telegraph a little bit in our prepared remarks, in Europe we are trying to utilize technology that we have already built into the cranes with CraneSTAR Diag, our diagnostic tool with our service men who are now all co-located in Léon, France, so that they can actually, when a call comes in from a customer our, our fill people that are taking the order for a service can tie into the crane, see what the issue is, give the technician the parts that he needs to fix the crane and dispatch him accordingly. So we are absolutely resolute on focusing on the aftermarket. And as I've stated in the past, it's a substantial portion of what our acquisition strategy is to make sure that everything we do inorganically is aimed at increasing our recurring revenue percentage of sales.

But just to clarify, if folks are buying a little less new this year and they choose to use their older cranes, there are opportunities for additional just parts revenue – straight up parts, revenue in the coming year?

Straight, yes absolutely.

Barry, thanks so much.

You’re welcome.

We will now take our next question from Seth Weber with RBC Capital Markets.

Hey, good morning guys. I guess, kind of working for about $5 million of restructuring expense in 2020, which will be down 2019, what are you looking for to get more aggressive with some restructuring and some additional facility actions. I mean, what would it take, I guess, for you to kind of take that to another level at this point given the currently pretty muted market conditions. Thanks.

Okay. So in North America we have one facility, right. So I mean, to say that we're going to do a facility rationalization in North America I think, is just not in the cards. You heard me also say that in my prepared remarks that our European order rate in the quarter was up, so to think that we're in a situation where we're going to be able to do a quick plant rationalization in Europe with our order rates up is also not in the card. So that leaves our operation in China. And if anything, we will be expanding our presence in China, so there won't be any restructuring there. So, we know of where the $5 million is going to go. Anything beyond that, we'll continue to update you as the year goes on.

Okay. Fair enough. The second one, just to follow-up, question, the product warranty expense has been moving higher, is there anything of note there that you'd call out? Is there something – is there particular products or particular site that's giving you some challenges? Thanks.

I would just say it's – you're right, product warranty is up a bit on a year-over-year basis. It's predominantly in Europe, where we're seeing some of these things, but we don't typically give specifics on that. We took a conservative approach as to the product warranties. And we believe that some of the – some of the changes that we're going to be making and some of the things that we're going to be rolling out to the field will help that. So I would say it's just teething issues on new products and normal from a normal standpoint, but nothing extraordinary, Seth. Nothing structurally that I would say is the driver.

Okay. And so just to go back to Mike's question on pricing. I think it was Mike's question. Is that a function of – are the competitors getting aggressive because there's too much inventory – industry inventory? How would you characterize industry inventory, I guess? Thanks.

Yes. I mean, in the U.S., there's a lot of industry inventory. I mean we know where our competitors store their inventory and we do drive by and there's a lot of it there. You drive by our factories you don't see a lot of inventory in Shady Grove. The inventory that you see is our dealer stock because we basically are not producing inventory. So the industry itself in North America does have, I think, a little bit too much inventory, which is why we have taken the view that we've taken in North America for this year. There's a lot of dealer inventory in North America currently.

I appreciate it guys. Thank you very much.

You’re welcome.

We will now take our next question from Stanley Elliott with Stifel.

Hey, good morning guys, thank you for stepping me in. A quick question on the products that you're going to launch or show at CONEXPO, but how quickly can you ship those products? Is that going to be later 2020 event? And then curious to what extent the prototyping within that is impacting kind of the 200 basis point delta on the margins?

The – some of the products will be available for sale immediately and some of the products might – one of the products might go as late as the beginning of 2021 for shipments.

Perfect. Dave, you talked about kind of the $30 million to $60 million of free cash flow, kind of what are expectations for inventory because I imagine you've got – obviously, you've got the sales decline, but then I would imagine there's going to be some level of build just to support all of the six new launches. So how do we think about ending inventory into 2020?

Yes. So great question, Stanley. I think, generally speaking, we feel we have opportunities in our inventory, and that's surely baked into our guidance of $30 million to $60 million in free cash flow. And it's one of the primary drivers of it.

Perfect guys, thanks very much. Thanks a lot.

Thank you.

Thank you.

[Operator Instructions] We'll now take a follow-up from Mig Dobre with Baird.

Hey, guys. Thanks for taking the follow-up. I appreciate the color on new equipment pricing. But I also know quite a bit about used crane prices. Is there any color that you can give us there? And if you can also comment by geography? I'd be curious on that as well. Thanks.

We track most of our – the used inventory in the U.S. We don't own very much of it any longer. We did do a good job, in my opinion, of liquidating most of that. There is a – it's almost a pause, if you will, in used equipment sales outside of the U.S. Some of that has to do with the aggressive nature of the Chinese, the Belt and Road countries. A substantial portion of the used cranes that used to leave the U.S. went to regions where the Chinese have now infiltrated with their lower-priced cranes. However, we still believe that as we see South America, particularly Brazil, begin its recovery, we believe there is a market for the cranes that are used here in the U.S. And I believe that we will continue to see opportunities.

And I'm sorry if I missed this. But as far as U.S. used crane prices?

Stable.

Great. Appreciate it. Thank you.

You’re welcome.

And that does conclude our question-and-answer session for today. I would now like to turn the conference back over to Mr. Warner for any additional or closing remarks.

Thank you. Before we conclude today's call, please note that a replay of our fourth quarter 2019 conference call will be available later this morning by accessing the Investor Relations section of our website at www.manitowoc.com. Thank you, everyone, for joining us today and for your continued interest in The Manitowoc company. We look forward to speaking with you again next quarter. Have a good day, everyone.

And once again, that does conclude today's presentation. We thank you all for your participation. You may now disconnect.