Good day everyone and welcome to the Manitowoc's First Quarter 2022 Earnings 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, Senior Vice President Marketing and Investor Relations. Please go ahead.

Good morning everyone and welcome to the Manitowoc conference call to review the company's first quarter 2022 financial performance and business update as outlined in last evening's press release. Participating on the call today are Aaron Ravenscroft, President and Chief Executive Officer; and Brian Regan, Executive Vice President and Chief Financial Officer. Today's webcast includes a slide presentation which can be found in the Investor Relations section of our website under Events and 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 two. Please note our Safe Harbor statement in the material provided for this call. During today's call, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 are made based on the company's current assessment of its markets and other factors that affect its business. However, actual results could differ materially from any implied or actual projections due to one or more of the factors among others described in the company's latest SEC filings. The Manitowoc Company does not undertake any obligation to update or revise any forward-looking statements whether the result of new information future events or other circumstances. And with that, I will now turn the call over to Aaron.

Thank you, Ion and good morning everyone. Please turn to slide three. To start, I would like to thank the Manitowoc team for an outstanding performance in the first quarter despite another challenging period. I'll provide an update on our outlook during my closing comments, but it's fair to say that the crisis in Ukraine has intensified both parts shortages and inflation. Additionally, labor markets in the logistics environment remain extremely tight. We reported healthy orders and backlog for the first quarter. However it's clear that there are cracks that are beginning to appear in the crane market. Nevertheless, in true Manitowoc fashion, our team rose to the challenge and delivered a strong first quarter. Our net orders for the first quarter were just north of $480 million. In the quarter, we reversed roughly $20 million of orders in the backlog into Russia in reaction to the Ukrainian crisis. Excluding these orders, the first quarter would have been slightly better than $500 million, which I always use as a good measuring stick for a bull market. Our sales for the quarter were just shy of $460 million. This was a $100 million improvement year-over-year, but unfortunately, it was approximately $35 million short of our internal forecasts. Our backlog is strong remaining above $1 billion. Operationally, the team did a great job of battling parts shortages, while maintaining productivity, managing rising prices for purchased materials, and dealing with higher shipping costs to deliver $31 million in adjusted EBITDA. While the year-over-year adjusted EBITDA margin was significantly lower than our normal expectations, 6.8% was a very respectable performance considering all the headwinds. As it relates to our progress on Cranes+50, we grew non-new machine sales by approximately 20% year-over-year. Our recent acquisitions combined with our four strategic initiatives have given us good…

Thanks, Aaron and good morning everyone. I'm excited to be here, with you today. It's an honor to be named CFO of a company with such a long history, in the lifting solutions business. Dave has been a great mentor, since I joined the company three years, ago and I look forward to building on his accomplishments, as we move forward. With that, let's move to slide 4. Our first quarter orders totaled $482 million, an increase of 2%. The year-over-year increase was driven by growth in the Americas segment, inclusive of our acquisitions. This increase, helped to offset lower orders in our EURAF Segment, which included both market softening and the canceled Russian orders previously mentioned by Aaron. Additionally, foreign currency impacted orders unfavorably, by approximately $15 million. Our March 31st backlog was up $22 million sequentially and unfavorably impacted by approximately $14 million from changes in foreign currency exchange rates. Net sales in the first quarter of $459 million increased $105 million or 30% from a year ago. The year-over-year increase was driven by the strong backlog entering the year, primarily in the Americas and EURAF regions. However, revenue continues to be negatively impacted by supply chain constraints, resulting in shipments shifting to the right. The year-over-year benefit from incremental sales associated with our acquisitions, amounted to $31 million in the quarter. Net sales were also unfavorably impacted by $16 million from changes in foreign currency exchange rates. SG&A expenses increased by approximately $9 million year-over-year, which included a $5 million benefit associated from the partial recovery of a note receivable balance in China. The gross increase in SG&A expenses of $14 million year-over-year is primarily related to our acquisitions. Our adjusted EBITDA for the first quarter was $31 million, an increase of approximately 47% year-over-year. As a…

Thank you, Brian. Let's move to slide five. The first quarter reminded me of an old Don Rickles' quote "struggling is hard because you never know what's at the end of the tunnel." Three months ago it looked like the economy was on the mend after two years of COVID. Unfortunately, as we approach the end of the tunnel, we've encountered a new set of challenges. First, as a consequence of the humanitarian crisis in Ukraine, commodity and energy prices have soared and supply chains have become more strained, causing a significant disruption to Europe's economy and our local businesses. Second, the US economy is clearly overheated and the Federal Reserve is playing catch-up with interest rate increases. And lastly, the severe COVID lockdowns in China are taking its toll on the already stressed global supply chain. As I previously mentioned, we have begun to see cracks in what has been a very strong crane market. While our orders were good in the first quarter and construction activity was strong, confidence is subsiding. On construction sites, contractors are experiencing severe difficulty obtaining raw materials and labor, causing projects to be delayed. At crane rental houses, they are having difficulty finding operators and skilled technicians. And of course, crane manufacturers are struggling to hit delivery dates and continue to extend lead times. For example, we lost six days of production in China and two weeks in Niella, Italy in April, throwing double-digit price increases by manufacturers in a growing interest rate environment and I fear that confidence is beginning to wane, particularly in Europe and North America. Spring purchasing is normally a good indicator of crane orders for the year. And March and April orders trended down at the same time that we implemented our last round of price increases. Looking…

Thank you. [Operator instructions] Our first question comes from Mig Dobre with Baird.

Good morning, Mig.

Mig.

Yeah. Good morning. And Brian, welcome to you. Aaron, I really -- I appreciate all the color that you have given. There's sort of a lot to think through from your prepared remarks. But obviously, the main takeaway here is that there are cracks that you note in the crane market. And I'm wondering, if we can go back to your comments on Europe and North America and maybe flush that out a bit here. I'm curious, in Europe, is this simply a function of what's happening in Ukraine, staffing, buyer confidence? And as you look at the North American market, what is it that is driving this incremental softness? You talked about orders in March and April, maybe you can kind of give us a little more context on that post your price increases that you talked about.

Okay. So let's start. With respect to the comments on guidance, that's purely driven by the European situation. So when we look at 2022, really from a tactical level in the next three quarters, I mean, our challenges are cost driven in Europe. If you look in sort of general demand and overall customer confidence, it's really two different stories there. With respect to the situation in Europe, I mean, on the tower crane side, we're virtually sold out. So, given the uncertainty of what pricing and interest rates are going to be in 2023, even just generally with the European environment, is I think people are being conservative and pulling in their purse strings. Mobile business is pretty similar, same sort of situation. In the US, I think it's more granular where you can really look at it and say, we see that the RT business has not improved at all from where oil prices are, which normally that would be super strong. Rental rates are very soft in that space. In the boom truck world, now we can get Class A trucks. So it's just a roll back up. And again, it's how -- if you can guarantee a lead time and you can't effectively give a price and you know interest rates are going up, it's tough for folks to get really aggressive in terms of what they're looking at. The other thing I would say, Mig, is in the US because the dealer network that we have right now, dealer inventories are in good shape. We feel good about them. But again, part of our backlog is filling out the dealer channel in the next nine months. So I think some of that you sort of have the combination of it. You've got dealers looking at it saying, hey, we've got our orders in place. We're set for 2022, not ready to make real changes yet for 2023. And we've been limiting relative to what orders we're willing to take for 2023.

Yeah. So that's kind of what I'm trying to get at. How much of what you're talking about is a function of maybe you limiting the order intake that you're willing to accept, given all the uncertainty as opposed to other dynamics, right? I mean you talked about the fact that pricing has gone up quite a bit and that is posing a bit of an issue for customers. Are we getting to the point where these price increases are detrimental to additional demand?

Yes. So, there's so many things so many variables sort of crashing at the same time into one another it's hard to pick one of them and say that that's the root cause of it. But if I look at order rates for the first quarter and we did some price increases in the middle of the quarter to deal with the latest round of cost increases coming out of Europe. But January we had really good orders and then all of a sudden it really started to fall off February, March and April and they've been pretty consistently lower than the level we've been. So, I do think that they're starting to see an impact of all the price increases have an effect. And that's really what I anticipate for the remainder of the year is that orders will be lower. I mean, we've got difficult comparisons. We look year-over-year in the second, third and fourth quarter. And I think we'll just start to eat some of our backlog away until we get more visibility on what 2023 is going to really look like.

Understood. And if I may squeeze one final one. Going back to supply chains right? Certainly, some things seem to have gotten a little more challenging on input costs specifically. But I'm curious in terms of availability where is it that you're still seeing parts shortages? And really has anything changed from a couple of months ago when we had this discussion last time?

Yes. I mean the challenging part is it's still a game of whack a mole, every day, it's something different. I do think that the shortages have gotten more challenging during the first quarter than they were at the end last year. The one thing that I'd add is that it's important to keep in mind that 35% of all the heavy plate steel in Europe was produced in Ukraine and Russia before this crisis. So I would say that's the area that concerns me the most is, whether it be the steel it's coming from that region into Europe or whether it be the steel fabrication. Because there's -- I mean there's a large Ukranian population in Europe that was doing the welding in places like Poland and the Czech Republic and they've gone back to Ukraine. And then of course on the back of that you also have the energy issue. So steel fabrication in steel itself in Europe is what -- my biggest concern is and of course in China we've just got the backup at the ports that isn't helping the situation. So yes, I don't think that the situation gets any easier. But we've always -- even going back to last quarter we anticipated that the shortages would be pretty darn tough.

Understood. Good luck, guys.

Thanks.

And our next question will come from Jamie Cook with Credit Suisse.

Hi good morning.

Hi Jamie.

Hello. I guess a couple of questions. You did again say January orders were strong and then they fell off a cliff I think in February March April. Can you put some I guess numbers around it like how big was January relative to the other three months so that would be helpful? What to -- what was sort of price cost in the quarter which -- and what are you expecting now given some of the price increases that you put through during the quarter? And then last can you just give me an update. I know there were some shipments that were delayed last quarter. It was $50 million that was supposed to get shipped I think in January and February. Just where are we on that? And are there incremental delays there? Thanks.

You want to take the last question of those, Brian?

So looking at Q1, so yes the stuff that fell from Q4 to Q1 got shipped but we had another shifting of the right. You look at our working capital and you see that it's elevated and some of that was due to things shifting to the right. So AR was elevated because revenue got recognized later in the quarter. And then inventory was up say, about $35 million, fell out of the quarter to Q2 and we're continuing to see that slide. As Aaron mentioned, the sourcing issues that we've been having.

Yes. So with respect to the order rates, I wouldn't necessarily say it fell off a cliff. I mean January was as strong as what we've seen. I mean when you're clocking $500 million a quarter that's a good clip for us when you think about what our deliveries have been in the last five, six years. I'd say if I look at it on a quarterly basis to try to take out some of the bumpiness of it. I mean if you look at the run rate, we're probably down 10%, 20% depending on the product line. So, as I say it's not as if it fell off a cliff and sometimes, we do these slow ones. My concern is just the normal springtime orders normally March and April is a good indication what the full year is. So when April's slow, May might be weak and then all of a sudden you starting to get in the summer month and you know they're going to be so. With respect to your question on pricing, it's really tough to say, when the pricing lands, especially because we have -- the part shortage challenges, which is moving when actual deliveries happen all over the map. I think the easiest way to answer that question Jamie is, when we look at the full year, we've taken our guidance down from -- we were $130 million to $160 million say that the midpoint is in that $145-ish million range. We're targeting the low end of the range we're looking at headwinds of more costs of $15 million to $20 million in the second half. But a lot, I would say, is still -- we're sort of trying to guess what it's going to be and what's going to come to us in the third and fourth quarter. But yeah, I mean I think we were in good shape until the Ukrainian crisis happened. Now, it's really hit the reset button, particularly in Europe.

Okay. Thank you. I appreciate the color.

Thanks, Jamie.

And our next question will come from Seth Weber with Wells Fargo.

Good morning, Seth.

Hi, Seth.

This is Larry Saxby [ph] on for Seth. Thanks for taking the question. You maintain your revenue assumptions for 2022, but you're at the lower end you said that kind of implies 16% growth. Can you kind of elaborate on what your expectations for price versus volume are for the year?

I'm not sure, I -- what's your question relative to specifically around price versus volume?

What are your volume assumptions for that 16% growth?

In terms of the units? Yeah, that's not a number that we would share just because of the complexity of...

All right. Okay. And then, do you have your $2.5 billion revenue goal. Is that still a reasonable long-term target, or are you kind of internally tempering that given where we are in the operating environment, or is that still a long-term aspirational goal?

Yeah. I mean that goal doesn't change. I mean if you want my honest opinion, the longer we are slower that just means the eventual rebound is going to be even bigger. So I think that's still very doable when you look at the overall crane market over the long term. It's just a question of when we get back into a more normalized basis whether it’d be the inflation issues or the interest rate issues. But there's definitely continuing to build up of a refresh that's going to need to happen at some point on cranes.

Great. Okay. Thank you, guys. Appreciate it.

And our next question will come from Steven Fisher with UBS.

Good morning, Steve.

Hi, Steve.

Good morning, guys. So, obviously a lot of talk about the cracks in the confidence and on the crane market side and I get to that maybe starting to flow through your orders. I'm curious if that's flowing through the inquiries as well. Because, it does seem like there are a number of larger projects in the works, particularly in the United States be it reshoring, manufacturing or infrastructure or even on the energy front. And so, while maybe your customers are a little bit hesitant to put in the orders now for 2023, I'm wondering how does that flow through the discussions on what they might need should all those activities start to really happen?

Yeah, inquiries have definitely dropped. I mean I think the biggest remark that I have on your comments Steve, were the fact that what we hear from a lot of customers is concerns around project delays. So I mean, there's been these talk-up projects, but folks are really struggling to get projects started, whether it be because of getting raw materials or the raw material increases that they've seen and even getting the labor shortage. I mean one of the biggest challenges we see specifically in our -- in the crane market -- in the crane operator world is, folks are struggling to get trained skilled crane operators to run their cranes. So, that's my way of saying, I think that it's great that there's an infrastructure bill out there but we haven't really seen any movement off it. And I think some of that is, because folks can't get going whether it be on the raw material side or the price or the people side.

So, it could still be a timing factor. But in the meantime, it's actually -- it's having a real impact of not generating orders it sounds like.

Yeah. I think that's fair.

Okay. And why do you think crane rental rates are stagnant. And we're seeing a lot of pricing in a lot of different -- across both equipment rental and manufacturing. So I guess, to what extent is that competition, or is it just loose supply/demand, or why do you think the rental rates aren't -- why are they stagnant?

Well, for sure, I mean we always look at the RT market as sort of an indicator for rental rates and there's no -- there's very, very -- I say there's no activity. There's no activity in oil patch like you would expect in the last 20 years relative to where the oil prices are. So I think that has a big effect over it and that's what we mostly talk about. I'm sure boom trucks are drifting up. But I think people just struggled to understand some of it is that, we've been locked into the projects that are out there. So yeah, I mean, I'm not sure, what's going to finally turn the tide on the rental rates, but that's a never-ending complaint that we hear from our customers.

Okay. And just lastly, in terms of the margins in the second half of the year, I think you were answering an earlier question of something about $15 million to $20 million of additional costs in the second half. Is that – so should we just assume basically kind of take a 1% or so off of your kind of 6.8% margin in the first quarter and that might be what you're kind of running at for the second half?

I was going to say, I'll let Brian. But before Brian answers that, my comment is, I've just been staring at it from a dollar standpoint, because we look at the issues we have and how we offset it with price. So if that's what the math says it probably doesn't make sense, $15 million, $20 million.

I'd say, remember that Q3 tends to be our worst quarter, because of the shutdowns and – the normal shutdowns in Europe. So second half Q4, we've generally been pretty strong. So I think it's probably a little bit less than the numbers you're talking about versus the $6.8 million.

Got it. Thanks a lot.

Thanks, Steven.

And moving on to Tami Zakaria with JPMorgan.

Hi. Good morning.

Hi, Tami.

Hi. How are you? Thanks for taking my questions. Can you give us what are the top two or three challenge areas you've seen in the supply chain today? Is it freight? Is it specific parts shortages? Is it lockdown? You mentioned plate steel, but any specific examples that you could share with us?

I'd say, all of the above. Yeah, I don't think it's so simple to say that, it's one thing or the other. I mean, it just sort of depends on what the issue of the day is. I think China is going to be a bigger challenge even as we get into the second half, because we don't forget there's a lot of – there are a lot of boats on the water, so we haven't really seen the worst of the worst yet coming from China. I suspect as we look forward that's going to be a real problem. I have to admit, I cringe every time I turn on the TV, because you see a lot of activity in Ukraine around some of the steel mills that are there. And there are a lot – there's a lot more steel coming out of Ukraine than anyone I think realizes definitely what I realize. I mean, those are the two pieces that worry me the most.

And just from a cost standpoint, the energy costs are definitely increasing in the second half due to the Ukraine crisis. So that's another negative.

Yeah. If you get us going Tami, we could go for a while I think it's probably more than two or three that worry us.

Got it. Okay. So China steel energy, the top areas of concern right now. So on China, can you remind…

Yeah. I think that…

Got it. So on China, remind us what your manufacturing exposure is in China, like what percent of your capacity is in China? And are you still able to run operations there amid the lockdowns?

Yeah. So in China, there's sort of the double whammy. One is what we produce and what we would ship out of China, I'd have to look at what it says in the 10-K, or some indication with our Asia Pac businesses. But I don't think, I wouldn't say, it's significant relative to the overall. I think, the bigger challenge it could hurt us is just the supply chain. So it's the parts coming out of China and going to the factories, whether it be in North America and Europe that probably could create a lot more problems for us.

Got it. Understood. Thank you.

Thanks, Tami.

And our next question will come from Stanley Elliott with Stifel.

Good morning, Stanley.

Yes, thanks. Good morning everybody. Thank you all for taking the question. A quick question here. I thought I heard you say that you were talking about or thinking about shrinking the product offering. Let me know if that's because in December, we talked about or you all talked about kind of expanding the AT offering. I'm just trying to figure out exactly what's going on or where your head's at with that?

Yes. We're continuing to invest in all of our new product development projects we've got in the pipeline and we're definitely expanding the product line.

Okay. And in terms of Europe, how much -- with things being certainly uncertain as you're sitting here today and stagnant order rates or rental rates, et cetera. At what point do you all start to think about restructuring over there? Are there opportunities? Is this something that you think you can navigate with kind of the Manitowoc walkaway and some of the lean initiatives that you have? Just curious kind of what level of concern that's bringing up.

Yes. I mean, while we have all these pricing and cost issues and we expect to have them addressed with respect to price increases, I mean, let's not forget we're at somewhat -- some version of capacity right now. So even with the slowdown, there's still more than enough work to go around. So, no, I would not actively reviewing any restructuring projects at this point. I mean, that would be a real systematic change in terms of the business. I mean, we still have good units. When you think about our unit level even at say throwing out a number $1.8 billion, I mean, we still -- that's a lot of cranes we've got to make in the footprint we have. I mean, we really took -- we did a lot of work on this between 2016 and 2020. So I don't envision any, I mean, I think it had to be a real catastrophic situation on the demand side that we'd have to consider something like that.

Great guys. Thanks very much.

Thanks, Stanley.

And that does conclude the question-and-answer session. Mr. Warner, I will go ahead and turn the conference back over to you for any additional or closing remarks.

Thank you. Before we conclude today's call, please note that a replay of our first quarter 2022 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 continuing interest in The Manitowoc Company. We look forward to speaking with you again next quarter. Thank you.

Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.