Good day, everyone and welcome to The Manitowoc Second Quarter 2022 Earnings Call. For your information, today’s call is being recorded. At this time, for opening remarks and introductions, I’d like to turn the call over to Mr. Ion Warner, Vice President, Marketing and Investor Relations. Please go ahead, sir.

Good morning, everyone and welcome to The Manitowoc conference call to review the company’s second 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 Presentation. 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. 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 statement, whether as a 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 3. Our financial results in the second quarter were relatively in line with our expectations. The team made monumental efforts to deliver just shy of $500 million in revenue and over $36 million of adjusted EBITDA. These results reflect the team’s hard work to find solutions to our part shortages, implement price increases, and manage costs. I am very proud of our team’s metal in an extremely difficult operating environment. Day-to-day execution in our business remains challenging and the team continues to face a multitude of logistical and supply chain constraints. I would like to take the opportunity to thank The Manitowoc team for going above and beyond to achieve these results. On the demand front, although markets such as the Middle East are continuing to gain strength, the overall global crane market is clearly slowing. When surveying our customers, our anecdotal signs at crane activity, is strong and rental rates are inching higher. However, inflation and rising interest rates have significantly tempered the momentum that had been building the previous 18 months for new equipment. Price elasticity for new machines has reached an inflection point, but I will save my detailed comments for my closing statements. As portended in last earnings call, orders softened in the second quarter, reflecting the wait-and-see approach customers are taking as they react to the standup between inflation and extended lead times. Our backlog remains healthy, although this quarter represents the first decline in 2 years. Turning to Cranes+50, I am very pleased with our progress. For the quarter, we grew our aftermarket business by 21% versus the same period a year ago. This growth was mainly driven by the acquisitions of the H&E crane business in Aspen. With the integration phase behind…

Thanks, Aaron and good morning everyone. Please move to Slide 5. Our second quarter orders totaled $434 million, a decrease of 19% from a year ago. The year-over-year decrease was driven by lower demand in all of our segments. Additionally, foreign currency impacted orders unfavorable by approximately $23 million. As Aaron mentioned, the global crane market is clearly slowing, which is reflected in our orders for the quarter. Our June 30 backlog was down $86 million sequentially to $948 million and unfavorably impacted by approximately $24 million from changes in foreign currency exchange rates. Backlog remains healthy. However, this was buoyed by delays in our shipments. Net sales in the second quarter of $497 million increased 7% from a year ago. The year-over-year increase was driven by the stronger shippable backlog entering the quarter, primarily in the Americas and U.S. regions and incremental sales from our acquisitions. However, revenue continues to be negatively impacted by supply chain constraints, resulting in shipments shifting to the right. We estimate the revenue impact of this to be approximately $40 million. Net sales were also unfavorably impacted by $28 million from changes in foreign currency exchange rates. SG&A expenses increased by approximately $6 million year-over-year, primarily related to our acquisitions and partially offset by favorable foreign currency exchange rates. Our adjusted EBITDA for the second quarter was $36 million, a decrease of 11% year-over-year. As a percentage of sales, adjusted EBITDA margin was 7.3%, a decline of approximately 150 basis points over the prior year. This decline was primarily due to the price cost dynamic discussed in previous calls. Second quarter depreciation and amortization of $17 million increased $7 million compared to the prior year, which was driven again by the acquisitions. Moving to income taxes. On a GAAP basis, we actually had a…

Thank you, Brian. Please move to Slide 6. Roughly 18 months ago, commodity prices, steel, in particular, exploded and began the runaway inflation train, which we’ve been chasing with numerous price increases ever since. Interestingly, commodity prices have finally started to capitulate. However, my concerns for inflation have concurrently shifted to wages, energy prices and component pricing. The fact is that labor and part shortages have disrupted the supply and demand equilibrium. When demand outstrips supply, prices go up. And when we look at our list of shortages, you can pretty well match it up with our input cost increases to our components. With respect to energy, particularly in the EU, this Apple Card was clearly upset by Russia’s aggression towards Ukraine, and there is no predicting when the situation will begin to improve. All of that being said, I am less concerned with inflation than the potential impact price elasticity and FX have on demand. For sure, we haven’t seen the end of inflation, but the current nature of inflation is far more manageable than when we had steel prices tripling overnight. Strangely, inflation has become more predictable, which makes it more manageable. Moving to price elasticity. We have implemented price increases in the range of 20% over the last 18 months. The Fed has finally made meaningful increases to interest rates in an attempt to squash inflation. It’s unfortunate, however, that the combination of higher prices and higher interest rates mix financing and expensive asset like a crane more difficult. Just consider the math, if you finance 25 100-tonne rough-terrain cranes 18 months ago, today, that same buying power would only get to 18 cranes. It’s tough to beat the math. Demand for cranes will be inhibited by this dynamic. The second shoe to drop is FX. While…

Thank you very much, sir. [Operator Instructions] Today’s first question is coming from Mr. Jamie Cook from Credit Suisse. Please go ahead, sir. Your line is open.

Hi, good morning.

Good morning, Jamie.

I guess I missed it now, but anyway, question, understanding you guys kept your guidance the same in terms of using the low end of EBITDA. I’m wondering if the puts and takes to get there are different? Because I guess I was encouraged that the aftermarket business was up 21%, perhaps you’re assuming lower sales with the weakening in orders. And then just what are your expectations now on price cost in the back half of the year, if they have changed with the price increases and with commodity costs coming down to some degree? Thank you.

Hi, Jamie, so looking at the second half in particular, around the price/cost there is still a decent amount of headwind coming from cost in the back half. We’re estimating that the full year is close to $60 million of inflation impact negatively impacting us. Q2, we did see a better mix, as you mentioned, related to non-new machine sales as well as just the new equipment mix as well. So the 7.3% margin is a bit favorable. And remember, Q3, we have the shutdowns in Europe, which impact our margin as well. So thinking about the full year, we’re still kind of – we are pretty comfortable about the $130 million at the low end of the guidance, and there is opportunity there just based on the volume.

And I’d add, Jamie, commodity prices are down with the issue we have is energy, particularly in Europe, is up. Components continue to show inflation. And then the other thing is a lot of times the steel that comes in is actually fabrications. And a lot of fabrications we get from Eastern Europe. So with all the things happening with the Russia, Ukraine situation, there is been a fair amount of inflation that we’re still modeling on that front.

Okay. And then could you just talk to I guess, Aaron, how do you think about – assuming we are going into a downturn, is there any change in the resilience of Manitowoc’s earnings given the focus on – with help from some of the M&A that you’ve done and the focus on growing the aftermarket business?

Yes. I mean I think the difficulty to answer your question is just we still sit this crossroads, we’re not through all the inflation. If you think about what we’ve gone through the last 18 months, we had two big waves that we’ve been battling. But I mean my hope is that we get through this issue of getting through, call it, rinsing the backlog that’s in there and get to a more normalized basis. But I feel good in terms of our ability to challenge costs. The team has really done a good job of managing it along the way. So yes, I think I’m hopeful that we get to – even if it’s a predictable inflation, which is what we’re seeing now rather than what we saw with the big spike on steel and a big spike on – coming out of the Russian invasion that we get back to a more normalized business. But that’s – we’re still battling this into the first half of next year, I think.

Yes. And the supply change constrains is keeping it moving to the right.

Yes.

Okay, thank you. I will get back in queue.

Thanks, Jamie.

Thank you. The next question is coming from Stephen Volkmann calling from Jefferies. Please go ahead.

Good morning, Stephen.

Hi, good morning, guys. I’ve pleasure to follow Mr. Cook. And I guess I’m going to just go right after those questions, if I could. Again, if we are going to have some sort of a downturn in ‘23, I guess I can see a lot of cross currents because my guess is price cost for the year should probably be a little bit better. You should catch up on that. Supply chain probably gets a little bit easier, helps with some productivity issues. Mix might even be a little bit better because of the work you’re doing on service. So I guess I’m just trying to figure out, is it even possible in your mind, Aaron, that we could actually have margins sort of flat or up in a modest downturn?

I think it’s too early to predict that. I think the other thing to keep in mind, Steve, is in a normal supply chain situation, we’d be eating through our backlog significantly faster than we are at the moment. So I think that serves – that help soften the challenges that we may see in ‘23.

Okay. And then just sort of on end-market demand, are there any areas which are still feeling pretty robust to you? I know you sort of called out Europe on the downside, but anything to call out on the upside?

Yes. I mean Saudi Arabia is going gangbusters right now with all the infrastructure products they have, particularly the [indiscernible] their investments in the Red Sea. So I think that looks great for all the businesses. That’s a nice turnaround from where we’ve been in the last 6 years in Saudi.

Great. Thank you.

Thanks, Stephen.

Thank you, sir. We will now go to Tami Zakaria, calling from JPMorgan. Please go ahead.

Good morning, Tami.

Good morning, how are you? Thanks for taking my question. So I have a couple of quick ones. The first one – so you said price increases you think have hit an inflection point. So can you remind us what has been the cumulative price increase over the last 3 years? The math that I’m doing – you said 25 cranes now – 18 cranes cost the same as 25 a few years ago. So that’s like a 40% inflation on cranes. Is that math directionally correct?

Yes. So the math is 100% correct because it incorporates what we’ve implemented in terms of price increases, but it also incorporates the financing that we offer through financing. So we know what the interest rate changes have been for folks that are using that. In terms of our overall price increases, we’ve done somewhere between 15% and 20% over the last 18 months, just depending on what the product line is. So when I – that’s sort of looking backwards and when I look forward, we’ve been trying to be restrictive in terms of how long out will take an order and we use provisional pricing to help folks get on to the build schedules, which means their prices will change along with different commodity changes and overall components and all the things that we’re seeing. And then the – even within the sort of that 6 to 9-month window, we’ve got some small price increases that we started to implement for stuff that’s – will be shipped in the first quarter. So I’d say it’s an inflection point because for us, having to endure what we went through with steel 18 months ago and then with the Russia situation back in February, it felt like we’re constantly chasing to catch up. We’re now hopefully, fingers crossed, we’re in a situation where we see the inflation coming a little more, a little better than we did in the last couple of months.

Got it. So just to clarify, the 40%ish is sort of split between actual price increase and the increased financing costs from the customer perspective?

That’s correct. Yes.

Got it. Got it. And so along the same lines of that 15% to 20% pricing you took, how much of that is, let’s say, raw material inflation-driven versus labor-driven versus just demand outpacing supply?

I would say the majority of it would have been driven by just inputs of raw materials. I think the wages, that’s the big challenge that we’re going to battle over the next 12 months.

Yes. I think wages and then other components, the inflation on other components, whether it be related to energy in Europe or just overall labor inflation is another component.

Got it. If I can squeeze one more, orders were down 19%. I think ex-FX down 15%. So are you able to quantify how much orders were down by product and by region?

We generally don’t give that level of detail. So I think if you look at the overall, we mentioned that it was down throughout our regions. So I think...

Yes, all three of the regions that we report on, they were down. So I mean we’re seeing weakness across the board. The one thing I’d say, Tami, that’s been interesting is, I mean, normally, every month when we have our normal monthly seasonality and there is ups and downs throughout the years. However, if I look at the last 6 months, we’ve been pretty consistent, and I’m not including July in sort of that $140 million, $150 range, which is – if I look at 2021, I think our average per month was 181. So – but ironically, when I look at the charts, it’s not normal in our business that it’s sort of flat over a 6-month period or at least consistent, maybe is a better word. There is always ups and downs. And I think it’s at least been consistent. I think – yes, I think it’s due with the fact that the way we’ve been managing the prices as well.

Okay, got it. Thank you so much.

Thanks, Tami.

Thanks, Tami.

Thank you, madam. We will now go to Mig Dobre coming from RW Baird. Please go ahead.

Hey, good morning, guys. It’s Joe Grabowski on for Mig this morning.

Hi, Joe. How are you doing?

Doing well. Thanks for taking my question. So the delay in shipments in the second quarter, $40 million, I guess that was slightly worse than first quarter, better than fourth quarter, but pretty constant amount of orders getting moved to the right. Maybe just talk about the supply chain issues and part shortages you saw in the quarter, are they similar to the issues the prior two quarters? Or maybe are the headaches kind of moving around a little bit?

Yes, the headaches continue to move up. I would actually argue that the supply chain situation was worse during this quarter than the past two quarters. So if I look at it by line item standpoint, yes. So it’s definitely not getting better.

Yes. And the $40 million miss in revenue is based on our reforecast. So there was already an expectation that’s something the billable – sorry, the shippable backlog was – some of it was already moving to the right. So the $40 million is really based on what our expectations were going into the quarter.

Got it. Okay. Thanks for that color. And I guess my follow-up question, when you kind of talked about different end markets, you didn’t really mention infrastructure, U.S. infrastructure. We’re 9 months past the signing of the infrastructure build. Have you heard any discussions about some infrastructure projects that are going to start to gain traction? And then maybe on top of that, there is been some talk, I think Caterpillar mentioned it this week about maybe an infrastructure program in Europe. Are you hearing anything about that?

Yes. I mean there is lots of discussions out there and the engineering houses always have lots of projects to review, but nothing is starting to break loose. So it’s still, I’d say, too early to make any significant comments around. With respect to Europe, they had some different programs that they ran 12, 18 months, 24 months relative to depreciation rates and taxes. But again, we’re not really seeing anything clearly in terms of infrastructure projects from some sort of stimulus program again.

Got it. Okay, thanks, guys. Thanks for taking my questions.

Thanks, Joe.

Thanks, sir. We will now go to Seth Weber calling from Wells Fargo Securities. Please go ahead.

Hi, guys. Good morning. Thanks for taking the question. I wanted to ask on the 20% growth in the non-new sales, can you just break out how much of that is organic backing out the acquisitions? And then how much of that is from used crane sales? I’m just trying to get a sense for underlying parts and service revenue after additional kind of aftermarket revenue growth? Thanks.

Yes, it’s primarily driven from the acquisitions, and we don’t break out the different components of that number.

Okay. Alright. And can you just comment on your CapEx expectation for the year? Sorry if I missed it, but I think previously, it was $85 million, and that included $25 million for the European tower business. Are you continuing to go forward with that $25 million number? And just maybe just talk about your CapEx expectation for the year? Thanks.

Yes. Right now, we’re thinking about $65 million of CapEx, but we can flex that based on how the year plays out of the cash as I mentioned from a free cash flow standpoint, I think we’re going to be flat to slightly positive for the year. So the $65 million is really what we’re currently targeting. Of that, about $20 million to $25 million relates to the rental fleet.

Okay, thank you. And then just maybe if I could squeeze one last one in. Are you actually seeing cancellations of orders? Or is it just the new orders aren’t coming in at this point?

Yes, there is nothing material. It’s all new orders coming in.

Okay, alright, guys. I appreciate it. Thank you.

Thanks, Seth.

Thanks, Seth.

We will now go to Steven Fisher calling from UBS. Please go ahead sir.

Hi Steven.

Regarding your European concerns. To what extent do you separate demand concerns from energy costs of your own manufacturing? And how much of your energy bill can you mitigate with solar investments?

So, first, the demand is just – it’s not driven necessarily by our ability to produce, it’s driven just by the concerns that folks have for just the impacts of – there has been a lot of stories out there in Germany right now. They are trying to preserve. Everyone is showering in cold showers, just trying to preserve energy for the winter that’s coming. So, I think that’s the sort of thing that’s driving everyone to be cautious. In terms of the solar panels, we continue to move a couple of those projects forward, particularly in Portugal and in Italy, where it’s a struggle to lock down pricing, but it’s not enough to offset the overall impact because it’s not just electricity, it’s also the gas. We use a lot of gas in our...

Okay. And then maybe just a follow-up on the earlier question about the U.S. market. I appreciate that there are some cross currents in the U.S. at the moment and maybe you are not seeing the infrastructure yet, but why isn’t the outlook that we have for industrial – there is a lot of big industrial projects going on right now or that are just getting started. And clearly, there is all the infrastructure funding. Why isn’t that enough to make the U.S. crane market kind of more of a – having more of a confident growth path?

Yes. I think some of that is just we had low utilization of cranes. So, at the moment, everyone is just getting their existing fleets utilized. It’s not above and beyond – this really starts to drive demand. So, I think there are sort of two elements there. It’s actual crane usage on the front end, which from all my conversations with folks, utilization is pretty good and rates are inching up and things are moving in the right direction. But everyone is pretty cautious relative to price increases and lead times and interest rates to how they are going to actually grow their fleets. So, that’s where we see the concern.

Okay. Very good. Thanks a lot.

Thanks Steve.

We will now move to Timothy Thein calling from Citigroup. Please go ahead.

Thanks. Good morning. First question is kind of longer term the question on the cycle. And you alluded to earlier that you have got this – all the assets that eventually will need to be replaced from the big, big years in their early 2000s when we had that kind of the commodity super cycle. It’s obviously a totally different business, but a lot of the mining equipment companies have kind of been banking on that same dynamic playing out, just based on the historical patterns or rules of thumb in terms of when their customers would replace their assets. But it’s kind of lagged expectation – not kind of, it has lagged expectations just because the miners have found various ways to kind of extend their trade cycles. I am curious presume like a similar dynamic may be employed by your customers, maybe not. What are you seeing in terms of – has there been a push out of historically, they replaced them years X and now it’s X plus? But just how reliable is that? I guess the root of the question, how reliable is that kind of – that age component?

Yes. I will speak anecdotally and not – I would say specifics. But for sure, I mean if you just look at our T cranes, the quality of our T cranes today versus where they would have been, say, 2005 is it’s drastically different. When we review warranty, I mean all these new products that we launch, we compare ourselves to the former models, the competition. And then there is significant improvement. So, I think that’s the sort of thing that allows folks to continue to push out and manage the business a little bit. I think the other side of it is when you look at the crane business like on crawler cranes, you had an asset in the last 30 years. So, do I push it 1 year or 2 year, that’s very doable for those sorts of cranes.

Yes. Okay. And then going back to the point about the inflation on the new side. Just as you had that dynamic – as you have had just slower and less output from your factories, presumably those dynamics are helping to support used prices in such – as from a trade differential standpoint, maybe there is been some help, but I don’t – and maybe I am wrong on that. Maybe just comment on just the overall used market? And is that providing any cushion in terms of, yes, the new stuff is going up, but it’s also being – it’s helping to pull up used?

Yes. I mean I think it just depends on the models, quite frankly. I mean there are certain models that for sure that it’s helped with, and it’s unlike the automotive industry where there are certain models that folks need and they are willing to pay more because they can’t get their hands on a new machine. But yes, I think it’s this balancing act. There are certain older models that are – I don’t want to say that they are just – they are obsolete for the top class out there. And those just don’t get the values that you would think they would. When there are some other cranes out there, there is a need for and they do.

Got it. Alright. Thanks a lot.

Thank you.

[Operator Instructions] We will now go to Larry DeMaria calling from William Blair. Please go ahead.

Good morning Larry.

Hi guys. Good morning everybody. Just staying on the same line there. I am curious, this EU weakness, does it imply that residual values and your huge pricing risk? And kind of wondering if that’s the next you to drop and how that’s going to implicate pricing? Because really, the – I guess the period of the question is, I am trying to get at what your view of pricing next year and if it’s going to inflect negatively with lower materials, lower demand, opening supply chains and lower residual value? So, just kind of – I know you don’t have guidance, but just high-level thoughts on the idea that new equipment pricing will inflect negatively in part because of potentially residual value weakness?

No, I don’t think that. I don’t see prices going down. I don’t see residual values going down. I think folks are just smartly managing through the current scenario, and they are concerned about what may happen in the next 6 months or 12 months with this Russia-Ukraine situation on gas.

And with the FX?

And all utilization rates are good here, probably more progress in Europe on increases in rental rates than they do in the U.S. So, I don’t think that there is risk to residual values, at least not in the foreseeable future.

And therefore, also, you don’t see a big risk in negative pricing for new equipment?

No. I don’t see – I mean we are not – we still have a lot of inflation even when you look at wages. I mean we have our normal cycle in the first quarter. I would say the negotiations we had in the first quarter were still not representative of the situation. If you think about it because the negotiations happened at the same time in February, March. But now when you start, I mean petrol for a gallon – petrol in Europe is $9.50 a gallon. So, and it’s those things in the food that’s going to start driving wages.

Right. Okay. And then if I could also just follow-up on the infrastructure bill. Obviously, it’s been mentioned, cross currents out there. This has to be potential upside, maybe not now, but next year, have you guys looked at the bill? The amount of activity that’s going to come over the next few years and think about a bottoms-up approach to what demand might look like, because I have to think it’s going to be a fairly nice tailwind, but it sounds like there is a lot of doom and gloom out there, too.

Yes. I mean I think we are optimistic about it. That’s why we think there is a crane renaissance between that and just the normal replacement cycle. That should all work to our favor. And I will be honest with you, Larry, the thing that I don’t understand – and we see a lot of discussions more on the electrical side and building out the network in terms of getting all this electricity where it’s going to be used, but there is still an issue around production because solar and wind is never going to produce the amount of electricity is actually required if the country is going to make the change that the politicians are talking about. And the other thing, I know nobody is talking about nuclear. At some point, someone is going to have that serious conversation about how they produce significantly more. I mean the utility committees can produce 10% more, and you can use solar and wind to help a little bit. But at some point, you are going to have to do something to significantly increase the amount of electricity in the United States. So, that would be huge for the crane business, quite frankly. But I think as we get into this and folks really start to understand the math behind how much electricity it takes to charge Class 8 trucks, you are going to realize that we got a huge shortage in the United States over the next 20 years. So, I think all that is good news for the crane business. It’s just – it’s early. It’s a long process. It’s only been a couple of months since the infrastructure bill is signed. Everyone is thinking about the mid-term elections. So, I think there is enough distractions out there to really see it catch on yet.

Alright. Fair enough and thanks for the color. Good luck.

Thanks Larry.

[Operator Instructions] As we do not appear to have any further questions. I would like to turn the call back over to Mr. Warner for any additional or closing remarks. Thank you.

Thank you. Before we conclude today’s call, please note that a replay of our second 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, sir. Ladies and gentlemen that will conclude today’s conference. We thank you for your participation. You may now disconnect. Have a good day and goodbye.