Good morning, and welcome to the Manitowoc Fourth Quarter 2022 Earnings Call. My name is David, and I'll be your conference operator today. [Operator Instructions]. At this time, I'd like to turn the call over to Mr. Ion Warner, Senior Vice President of Marketing and Investor Relations. You may begin.

Good morning, everyone, and welcome to the Manitowoc conference call to review the company's fourth quarter 2022 and full year 2022 financial results and business update as outlined in our press release yesterday. 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 includes a reconciliation of GAAP and non-GAAP financial measures as referenced in the call. This 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. 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 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 3. After a tough third quarter, I was really pleased with how our team rose to the occasion in the fourth quarter to deliver strong results despite significant adversity. As we entered the quarter, we felt confident that our shippable backlog and inventory levels would allow us to hit the low end of our guidance. The hard work of our team and a bit of luck with parts and vessel availability helped us end the year even stronger than we expected. For the full year, we generated slightly above $2 billion in sales and $143 million in adjusted EBITDA, a 23% increase year-over-year. Overall, this is a great achievement in an extremely difficult operating environment. I would like to extend my deepest appreciation to the Manitowoc team for a job well done. From a strategic standpoint, we increased non-new machine sales by 22% to $545 million for the year. Suffice to say, I'm pleased with our progress on Cranes+50. Concurrently, we continue to invest heavily in new products throughout the year. In 2022, we launched 9 new cranes and continue to develop several new digital and energy-saving technologies. These efforts are important because they help grow the number of our cranes in the field, which will inevitably be the foundation of future aftermarket growth. Please turn to Slide 4. Manitowoc has made big improvements on ESG relatively quickly, thanks to our team's creativity and their application of the Manitowoc Way tools. As we say, what gets measured gets improved. Working around cranes can be high risk, whether on the shop floor or on job sites. So health and safety remains a constant focus of Manitowoc. In 2022, we completed over 87,000 safety observations, the highest number in our history.…

Thanks, Aaron, and good morning, everyone. Please move to Slide 9. Beginning with orders, we exceeded our expectations during the fourth quarter with orders of $708 million, an increase of 15% from a year ago. The year-over-year increase was primarily driven by higher pricing and a couple of large dealer orders. This was partially offset by lower orders in our EURAF segment as a result of near-term uncertainty as previously discussed by Aaron. Foreign currency unfavorably impacted orders by $31 million. . Our December 31 backlog was relatively flat year-over-year at and was unfavorably impacted by $25 million from changes in foreign currency exchange rates. Sequentially, backlog increased $113 million, primarily due to the increase in orders I previously discussed. Foreign currency favorably impacted backlog by $32 million from the prior quarter. Net sales in the fourth quarter were $622 million and increased 25% from a year ago. The year-over-year increase was driven by pricing, the stronger shippable backlog entering the quarter, primarily in the Americas and EURAF regions and incremental sales from our acquisitions, which helped drive our higher non-new machine sales. During the quarter, we caught up on a portion of the net sales missed from the prior quarter was previously communicated. Similar to the fourth quarter of 2021, during the last 2 weeks of the year, we were able to ship machines that were in flux, helping to contribute to the better-than-expected results. Net sales were unfavorably impacted $31 million from changes in foreign currency exchange rates. SG&A expenses were relatively flat year-over-year at $79 million. However, last year included a $14 million charge related to a legal matter with the U.S. Environmental Protection Agency. On an adjusted basis, SG&A expenses as a percentage of sales was 13%, relatively flat year-over-year. SG&A expenses during the quarter were…

Thank you, Brian. Looking forward, as Brian said, and I will reiterate, in the short term, we expect inflation, supply chain constraints and the impact from higher interest rates to be headwinds, which are included in our 2023 guidance. Please move to Slide 11. To preempt everyone's favorite question on shortages, I unfortunately cannot say that they have improved. To give you some perspective, in our European tower crane factories, we had an average of 224 line item shortages in 2022. So far this year, our shortages have actually increased to over 300 line items, driven primarily by frequency drives, electronic components and hydraulic parts, to name a few. However, we anticipate the effect of these headwinds will abate over the next 12 to 24 months. We expect 2023 to look a lot like 2022, but there are plenty of signs that a crane renaissance is on the horizon. Just consider the mega trends. Number one, China is reopening after stringent code lockdowns and is poised for a recovery. Number two, commodity prices remain strong, and in some cases, we haven't seen peak pricing yet as demand is poised to outstrip supply. Just consider the impact of electrification on copper demand. And at this time, there are no major greenfield mining projects on the horizon in Latin America, which would substantially increase production. In addition, I remain bullish on oil and gas as China reopens while the U.S. and Middle East have been slow to increase supply and Russian production remains inaccessible to most markets as a result of sanctions. Number three, in terms of infrastructure spending, the U.S. is a $1.2 trillion infrastructure bill and a $53 billion semiconductor bill that are only now beginning to manifest in the project work. Number four, in Saudi Arabia, I saw with…

[Operator Instructions]. We'll take our first question from Jerry Revich with Goldman Sachs.

Congratulations on the quarter. Can I ask you, Aaron, to please expand the comments around the opportunity in the Middle East? What are your crane annualized revenues today? And what were they in the last peak just so we can dimensionalize what that investment cycle might look like here?

Yes. I don't think you can compare the 2 cycles. They will be very different in nature. And normally, we don't give out that level of detail. But those projects are just beginning. They're moving dirt at this stage and they've got a lot of cranes on projects, but there's -- I don't think that we'll really start to see tenders come out until the fourth quarter of this year, so it's still early on.

Okay. Aaron, let me ask this way. So you're telling on crane renaissance as positive as I've heard you in terms of what's driving that level of optimism, how much of that is what you're seeing in North America, used values, aftermarket sales, et cetera, versus the opportunity in the Middle East and elsewhere. Can you just put that into context for us?

Yes. I almost see it as a combination because I think that the stuff in the Middle East will come faster than what we're seeing in the U.S. I mean things are in decent shape in the United States at this point, but we really haven't seen any big change from the semiconductor or infrastructure bills and it's still very, very quiet. So I think it probably comes in waves, probably Middle East coming sooner than the U.S. But that being said, I think generally the stage is pretty well set in the U.S.

Got it. And in terms of the earnings cadence '23 versus '22, your earnings were pretty back-end loaded in '22. Is there a chance if the supply chain execution holds here that we might see a more balanced earnings performance first half of '23 versus back half of '23?

I think it's too tough to comment on the second half at this stage. For sure, we're seeing a slowdown in the European tower crane business. So when you think about where our backlog goes, and , there's still a lot of question marks in the second half. But I agree with your comments on the part shortage issue. It's going to -- it's just as challenging. So I think it's going to be difficult to comment on cadence. What do you think, Brian?

Yes. And I think we generally see Q1 a bit slower after the strong Q4 and then Q3 we have the seasonality related to Europe. So I still think that's going to be a part of it. And as Aaron mentioned, the other piece is just how the tower crane business shapes up for the second half.

Next, we'll go to Tami Zakaria with JPMorgan.

So I have a question on price cost. Can you tell us what price cost impact was in the quarter? And what your expectations are for this year?

Yes. So the impact was about $8 million in the fourth quarter. And for next year, we still have about $30 million of clawback.

Got it. So you expect to clawback the entirety of it this year?

That's the goal. But I think when you look at the pricing front at the moment, we're still on negotiations after all the price increases have been put forward. So we're going to just -- we're going to go after it. And I don't think it's as simple as just adding back the $30 million.

Got it. Okay. That's fair. And then in terms of your sales guide, any comments on what your price versus volume expectation is embedded in those -- in that number?

Brian?

Yes, I think the volume number overall is relatively flat year-over-year. So there's definitely some price in there. But there's a decent amount of mix change as well as we talked about relative to towers in particular.

Next, we'll go to Jamie Cook with Crédit Suisse.

I guess first question, the non-machine sales increase that you saw in the year was fairly impressive. Can you talk to what your expectations are for 2023? And how we think about sort of that is a percentage of EBITDA or profit, just the business that tends to be more stable? So I guess that's my first question. If you could start there.

Yes. So I mean a big part of the driver last year was the acquisitions. Of course, we won't have those in terms of comps, but now we're pushing hard on organics while we try to line up the next acquisition. So -- and we look at it month over month over month sequentially, but it's going to be a lot more singles this year than the bump we had last year.

Okay. And I guess my second question -- sorry, go ahead.

No, I was going to say, you can think about it, like Aaron said, more organically growth. I mean the 22% that we saw in '22 was really driven by the acquisitions.

Okay. And then just 2 quick follow-ups. Any expectation on cash flow for 2023? And then, Aaron, given some of the long-term favorable trends that could positively impact crane demand, what are you seeing at the dealer level in terms of inventory? Are they wanting to restock as they see some of these positive trends? And I'll get back in queue after that.

Do you want to go first, Brian?

Yes, I can go with cash flow. So cash flow, we're thinking around $20 million to $40 million of free cash flow for next year. But one of the big things that might drive that is really where the demand is. A big portion of our working capital and our investment that goes into inventory. So depending on where demand is in the second half of the year and going into 2024, that can change pretty significantly.

And in terms of the dealers, I think they're in decent shape in the U.S. They're all pretty well lined up in terms of our build schedules in Europe, especially in the tower cranes, we've definitely seen a slowdown and they're loaded up. I mean the inventory that they would have taken in the fourth quarter, they really haven't started to move. And then I'm speaking specifically in Germany for some of the smaller tower cranes. Right now is the time that was usually -- move quickly as you head into the spring months, but that's been pretty slow at this stage. And that's what's got us nervous about the tower crane business.

Next, we'll go to Steve Volkmann with Jefferies.

I'm curious just as we sort of look back at 2022, any interesting share shifts in your view, either geographically or product wise?

I wouldn't say that there was anything drastic. I mean I think the biggest difficulty right now when looking at market shares is normally based off of shipments. And so many of us have all these supply chain constraints, we also have shipment constraints. So I think it's tough to really dig through the market share numbers and make good sense of them.

Okay. And then just back to kind of the margin. I guess your margin outlook is up about 10 basis points or something, if my math is right. And I guess I might have thought it would be a little higher only because it felt like your backlog sort of the prices you were quoting and the price cost and the backlog as we talked about that in sort of 3Q, I felt like it would be improved going into '23. So is the underlying margin actually up a little bit more and then the mix of towers just sort of brings us back to breakeven?

Yes. It's definitely -- the biggest piece of it is the mix issue. And then there's other challenges out there. I mean right now, I mean we have 2 large facilities in France and everyone in France is striking over the recent bill that Macron is pushing for retirement age. So I mean there's some other underlying issues that we're still battling just like productivity around part shortages.

We're definitely going to see labor inflation in '23.

Yes.

Okay. Got it. And then the final one, and I'll pass it on. When you talk about your crane renaissance, Aaron, and you talk about China, you talk about Saudi, et cetera, those sound mostly like tower crane kind of drivers. I don't know if you'd agree or disagree, but is there a bit of a kind of margin mix headwind as we look over the next few years, even with this crane renaissance?

Yes. It will be both. It will be mobile cranes and tower cranes. They're just depending on the specific projects. So I think it's too early to comment on what sort of mix it ends up looking like.

Next, we'll go to Seth Weber with Wells Fargo Securities.

Wanted to -- just going back to your supply chain comments. Is there any way to quantify how much -- whatever term you want to use, red tag or hospital inventories or anything like that, that you would call out that's kind of sitting around that's mostly done, waiting for a couple of parts that you could push out if the supply chain gets better? Or is it more just...

No, I would say that the fourth quarter was a lot like the fourth quarter of 2021, where we had a lot of parts come in, and a lot of those orphan cranes got shipped in the fourth quarter, more than what we had anticipated originally. So now it's cleared out and the game starts again.

Yes. The revenue -- so we were guiding to the low end of the revenue, which would have been about $2 billion. So you can -- our revenue beat from the $2 billion is really kind of that excess shipments that we were not expecting.

Got it. Okay. That's helpful. And then just on the -- as you guys -- I heard the comment around used cranes a little bit. Can you just talk to what you're sort of seeing in the used crane pricing market? And what you think that might look like through 2023 just from a used pricing perspective?

Yes. I mean from our perspective, used prices have been up as folks have struggled to get machines out of the factory. I think it continues to hold.

And next, we'll go to Stanley Elliott with Stifel.

Congratulations. Can you talk a little bit more about bauma show. I mean the 15% improvement in orders, is there a way to clarify like how much of that is from some of the new products that you're coming out with some of the parts of the market that maybe you felt like you had some gaps in the portfolio?

Yes, I don't think it was necessarily reflected at the bauma show. When I look at new products in total for the year, I mean there were some that got launched earlier in the year, but because they originally -- we expected bauma to be in April. So I wouldn't say that there's much really 2 comments with respect to bauma.

And curious on the move on the -- expanding, I guess, the rental fleet into the U.K. market. Can you talk about what sort of investments you would need there? And how you think that, that can ultimately progress?

Yes. I mean, we like to go by step by step, and we will be focused on supporting the major rental houses. They do RPOs and short-term rentals. So I mean it's within the context of our budget side. Again, I don't think it's anything extraordinary. It would be a handful of cranes and we'll go step by step, just like we did in Germany.

Yes. The numbers are in the CapEx forecast that we provided.

And we'll move to our next question, Steven Fisher with UBS.

Just wanted to, Aaron, you mentioned that China is in a kind of a wait and see mode. I'm curious if you have any bias at this point about how this year plays out, any more kind of recent data points that kind of give you a sense one way or the other of what's really going on there?

No. I mean I was just spent a week with the fellow who runs China for us and it's still pretty quiet. I mean I think people are optimistic, but it's still too early to really say how it's going to play out.

Okay. And then following up on Jerry's question about the Middle East. I'm wondering if you can maybe compare the Middle East opportunity to the European business because it sounds like the European area is kind of one of the main concerns at this point and it might drag on for a little while. But yet on the Middle East, it sounds like it's one of the more quickly to ramp up. Do you think the Middle East business could sort of offset the kind of the weakness that you see in Europe and then kind of net-net North America is kind of the rest of the swing factor?

Yes, that's the hope. I don't think it fully offsets it, and there are much different cranes and bigger cranes. I mean most of the cranes we will send in the Middle East, they come from a mix of Europe and China factories, but I think the big orders still -- that will be slow to come. I mean it won't come until the fourth quarter. We've seen some orders related to those projects, but not in earnest as they will likely be.

And how is the competitive environment in the Middle East relative to Europe or other markets?

Yes, it's unusual because it's a real mixed bag depending on machine availability. I mean I've heard pricing sort of all over the map, including the Chinese. So I think it really depends on the availability and how badly someone needs the crane. At this stage, I think that there's plenty of business to go around for everybody. So it's much more managed than it had been the last couple of years. I mean the last couple of years, it was down in dirty fighting over singular cranes where now there's much bigger projects, I think that will help eat up everyone's capacity and keep pricing more reasonable.

At this time, I'd like to turn the call back over to Mr. Warner for closing remarks.

Before we conclude today's call, please note that a replay of our fourth 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.

This concludes today's conference call. You may now disconnect.