Good morning, and welcome to The Manitowoc Second Quarter 2023 Earnings Call. My name is Regina, and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. I will now turn the call over to Mr. Ion Warner, Senior Vice President of Marketing and Investor Relations. Please proceed.

Good morning, and welcome to the Manitowoc conference call to review the company's second quarter 2023 financial performance and business update as outlined in last evening's press release. Today, I'm joined by Aaron Ravenscroft, President and Chief Executive Officer, and Brian Regan, Executive Vice President and Chief Financial Officer. Our call 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 ask 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. Let's move to Slide 2 on to 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. I'd like to start today's call by thanking the Manitowoc team for their outstanding performance during the quarter. Our second quarter results capped an excellent first half of the year. Net sales were $603 million for the quarter, and our adjusted EBITDA was $60 million or 10% margin. In addition, non-new machine sales for the quarter increased 8% year-over-year. Please turn to Slide 4. Our Cranes+50 strategy is our top priority. During the quarter, I had the opportunity to visit several NGX and Aspen locations and I was continuously struck by our local team's enthusiasm to service our customers and to grow their businesses. For example, at our new branch in Kansas City, the team recently rented their very first proton self-erecting tower crane. And you won't find a more passionate group of crawler crane folks than our team in Belle Chasse, Louisiana. When I visited the team was rebuilding an MLC300 crawler crane and old Manitowoc 4600 and an old barge crane that must have been older than me. Frankly, what's been most impressive is how these acquisitions enable Manitowoc to better serve our customers through a broad range of service and remanufacturing solutions. I'd like to extend my appreciation to Keith Poff, General Manager of MGX and Mark Hoffmann, General Manager of Aspen, for their hard work and leadership. It's been a lot of fun to watch these organizations evolve over the last 2 years. Please turn to Slide 5. It's amazing how time flies when you're having fun. In the 7 years since we launched the Manitowoc Way, we have continued to mature our lean mentality across our businesses. Each time I visit our factories, I'm amazed by how far we've come, and I'm extremely…

Thanks, Aaron, and good morning, everyone. Please move to Slide 8. Let's start with orders. During the quarter, we had orders of $551 million, an increase of 27% from a year ago, exceeding our expectations. The year-over-year increase was driven by higher orders in all our segments. Looking more closely at the European market. Mobile crane orders more than offset the tower's decline. Foreign currency favorably impacted orders by $4 million. Our June 30 backlog was slightly down sequentially at $1.025 billion, an increased 8% year-over-year. The makeup of our backlog is consistent with the first quarter. It's predominantly in the Americas region. Net sales in the second quarter were $603 million, an increased 21% from a year ago. The year-over-year increase was driven by pricing in response to inflationary pressures, higher crane shipments and higher non-new machine sales as a result of executing on our Cranes+50 strategy. Non-new machine sales increased 8% year-over-year to $150 million. Net sales were favorably impacted by $3 million from changes in foreign currency exchange rates. SG&A expenses were $18 million higher year-over-year at $88 million. During the quarter, SG&A expenses included an $11 million charge related to a legal matter with the EPA. After adjusting for this, SG&A expenses were $7 million higher primarily due to inflation. Adjusted SG&A expenses as a percentage of sales were 13%, a decrease of 120 basis points year-over-year. Our adjusted EBITDA for the quarter was $60 million, an increase of $24 million or 66% year-over-year. Adjusted EBITDA margin was 10%, an increase of 270 basis points over the prior year, a great accomplishment during the quarter and reflective of the team's hard work. Flow-through on the year-over-year incremental sales was 23%. First quarter depreciation and amortization of $15 million, decreased $1 million compared to the prior year.…

Thank you, Brian. Please turn to Slide 11. At the start of the year, I said that our results would rely on 2 major factors: how quickly our production of mobile cranes would rebound from the shortages and how badly the European tower crane market would trail off. The good news is that the mobile shipments have accelerated faster than I anticipated. The bad news is that the European tower crane market has slumped further than I expected. Fortunately, as we are reflected in our updated guidance, the good news exceeds the bad news. While the first half was a great performance in terms of EBITDA, we will be laser-focused on working capital in the second half. Strategically, we continue to drive our Cranes+50 strategy, investing in organic growth initiatives while searching for our next acquisition opportunity. As for my medium-term view of the crane market, although infrastructure projects are beginning to move through the halls of government, spending hasn't begun to ramp up yet. I could see a lull in demand as we work through our dealer inventory and the U.S. election cycle heats up. Nevertheless, I remain extremely optimistic about the long-term nature of the crane business. Saudi Vision 2030 is in motion. The U.S. infrastructure and semiconductor bills will eventually begin to lead and the large offshore wind and nuclear projects coming down the pike in Europe will be a big boost to the crane market. Concurrently, most rental fleets are 10 to 15 years old on average. These broad trends will provide the confidence and fuel to refresh aging fleets. Manitowoc is well positioned to benefit from the screens renaissance. With that, operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Jamie Cook with Credit Suisse. Please go ahead.

I guess, Aaron, understanding the puts and takes to the back half of the year in terms of what you're saying with EBITDA margins. But related to the second quarter, even with tower crane, it sounds like it's softer than you had expected. What drove the outperformance on the EBITDA relative to your expectations? And then my second question is, can you sort of talk to how you see orders trending over the next 2 quarters? And how your dealers are approaching inventory as they're thinking about 2024 and the potential for IIJ, et cetera, kicking in?

Yes. So I mean, for the second quarter, I think it's lots of small things. I mean, our pricing continues to get better. I'd say that's almost normalized now. We had good mix. FX was in our favor on a few things.

Yes. And maybe a correction, -- just Jamie, just the tower crane business, we had decent backlog coming into the quarter. So really, the softness is going to be in the second half, not the second quarter.

Yes.

And then my other question is just in terms of dealer inventory like how your dealers are approaching as you think about 2024 in order cadence in the second half?

Yes, it's always difficult to predict the order cadence because some of it's so chunky. But I mean, we're still in lots of dialogue with several of our large dealers, particularly in the U.S. I think we'll get some decent orders. So I mean we're just -- I'm very -- you know me, Jamie, I'm always conservative about how we view the future and looking at the way that the number of machines we got to ship into our dealers, it's good to see that they're still actively looking at the 2024 build schedules, but July was a little bit lower than it was last year, although it was still in that sort of $150 million range, which I think is a good sign. The difficulty on commenting at this point is we're in the middle of the summer and there's just very little activity. Sorry, I think we lost Jamie.

Just the last question on dealer inventory.

So the question is just where dealer inventory is currently or where we're seeing it in the second half.

Yes, like how dealers are approaching how they're thinking about inventory as we're exiting 2023, getting ready for 2024? Wondering if they want to start to increase inventories given what they're seeing out there.

I mean, based on the shipments that we have lined up, I'd say that they're increasing their inventory. So that's just a question of how high they plan on increasing in the second half. I think a lot of the activity looking towards 2024 is more about just being on the build schedule given the long lead times at the moment.

Your next question comes from the line of Jerry Revich with Goldman Sachs.

This is Clay on for Jerry. A quick question here. Can you talk about the utilization trends for your U.S. fleet in this quarter compared to the same period last year?

Yes. We don't share that information. Our fleet is not that large. I'd say in total, even when we talk to our customers, if you look more broadly, utilization rates in the United States have been very good.

And then I guess a quick follow-up on the -- regarding the non-new equipment growth, can you add more color on what the key drivers were within that? And then also on top of that can you break down the price purchase volume on the non-new equipment sales? Thanks.

In terms of what drove the 8% increase, I would say it was -- we continue to add service techs, which helps service some parts. But used sales have been strong, too, and that's usually a big mover because it's a bigger number.

Yes. And when I look year-over-year, the big part of it is just those service techs being more and more utilized. So most of it's on the service and parts side. .

Your next question comes from the line of Mig Dobre with Baird. Please go ahead.

Very, very nice job this quarter. Picking up where you just left commentary on used cranes. I'm kind of curious as to what you're seeing on that side. I know you're very active in that market. What's going on with used crane prices, and what is going on with the availability of used cranes on the market, too. Can you comment on that?

Yes. I mean, for sure, there's a lot less availability, I would say than there was, say, 2 years ago, but activity still remains good. And I mean, for us, a big part of it is we didn't -- we never free purchase units that were out there. So I mean we're actively looking to buy used machines and we're actively looking at trade-ins, for instance, on ATs in Europe, which we never really did that in the past. So that's some of the reasons it's been good for us. In terms of used pricing, I would say it's okay? I mean, if you really look, it's a bifurcated world. I mean the U.S., given that utilization is so strong, they're much better in Europe, however, specifically on the tower crane business, I mean with the business being so soft, I would say that old machines, you've got a 15-year old cat head that's got the old legacy software systems, those prices are going to be very low at this point.

But I'm wondering if there's a dynamic here because we've kind of seen it in other categories of equipment where used equipment prices have come a lot and come up a lot and that to some degree, supports the economics of a trade-in for people that are looking to upgrade to new equipment. Is that happening in the crane market or maybe not, given what you just kind of mentioned?

Well, I think the difficulty is you got to look at every individual deal. And if you've got cranes that are 15 years old, those aren't very productive and it's difficult to move those machines. I think if you had new machines over 3 years old, yes, prices would be great, interest would be huge. But if you got machines that are 15 years old, mean there's a lot of old fleets out there, folks that are looking at sitting on machines that are even 20 and 25 years old. So it's -- those prices are challenging.

And that some of our strategy is to take some of the used cranes and refurbish them and have them as more of like a certified used from our perspective. But I'd say that that's more in its infancy, and we're trying to drive that.

I see. Then my follow-up, is on the price cost dynamic. You talked a little bit about pricing. I think I heard a term normalizing. I'm kind of curious as to the contribution? How do you think about the contribution from price that you're getting in the back half on a year-over-year basis relative to what you've seen in the front happen. On the cost side, material costs, have they actually been a tailwind in Q2? And how does that progress in the back half of the year?

So I'd say from a price standpoint in the second half, you're not going to see it because of the headwinds associated with the tower demand. So I think when you look at the business that the demand is still strong and we're holding pricing and we're -- that's going to contribute to the second half and partially offset that headwind associated with the towers. But when I think about other impacts to the second half, we also have FX favorability that we saw in the first half. We had some very favorable hedges. Our average hedge rate on European purchase product coming into the U.S. from our European manufacturers was less than -- was around 1 and the average rate was 108, and we're anticipating that the second half rate is a bit higher. So like I said, you're not necessarily going to see the benefit of pricing in the second half just because of the headwind -- the other headwinds that we've got.

And material costs?

I'd say it's no change. I mean everyone can see that steel prices have come down, but even in the United States, they're still high, but the problem is we don't buy a lot of that still. A lot of our steel is very specialized. And all those high-strength steels, I mean that's a pretty niche market. So I wouldn't say we've seen any dramatic changes yet.

Between Q1 and Q2. But compared to last year, we definitely saw price increases relative to the labor market and how that got factored into prices for some of the products we buy.

Your next question comes from the line of Seth Weber with Wells Fargo Securities. Please go ahead.

I guess just a clarification first. On the $75 million inventory reduction comment, is that from the second quarter? Or is that from 4Q year-end '22?

Go ahead, Seth.

And can you just -- your expectations for free cash flow for this year?

Yes. So the $75 million is from Q2 and really driven by logistics and supply chain and some of that seasonality as well. We're definitely continuing to look at what demand looks like going into '24, which will adjust our inventory somewhat, but we feel comfortable about the $75 million by the end of the year versus Q2. The -- what was the other half of that question?

Just free cash -- I think free cash flow previously you talked about kind of neutral. Is that still the case? Or is hasn't changed with the best.

No, I think we talked about $20 million to $40 million. We're thinking $30 million to $50 million with the increase in the EBITDA, some of that flowing through the cash flow. So $30 million to $50 million is we're targeting.

And then -- just on this -- the $30 million EBITDA headwind for the second half, European towers. Is that -- I'm just trying to -- I think everybody is trying to understand kind of the composition of the backlog. Is that more tilted 3Q versus 4Q? Or is it kind of spread evenly? And just trying to think through how -- whether that be to next 2024 at all.

Third quarter is your normal third quarter because half the plant all the plants in Europe were shut down for a month, basically naturally would wait a little bit more to the fourth, but I think what's key there is we're really hand to mouth. I mean, we don't have a whole heck of a lot of backlog. And even when I look at July, just to give you an example, we had less than $5 million of machine orders. So -- it's tough times on the tower crane business in Europe, and we had a lot of big challenges. That being said, we're continuing to invest in NPD. So we are in the process of hiring between 15 and 20 new engineers between the French engineering team and the China engineering team to support new product development for pursuing more aggressively some of these jobs in the Middle East as well as the what will eventually come in these big nuclear jobs in France and the U.K.

But was Europe -- were European tower is a big part of the first half margin strength that you saw this year? I'm just trying to understand like how long this bleed business continue -- does this headwind continue to bleed into the first half of next year? Or it's kind of like balance?

Yes, I mean, we have essentially no backlog. So it's hard to say when it will start to come around, right? So I mean, basically it's typical, you sort of fall off a cliff. I mean and good backlog, and we were shipping given all the shortages we had and everything we could in the first half to meet customer advance. Now we're in a situation where we don't have any backlog. So hopefully, it turns fast. I mean there's a lot of things out there that could, I think, stimulate it, but who knows where Ukraine is going and what the interest rate situation is, but there's still lots of housing shortages in Europe. So if they changed some of their policies, maybe it comes back faster.

But in terms of the first half, I'd say normal -- the same way it's been contributing for the last however many quarters, 6 quarters. I would say it was more or less.

Yes. I think the first half of 2023 was lower than last year, but still the first half or second half is that $30 million number that we talked about related to just towers alone.

Your next question comes from the line of Tami Zakaria with JPMorgan.

This is Kyle on for Tami. You were curious if you could talk a little bit more about which products are seeing more demand from the infrastructure projects that are coming live?

Yes. So generally, I would say the infrastructure money hasn't started to flow. It will be broad-based given the nature of that project when you look at the United States, like [Indiscernible] there's a broad -- there's a huge amount of applications. So I think it will be really good for boom trucks. And of course, all the taxi work will come along with it. And then in terms of semiconductor, typically, that's more crawlers in the United States.

And then for a quick follow-up, if you could update us on how your market share is trending by region?

I'm sorry, we don't provide that level of detail.

[Operator Instructions] Our next question is a follow-up from the line of Mig Dobre with Baird. Please go ahead.

One -- the first one is on Ukraine, which you just mentioned a moment ago. And I'm kind of curious, when you talk to your dealers and obviously, the folks that run your business in Europe, is there a sense for how that conflict has impacted investment at all? And I'm kind of curious, I mean, if we do see a resolution at a point in time, presumably, there's a lot of reconstruction that has to go on over there. And I would imagine that the European Union would be quite involved. Do you get any sense that there's chatter in terms of what that might mean for demand going forward and how you might play into that?

Yes. I mean any time you got war on your doorstep and you get interest rates going up, I think that puts everybody in a pretty uncomfortable position in terms of Europe. So for sure, there's some sort of cloud overhanging the population. In terms of rebuilding Ukraine, everyone loves to talk about grand ideas, but there's nothing out there that's concrete to suggest what actually is going to happen. So I think it's hard to comment on what is really going to happen.

So you're not hearing anything at this stage in terms of your dealers or anything like that, talking about that.

Yes, just wishful thinking, I think -- but I mean there's no -- there's been no bills passed. There's no activity. So you don't really -- nobody has a clue what's going to happen in terms of Ukraine.

Sure. Do you have specific exposure to that market through dealers? Maybe I should know this, I apologize. I just never really

No. For us, the bigger issue has been Russia. I mean, Ukraine is sort of a -- it's not a huge market. It's more of a used market, so I wouldn't say that we were doing a tremendous amount of business there. But Russia was a big hit for us.

Yes. And we stopped selling in Russia, and we took a charge actually this quarter that I talked about in my prepared remarks.

And then my last question, Middle East, great to hear that orders are up. And obviously, there's a lot going on in Saudi Arabia. Can you talk a little bit about competitive dynamics? I know that's a market that everyone is buying for the Japanese, the Chinese competitors and others. How are you staying competitive relative to those folks? And do you get a sense that you'll be able to, for lack of a better term and capture your fair share of the pies that demand ramps up?

Yes. So I mean, given the fact that the Chinese market so far down, the Chinese are extremely aggressive in the region. And I think for simpler creams, they'll make some gains. But these projects are so intensive in terms of the risk of what they're actually building that I think it still bodes well for us, especially in higher tonnage applications. They just can't afford to take the risk when you're -- if you're looking at the line that's 500-meter tall 200-meter wide, I mean, that's a humongous structure to take the risk on some of these other cranes, I think, would be really scary. So I think it will be super competitive. It always is in the Middle East. But I feel really good in terms of where we are in the tower cranes because of our partner there, NFT. On the mobile side, it's more challenging, as I say, because the Chinese are more competitive. But again, we've got a good partner there in Kano and we're actively chasing everything. So I think it's more about picking the winners.

And as Aaron mentioned, we're continuing to invest in larger tower cranes and new product development there to be competitive in the region.

At this time, I'll turn the call back to Mr. Warner for closing comments.

Before we conclude today's call, please note that a replay of our second quarter 2023 conference call will be available later this morning by accessing the Investor Relations section of our website at manitowoc.com. Thank you, everyone, for joining us today and for your continuing interest in the Manitowoc Company. We look forward to speaking with you again next quarter.

That will conclude today's call. Thank you all for joining. You may now disconnect.