Hello and welcome to The Manitowoc Company Third Quarter 2023 Earnings Call. [Operator Instructions] I will now turn the conference over to Ion Warner. Please go ahead.

Good morning, everyone and welcome to The Manitowoc conference call to review the company's third quarter 2023 financial performance and business updates 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. [Operator Instructions] Let's move to Slide 2 on 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 3. Overall, I was very pleased with our team's execution during the third quarter. It's typically the most challenging period of the year for our operations and 2023 was no different. Although part shortages and vessel delays continued to plague us, sales for the quarter were $521 million and our adjusted EBITDA was $33 million or 6.4% of sales. Non-new machine sales increased 21% year-over-year to $155 million. Please turn to Slide 4. Manitowoc continues to transition from a product-driven company to a services-oriented business. I'd like to highlight a few wins during the third quarter that demonstrate the changing business model under our Cranes+50 strategy. To start, we recently won an order for Maxim Crane Works, the largest crane rental house in North America, to rebuild 14 Manitowoc 2250 crawler cranes. The first 2 cranes arrived at our facilities in September. This multiyear project brings real value to this important customer by lengthening the productive life of their assets. The key to winning this work was the close collaboration between our MGX and Manitowoc aftermarket teams to align the cost and pricing of parts and labor for an acceptable end-to-end margin to meet the customers' expectations. This is an excellent example of the synergies we continue to realize from our acquisitions. A big thank you to our teams leading the project and to Maxim for their business. On the back of this win, we recently expanded our MGX footprint with a new branch in South Carolina. In addition to providing more capacity for remanufacturing work, this location will represent our Potain and National Crane boom truck product families. This new facility brings our combined MGX and Aspen footprint to 18 branch locations. Next, in Latin America, we opened…

Thanks, Aaron and good morning, everyone. Please move to Slide 9. Let's start with orders. During the quarter, we had orders of $531 million, an increase of 13% from a year ago, exceeding our expectations. The year-over-year increase was driven by higher orders in our EURAF and MEAP segments. In the Americas segment, orders were slightly lower year-over-year. The increase in EURAF was primarily driven by mobile crane orders which more than offset the significant decline in tower orders. In MEAP, as expected, demand in Saudi continue to drive the order increase. Foreign currency favorably impacted orders by $14 million. Our September 30 backlog was flat sequentially at $1.028 billion and increased 9% year-over-year. The makeup of our backlog is consistent with the second quarter. It's predominantly in the Americas. Net sales in the third quarter were $521 million and increased 15% 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 21% year-over-year to $155 million. From a trailing 12-month perspective, non-new machine sales exceeded $600 million for the first time, reflecting great progress by the team on Cranes+50. Net sales were favorably impacted by $15 million from changes in foreign currency exchange rates. SG&A expenses were $12 million higher year-over-year at $77 million, primarily due to higher employee-related costs. Foreign currency exchange rates contributed $2 million to the year-over-year increase. As a percentage of sales, SG&A expenses were 15%, relatively flat year-over-year. Our adjusted EBITDA for the quarter was $33 million, an increase of $9 million or 39% year-over-year. Adjusted EBITDA margin was 6.4%, an increase of 110 basis points over the prior year. As a reminder, the third quarter is…

Thank you, Brian. Please turn to Slide 12. Although we continue to manage the economic ripples created by the COVID crisis, Manitowoc has made great strides on its strategy throughout this period. We have a lot of work to do to close out 2023 but we're well positioned to deliver a strong performance for the year. As for 2024, it's still too early to provide any concrete guidance but as I read the tarot cards today, our business in the U.S. should be supported by our strong backlog and increased aftermarket focus. Europe is going to be tough as we have very difficult comparisons in the first half. The Middle East continues to strengthen, although it's still a smaller part of our business. And Asia Pacific will be flattish at best. Overall, I believe that our 2024 results will be determined by: a, the resilience of the U.S. economy in a contentious election year; and b, how quickly the EU governments react to address the escalating housing crisis. Long term, I remain optimistic that the crane renaissance is on the horizon. First and foremost, the majority of large rental fleets around the world are getting long in the tooth. Many of them are 15 years old on average. This simply isn't sustainable. For example, there's no doubt that a crawler crane can work 30 to 40 years but most of those late years are spent on projects where the hourly demand is quite minimal, like a small bridge project in the middle of Wisconsin. These old cranes are not accepted on new stadium or semiconductor projects. Several drivers will contribute to the much-needed fleet refresh, including Saudi Vision 2030, major programs in Europe that are aimed at overhauling their energy strategy, such as offshore wind farms and nuclear power plants…

[Operator Instructions] Your first question comes from the line of Stanley Elliott of Stifel.

I guess for starters, it sounds like the Middle East business sounded very positive. And I was curious if you're seeing any sort of an impact or any sort of discussion with kind of the war that's going on over there as it relates to your business.

Yes. I mean, I think everyone is talking about it but we haven't seen it impact the business. I mean Israel's a long way from Saudi and the Saudis continue to execute their Saudi Vision 2030. So from a project standpoint, everything is still very active. I would say no impact.

And I guess I'll kind of switch to the aspirational targets. So raising on the non-machine piece, that's a pretty good-sized jump. I mean is it that the remanufacturing piece is going better? Is it better parts, better service, just more of an expanded footprint? I'd love to see kind of what some of the drivers are to get you from that $675 million to $1 billion.

Yes. I mean the core of it is always around getting more locations and getting more service text is because that really is what drives the rest of the business. The other component of that is we have to continue to get better at the used business. I think we had a great year in terms of used this year, given the fact that we've had so much increases in prices, that business has been hot. But there's still a lot more activity for us like doing more trade-ins coming out of Europe to move those used machines in the United States. There's a lot more activity like that, that we need to continue to get better at.

And there's no doubt that we'll need some acquisitions to get to that number as well.

Yes.

And then lastly for me, kind of as it relates to the updated guide in the fourth quarter. Is there anything that we should be aware of on a year-over-year basis, comp-wise? I mean it would seem like that the business with the order rate and the non-machine sales would be tracking at least to the high end of the revenue guidance, if not better and then the EBITDA piece has kind of been tracking quite well. too. So just curious, any color that we should be aware of on that.

Yes. There's sort of 3 components when we look at it. First is the tower crane business. If you compare year-over-year, we're off $15 million from an EBITDA standpoint in the tower crane business. So that's the first big headwind for us. Fortunately, we have mix and we've been cautious around the vessel issues. A lot of cranes we've got going on vessels in the North Sea and it's always hard to predict how the summer is going to play out.

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

This is Clay on for Jerry. Quick question. How about lead time? How have lead times trended for new orders? Have we seen some normalization in the supply chain or the lead times there are still extended?

It just depends product to product. I would say, I mean, there's areas in tower crane business where demand is soft enough where lead times are back to normal but we still have some product lines that the lead times are pretty strong.

And a quick follow-up. Can you give some -- just quick color on what you're seeing in the M&A pipeline? It sounds like that's a bigger portion of things to come in the future.

We're active and we have a full funnel but you can never predict timing on deals. So I'd say it's no real change for us. We just keep working on it.

[Operator Instructions] Your next question comes from the line of Mig Dobre of Baird.

And congrats on a good quarter here. I want to go to Stanley's question from a moment ago on the guidance. I mean, I appreciate the fact that you have to have a little bit of room to maneuver but $20 million range on -- with just the fourth quarter left on EBITDA, I mean, you can drive a truck through that. So I'm -- can you maybe help us put a finer point on this?

Yes. I mean I think, as you know, mix is a huge component for us. So $20 million, we narrowed it down and we raised the bottom end $10 million this quarter. So yes, I think we feel comfortable that, that $20 million is a reasonable range on the $50 million of revenue spread based on the mix changes. And as Aaron pointed out, there's still a lot of uncertainty around vessels going into the fourth quarter. So that's contributing to some of the concern or guiding to the low end on our free cash flow numbers.

I mean, we essentially have no backlog in tower crane business so we just hand them out.

Yes. And that contributes -- that's one of our highest margin businesses, especially when you consider the underutilization that's happening currently.

From a price/cost standpoint or really all the other items that you guys have to manage on the cost side, how are you looking? And what's been happening here through the year? Is that positive? Because I'm presuming it's positive. Price/cost gap starting to narrow? Is that a factor into in Q4? Or is it just mix?

Yes, I would say that has no impact on the fourth quarter. You might comment on cost price but it's generally normalized. And it's interesting because sort of the conversations have shifted. Now the conversations are more about, in fact, this dollar is so strong and we have competitors coming from areas where they have weak currency like the yen where the tower crane business is feel super competitive because of demand low and aggressive Chinese competition in places like Middle East. So as I say, I think we're past that now for the most part. And we're back to having more normal conversations around how do we tell us so we get prices up.

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

This is Chaya [ph] on for Tami. For our first question, can you provide a little bit more color on your backlog? And maybe if you could talk about how they're trending by region or by product?

Yes. As we mentioned, the majority of our backlog is in the U.S. So that hasn't changed from last quarter. And we don't give backlog product by region.

Okay. Got it. And then just a quick follow-up. What are the key areas where you continue to see most cost inflation?

In terms of most cost inflation, I mean labor is still a challenge and a concern, especially with some of the news you've seen in the United States.

So we see it through a lot of the fabricated parts where our suppliers are adding value and labor plays into that. So that's still the biggest piece.

I think the other thing I'd add is that a lot of folks look at the normal steel pricing on Bloomberg and say, "Hey, it's way down." The biggest challenge that we have is a lot of our steel is really high end. High-strength steel that comes from a couple of specialty suppliers in Europe. And right now, they've got a lot of demand because of everyone building military equipment. And we have not seen those prices go down the way you've seen flat steel go.

We have a follow-up question from the line of Mig Dobre of Baird.

I got to say, you guys are very tight on enforcing the one question and one follow-up. So I got back in the queue because I had a couple more. So, I -- given the way you're talking about the fourth quarter guide and the implied margin, right and I appreciate the fact that the tower cranes' backlog is extremely low, as you said. What's the implication here for margin in the front half of '24, right? Because the comparisons, it would strike me as being relatively difficult versus 2023.

Yes. I think that's a very fair comment. I mean that's our concern about '24 is that the comps in the first half related to towers and then how does the U.S. hold up.

May be out, particularly in the second half.

Where do we end the year with our dealer inventory and it's, in particular, on the all-terrain side. But yes, that's exactly our concern.

Okay. Well, I appreciate that. But I mean, is the fourth quarter implied margins sort of indicative of the kind of run rate that we should be thinking for the front half of '24, if mix remains similar?

No, I don't think that's fair. And I'd also add that we're right in the middle of the budget process. So it's not possible for us to really give you an answer that you're looking for, I think.

Okay. And then I guess my final question is on kind of a general question on pricing. You already touched a little bit on what's happening from an FX standpoint. That's something that we've been wondering about quite a bit given the weakness in the yen. As you look at model year 2024 cranes, is there some sort of color that you can provide as to how you see pricing?

Every year we're in a normal year, we're going after a couple of points in pricing and I don't think this year will be different. I do think though, when you look at where the yen is that -- I don't know if it's JPY150 or JPY151 today and that's a major advantage for our competition. So it's a tough fight.

And the euro has bounced around as well. So we do buy from ourselves from our plants in Europe to the U.S. but we're -- so I think we've got competitors, though that are shipping product that they're building in Europe that we build in the U.S. So it's the euro as well as the yen that's playing into that.

There are no further questions at this time. I will now turn the call over to Ion Warner for closing remarks.

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

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