Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Manitowoc Second Quarter 2024 Earnings Conference Call. I will now turn the call over to Ion Warner, Senior Vice President, Marketing and Investor Relations. You may begin your conference. Please proceed.

Good morning, everyone, and welcome to the Manitowoc conference call to review the company's second quarter 2024 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 & 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 sarbor 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 move to Slide 3. Before jumping into my update on the crane market, I would like to provide some color from our Crane Days event in May. First and foremost, it was a very successful event with over 850 customers and dealers visiting our Shady Grove campus. We hosted attendees from 18 countries and we showcased 35 cranes garnering excellent feedback. It takes an enormous team effort to pull one of these events off, a huge thank you to the team involved and a big thank you to our customers and dealers that showed up in force. Although there was plenty of banter regarding the next six months around the impact of the presidential election cycle, I had multiple customers tell me that they see a wave of infrastructure work on the horizon in the US, and they expect a strong market for the next several years. While not reflected in all the public data, crane folks are actively quoting projects for roadwork, bridges, rail, power generation and powered transmission. And of course, everyone is seeing incredible momentum to build data centers to support the AI boom. These centers will consume massive amounts of electricity and folks see this as a potential second leg of demand. Unfortunately, however, we haven't started to see this good news translate into orders yet. The current operating environment remains very challenging around the world. For sure, the geopolitical environment and high interest rates are taking their toll, and elections around the world have created even greater uncertainty. Consequently, customers are slow to move forward on orders. In addition, issues such as part shortages and shipping vessel disruptions have improved since the peak of COVID era, but they surely haven't gone away. To recap the second quarter,…

Thanks, Aaron, and good morning, everyone. Please move to Slide 6. During the period, we had orders of $428 million, a decrease of 22% from a year ago, bringing our June 30th backlog to $836 million. The lower order intake was primarily in our Americas and European businesses. While mid-term and long-term customer sentiment remains high, the prolonged higher interest rate environment and the political uncertainty around the world has negatively impacted the near-term demand. Net sales in the quarter were $562 million, a decrease of 7% from a year ago. As it relates to our expectation going into the quarter, we missed our net sales significantly. This was driven by four major items: number one, part shortages; number two, logistics and vessel disruptions; number three, a variety of customer financing issues; and number four, lower-than-expected demand for certain products. Our non-new machine sales were $147 million during the quarter, slightly down year-over-year. This was a great accomplishment considering the European tower crane market is at 2009 levels. After adjusting for charges related to the EPA legal matter, SG&A as a percentage of sales was 14%, up 120 basis points year-over-year. This was primarily driven by lower sales in the period. Our adjusted EBITDA for the second quarter was $36 million. The adjusted EBITDA margin was 6.4%, a decrease of 360 basis points from the prior year. European tower crane business continues to be the major headwind with the year-over-year impact to adjusted EBITDA of $14 million. Our GAAP diluted income per share in the quarter was $0.04. On an adjusted basis, diluted income per share was $0.25, a decrease of $0.50 year-over-year. Please turn to Slide 7. Net working capital ended the quarter at $517 million, 24% as a percentage of trailing 12-month sales. The main driver for our…

Thanks, Brian. Please turn to Slide 9. Entering the year, we knew that 2024 would be an uphill battle, particularly after a great 2023. While the year hasn't played out as expected, I'm very encouraged by the resilience of our non-new machine sales and the growing positive sentiment in many of our core markets. And although we haven't seen the European tower crane business turn the corner yet, as John Templeton said, bull markets are born on pessimism and grow on skepticism. Regardless, Manitowoc is a significantly better company today than when we became a standalone crane company eight years ago. The Manitowoc Way combined with our CRANES+50 strategy has transformed the company and we are still in the early innings of the game. I would remind everyone that since we launched CRANES+50, we've grown our higher margin, less cyclical aftermarket business by 34%. By any standard, that's a great accomplishment and puts us in a much better position to drive shareholder value long-term. With that, I'll open it up to questions.

Thank you. [Operator Instructions] Your first question comes from the line of Steve Volkmann with Jefferies. Your line is open.

Good morning, Steve.

Good morning, Steve.

Good morning, guys. Thank you for taking the question. So, kind of interesting sort of near-term, long-term dichotomy here because it feels like things really sort of zagged on you in the quarter here. So I guess my first question is, what really changed in the last 90 days that really moved this so aggressively? And the second thing is, Aaron, it feels like you're actually more optimistic on sort of the out-years, and I'm curious what's pivoted there that that's made you kind of more optimistic if I'm reading your tone right?

Yeah. I mean, we still continue to have all these big opportunities for large infrastructure projects. I mean, if you saw yesterday, there was a bill that came out for, I think, $2.2 billion for power transmission. So, when we talk to folks in the business, I mean, we -- I talk about power transmission specifically, our dealer in the northeast total states see work in that space for the next 10 years potentially. So, I mean, there's these big builders finally starting to come through, and those big activities also are big generators of crane activity. So, long term, we remain optimistic. I think that hasn't changed. It's good to hear that the crane operators are actually starting to see some of this activity, which we hadn't really seen or heard much about. But in the short term, really, it's the electric -- the election curve as I see it. I mean, business just sort of tapped off in May, and it's still really been depressed. I mean, our July orders were $121 million, just to keep it in perspective. So -- and, of course, with all of the things that we've seen in the US election and interest rate discussions in the last couple weeks, yeah, I think that just really hurts confidence in the short term for people to pull the trigger on new orders.

Okay. All right. Thanks. Anything to call out sort of on competitive dynamics or price cost? Any headwinds there we should know about?

Yeah. I mean, in -- out of Asia Pac and in the Middle East where we compete with the Chinese, that definitely has gotten more aggressive. So, there's been a little bit of price compression. In terms of the -- our normal western markets, I wouldn't say anything's changed.

Yeah. I'd say just it was nice to see the Bank of Japan raise interest rates and then the yen strengthened a bit, but it's still pretty high. So, from a competitive standpoint, that's definitely still impacting us.

All right. Thank you, guys.

Thanks, Steve.

Your next question comes from the line of Mig Dobre with Baird. Your line is open.

Good morning, Mig.

Hi, Mig.

Thank you for taking -- yeah, good morning. Thank you for taking the question. I apologize. I'm a bit sick here. So, hopefully, you can hear me okay. I guess, my first question, just a little bit on understanding the cadence here for the back half 3Q versus 4Q, you had to adjust your production and we understand that, but is there a more pronounced effect in one quarter versus the other? And what's the right way to think about margins also? Thank you.

Yeah. Seasonally, Q3 is always our weakest quarter. So I'd say that's definitely going to still happen, in particular in Europe, and obviously, the tower crane businesses continue to be soft for us. So, Q3 is going to be a lower quarter than Q4. Q4, we tend to be a bit stronger. So, just from a from a cadence standpoint, I'd expect Q4 to be higher-revenue, higher-margin quarter than Q3. And we don't -- obviously, we don't give quarterly guidance, but I'd say just directionally that's what I would expect.

Okay. And then, maybe I guess to follow-up on Steve's questions about the tone -- Aaron's tone longer term, and I don't know, maybe to challenge that a little bit, I guess, if we're looking at what we've experienced here in, say, 2023 and into 2024, this period has really been some of the strongest level of activity in non-residential construction in the US that we've ever seen. The manufacturing vertical has grown materially because of mega projects. Even on the public side, we have seen very, very robust spending in street and highway in '23. And all of this is now decelerating in '24 and certainly the starts seem to be pointing to lower levels of activity. So, I guess, I'm curious on two things. First, why do you think we haven't seen a more robust level of ordering in crane demand despite construction being as good as it's been? And then, how comfortable can we be with this notion that from current levels, there's going to be yet another leg up, yet another reacceleration that can support demand? And I'll leave it there. Thank you.

Yeah. So, first of all, with respect to commercial construction, if you go back to '16 and '17, it was up 20%. Meanwhile, crane orders were flattish. I mean, that was a pretty weak period for us. We got a lot of questions during those days about that level of activity. So -- and there's no real strong correlation when we look through the data relative to the crane business relative to non-residential segments. So -- yeah, we definitely see the data is unfavorable there, which it was more favorable. Relative to why did we not see stronger demand, I think that's largely driven by the interest rate environment in the last 12 months. So, longer term, there's still lots of these big projects that have not been executed. I mean, it's taking forever to get permitting for these big projects. And if you look overall, rental -- the fleet age still remains in that mid-teens at all the major large crane rental houses. So, at some point, that has to be addressed.

And we've said in the past that, our customers buy on confidence. And we had Crane Days during the quarter, and the sentiment was very positive. As Aaron mentioned, we visited a customer in the northeast and there was huge positivity coming out of it about these projects and really the extent of what they see as demand. So, you can look at all the data, and as Aaron mentioned, we don't have any -- we've not seen any correlation between our order rates and that data, but it's really about customer confidence, and we see it as pretty darn positive.

Okay. Thank you very much, and good luck.

Thanks, Mig.

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

Good morning, Jerry.

Hi, Jerry.

Hi. This is [Clay] (ph) on for Jerry. Quick question on the rent to purchase options. How high are those relative to the normal levels? And then, what are the typical conversion rates around the rent to purchase? That is interesting to see if the levels are higher there than normal, if we can -- those can improve on the conversions once we get past the election or if interest rates change?

Yeah. That's much more anecdotal in terms of having data to specifically answer your question. But in I mean, in a normal course, there's certain crane rental houses that just like to do RPOs as part of their financing. So that normal has changed where you've got a lot of folks who normally just buy the cranes are actually asking for RPOs. I'd say it's a discussion that comes up almost every single day or single orders.

Yeah. Even with some of our dealers, we know that...

Yeah. That they do RPOs as well. Yeah.

And we -- again, anecdotally, we just equate it to the fact that they don't want to commit to a purchase if they feel like interest rates are going down and it feels like interest rates are coming down. So, I would anticipate kind of in line with the election cycle that post election, there should be more free purchases than rent to own.

Thanks. And as a separately, how big of an impact were the part shortages you called out in the quarter, and what could a non-new machine sales have been assuming a normal supply?

Yeah. I'd say, I listed out about the four different impacts to our quarter based on where we forecasted. And when you look at across book-to-bill, commercial, logistics and execution with part shortages being part of execution, it's about 25, 25, 25, 25. So, it's sort of even and our internal miss during the quarter was just under $100 million.

Thanks. I'll pass it on.

Your next question comes from the line of Steven Fisher with UBS. Your line is open.

Good morning, Steve.

Thanks. Good morning. Just to follow-up on the last question there about some of the parts shortages and other operational challenges that you mentioned. What kind of visibility do you have to any improvements in those areas?

Yeah. I mean, the commercial items and the financing is something that we always -- it's something we always have to manage through because there are big expensive pieces of assets, and that's a process. It's just it's gotten worse. And I think that will continue probably the remainder of the year that we'll continue to battle getting make sure we have all the paperwork because, of course, the banks are also asking for more information than they had in past. In terms of part shortages, the 6,000 parts on a GMK, it only takes one to stop the crane, and we still have as many shortages we had a year ago, I'd say.

And we're still seeing...

Okay...

...for certain for our boom trucks, some chassis issues and things like that. So that's an area where demand has continued to be strong, yet there's issues with parts and chassis.

Okay. That's helpful. And then just a couple of quick clarifications. Did you have any order cancellations or deferrals during the quarter? And from a pricing perspective, are you expecting any pricing declines year-over-year in the second half of the year? Thank you.

Yeah. We had one crane that was canceled, but it was -- I don't know, I wouldn't say that was abnormal. That happens from time to time, so I'm not too concerned around cancellations. And in terms of pricing, I mean, I think where we compete with the Chinese, we'll continue to be aggressive, but in terms of the core product lines in the West, I don't expect any degradation in near term.

Terrific. Thank you very much.

Thanks, Steve.

[Operator Instructions] Your next question comes from the line of Tami Zakaria of JPMorgan. Your line is open.

Good morning, Tami.

Hi, Tami.

Hi. Good morning. Hi. How are you? So, two quick questions. One is, I think I remember last year, you -- in one of the calls, you mentioned that cranes are now, call it, 20% plus more expensive because of cost inflation and then you add on the increase in interest rate. So that whole cost burden sort of dampened demand relative to the prices we've seen for cranes pre pandemic. So, I was wondering, can you update us where we are now in terms of pricing, including the financing cost for cranes? What I'm trying to understand is, what degree of rate cuts is needed for cranes to see a pickup in demand again?

Yeah. I mean, I would say it hasn't really changed from a pricing standpoint. I mean, I have to do the math. I mean, you had 0% to 1% interest rates couple years back, and now you're talking 5%, 6%. So...

Yeah. I'd have to go back to when we actually set it and update the model, but, like, over the last year, I mean, you could look at what interest rates have done and do the math. But I think part of it is just that expectation that interest rates are going come down. So, why would you do it? I mean, when we talked about the US in particular, we were surprised to see order rates stay as strong as they were because of those interest rates and because of those dynamics.

And I think the much bigger issue we have right now is certainty.

Yeah.

I mean, the election has turned into the election situation, and the war is continuing in Ukraine and the Middle East. So, until we get some certainty around those items and even the interest rates, we don't really know where we're headed. So...

Got it. That's helpful. And then, the other question is, non-new machine sales, I think I heard you say it was down a bit in the second quarter. How did that trend versus your original expectation? And do you expect non-new machine sales to stay down for the rest of the year?

Yeah. I think, we're pretty proud of where we are from a non-new machine sales perspective, in particular with the tower crane business where it is. There's -- they're definitely down in tower cranes, but not as not as far down as where you'd expect it relative to where the new machines are. So, I think it's around where we expected a little bit shorter really based on some timing on some used machines, but year-over-year, the down is really related to our towers business.

Understood. Thank you.

Thanks, Tami.

There are no further questions at this time. Mr. Warner, I turn the call back over to you.

Thank you. Before we conclude today's call, please note that a replay of our second quarter 2024 conference call will be available later this morning by accessing the Investor Relations section of our website at manitowoc.com. Thank you for 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.