Good morning. My name is Sara and I will be your conference operator today. At this time, I would like to welcome everyone to the Manitowoc Third Quarter 2024 Earnings Conference Call. I will turn the call 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 third 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 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 question. 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, describing 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. A year ago I stated that 2024 would be predicated on two major factors: number one, whether European governments would address the escalating housing crisis; and number two, how resilient business activity would be in the face of the US election. Starting with Europe. It was great to see the European Central Bank reduce their interest rates with back-to-back cuts in September and October. However, this is probably not enough and it will take time to impact our business. The governments in France and Germany remain at a stalemate after the recent elections and no fiscal action has been taken to address the well-publicized housing shortages. Moving to the US market. Although it seems like a lifetime ago, it's only been five months since our Crane Days event where customer sentiment was very positive. Unfortunately, this positive attitude evaporated, as we entered the summer months and the presidential election started to heat up. In fact during the third quarter, we missed our book and ship sales target by more than $40 million. As threat poses, as American Standard used to say; when it's light, you can't see the dark and when it's dark, you can't see the light. Given that we are only 5 days from the US election, there's plenty of uncertainty in our near-term outlook. So as I go through each region, I think it is important to contrast the current discouraging tone to the favorable long-term outlook. Starting with the Americas. Even though demand for new cranes has been slow, the overall attitude of the crane industry can best be described as cautiously optimistic. Although utilization slowed a bit during the summer months, it has still been pretty resilient. As a general statement, dealer inventory…

Thanks, Aaron, and good morning, everyone. Please move to Slide 5. I'd like to start by thanking my team for the hard work associated with the refinancing of our debt. Great job team. During the quarter, we completed the refinancing of our debt by: first, amending our ABL credit facility to increase our borrowing capacity from $275 million to $325 million and extending the tenure to 2029; and second, we refinanced our bonds that were due in 2026 by issuing new $300 million notes at 9.25% due October 2031. It is important to note that the credit risk portion of the interest rate went down almost a full point since we last financed in 2019. This is a good sign that the debt market appreciates the heavy lifting done on our strategy to reduce the cyclicality and improve our margins by focusing on the recurring higher margin aftermarket side of the business. Turning to our results. During the quarter we had orders of $425 million, a decrease of 20% compared to a year ago. The year-over-year decrease was primarily driven by the Americas where we saw order intake down 28% year-over-year as the US presidential election and interest rates continue to weigh on demand. We ended the quarter with a backlog of $742 million. Net sales in the third quarter were $525 million, flat versus the prior year. However, as Aaron mentioned, we missed our book and ship target by over $40 million in the Americas. Non-new machine sales increased 9% year-over-year to $169 million. The increase was primarily driven by used crane sales, which if you recall, lagged during the first half. From a trailing 12-month perspective, non-new machine sales reached $618 million, reflecting great progress by the team on our CRANES+50 strategy. After adjusting for charges related to…

Thanks, Brian. Please turn to Slide 7. I have to say 2024 has felt like deja vu. During the third quarter, it became evident the construction industry is distracted by the election and 2024 is unfolding very much like 2016. Mark Twain once said, history doesn't repeat itself, but it does rhyme. During the second quarter of 2016, we heard a lot of positive customer sentiment at the bauma trade show in Germany. But as the U.S. election approached that year, the favorable sentiment faded and orders waned. This year has been very similar. In spite of great positivity that we heard from our customers at Crane Days, order intake slowed dramatically as we entered the summer months. On this slide, you can see that the sharp decline in orders leading up to the 2016 presidential election quickly reversed in November. To me, this is the million-dollar question as we consider the remainder of 2024 and the first half of 2025. Will orders pop after the election on Tuesday? I guess time will tell just how wise Mark Twain was. At Manitowoc, we remain committed to focusing on what we can control. Our top priority is safety followed by strengthening our balance sheet to ensure that our net leverage is below our target of 3 times. To achieve this, we are focused on reducing our inventory and increasing cash generation during the fourth quarter. Additionally, we've adjusted our first quarter 2025 build schedules to minimize the inventory rebound that we seasonally see as we begin a new year. Fortunately, with the terms of our new ABL credit facility, our liquidity is a strong $222 million. While we remain very tactical in managing our cash, we are also resolute in our efforts to grow our aftermarket and non-new machine sales. We've recently opened several new branch locations and we have plans for a few more next year. Strategically, increasing the number of locations and service technicians is vital to driving our non-new machine sales and enhancing long-term shareholder value. In closing, despite the headwinds mentioned earlier, we see glimmers of optimism. Interest rates are declining around the world, the monies from the Infrastructure and CHIP Bills are beginning to flow in earnest, the Middle East remains strong, crane fleets are aging to historic levels and we continue to grow our service footprint and launch new cranes. Manitowoc is well-positioned to execute our CRANES+50 strategy and deliver shareholder value. With that, I'll open it up for questions.

Thank you. [Operator Instructions] Your first question comes from the line of Jerry Revich with Goldman Sachs. Your line is open.

Hi, Jerry.

Good morning Jerry.

Hi, this is Clay on for Jerry. Just one question for me. Can you provide some color on the potential for margin improvement when volumes return given the productivity improvements you've outlined in this quarter and some of the prior quarters?

Yes, that's a complicated one to answer just because it depends a lot on the mix. So if you look at the tower crane business given that it's at its bottom, the contribution margins are going to be great in that business as we move forward. Brian, do you have anything?

Yes. I think we need that volume as well because as we talked about, we've reduced our build plans and that's impacted our flow-through negatively. So both from a tower standpoint as well as a mobile standpoint as we get our inventory right.

Thanks. And just as a follow-up. How has the -- on the non-new machine sales, how has the parts performance been as a part of that? Thanks.

Yes, parts has been good. I mean actually the thing that's pleased me the most with respect to our non-new machine sales is our MGX business continues to grow. It was up nicely year-over-year, which is mostly parts and service. And the European tower crane business even though the whole goods business is down dramatically, we were actually up in the quarter. So that's a good sign that our strategy is working.

Yes. And I mentioned in the prepared remarks that used was a little bit heavier during the quarter, which definitely impacts our margin flowing through that side of the business.

Thanks, I appreciate it.

Your next question comes from the line of Mircea Dobre with Baird.

Hi, good morning guys. Actually it's Joe on for Mic this morning.

Hi, Joe.

Hi, good morning. So my first question, you're highlighting election uncertainty. That makes perfect sense. Do you think that there is an outcome of the election that would help more than other outcomes or is it just moving from uncertainty to more clarity?

Yes, that's a tough question to answer. Put me on the line like that, Joe. I mean I think if you look back at that 2016 bump, that was driven by Trump's win. I mean the industry is very conservative I would say. So if I'm being completely honest, I think that a Trump outcome is the best for the crane industry.

Yes. No, that makes sense. And my next question would be and you touched upon this a little bit in your prepared remarks, but what series of events would have to happen to get the European tower crane jump started again? And again you touched upon some of these, but maybe kind of expand upon what would need to happen to get that market going?

Yes. I mean from my perspective, we're at the bottom. Year-over-year we were better in the third quarter in terms of orders. Fourth quarter is a little bit different, bit more difficult comps. We get into next year every quarter I would call easy comps. So to me, that's the first step sort of the basis of it. I think any work that any one of the countries would do in Europe to help the housing shortage would go a long way. But I mean inventories are low, people dialed back even on the rental fleets. I feel like we're at the bottom. We just think it will slowly build back over the next 12 months. It may not happen in the fourth quarter now or the first quarter. But I think when you look at the second half of next year and you start to set yourself up for 2026, we'll start to see some action. The other thing I'd say is Germany has had an election in September so anything could happen in terms of their geopolitical environment if they're not able to hold the coalition for the current government. That can move things faster too.

Got it, okay. Thanks for the color.

I mean, I watch the interest rates, we watch housing permits and we keep an eye on all these geopolitical. I think as a basis though, the industry is at its bottom and it's going to build from here.

Understood. And maybe if I can sneak in one more quick one. You guys mentioned $130 million of free cash flow in the fourth quarter to hit the low end of the free cash flow range. I guess what other levers would have to be pulled to get close to that number?

Yes. We're looking to bring down cash CapEx a little bit, but also a lot of it is going to be dependent upon that book and ship rate and whether or not we're able to get those units out the door and then it's going to come down to cash collection by the end of the year. The cash flow versus it sitting in AR I'm less concerned about. If we've got an elevated AR at the end of the year and we missed our cash, I feel a whole lot better than if it's sitting in inventory obviously. We've brought the build plans down enough. So when I look at the $770 million in inventory that we've got sitting on the balance sheet at September, we've got enough inventory to sell. So I think we've got that line of sight, but it's all going to come down to what the book and ship rate is.

Sure. Okay, thanks guys. Good luck in the fourth quarter.

Thank you.

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

Good morning Tami.

Good, how are you? So my question is a little backward looking actually. Can you remind us what tariffs on imports or even steel in the past impacted your business? The reason I ask, it's election season, I think tariffs are top of mind for a lot of investors. So can you sort of refresh or give us a recap of what happened last time and how you're preparing for it should that be the case again?

Yes. So I mean our biggest challenge in the past was when they put in the steel tariffs. If you look at steel prices in the United States, they're 25%, 30% higher than they are in Europe and which is even higher than Asia. So to me, that's sort of already built into our system. I mean I know that there are so many variations of this tariff discussion that's been thrown out there. I mean in fact the tariff across all of cranes would be a positive for us when you consider the challenges we have with steel prices and FX. But I have no idea what will actually be implemented. So at this point, we continue to manage our sourcing like we always have with multiple sources and we'll manage through it. But I think it's probably the opposite direction, right, because they're talking about applying tariffs to everything. I think in the end, it would actually be favorable for us because we've already taken the biggest hit with steel. Brian, what do you think?

Yes. I think one of our big competitors has been seeing favorability from a currency rate in the U.S. So I think that's to me a bigger concern because they got both the benefit of the steel price as well as the currency. So I think continuing to monitor that and see what happens. And I think our U.S. interest rates are going to impact that as well as what happens in Japan. So I think that's the other big factor.

Got it. Okay, thank you.

[Operator Instructions] Your next question comes from the line of Steven Fisher with UBS. Your line is open.

Good morning. Just wanted to ask about a follow-up on margins. And I'm not sure if your commentary on the guidance low end applies to revenues as well. I'm just trying to impute what the implied margins are for Q4. It seems like they might be pretty steady on an EBITDA basis with the margin, that 5% margin in Q3. I want to confirm if that's correct. And then just sort of thinking about should we consider sort of the bottoming of margins from here or do we think there could still be some more pressure as we go into '25 depending on how things play out?

Yes. I think in the short term -- so a big portion of our margin issues in the third quarter was related to our build schedule reductions. I mean there was some impact from towers, which was worth a couple of million bucks and we had some mix challenges. I think those mix challenges will continue in the fourth quarter as well as more absorption because we'll actually have more shutdowns in the fourth quarter to adjust our build schedules. And then looking into the first quarter, I mean we've adjusted our build schedules in the first to protect our balance sheet. So I mean I think the next two quarters will continue to be challenged on the margin side just purely for the fact that we're not driving as many hours through our shops.

Your assumption that Q4 looks similar to Q3, I'd say that's pretty fair. Maybe a slight uptick, but I think relatively flat from a margin standpoint is where we're thinking about it.

Okay. That's great. And then just you gave some of the market color in the beginning. Just curious about quoting activity, particularly in the Americas. Anything that you can comment on in terms of how you've seen that in the last handful of months relative to earlier in the year? Is it still fairly active even if there's not as much ordering? What are you seeing in sort of the quoting activity?

Yes. So our orders for October will probably be less than [150] (ph). So just to give you some indication of where this past month has played out. That being said, in my normal reviews with the team, I mean I had one on Monday morning and actually some of the sales guys were saying that quoting activity picked up. So I know that's anecdotal, but to me that's a pretty good sign because the last several months have been pretty slow in terms of talking about order activity or at least quoting activity let's call it.

Right. Okay, thank you very much.

Thank you.

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 third quarter 2024 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.