Manitex International, Inc.
Q4 2012 Earnings Call Transcript

Published: 12 Mar 2013

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Manitex International, Inc. Fourth Quarter 2012 Results Conference Call. [Operator Instructions] Today's conference is being recorded, March 11, 2013. I would now like to turn the conference over to David Langevin, Chairman and CEO. Please go ahead.

[David J. Langevin:]

Thank you, Alecia. Good afternoon, ladies and gentlemen and thank you very much for your interest in Manitex International. On the call with me today is our President, Andrew Rooke. Please see our website or our release for replay instructions for this call, which will be available until March 18. Now I refer you to the first slide regarding the Safe Harbor statement. We encourage you to review this statement, as well as our SEC filings for further guidance on the risks associated with our company. As is our normal format, I will begin by making a brief opening statement, followed by a detailed review from Andrew of our 2012 yearly and fourth quarter results. Then I will close our prepared comments, after which we will open it up for questions. So now please refer to slide number 3. On balance, we've made positive progress and consistent financial performance, particularly in the last 2 years. We believe this reflects good execution and growth in each of our key reportable categories. When we began the year, our primary objectives were to achieve the $200 million level of annual sales, improve our profitability and continue to expand in our served markets. We will strive to expand further on this space in 2013. We believe that with the mix of products we represent between lifting and material handling and the markets we serve, which are pretty evenly split between energy and non-energy, we are in the best position possible for future growth. We also like that a majority of our manufacturing base is located in North America, which we believe allows a small company such as Manitex to be competitive in shipping our products or [ph] demanded around the world. It is important to recognize that, clearly, we are subject to the same economic forces facing everyone else in the broader market context, and that current expectations throughout the industry are generally for very modest to no economic growth. However, in spite of that, we've been able to grow significantly beyond the norm with our product mix and our hopes are for continuation of that growth into the future. This belief is based on several factors

[Andrew M. Rooke:]

Thanks, David, and good afternoon and welcome, everyone. Following our usual format, I'd like to start out by providing a general business update which is summarized on Slide 4. Overall we're pleased to say that despite continuing uncertainty in the world's markets today, with Europe experiencing a very tight credit market with slow to 0 economic growth, and a general North American construction environment, also in what we would call a sluggish state, our niche products and particularly some of our newly introduced cranes continue to meet a healthy level of demand, the result being another year of robust growth for Manitex International. Product innovations, channel development and expansion to new industrial markets have played key roles in our ability to increase our penetration of the energy and power line construction sectors and increase our presence in international markets for a more European-centric ports and container handling equipment and also for our new specialized mining trailers. Demand from the North American energy sector remains healthy and we continue to see this market sector with an expanding demand profile for the next several years. In summary, therefore, notwithstanding the signs of uncertainty and slow global growth, our products remain in strong demand in our niche markets and once economic conditions improve throughout the world, you should see further impetus to our business. With regard to our product sales, the fourth quarter has been very similar to recent quarters, with demand still being driven by the energy and power line construction sectors, seeking a higher tonnage boom trucks and specialized trailers. In fact, 2012 shipments of our larger tonnage Manitex boom trucks are up over 120% compared to 2011. More specifically, in terms of the energies business, our cranes continue to be used at the sites in both construction and maintenance phases, and in tower erection and upgrade in the power line sector. These are both areas where we can offer improved efficiency and return on investment for operators. We've seen a positive response to our product development strategy. And as we've noted in recent investor presentations, roughly 25% of our 2012 product sales have been products that were only launched within the past 3 years. As well as cranes, our specialized trailers sold under the Load King brand name have seen good order inflow, in particular, from products sold into various mines in local and international markets, as well as the energy and rail sectors. In quarter 4, our Badger equipment team hosted a very successful 4-day launch event for the new 15-ton Badger pick-and-carry crane targeted for the industrial and refining sectors, attended by dealers and customers from across North America. The appointment of several new dealers with a strong presence in the targeted end market has contributed to a successful launch and initial shipments in December. Orders for this crane also comprised part by yearend backlog. Also throughout 2012, in each of our operations, we have selectively strengthened our internal and external sales organization to improve customer service, market penetration and top line sales. Our backlog at December 31, 2012, was $130.4 million, a year-over-year increase of 56%, which is also after an increase in revenues of 44% for the year. The sequential quarter increase in backlog was 4%. Our book to orders ratio to sales, or book-to-bill, was 108% for the fourth quarter and 123% for the year, and again, demonstrated a strong growth we have experienced this year. The yearend backlog is broadly based but does of course have a majority representation to Manitex boom trucks. Now turning to the financial results, Slide 5 shows the key figures for 2012, with comparators for 2011 and 2010. As I cover the numbers, I hope you'll see why we were very happy with the year on many fronts and are pleased to recognize the contribution of the whole Manitex International team, supply chain and dealers in their performance. 2012 revenues of $205.2 million increased $63 million or 44% from 2011, resulting from production increases at several facilities implemented in response to the higher levels of demand experienced over the past 12 months. Although the general economic environment in our North American and European markets was one of limited or 0 growth, our products targeted to the energy and power line distribution sectors benefited from the higher levels of activity in these sectors, as well as some increased market penetration. All operations experienced higher growth, but higher capacity and specialized boom trucks drove almost 70% of the year-over-year revenue increase, with specialized trailers and other material handling equipment also strongly contributing. Our Italian subsidiaries, CVS, performed well in a challenging market and generated growth in local currency of almost 15%. However, this impact was offset by almost 2/3 from the stronger U.S. dollar. Much of this growth was from international markets and lower percentage margin term of our tractor product. Gross profit of $40.5 million was equal to 19.7% of sales, a slight reduction from the 20.6% gross profit percent for 2011, principally a result of a lower percentage of higher margin part sales in total revenues despite an increase in part sales dollar value due to the significant increase in new unit sales year-over-year. Operating expenses increased year-over-year by $3.4 million. Excluding the 2011 $1.2 million of unusual legal settlement costs, the increase would be $4.5 million. A 56% increase in R&D expenditures accounted for an $0.9 million of the increase, as new product development activities were initiated to bring new products to market in the year and in 2013. Additional selling expenses of approximately $2 million were incurred from the expansion in the sales organization, commissions and other selling-related costs. With employee-related costs from additional staff and performance-related expense and professional fees for Sarbanes-Oxley combines in the balance. In total, SG&A as a percent of revenue declined in 2012 to 11.5% from 14% in 2011. Net income for 2012 of $8.1 million or $0.68 a share was an increase of $5.3 million, 191% or $0.44 per share over 2011, an EBITDA of $18 million or 8.7% of sales was an improvement of $6.8 million. Slide 6 shows the key figures for the fourth quarter of 2012, with comparators for the fourth quarter of 2012 and the third quarter of 2012. In the fourth quarter of 2012, revenues were $56.5 million, an increase year-over-year of $20 million or 55%, and a sequential quarter increase of $3.1 million or 6%. Boom truck products accounted for over 80% of the year-over-year increase, complemented by the equipment distribution segment where both new and used equipment revenues improved. Gross profits of $10.3 million was equal to 18.3% of sales, reduction from 2011 quarter 4 of 220 basis points resulting from the lower mix of part sales in revenue and lower production efficiencies in the period from the new product launch and the holiday period. Operating expenses were $7 million, up from $6.6 million in 2011, which included $1.2 million of unusual legal costs. SG&A expense increased $1.5 million from sales expense, employee-related expense, including incentive compensation, and professional fees from the additional compliance requirements with Sarbanes-Oxley for the company as a large company filer. SG&A expense for the quarter was 11.5% of sales, an improvement of 210 basis points from the fourth quarter of 2011. Net income for the fourth quarter of 2012 was $2 million or $0.16 per share, compared to $0.3 million and $0.03 per share for the fourth quarter of 2011, an increase in net income of $1.7 million or 597%. Slide 7 is a bridge for the 191% increase in net income from 2011 net income of $2.8 million, to the net income for 2012 of $8.1 million. Moving through the reconciliation table, a $63 million year-over-year improvement in revenue resulted in a gross profit benefit of $13 million, which was reduced by $1.8 million, the effect of a slight reduction in the gross margin percent. As previously discussed, this reduction is principally the impact of a lower percentage of higher-margin part sales in total revenues, despite an increase in part sales dollar value due to the significant increase in new unit sales year-over-year. The combination of the volume and mix provided a net gross profit increase of $11.2 million. Our commitment to growth in new product development together with our significant revenue increase has resulted in increases in the R&D of $0.9 million and SG&A of $3.7 million. The other key contributor to the net income movement between the 2 periods was an increase in tax expense of $2.4 million, principally generated from an increase in taxable income, although we did receive a slight benefit from the reduction in the effective tax rate to 32.1% from 34% for 2011 from deductions for qualifying production activities and the Texas margin credit. Slide 8 shows our key working capital ratios. Working capital has increased $20.4 million from December 31, 2011. The principal movements have been a net increase of cash of $0.9 million, and receivables and inventory of $31.3 million, being partially offset by increased accounts payable, accrued expenses and other current liabilities and short-term notes payable totaling $11.9 million. This increase in working capital helped support year-over-year growth of 44% in revenue. Our current ratio of 2.4 and our other working capital ratios remain strong as we move through this growth pace. Inventories increased since the end of 2011, as we've ramped up production at our operations and the supply chain has responded to our scheduled increases. Raw material includes inventory truck chassis which has allowed us to improve production throughput by reducing the impact of delayed deliveries from manufacturers. Increased working process and finished goods reflects the improvements of the pipeline of product shipment in the next quarter as some of the longer lead times in the backlog prepare to ship. Slide 9 shows our capitalization and liquidity position. Total debt increased in the year by approximately $6.9 million or $5.1 million net of cash. The composition of this, however, is now quite different, since during the year, we were paid $6.6 million of long-term, mostly acquisition-related debt but expanded our short-term revolver-based debt to support the growth increase. 2012 EBITDA was $18 million, equal to 8.7% of sales, which provides a strong interest coverage ratio of 7.3x, and at December 31, 2012, our debt-to-EBITDA ratio have improved to 2.7x, from 3.8x a year ago. Both of these position us well to continue our growth strategy. And now, I'd like to hand back to David for his final summary.

[David J. Langevin:]

Thank you, Andrew. As Andrew mentioned, in our latest investor presentation packet, we have a slide which shows we have 25% of our current sales coming from products that we've recently introduced into the markets. We've considered that trend by introducing into the fourth quarter a 15-ton Badger crane, which we believe will show some positive returns in the not-too-distant future. We also recently delivered a new 50-ton crane mounted on a track base as opposed to our normal truck chassis. And we are very excited about 7 new products which we will be introducing this year. Finally, we've grown our company with a combination of strategic acquisitions and internal growth. Although we've not acquired any business in the last 18 months, we believe our future growth includes repeating the same combination of timely strategic acquisitions and creating niche products in the markets we serve. And so with these business additions, combined with new products, our optimism in the markets we serve and the continued execution, we believe we can continue to grow at above normal rates for companies in our field. In fact, our internal goals without acquisitions reflecting the excellent position we have in the marketplace are to reach sales in 2015 of $350 million, at comparable earnings per share levels. With that, Alecia, Andrew and I would like to open it up for any questions.

[Operator:]

[Operator Instructions] And our first question comes from the line of Joe Bess with Roth Capital Partners.

[Joseph Bess:]

Dave, I was hoping that you could talk a little bit more about this $350 million target and kind of what you have baked into your forecast in terms of how do you get there going from this as your base level at $205 million. Is this a function of just overall strength or how much is the new products contributing to this goal?

[David J. Langevin:]

We just wanted to try to put out some directional indication based on what we're working on internally. And if you look at historically, we've obviously grown at a much higher rate. So one could say that we're being conservative in this growth, but we're just, again, looking at the markets we're in, the cycles we're in, we think we're in the early stages of kind of a commercial restoration of our markets. As I said, we haven't had a strong upside in the commercial world since 2006 for us. So we think, over the next 3 years, that is going to continue to grow. And of course, depending on which forecast you look in the energy world, recounts have been down or flat for months. In the gas area, it's been over a year. Oil area, it's going up a little bit but it's still, from a growth standpoint, flattened out. But we expect over the next 3 to 5 years, that, that area will also grow. And so we expect that we will continue to show the same trends that we've seen in the past, without acquisitions which we also expect that we will, as we've demonstrated in the past, also have. So again, we're just trying to give some directional guidance as we go forward.

[Joseph Bess:]

Okay. And then thinking about your operating structure and that goal, how do you view your production facilities at this point? And are you guys going to need to add capacity in order to generate $350 million?

[David J. Langevin:]

No. We've been able to -- we've talked about this for a number of quarters now as to what our plans were. We mentioned a year ago that we were going to start production at some of our other plants, specifically we mentioned Badger to produce some of the Manitex -- the smaller cranes out of Manitex with Badger. We've mentioned in the past some production levels as far as employees and we just have been able to get more and more efficient. So we do not believe that we will have to do anything to our overall production other than just personnel which is something that -- well, it does take some time from a lag standpoint, it's something that we can control internally.

[Joseph Bess:]

And then thinking about the 7 new products that you're launching in 2013, can you give us a little bit more color on which markets those are penetrating? Are these new markets or previously served and how much do you really see these contributing in 2013?

[David J. Langevin:]

I would not expect them to have a large contribution in 2013. I think it's just a continuation of the pipeline just putting products into the pipeline and having things that we do from a pretty much low-cost standpoint and that we do a lot of the development work ourselves. In the specific areas, it will be an expansion of our crane capacity, our lifting capacity. And in our material handling side, it will be some of the new technology that's coming into place. So I think it'll just be a better opportunity for us to gain market share and to replace higher cost equipment like we've done in the past.

[Joseph Bess:]

Okay. And then thinking about gross margin in the quarter at $18.3 million, should we just view this as a onetime event considering the mix and where do you see that going in 2013?

[David J. Langevin:]

Well, our models kind of keep us in the same level of range that we've been in the past. I'll add a little bit more on top of what Andrew mentioned in his prepared remarks. We have now, as we've stated recently, there is a transformation away from -- or decrease in the concentration on the energy side. A little bit more of an uptick on the commercial side. Clearly, the mix, which Andrew did mention, has an impact on the gross margin because a lower-priced commercial crane is not going to sell for the same -- or are not going to generate the same gross margin as a higher-priced energy or higher-priced commercial crane. It just makes sense. And then also, on the commercial side, you have a few more chassis that you have to deliver yourself. As we've discussed in the past, chassis is bringing little to no margin. And on the energy side, the companies there do a lot of their own purchasing in the chassis, whereas on the commercial side, you'll have more of a full product package which is delivered including the chassis. So we're going to have a slightly bigger impact to the chassis slide [ph] into our margins. But I wouldn't expect them to deviate much from the historical ranges that we've had, which is pretty much settled in somewhere on the 20% range, plus or minus.

[Operator:]

Our next question comes from the line of Tom Finan with Avondale Partners.

[Thomas Finan:]

I'm just sitting in for Kristine this afternoon. I was wondering if you could talk a little bit about the CVS Ferrari business. I know you said no growth in Europe is expected but are you kind of getting a feeling that we've hit a bottom there or that we will hit a bottom in 2013?

[David J. Langevin:]

Well, it's a tough one to call because it changes everyday so I hate to -- you want to say -- I mean, obviously Andrew and I and the rest of the team are very optimistic about our business. We -- as Andrew mentioned in his remarks, they've done a remarkable job. I think, in the last call, I mentioned and when we file the K later on this week, obviously, we list all the countries that we sell product to. Majority of the U.S. and Canada, of course, is everything else and then you have -- that's 2/3 of our business and then you have 1/3 of the business outside, and it's Italy, Korea, Russia, Germany, Mexico, Brazil, South Africa. I mean, we just have -- they've done a great job of just diversifying the business all over the place which, historically, was a European-based company. So I think they've set themselves up nicely to have their upside growth from Europe, which will happen, I think, eventually, but we're not expecting much in 2013. But again, that division will -- we're optimistic that division will continue to perform as they have which is very positive in light of the markets they serve.

[Thomas Finan:]

Right. That's helpful. Also you mentioned that rental activity had started to pick up a bit. Have you guys seen this turn into orders from the rental guys as they're trying to grow the fleet at all?

[David J. Langevin:]

Remember, Tom, again, we don't necessarily deal with a huge rental houses like you would think of the ROCs [ph] and Reunited's [ph] and those areas. We deal more with the very specific crane rental houses which is our principal customers, they're relatively small. Majority of our product goes to end customers, through dealers, of course, we do everything through dealers. But a number of our dealers have rental pools and I think that those utilizations are up. Everything I've heard, and Andrew, I don't know if you've heard anything else, but everything I've heard is utilizations are up, the rates are up, still, things are positive. And again, that's primarily on the commercial growth and then, of course, in the energy area that's been fairly solid.

[Operator:]

Our next question comes from the line of David Raso with ISI.

[David Raso:]

Quick question on the cash flow, when you're talking about a $350 million sales company, I know in the last couple years, you've been growing a lot but obviously the investments, especially from a working capital, haven't been able to generate positive free cash flow. How are you viewing getting to that $350 million sales company when it comes to cash flow generation in the next few years?

[David J. Langevin:]

Well, fortunately, we've -- thanks, David, I appreciate your interest in our company. The cash flow and the working capital, it seems like as we get larger, we generate more cash flow. If you've watched it all over the last year or so, generally, our working capital line -- the availability on our working capital line has been in the $2 million to $3 million range on a group level and Andrew reported a, I think, it was $6.8 million in North America and I don't know if you reported our North -- our Canadian line but that's up as well, from an availability standpoint. So we've been able to obviously continue to strengthen. We think, we, as a percentage of sales, we've got a ways to go on our working capital to make -- to turn it faster. So our models show that we're able to sustain this growth without having any additional needs other than the -- what we've demonstrated in the past from a working capital standpoint.

[David Raso:]

I'm just trying to figure out, at that level of sales and try to run some realistic operating profits on it and EBITDA, just trying to think what kind of financial leverage do you expect to have when you get to that size, if you can achieve that on the top line?

[David J. Langevin:]

Trying to generate all those models, I mean, I would, to be conservative, use some of the trends that you've seen from us in the past, which is obviously an improvement in operating income year-over-year, on a percentage basis, improvement in our G&A because we continue to be able to do it. It's fortunate in our business that we're dealing with fairly large units. So to generate 500 units for example, doesn't take a lot more other than the systems which we already have in place to account for 1,000 of those units. So we can expand and as we've demonstrated, our G&A as a percentage of sales has decreased dramatically from a couple of years ago. And even from last year, it was down specifically. Now at some point, you don't continue to ramp it down because you need to have some more people. But generally speaking, you can see -- that's what we've mentioned, we would consider -- continue to see the same trends that we've seen before, just with higher sales. So we would expect improvements all up and down the income statement.

[David Raso:]

How would you characterize your EBITDA margin target off of the $350 million of sales?

[David J. Langevin:]

Well, we've historically said that we wanted to try to get to -- last quarter, we were up to 10%. Some of that depends on mix and what's going on in the quarter. So that's a little bit narrower guide to follow. But generally speaking, we've said that we've had kind of a 10% to 12% guide that we've been trying to reach. We reached the 10% level but some of the points that Andrew mentioned in his remarks, we had a quarter low. We were certainly up significantly from a dollar standpoint but down slightly from a percentage standpoint. And so we'll see but if you, again, look historically, we've been somewhere between 8% to 10%, but we want to improve on that as we go forward.

[David Raso:]

Is it fair to say then if you could be generating roughly $35 million of EBITDA, that's a net debt to EBITDA you would think would be 2x or less?

[David J. Langevin:]

I'll tell you, well, under the current conditions, without any acquisitions, I think that's a very fair representation, yes.

[Operator:]

Our next question comes from the line of Scott Blumenthal with Emerald Advisers.

[Scott B. Blumenthal:]

David, do you -- can you talk about what percentage of your employees right now are really, I guess, maybe engaged in manufacturing new products and what you believe your current utilization rates are based upon all of the capacity that you've added on some of the things you've been working on in the recent past?

[David J. Langevin:]

Sure, Scott. We have -- we, again, are a small company so our engineering groups at each one of our companies carry the bulk of that load of new product development. And we try to very selectively -- I mean, we can't work on 50 different projects. We have to work very selective. We can't have -- it's very difficult for us to throw away a project. So we try to, before we get started on something, analyze it, determine that the markets are there for us, we've got good penetration. As you know, we try to get into areas where there's very little competition so we don't have to reinvent the wheel or create new widgets. We can do some things that get us into areas that we'll see some more immediate results. So I would say that our percentage of engineers to our total employees, I would say 5% on a total group level, maybe that's a little bit low. If you have 400 employees, I don't know, Andrew, if you have any better feel as you think throughout the entire company? I mean, 10%? Do we have 40 engineers working on new projects?

[Andrew M. Rooke:]

That's probably not an unreasonable number.

[David J. Langevin:]

Yes. I don't think it's that high. So I think it's in the area of 5%. And the utilization of capacity is so, so difficult to try to guess because we just seem to be keep getting better all the time. I would've -- we were talking about double shifts and second shifts and those type of things 9 months ago and we pretty much avoided all that. So we've been able to do things with the current level of employees. We had 350 at the end of 2011, we have 400 at the end of -- around 400 at the end of 2012. So you'd see your sales have increased dramatically with a less dramatic increase in personnel all within the same areas, same production capacity. So I don't think we're anywhere near -- certainly, as I said earlier on this call, we can do 350 with the production capacity we have. So we're 50%.

[Scott B. Blumenthal:]

Okay. Can you give us an idea of how many employees are engaged in actual manufacturing assembly?

[David J. Langevin:]

That would be the majority of them. Of those 400, we have the majority of people in the manufacturing area versus G&A.

[Scott B. Blumenthal:]

Okay. So you do have -- you mentioned about 40 engineers so...

[David J. Langevin:]

No. What I said was I didn't think we had 40, I think we had more like 5%, somewhere like 20. I'm sorry about that, Scott, if I said it improperly, I apologize.

[Scott B. Blumenthal:]

No, that was probably my hearing. The -- let's see, Andrew, you mentioned that the -- I think you were referring to the CD 4415 when you talked about the successful launch, am I correct?

[David J. Langevin:]

Correct. Good job, Scott, you know the model number. So way to go. Good job.

[Andrew M. Rooke:]

That was in relation to the launch. I was referring to the launch that Badger had, the launch that they had in the fourth quarter. Yes.

[Scott B. Blumenthal:]

Right. Yes. You characterize that as successful. So I'm going to ask if you could define successful?

[David J. Langevin:]

Well, we got some rooters [ph] .

[Andrew M. Rooke:]

Absolutely. I think there was a significant turnout for that event, which I think a small company to attract the number of people that they did to that event. I think that's a very positive sign. I think they received orders during that launch there, and they've received the orders subsequently. And have attracted and been able to sign up new distribution, a new strong distribution for that. I think it's characterized in that sense. Clearly, it's early days, but those 3 or 4 things to me would say a very positive and successful launch.

[Scott B. Blumenthal:]

Did the launch exceed your expectations going into it?

[Andrew M. Rooke:]

I think we were very hopeful for this product, and we still are.

[David J. Langevin:]

I think I was -- they exceeded mine, Scott. When I went to the -- I mean, I was really impressed with it. Again, we're a relatively small company. So if you get a bunch of people to show up on their nickel to see our products and if you go to beautiful Winona, Minnesota, that's an accomplishment.

[Scott B. Blumenthal:]

But if you can get them there in the fourth quarter, it certainly is, David.

[David J. Langevin:]

I agree with you.

[Scott B. Blumenthal:]

Can you -- do you have any idea or maybe do you have any insight into how much you might have benefited if at all from maybe some sales related to the hurricane?

[David J. Langevin:]

Those things always are tough to -- I think, generally, what we say is we're definitely -- unfortunately, we do always benefit from many of those events around North America and as far as that goes around the world because you have a utilization, a large increase in utilization of equipments. When that happens, you have a -- you wear out that equipment. But as far as immediate -- the immediate impact is part sales, but the new equipment sales is a lag because people can order -- they need equipment -- I mean, I can remember talking to some people in New Jersey that -- who wanted equipment like today. And obviously, we can do everything we can to try to mix inventory around and ship inventory and get it available, but it's pretty hard to have any meaningful impact until you put it in the production process. It's just a cycle that we have to go through. Obviously, as you know, we're not -- we are not integrated. We run a variable cost model so we buy everything from the outside. So it takes us awhile to go from start to finish.

[Operator:]

Our next question comes from the line of Jeffrey Long [ph] with Tuxedo Road Associates [ph].

[Unknown Analyst:]

Where do we see -- I have 2 questions. And then I'll go back, I do have a couple more. With Comerica, on our revolver, where do we stand there? Where does the revolver have to get redone and what do we have under the existing line? That's question number one. And question number two is what's happening with Liftking?

[David J. Langevin:]

On the revolver, as you know, we've had a very long and successful relationship with Comerica over the last 10 years. They've modified, expanded, extended. Fortunately, never had to waive any violations of covenants because we've never done that, but they've continued to stay and lock stuff with us. I believe it goes out until the end of -- is it 2000 -- do you remember, Andrew, 2015?

[Andrew M. Rooke:]

2015.

[David J. Langevin:]

Yes, 2015. So we have a current revolver in place. And as Andrew mentioned in his remarks, we had $6.8 million available in U.S. Is that correct Andrew?

[Andrew M. Rooke:]

$7.8 million on North America.

[David J. Langevin:]

$7.8 million available. And so we have a lot of good running room to go on that. And in the past, if we needed any additional capacity, they've been front and center. And Liftking, I think, is going to be one of the companies this year where we'll see some expansion of their sales and we're hoping that we see some improvement in their operations as well.

[Operator:]

Our next question comes from the line of Michael Zoven [ph] with Browles Securities [ph].

[Unknown Analyst:]

You mentioned you want to get to $350 million by 2015, and you mentioned partially through acquisition. And I'm just wondering...

[David J. Langevin:]

No, that's without any acquisitions.

[Unknown Analyst:]

Oh, without any acquisitions?

[David J. Langevin:]

Yes, without acquisitions. I want to do -- we want to do better than that. But we -- acquisitions is very, very difficult to handicap and put into any kind of forecast. If I wasn't clear on that, I apologize, but we say in there that without acquisitions.

[Unknown Analyst:]

Great. I must have missed that. Obviously, the question is we've come a long way since the CVS Ferrari and Kreddle [ph] deals you made back then. And I'm just wondering what kind of -- in today's environment, what kind of characteristics or model you might consider looking at being that things have changed so much since then?

[David J. Langevin:]

Yes, I mean I think we want to continue to try to bring in the best products that we can that are consistent with our strategies in the areas that we're in. I think it's natural, as you get larger like we have to, to look at maybe -- certainly I don't want to say upgrade because we have some great products that we have acquired at very attractive prices, and not get outside of a kind of a relevant range as far as any kind of multiples, the most common multiples is usually see these things are as they multiple in EBITDA. And I think we want to be consistent there, so we're not stretching. But again, as you get larger, you sometimes get a little bit more selective. And I think that's representation -- a representative of evolving. We haven't done anything, but again I was trying to -- we were trying to give an indication as we go forward that if you're analyzing our company, first is this is kind of our goal, internally, with our own products. And then if you wanted to layer some on top of that with some acquisitions because we expect to continue to repeat the same program we have in the past.

[Unknown Analyst:]

Well, along those lines with -- you've always -- if I just take a moment of appreciation...

[David J. Langevin:]

We always appreciate appreciation, Mike.

[Unknown Analyst:]

No, I really think you've been a case study for how a small company should be run. And I remember you telling me back when everything hit the fan a few years ago that cash management would be key and that there should be -- you're well -- this was well in advance of any acquisition that you should find something potentially good. And I was just wondering in today's environment what kind of leverage you feel comfortable taking on relative to things in the past? And when I look at what you paid in the past, you're -- and what you've been built with these weld shows and markets, if ever there was a lesson, that choosing an investment and management that knows their industry and communicates as you have, at least, with me honestly, you're it. So along those lines, just pardon me, I stuck the phrase in there. But I was just wondering, how you foresee -- if you were to make an acquisition, what do you feel comfortable with in terms of that kind of [indiscernible]?

[David J. Langevin:]

Well, on a leverage basis, again I think we have to look at where we are -- where we think we are in the cycle. And again, that's somewhat difficult to predict. But we again think we're in early stages of a general replacement cycle of our products because as we've mentioned on the call, we have not had any significant growth in our industry for quite some time. And fortunately, these units or these products out there do not to get better with age, so they start to breakdown. And at some point, they cross over from, it's more expensive to repair than it is to replace them. The used market which we are active in has increased dramatically from a profit standpoint. So they -- it's getting to a point where I think more people are going to be ordering. Their utilizations are up. Their rates are up. So I think we'll see a continuation of order increases on the commercial side. So the result of all these, we will adjust some of our feelings about the levels of debt, but we don't want to bet the ranch on anything because we think we've put together a nice group. But we need to continue to -- we believe we need to continue our -- we're a small company growing, and I don't want to be a GDP growth because if we're a GDP growth company, we'd be $225 million in sales in 2015. And I certainly don't want to be an investor in something like that. I want our growth to not be crazy but I want to continue to challenge ourselves to continue to grow our business.

[Operator:]

[Operator Instructions] And our next question comes from the line of Dennis Scannell with Rutabaga Capital.

[Dennis J. Scannell:]

Just to drill in a little bit more on the $350 million, and I actually missed some of the commentaries, so this might be repeat. But as you look at that $350 million in 2015, you had said that roughly, what, at present or for 2012, roughly half the business is the large crane Manitex business focused on energy, half kind of other industrial and commercial users. Where do you see that mix in 2015?

[David J. Langevin:]

Well, we have not discussed that. So you didn't miss anything. We kind of see that as we go forward the mix, I don't think it's really going to change that much because we think we're in the early stages of the commercial rebound, and that's generally lifting capacity cranes that are under the 40-ton range, although there are certainly some larger tonnage cranes in that area as well. So I don't want to give anyone the impression that commercial -- on our commercial products or areas we don't have some larger cranes there, and we expect to continue that as we go forward as we introduce larger cranes. But certainly, the primary focus of those larger cranes are in the energy area. And where we are there is we've had a -- we've kind of had a lull in the energy business over the last -- the first part of -- first 3 or 4 months of last year, we're off the charts, and then it started to take a pause. But we certainly don't think, long-term, that that's going to happen. Again, you and everyone else on this call probably has as good a feel or better on where rigs -- where rig counts are going. But certainly, everything you read, rig counts are expanding as we go forward, and so we would expect that our mix and our percentages will stay roughly the same.

[Dennis J. Scannell:]

Okay. So half-and-half out, looking out at 2015 is good.

[David J. Langevin:]

That's correct.

[Dennis J. Scannell:]

A couple of quick things then. So again as you said, we saw a real pause in orders in the third quarter. And then, just by my calculations, it bounced back pretty nicely in the fourth quarter. Was that mostly, again, energy? Or you said that you're seeing some signs of life in the other commercial users. So kind of the, call it 60-plus million in orders in the fourth quarter, kind of percentage energy versus percentage other?

[David J. Langevin:]

Yes. I think we saw a bigger percentage of energy in the first half and a bigger percentage of commercial in the second half so that for the year, we kind of averaged out. And so I think the latter half of the growth area of the year was stronger on the commercial side than the energy side.

[Dennis J. Scannell:]

Yes, okay. And then one last thing. As you get -- as you bridge to 2000 -- to that $350 million, now we're talking about an incremental $145 million in revenues, are you thinking -- does that kind of layer in pretty steadily, kind of $50 million a year? Or you're thinking, well, no, who knows about '13 but then '14 and '15, things get more normal and CVS starts picking up. So we might be just up a little bit in '13 and then up more in '14 or '15 to help us bridge that at all?

[David J. Langevin:]

It's as close, as you know, it gets a little hazier as you go out. But what we were seeing internally and what -- as we put together, our plans as we go forward, most people are assuming we have a build up through 2013. If you think about a year ago -- we had in 2012, we had a nice buildup. And if you think of -- it's typically we have fourth quarter and first quarter our weakest quarters from an earnings standpoint. If you think again of last year, we had 11, 20, 21, 16 to come up with the 68. And I think we'll see -- we believe we'll see something very similar. And so I think we'll see a buildup. And again, if you think of where we've been historically, the growth levels that we have indicated are slower than the growth levels that we have. So we hope that we have been conservative in our modeling as we go forward.

[Dennis J. Scannell:]

Yes. And then one last thing. On the fourth quarter gross margin, which is down from what you were doing in the previous 3 quarters, so part of that is the new product launch, part of it is lower part sales as a percent, although that's been kind of true for the past several quarters. So is that something that lingers into the first half of '13 and then maybe we see margins improve towards the end of the year? Or are those launch costs pretty much behind us, and we should be kind of getting closer to that 20% gross margin?

[David J. Langevin:]

I think, and we mentioned on this call, that there's other factors. And it's a little bit of this, a little bit of that, it's not any particularly one item. But it's a little bit more chassis, a little more commercial, a little more parts versus equipment or equipment versus parts, and then of course the new products. And I think that carries over into the first quarter. But again, if you think seasonally and historically, the first and the fourth look more alike then you have the stronger second and third.

[Dennis J. Scannell:]

Right. But if -- but again, revenues were strong in the fourth quarter. Do we -- and for the past several years, your first quarter has been sequentially up from your first -- from your fourth quarter. Could we expect that again, or is that too aggressive?

[David J. Langevin:]

I think you might see that. But again, that's -- I don't want to get too much into specific quarterly predictions because it seems like it's not a good exercise for management to get into.

[Dennis J. Scannell:]

Fair enough, fair enough, fair enough.

[David J. Langevin:]

Again, you don't get much accolades when thing things go right, and you get hammered when things go wrong, so you get a little hesitant to say too much specific. I think that's a -- we also mentioned, and I think we -- Andrew mentioned it in his comments that we did have some items in the fourth quarter. In the end of the third quarter, we became a large company, so we got dinged a little bit from our accounts, which is understandable. I had to make sure that since they had to sign off on Sarbanes-Oxley, we had to do a little bit more work. And we had some consecutive comp that -- some comp throughout the company that because the numbers came in so strong, we had to boost some of that into the fourth quarter. So we had a few items that -- and then, of course, as you mentioned, we had some R&D expenses, and I expect those R&D expenses to continue into the first, but they'll start to come down.

[Dennis J. Scannell:]

Yes. One thing that you did say last year with real clarity was that you had expected your sales each quarter to improve sequentially, which you did in a really nice way. And you were ramping up capacity, or transferring that capacity up to -- of the smaller cranes up to Badger. Would we expect your quarterly progressions -- not asking for guidance, but for quarterly revenues to be more evenly spaced, or would you see expect to see an acceleration or growing sales on a sequential basis quarterly?

[David J. Langevin:]

Well, last year, as you know, when we got into the first half of the year, the orders were just coming in far in excess of what we had earmarked for production. So we -- as Andrew mentioned, we significantly increased production for the year, and our backlog was up nicely year-over-year. So that's obviously a good sign. But we feel pretty strong, pretty good with our backlog going into 2013, but I think we're going to have to wait and see how the order book continues to fill up. Most of the people in the industry, whether we've talked to or we've listened to, and most of our customers are saying that we will have a better second half than the first half, so what I'm hoping is we have the same results. But again, that's not something that I'm willing to say at this point.

[Operator:]

Our next question is a follow-up from the line of Jeff Long [ph] with Tuxedo Road Associates [ph].

[Unknown Analyst:]

The follow-ups are twofold. Back in the -- I'm going to confirm my senility. I want to say 2008, 2010 time period, we had experienced some interest in boom trucks in the Middle East and Russia. What has transpired since that period, or is that then kind of sidelined?

[David J. Langevin:]

Well, unfortunately, as you know, in that time period, North America was not experiencing a very robust environment. So we were very fortunate that our Middle East energy business was very solid during that time period. And Russia was a new market for us. I did allude to an earlier question that we have had some Russian sales. Not a huge number, but certainly more than we've experienced in the past. So we've penetrated both of those areas. But I think your assessment that the amount of time and allocation that we spent on those markets decreased based on the huge demand that we had in North America.

[Unknown Analyst:]

Can that change?

[David J. Langevin:]

You have to -- we have to be flexible to be able to adjust to whatever happens. But our expectations and our hope is that North America will continue to expand.

[Operator:]

Our next question comes from the line of Fl Kirby with Morgan Stanley.

[Fl Kirby:]

I know you've been cautious in the past about making any predictions, but you seem pretty confident about this $350 million. But when would you like to be with the acquisition, would be one question. And the other, I guess, may have been touched on, but of your prediction of revenue, what percentage of that would be replacement sales? Because it sounds like you're beginning to pick up some amortizations in wearing out of equipment. Do you have a number that you can put on for the percentage of replacement?

[David J. Langevin:]

Sure. The -- you know, most recent investment package, I'll refer to that because I think that's out in the public domain and it's a good place for us to use as a reference. We show a slide that indicates when we grew from the bottom of '09, rough round numbers, $50 million and we were using at that time, I'll refer to the slide, $200 million because the 2012 numbers weren't out. The growth between new products and acquisitions in that roughly $150 million was $80 million in new products and $60 million, again these are round numbers, in acquisitions. What we've mentioned is the $350 million is all internal, not without acquisitions, but we would expect, as we have indicated, a continuation or a repeat of what we've done historically but it's just so hard to try to predict when you layer in those acquisitions as you go through the next couple of years. So that's why we've not put those in there. But again, that's the company we are, that's the company we expect to be. And so, in the near-term, we would expect something very similar to that. On the replacement side, it's a little bit harder to predict. But again, we do not feel that we have started to feel the real thrust of the replacement business. And if you go back to 2007, 2008 while we were a different company then, we were generating $100 million of sales that was -- that now has to turn over. And those are a lot -- 2007, 2008, were not growth years over 2006. We weren't public until the middle of 2006, so I use the numbers that we have in the public domain. And so we think that there's a significant piece of that -- of those 100 million years that will have to be replaced as we go forward. So that's the reason why I'm optimistic about these numbers going forward is assuming we have a normal -- same cycle that we're in now, which is not great but we're not going down, we're -- even though fourth quarter GDP was down slightly, most of the people indicate that, that was unusual. We should see growth throughout 2013. And as we go forward, we expect the same similar growth, but we obviously aren't expecting us to be a GDP growth company.

[Fl Kirby:]

So if there is any GDP pick up, then you should potentially see incremental improvement over the $350 million?

[David J. Langevin:]

Well, if you look historically, now again, as you get to be a higher base, it's hard to repeat the growth cycle that you've been through. But if you look historically, of course, we've been -- we've grown at a higher level than what we're predicting going forward. So we're probably somewhere in between all those is where we're going to end out, which is a pretty big range. But again, we were trying to get some directional indicators of where we think we're going internally.

[Operator:]

Our next question comes from the line of Peter Roberts [ph] with Green & Crankford Capital [ph].

[Unknown Analyst:]

Two questions. First of all, based on the numbers I'm able to calculate, you had an increase in sales of 44% and you had an increase in your headcount of about 15% of manufacturing. So kudos, it's unbelievable, the production increase.

[David J. Langevin:]

The efficiencies, it's not Andrew and I. It's all the people out in the operations. Everybody's doing a great job.

[Unknown Analyst:]

Is there any way you can give a little bit more color towards that as to are you guys outsourcing differently, or is it just the efficiency on the floor?

[David J. Langevin:]

It seems to me from my wandering around the company that it's the layout on the floor, the efficiency on the floor, the way they order things, the way they have them laid out, I mean, I just -- the layouts and the production just seem to be cleaner in every plant that I've been visiting. And I'm just really impressed with how they have produced at higher levels with less or the same amount of people. Not that we do want to hire people, we certainly do, but it's better for our shareholders if we continue to grow as we have been.

[Unknown Analyst:]

Okay. And is there any more color you can add on the Manitex new products? In particular, you said, I picked up that you're getting a little bit -- you're looking for bigger or taking away, I'm assuming, from truck cranes or something like that?

[David J. Langevin:]

Well, the history of, what is called in our industry, boom trucks is a relatively short history. I mean, these companies have been around for a while. But remember you're in crane, and so a lot of -- they're very slow to accept new technology. But that's been accelerating as we've been getting to higher levels because the cost per operations is so much lower when you're mounting higher tonnage crane on an inexpensive chassis. And so we've seen that opportunity. We've executed on that opportunity, and we expect to continue to do that by going into higher capacity cranes as we go forward.

[Operator:]

Thank you. I'm showing no further questions in the queue at this time. I'd like to turn the conference back to Mr. Langevin for any closing remarks.

[David J. Langevin:]

Thank you, Alecia. And again, we appreciate everyone's interest in Manitex International. Thank you very much.

[Operator:]

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation. You may now disconnect.