Bulletin
Investor Alert

March 10, 2020, 12:37 p.m. EDT

10-K: MANITEX INTERNATIONAL, INC.

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

or Cancel Already have a watchlist? Log In

(EDGAR Online via COMTEX) -- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management's discussion and analysis of financial condition and results of continuing operations should be read in conjunction with the Company's financial statements and notes, and other information included elsewhere in this Report.

When reading this section of this Annual Report on Form 10-K, it is important that you also read the financial statements and related notes thereto. This Annual Report on Form 10-K and certain information incorporated herein by reference contain forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. See "Forward-Looking Statements".

OVERVIEW

The Company is a leading provider of engineered lifting solutions. The Company reports in a single business segment and has five operating segments. The Company designs, manufactures and distributes a diverse group of products that serve different functions and are used in a variety of industries.

Manitex, Inc. ("Manitex") markets a comprehensive line of boom trucks, truck cranes and sign cranes. Manitex's boom trucks and crane products are primarily used for industrial projects, energy exploration and infrastructure development, including roads, bridges and commercial construction.

Badger Equipment Company ("Badger") is a manufacturer of specialized rough terrain cranes and material handling products. Badger primarily serves the needs of the construction, municipality and railroad industries.

PM Oil and Steel S.p.A. ("PM"), formerly known as PM Group S.p.A., is a leading Italian manufacturer of truck-mounted hydraulic knuckle boom cranes with a 50-year history of technology and innovation, and a product range spanning more than 50 models. Its largest subsidiary, Oil & Steel ("O&S"), is a manufacturer of truck-mounted aerial platforms with a diverse product line and an international client base.

Valla product line of industrial cranes is a full range of precision pick and carry cranes using electric, diesel, and hybrid power options. Its cranes offer wheeled or tracked, and fixed or swing boom configurations, with special applications designed specifically to meet the needs of its customers. These products are sold internationally through dealers and into the rental distribution channel.

Manitex Sabre, Inc. ("Sabre"), which is located in Knox, Indiana, manufactures a comprehensive line of specialized mobile tanks for liquid and solid storage and containment solutions with capacities from 8,000 to 21,000 gallons. Its mobile tanks are sold to specialized independent tank rental companies and through the Company's existing dealer network. The tanks are used in a variety of end markets such as petrochemical, waste management and oil and gas drilling.

Crane and Machinery, Inc. ("C&M") is a distributor of the Company's products as well as Terex Corporation's ("Terex") rough terrain and truck cranes. Crane and Machinery Leasing, Inc. ("C&M Leasing") rents equipment manufactured by the Company as well as a limited amount of equipment manufactured by third parties. Although C&M is a distributor of Terex rough terrain and truck cranes, C&M's primary business is the distribution of products manufactured by the Company.

Consolidated Variable Interest Entity

Even though it had no ownership interest in SVW Crane & Equipment Company (together with its wholly owned subsidiary, Rental Consulting Service Company, "SVW"), the Company had the power to direct the activities that most significantly impact SVW's economic performance. Additionally, the Company was the primary beneficiary of the SVW relationship. SVW obtained third party financing, which was effectively guaranteed by the Company, on specific cranes the Company manufactured and remitted the loan proceeds to the Company. Other than its business transactions described herein, SVW had no other substantial business operations. The Company had determined that SVW is a Variable Interest Entity ("VIE") that under current accounting guidance needed to be consolidated in the Company's financial results. SVW was consolidated into the Company's financial results beginning in the first quarter of 2016 through the fourth quarter of 2017. By December 31, 2017, SVW had ceased operations and is therefore not a consolidated VIE after December 31, 2017.

Income and losses related to VIE's are typically shown in a company's financial statements as being attributed to a non-controlling interest. Other than its transactions between SVW and the Company, SVW had no other substantial business operations. Furthermore, the Company exercised control and absorbed all losses and received all the income from SVW operations. Therefore, the Company has concluded that income and losses related to the VIE are attributable to the Shareholders of the Company.

Business Overview

In 2019, the annualized order rate for straight-mast cranes was approximately 1,200 units, consistent with 2018 levels. The data that the Company has seen indicates that dealer rental utilization and United States commercial construction indices remain at healthy levels. During the third quarter of 2019, the Company launched the Manitex branded line of articulating cranes ("MAC") at a trade show in Louisville, Kentucky targeting roofing, concrete, general construction and supply industries. Based on current sales trends, the Company expects MAC sales to grow significantly in 2020. We also have expanded our North American distribution network with the addition of one new MAC dealer and three straight-mast dealers. While there is still work to do, both Gross Margin and EBITDA margin have bounced off our lows in the third quarter, and are trending higher as we head into 2020.

In September of 2019, the Company appointed a new Chief Executive Officer ("CEO") with significant international crane experience with the goal of stimulating the PM business to much higher performance in this substantial market. The Company will be targeting cost reductions, improved dealer management and incentivization, revamping product designs, improving parts execution and fill rates and stressing a commitment to quality and safety. We believe there is potential for continued gains in 2020 through higher production efficiencies and the re-configuration of our articulating crane business, which generates the highest margins within our product portfolio. During the third quarter of 2019, PM was awarded a new $4.5 million revenue contract with a customer's option, to purchase an additional $4 million in additional deliveries to supply knuckle boom cranes to an international military company. We have also started shipping articulated cranes under the brand name PM-Tadano to customers in Asia; this was a key branding initiative we launched during the second half of 2019. Our partnership with Tadano is gaining traction in Asia, and now starting in the Middle East, through our PM-Tadano branding efforts and distribution expansion. We are proud to have Tadano as a partner and investor, and have greatly improved our focus over the past few months to drive gains in 2020 and beyond for our articulating crane business. PM now represents a substantial portion of our backlog.

Factors Affecting Revenues and Gross Profit

The Company derives most of its revenue from purchase orders from dealers and distributors. The demand for the Company's products depends upon the general economic conditions of the markets in which the Company competes. The Company's sales depend in part upon its customers' replacement or repair cycles. Adverse economic conditions, including a decrease in commodity prices, may cause customers to forego or postpone new purchases in favor of repairing existing machinery.

Gross profit varies from period to period. Factors that affect gross profit include product mix, production levels and cost of raw materials. Margins tend to increase when production is skewed towards larger capacity cranes.

The following table sets forth certain financial data for the three years ended December 31, 2019, 2018 and 2017:

Results of Consolidated Operations







        MANITEX INTERNATIONAL, INC.
        (In thousands, except share data)
                                                         For the Year       For the Year       For the Year
                                                            Ended              Ended              Ended
                                                         December 31,       December 31,       December 31,
                                                             2019               2018               2017
        Net revenues                                    $      224,776     $      242,107     $      213,112
        Cost of sales                                          184,320            198,060            176,266
        Gross profit                                            40,456             44,047             36,846
        Operating expenses
        Research and development costs                           2,714              2,839              2,564
        Selling, general and administrative expenses            35,615             35,707             34,547
        Impairment of intangibles                                8,112              5,736                  -
        Total operating expenses                                46,441             44,282             37,111
        Operating loss                                          (5,985 )             (235 )             (265 )
        Other income (expense)
        Interest expense                                        (4,603 )           (5,508 )           (6,498 )
        Interest income                                            229                168                  -
        Changes in fair value of securities held                 5,454             (5,494 )                -
        Foreign currency transaction loss                         (844 )             (814 )           (1,149 )
        Other income (loss)                                         20               (374 )              367
        Total other income (expense)                               256            (12,022 )           (7,280 )
        Loss before income taxes and loss in
        non-marketable equity
          interest from continuing operations                   (5,729 )          (12,257 )           (7,545 )
        Income tax expense (benefit) from continuing
        operations                                               2,763                511               (118 )
        (Loss) income in non-marketable equity
        interest, net of taxes                                       -               (409 )              360
        Loss from continuing operations                         (8,492 )          (13,177 )           (7,067 )
        Discontinued operations:
        Loss from discontinued operations, net of
        income tax
          benefit of $23 in 2017                                     -                  -               (737 )
        Net loss                                        $       (8,492 )   $      (13,177 )   $       (7,804 )
        Loss attributable to noncontrolling interest                 -                  -               (274 )
        Loss attributable to shareholders of Manitex
          International, Inc.                           $       (8,492 )   $      (13,177 )   $       (8,078 )
        


Year Ended December 31, 2019 from Continuing Operations Compared to Year Ended December 31, 2018 from Continuing Operations

Net loss from continuing operations

For the year ended December 31, 2019, net loss was $8.5 million, which consists of revenue of $224.8 million, cost of sales of $184.3 million, research and development costs of $2.7 million, SG&A costs of $43.7 million, interest expense of $4.6 million, interest income of $0.2 million, a gain in the change in fair value of securities held of $5.5 million, foreign currency transaction loss of $0.8 million, other income of $0.02 million, and income tax expense of $2.8 million.

For the year ended December 31, 2018, net loss was $13.2 million, which consists of revenue of $242.1 million, cost of sales of $198.1 million, research and development costs of $2.8 million, SG&A costs of $41.5 million, interest expense of $5.5 million, interest income of $0.2 million, a loss in the change in fair value of securities held of $5.5 million, foreign currency transaction loss of $0.8 million, other loss of $0.4 million, loss in non-marketable equity interest of $0.4 million and income tax expense of $0.5 million.

Net revenue and gross profit -For the year ended December 31, 2019, net revenue and gross profit were $224.8 million and $40.5 million, respectively. Gross profit as a percent of net revenues was 18.0% for the year ended December 31, 2019. For the year ended December 31, 2018, net revenue and gross profit were $242.1 million and $44.0 million, respectively. Gross profit as a percent of sales was 18.2% for the year ended December 31, 2018.

For 2019, revenues decreased $17.3 million or 7.1% from $242.1 million for 2018 to $224.8 million for 2019. The decreases are primarily due to decreases in sales of straight-mast and knuckle boom cranes and specialized mobile tank revenues. The revenues for the year ended December 31, 2019 were also unfavorably impacted by a weaker Euro, which accounted for approximately $5.0 million of the decrease in revenue.

Gross profit as a percent of net revenues was 18.0% for the year ended December 31, 2019, which decreased from 18.2% for the year ended December 31, 2018. The decrease in gross profit is attributable to a decrease in revenues and increases in inventory reserves and increases in chassis sales with low margins.

Research and development -Research and development for the year ended December 31, 2019 was $2.7 million compared to $2.8 million for the comparable period in 2018. Research and development expenditures were relatively consistent with the prior period. The Company's research and development spending continues to reflect our commitment to develop and introduce new products that give the Company a competitive advantage.

Selling, general and administrative expense -Selling, general and administrative expense for the year ended December 31, 2019 was $43.7 million compared to $41.5 million for the comparable period in 2018, an increase of $2.2 million. Approximately $2.4 million of the increase was related to impairment charges to intangible assets compared to 2018; other increases included roof repair at Badger, trade shows, salaries to support new product launch, PM restructuring costs, audit and consulting fees and bad debt reserves. These increases were partially offset by decreases in restatement fees and a favorable impact on foreign currency translation adjustments resulting from a weaker Euro.

Operating loss -The Company had an operating loss of $6.0 million for the year ended December 31, 2019 compared to an operating loss of $0.2 million in the prior year. Operating loss increased due to changes in revenue, cost of sales and operating expenses explained above.

Interest expense -Interest expense was $4.6 million and $5.5 million for the years ended December 31, 2019 and 2018, respectively. The decrease in interest expense was primarily attributed to a decrease in outstanding debt, which was partially offset by higher interest rates.

Foreign currency transaction loss - Foreign currency loss was $0.8 million for the years ended December 31, 2019 and 2018. As stated in the past, the Company attempts to purchase forward currency exchange contracts such that the exchange gains and losses on the assets and liabilities denominated in other than the reporting units' functional currency will be offset by the changes in the market value of the forward currency exchange contracts it holds. Currency risks can be reduced but not eliminated in part because the Company has not been able to identify a strategy to effectively hedge the currency risks related to the Argentinian peso. The Company records at the balance sheet date the forward currency exchange contracts at their market value with any associated gain or loss being recorded in current earnings as a currency gain or loss.

A substantial portion of the 2019 loss is attributable to exchange losses related to the Argentinian peso. As previously stated, the Company has not been able to identify a strategy to effectively hedge currency risks related to the Argentinian peso.

Other income (loss) - For the years ended December 31, 2019 and 2018, the Company had other income of $0.02 million and other loss of $0.4 million, respectively. For the year ended December, 31, 2018, the other loss was related to the increase in the fair market value of a contingent liability associated with the PM acquisition based on a revaluation that used updated information.

Change in fair value of securities held- For the year ended December 31, 2019, the Company had a gain of $5.5 million. Income for the year ended December 31, 2019 were due to a change in the fair value of securities held in ASV. For the year ended December 31, 2018, the Company had losses of $5.5 million. Losses for the year ended December 31, 2018 were due to a change in the fair value of securities held in ASV (see Notes 11 and 26 in the accompanying Consolidated Financial Statements).

Income tax - Based on the weighting of all available positive and negative evidence, most notably significant negative evidence of three-year cumulative losses and a decline in sales during the third quarter of 2019, which led to a triggering event where goodwill is impaired, we determined that it is appropriate to establish a valuation allowance against the deferred tax assets of PM. The Company considered and weighed positive evidence including our existing backlog and how the backlog might enhance future earnings. However, because the accounting guidance for income taxes considers a projection of future earnings inherently subjective, it does not carry significant weight to overcome the objectively verifiable evidence of cumulative losses in recent years. Although the recognition of the valuation allowance is a non-cash charge of approximately $2.6 million to income tax expense, it did have a negative impact on earnings for the 12 months ended December 31, 2019. If these estimates and assumptions change in the future, the Company may be required to reduce its valuation allowance resulting in less income tax expense. The Company evaluates the likelihood of realizing its deferred tax assets quarterly.

The calculation of the overall income tax provision for the 12 months ended December 31, 2019 primarily consists of a domestic income tax provision resulting from state and local taxes, foreign income taxes, the change in unrecognized tax benefits and an increase in the valuation allowance for foreign deferred tax assets and state tax credits.

The Company's effective rate was an income tax provision of 48.24% on a pretax loss of $5.7 million compared to an income tax provision of 4.04% on a pretax loss of $12.7 million from prior year. The increase in the effective tax rate is due primarily to the tax effects related to the mix of domestic and foreign earnings, nondeductible permanent differences, domestic losses for which the Company is not recognizing an income tax benefit, the change unrecognized tax benefits and the increase in the valuation allowance for foreign deferred tax assets and state tax credits.

Loss in equity investments -The Company had a loss related to its equity investment of $0.4 million for the year ended December 31, 2018. Loss for the year ended December 31, 2018 was from sale of shares of ASV Holdings stock and loss on equity investment in ASV Holdings compared to income from equity investment in ASV Holdings.

Net loss from continuing operations -Net loss for the years ended December 31, 2019 and 2018 was $8.5 million and $13.2 million, respectively. The change is explained above.

Year Ended December 31, 2018 from Continuing Operations Compared to Year Ended December 31, 2017 from Continuing Operations

For discussion regarding the comparison of the results of operations for the year ended December 31, 2018 to the year ended December 31, 2017, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal year 2018, which was filed with the Securities and Exchange Commission on March 15, 2019, and is incorporated by reference.

Liquidity and Capital Resources

Cash, cash equivalents and restricted cash were $23.6 million and $22.3 million at December 31, 2019 and December 31, 2018, respectively. In addition, the Company has a U.S. revolving credit facility with a maturity date of July 20, 2023. At December 31, 2019 the Company had approximately $27.6 million available to borrow under its revolving credit facility.

At December 31, 2019, the PM Group had established working capital facilities with five Italian banks, one Spanish bank and eight South American banks. Under these facilities, the PM Group can borrow $24.0 million against orders, invoices and letters of credit. These facilities are divided into two types: working capital facilities and cash facilities. At December 31, 2019, the PM Group had received advances of $13.3 million. Future advances are dependent on having available collateral.

Our subsidiary in Argentina ("PM Argentina") began accounting for their operations as highly inflationary effective July 1, 2018, as required by GAAP. Under highly inflationary accounting, PM Argentina's functional currency became the Euro (its parent company's reporting currency), and its income statement and balance sheet have been measured in Euros using both current and historical rates of exchange. The effect of changes in exchange rates on peso-denominated monetary assets and liabilities has been reflected in earnings in other (income) and expense, net and was not material. As of December 31, 2019, PM Argentina had a small net peso monetary position. Net sales of PM Argentina were less than 5 percent of our consolidated net sales for the years ended December 31, 2019 and 2018, respectively.

Significant Transactions Affecting Company Liquidity

In September 2019, ASV was acquired by Yanmar American Corporation resulting in the Company receiving $7.05 per share in cash, or $7.6 million, for its remaining 1,080,000 shares of ASV.

During 2018, the Company entered into two transactions that had a significant beneficial impact on the Company's liquidity. In February 2018, the Company sold 1.0 million shares of ASV common stock it held for $7.0 million and on May 29, 2018 Tadano Ltd. purchased approximately 2.9 million shares of the Company's common stock, which generated cash of approximately $32.0 million, net of expenses. A portion of the proceeds raised in these two transactions were used to support an increase in working capital, the result of increased revenues. The remaining proceeds are the principal reason cash has increased by $16.9 million and debt has decreased by $22.9 million since year end.

Nevertheless, because our availability under our credit lines is limited, it is important that we manage our working capital. The Company may need to raise additional capital through debt or equity financings to support our long-term growth strategy, which may include additional acquisitions. There is no assurance that such financing will be available or, if available, on acceptable terms.

Outstanding borrowings and required payments

The following is a summary of our outstanding borrowings at December 31, 2019:

(In millions)







                              Outstanding        Interest         Interest
                                Balance            Rate             Paid            Principal Payment
        U.S. Revolver        $           -               N/A          Monthly   July 20, 2023 maturity
        Convertible                                               Semi-Annual   December 19, 2020
        note-Terex                     7.3              7.5%                    maturity
        Convertible                                               Semi-Annual   January 7, 2021 maturity
        note-Perella                  14.9              7.5%
        Capital                                                       Monthly   January 13, 2021 maturity
        lease-cranes for
        sale                           0.3              5.5%
        Capital                                                       Monthly   $0.06 million monthly
        lease-Georgetown                                                        payment includes
          facility                                                                interest. April 30,
                                       4.8            12.50%                    2028 maturity
        Note payable-                                                 Monthly   $0.01 million monthly
          Winona Facility              0.3              8.0%
        PM unsecured                                                   Annual   Annual installments
        borrowings                                                              starting December
                                                                                  2019 through December
                                      11.7              3.5%                    2025
        PM Autogru term                                               Monthly   $0.01 million monthly
        loan #1                                                                 through
                                       0.1             3.00%                      October 2020
        PM Autogru term                                               Monthly   $0.01 monthly through
        loan #2                        0.2             2.50%                      March 2020
        PM Autogru term                                               Monthly   Monthly through June 2023
        loan #3                        0.3             2.75%
        PM term loans with                                             Annual   Annual installments
        related                                                                 starting December
          accrued                                                                 2019 and a balloon
        interest, interest                                                      payment in
          rate swaps and                                                          December 2026
        FMV
          adjustments                 10.2         0 to 3.5%
        PM short-term                                                 Monthly   Upon payment of invoice
        working
          capital
        borrowings                    14.4     1.75 to 65.0%
        Valla note payable                                          Quarterly   Over 14 quarterly
                                                                                payments ending
                                       0.1             4.36%                      January 2021
        Valla short-term                                              Monthly   Upon payment of invoice
        working                                                                 or letter of
          capital                                                                 credit
        borrowings                     0.3     1.67 to 4.75%
                                      64.9
        Debt issuance
        costs                         (0.1 )
        Debt net of
        issuance costs       $        64.8
        


The debt has various maturity dates. See Notes 13 through 15 to the financial statements for additional details.

Change in outstanding debt

At December 31, 2019, our total debt was reduced by $8.2 million to $64.8 from $73.0 million at December 31, 2018. The primary difference is attributed to a decrease in the PM debt of $8.3 million which was paid off during the year.

The following is a summary of changes in debt related to continuing operations:

(In millions)







                                                          Increase/
                                                         (decrease)
        . . .
        


Mar 10, 2020

(c) 1995-2020 Cybernet Data Systems, Inc. All Rights Reserved

This Story has 0 Comments
Be the first to comment

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.