Ladies and gentlemen, thank you for standing by and welcome to the Hyster-Yale Fourth Quarter and Full Year 2020 Earnings Conference Call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Ms. Christina Kmetko. Thank you. Please go ahead.

Good morning, everyone and welcome to our 2020 fourth quarter earnings call. I am Christina Kmetko and I am responsible for Investor Relations at Hyster-Yale. Thank you for joining us this morning. Joining me on today’s call are Al Rankin, Chairman and Chief Executive Officer; Rajiv Prasad, President; and Ken Schilling, our Senior Vice President and Chief Financial Officer.

Good morning, everyone. Thank you for joining us today. There is no doubt that 2020 was one of the most unusual years in recent history. The global pandemic created very significant disruptions to our business and to the daily lives of us all. While many uncertainties regarding the pandemic remain, the availability of a number of vaccines provides us hope that we can get past this sometime in 2021. Until then, we will continue to focus on keeping our employees safe and limiting the spread of the virus while still serving our customers as effectively as possible. Throughout this uncertain time, our workforce around the world has remained focused and agile. My view is that our team has done a great job of navigating effectively, a challenging and evolving environment, to meet the needs of our customers while delivering at the same time, solid results in the fourth quarter and full year results that were substantially stronger than we initially anticipated at the start of this pandemic. Christie will provide the financial details in a moment, but I have a few high-level comments first. Overall, in the fourth quarter, our business still felt the impact of the pandemic and the low bookings we experienced during the peak period of the pandemic-related shutdowns. We have been seeing improved market demand and increasing bookings. But at the same time, these improvements in the continuing effects of COVID-19 are creating challenges in other areas, especially including increasing costs and supply chain constraints. Despite these challenges, and primarily as a result of the cost-containment actions we implemented in the first half of the year, our 2020 fourth quarter results were significantly higher than the prior year quarter despite lower unit volumes.

Thank you, Al. I will start with the quarter highlights and then discuss the individual segments. Our fourth quarter consolidated revenues decreased to $719.6 million, down 13.8% from last year’s fourth quarter, mainly due to lower shipments resulting from the continuing effects of very low bookings during the peak period of the global pandemic shutdown as well as the pace of the subsequent market recovery. However, as Al mentioned, our consolidated operating profit increased significantly to $13.7 million from $8.1 million in the prior year fourth quarter. This improvement was primarily the result of lower operating expenses, resulting from the cost-containment actions previously implemented, partially offset by a 13.8% decrease in gross profit because of lower unit shipment volumes. Net income increased to $13.1 million or $0.78 per share from $3.4 million or $0.20 per share in the prior year quarter. At our lift truck business, Hyster-Yale group’s fourth quarter revenues decreased 14.3% to $683.9 million from $798.2 million in 2019, primarily because of fewer shipments in the Americas and EMEA segments. Consolidated shipments decreased by approximately 3,300 units due to fewer shipments in all but Class 1 electric counterbalanced trucks in the Americas and JAPIC, in Class 3 warehouse trucks in JAPIC as well as Class 2 warehouse trucks in EMEA.

Thank you, Christie. Let me start by saying that I could not be more proud of how our global team has performed over 2020 in light of the many challenges thrown their way by the COVID-19 pandemic. The hard work and disciplined execution shown by our global workforce has been exceptional as we continue to work through these challenges. Across the company, we have focused on maintaining the safety of our employees and preventing the spread of the virus and we have a good track record in doing that. However, the ongoing high volume of cases continued to create uncertainty and stress. It is as important as ever that we are diligent and maintain strong safety procedures despite the pandemic fatigue we continue to experience as we reach the 1-year mark of dealing with this pandemic. Let me reiterate, I am very proud of our team for their ability to stay focused and effective in these uncertain times and for their effort to maintain the protocol we have established to keep our workforce and those around them safe.

Thanks, Rajiv. While recent market and booking activities are strong and growth since the 2020 second quarter shutdowns have been better than expected, the level of future bookings and resulting shipments are still uncertain. Overall, we continue to operate on the assumption that the economic environment and markets will remain difficult in 2021 until the COVID-19 vaccinations and alternative therapies are more widely available and cases decrease to substantially lower levels. We are not able to control the macroeconomic factors that drive the demand for our products, but we are executing on actions that are within our control to keep our employees healthy as COVID-19 cases still remain high around the globe, and at the same time, moderating any resulting additional near-term financial impacts of the pandemic. Beginning in March of 2020, we put plans in place to mitigate the impact of declining markets and bookings and the consequential impact of reduced manufacturing activity from pandemic-related shutdowns by initiating cost reduction measures which were designed to lower costs and enhance liquidity. These measures include spending and travel restrictions, significant reductions in temporary personnel, furloughs, suspension of incentive compensation and profit sharing, benefit reductions, and salary reductions. We are encouraged to report that market and business conditions permitted us to reinstate pre-pandemic salaries, benefits, and incentive compensation programs effective January 1 of this year. The cost-containment actions associated with hiring, use of contract and temporary employees, travel and meetings as well as other discretionary spending are continuing. These measures are expected to remain in place until market and economic uncertainty dissipates and our results improve further, which we expect will occur over the course of 2021. As we look to the future to prepare to return to a more normal pre-pandemic operation and expense levels, we performed an in-depth global review to establish a more cost-effective long-term cost structure. As a result of this review, in the fourth quarter of 2020, we recognized a restructuring charge of approximately $4.4 million, which Al previously mentioned. This charge was largely for severance, which we expect to pay in 2021. We anticipate incurring additional charges of approximately $1.4 million in 2021 for costs related to this restructuring, and we are estimating benefits from this restructuring of approximately $10.4 million annually beginning in the year 2022. As Rajiv mentioned, we adjusted production levels at our manufacturing plants during 2020 to align them more closely with market demand and target bookings. Throughout the fourth quarter, we increased production moderately to adjust for improved market levels, but we maintained our focus on establishing a strong, stable backlog level as the foundation for higher production rates in 2021 given market growth expectations and expected bookings and backlog, barring any new widespread COVID-19-related shutdowns. However, some new or intensifying headwinds are expected to present significant challenges for us in 2021, we expect to contend with further pandemic-related global supply chain constraints, component shortages, shipping container availability, higher freight costs, as well as anticipated significant material cost inflation resulting from the increasing pace of the expected market recovery and the likelihood of non-renewal of U.S. tariff exclusions, which we have benefited from over the past 12 months. These items could affect both the cost of our products and our ability to ramp up production rates. We will continue to focus on carefully adjusting our production levels to match market and booking changes, and supply availability by closely working with our suppliers to help ensure we have adequate component supplies levels as production rate changes. We also anticipate that commodity costs will continue to rise as the year progresses. We continue to monitor potential future supply costs and tariffs closely and adjust our pricing accordingly. Given these factors, we expect operating profit and net income in the first quarter of 2021, excluding the gain from the sale of the company’s only H2 investment that Rajiv previously discussed, to be moderately lower than the 2020 fourth quarter and lower than the 2020 first quarter. The expected lower operating profit is due to a strong increase in commodity prices, which was resulting in an anticipated increase in material costs. Inefficiencies are expected as a result of global supply chain constraints and the reinstatement of incentive compensation and full salaries and benefits. We do anticipate a favorable currency impact based on current currency rates to partially offset these headwinds. Let me take a step back and explain that our expectations for the 2021 first quarter are based on the most recent information we have available. But as the past quarters have shown, the effect of the pandemic on the economic and lift truck market environments can change our expectations rapidly. Further shutdowns of plants or supplier shortages could occur. Lockdown measures are still in place in a number of European countries to mitigate the spread of COVID-19 virus and similar actions could be taken by other countries. Other than the recent brief weather-related shutdowns in North America, we are not having to close any of our plants as a result of lockdown measures, but we’re monitoring the situation at each plant and a number of our suppliers based upon areas where COVID-19 cases are high. We are prepared to take further action, if necessary, to maintain the health and safety of our global workforce and to address production and supply chain issues, which may develop. As a result, this pandemic-related uncertainty and its effects on our supply chain continue to limit our ability to forecast bookings and shipment levels beyond the first quarter of 2021. I would also like to note that our expected reported tax rate for 2021 will return to levels more comparable to the 2019 reported tax rate than what we experienced in 2020. Looking to the future in the context of an improved booking trend, we expect to increase our investment in working capital and other expenditures to support growth in our business. Capital expenditures were $51.7 million in 2020, and we are planning for capital expenditures of approximately $71 million in 2021. While we expect to make substantial additional investments in our business in 2021, maintaining liquidity has also continued to be a priority. At December 31, our cash on hand was $151.4 million, and our debt was $289.2 million compared with cash on hand of $89.9 million and debt of $297.7 million at the end of the third quarter. In addition, as of December 31, we had unused borrowing capacity of approximately $266.4 million under existing revolving credit facilities compared with $260 million at the end of the third quarter. I’d also like to point out for the 2020 full year, our consolidated cash flow before financing activities increased significantly to $123.2 million, up from $34.7 million in 2019. I will now turn the call back over to Al.

Al, you might be on mute.

Before I ask for questions, I should note that Hyster-Yale is very strong. We have an outstanding group of leaders and employees who have effectively managed production and supply chain complexities and kept Hyster-Yale on a positive path since the pandemic began. We can’t let up as the pandemic is still with us. But I’m reassured by the strength and resilience of our people and believe that we will deliver solid sales and earnings performance over the coming year and that our long-term strategies and prospects will have a very significant positive impact in the future. We are now open for any questions you may have.

And our first question comes from the line of Steve Ferazani from Sidoti & Company. Your line is open.

Hi. Good morning everyone. Thanks for the detailed commentary. I know you mentioned caution a lot on the call. The flip side is you had another – a second straight, really strong quarter of bookings, your backlog is back to pre-pandemic levels. I know there is a ramp to it, but how can we think about 2020 – I know it’s only February, but how can we think about 2021 sales compared to pre-pandemic 2019 sales?

Let me just make an introductory comment, then I’m going to ask Rajiv to elaborate. In Ken’s remarks and Rajiv’s and in mine and in yours, you referred to uncertainty in the difficulty of forecasting. We have the pandemic impact. And in many ways, it’s changed the level of economic activity in terms of its impact on different segments of the economy. Certain areas are seeing a significant ramp-up in economic activity. And there, everyone, I think a broad variety of industries are concerned about the impact of the increasing volumes on different sectors of the supply chain. A ramp-up that you were asking about is highly dependent on our ability to have all of the components necessary to build all those trucks in a timely way. And I think we’re cautious about our ability to predict that. There are challenges out there. You’ve seen them in other industries. With that backdrop, I’d ask Rajiv to make any further comments he’d like to make.

Yes. Thanks, Al. The only things that I’d like to build on that are – maybe I’ll split this into two, firstly, around bookings and then next thing around our ability to build the trucks with some of the constraints that Al talked about. In terms of bookings, the complexities in forecasting is how much of this – what we are seeing and what we saw at the end of the year is pent-up demand and how much is stable demand moving forward. But as we start to look at 2021, to us, we are seeing good market size and increasing over 2020, and not that dissimilar to 2019. So I think that’s the booking side. On the production side, we are seeing significant constraints in the supply chain. And it’s for the reasons that we’ve already discussed. There is demand outstripping supply. So people have put on some level of constraint in shipping components. Then we have some suppliers having difficulty with COVID and then the logistics challenges that we’ve talked about due to container availability and basic shipping line availability. So it’s a complex environment, and that’s what’s making projecting difficult.

The only thing I’d add is, as Rajiv said, we’re very encouraged by the bookings that we’re receiving at least so far. Assuming that there’s not a significant retrenchment due to the sort of pent-up demand. I think that we’ll be producing those trucks that are booked sooner rather than later, so they’re in the systems, they’re going to be produced. And they’re going to have an impact on the results, but it’s very difficult to say when.

That’s very helpful. Ken, in the past, you’ve done a pretty good job of trying to quantify what you did last year in terms of the cost savings, with the temporary cuts. I’m just trying to get a sense of – because you talked about some are back, some are not. It’s also the restructuring. Do you have a sense of at least the percentage of the costs that are going to be backed in the earlier part of the year?

Yes. I think – I would characterize it as the largest portion of those cost savings programs were the ones that we have brought back, the salary, incentive, and benefits. Those types of programs that were sizable. So it would represent a significant portion, but I don’t want to underestimate the efforts that we’re making to hold costs down. I think you need to look back to trends back to 2019 in terms of cost to develop your own guidance on where you think expenses are going.

Okay. Ken, I will reiterate what Al said, we are seeing significant inflation, and it’s come on very quickly as demand has outstripped supply. As Al said, because multiple industries are ramping up simultaneously.

Yes. Rajiv, I think I was trying to respond back to the philosophy – I thought this was a question about SG&A savings through our COVID programs. So my comments were limited to that. I absolutely agree with what Rajiv is saying about the cost of production.

Great. If I could just add one more in, just you could add a little bit of commentary on Nuvera, one being you’re more positive given the new administration in the U.S. And then two, just with so much talk around fuel cell technology now, do you think – you talked about China first, but do you think there are other markets you can start marketing your engines?

Yes. I’ll start that one off. Absolutely. We talk about building our commercial operations, and we are doing that globally. We are seeing traction in China, of course, but also in some other countries in Asia as well as in Europe. We’ve seen Europe come on really strongly and start to think about fuel cells. And then America is slower, but recently, we announced our collaboration with Capacity, but there are similar other discussions going on with Nuvera and other OEMs. Now one thing I would say is as we start to work with OEMs, the lead time between getting a business award and actually producing the truck, which is really the development time, can be significant. So we’ll kind of give you more color on that as we start to get some of these business and we’ll report out as many as we can.

Alright. That’s helpful. Thanks so much for your time everyone.

Your next question comes from the line of an unidentified analyst. Your line is open.

Hi, thanks very much for the call. I was actually just about to ask the similar question on the geographies you’re focused on for Nuvera. I guess given that you answered that, my – the only thing I just wanted to state was we believe Nuvera is a tremendously valuable asset with proprietary technology and capabilities that provide a competitive advantage even versus many of the publicly traded fuel cell companies. And we also believe that Nuvera has a greater potential as a stand-alone entity outside of Hyster-Yale, so would therefore request that the company and the Board focus on unlocking this significant value by exploring a divestiture or a spin-off or sale of Nuvera as soon as possible? Thank you.

I’d just comment that our Board always actively thinks about the best way to build value for our shareholders. And they certainly do that in the context of Nuvera. But Nuvera is a young business. It needs a lot of sophisticated support and professionalism in order to build on its position so that it’s durable over the long-term. That’s what we intend to do. We’re certainly cognizant of some of the developments in the marketplace, but we’re a very long-term player, and we want to develop the business in the best way possible over the long-term. And I’d leave it at that.

And we have a question from the line of Michael Sesser from DWS. Your line is open.

Hi, Al and thank you for the comment. I actually had a little bit of a follow-up to the previous question. I guess we’re at a very interesting environment from a financial market perspective in that there are just so many of these special-purpose acquisition vehicles seeking something exactly like what Nuvera has to offer. And it just seems that you would get paid something far more than Nuvera’s true value if you were to take this opportunity to sell it, whereas this moment isn’t going to last forever. I mean it will be gone. So it just seems like to – it just seems like it’s almost kind of dumb not to sell it I guess?

We are in the fuel cell business for the long-term. One way or another, we think it’s a tremendous business. And we’ll be attending to it in the way that the management and the Board collectively think is the best way to manage the business for the long-term. So again, I’d leave it at that.

Okay, thank you.

And there are no further questions at this time. I’ll turn the call back over to Christina Kmetko for some closing remarks.

Thank you. Al, did you have anything you wanted to say further?

I have no further remarks to make at this point, Christie.

Okay. Thank you again everyone for joining us today. We do appreciate your interest. And if you do have any follow-up questions, please feel free to give me a call. My number is at the top of the earnings release. Thanks and have a great day.

Ladies and gentlemen, this concludes today’s conference call. A replay for today’s call will be available approximately 2 hours following the completion of the call, and expire on March 4 at midnight. To listen to a replay of today’s call please dial 800-585-8367 and enter conference ID 1692988. Thank you for participating. You may now disconnect.