Good morning, and welcome to The Manitowoc Second Quarter 2023 Earnings Call. My name is Regina, and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. I will now turn the call over to Mr. Ion Warner, Senior Vice President of Marketing and Investor Relations. Please proceed.

Good morning, and welcome to the Manitowoc conference call to review the company's second quarter 2023 financial performance and business update as outlined in last evening's press release. Today, I'm joined by Aaron Ravenscroft, President and Chief Executive Officer, and Brian Regan, Executive Vice President and Chief Financial Officer. Our call includes a slide presentation, which can be found in the Investor Relations section of our website under Events and Presentations. We will reserve time for questions and answers after our prepared remarks. I would like to ask that you limit your questions to one and a follow-up and return to the queue to ensure everyone has an opportunity to ask their questions. Let's move to Slide 2 on to our safe harbor statement in the material provided for this call. During today's call, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 are made based on the company's current assessment of its markets and other factors that affect its business. However, actual results could differ materially from any implied or actual projections due to one or more of the factors, among others, described in the company's latest SEC filings. The Manitowoc Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or other circumstances. And with that, I will now turn the call over to Aaron.

Thank you, Ion, and good morning, everyone. Please turn to Slide 3. I want to begin today's call by expressing my gratitude to the Manitowoc team for their excellent performance during the quarter. Our second quarter results concluded a strong first half of the year, with net sales of $603 million for the quarter and an adjusted EBITDA of $60 million, reflecting a 10% margin. Furthermore, non-new machine sales grew by 8% compared to the previous year. Please turn to Slide 4. Our Cranes+50 strategy remains our primary focus. During the quarter, I had the chance to visit several NGX and Aspen locations, where I was continually impressed by our local teams' enthusiasm for serving our customers and expanding their businesses. For instance, at our new branch in Kansas City, the team recently rented out their first proton self-erecting tower crane. The team in Belle Chasse, Louisiana, is particularly passionate about crawler cranes. When I visited, they were in the process of rebuilding an MLC300 crawler crane, an old Manitowoc 4600, and an ancient barge crane. What's truly remarkable is how these acquisitions enhance Manitowoc's ability to serve our customers with a wide array of service and remanufacturing solutions. I would like to acknowledge Keith Poff, General Manager of MGX, and Mark Hoffmann, General Manager of Aspen, for their diligence and leadership. It has been inspiring to observe the development of these organizations over the past two years. Please proceed to Slide 5. Time really does fly when you’re enjoying what you do. Over the past seven years since the launch of the Manitowoc Way, we have further developed our lean mentality across all our operations. Each visit to our factories leaves me in awe of our progress, and I am immensely proud of how the organization has adopted a philosophy of continuous improvement, striving for small enhancements every day. During the quarter, I toured our tower crane facilities in Europe. In Portugal, we conducted our annual global Kaizen for our lean leaders. The Baltar facility is exceptional, and the team is incredibly motivated. Apart from exchanging best practices, the global team pinpointed significant opportunities to optimize fabrication processes in the facilities. Kudos to Vasco Rocha, our Director of Operations, and the Baltar team. In France, I noted remarkable progress. Energy Kaizens originated at this location last year and are already yielding substantial savings. Our digital initiatives are also gaining traction. We have digitized our visual pre-delivery inspections and continue to optimize our planning tool for work sequencing in the factory. My next visit was to Charlieu, France. When I moved to France in 2017, this plant was the least productive among our European facilities; the pathways were damaged, and there was no sign of 5S or TPM practices, while the paint system was dysfunctional. They had just installed a used robot, and I think we had one machining center that was younger than me. Today, the facility is transformed. The team is integrating a cutting-edge robot for welding IGO T masks and recently commissioned a brand-new horizontal machining center for large part milling, cutting cycle times for major parts by at least 50%. Additionally, they surprised me with the first trial part for remanufacturing mass elements using the new machining center; this could significantly advance our remanufacturing strategy. Elsewhere in the plant, the electrical department is now exemplary and adheres to 5S standards. Furthermore, the paint system team was operating the sandblaster and paint booth for two shifts six months ago; today, the same workload is accomplished in one shift due to innovation, digitization, and effective sequencing. A big thank you to Marci Baku, our Director of Operations, Jean-Luc Kubato, and the entire Charlieu team for their excellent work. Please move to Slide 6. I recently visited our facility in China, and I was truly amazed by the progress we've made over the last 3.5 years. Under our General Manager, the team has completely revamped the plant layout. I will let the pictures illustrate the improvements. In summary, I feel very proud of how our organization has adopted the Manitowoc Way. We have made significant strides and are continuously seeking opportunities for improvement. A huge thank you to the entire organization. Please proceed to Slide 7. Turning to the market, order intake for the quarter reached $551 million, surpassing expectations. Our backlog remains over $1 billion, and our sales mix is increasingly favoring the Americas. Crane demand in the U.S. continues to be robust despite inflation and rising interest rates. Utilization rates are strong among major crane companies, and overall business activity has been positive. This quarter, we observed early signs of the infrastructure bill starting to take effect in the Northeast. While I remain cautious about the U.S. market due to economic challenges, it is reassuring to see funds beginning to flow from this significant government investment program. Regarding dealer inventory, I would categorize it as well balanced at the end of June. However, we do have a substantial number of cranes slated for shipment to our dealers in the second half of the year, which makes me a bit cautious. A minor slowdown in retail activity could present challenges by year-end. Although the medium-term may be a bit uncertain, we maintain an optimistic outlook for the North American market in the long run as infrastructure and chip investments gain momentum. In contrast, the European economy has been affected by rising interest rates, resulting in a slowdown in construction activity across the continent for several quarters. This trend has primarily impacted our tower crane business, which saw a nearly 30% year-over-year decline in orders during the second quarter. Despite this cyclical downturn in the tower crane market, there are some positive indicators ahead. The U.K. and French governments are actively promoting large offshore wind farms and nuclear energy projects, along with significant housing shortages across major European countries. The European mobile business faces similar economic factors, but the landscape here has improved due to recent internal enhancements. While I wouldn’t label the market as strong, larger crane rental companies are gradually upgrading their fleets, while smaller rental companies are retreating. Fortunately, due to several successful new product launches over the past two years, we have seen an increase in our market share, which helps mitigate the market softness. Levels in the European mobile business remain stable. During my visit to the Middle East last month in Riyadh, I witnessed two noteworthy developments. First, the rapid realization of Saudi Vision 2030, and second, the strong presence of our largest tower crane dealer, NFT, also known as Arabian Towers. A big thank you to our long-time partner, whose engagement in the Kingdom dates back to the 1980s. On my visit, I explored King Salmon Park, one of the country's mega projects, which will be five times larger than New York City's Central Park. The first major construction there is the Royal Art Complex, which employs 30 proton tower cranes. I also visited the Avenue Mall project, which aims to be among the largest shopping centers in the world and features another 38 proton cranes. NFT is actively involved in all major projects in Saudi Arabia. Although the Middle East represents one of our smaller regions, it is growing rapidly, with orders increasing by 40% compared to last year. Lastly, the Asia-Pacific market presents a mixed scenario. The Indian crane market has been very strong this year, whereas China remains quite subdued. In South Korea, the semiconductor market has slowed as we await the next significant project, though there are signs of recovery in the shipbuilding and petrochemical markets. Australia continues to be a solid market, although logistics for transporting vessels from Europe have become increasingly challenging. In fact, we recently chartered our own ship to ensure timely delivery of machines. With that, I'll turn the call over to Brian.

Thanks, Aaron, and good morning, everyone. Please move to Slide 8. Let's start with orders. During the quarter, we had orders of $551 million, an increase of 27% from a year ago, exceeding our expectations. The year-over-year increase was driven by higher orders in all our segments. Looking more closely at the European market, mobile crane orders more than offset the tower's decline. Foreign currency favorably impacted orders by $4 million. Our June 30 backlog was slightly down sequentially at $1.025 billion, an increase of 8% year-over-year. The makeup of our backlog is consistent with the first quarter. It's predominantly in the Americas region. Net sales in the second quarter were $603 million, an increase of 21% from a year ago. The year-over-year increase was driven by pricing in response to inflationary pressures, higher crane shipments, and higher non-new machine sales as a result of executing on our Cranes+50 strategy. Non-new machine sales increased 8% year-over-year to $150 million. Net sales were favorably impacted by $3 million from changes in foreign currency exchange rates. SG&A expenses were $18 million higher year-over-year at $88 million. During the quarter, SG&A expenses included an $11 million charge related to a legal matter with the EPA. After adjusting for this, SG&A expenses were $7 million higher primarily due to inflation. Adjusted SG&A expenses as a percentage of sales were 13%, a decrease of 120 basis points year-over-year. Our adjusted EBITDA for the quarter was $60 million, an increase of $24 million or 66% year-over-year. Adjusted EBITDA margin was 10%, an increase of 270 basis points over the prior year, a great accomplishment during the quarter and reflective of the team's hard work. Flow-through on the year-over-year incremental sales was 23%. First-quarter depreciation and amortization of $15 million decreased $1 million compared to the prior year. Other expenses for the quarter were $10 million, an increase of $8 million year-over-year. Included in other expense during the quarter was a $9 million noncash charge related to the curtailment of operations in Russia. Our benefit for income taxes in the quarter was $5 million, driven by a $14 million reversal of a valuation allowance. Adjusting for this, our provision for income taxes in the quarter was $9 million. As a reminder, we have tax valuation allowances established for certain countries, and therefore, losses in those countries are not available to offset income tax expense in profitable jurisdictions. Our adjusted diluted net income per share in the quarter was $0.75, an increase of $0.54 from the prior year. Please move to Slide 9. Our net working capital increased year-over-year by $77 million. This increase is from a combination of inventory and accounts receivable and driven by inflation, supply chain, and logistics constraints, along with our normal seasonality. As a percentage of trailing 12-month sales, net working capital was 22%, flat year-over-year. As it relates to inventory, we are targeting a $75 million reduction by the end of the year. Moving to cash flows, we had a usage of $17 million of cash from operating activities in the quarter, primarily due to the growth in our working capital. Capital expenditures were $27 million, of which $20 million was for the rental fleet. This included $17 million for rental fleet growth and $3 million for replacement. As a result, our free cash flows in the quarter were a use of $44 million. We ended the quarter with a cash balance of $26 million, which was a decrease of $31 million sequentially. Total outstanding borrowings under our ABL increased $12 million, resulting in $82 million outstanding at quarter-end. Additionally, during the quarter, we repurchased $2 million of our common stock. Total liquidity decreased $41 million sequentially to $255 million. Due to our strong adjusted EBITDA, the net leverage ratio remained at 2 times at the end of the quarter, well under the targeted 3 times. Please turn to Slide 10. We are updating our full year guidance as follows: net sales, $2.1 billion to $2.2 billion; adjusted EBITDA of $150 million to $180 million; depreciation and amortization, $58 million to $62 million; interest expense, $33 million to $35 million; provision for income taxes, excluding discrete items, $16 million to $20 million; and adjusted diluted earnings per share, $1.10 to $1.70. As a reminder, the third quarter is historically our lowest quarter due to summer shutdowns in Europe. In addition, we expect a slowdown in the European tower crane business to be a $30 million adjusted EBITDA headwind in the second half versus the first half. With that, I will now turn the call back to Aaron.

Thank you, Brian. Please turn to Slide 11. At the start of the year, I said that our results would rely on 2 major factors: how quickly our production of mobile cranes would rebound from the shortages and how badly the European tower crane market would trail off. The good news is that the mobile shipments have accelerated faster than I anticipated. The bad news is that the European tower crane market has slumped further than I expected. Fortunately, as we reflected in our updated guidance, the good news exceeds the bad news. While the first half was a great performance in terms of EBITDA, we will be laser-focused on working capital in the second half. Strategically, we continue to drive our Cranes+50 strategy, investing in organic growth initiatives while searching for our next acquisition opportunity. As for my medium-term view of the crane market, although infrastructure projects are beginning to move through the halls of government, spending hasn't begun to ramp up yet. I could see a lull in demand as we work through our dealer inventory and the U.S. election cycle heats up. Nevertheless, I remain extremely optimistic about the long-term nature of the crane business. Saudi Vision 2030 is in motion. The U.S. infrastructure and semiconductor bills will eventually begin to lead, and the large offshore wind and nuclear projects coming down the pike in Europe will be a big boost to the crane market. Concurrently, most rental fleets are 10 to 15 years old on average. These broad trends will provide the confidence and fuel to refresh aging fleets. Manitowoc is well positioned to benefit from the cranes renaissance. With that, operator, please open the line for questions.

Our first question comes from Jamie Cook with Credit Suisse. Please go ahead.

I guess, Aaron, understanding the puts and takes to the back half of the year in terms of what you're saying with EBITDA margins. But related to the second quarter, even with tower crane, it sounds like it's softer than you had expected. What drove the outperformance on the EBITDA relative to your expectations? And then my second question is, can you sort of talk to how you see orders trending over the next 2 quarters? And how your dealers are approaching inventory as they're thinking about 2024 and the potential for IIJ, etc., kicking in?

Yes. So I mean, for the second quarter, I think it's lots of small things. I mean, our pricing continues to get better. I'd say that's almost normalized now. We had a good mix. FX was in our favor on a few things.

Yes. And maybe a correction, just Jamie, just the tower crane business, we had decent backlog coming into the quarter. So really, the softness is going to be in the second half, not the second quarter.

Yes.

And then my other question is just in terms of dealer inventory like how your dealers are approaching as you think about 2024 in order cadence in the second half?

It's always challenging to predict the order cadence due to its unpredictable nature. However, we remain engaged in discussions with several of our large dealers, especially in the U.S., and I believe we will receive some good orders. As you know, I tend to be conservative in my outlook. The number of machines we plan to ship to our dealers is encouraging, and it's reassuring that they are still considering their build schedules for 2024. Although July's performance was slightly lower than last year's, it remained within the $150 million range, which I view as a positive indicator. The current challenge in commenting is due to the summer season, which typically sees reduced activity. Apologies, it seems we've lost Jamie.

Just the last question on dealer inventory.

So the question is just where dealer inventory is currently or where we're seeing it in the second half.

Yes, like how dealers are approaching how they're thinking about inventory as we're exiting 2023, getting ready for 2024? Wondering if they want to start to increase inventories given what they're seeing out there.

I mean, based on the shipments that we have lined up, I'd say that they're increasing their inventory. So that's just a question of how high they plan on increasing in the second half. I think a lot of the activity looking towards 2024 is more about just being on the build schedule given the long lead times at the moment.

A quick question here. Can you talk about the utilization trends for your U.S. fleet in this quarter compared to the same period last year?

Yes. We don't share that information. Our fleet is not that large. I'd say in total, even when we talk to our customers, if you look more broadly, utilization rates in the United States have been very good.

And then I guess a quick follow-up on the regarding the non-new equipment growth, can you add more color on what the key drivers were within that? And then also on top of that can you break down the price purchase volume on the non-new equipment sales? Thanks.

The 8% increase was driven by our continued addition of service technicians, which helps with servicing some parts. Additionally, used sales have been strong, which is typically a significant factor due to the larger figures involved.

Yes. And when I look year-over-year, the big part of it is just those service techs being more and more utilized. So most of it's on the service and parts side.

Very, very nice job this quarter. Picking up where you just left off commentary on used cranes. I'm kind of curious as to what you're seeing on that side. I know you're very active in that market. What's going on with used crane prices, and what is going on with the availability of used cranes on the market, too? Can you comment on that?

Yes, there is definitely less availability compared to two years ago, but activity still remains strong. For us, a key factor is that we never pre-purchase units that are available. We are actively searching for used machines and looking at trade-ins, particularly for ATs in Europe, which we hadn’t really pursued in the past. This has contributed to our success. Regarding used pricing, I would say it’s acceptable. The situation is quite different depending on the region. In the U.S., where utilization is high, the market is much better than in Europe. Specifically for the tower crane business, with the market being soft, prices for older machines, like a 15-year-old cat head with outdated software, are currently very low.

But I'm wondering if there's a dynamic here because we've kind of seen it in other categories of equipment where used equipment prices have come a lot and come up a lot, and that to some degree supports the economics of a trade-in for people that are looking to upgrade to new equipment. Is that happening in the crane market or maybe not, given what you just kind of mentioned?

The challenge lies in evaluating each deal individually. Older cranes, especially those that are 15 years old, tend to be less productive, and relocating these machines is not easy. If we are discussing machines that are newer than 3 years, then yes, prices might be strong and interest could be significant. However, many older fleets have cranes that are 20 to 25 years old, which makes pricing more difficult.

And that some of our strategy is to take some of the used cranes and refurbish them and have them as more of like certified used from our perspective. But I'd say that that's more in its infancy, and we're trying to drive that.

I see. Then my follow-up is on the price cost dynamic. You talked a little bit about pricing. I think I heard a term normalizing. I'm kind of curious as to the contribution? How do you think about the contribution from price that you're getting in the back half on a year-over-year basis relative to what you've seen in the front half? On the cost side, material costs, have they actually been a tailwind in Q2? And how does that progress in the back half of the year?

From a pricing perspective in the second half, you won't see significant changes due to challenges related to tower demand. However, the overall demand remains strong, and we are maintaining our pricing, which will help mitigate some of the negative impacts from the towers. Additionally, we experienced favorable foreign exchange conditions in the first half, aided by advantageous hedges. Our average hedge rate for products shipped from European manufacturers to the U.S. was around 1, while the overall rate was 108, and we expect the rate in the second half to be slightly higher. Therefore, while pricing benefits may not be clearly visible in the second half, it's largely due to the challenges we are facing.

I'd say it's no change. I mean everyone can see that steel prices have come down, but even in the United States, they're still high, but the problem is we don't buy a lot of that still. A lot of our steel is very specialized. And all those high-strength steels, I mean that's a pretty niche market. So I wouldn't say we've seen any dramatic changes yet.

Between Q1 and Q2. But compared to last year, we definitely saw price increases relative to the labor market and how that got factored into prices for some of the products we buy.

I guess just a clarification first. On the $75 million inventory reduction comment, is that from the second quarter? Or is that from 4Q year-end '22?

Go ahead, Seth.

Can you share your expectations for free cash flow for this year?

Yes. So the $75 million is from Q2 and is primarily driven by logistics, supply chain factors, and some seasonality as well. We are continuing to monitor demand as we move into '24, which will lead us to make some adjustments to our inventory, but we are confident about reaching the $75 million by the end of the year compared to Q2. What was the other part of that question?

I wanted to ask about free cash flow. Previously, you mentioned it being neutral. Is that still the case, or has there been a change?

No, I think we talked about $20 million to $40 million. We're thinking $30 million to $50 million with the increase in the EBITDA, some of that flowing through the cash flow. So $30 million to $50 million is we're targeting.

I would like to understand the $30 million EBITDA headwind for European towers in the second half. Is it more concentrated in the third quarter compared to the fourth quarter, or is it distributed evenly? Additionally, I'm curious about how this might impact 2024.

The third quarter is your normal third quarter because half the plants in Europe were shut down for a month, basically, naturally would weigh a little bit more to the fourth, but I think what's key there is we're really hand to mouth. I mean, we don't have a whole heck of a lot of backlog. And even when I look at July, just to give you an example, we had less than $5 million of machine orders. So it's tough times in the tower crane business in Europe, and we had a lot of big challenges. That being said, we're continuing to invest in NPD. So we are in the process of hiring between 15 and 20 new engineers between the French engineering team and the China engineering team to support new product development for pursuing more aggressively some of these jobs in the Middle East as well as the what will eventually come in these big nuclear jobs in France and the U.K.

Were European towers a significant factor in the margin strength observed in the first half of this year? I'm trying to grasp how long this ongoing business challenge will persist. Will this headwind continue into the first half of next year, or is it more balanced?

Yes, I mean, we have essentially no backlog. So it's hard to say when it will start to come around, right? So, I mean, basically, it's typical, you sort of fall off a cliff. I mean, good backlog, and we were shipping given all the shortages we had and everything we could in the first half to meet customer advance. Now we're in a situation where we don't have any backlog. So hopefully, it turns fast. I mean there's a lot of things out there that could, I think, stimulate it, but who knows where Ukraine is going and what the interest rate situation is, but there's still lots of housing shortages in Europe. So if they changed some of their policies, maybe it comes back faster.

In the first half, I would say it performed normally, similar to how it has contributed over the last several quarters, about six quarters. It was more or less consistent.

Yes. I think the first half of 2023 was lower than last year, but still the first half or second half is that $30 million number that we talked about related to just towers alone.

You were curious if you could talk a little bit more about which products are seeing more demand from the infrastructure projects that are coming live?

Yes. Generally speaking, the infrastructure funding hasn't begun to be distributed yet. It will be widespread considering the scope of the project in the United States. There are numerous applications, which I believe will positively impact boom trucks. Additionally, all related taxi work will also be generated. Regarding semiconductors, this usually relates to more crawlers in the United States.

And then for a quick follow-up, if you could update us on how your market share is trending by region?

I'm sorry, we don't provide that level of detail.

Our next question is a follow-up from the line of Mig Dobre with Baird. Please go ahead.

The first one is on Ukraine, which you just mentioned a moment ago. And I'm kind of curious, when you talk to your dealers and obviously, the folks that run your business in Europe, is there a sense for how that conflict has impacted investment at all? And I'm kind of curious, I mean, if we do see a resolution at a point in time, presumably, there's a lot of reconstruction that has to go on over there. And I would imagine that the European Union would be quite involved. Do you get any sense that there's chatter in terms of what that might mean for demand going forward and how you might play into that?

Yes. I mean any time you've got war on your doorstep and you get interest rates going up, I think that puts everybody in a pretty uncomfortable position in terms of Europe. So for sure, there's some sort of cloud overhanging the population. In terms of rebuilding Ukraine, everyone loves to talk about grand ideas, but there's nothing out there that's concrete to suggest what actually is going to happen. So I think it's hard to comment on what is really going to happen.

So you're not hearing anything at this stage in terms of your dealers or anything like that, talking about that.

Yes, it's just wishful thinking. There have been no bills passed and no activity, so nobody really knows what's going to happen regarding Ukraine.

Sure. Do you have specific exposure to that market through dealers? Maybe I should know this, I apologize. I just never really.

No. For us, the bigger issue has been Russia. Ukraine is not a huge market; it's more of a used market, so I wouldn't say that we were doing a tremendous amount of business there. But Russia was a significant hit for us.

Yes. And we stopped selling in Russia, and we took a charge actually this quarter that I talked about in my prepared remarks.

And then my last question, Middle East, great to hear that orders are up. And obviously, there's a lot going on in Saudi Arabia. Can you talk a little bit about competitive dynamics? I know that's a market that everyone is buying from the Japanese, the Chinese competitors, and others. How are you staying competitive relative to those folks? And do you get a sense that you'll be able to, for lack of a better term, capture your fair share of the pies that demand ramps up?

Yes, considering the current downturn in the Chinese market, Chinese companies are being very aggressive in the region. I believe they will see some successes with simpler cranes. However, the nature of the projects is highly risky, especially for large structures. For instance, if you're dealing with a 500-meter tall, 200-meter wide structure, the risk associated with some of the other cranes could be significant. The competition will be intense, as it always is in the Middle East, but I am optimistic about our position in tower cranes due to our partnership with NFT. On the mobile crane side, it is more challenging because of the heightened competition from the Chinese. Nevertheless, we have a solid partner in Kano and are actively pursuing opportunities. It's really about identifying the key opportunities.

And as Aaron mentioned, we're continuing to invest in larger tower cranes and new product development there to be competitive in the region.

Before we conclude today's call, please note that a replay of our second quarter 2023 conference call will be available later this morning by accessing the Investor Relations section of our website at manitowoc.com. Thank you, everyone, for joining us today and for your continuing interest in the Manitowoc Company. We look forward to speaking with you again next quarter.

That will conclude today's call. Thank you all for joining. You may now disconnect.