Conference Transcript - MTW 2026-06-10

Operator

Good afternoon, everybody. Up next, we have the Manitowoc Company, traded under ticker MTW on the New York Stock Exchange. Manitowoc's a leading global manufacturer of cranes and engineered lifting solutions, serving customers across the construction, infrastructure, energy, and industrial sectors. Through well-known brands including Manitowoc, Grove, Potan, National Crane, and Shuttle Lift, the company designs, manufactures, and supports a broad range of mobile, tower, and crawler cranes used on projects around the world headquartered in milwaukee wisconsin manitowoc combines over a century of engineering expertise with a global service and support network and on

Brian P. Regan, CFO

behalf of the company brian regan cfo thank you errol hello everybody thanks for having me i'm brian regan the cfo of manitowoc been in the position since 2022. um you know i'm really proud of of being here on on behalf of manitowoc to talk about our story i think it's a pretty exciting story when you look at the opportunities. I think everybody knows us as the crane company. We manufacture cranes, as Errol said, across the globe. Our brands are very well recognized across the globe of doing that. And I think there's a recovery in the cycle relative to construction and in particular our cranes. But one of the interesting things that we're doing and I'll get into is really trying to grow our aftermarket, which is the higher margin portion of the business. and it's less cyclical. So we've been focusing a lot of our attention on growing that aspect of the business. So why invest in Manitowoc? As I mentioned, we are growing our aftermarket business. So we went from $376 million of aftermarket at a 35% margin in 2020 to $690 million in 2025. We made a couple of acquisitions to get closer to our customers by buying our dealers. And we really think that that's transforming us. We get closer to our customers. We better understand what needs they have. And we're better able to service the needs that the customers have. When you look at where we think we can get to. Now, some of this is market-driven. But we believe that there's secular demand that's coming relative to cranes and in the construction industry. But we believe we can get to about a $3 billion business. With that, a billion of that would come from our aftermarket, or what we call our non-new machine sales, through our Cranes Plus 50 strategy, and our targeted EBITDA would be at about 12%. I've got a slide later that bridges from our current approximately 6% to how we get to the 12%. But to give a little bit of a preview, the aftermarket, as I mentioned, is about a 35% margin, and then we have a pretty significant fixed cost base that, as we leverage it, it translates at higher margins. So who we are? We're one of what I would call three big players in the Western world of the crane industry. So us, Lieber, that's a family-run company out of Germany, and Tadano, which is a publicly traded company out of Japan. Those are the big three. There's other players within our product categories, but I'd say those are the big three. And we are global so we deal with those competitors really in the western world like europe and the americas and then from the emerging markets it's for us mostly a tower crane business and we manufacture both in india and in china to deal with the to compete in the emerging markets so we feel like we're well prepared to be able to compete with the chinese competitors in the emerging markets on the tower crane industry in the tower crane side um the middle east is an important area for us and we've been very successful growing our our uh presence in the middle east on the tower crane side um from a from a aftermarket side i think what what we talk about is continuing to grow our service tech population so we have approximately a hundred thousand machines that we've sold over the last 20 years. Historically, we didn't track those machines because our dealers were the ones that were responsible for servicing the customers. Since our transformation to be more focused on customers, we started to try to track where those machines are. As you can imagine, if we understand where the machines are, how they're being utilized, we can better service the customer. We partnered with a company out of Boston to better track PTC and their service max. So we're utilizing that system to populate all of the cranes that we know of and be able to better service our customers utilizing that information. The field service technicians, I call our field service technicians the top of the food chain when it comes to technical ability. They can pretty much fix anything. When we go around to our service locations, you're going to have all sorts of different machines sitting in the bays that our service technicians are fixing. And I think that's a really important aspect of it because as I mentioned our goal is to get closer to our customers and the service technicians allow us to do that so we had 500 plus service technicians at the end of the year we actually grew about 50 during q1 and our jobs are really to find those service technicians and get them trained to be able to be revenue producing as quick as possible and we now have quick start programs to to do that and and we train not only our service technicians but also our dealer service technicians. So it's an important part of our business where our folks are in front of the customer fixing machines that generates aftermarket parts as well as the service. We also have a rental fleet and one of the questions I've been getting about our rental fleet is well how does that not conflict with the channel? So a little bit of background about kind of our customer base. Historically we've sold through dealers now we're going direct but the end customer is generally a crane rental house so they're renting cranes to construction companies or or the like anybody that needs a crane but they're not just renting the crane they're also renting an operator with it and the design of the of the lift as you can imagine some of these lifts are very technical and it needs engineering work to figure out how to actually do the lift and when you look at the the crane rental houses that are out there they're actually doing all of that work where when we rent we're just renting the machine so it's sort of a rent-to-rent model and and the goal really is in particular in the U.S. on the mobile crane side where we have a rental fleet it's really to support our customers as you can imagine the crane rental houses may have 10 of a particular type of product that they need for for a particular project they may need 12 for that project and based on their own needs they may not want to purchase that product. So we give them the option to rent it from us. And also certain customers like the idea of what we call an RPO or rent to own. So effectively, they depreciate the machine down and then they have an option to purchase it after 12, 18 months. If they don't decide to purchase it, it becomes a very nice used sale for us. The Manitowoc Way is our way of running the business. So we are definitely a continuous improvement-minded organization, and everything we do has that mindset. So when we look at safety, it's one of the things that I'm most proud of at working for Manitowoc. We've improved our safety through the Manitowoc Way over the last number of years. And taking into consideration that we've grown our service tech population, I think it's even more important to highlight that because, as you can imagine, service technicians that are out in the field in an uncontrolled environment are more at risk than folks that are sitting in our manufacturing facilities. So really good work. Our goal is to get to zero, and we use the Manitowoc way to drive safety. That's utilizing kaizans. So identify where there's waste, where there's risk. Be proactive. we do that also through our product offerings so on on the new machines we just launched in um in march uh it's not commercializable yet but an eight axle all-terrain crane at con expo that's a brand new product for us as we look at how we develop that product how we test that product we use kaizans to become more and more efficient and it's important that when we look at the transformation that we're doing of the company this is really how we do it so we have a strategy in place, but how we do it is through the Manitowoc way and leveraging our continuous improvement mindset throughout the business. This is our revenue over the last 20-plus years, so I think it's important to note that this is pretty indicative of what the crane cycle has looked at, not just our revenue but the overall crane cycle. This is not adjusted for inflation or the incremental revenue that we've had on the aftermarket. And really, the highlight of this is we've not seen a cycle cranes keep getting older so we have we estimate that the average crane is 15 plus years old and there's going to need to be a refreshment of that those fleets around the world and that's you know what what is going to drive that decision by our customers to refresh their fleets it's really the secular tailwinds so when you look at all of these opportunities around the world, we believe between power generation, semiconductor plants, data centers, infrastructure, housing in Europe, housing in the Middle East, there's a lot of opportunities that are going to drive demand for our products. And that demand should drive a refreshment cycle that we've not seen in 20 plus years or 18 plus years. So I think it's really important when you think about Manitowoc and you think about the revenue-generating opportunity and the profit opportunity, it's twofold, one being the secular tailwinds driving demand in our new products and all the heavy lifting we've been doing on aftermarket. So our aftermarket, or what we call Cranes Plus 50, delivers total lifting solutions. So it's not just about the cranes. It's about the whole revenue cycle of a crane, as well as other products that can be sold as part of a crane or ancillary to a crane. That could be rigging equipment. We talked about in our last earnings call, we talked about, oddly enough, urinals for tower cranes. As you can imagine, it could be a tower crane that's 30 meters high that the operator has to climb or take a lift up in the morning. He takes a bucket with him, and I use he because for the most part, operators are male. They take a bucket with them and do their business when they're up at the top of the We partnered with a third party that actually provides a urinal that vaporizes the urine. So I use this as an example because it's something that in the past we would have never have done. And we sell as part of our new crane or to customers that own our cranes. And while it's not, you know, from a revenue standpoint, maybe they cost 2,500 euros, but it's at a 40% margin. So, you know, we partner with a company and are able to sell it at our distribution channel, and it's very lucrative for us. That's just one example of what's happening around the world as we talk to our teams who are trying to be more and more entrepreneurial as to what they can sell. And then we take those ideas and then try to spread them out across the organization, across the regions to sell it. Not all of it's able to be sold to every single location, but it's something that we continue to work on to try to spread best practices. and through our Kaizen and Manitowoc way, we try to share that amongst the groups and allow that to be done, which is really exciting. I mentioned the increasing of the aftermarket team. So I mentioned the service technicians. But in the past, our sales teams would talk to the decision makers that purchase machines. Those are generally owners of those crane rental houses. So that was how we went to market previously or through our dealers, we'd go to market. Now we utilize what we call PSSRs to go to the depots. So the folks that are responsible for making sure those cranes are operating, those are the folks we're going to now. And why is that important? Well, they're the ones that are going to buy all the aftermarket services. And our CEO, Aaron, has used the example that we want to be the fast and all of the lifting world. And what that means is essentially, how do we make it easier for that depot manager to run his business? So if we're there, if we're Johnny on the spot and can provide whatever they need, we become that much more important to the depot manager. So looking at where we think we can grow. So going from the 690 million we're in 2025 five to one billion as our aspirational, you know, increasing the base of recurring revenue was so important to showing the world that we're not just the same old crane company that tries to manage through a cycle. We've raised the floor on our profitability that can get through the cycle, and we're a better organization through the cycle. We've not seen a cycle yet, a good cycle for a very long time, and we've not seen it with all of the heavy lifting we've done on the aftermarket. And it's increased margin. It's a 35% gross margin on average. It may flex a little bit with used machines, because used machines tend to be a little bit lower margin, but it's a 35% margin, which is way better than the rest of the business. That's not to say we don't love the new machines. It's something that, you know, I think when you look around our organization, there's a lot of pride on each of the brands that Errol mentioned. And I think it's really important that we continue to invest in those new products. But this is where we think we're going to be able to grow our profit and return to shareholders. Looking how we've transformed the sales mix. So in 2021, we were at $450 million of aftermarket sales. So when we think about aftermarket sales, we don't think about it as a percentage of revenue just because of how volatile the new machines could be. We look at how do we grow this aspect of the business year over year. We assume that we can achieve at least a 5% CAGR on non-new machine sales year after year. And we've been very successful between 2021 and 2025 and continue every quarter to grow this portion of the business. As I mentioned, you know, it looks like our parts are down, but actually it's because we've grown all other areas of the business. As you can imagine, as the OEM in 2021, we still got part sales, but we weren't gaining all of the part sales. We've been able to grow that part sales, but also grow our service revenue, our rental revenue, our refurbishment revenue, our used revenue, which is all a part of the revenue cycle of a crane. From an M&A strategy, so going back to 2021, we invested about $180 million on buying two of our dealers. So this has expanded since then because we've been able to grow organically into some other territories. But that $180 million at the time was about $30 million of EBITDA. Currently, it's generating about $45 million of EBITDA, so very good acquisitions that we made. And the other piece that you don't really see is the fact that we've been able to take some of the learnings of those acquisitions and apply them elsewhere around the world. We continue to try to grow our service locations into new areas, including we announced that we're going to add two locations in Australia. And while those are not $50, $100 million revenue-producing locations, we believe in the baseball analogy of singles. A lot of singles get your runs. So we need to hit a lot of singles to continue to improve the business. As I mentioned, we were able to also add additional locations through just purchasing the territory from our dealers. So last year, we announced that we acquired the Carolinas and Georgia from one of our dealers who is also our dealer in Florida great dealer of ours does a great job in Florida they expanded into the Carolinas in Georgia and they weren't really performing in the Carolinas in Georgia so we had very direct conversations with them and because we had the other territories we can hold our our dealers more accountable and and had great conversations with them about hey it probably makes more sense that we take over the Carolinas and Georgia, pay them a bit of premium on the assets they had, and then now we go direct in those territories. When I look at the opportunities associated with acquisitions and some of the white space, I'd say, we've got a, we've got a, the white space, the dealers do a really nice job for us. We're not trying to push any of the dealers out, but we just believe that there's opportunity there as time goes by. And we look at it as an opportunistic buy. We want to pay around five times EBITDA, which becomes lucrative when you see us trading at 6.5. This shows the U.S., but also Europe and where we've also grown service locations throughout Europe. Our mobile crane business in Europe used to be more of, as I mentioned, we would sell machines, so our folks were very much about how do we sell more machines. We had some service techs around Europe, but for the most part, they were dealing with quote-unquote issues, how to resolve issues to be able to sell the next machine, which meant they weren't really producing revenue. They were doing it out of goodwill. We've sort of flipped the script on that and said, you know what? You guys are providing a value to our customers. It should be revenue producing. And it was easier in the U.S. to do that because we acquired companies. Now we're trying to change the the mentality within Europe to say, no, you really need to charge for the work that you're doing. I think we've done a lot of good work on our quality as well. And even when we're releasing new cranes, we've changed that a little bit to make sure that we train folks on the new machines so that it's not deemed to be quality when somebody's not unsure of how to operate a machine that they're not used to. So I think we've done a really nice job of setting our teams up for success relative to saying, hey, if I'm coming out to fix your crane, it's fixing a crane. It's service work that we can charge for. Looking at the investment fleet or the investment in our rental fleet. So the return profile is pretty good. It's a bit delayed. So if you can imagine when we would sell, if the option was to sell a crane or rent a crane, I, the finance guy, would much rather sell a crane because I get the dollars today. But what rental allows us to do is support our customers, and in certain instances, rent something that we wouldn't sell otherwise. And the return's pretty good. We generally like to keep our rental fleet young, and that's intentional because, you know, as we depreciate the crane and we get revenue associated with rental, when we turn that crane around and sell it, it's generally at pretty good margins. So it's a good business for us. It continues to support our customers. As I mentioned, It's really as an ancillary part of the business to support the customers when they need machines that they don't necessarily want to invest in. It's also, as I mentioned, RPO-driven, so customers sometimes like to rent the top off of the crane, which they're paying a rental amount, and the crane depreciates, and we can agree that in 18 months they could buy it at a particular price, and some of the rental payments would be applied to the value of the crane. So again, it's ROIC accretive to us and something that we continue to look at. When I look at our CapEx, and I'll get into our capital allocation in a little bit, but when I look at CapEx, our guide for 2026 is CapEx between 45 and 50 million. If I use the top end of that range for illustrative purposes, 25 million, I would say, is related to what we call sort of maintenance CapEx on our existing manufacturing facilities. and the other $25 million is maintaining the rental fleet. We feel like the size of our rental fleet is in good shape right now, and that $25 million is really just replacing what we sell. My view is that every single rental crane we have has a for sale sign, so we can sell it at any point in time. So our blueprint for revenue growth. So, yes, we're going to need some help. The work we're doing around aftermarket is going to be a component of it, but we also need to do some acquisitions. We need the market to help us, which we think, based on those secular demand items that I discussed, should happen. The replenishment of fleets around the world needs to happen. I think there's some pricing that needs to happen. The M&A is more timing-based. We don't know when that's going to happen because we get the question of, well, when do you think you're going to hit this aspirational target? Because not everything is under our control, we generally don't have a timeline for it outside of just saying probably within the next five years is how we think about it but going from 2.2 billion in 2025 to 3 billion i think is is something that is achievable for us from an ebitda standpoint we've got a pretty significant fixed cost base so the the growth and revenue associated with new machines should translate it at a pretty high margin we've got a fixed cost base that that doesn't need to be repeated and there's no intent to grow our capacity we feel like our capacity can meet the demands to get to $3 billion. Our operating leverage would then leverage that as we produce more machines in the current fixed cost base. And the mix shift, so continuing to grow that aftermarket, going from $690 to $1 billion, $310 million at 35% gross margin is pretty accretive to our margin. From an ROIC standpoint, so ROIC is something that we've started to include in our comp models. So I'm held to this in order to get paid, which is important to me then. And ROIC is something that we should be looking at. So how do we make those decisions to invest in the right things to get a return? And to get to 15% is something that we believe is achievable based on those growth opportunities that I just talked about from an EBITDA standpoint. And as we grow, we don't believe that working capital needs to grow at the same rate as we currently are. There's some efficiencies in working capital, in particular when you look at the dealer base that we have. So our dealers sell new machines, they inventory new machines. As we acquire more of the dealer base, we don't need to grow that inventory at the same rate. Our capital allocation priorities. So right now our leverage is sitting above 3.1. So it's really important for us to pay down debt. We anticipate generating $40 to $65 million of free cash flow this year. We need to pay down our debt. We need to get our leverage down. It gives us more flexibility when acquisitions come to be, but we don't want to be above three times leverage. Again, as a cyclical company, I'm more comfortable with two than three, but we need to get down below three. we continue to invest in in high roic opportunities like like the rental fleet that we've been doing continuing to grow our aftermarket um and and adding service locations investing in that is important to us as we look at our stock price i think we're we're undervalued currently which is something that i think you know if our leverage is where it needed to be we'd be looking at stock repurchases. We have $29 million approved under a previously approved plan by our board. So we do have that approval in place that we can enact once we feel comfortable with where our balance sheet is. And this is the same slide that I presented previously around why invest in Manitowoc. And to reiterate, we believe that on a new machine's side, there's a secular recovery coming. There's a demand cycle that's coming. When it is, we can't time it, but we do believe it's there and we're primed and ready to focus on that and be able to achieve that. Separately, it's what we can control. And we've been investing and continuing to grow our aftermarket opportunities. And that's at a higher margin. It's less cyclical. We continue to raise the floor. And once the cycle comes back, you'll really see the earnings power of Manitowoc. And with that, thank you for your time. Yeah, I talked about the five years. I think that's a reasonable time frame. Obviously, you know, two years ago, you know, when I look at 2023, we were in pretty good shape in 2023 to start to see, you know, I think in Q1, Q2, we had close to 10% margins. And then the tower crane business fell off in the second half. We've since then grown our aftermarket at that 35% margin. The problem was we've been hit with inflation, we've been hit with tariffs, all these things that it'll take some time to price back into our pricing mechanisms so that it's not a headwind to us, it becomes a tailwind for us. So I look at it as five years that we should be able to achieve those goals.

Operator

How much, I guess the question is, how many of the percentage of lateral finance

Brian P. Regan, CFO

I think that's why it's so important that we continue to grow our service tech population. Because if it's our service techs working on the cranes, then it's going to be, they're going to buy our OEM parts So I think there's a value to that service tech population to maintain what aftermarket products they're buying. So when we think about parts, the best way to ensure that we're providing the aftermarket parts is by continuing to grow our service tech population.

Operator

Did the service tech pop up by 50? Is that what you said?

Brian P. Regan, CFO

In Q1, so some of it was the fact that we're going direct now in India, and that contributed about 25 of that growth. But there is every call, every operations call that we go on with any of the teams around the world, how many have you hired? And there's no limit of approval of how many you can hire. The big thing now as we continue to grow that base is how do you train them and how do you keep them? And that's what we've been focused on. And our turnover rate has been relatively good relative to the service tech population. And we've adjusted how we train service techs. You can imagine back before we really employed a lot of service techs, we were still training a lot of our dealer service techs because we're the experts. But the focus wasn't really on speed to revenue producing. It was, if it takes you seven years, it takes you seven years to become a certified crane tech that can fix anything. Now we really look at it from the standpoint of, well, how quickly can you become revenue producing? And that's why it's important. I mentioned like other different products you'll see in our bays. Some of them are more simple for us. And we've just announced not that long ago that we're partnering with Hiab to sell some of their cranes, which are more simple for us. And our service techs can then provide the service to those customers. And it helps them train then on a more simple machine than our all-terrain products.

Operator

Competition. So outside the U.S., what have you been seeing?

Brian P. Regan, CFO

Yeah, I'd say Europe is sort of in the same boat as the U.S., more protectionism and that type of thing. When I look at the emerging markets, from a product standpoint, we've been very effective competing with the Chinese on tower cranes. We have a Chinese manufacturing location. And some of the determining factors in selling some of this in the Middle East, for instance, has been speed to develop new products. And our teams have been very good at doing that. And it feels as though they want bigger and bigger cranes. So we have to develop new cranes and if and if our speed to um sale is is quick from a new product development standpoint then we're going to get it and we've got a great dealer in the middle east that that supports that he's one of the largest tower crane rental houses in the world where he's got about 3 500 cranes and and he utilizes the cranes he owns as well as new cranes that he's buying from us to to support that those the products and or the customers in those regions um and he does a lot of the ancillary stuff as well like I talked about kind of what the Ukraine rental houses do so he's providing engineering services he's providing other services to differentiate him and our product from the lower cost manufacturers yeah that's it that's a good question because it was it was something that I mentioned PTC and ServiceMax and I think you know we're still I think figuring out what to do you know when if you look at it from a baseball game we're probably in we're in the early innings relative to that to be able to be more proactive and understanding, okay, where are those machines and how do we make sure we're proactive in servicing them? So I think there's a lot of opportunity there because right now the market for us is pretty much a, it's broke, come and fix it for me, as opposed to being really very proactive. So I think there's an opportunity there and there's also an opportunity to be more efficient in how we fix the cranes, leveraging best practices, know-how. When you fixed it once, can you fix it the same way around the world? And I think that's another thing that some of these technologies can support. Again, thanks everybody for your time. Mantua Company, MTW.