ITEM 1. BUSINESS
Our Business
The Company is a leading provider of engineered lifting solutions. The Company designs, manufactures and distributes a diverse group of products that serve different functions and are used in a variety of industries. Following the completion of the Rabern acquisition, the Company reports in two business segments and has five operating segments, under which there are five reporting units. The Company previously announced the closing of the Badger reporting unit which is expected to be finalized in mid-2023.
On April 11, 2022, the Company entered into a Membership Interest Purchase Agreement (the “Agreement”) with Rabern Rentals, LLC (“Rabern”) and Steven Berner, as owner of 100% of Rabern’s outstanding membership interests. Pursuant to the Agreement, the Company acquired a 70% membership interest in Rabern from Steven Berner for a purchase price of approximately $26 million in cash plus assumed debt of $14 million. Rabern is a construction rental equipment provider, headquartered in Amarillo, Texas, primarily servicing business in the Texas panhandle.
Lifting Equipment Segment
Manitex markets a comprehensive line of boom trucks, truck cranes, aerial platforms, electrical industrial cranes and utility vehicles. Manitex’s boom trucks and crane products are primarily used for industrial projects, energy exploration, energy distribution and infrastructure development, including roads, bridges and commercial construction and the tree care industry. Truck mounted aerial work platforms are widely used in several diverse applications. High reach aerial work platforms are used in highway signage maintenance and construction, parking lot lighting applications, as well as telecommunication maintenance and upgrades. Medium reach aerial work platforms cover most retail shopping and commercial advertising. Larger capacity aerial work platforms are used as support vehicles to service and maintain equipment in mining applications. Cranes and aerial platforms are configured for tree management and removal, both manned and remote applications.
Crane and Machinery, Inc. (“C&M” or “Equipment Distribution”) has historically been a distributor of the Company’s products as well as other 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. Beginning in 2023, C&M will be a distributor of the Company's Valla and Oil & Steel products in the United States.
PM and Oil and Steel S.p.A. (“PM” or “PM Group”) is a leading Italian manufacturer of truck- mounted hydraulic knuckle boom cranes with a 64-year history of technology and innovation, and a product range spanning more than 50 models. PM is also a manufacturer of truck-mounted aerial platforms with a diverse product line and an international client base. Through its consolidated subsidiaries, PM Group has locations in Modena, Italy; Valencia, Spain; Arad, Romania; Chassieu, France; Buenos Aires, Argentina; Santiago, Chile; Singapore and Querétaro, Mexico. PM cranes are also distributed by the Company's subsidiary, Manitex Inc, in Georgetown, Texas.
The Company’s subsidiary, Manitex Valla S.r.L. (“Valla”) produces a full range of precision pick and carry industrial cranes using electric, diesel, and hybrid power options. Its cranes offer wheeled or tracked, and fixed or swing boom configurations, with special
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applications designed specifically to meet the needs of its customers. These products are sold internationally through dealers and into the rental distribution channel.
Rental Equipment Segment
The Company’s majority-owned subsidiary, Rabern, rents heavy duty and light duty commercial construction equipment, mainly to commercial contractors on a short-term rental basis. Rabern also rents equipment to homeowners for do-it-yourself projects. Rabern operates through commercial distribution and delivery stores (branches). Rabern has three branches located in the greater Amarillo, Texas market and Rabern expects to open its fourth branch in Lubbock, Texas.
General Corporate Information
Our predecessor company was formed in 1993 and was purchased in 2003 by Veri-Tek International, Corp., which changed its name to Manitex International, Inc. in 2008. Our principal executive offices are located at 9725 Industrial Drive, Bridgeview, Illinois 60455 and our telephone number is (708) 430-7500. Our website address is www.manitexinternational.com. Information contained on our website is not incorporated by reference into this report and such information should not be considered to be part of this report.
INFORMATION ABOUT OUR BUSINESS
Boom Trucks
A boom truck is a straight telescopic boom crane outfitted with a hook and winch which is mounted on a standard flatbed commercial (Class 7 or 8) truck chassis. Relative to other lifting equipment, boom trucks provide increased versatility, with some models capable of transporting relatively large payloads from site to site at highway speeds. A boom truck is usually sold with outriggers, pads and devices for reinforcing the chassis in order to improve safety and stability. Although produced in a wide range of models and sizes, boom trucks can be broadly distinguished by their normal lifting capability as light, medium, and heavy-cranes. Various models of medium or heavy-lift boom trucks can safely lift loads from 15- to 90-tons and operating radii can exceed 200 feet. Another advantage of the boom truck is the ability to provide occasional man lift capabilities at a very low cost to height ratio. While it is not uncommon to see a very old boom truck, most replacement cycles trend to seven years. The market for boom trucks has historically been cyclical.
Although the Company offers a complete line of boom trucks from light to heavy capacity cranes, much of our efforts have been devoted to the development of higher capacity boom trucks specifically designed to meet the particular needs of customers including those in energy production and electrical power distribution. We believe it is an advantage to be skewed towards the heavier lifting capacity, since the heavier capacity cranes have higher margins.
The Company has developed an electric option called Manitex ECSY (Electric Crane System). The ECSY system is a practical innovation, allowing owners the flexibility to operate the crane remotely on chassis diesel hydraulic power with a supplemental electric motor which can be engaged when the crane is stationary and operate on locally available electric power sources.
Markets that drive demand for boom trucks include power distribution, oil and gas recovery, infrastructure and new home, commercial and industrial construction. Historically, the new home construction market, which uses lower capacity cranes, has been the most cyclical. Over the past few years, demand from the energy sector has become more cyclical in part due to changes in oil prices.
The Company sells its boom trucks through a network of over forty full-service dealers in the United States, Canada, Mexico, South America, and the Middle East. A number of our dealers maintain a rental fleet of their own. Boom trucks can be rented for either short or long-term periods.
Knuckle Boom Cranes
PM knuckle boom cranes are hydraulic folding and articulating cranes, mounted on a commercial chassis, with lifting capacities that range from small (lifting capacity up to three-ton meter) to super heavy (lifting capacity up to two-hundred-and-ten-ton meter), often supplied with a jib for additional reach. The knuckle boom has a compact design and footprint which can be mounted on a chassis to maximize the load carrying capability. Combined with the crane’s ability to operate in a compact footprint the ability to carry a payload provides a competitive advantage over other truck mounted cranes and makes the knuckle boom crane particularly attractive for a variety of end uses in the construction and product delivery sectors.
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The knuckle boom crane market is a global market with a wide variety of end sector applications, but focused particularly on residential and non-residential construction, road and bridge infrastructure development, waste management and utility applications. PM knuckle boom cranes are sold into a variety of geographies including West and East Europe, Central Asia, Africa, North and Central America, South America, the Middle East and the Far East and Pacific region. Historically, PM focused on its domestic and local Western European markets, but in recent years has expanded its sales and distribution efforts internationally. PM has six international sales and distribution offices located in the Far East and in Latin America.
The market for knuckle boom cranes has been growing in recent years as the acceptability of the product has grown and its advantages have been accepted. Growth in North America, where the straight-mast boom truck crane has been the more dominant product, has been more rapid in recent years in combination with the overall improvement in the North American construction sector. PM’s share of the North American market has been historically low; however, we believe that this is an area of growth opportunity for the Company.
Aerial Work Platforms
Oil & Steel aerial platforms are self-propelled or truck mounted and places an operator in a basket in the air in order to perform maintenance, repairs or similar activities. The equipment is used in a variety of applications including utilities, sign work and industrial maintenance and is often sold to rental operations.
Oil & Steel serves a number of geographies in North America, Western and Eastern Europe and sells through dealers as well as its own sales and distribution offices and two subsidiaries in Spain and France. In North America, products are sold under the Manitex brand and through its distribution network. The market generally follows the domestic economic cycle for any particular country. Consequently, the market has shown a positive trend in the past several years.
Industrial Cranes
As of January 2022, the Company had discontinued the industrial crane product line.
Valla Cranes
Valla product line of industrial cranes is a full range of precision pick and carry cranes from 2 to 44 tons, 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. The product is sold internationally through dealers and into the rental distribution channel.
Equipment Distribution
C&M is a United States distributor of the Company’s products. C&M Leasing rents equipment manufactured by the Company as well as a limited amount of equipment manufactured by third parties.
Part Sales
As part of our operations, we supply repair and replacement parts for our products. The parts business margins are generally higher than our overall margins. Part sales as a percentage of revenues tend to increase when there is a down-turn in the industry. Part sales as a percentage of revenues are approximately 12% for each of the years ended December 31, 2022 and 2021.
Company Revenues by Sources
The sources of the Company’s revenues are summarized below:
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2022 |
|
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2021 |
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Boom trucks, knuckle boom & truck cranes |
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53 |
% |
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61 |
% |
Aerial platforms |
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14 |
% |
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13 |
% |
Part and merchandise sales |
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12 |
% |
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12 |
% |
Rental |
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7 |
% |
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0 |
% |
Other equipment |
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12 |
% |
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11 |
% |
Services |
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2 |
% |
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|
3 |
% |
Net Revenue |
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|
100 |
% |
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|
100 |
% |
In 2022 and 2021 no customer accounted for 10% or more of the Company’s revenue.
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Raw Materials
The Company purchases a variety of components used in the production of its products. The Company purchases steel and a variety of machined parts, components and subassemblies including weldments, winches, cylinders, frames, rims, axles, wheels, tires, suspensions, cables, booms and cabs, as well as engines, transmissions and cabs. Additionally, Manitex and PM mount their cranes on commercial truck chassis, which are either purchased by the Company or supplied by the customer. Lead times for these materials (including chassis) historically varied from several weeks to many months. The Company is vulnerable to a supply interruption in instances when only one supplier has been qualified. Identifying and qualifying alternative suppliers can be very time consuming, and in some cases, could take longer than a year. The Company has been working on qualifying secondary sources of some products to assure supply consistency and to reduce costs. The degree to which our supply base can respond to changes in market demand directly affects our ability to increase production and the Company attempts to maintain some additional inventory in order to react to unexpected increases in demand.
Supply chain issues have impacted the Company and we expect this to continue to cause disruption in 2023. The disruptions continue to put a strain on our team and resources, specifically on our electronic components and truck chassis. Future supply chain issues that might impact the Company will in part depend on how fast the rate of growth is for a product. Strong general economic growth could put us in competition for parts with other industries. Additionally, events or circumstances at a particular supplier could impact the availability of a necessary component.
Patents and Trademarks
The Company protects its trade names and trademarks through registration. Its technology consists of bill of materials, drawings, plans, vendor sources and specifications and although the Company’s technology has considerable value, it does not generally have patent protection. The Company has (on rare occasions) filed for patent protection on a specific feature. In the future, the Company will consider seeking patent protection on any new design features believed to present a significant future benefit.
The Company owns and uses several trademarks relating to its brands that have significant value and are instrumental to the Company’s ability to market its products. The Company’s most significant trademark is “Manitex” (presently registered with the United States Patent and Trademark Office until 2027). Badger Equipment Company previously marketed its products under the “Little Giant” and "Badger" trade names which were discontinued during January 2022. Valla markets its products under the “Valla” tradename. PM sells its products using the trademark “PM” and PM subsidiary, PM Oil & Steel S.p.A. sells its products using the “OIL & STEEL” trademark. The Manitex, Valla, PM and OIL & STEEL trademarks and trade names are important to the marketing and operation of the Company’s business as a significant number of our products are sold under those names. PM has three patents. One is registered with the Italian Patents and Trademarks Office until 2028. PM has two additional patents registered with The Office for Harmonization in the Internal Market for Trademarks, ("OHIM") that are in force until 2031 and 2034, respectively.
Seasonality
Traditionally, the Company’s peak selling periods for cranes are the second and fourth quarters of a calendar year. A significant portion of cranes sold over the last several years have been deployed in specialized industries or applications, such as energy, residential and commercial construction. Sales in these markets are subject to significant fluctuations which correlate more with general economic conditions and the prices of commodities and generally are not of a seasonal nature. Crane repairs are performed throughout the year, but are somewhat affected by the slowdown in construction activity during the typically harsh winters in the Midwestern United States.
The sale of parts is much less seasonal given the geographic breadth of the customer base.
Competition
The market for the Company’s boom trucks, knuckle boom cranes, and industrial cranes is highly competitive. The Company competes based on product design, quality of products and services, product performance, maintenance costs and price. Several competitors have greater financial, marketing, manufacturing and distribution resources than we do. The Company believes that it effectively competes with its competitors.
The Company’s boom cranes compete with cranes manufactured by National Crane, Custom Truck One Source, Elliott and Altec and Weldco Beales. The Company’s knuckle boom cranes compete with Palfinger, Fassi, Effer and HIAB.
While no geographic limitations exist regarding the business’s ability to sell cranes internationally, the lack of any barriers to entry and the heavy use of the internet make this a highly active and competitive market in which to distribute cranes.
Parts sales are global in scope and benefit greatly from the internet and the tenure and expertise of our employees. While competition in this area is extensive, we believe that the breadth of the products offered and our long history in this part of the business is a competitive advantage.
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The Company's rental business competes based on the design, quality and performance of the products it makes available for rental, price and the good maintenance and repair of the equipment it provides. Several competitors have greater financial, marketing and distribution resources than we do. The Company, however, believes that it effectively competes with its competitors.
Backlog
Backlog, which includes firm orders for equipment which we have not yet shipped as well as orders by foreign subsidiaries for international deliveries, was $230.2 million at the end of the fourth quarter of 2022, up 22% from the end of 2021 and up 11% from the end of the third quarter of 2022. Backlog includes firm orders for equipment which has not yet shipped as well as orders by foreign subsidiaries for international deliveries.
The majority of the Company's backlog is expected to be filled within one year, although there can be no assurance that all such backlog orders will be filled within that time. Our backlog orders represent primarily new equipment orders. Parts sales are generally filled as ordered.
Employees
As of December 31, 2022, the Company had 601 full-time employees and 7 part-time employees. The Company has not experienced any work stoppages and anticipates continued good employee relations. Seven (7) of our employees are covered by collective bargaining agreements at our Badger subsidiary and are represented by International Union, United Automobile, Aerospace, and Agricultural Implement Workers of America (“UAW”) and its local No. 316. The current union contract expires on June 21, 2023. The Company acquired Rabern in April 2022 which has 63 employees across four (4) locations.
Governmental Regulation
The Company is subject to various governmental regulations, such as environmental regulations, employment and health regulations, and safety regulations. We have various internal controls and procedures designed to maintain compliance with these regulations. The cost of compliance programs is not material but is subject to additions to or changes in federal, state or local legislation or changes in regulatory implementation or interpretation of government regulations.
Available Information
The Company makes available free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished as required by Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), through our Internet Website (www.manitexinternational.com) as soon as is reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). The SEC also maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Information contained in or incorporated into our Internet Website or the SEC’s website is not incorporated by reference herein.
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ITEM 1A. RISK FACTORS
The reader should carefully consider the following risks, together with the cautionary statement under the caption “Forward-Looking Statements” and the other information included in this report. The risks described below represent all of the material risks currently known to us; however, they are not the only ones the Company faces. Additional risks that are currently unknown to the Company or that the Company currently considers to be immaterial may also impair its business or adversely affect the Company’s financial condition or results of operations. If any of the following risks actually occur, the Company’s business, financial condition or results of operation could be adversely affected.
Risks Relating to the Company’s Business and Operations
A future substantial deterioration in economic conditions, especially in the United States and Europe, would adversely impact the Company’s results of operations and cash flows.
Economic conditions affect the Company’s sales volumes, pricing levels and overall profitability. Demand for many of the Company’s products depends on end-use markets. Challenging economic conditions may reduce demand for our products and may also impair the ability of customers to pay for products they have purchased. As a result, the Company’s allowance for credit losses and write-offs for accounts receivable may increase. Significant deterioration in economic conditions, especially in the United States and Europe, has had and may again have negative effects on the Company’s results of operations and cash flows.
A significant deterioration in economic conditions has caused and may again cause deterioration in the credit quality of our customers and the estimated residual value of our equipment. This could further negatively impact the ability of our customers to obtain the resources they need to make purchases of our equipment or to fulfill their obligations under our rental agreements. Reduced credit availability will diminish our customers' ability to invest in their businesses, refinance maturing debt obligations, and meet ongoing working capital needs. If customers do not have sufficient access to credit, demand for the Company’s products will likely decline. Reduced access to credit and the capital markets will also negatively affect the Company’s ability to invest in strategic growth initiatives such as acquisitions.
The COVID-19 pandemic has had, and is expected to continue to have, a negative impact on our business, financial condition, cash flows, results of operations and supply chain.
The COVID-19 pandemic resulted in national, state and local government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, border closings, restrictions on public gatherings, quarantining of people who may have been exposed to the virus, shelter-in-place restrictions, and limitations or shutdowns of business operations. These measures, some of which are continuing or have been re-implemented in light of new variants of the virus, have impacted and may further impact our workforce and operations, the operations of our customers, and those of our dealers and suppliers. We have significant operations worldwide, including in the United States, Italy and Romania and each of these countries have been affected by the pandemic and have taken measures to try to contain it, resulting in disruptions at some of our manufacturing facilities and support operations. There is still uncertainty regarding the full impact and duration of such measures and potential future measures, and restrictions on our access to our facilities or on our support operations or workforce, or similar limitations for our customers, dealers and suppliers.
The COVID-19 pandemic has disrupted our supply chain and resulted in higher material costs as well as delays in scheduled shipments of our products. The COVID-19 pandemic has had, and is expected to continue to have, a negative impact on our business, financial condition, cash flows and results of operations, although the full extent is still uncertain. As the pandemic continues to evolve and new variants continue to emerge, the extent of the impact on our business, financial condition, cash flows and results of operations will depend on future developments, including, but not limited to, the continued duration of the pandemic, government actions to contain the virus and/or treat its impact, restrictions on travel, the duration, timing and severity of the impact on customer demand, and how quickly and to what extent normal economic and operating conditions can resume, all of which are still uncertain and cannot be predicted.
Our revenues and profitability are impacted by government spending and fluctuations in the construction industry.
Many of the Company’s customers depend substantially on government spending, including highway construction and maintenance and other infrastructure projects by U.S. federal and state governments as well as foreign governments. Any decrease or delay in government funding of highway construction and maintenance and other infrastructure projects could cause the Company’s revenues and profits to decrease.
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The Company’s level of indebtedness reduces our financial flexibility and meeting financial covenants required by our debt agreements could impede our ability to successfully operate.
As of December 31, 2022, the Company’s total debt was $90.3 million, which includes notes payable and finance lease obligations.
Our level of debt affects our operations in several important ways, including the following:
•a significant portion of our cash flow from operations is likely to be dedicated to the payment of the principal and interest on our indebtedness;
•our ability to obtain additional financing in the future for working capital, capital expenditures or acquisitions may be limited;
•we may be unable to refinance our indebtedness on terms acceptable to us or at all;
•our cash flow may be insufficient to meet our required principal and interest payments; and
•we may be unable to obtain additional loans as a result of covenants and agreements with existing debt holders.
The Company’s existing debt agreements contain a number of significant covenants which may limit our ability to, among other things, borrow additional money, make capital expenditures, pay dividends, dispose of assets and acquire new businesses. These covenants also require the Company to meet certain financial tests. A default or other event of non-compliance, if not waived or otherwise permitted by the Company’s lenders, could result in acceleration of the Company’s debt and possibly bankruptcy.
The Company may be unable to negotiate extensions of our credit agreements and to obtain additional debt or equity financing when needed.
Our future capital requirements will depend on the amount of cash generated or required by our current operations, as well as additional funds which may be needed to finance future acquisitions. Future cash needs are subject to substantial uncertainty.
Adequate funds may not be available when needed, and if we do not receive sufficient capital, we may be required to alter or reduce the scope of our operations or to forego making future acquisitions. If we raise additional funds by issuing equity securities, existing stockholders may be diluted.
If we fail to maintain an effective system of internal controls, we may not be able to accurately and timely report our financial results, which could negatively impact our business, investor confidence, and the price of our common stock.
We previously identified material weaknesses in our internal control over financial reporting in 2017 and 2018, which were remediated in 2021. However, we may identify additional material weaknesses in our internal control over financial reporting in the future. If we are unable to maintain effective internal control over financial reporting or disclosure controls and procedures in the future, our ability to record, process, and report financial information accurately and to prepare financial statements within required time periods could be adversely affected, which could subject us to litigation, investigations, or penalties; negatively affect our liquidity, our access to capital markets, our ability to maintain compliance with covenants, any of which may require substantial time, expense and management resources to remediate, or cause our stock price to decline.
The Company’s business is affected by the cyclical nature of its markets.
A substantial portion of our Lifting Equipment business's revenues are attributed to a limited number of customers which may decrease or cease purchasing any time, since the Company’s products depend 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. Downward economic cycles may result in reductions in sales of the Company’s products, which may reduce the Company’s profits.
A large portion of the Company’s revenues are attributed to a limited number of customers which may decrease or cease purchasing any time.
The Company’s revenues from its Lifting Equipment business are largely attributed to a limited number of customers. We generally do not have long-term supply agreements with our customers. Even if a multi-year contract exists, the customer is not required to commit to minimum purchases and can cease purchasing at any time. Our Rental Equipment business’s rental agreements with commercial and
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consumer customers are also on a short-term basis. If we were to lose either a significant customer or several smaller customers our operating results and cash flows would be adversely impacted.
The Company’s business is sensitive to increases in interest rates.
The Company is exposed to interest rate volatility with regard to its existing variable rate debt, which exposure could increase if the Company incurs additional variable rate debt in the future. If interest rates rise, it becomes more costly for the Company to borrow money and costlier for our customers to pay for the equipment they buy from the Company, which could result in a reduction of product sales or profit margins and adversely affect our financial results.
Our increasingly international operations expose us to additional risks and challenges associated with conducting business internationally.
The international expansion of our business may expose us to risks inherent in conducting foreign operations. These risks include:
•challenges associated with managing geographically diverse operations, which require an effective organizational structure and appropriate business processes, procedures and controls;
•the increased cost of doing business in foreign jurisdictions, including compliance with international and U.S. laws and regulations that apply to our international operations;
•currency exchange and interest rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions, if we continue to do so in the future;
•cash requirements to finance business growth;
•potentially adverse tax consequences;
•complexities and difficulties in obtaining protection and enforcing our intellectual property;
•compliance with additional regulations and government authorities in a highly regulated business;
•general economic and political conditions internationally; and
•public health concerns, including the ongoing COVID-19 pandemic.
Additionally, changes to the United States participation in, withdrawal from, renegotiation of certain international trade agreements or other major trade related issues including the non-renewal of expiring favorable tariffs granted to developing countries, tariff quotas, and retaliatory tariffs, trade sanctions, new or onerous trade restrictions, embargoes and other stringent government controls could have a material adverse effect on our business, results of operations and financial condition.
The reporting currency for our consolidated financial statements is the U.S. Dollar. Certain of our assets, liabilities, expenses, revenues, and earnings are denominated in other countries' currencies, including the Euro, Chilean Peso, and Argentinean Peso. Those assets, liabilities, expenses, revenues and earnings are translated into U.S. Dollars at the applicable exchange rates to prepare our consolidated financial statements. Therefore, increases or decreases in exchange rates between the U.S. Dollar and those other currencies affect the value of those items as reflected in our consolidated financial statements, even if their value remains unchanged in their original currency.
In connection with the ongoing war between Russia and Ukraine, the U.S. government has imposed enhanced export controls on certain products and sanctions on certain industry sectors and parties in Russia. The Company is not accepting orders from Russia at this time. This region does not represent a material portion of our international operations, and we do not rely on any material goods from suppliers in the region. However, the fluidity and continuation of the conflict may result in additional economic sanctions and other impacts which could have a negative impact on the Company’s financial condition, results of operations and cash flows. These include decreased sales, supply chain, increases to European energy costs and logistics disruptions; volatility in foreign exchange rates and interest rates; inflationary pressures on raw materials and energy and heightened cybersecurity threats.
The risks that the Company faces in its international operations may continue to intensify if the Company further develops and expands its international operations.
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The Company may face limitations on its ability to integrate acquired businesses and manage anticipated growth and may be unable to effectively respond to technological change and implementing new systems.
The successful integration of new business depends on the Company’s ability to manage these new businesses and cut excess costs. The Company cannot ensure that these acquired companies will operate profitably or that the intended beneficial effect from these acquisitions will be realized.
If the Company fails to manage growth, the Company’s financial results and business prospects may be harmed. To manage the Company’s growth and to execute its business plan efficiently, the Company will need to institute, maintain and continue to improve operational, financial and management controls, as well as reporting systems and procedures. The Company also must effectively expand, train and manage its employee base. The Company may not be successful in any of these endeavors.
The markets served by the Company are not historically characterized by rapidly changing technology. Nevertheless, the Company’s future success will depend in part upon the Company’s ability to enhance its current products and to develop and introduce new products and successfully operate and grow its Equipment Rental business. If the Company fails to anticipate or respond adequately to competitors' product improvements and new product introductions, future results of operations and financial condition will be negatively affected.
Some of our customers rely on financing with third parties to purchase our products.
Our Lifting Equipment business relies on sales of our products to generate cash from operations. Significant portions of our sales are financed by third-party finance companies on behalf of our customers. The availability and terms of financing by third parties are affected by general economic conditions, credit worthiness of our customers and estimated residual value of our equipment. Deterioration in credit quality of our customers or estimated residual value of our equipment, increases in interest rates or changes in the terms of third-party financing agreements could negatively impact the ability or willingness of our customers to obtain resources they need to purchase our equipment. There can be no assurance that third-party finance companies will continue to extend credit to our customers.
The Company operates in a highly competitive industry and the Company is particularly subject to the risks of such competition.
The Company competes in a highly competitive industry and the competition which the Company encounters has an effect on its product prices, market share, revenues and profitability. Because certain competitors have substantially greater financial, production, research and development resources and substantially greater name recognition than the Company, the Company is particularly subject to the risks inherent in competing with them and may be put at a competitive disadvantage. To compete successfully, the Company’s products must excel in terms of quality, price, product line, ease of use, safety and comfort, and the Company must also provide excellent customer service. The greater financial resources of the Company’s competitors may put it at a competitive disadvantage. If competition in the Company’s industry intensifies or if the Company’s current competitors enhance their products or lower their prices for competing products, the Company may lose sales or be required to lower its prices. This may reduce revenue from the Company’s products and services, lower its gross margins or cause the Company to lose market share. The Company may not be able to differentiate its products from those of competitors, successfully develop or introduce less costly products, offer better performance than competitors or offer purchasers of our products payment and other commercial terms as favorable as those offered by competitors.
The Company is dependent upon third-party suppliers, making us vulnerable to supply shortages.
The Company obtains materials and manufactured components from third-party suppliers. Any delay in the ability of the Company’s suppliers to provide the Company with necessary materials and components may affect the Company’s capabilities at a number of its manufacturing locations, or may require the Company to seek alternative supply sources. Delays in obtaining supplies may result from a number of factors affecting the Company’s suppliers' including capacity constraints, labor disputes, the impaired financial condition of a particular supplier, suppliers' allocations to other purchasers, difficulties in obtaining raw materials, shipping delays or disruptions, public health emergencies, weather emergencies or acts of war or terrorism. Any delay in receiving supplies could impair the Company’s ability to deliver products to its customers and, accordingly, could have a material adverse effect on business, results of operations and financial condition.
In addition, the Company purchases materials and services from suppliers on extended terms based on the Company’s overall credit rating. Negative changes in the Company’s credit rating may impact suppliers' willingness to extend terms and increase the cash requirements of the business.
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Price increases in materials could reduce our profitability.
We use large amounts of steel and other items in the manufacture of our products. In the past, market prices of some of our key raw materials increased significantly. If we experience future significant increases in material costs, including steel, we may not be able to reduce product cost in other areas or pass raw material price increases on to our customers and our margins could be adversely affected. The cost of material and manufactured components has increased due to inflation and has a direct affect to our business and outlook.
The Company faces product liability claims and other liabilities due to the nature of its business.
In the Company’s lines of business numerous suits have been filed alleging damages for accidents that have occurred during the use or operation of the Company’s products. The Company is self-insured, up to certain limits, for these product liability exposures, as well as for certain exposures related to general, worker's compensation and automobile liability. Insurance coverage is obtained for catastrophic losses as well as those risks required to be insured by law or contract. Any material liabilities not covered by insurance could have an adverse effect on the Company’s financial condition.
The Company’s success depends upon the continued protection of its trademarks and the Company may be forced to incur substantial costs to maintain, defend, protect and enforce its intellectual property rights.
The Company’s registered and common law trademarks, as well as certain of the Company’s licensed trademarks, have significant value and are instrumental to the Company’s ability to market its products. The Company’s trademarks “Manitex”, “Valla”, “PM” and “Oil and Steel ” are important to the Company’s business as the majority of the Company’s products are sold (or services are provided) under those names. The Company has not registered all of its trademarks in the United States nor in the foreign countries where it does business. Third parties could assert claims against such intellectual property that the Company could be unable to successfully resolve. If the Company has to change the names of any of its products, it may experience a loss of goodwill associated with its brand names, customer confusion and a loss of sales.
In addition, international protection of the Company’s intellectual property may not be available in some foreign countries to the same extent permitted by the laws of the United States. The Company could also incur substantial costs to defend legal actions relating to use of its intellectual property, which could have a material adverse effect on the Company’s business, results of operations or financial condition.
The Company may be unable to access the capital markets to raise funds and provide liquidity when needed.
Our access to capital markets to raise funds through the sale of equity or debt securities is subject to various factors, including general economic and/or financial market conditions which are outside our control, as well as our historical and expected future financial performance and perceived credit worthiness. Significant changes in market liquidity conditions or our actual or perceived financial condition could impact access to funding and associated funding costs, which could reduce our earnings and cash flows.
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Compliance with changing laws and regulations may increase our costs or reduce our business flexibility.
Our operations are subject to a number of potential risks. Such risks principally include:
•trade protection measures and currency exchange controls;
•global and regional economic conditions;
•terrorist activities and the U.S. and international response thereto;
•restrictions on the transfer of funds into or out of a country;
•export duties and quotas;
•domestic and foreign customs and tariffs;
•current and changing regulatory environments;
•difficulties protecting our intellectual property;
•transportation delays and interruptions;
•difficulty in obtaining distribution support;
•current and changing tax laws.
The Company must comply with all applicable laws, including the Foreign Corrupt Practices Act (“FCPA”) and other laws that prohibit engaging in corruption for the purpose of obtaining or retaining business. These anti-corruption laws prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence government officials or private individuals for the purpose of obtaining or retaining a business advantage regardless of whether those practices are legal or culturally expected in a particular jurisdiction. Our global activities and distribution model are subject to risk of corruption by our employees and in addition, our sales agents, distributors, dealers and other third parties that transact Manitex business may be subject to a higher risk of corruption because these parties are generally not subject to our control.
If Rabern is unable to collect on its rental contracts with customers, our operating results could be adversely affected.
One of the reasons some of Rabern’s customers find it more attractive to rent equipment than own that equipment is the need to deploy their capital elsewhere. This has been particularly true in industries with recent high growth rates such as the construction industry. However, some of Rabern’s customers may have liquidity issues and ultimately may not be able to fulfill the terms of their rental agreements with Rabern. If Rabern is unable to manage credit risk issues adequately, or if a large number of customers have financial difficulties at the same time, Rabern’s allowance for credit losses could increase and our operating results for the Rental Equipment segment would be adversely affected. Further, a worsening of economic conditions would be expected to result in increased delinquencies and credit losses.
If Rabern’s rental fleet ages, its operating costs may increase, it may be unable to pass along such costs, and our earnings from the Rental Equipment segment may decrease. The costs of new equipment Rabern uses in its fleet have increased, and may continue to increase, requiring Rabern to spend more for replacement equipment or preventing Rabern from procuring equipment on a timely basis.
If Rabern’s rental equipment ages, the costs of maintaining such equipment, if not replaced within a certain period of time, will likely increase. The costs of maintenance may materially increase in the future and could lead to material adverse effects on our results of operations.
The cost of new equipment for use in Rabern’s rental fleet has increased, and could continue to increase in the future, due to increased material costs from its suppliers (including tariffs on raw materials) or other factors beyond its control. Such increases could materially adversely impact the rental equipment segment’s financial condition and results of operations in future periods. Furthermore, changes in customer demand could cause certain of Rabern’s existing equipment to become obsolete and require Rabern to purchase new equipment at increased costs.
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Rabern’s rental fleet is subject to residual value risk upon disposition, and may not sell at the prices or in the quantities we expect.
The market value of any given piece of rental equipment could be less than its depreciated value at the time it is sold. The market value of used rental equipment depends on several factors, including:
•the market price for new equipment of a like kind;
•wear and tear on the equipment relative to its age and the performance of preventive maintenance;
•the time of year that it is sold;
•the supply of used equipment on the market;
•the existence and capacities of different sales outlets;
•the age of the equipment at the time it is sold;
•worldwide and domestic demand for used equipment; and
•general economic conditions.
Our rental equipment segment includes in income from operations the difference between the sales price and the depreciated value of an item of equipment sold. Changes in our assumptions regarding depreciation could change the rental equipment segment’s depreciation expense, as well as the gain or loss realized upon disposal of equipment. Sales of Rabern’s used rental equipment at prices that fall significantly below our projections and/or in lesser quantities than we anticipate will have a negative impact on the Rental Equipment segment’s results of operations and cash flows.
The Company depends on its information technology systems. If its information technology systems do not perform in a satisfactory manner or if the security of them is breached, it could be disruptive and or adversely affect the operations and results of operations of the Company.
The Company depends on its information technology systems, some of which are managed by third parties, to process, transmit and store electronic information (including sensitive data such as confidential business information and personally identifiable data relating to employees, customers and other business partners), and to manage or support a variety of critical business processes and activities. If our information technology systems do not perform in a satisfactory manner, it could be disruptive and or adversely affect the operations and results of operations of the Company, including the ability of the Company to report accurate and timely financial results.
Furthermore, our information technology systems may be damaged, disrupted or shut down due to attacks by computer hackers, computer viruses, employee error or malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes or other unforeseen events, and in any such circumstances our system redundancy and other disaster recovery planning may be ineffective or inadequate. A failure of or breach in information technology security could expose us and our customers, distributors and suppliers to risks of misuse of information or systems, the compromise of confidential information, manipulation and destruction of data, defective products, production downtime and operations disruptions. In addition, such breaches in security could result in litigation, regulatory action and potential liability, as well as the costs and operational consequences of implementing further data protection measures, each of which could have a material adverse effect on our business or results of operations.
The Company relies on key management.
The Company relies on the management and leadership skills of Michael Coffey, its Chief Executive Officer. Although Mr. Coffey entered into an employment agreement with the Company commencing on April 11, 2022, his employment is at will, and may be terminated by either party at any time, with or without cause. The loss of his services could have a significant and negative impact on the Company’s business. In addition, the Company relies on the management and leadership skills of other senior executives. The Company could be harmed by the loss of key personnel in the future.
The Company may be required to record goodwill, other intangibles and fixed assets impairment charges on all or a significant amount of the goodwill, other intangibles and fixed assets on its Consolidated Balance Sheets.
The Company reviews goodwill, long-lived assets, including property and identifiable amortizing intangible assets, for impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable. As of December 31, 2022, the Company had no impairment charges to goodwill, other intangibles and fixed assets. As of December 31, 2021, the Company recognized approximately $2.1 million of impairment charges in goodwill, other intangibles and fixed assets. Although the Company believes its estimates and assumptions relating to the carrying value of these assets are reasonable and reflect market conditions forecast at the assessment date, any changes to these assumptions and estimates due to market conditions or otherwise may lead to an outcome where
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impairment charges would be required in future periods. An impairment of a significant portion of goodwill, intangible assets or fixed assets could materially and negatively affect the Company’s results of operations.
The Company’s principal shareholders, executive officers and directors hold a significant percentage of the Company’s common stock, and these shareholders may take actions that may be adverse to your interests.
The Company’s principal shareholders, executive officers and directors beneficially own, in the aggregate approximately 40% of the Company’s common stock as of January 17, 2023. As a result, these shareholders, acting together, will be able to significantly influence all matters requiring shareholder approval, including the election and removal of directors and approval of significant corporate transactions such as mergers, consolidations, sales and purchases of assets. They also could dictate the management of the Company’s business and affairs. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control or impeding a merger or consolidation, takeover or other business combination, even if smaller shareholders support such a transaction, which could cause the market price of our common stock to fall or prevent smaller shareholders from receiving a premium in such a transaction.
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Provisions of the Michigan Business Corporation Act and the Company’s Articles of Incorporation and Amended and Restated Bylaws may discourage or prevent a takeover of the Company.
Provisions of the Company’s Articles of Incorporation and Amended and Restated Bylaws and Michigan law could make it more difficult for a third-party to acquire the Company, even if doing so would be perceived to be beneficial to you. These provisions could discourage potential takeover attempts and could adversely affect the market price of the Company’s shares. Because of these provisions, you might not be able to receive a premium on your investment. These provisions:
•authorize the Company’s Board of Directors, with approval by a majority of its independent directors but without requiring shareholder consent, to issue shares of “blank check” preferred stock that could be issued by the Company’s Board of Directors to significantly dilute the ownership percentage of existing shareholders and prevent a takeover attempt;
•limit our shareholders' ability to call a special meeting of the Company’s shareholders;
•limit the Company’s shareholders' ability to amend, alter or repeal the Company bylaws; and
•restrict business combinations with certain shareholders.
The provisions described above could prevent, delay or defer a change in control of the Company or its management.
General Risk Factors
The trading price of our common stock is highly volatile.
The trading price of the Company’s common stock is highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond the Company’s control, including:
•the degree to which the Company successfully implements its business strategy;
•actual or anticipated variations in quarterly or annual operating results;
•changes in recommendations by the investment community or in their estimates of the Company’s revenues or operating results;
•failure to meet expectations of industry analysts;
•speculation in the press or investment community;
•strategic actions by the Company’s competitors;
•announcements of technological innovations or new products by the Company or its competitors;
•changes in business conditions affecting the Company and its customers; and
•potential to be delisted.
In the past, following periods of volatility in the market price of a company’s securities, class action litigation has often been brought against companies. If a securities class action suit is filed against us, whether or not meritorious, we would incur substantial legal fees and our management’s attention and resources would be diverted from operating our business in order to respond to the litigation.