MANITOWOC CO INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, including the financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations therein, and the interim condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q. All dollar amounts are in millions throughout the tables included in Management’s Discussion and Analysis of Financial Condition and Results of Operations unless otherwise indicated. Cautionary Statements Regarding Forward-Looking Information All of the statements in this Quarterly Report on Form 10-Q, other than historical facts, are forward-looking statements, including, without limitation, the statements made in the “Management's Discussion and Analysis of Financial Condition and Results of Operations.” As a general matter, forward-looking statements are those focused upon anticipated events or trends, expectations and beliefs relating to matters that are not historical in nature. The words “could,” “should,” “may,” “feel,” “anticipate,” “aim,” “preliminary,” “expect,” “believe,” “estimate,” “intend,” “intent,” “plan,” “will,” “foresee,” “project,” “forecast,” or the negative thereof or variations thereon, and similar expressions identify forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for these forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that forward-looking statements are subject to known and unknown risks, uncertainties and other factors relating to the Company’s operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company. These known and unknown risks, uncertainties and other factors could cause actual results to differ materially from those matters expressed in, anticipated by or implied by such forward-looking statements. These risks, uncertainties, and other factors include, but are not limited to: • Macroeconomic conditions, including inflation, elevated interest rates, and tariffs, as well as prior supply chain, labor and logistics constraints, have had, and may continue to have, a negative impact on Manitowoc’s ability to convert backlog into revenue which could, and has, impacted its financial condition, cash flows, and results of operations (including future uncertain impacts); • actions of competitors; • changes in economic or industry conditions generally or in the markets served by Manitowoc, including tariffs; • geopolitical events, including the ongoing conflicts in Ukraine and in the Middle East, tariffs, other political and economic conditions and risks and other geographic factors, has had and may continue to lead to market disruptions, including volatility in commodity prices (including oil and gas), raw material and component costs, energy prices, inflation, consumer behavior, supply chain, and credit and capital markets, and could result in the impairment of assets; • changes in customer demand, including changes in global demand for high-capacity lifting equipment, changes in demand for lifting equipment in emerging economies and changes in demand for used lifting equipment including changes in government approval and funding of projects; • the ability to convert backlog, orders, and order activity into sales and the timing of those sales; • adverse changes to trade policy, including export duties, tariffs, import controls and trade barriers (including quotas); • the ability to focus on customers, new technologies, and innovation; • uncertainties associated with new product introductions, the successful development and market acceptance of new and innovative products that drive growth; • failure to comply with regulatory requirements related to the products and aftermarket services the Company sells; • the ability to capitalize on key strategic opportunities and the ability to implement Manitowoc’s long-term initiatives; • the ability of Manitowoc's customers to receive financing; • risks associated with high debt leverage; • impairment of goodwill and/or intangible assets; • changes in revenues, margins and costs; 21 • the ability to increase operational efficiencies across Manitowoc and to capitalize on those efficiencies; • the ability to generate cash and manage working capital consistent with Manitowoc’s stated goals; • work stoppages, labor negotiations, labor rates, and labor costs; • the Company’s ability to attract and retain qualified personnel; • changes in the capital and financial markets; • the ability to complete and appropriately integrate acquisitions, strategic alliances, joint ventures or other significant transactions; • issues associated with the availability and viability of suppliers; • the ability to significantly improve profitability; • realization of anticipated earnings enhancements, cost savings, strategic options and other synergies, and the anticipated timing to realize those savings, synergies and options; • the replacement cycle of technologically obsolete products; • foreign currency fluctuation and its impact on reported results; • risks associated with data security and technological systems and protections; • the ability to direct resources to those areas that will deliver the highest returns; • risks associated with manufacturing or design defects; • natural disasters, other weather events, pandemics and other public health crises disrupting commerce in one or more regions of the world; • issues relating to the ability to timely and effectively execute on manufacturing strategies, general efficiencies, and capacity utilization of the Company’s facilities; • the ability to focus and capitalize on product and service quality and reliability; • issues associated with the quality of materials, components and products sourced from third parties and the ability to successfully resolve those issues; • changes in laws throughout the world, including governmental regulations on climate change; • the inability to defend against potential infringement claims on intellectual property rights; • the ability to sell products and services through distributors and other third parties; • issues affecting the effective tax rate for the year; • acts of terrorism; and • other risk factors detailed in Manitowoc's 2024 Annual Report on Form 10-K, as such may be amended or supplemented in Manitowoc’s subsequently filed Quarterly Reports on 10-Q (including this report), and its other filings with the United States Securities and Exchange Commission. These statements reflect the current views and assumptions of management with respect to future events. Except to the extent required by the federal securities laws, the Company does not undertake, and hereby disclaims, any duty to update these forward-looking statements, even though its situation and circumstances may change in the future. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report. The inclusion of any statement in this report does not constitute an admission by the Company or any other person that the events or circumstances described in such statement are material. Current Events As disclosed in Part I, Item 1A: Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, the company’s business is subject to risks related to, among other factors, tariffs and other trade protection measures put in place by the United States or other countries, as well as U.S. international trade relations, including those with China and the European Union. 22 Starting in early 2025, the United States government announced reciprocal tariffs on imported goods from numerous countries. In response, certain foreign governments imposed tariffs on imported American goods. The United States government shortly thereafter declared a 90-day suspension of reciprocal tariffs and implemented a 10% tariff on all imports, except for those from China, which are subject to a higher tariff. Approximately 50% of the Company’s total net sales are generated in the United States. While most products are manufactured domestically, tariffs may affect demand, raise product costs, or disrupt the supply chain. Considerable uncertainty regarding the final resolution of tariffs remain, however, the Company is assessing the impact and what measures can be taken to mitigate their effects. Orders and Backlog Orders and backlog are not measures defined by accounting principles generally accepted in the United States of America ("GAAP") and our methodology for determining orders and backlog may vary from the methodology used by other companies. Management uses orders and backlog for capacity and resource planning. The Company believes this information is useful to investors to provide an indication of future revenues. Backlog represents the dollar value of orders which are expected to be recognized in net sales in the future. Orders are included in backlog when an executed binding contract with a price that has a floor has been received but has not been recognized in net sales. Orders for the three months ended March 31, 2025 increased 10.1% to $610.3 million from $554.1 million for the same period in 2024. The increase was primarily attributable to higher demand in the Americas segment and tower product offerings in the EURAF segment. Orders were unfavorably impacted by $5.9 million from changes in foreign currency exchange rates. As of March 31, 2025, total backlog was $797.8 million, a 22.7% increase from the December 31, 2024 backlog of $650.2 million, and a 17.9% decrease from the March 31, 2024 backlog of $971.3 million. Backlog was favorably impacted by $9.3 million and $0.4 million from December 31, 2024 and March 31, 2024, respectively, from changes in foreign currency exchange rates. Results of Operations for the three months ended March 31, 2025 and 2024: Three Months Ended March 31, 2025 2024 Percentage Change Net sales $ 470.9 $ 495.1 (4.9 )% Gross profit 89.8 92.5 (2.9 )% Gross profit % 19.1 % 18.7 % Engineering, selling, and administrative expenses 82.9 76.0 9.1 % Interest expense 8.7 9.2 (5.4 )% Provision (benefit) for income taxes (2.5 ) 1.9 * *Measure not meaningful Net Sales Consolidated net sales for the three months ended March 31, 2025 decreased 4.9% to $470.9 million from $495.1 million for the same period in 2024. This decrease was primarily attributable to $39.6 million of lower new machine sales in all segments as a result of product mix. This was partially offset by $15.4 million of higher non-new machine sales primarily in the Americas and EURAF segments. Net sales were unfavorably impacted by $5.7 million from changes in foreign currency exchange rates. Gross Profit Gross profit for the three months ended March 31, 2025 decreased 2.9% to $89.8 million from $92.5 million for the same period in 2024. This decrease was primarily due to lower net sales and lower absorbed costs due to lower manufacturing volume in the Americas segment, partially offset by favorable product mix. Gross profit was unfavorably impacted by $1.1 million from changes in foreign currency exchange rates. 23 Gross profit percentage increased in the three months ended March 31, 2025 to 19.1% from 18.7% for the same period in 2024. This increase was primarily due to favorable product mix, partially offset by lower absorbed costs due to lower manufacturing volume in the Americas segment. Engineering, Selling, and Administrative Expenses Engineering, selling, and administrative expenses for the three months ended March 31, 2025 increased 9.1% to $82.9 million from $76.0 million for the same period in 2024. The increase was primarily due to costs for the triennial bauma trade show, higher professional services fees, and higher new product development costs. Engineering, selling, and administrative expenses were favorably impacted by $1.4 million from changes in foreign currency exchange rates. Interest Expense Interest expense for the three months ended March 31, 2025 decreased 5.4% to $8.7 million from $9.2 million for the same period in 2024. The decrease was primarily due to lower average debt and lower interest rates on borrowings from the Company’s ABL revolving credit facility. Provision (benefit) for Income Taxes For the three months ended March 31, 2025 and 2024, the Company recorded a benefit for income taxes of $2.5 million and a provision for income taxes of $1.9 million, respectively. Changes to jurisdictional mix and a year-to-date loss before income taxes resulted in a benefit for income taxes for the three months ended March 31, 2025 as compared to the prior year’s provision for income taxes. In addition, the Company’s effective tax rate varies from the U.S. federal statutory rate of 21% due to results of foreign operations that are subject to income taxes at different statutory rates and losses in certain jurisdictions where no tax benefit can be realized. Segment Operating Performance The Company manages its business primarily on a geographic basis. The Company has three reportable segments: the Americas segment, EURAF segment, and MEAP segment. Further information regarding the Company’s reportable segments can be found in Note 17, “Segments,” to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. Three Months Ended March 31, 2025 2024 Dollar Change Percentage Change Net Sales Americas $ 259.3 $ 283.2 $ (23.9 ) (8.4 )% EURAF 145.6 143.0 2.6 1.8 % MEAP 66.0 68.9 (2.9 ) (4.2 )% Segment Operating Income (Loss) Americas $ 17.7 $ 29.5 $ (11.8 ) (40.0 )% EURAF (11.3 ) (11.8 ) 0.5 (4.2 )% MEAP 11.4 8.2 3.2 39.0 % *Measure not meaningful Americas Americas segment net sales decreased 8.4% for the three months ended March 31, 2025 to $259.3 million from $283.2 million for the same period in 2024. The decrease was primarily attributable to $31.2 million of lower new machine sales, partially offset by $7.5 million of higher non-new machine sales. Americas segment operating income decreased 40.0% for the three months ended March 31, 2025 to $17.7 million from $29.5 million for the same period in 2024. The decrease was primarily due to lower net sales, lower absorbed costs due to lower manufacturing volume, and higher engineering, selling, and administrative expenses. 24 EURAF EURAF segment net sales increased 1.8% for the three months ended March 31, 2025 to $145.6 million from $143.0 million for the same period in 2024. The increase was primarily due to higher tower crane sales and $10.2 million of higher non-new machine sales mainly from higher used crane sales. This was partially offset by $7.7 million of lower new machine sales, mainly due to a lower number of mobile crane shipments. Segment net sales were unfavorably impacted by $3.2 million from changes in foreign currency exchange rates. EURAF segment operating loss remained relatively flat at $11.3 million for the three months ended March 31, 2025 as compared to $11.8 million for the same period in 2024. Segment operating income was favorably impacted by $0.4 million from changes in foreign currency exchange rates. MEAP MEAP segment net sales remained relatively flat at $66.0 million for the three months ended March 31, 2025 as compared to $68.9 million for the same period in 2024. Segment net sales were unfavorably impacted by $2.2 million from changes in foreign currency exchange rates. MEAP segment operating income increased 39.0% for the three months ended March 31, 2025 to $11.4 million from $8.2 million for the same period in 2024. The increase was primarily due to higher absorbed costs. Segment operating income was unfavorably impacted by $0.4 million from changes in foreign currency exchange rates. Financial Condition Cash Flows A summary of cash flows for the three months ended March 31, 2025 and 2024 are as follows: Three Months Ended March 31, 2025 2024 Net cash provided by (used for) operating activities $ 12.9 $ (30.6 ) Net cash used for investing activities (23.6 ) (12.0 ) Net cash provided by financing activities 3.2 40.2 Cash and cash equivalents 41.4 31.5 C ash Flows From Operating Activities Net cash provided by operating activities of $12.9 million for the three months ended March 31, 2025 increased $43.5 million from net cash used for operating activities of $30.6 million for the same period in 2024. This increase in net cash provided by operating activities was primarily due to $55.2 million of lower cash use from changes in operating assets and liabilities. The lower cash use was primarily due to $23.1 million of lower cash outflows for inventory, $21.8 million of additional cash provided by accounts payable, accrued expenses, and other liabilities, and $11.7 million of additional cash provided by accounts receivable when compared to the prior year. This was partially offset by lower net income (loss) adjusted for non-cash items. Cash Flows From Investing Activities Net cash used for investing activities of $23.6 million for the three months ended March 31, 2025 increased $11.6 million from $12.0 million for the same period in 2024. The increase in net cash used for investing activities was primarily due to $12.9 million of cash outflows related to the purchase of certain assets and territory from Ring Power Corporation. Cash Flows From Financing Activities Net cash provided by financing activities of $3.2 million for the three months ended March 31, 2025 decreased $37.0 million from $40.2 million for the same period in 2024. The decrease in net cash provided by financing activities was primarily driven by $15.0 million of payments on the revolving credit facility in the current year and $25.8 million of lower proceeds from other debt - net when compared to the prior year. This is partially offset by $3.9 million of additional proceeds from the revolving credit facility when compared to the prior year. 25 Liquidity and Capital Resources The Company’s liquidity position as of March 31, 2025 and December 31, 2024 is summarized as follows: March 31, 2025 December 31, 2024 Cash and cash equivalents $ 41.4 $ 48.0 Revolver borrowing capacity 325.0 325.0 Other debt availability 44.2 42.4 Less: Borrowings on revolver (83.3 ) (79.0 ) Less: Borrowings on other debt (16.8 ) (12.1 ) Less: Outstanding letters of credit (3.4 ) (3.4 ) Total liquidity $ 307.1 $ 320.9 The Company believes its liquidity and expected cash flows from operations are sufficient to meet expected working capital, capital expenditure, and other general ongoing operational needs in the subsequent twelve months. Cash Sources The Company has historically relied primarily on cash flows from operations, borrowings under revolving credit facilities, issuances of notes and other forms of debt financing as its sources of cash. The maximum availability under the Company’s current ABL Revolving Credit Facility is $325.0 million, of which $100.0 million is available to our German subsidiary. The borrowing capacity under the ABL Revolving Credit Facility is based on the value of inventory, accounts receivable, and certain fixed assets of the Loan Parties. The Loan Parties’ obligations under the ABL Revolving Credit Facility are secured on a first-priority basis, subject to certain exceptions and permitted liens, by substantially all of the personal property and fee-owned real property of the Loan Parties. The liens securing the ABL Revolving Credit Facility are senior in priority to the second-priority liens securing the obligations under the 2031 Notes and the related guarantees. The ABL Revolving Credit Facility has a maturity date of September 18, 2029, and includes a $75.0 million letter of credit sub-facility, $10.0 million of which is available to the Company's German subsidiary that is a borrower under this facility. In addition to the ABL Revolving Credit Facility, the Company has access to committed and non-committed lines of credit to fund working capital in Europe and China. There are six facilities, of which five facilities are denominated in Euros totaling €37.0 million and one facility denominated in Chinese Yuan totaling ¥30.0 million. Total U.S. dollar availability as of March 31, 2025 for the six overdraft facilities is $44.2 million, with $16.8 million outstanding. Debt Outstanding debt as of March 31, 2025 and December 31, 2024 is summarized as follows: March 31, 2025 December 31, 2024 Borrowing under senior secured asset based revolving credit facility $ 83.3 $ 79.0 Senior secured second lien notes due 2031 300.0 300.0 Other debt 20.7 16.4 Deferred financing costs (5.0 ) (5.2 ) Total debt 399.0 390.2 Short-term borrowings and current portion of long-term debt (17.6 ) (13.1 ) Long-term debt $ 381.4 $ 377.1 Both the ABL Revolving Credit Facility and 2031 Notes include customary covenants and events of default. Refer to Note 11, “Debt,” to the Condensed Consolidated Financial Statements for additional discussions of the covenants for the ABL Revolving Credit Facility and the 2031 Notes. As of March 31, 2025, the Company was in compliance with all affirmative and negative covenants in its debt instruments, inclusive of the financial covenants pertaining to the ABL Revolving Credit Facility and 2031 Notes. Based upon management’s current plans and outlook, the Company believes it will be able to comply with these covenants during the subsequent twelve months. From time to time, the Company seeks to opportunistically raise capital in the debt capital markets and bank credit markets. 26 Non-GAAP Measures The Company uses EBITDA, adjusted EBITDA, adjusted operating income, Adjusted ROIC, and free cash flows, which are financial measures that are not prepared in accordance with GAAP, as additional metrics to evaluate the Company’s performance. The Company believes these non-GAAP measures provide important supplemental information to readers regarding business trends that can be used in evaluating its results because these financial measures provide a consistent method of comparing financial performance and are commonly used by investors to assess performance. These non-GAAP financial measures should be considered together with, and are not substitutes for, the GAAP financial information provided herein. Adjusted ROIC Adjusted ROIC measures how efficiently the Company uses invested capital in its operations. Adjusted ROIC is not a measure defined by GAAP and the Company’s methodology for determining Adjusted ROIC may vary from the methodology used by other companies. Management and the Board of Directors use Adjusted ROIC as a measure to assess operational performance and capital allocation. The Company believes this information is useful to investors as it provides a measure of value creation as a percentage of capital invested. Adjusted ROIC is determined by dividing adjusted net operating profit after tax (“Adjusted NOPAT”) for the trailing twelve-months ended by the five-quarter average of invested capital. Adjusted NOPAT is calculated by taking operating income plus the addback of amortization of intangible assets and the addback or subtraction of restructuring expenses, other non-recurring items - net, and provision for income taxes, which is determined using a 15% tax rate. Invested capital is defined as net total assets less cash and cash equivalents and income tax assets - net plus short-term and long-term debt. Income taxes are defined as income tax payables/receivables, net deferred tax assets/liabilities, and uncertain tax positions. The Company’s Adjusted ROIC as of March 31, 2025 was 5.1%. Below is the calculation of Adjusted ROIC as of March 31, 2025. Three Months Ended March 31, 2025 December 31, 2024 September 30, 2024 June 30, 2024 Trailing Twelve Months Operating income $ 5.3 $ 16.2 $ 7.5 $ 12.9 $ 41.9 Amortization of intangible assets 0.8 0.7 0.7 0.8 3.0 Restructuring expense 0.8 1.2 0.5 2.3 4.8 Other non-recurring items - net (1) — 1.0 2.6 5.4 9.0 Adjusted operating income 6.9 19.1 11.3 21.4 58.7 Provision for income taxes at 15% (1.0 ) (2.9 ) (1.7 ) (3.2 ) (8.8 ) Adjusted NOPAT $ 5.9 $ 16.2 $ 9.6 $ 18.2 $ 49.9 March 31, 2025 December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 5-Quarter Average Total assets $ 1,763.8 $ 1,660.0 $ 1,776.7 $ 1,747.9 $ 1,780.6 1,745.8 Total liabilities (1,112.2 ) (1,019.9 ) (1,169.1 ) (1,155.6 ) (1,184.6 ) (1,128.3 ) Net total assets 651.6 640.1 607.6 592.3 596.0 617.5 Cash and cash equivalents (41.4 ) (48.0 ) (22.9 ) (38.1 ) (31.5 ) (36.4 ) Short-term borrowings and current portion of long-term debt 17.6 13.1 40.5 21.4 42.5 27.0 Long-term debt 381.4 377.1 426.7 406.3 372.7 392.8 Income tax assets - net (69.4 ) (66.9 ) (10.1 ) (4.4 ) (3.4 ) (30.8 ) Invested capital $ 939.8 $ 915.4 $ 1,041.8 $ 977.5 $ 976.3 $ 970.2 Adjusted ROIC 5.1 % (1) Other non-recurring items – net for the trailing twelve months relate to $8.9 million of costs associated with a legal matter with the U.S. EPA and $0.1 million of one-time costs. Refer to the Company’s previously filed Form 10-K and Form 10-Qs for a description of other non-recurring items - net for the three months ended December 31, 2024, September 30, 2024, and June 30, 2024. EBITDA and Adjusted EBITDA 27 The Company defines EBITDA as net income (loss) before interest, taxes, depreciation, and amortization. The Company defines adjusted EBITDA as EBITDA plus the addback or subtraction of restructuring expense, other income (expense) - net, and certain other non-recurring items. The reconciliation of net income (loss) to EBITDA and further to adjusted EBITDA for the three months ended March 31, 2025 and 2024, is summarized as follows: Three Months Ended March 31, Trailing Twelve 2025 2024 Months Net income (loss) $ (6.3 ) $ 4.5 $ 45.0 Interest expense and amortization of deferred financing fees 9.1 9.5 39.3 Provision (benefit) for income taxes (2.5 ) 1.9 (48.5 ) Depreciation expense 14.8 14.7 60.1 Amortization of intangible assets 0.8 0.7 3.0 EBITDA 15.9 31.3 98.9 Restructuring expense 0.8 0.6 4.8 Other non-recurring items - net (1) — 0.1 9.0 Other (income) expense - net (2) 5.0 (0.7 ) 6.1 Adjusted EBITDA $ 21.7 $ 31.3 $ 118.8 Adjusted EBITDA margin percentage 4.6 % 6.3 % 5.5 % (1) Other non-recurring items - net for the three months ended March 31, 2024 relate to $0.1 million of one-time costs. Other non-recurring items - net for the trailing twelve months relate to $8.9 million of costs associated with a legal matter with the U.S. EPA and $0.1 million of one-time costs. (2) Other (income) expense - net includes net foreign currency gains (losses), other components of net periodic pension costs, and other items in the three and trailing twelve months ended March 31, 2025 and the three months ended March 31, 2024. Free Cash Flows Free cash flows is defined as net cash provided by (used for) operating activities less cash outflow from investment in capital expenditures. The reconciliation of net cash provided by (used for) operating activities to free cash flows for the three months ended March 31, 2025 and 2024 are summarized as follows: Three Months Ended March 31, 2025 2024 Net cash provided by (used for) operating activities $ 12.9 $ (30.6 ) Capital expenditures (10.8 ) (12.2 ) Free cash flows $ 2.1 $ (42.8 ) Critical Accounting Policies The Company’s critical accounting policies have not materially changed since the 2024 Annual Report on Form 10-K was filed. Refer to the Critical Accounting Policies in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Annual Report on Form 10-K for the year ended December 31, 2024 for information about the Company’s policies, methodology and assumptions related to critical accounting policies. Item 3. Quantitative and Qualita tive Disclosure about Market Risk The Company’s market risk disclosures have not materially changed since the 2024 Annual Report on Form 10-K was filed. The Company’s quantitative and qualitative disclosures about market risk are incorporated by reference from Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. 28