Ladies and gentlemen, welcome to the Hyster-Yale Materials Handling 2023 First Quarter's Earnings Call. My name is Glen, and I'll be the moderator for today's call. [Operator Instructions]. I will now hand you over to your host, Christina Kmetko, to begin. Christi, please go ahead.

Thank you. Good morning, everyone and thanks for joining us today. Welcome to our 2023 first quarter earnings call. I'm Christina Kmetko, and I'm responsible for Investor Relations at Hyster-Yale. Joining me on today's call are Al Rankin, Chairman and Chief Executive Officer; Rajiv Prasad, President; and Scott Minder, our Senior Vice President, Chief Financial Officer and Treasurer. Yesterday evening, we published our first quarter 2023 results and filed our 10-Q, both of which are available on our website. Today's call is being recorded and webcast. The webcast will be on our website later this afternoon and available for approximately 12 months. Our remarks that follow, including answers to your questions, contain forward-looking statements. These statements are subject to several risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today. These risks include, among others, matters that we've described in our earnings release issued last night and in our 10-Q and other filings with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. With the formalities out of the way, I'll turn the call over to Rajiv.

Thanks, Christi and good morning, everyone. I'll start by providing the operational perspective and some color commentary on our market. Scott would follow with detailed financial results and outlook, and I will close the call with a strategic perspective and take us into Q&A. We had a very strong first quarter. I mentioned on our last quarterly call that we expected to build on our fourth quarter 2022's momentum, and we did. In fact, we did better than we expected in the first quarter. While Scott will cover the financial details, I'll share some highlights from my perspective. Revenue and consolidated operating profit increased very significantly over 2022's first quarter results. Our first quarter profits were driven by improving product margins from more favorable material costs and a strong mix of products and parts. These positive changes more than offset the negative impact from unfavorable currency movements and ongoing supply chain constraints. Third-party component shortages and related production impacts remain a headwind, but have moderated compared to prior year. Our first quarter unit shipments increased more than 5% from first quarter 2022, primarily as a result of fewer component shortages. However, our factories experienced multiple production setbacks due to ongoing skilled labor availability issues, particularly in the Americas, coupled with shortages of specific components primarily in Europe. These challenges resulted in our plants falling short of the planned production rate increased targets. Looking ahead, we are planning for an improving production cadence in the Americas, but labor challenges could alter those plans. In Europe, specific component supply constraints and to a lesser extent labor challenges, are likely to negatively impact their production rates in the second quarter. As these issues abate, we expect production and shipment rates to increase rapidly. For the full year 2023, we anticipate very strong production…

Thanks, Rajiv. I'll start with high-level comments on our consolidated financial results and then add some additional perspective on our three businesses. In the first quarter, we reported consolidated revenues of nearly $1 billion. This was an increase of 21% or $172 million over the prior year. This growth was driven by a 22% increase in Lift Truck sales, significantly outpacing the 5% shipment growth rate over the same period. Compared to the fourth quarter, revenues increased modestly despite lower shipments. This increase was largely due to higher prices and added parts volumes. Bookings increased nearly 7% sequentially, topping 22,000 units, but were below the 25,200 units shipped in the first quarter 2023. As a result, our backlog dropped by 13% to 99,200 units at the end of the first quarter 2023. This compared to historically high prior year levels, versus year-end 2022, our backlog decreased by 3%. Moving to earnings, the company reported a consolidated operating profit of roughly $43 million for the first quarter. This compares to an operating loss of $18 million in the first quarter of 2022. We earned a net income of $26.6 million for the first quarter versus a net loss of $25 million in the prior year. On a per share basis, first quarter 2023 earnings were $1.55 versus an earnings loss of $1.48 in the prior year. Now let's take a deeper look at the financial results by business. Lift Truck generated an operating profit of $47.8 million in the first quarter on sales of nearly $980 million. This better-than-expected performance resulted in a 5% operating profit margin. This compared to an operating loss of $10.7 million in the prior year. The substantial improvement was largely due to price increases that exceeded material and freight inflation in the quarter. This positive first…

As you heard from Rajiv and Scott, we had a strong start to the year, and we're making progress operationally and financially. Our first quarter earnings reflect the improving profit quality of our robust backlog, and we continue to have solid bookings despite softening market conditions. Looking forward, we're nearing completion of the build-out of lower priced, lower margin backlog units held over from prior periods. We expect continued margin expansion, particularly in EMEA as we move through our backlog, and we expect a substantial 2023 profitability. However, I would add a word of caution. While the year started strong and we've maintained our positive full year outlook, there continue to be uncertainties in some areas. Those include particularly fragile EMEA supply chains, the potential for more stubborn cost inflation than expected, especially for labor and the possibility of cost increases for some critical components. Overall, we're proceeding carefully for the remainder of 2023 and are thinking about our profitability expectations in that context. Scott mentioned our liquidity situation and I'd like to add my perspective on that as well. We're laser-focused on increasing our cash flows and maintaining adequate liquidity with ongoing action plans to improve future results. Our efforts to reduce inventory and generate cash are progressing, albeit at a slower pace than we'd like. However, they are expected to show substantial progress in the second half of this year as production rates increase. Inventory levels do remain elevated due to manufacturing inefficiencies caused by component shortages, largely in prior periods. We're making significant efforts to maximize the use of on-hand inventory, coupled with purchasing materials at rates below our expected production rates. Results from these actions are evident in the declining material and component inventory that Scott mentioned. However, as noted earlier, overall inventory levels are still…

Thank you. [Operator Instructions]. We have our first question comes from Steve Ferazani from Sidoti.

Good morning everyone. Appreciate all the detail on the call. Obviously, very, very strong quarter. Trying to think through this, given that you noted there was a significant portion of older priced backlog that ran through this quarter. When we think about supply chain constraints easing, and theoretically quarterly volumes pick up and your margins should be better per unit, what's the reason -- and I understand caution, but what's the reason this wouldn't be the least profitable quarter of the year given that you have at least nine months of backlog still sitting there at least?

Well, I think the one major item we called out in the release, particularly with the shift to lower margin channels, we have certain kinds of -- we have some very different customer basis. We have large customers, we have dealers and others. And we have to be thoughtful about the mix that's generated. Some of those larger customers have large volumes but somewhat lower margins. And so that's a factor in our thinking here. But generally speaking, we're very optimistic about our ability to increase volume over the course of the year. You have to recognize, of course, that the third quarter is always a seasonally weak quarter. And I think that we just see a perspective on the full year, as I indicated, where we want to be careful and thoughtful. And I would also add that there are some projects that we need to undertake that have been deferred. And so we'll be thinking very carefully about some of those investments in our strategic programs as we move forward over the rest of the year. So it isn't kind of a mechanical equation that just gets generated from the volumes and others. There are a number of things that come to bear on it. Rajiv, do you want to add anything to that?

Sure. Steve, I think the way to think about it is we're still having to prioritize what we build based on the components we can get. And it's just -- as it happens this quarter, we were able -- or the previous quarter, we were able to build a fairly rich mix, both from a channel point of view, but also geographically. And I think that's going to moderate a little bit more to our normal situation in the second quarter. And so that's why we've kind of given this guidance. Now again, that's our plan. What we're -- actually execute again is this external factor of the components we can get. So...

I would add, however, that there is one area that is moving in our favor for sure. And that is that -- in EMEA, that is Europe broadly defined. We have had a lot of low margin backlog units that we produced in the first quarter. And that will be -- I think we indicated that in the earnings release. And so we expect to see a positive trajectory in our margin structure in Europe. So there are a lot of factors that come to bear on the equation that you're describing. But overall, we think it's a very solid story going forward.

Great, appreciate the color. Obviously, it makes sense that backlog is coming down, you're picking up volume and the economic conditions are what they are. I guess the question -- the concern would be, and it looks like we can see it in the numbers. It looks like the backlog has remained very sticky, right, that would be the risk if people had to start canceling older orders. You're not seeing that yet, correct?

No, we're not seeing cancellations. In fact, there are very, very low rates of cancellation.

And then the…

No. I think the...

in Americas?

I'd just add that, I think we described pretty clearly that our bookings have been more robust than we were expecting a quarter ago. So our backlog has come down somewhat less. In addition, we probably shipped some number, fewer trucks, particularly those that were left in shipping that we described than we might have anticipated for the first quarter. So those are all factors that come to bear in the equation as well.

And how is pricing, it looks like overall backlog ASP is up sequentially, it was down a little bit, but it looks like you had at least one big order in the Americas?

I think pricing is steady. I think you can see sequentially we went up a little bit but I think we're in where we want to be from a pricing point of view.

I would also add that some of our prices went up more rapidly than perhaps some of our competitors who are located in different geographies. And now those supply chain prices, our costs are beginning to moderate. And we feel that, that puts us in a good position to -- as our backlogs come back to our target levels, to really be highly competitive in the marketplace and return to the kinds of market share positions that we had earlier. We have clearly been careful about the orders that we're taking because we can't satisfy our customers' demands and needs with -- if the backlogs -- it's already tough where the backlogs are now. And if we push them out further, that's not going to be a good, it's not going to be well received by our customers and our dealers. So we, if you will, are kind of careful to manage the backlog as best we can. And I think the important thing is that we want the backlog to come down, but at the same time, we don't want it to erode too fast and we want to get through any period of market weakness. And I think an important point is that our backlogs now are extending in a number of lines well into 2024, second quarter, even third quarter of 2024 in certain situations. So by that time, if there's weakness in the marketplace and a significant downturn, particularly in North America, we think the backlog gives us the time to weather that and then be in a stronger position. So we're kind of taking all those factors into account as we book new units and -- but we're going to be ready when we get to target backlog levels, particularly in the context of our expected lower cost to be very competitive in the marketplace in terms of getting our fair share historically of the market.

Great, very helpful. If I could just squeeze one more in, in terms of -- Al, I know you provided useful detail on cash flow. Clearly, Scott, you mentioned the issue with inventory this quarter. Going forward, it's not hard even with higher CAPEX to model cash conversion around the 100% and significant cash flow, am I crazy thinking that? And then would the cash be used to repay debt?

Scott, why don't you take a crack at that?

Yes, sure. Yes, Steve, I think, generally speaking, you're heading in the right direction. We do see inventory coming down maybe not as fast as we like. So might want to temper that expectation just a little bit. And the second part of that question, what would we do with excess free cash flow? I think the first priority would be debt reduction. I think we've noted a fairly high debt balance that we'd like to reduce and Rajiv also mentioned about funding growth initiatives for the future to make sure we can get to those margins and maintain them with new products. I think those are the two priorities, and we maintain that pretty consistent shareholder return policy in there as well.

I think the other thing I'd add is that -- and we made this point in the earnings release and in our comments is that, our manufacturing component inventory, raw materials and components did come down in the first quarter. That's very significant because that's the area where we really have to get the inventory that is on-hand in line with what we need in order to produce on a consistent rate day in and day out. We had an uptick in some areas of finished goods inventory, but those trucks are not finished goods inventory of the type that is not sold and sitting there ready to be sold. Those are all trucks that have been sold and are waiting for either shipment and installation and then the billing of those trucks or some other sort of mechanical process. It delays the actual conversion cycle of those into cash. Some customers have longer payment terms than other customers, that's a factor. But generally speaking, the area where we really want to ensure that there's consistent progress in inventory is in the component parts, and the others will work themselves out. I think -- and the risk profile was extremely low on those because they're in terms of excess, they're not problems. They're just waiting to be turned into cash.

Appreciate it, thanks.

Thank you Steve. We have our next question comes from Chip Moore from EF Hutton. Chip, your line is now open.

Good morning, thanks for taking the question. I wanted to ask about the 7% operating profit goal for the Lift Truck business. You hit 5% this quarter. So obviously it looks a lot closer than it did at this time last year. Just given your commentary around built-in demand and visibility and -- as well as the rollout of strategic initiatives underway, is there a way to think about maybe a potential time line on that goal and stickiness when you get there, I don't know, maybe some type of scenario analysis depending on what we see happen to global demand here in the future?

We're hopeful that in the quarters that lay ahead, particularly towards the end of the year, that we're going to progress significantly toward our 7% level. But as I indicated earlier, we have to be careful with that because we do have some deferred expenditures that we needed to make. And one of the complications in the short-term about achieving 7% is that the way to some degree, the way we're doing that is by having somewhat lower gross profits than our targets, compensated for by lower operating expense than our targets. That's been a constraint we've had in place during the COVID period. But many of those expenditures will need to be made up and eventually in due course. And as we've described, the adjusted standard margins of our products are improving and will improve over the rest of the year. But we also -- and from our vantage point, as we think about target economics, we need to continue to move up the volume production scale, and as we go into 2024, even into 2025, have the ability with our suppliers to produce at higher levels and to keep the bookings coming line by line in a way that will support that. So that's our challenge as we look forward. And I think as you think about the 7%, you should think about it a little bit in those terms. But we do see progress and I think the key is that the pieces of the equation are coming into line, but we do need to enhance the throughput volume as we can bring our supply base along and continue to book trucks. Do you want to add anything to that, Rajiv?

Sure Chip, I mean I think the second part of your question was how do you make it sticky? And that's where our strategic initiatives come into play. As Al said, we're a little bit -- we prioritized the critical ones through the pandemic period, but there are some key ones that will -- are critical to enabling us to make that 7% sticky. And those will be executed over the next three years or so. So I think a combination of the things that Al talked about and the implementation of these projects are key to sustaining that 7%.

That’s very helpful Al and Rajiv, appreciate it. And maybe if I could ask one on electrification, [Technical Difficulty] fuel cell adoption. More so, I guess, customer-centric, what you're seeing out there, how those conversations have evolved, it feels like commercialization is getting much closer for some of those legacy internal combustion products, but just curious what you're seeing from the customer side?

Sure. We are seeing a high level of interest, especially in the segment that Al talked about, these heavy-duty applications where really battery by itself isn't going to be able to fulfill the application needs. A good example of that is port equipment, but there are others such as transit buses, kind of power generation, especially backup power generation. And we're also starting to see more traction in marine and locomotive, and Nuvera is engaged with customers globally in those segments. We feel those segments are going to be the early movers. We -- I think we've laid out, we've got vehicles going into test programs with critical customers. And the ones that are running right now have had very positive feedback. So we're excited about the results that we're getting as well as the growing amount of interest from customers that Nuvera has seen.

Yes, let me just emphasize that last point of that, because I think Nuvera is, first, getting a lot more visibility of its capabilities through these demonstrations, through its outreach efforts to potential customers. And I would say from my perspective that the last, say four, five months have seen a level of inquiry in various different market segments, which is a significant enhancement over what we've seen in the past. And I guess, inquiry isn't quite the right word. It goes beyond that. It's actual discussions of potential applications, the development of demos, a whole variety of things. But as we see things internally, we're just seeing not just the effort that the Nuvera people are making, but it's now going well beyond that, and the traction from those efforts is starting to show up in a much more regular basis. So I think as we said, we feel that we have follow-on bookings coming that there's -- they're gaining momentum. And we are very hopeful that, that momentum will just increase as we go through the course of this year and begin to establish a solid base, particularly in these industries or applications that just can't get the job done with batteries only. They have to have a fuel cell in order to be electrified as a practical matter.

Great, that’s very helpful color. I will hop back in queue. Thanks.

Thank you. [Operator Instructions]. Our next question comes from Brett Kearney from Gabelli and company. Brett, your line is now open.

Hi guys, good morning. Thanks for taking my question. I want to follow up on the Nuvera momentum. It sounds like you guys have identified a new market opportunity in this potentially stationary backup power application. I guess, can you just discuss the genesis of that, how that's kind of come about? And I noticed you also called out opportunities to expand Nuvera's presence in EMEA and China, just kind of what applications that is, is that the China bus market opportunity or specific applications you're seeing there?

Sure. So in terms of the traction Nuvera is getting on stationary power, it's really coming from -- the initial inquiries really came from data centers. A number of data center operators would like to shift away from ICE engine as the back up to some sort of a zero emission solution, and we think this is a good way to do it. The other area that we're getting interest is interestingly enough for charging electric vehicles. So these are both static and mobile chargers that can be used in fleet application where you have electric fleets because if electricity supply is a limit for fast charging, then the way to support that is have this stationary power that's used to charge electric vehicles. So a fuel cell is really being used as chargers for electric vehicles. So those two are big ones. Now in terms of China and Europe, where they're interested, Europe I would say, is widespread interest. Because you can imagine with the Ukraine-Russia conflict, there's real focus in Europe on ensuring that they have alternative energy solutions for the medium to long term. And there's projects to explore application of fuel cells almost in each of the primary segments, and Nuvera is engaged in a number of those projects. In China, it's predominantly buses and trucks.

Yes. Let me add one comment on the electric -- the generators. If you think about an application in a vehicle, especially vehicles that are internal combustion engine, it is a complex and long process to redesign, to drivetrain -- to an electric drivetrain system and then to test the fuel cell vehicles and applications as we're doing in Los Angeles and Valencia and other places in Europe. The cycle time on a generator is a lot low. That's a product that doesn't have to get integrated with the drivetrain. Rajiv mentioned the applications, it seemed most prevalent. But I think there's a backdrop of real interest in hydrogen, but also a realization that we'd like to do it quickly, but we can't in many applications. It takes time, and its hard work. And there's a lot of other technology than just the fuel cell involved. The generator doesn't -- is a little different. And if you're a company that wants to demonstrate that they're making progress on being green and to begin to compare costs and drive cost down in hydrogen generation and fuel cells, if you're located in the right place with good hydrogens -- adequate hydrogen supply, you can make a commitment. Particularly Rajiv mentioned the data center backup. Yes, these are big companies that are in that business, and they want to be seen as green many times. So I think that's perhaps an important and useful distinction because, obviously, from our point of view we are searching for applications that we think have near-term potential, and that's one reason why we're focusing on these heavy-duty applications that we went through because the batteries alone just won't get them done. If you look at the automobile industry on the other side, from our vantage point, that's kind of way down the track in terms of adoption, because batteries alone can't do that job. There are a lot of other factors that come into the batteries in terms of how they're recharged and so on and so forth. But I think that, that gives you perhaps a little bit broader perspective on our efforts to find the nearest term significant volume opportunities in the marketplace if we can.

Yes, so it is very helpful. And then I just had one follow-up more broadly on China. I believe the domestic market there, small exposure for you guys. But can you just -- I guess, remind me or help me think about either between your JV in Japan as well as through the Maximal acquisition, I guess, exposure to the China Lift Truck market and your outlook that you're seeing for demand in that region of the world?

Well, I think it's a very small -- we are a very small part of that market. And our focus in that market is going to evolve into larger trucks that are electrified. So that's where the team is focused, to help the heavy industries in China transition over to electrified Lift Truck solutions.

I think the other factor that lies behind Rajiv's comments is that a very large portion of the existing large China market is really a very, very low cost, low performance vehicle. It's not an area where we think we can be competitive in the long term. It's not a focus of our efforts. We want to add more value for the customer’s application and productivity. We want to be there as the Chinese market matures for sure, but there are large portions of it where, frankly, we don't think a lot of money is being made on those vehicles by anybody.

Yes. I mean we want to stay really focused on our brand promises, which is to really understand the customers' application and give them an optimal solution. But most customers in China are not ready for that. They just want a truck at the lowest possible cost. But now we're starting to see these heavy industries such as paper, steel, lumber, automotive, who are now increasingly focused on productivity, emission. So those are the customers that we're starting to heavily interact with.

And keep in mind, too, that Bolzoni is very much involved in the Chinese market. Bolzoni has two plants in China and they have -- are able to offer their attachments. And I think we hope increasingly in conjunction with our vehicles over time so that we're in a good position to provide customer solutions. I mean, that's the ultimate customer solution, it is not just a forklift truck, but a forklift truck and an attachment that gets a very specialized job done. And so we think there's a lot of potential there in these applications that are sort of moving toward world-class sophistication or at least higher sophistication than they're currently at.

Excellent, that’s very helpful. Thank you so much.

Thank you Brett. We have no more further questions on the line.

Okay. With that, we'll conclude our Q&A session, and we'll close with a few final reminders. A replay of our call will be available online later this morning. We'll also post a transcript on the Investor Relations website when it becomes available. And if you have any questions, please reach out to me. You can reach me at the phone number on the press release. I hope you enjoy the rest of your day, and I'll turn the call back to Glen to conclude the call.

Thank you. If you have missed any part of this call or would like to hear again, a recording will be ready shortly. Thank you for joining today's call. Have a lovely day.