Manitex International, Inc. (NASDAQ:MNTX) Q3 2020 Earnings Conference Call November 5, 2020 8:30 AM ET
Steve Filipov – Chief Executive Officer
Joe Doolan – Chief Financial Officer
Steve Kiefer – President and Chief Operating Officer
Conference Call Participants
Mike Schilsky – Colliers Securities
Thank you for standing by. This is the conference operator. Welcome to the Manitex International, Inc. Third Quarter 2020 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Steve Filipov, Chief Executive Officer. Please go ahead.
Thank you, operator. Good morning, ladies and gentlemen, and thank you for your continued interest in Manitex International. I hope everyone is safe and healthy and appreciate everyone taking the time to listen to our call. Today on the call with me, we have Joe Doolan, our new CFO; and Steve Kiefer, our President and COO. Please see our website or our release for replay instructions for this call, which will be available until November 12, 2020. Moving past Slide 2, which is our safe harbor statement and remind you that everything we discuss is subject to change and described in our SEC filings for further guidance on the many risk factors associated with our company.
I will begin with a business update for our third quarter, followed by operating commentary for North America from Steve and Joe will present a financial summary, after which we will welcome your questions. So please, now let’s begin on Slide 3. Let me start by welcoming Joe Doolan to our team. I’m excited to have Joe on board. He is an exceptional professional and has a proven track record as a leader in financial reporting, planning and analysis and has made a positive impact on balance sheet management and expense controls wherever he has been. I would also like to thank Ruoru Yu, our former CFO, for her support over the past 12 months. The team and I wish her all the best in her future endeavors.
Now let me start with the COVID-19 update. We are doing everything we can to protect our global teams by making sure our facilities are safe, clean and maintaining our health protocols. The situation is changing daily, and we will adapt as needed and continue to remain vigilant by protecting the well-being of our employees, their families and our customers. We executed the quarter in line with our expectations and showed significant progress in many areas from the second quarter of this year. And most importantly, our adjusted EBITDA made a positive swing of $1.3 million.
We will continue to position our business for a recovery. Our PM business remains a bright spot for us, and with a growing backlog, we are now ramping up production for Q4 deliveries. Our Valla zero-emission industrial crane portfolio continues to make traction in a market looking to move to more environmentally friendly products. The significant order we booked in the quarter will help set the foundations for a significantly better 2021 of this business. In the current challenging and changing market of today, we must continue to bring new and innovative products to the market and access new markets for our products. You will hear more from Steve about several new products we launched in the quarter.
Turning to our financial performance. By taking the necessary cost reduction actions in our North American business and by improving our margins in our knuckle boom and aerial products in Europe. Our operating results improved in the third quarter. Joe will cover more of his – of the detail in his commentary. Our backlog is growing again, and although this is mainly in Europe, we have seen positive signs of improvement in North America over the past few weeks. Our balance sheet remains in good shape. We continue to look at opportunities to reduce our debt. And in the quarter, we paid down over $5 million in Italian debt at a 15% discount.
We will continue to look for these opportunities and with our solid balance sheet, we are confident in our ability to make our upcoming debt obligations. Our facilities are managing through the pandemic, and for now, everyone is up and running globally. We have had some sporadic shutdowns in Latin America, but we are hopeful that our operations will continue to progress forward in the fourth quarter and beyond. With the improved visibility to orders and backlog, we are ramping up our production at our three facilities in Italy for knuckle booms, aerials and industrial cranes.
Please turn to Slide 4. This quarter was led once again by our European businesses and our U.S. operations made good progress in getting back to profitability, though we still have work to do. As is common in Europe, in August, we had a seasonal two-week planned shutdown in Italy. While we did not ship products, we did work on our facilities to reorganize our production lines, improve our safety protocols and make some necessary quality improvements on the shop floor.
PM knuckle booms are gaining share in several European markets as in France, Italy and the UK, and we also see growth in North America. Our partnership with Tadano is working well, and we are looking to further expand in 2021 at Southeast Asia, stabilizes as dealers work through their inventory. Our oil and steel truck-mounted aerial team is doing a fantastic job in expanding into new markets and even with the current pandemic, revenues are up close to 40% over last year. We were also awarded a tender for a utility project in Asia, along with another tender for a European utility company in Q3.
The team is working hard to ramp up to meet demand to pursue additional efficiencies in production and always focused on manufacturing – lead manufacturing processes. Now let me turn it over to Steve to discuss our third quarter initiatives in North America and outlook for the rest of the year. Steve, please go ahead.
Thank you, Steve. While operating in a challenging economic environment, our first key priority during the quarter was the safety and well-being of our employees. We maintained compliance with the changing health and safety codes at each of the facilities that we operate. And we are fortunate and glad to report that we have had only a small handful of COVID-19 incidents with no fatalities. Other key priorities during the quarter and beyond that we worked towards, included improving our gross margin and EBITDA, driving product improvement, continuing to prudently invest in and launch important new products at each of our businesses and strengthening our balance sheet.
As end market demand for our straight mast cranes reach what we believe to be trough levels, we completed a $5.2 million restructuring plan at our Georgetown, Texas, and Winona, Minnesota facilities in July. The plan included $3.7 million in headcount reductions and $1.5 million in other annualized savings with total severance-related costs being less than $100,000. Turning to our key product categories. Sales of PM products in North America increased approximately 160% versus the same quarter last year. We previously announced that our knuckle boom cranes are marketed under the MAC brand in North America, which stands for Manitex Articulated Crane.
We were pleased to add two new dealers to our growing MAC distribution network. The first was Keystone Synergy in Dallas, Texas, and the second was Atlantic and Southern with branches in Georgia, Tennessee and Alabama. Another significant development during the quarter was being awarded a $2.5 million purchase order from an international military customer. We were pleased to receive this repeat order, and we anticipate additional orders for this product to be placed before the end of 2020. Regarding our Manitex-branded straight mast crane business, industry orders for straight mast cranes were up sequentially 45% versus the second quarter.
However, year-to-date order levels remain at lows we have not seen in a decade. As such, we continue to expect industry shipments for this year to be down 25% to 30% versus 2019. Going forward, our straight mast crane business is the leader in this space and is well positioned for the eventual economic recovery. Thanks to our multiyear diversification strategy our products currently serve an array of end markets, with most of those end markets supporting essential and critical infrastructure needs. In particular, approximately 45% of our revenue is generated from the telecom, electrical utility, infrastructure, military and government sectors. This is becoming an increasingly important segment for us, particularly with the growth in maintaining and upgrading both the electrical grid and telecom networks.
While our products are well suited to energy development field work as well, we are not currently not reliant on this sector, with less than 10% of our backlog headed to the energy fields. A significant example of our increased participation in the utility sector is the launch of the TC450U with U standing for utility. This crane was announced during the third quarter and is well suited for the unique needs of electrical utilities and their subcontractors. The first crane we produced is shown in the photo below all the way at the right.
This crane was sold during the third quarter, and we are currently taking orders for the first half of next year. Additionally, on Monday of this week, we announced the 65-ton boom truck, which features the longest boom in its category and is targeted for various utility and infrastructure applications. Furthermore, even through this downturn, we continue new product development investment in our straight mast crane business and other businesses to support our 2021 product plans. As we move through the rest of 2020, our top priorities are maintaining a sharp focus on our health and safety measures, meeting the needs of our customers and dealers, continuing to generate positive cash flow from our operations, ongoing cost reduction and continuing to strengthen our balance sheet. Now let me turn it over to Joe to discuss the financials in more detail. Joe?
Thanks, Steve. Good morning, everyone. Thank you for joining the call today. I’m Joe Doolan, and I’m excited to be here, and I certainly appreciate your participating in today’s call, and I will try to make my comments brief and to the point. First, I’d like to start by mentioning that during Q3, the company sold the Sabre industrial tank business for cash proceeds of $1.6 million, generating a gain on the sale of approximately $400,00. We have the ability to recognize additional proceeds from earn-outs should Sabre achieve certain sales targets in the upcoming few years.
The Sabre results are included in discontinued operations in the company’s financial statements, but our results that we must will exclude Sabre and thus, my following remarks, will discuss changes in results from continuing operations versus Q2 2020, which we believe is most meaningful in the current environment. With that, please turn to Slides 5 and 6 for discussion of the Q3 financials and operating results. Our revenues for the quarter were $36.5 million, a decline of 1.7% compared to the $37.1 million in the second quarter of 2020.
The decline was driven mainly by lower sales of Manitex straight mast cranes, as we continue to experience market softness in North America, driven by the COVID-19 outbreak, partially offset by increases at PM, which have shown good signs of turnaround, as Steve and Steve have noted. Our third quarter 2020 loss from continuing operations was $1.4 million, an improvement from the second quarter loss of $2.4 million. The loss per share was $0.07 for Q3, representing a $0.05 per share improvement over Q2.
The adjusted net loss was $1 million or $0.05 loss per share compared to a loss of $1.7 million or $0.08 per share in Q2. The improvement was driven primarily by higher gross margin driven by the cost reduction initiatives. Adjusted EBITDA improved to a positive $900,000 from a negative $300,000 in Q2. Our backlog was approximately $51 million as of September 30, 2020. And as you’ll note in the press release, we saw orders in October that took our backlog to $56 million, a 28% increase compared to June 30. This increase is driven by our PM business, which represents over 50% of the current backlog. Also contributing to the backlog increase were new orders received at Valla in Q3 and new orders received at Manitex in the month of October.
Our gross margin was 18.3%, an increase from the 14.9% for the second quarter. The increased gross margin is primarily due to cost reduction activities at Manitex, primarily related to headcount reductions and lower cost of production supplies as well as decreases on the sale of straight mast cranes, which generally have a lower margin than knuckle booms.
Cost reduction initiatives have resulted in $300,000 of cost savings in recurring SG&A expense in Q3 compared to Q2. As we expect the North America equipment markets to remain a headwind to our straight mast boom crane business, our management team has taken actions necessary to further reduce costs to preserve margins. Additional restructuring actions were taken in July and include headcount reductions in the North American crane business in material and other cost reductions. We expect these initiatives will deliver additional annualized saves of over $5 million.
Actual cost savings realized in Q3 were approximately $1.1 million. Total restructuring and related costs were less than $100,000. We believe that these cost reduction actions will strengthen our gross margins and reduce SG&A expenses even further. Now moving to Slide 7 for a discussion of net debt for Q3. Our net debt was approximately $35 million at quarter end, which is consistent with Q2. In July, the company paid down the PM Italian debt by approximately $5.5 million at a 15% discount to its face value. This results in annualized savings on interest expense of approximately $200,000.
At the end of the third quarter, the company had available liquidity of approximately $41 million, including approximately $24 million of cash. Revolver availability at September 30, 2020, was $17 million with an outstanding balance of $5 million. The outstanding revolver balance of $3.5 million lower than Q2 as cash we used to reduce outstanding draws on the revolver. The company has two convertible notes, of which $7.5 million will mature on December 2019 this year, and the remaining $8 million will mature on January 2020. We have a $2 million annual repayment on our Italian term debt at the end of this year as well.
The team is confident that the company will have the liquidity through cash and other credit lines open to meet each of these obligations and any others that are scheduled over the next 12 months. We remain in compliance with all debt covenants. With that, I will now turn the call back over to Steve.
Thank you, Steve and Joe. Please turn to Slide 8 to discuss our outlook for the next quarter. We all realize the importance of safety and that we need to make sure every team member comes to work in a safe environment and returns to their families safely. Although we have been fortunate to have had only a few team members infected by the virus, it only takes one case to shut down a facility which is why we are continuing to find new ways to keep our teams safe. In a similar effort to keep moving forward and grow our business, we must continue to invest in new product development as our pipeline to new customers and new markets. We will continue to keep our focus on the long-term and bring new products and innovation to our customers, while dealing with the current challenges of our markets.
It is extremely difficult to put a reliable forecast going past the next few months. But as you have seen, we have made excellent progress on building out our backlog. This growth gives me and the team confidence that we can grow our business in Q4 to deliver $40 million to $43 million in revenues and continue to pursue margin expansion with the cost reductions we have executed earlier this year. This obviously requires our facilities that are able to keep producing and delivering products and services to our customers. We still have more opportunity to generate cash through our inventory reductions and our focus in Q4 we’ll be able to work down our finished goods inventory.
As you all know, we have two upcoming debt payments. And with the efforts we have made to generate cash during the past 12 months, plus the opportunity to close out the year with these inventory reductions, we are planning to execute these payments in the fourth quarter of 2020 and the first quarter of 2021. I would like to finish by thanking our global teams for all the hard work they are doing in these uncertain and challenging times. Without their commitment and leadership, we would not be able to make the progress we have made so far. I would also like to thank the many loyal customers we have for their efforts to help us improve and grow our business as partners for the long term. We have a great future ahead of us, and we will continue to make progress by executing our strategy as a specialized lifting and access solutions business. I will stop there, and thank you for your time and attention today, and I’ll ask the operator so please start the Q&A session of the call.
[Operator Instructions] And our first question is from the line of Mike Schilsky with Colliers Securities. Please go ahead.
Good morning, guys. So guys, let me start with maybe just the mix of PM cranes here. It sounds like that’s certainly growing a lot faster than we’re seeing in straight mast at the moment, and the backlog shifting towards PM is also helpful. Can you just give us a sense, does that mean that the mix here is going to be shifting to a higher-margin mix in Q4 and probably a few quarters after that at the very least? And will that difference in margin do you think be appreciably higher or just slightly higher?
Yes. Thanks for the question, Mike. I mean as you see now, as you just said, the knuckle boom business is the larger part of Manitex today, which is what we’ve been working on. And we’ve said really for the past 12 months, that, that’s a growth engine for the company. We feel really good about the business, and it represents over 50 – a little bit over 50% of the revenue today for the company. As you said also the backlog today is over 50% in the knuckle booms, and I think that will be a consistent trend into 2021. And as we’ve said before, the gross margins in the business are better than the cyclical business.
So yes, you should see a trend to higher gross margins. And I think you saw some of that in Q2 and Q3, right? We showed the 340 basis points of gross margin increase. Some of that was driven by cost reductions that we’ve taken out in North America. But obviously, the portfolio now represents a higher knuckle boom business, and you’re seeing some of that. So I think short answer to your question is, yes, you should see improved margins over time.
Thank you for that. I wanted to turn to the restructuring. If – there is something you did them on two continents. You’ve got the U.S. restructuring, which sounds like you said about $5 million of total annualized savings. And the run rate was almost there in the third quarter here. So it sounds like that might be a good run rate going forward that you’ll get the full $5 million annualized from this point forward. I – but I wanted to turn to what you mentioned about some of the changes you made in Italy during that summer shutdown. Is there any appreciable margin impact from those actions? And are they going to be happening in the fourth quarter or going forward? Or is there any kind of delay or more to do there on that program?
Yes, Mike. So I’ll turn it over to Steve to talk about North America, but just in Europe, I mean, we haven’t done any major restructuring since really last year. So really, what we’re doing is getting ramped up, right? As I mentioned in my prepared remarks, we’ve got a backlog that’s growing. We’re 29% above where we were in Q2 on knuckle booms or on the Italian businesses. We’re up 17% year-over-year. So obviously, now we’re looking at ramping up the business. So I don’t think this is a case of really restructuring in Europe, it’s more case of ramping up. And as I mentioned in Q4, we’ll probably see the PM knuckle business back to the pre-COVID run rate from a revenue perspective.
So I think that’s a positive sign that the knuckle boom business has been pretty resilient even through a difficult a difficult time. And then on the North American restructuring, the only thing I would mention is remember that we executed that in late July. So the effects that we’ve gotten so far are really only a couple of months. And obviously, we didn’t spend a lot of money to do that. So I think the returns are definitely good in North America with the restructuring that we did. But Steve, do you want to answer or Joe, just chime in on the restructuring and maybe the run rate restructuring you see going forward?
Sure, Steve. Mike, so the restructuring work in North America didn’t affect our manufacturing footprint. So as you know, with Manitex, Mike, our operations in North America are very scalable, and we’re primarily focused on assembly. So most of the headcount reductions were in the direct and indirect labor areas. And I do want to emphasize that it was focused on the Manitex straight mast cranes. That – due to the growing activity that we’ve experienced for the MAC brand in North America, we’ve added some people this year in North America for assembling those products.
And we did not make any reductions there because we’ve got – all our slots were filled up in the third quarter and going into the fourth quarter for MAC. In the Winona, Minnesota facility, we do both industrial or some smaller rough terrain cranes and we do the Manitex – some of the Manitex boom trucks. And there, again, we did make some reductions, Mike, that we affected by the end of July in the straight mast crane area. At the same time, we’ve – if you look in the financials and in the Q, we’ve got a nice increase year-over-year for rough terrain cranes that we build in Winona so we did not make any changes there.
So the cost reductions have – are clearly now flowing through the financials, as you see in the gross margin. And due to the nature of our operations and being flexible. We’re prepared for the eventual upturn in the straight mast crane market when it comes.
I see, and appreciate that color. Can we just back up to the comments on Europe, Steve Filipov, first. The changes that were done during the shutdown or the improvements that were made. Is there any margin impact we should be expecting there? That was a really crust of the question.
Yes. So really, the improvements that we’ve done there, Mike, are more on flow somewhat efficiency related. And I mentioned quality. So to give you an example, where we do the testing for the hydraulic for the knuckle booms on the hydraulic feds we basically cleaned out that whole system, replaced it with a new system so that we could improve really the quality in the hydraulic assembly of it. So that’s more of a, I think a quality or efficiency improvement that our customers will definitely see. And then over time, obviously, from a warranty perspective, we’ll see our warranty costs go down. But I wouldn’t I wouldn’t factor in a bunch of improved margins at this point. It’s going to take us some time to kind of work through those efficiency improvements.
Okay. I got that. Perfect. Then I also wanted to just touch briefly on some of the Valla information that you shared. That sounds like that’s doing quite well, probably closer in trends to PM, if not better, than to the straight mast business. Can you give a little bit more color on who’s buying that and where? And do you get the sense that the customers for that are they buying Valla for indoor use purposes because that’s the best tool for the job? Or are they buying it because they – the customers are trying to be more green focused and are going to use these outdoors but just don’t want the emissions?
Yes. So Mike, what I would say to start off with is, remember that Valla is a 70-year-old company. They produce thousands of industrial cranes, both diesel and electric from a – since a very long time. So first of all, I think that we’ve been able to kind of reenergize our customer base around the Valla product and the improvements that we’ve made and some of the new products that we’ve launched. We’ve launched four new products in the space, all the way up to 12 ton fully electric cranes. So I think the foundation, first of all, is we have – we had a good business and I’m just there with a new management team to kind of regenerate kind the sales flow, the marketing. We’ve done a lot of work on social media, going back to our customers, to tell them we’re still around.
So I think that’s been a piece of it. The other, I’d say, the utilization or the application of the product is inside facilities, big warehousing facilities. It could be in a manufacturing facility. I mean, I’ll give you an example of a customer I was with just a couple of days ago, and he’s looking – he’s actually bought a Valla to replace the overhead crane utilization in this facility because it’s a lot easier to move with a Valla product through the facility rather than his team waiting for an overhead crane, works in a certain direction, and you can’t move product, for example, from left to right. So I think there’s just a lot more flexibility in it. And then you obviously have the zero emissions, right, where we just can’t use a existing inside facilities anymore.
So that’s what’s really driving, I think, the use of it. And then let me finish with the order that we took with a rental company in the Netherlands with Coll, they’ve been in this space through with a competitor. And basically, we went in pretty aggressively and took some business away from that competitor, and we’re happy to have Coll as kind of our premier customer in Europe. And they’re going to start to push that through the rental channel, which will just get I think, more product out there. So we feel really good about the product, and that’s in Europe.
So shifting to North America, what we’ve done is we have a small rental fleet in our Chicago facility where we’ve been putting out a lot of product to the customers, and it’s gaining a lot of traction even in North America due to kind of a zero-emission use. And again, it’s internal. There’s also the glazing applications. So for example, our smaller machine, our 1.2 ton, you can put it in an elevator, it goes up to the whatever floor, fourth or fifth floor. There’s a suction application, which picks up the glass and basically applies it to – just to the building. And again, all that done with zero-emissions. So I think that’s the other piece of this that’s driving the business is blazing kind of globally.
Can you just help us – I don’t think you’ve mentioned Valla all that much over the last couple of quarters of – here is really. Can you maybe help us size the opportunity as to what Valla – roughly where it is today and kind of where you think it might be able to go? Is it a big – is it a pretty material number here?
Before I give you a number, Mike, I’d like to just get a little bit more revenue under our belt. As you said, when I came into the company 12 months ago, a little bit more than 12 months ago, I knew Valla from a long, long time ago, and I put in a new management team there. We’re starting to get traction. I hate to say sky is the limit for the product, but we’re obviously building out – we’re doing a lot of things, right?
We’re building product portfolio we’ve got a new team that’s in place. We’ve got a new customer that’s going to help us get out there and accelerate growth. So I’ll probably talk more about that as we get better clarity around 2021, and I can give you a better number. But I’d say we’ve got a good foundation to grow the business in 2021 to get it to, I think, a good level of revenue. Whether that’s $10 million, Mike, or potentially more, I mean, it’s probably somewhere north of that.
Okay. Maybe I’ll just throw one more out there for you real quick. And that is, can you update us – this is a couple of years old now also. You had brought some of the oil and steel product, some of the aerial platforms that were truck-mounted to North America. I recall that had a lot demand for it first. I was curious if you can just maybe update us as to how those truck mounted work platforms have been going over the last 12 months or so. Does the outlook seem pretty good for that one, too?
Yes. I’ll give you a perspective on Europe, and then I’ll ask Steve to kind of talk about the North American business. But as I said in my comments, Mike, the oil and steel aerial business is up close to 40% year-over-year. The team has done a fantastic job with it. We’ve gone out and gotten new dealers, have gone out into new markets, we’ve launched new products. So I think you’ll continue to see that business grew in 2021. With North America, I think that we’re doing okay, but we can do much more in North America. And I think as we put our 2021 plan together, obviously, we want to grow in North America because there is opportunity under there. And I just think we could probably do more from that perspective. But Steve, do you want to add to the A62 product in North America?
Sure. A number of the dealers, Mike, that we have announced this year, for example, one of them that we just announced that we signed in the third quarter. They are taking on that product line, the A62. And at the same time, Mike, the A62 is a part of our revenue mix now every month, every quarter. The dealers that we have in place and have been dealers for, say, two quarters or more, all of them have taken repeat orders. And we have customers that have taken repeat orders. And to Steve’s point now, as we move into 2021, we’re looking at adding onto answer that product line with some additional reach capabilities to further grow in that area. And I completely – in working with the oil and steel team, we’re aligned on there’s more opportunity, what are the additional models that can help us realize that and incorporate that into our 2021 plan.
[Operator Instructions] And we do have a follow-up question from the line of Mike Schilsky. Please go ahead sir.
All right. Me again, I try to give someone else a chance, but maybe it’s just me today. That’s okay. I got just one or two more for you. Guys, we’ve been hearing a lot recently about the advent of electrified heavy trucks out there, some are being launched as soon as next year and some a year or two after that. Could you update us on whether your products work well on an electric truck? Do you have to make any major changes to your engineering? Have you been working with the Kenworth and so forth to kind of coordinate on how you might mount a crane of any type on an electrified truck? Any kind of comments there as far as the costs or the progress you’ve been kind of making there?
Yes. Steve, do you want to answer that? I know you’re working on some of the projects.
Yes, for sure. So Mike, there’s – along with the Valla, there is work underway with some of our industrial and rough terrain products to electrify those. Regarding the actual commercial chassis, that the class five through eight trucks, our dealers have been – our suppliers, the truck manufacturers have been providing us periodic updates on the work we’re doing there, and we’re sharing that information with our key dealers. And as our – at the end of the day, our customer base, our end users are going to drive that.
And when our end users and the crane rental companies and various contractors are ready to adapt that technology and move forward, we will have a solution. But it’s still a work that with the truck manufacturers on vocational type trucks, work trucks rather than trucks that are doing pickup and delivery and freight distribution in urban areas. It’s going to be a little slower, I would say, on work trucks and what you’re seeing in some of the – on the news for pickup and delivery categories.
Got it. Makes sense. And then turning to parts and service, can you maybe update us on how parts and service went in the quarter? And anything you’re doing in the near-term to either keep that going or to improve that business further?
Yes. Mike, it’s actually a positive for us in the quarter. I think, Joe, you can tell me if I miss my numbers, but I think it’s about 20% of the revenue for the quarter, a little bit better than prior year quarter, actually. So as you know, I’ve been talking a lot about improvements that we’re doing to increase line fill rates to put more parts on the shelf, move some of our products to more dynamic product or technical publications to make sure our dealers can access and order parts online. So we’re doing all of that, Mike, because again, it’s 50% to 60% margins in that business. And I think we still have more opportunity to grow that piece of the business.
But it takes a little bit more time, I think, for us to do that, but it’s going to be a focus for us in 2021 to accelerate a lot of the things that I just mentioned. So we’ll focus on the fundamentals. And then we’ll move to the next step of – like I said, right now, the plan, we need to get to 80%, 85% line fill rate. The best companies in the industry are probably north of 90% to 95%, and that’s ultimately where we need to be if we want to continue to grow our parts business. But we’re working on it. And I think it’s definitely an opportunity for us going forward, and we’ve seen it grow over the past couple of quarters. Go ahead, Joe, sorry.
So I was just going to confirm it, yes. As far as the part sales as a percent of revenue, yes, it’s up a couple of percentage points over where we were a year ago.
Okay. And perhaps just a follow-up there, does having a good product business in this particular quarter, does that indicate that to you that the cranes are being used? I mean, is that an indicator for that there is some new sales to come when people are using their current cranes quite a bit? Do you have any intel from any of the fleets that actually rent out your cranes that they are being used at a high rate right now? I am trying to get a feel for whether what we’re seeing – if the current trends are indicating that some of the cranes are being used up, worn out and need to be eventually replaced?
Yes. I’ll – actually, Steve has actually visited a couple of rental companies in North America not to long ago. So you want to talk about utilization? I think the general trend is positive, but Steve, do you want to talk about utilization and what you see?
Yes. The trend is positive, Mike, for sure, certainly versus the second quarter. And a lot of it depends on regional focus as well as end market focus. So in the energy sector, for example, which is a much smaller part of our business than a few years ago, activity is up but the utilization rates are still down from historic levels. But in the vast majority of the other segments, we serve, particularly the utility and the infrastructure and telecom sectors, the utilization rate of those fleets are not only up versus the second quarter, but at a pretty healthy level from any historical measure. And we – as Steve and I and Joe slice through the increases that we – you’ve seen on our backlog, and obviously, our backlog being up 27-ish percent versus the end of the second quarter. The rental fleets that focus on the utilities and the telecom and infrastructure. Those are the folks that have a high utilization rate and are adding to their fleets, both currently and, frankly, as we move into 2021.
Mike, think of it this way. The utility rental fleets haven’t really slowed down. I mean, transmission and distribution, I don’t think that those guys have slowed down at all. Not to mention the hurricane and everything else, we’ve had going on in the U.S. the past six months has kept, I think, those fleets busy. On the construction side, I talked to customers at the trough that we’re probably 40% utilization and they’re probably up into the 60%, 65% now. And as you know, north of 70%, 75% is where most people would want to be in the rental business. So I think we’re trending adding think, some more uncertainty out there that people are just a little bit more cautious on. But that’s kind of how I would gauge the fleet utilization.
Okay. I was going to let you go. I have one more follow-up there on that answer. Do you get the sense that the fleets are – have been aged to an excessive level over the last couple of quarters? Are people unable to, at some point, keep some of these older cranes in the fleets? Is there some kind of force replacment that might be happening here?
Yes. I think that – remember, I think we may have talked about this before. The crane life cycle is a lot longer than, for example, an aerial and the utilization of the product is a lot different, right? You utilize a crane for about 1,000 hours a year. An aerial or construction product works 4,000 to 5,000 hours a year.
So you could easily kick out replacement of a crane for a year or two and look at parts, look at to refurbish it a bit and still keep it in your fleet. So it’s really not, I think, a product where you think of a conventional replacement cycle, like you would think about aerials, right, where people want to stay between 40, whatever it is, 45 to 50 months fleet age. I think it’s just a different dynamic in cranes right now. So a little tough to tell you what the replacement cycle really is. Because like I said, people will utilize the product a little bit differently.
And Mr. Filipov, we have no further questions at this time. I will turn the call back over to Steve.
Thank you, Fred. So I want to thank everyone for their time and interest in Manitex. We really appreciate it. Please be safe, and look forward to speaking to everyone soon. And please don’t hesitate to follow-up with any questions you may have to myself, Steve or Joe. So thank you very much. Have a good day.
This does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines.