Q4 2019 Earnings Call
Your patience.
[music].
Welcome to the old equipment group full year 2019 earnings call.
At this time, all participants are in listen only mode.
After the speakers presentation, there will be a question answer session.
To ask a question during the session you'll need to press star one on your telephone.
Please be advised the today's conference is being recorded.
If you require any further assistance please press star zero I.
I would now like to him the conference over to your Speaker today Sina Mcdonald director of external reporting. Thank you. Please go ahead.
Thank you.
Good afternoon, everyone welcome to our year end 2019 conference call with me today, our Ryan Greenawalt, Altos, Chairman and CEO and 20 Colucci also CFO.
We'll begin with some prepared remarks before we open the call for your questions.
Before we begin I'd like to remind you that today's call contain forward looking statements, including statements about future financial results, our business strategy and financial outlook and other non historical statements as described in our press release.
These forward looking statements are subject to certain risks uncertainties and assumptions, including those related to also growing market opportunities and general economic and business conditions.
We have based these forward looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business.
National condition and results of operation.
Although we believe these expectations are reasonable we undertake no obligation to revise any statements to reflect changes that occur after this call.
Descriptions of these and other risks that could cause actual results to differ materially from these forward looking statements are discussed in our reports filed with the FCC, including our press release that was issued today.
During this call we may present, both GAAP and non-GAAP financial measures reconciliation of GAAP to non-GAAP measures is included in todays press release, which is available at investors stopped all to Goodman dotcom.
I'd now like to turn the call over time.
Thanks, and and welcome to all to his first earnings conference call as a public company.
I'd like to start off by saying that we hope you're all staying safe during this unprecedented time due to the spread of the Corona virus.
Our thoughts go out to those affected by the virus and we are grateful to the health care teams working on the front line to contain the spread.
Alter our top priority is ensuring the health and safety of our colleagues customers and partners in our communities.
On today's call I will first provide a brief refreshing altus corporate story and share our excitement about the growth opportunities, we see over the long term.
Then I will share key operating and financial highlights for full year 2019, which were included in todays filing.
And I'd like to spend some time on the impact. We're currently seeing in our markets as a result of the Corona virus and how we're managing our business in this fluid environment.
I'll, then turn it over to Tony Colucci, Our Chief Financial Officer, who will provide a more detailed review of our business combination with B. Riley principal merger Corp. A special purpose acquisition company and the 2019 financial results before we open the call up for questions.
As many of you know we began trading in the public markets on February 18th given the uncertain environment. We have all been operating in over the past six weeks. It certainly has been an eventful, but also very productive experience to say the lease.
Our corporate team has shown tremendous resilience and determination during this time and a great extremely grateful for their efforts I also want to commend the entire older equipment organization, along with our recently added colleagues from acquired businesses for successfully executing the transactions to bring Ulta public. These achievements highlight the strength of this team, which is so critical to our stretch.
Did you going forward.
Given our brief life as a public company, let me take a step back to provide an overview of all to equipment and our growth strategy.
We operate a premium equipment dealer platform and 43 locations across Michigan, Illinois, New England to New York, and Florida, offering a best in class brand portfolio that creates significant cross selling opportunities.
We have exclusive agreements with leading Oems in the industrial and construction equipment markets, including Heister, Yale Volvo and JCB.
Also as a one stop shop for our customers equipment parts service and rental needs, which has allowed us to achieve strong revenue growth over the past five years, while providing predictable and steady cash flows.
Business model consist of populating, our exclusive territories with new use.
Rental equipment, and then harvesting the field population to grow higher margin aftermarket parts and service revenue.
Our expertise and attracting and retaining skilled technicians is a key driver of our parts and service strategy and skilled technicians represent approximately half of our entire workforce of over 1700.
Strong operating platform has led to 18 successful acquisitions over the past 11 years.
Including the acquisitions of Flagler, Volvo dealership for Florida, and Liptak Hyster, Yale and GCB dealer for upstate New York in Vermont.
These acquisitions close close concurrently with the business combination our acquisition pipeline is aided by Dan dynamics in the equipment dealer space, which is large and fragmented consisting of many independent family owned and operated businesses.
Oh, yes are actively encouraging consolidation of their dealer networks and preferred to partner with larger well capitalized dealers.
Oh, yes, if you Alt as an acquirer of choice and they have supported our acquisition of sister dealers, which often lack scale or do not have <unk> ownership succession plans.
We believe that there's an attractive pipeline of potential M&A targets and would add scale that would add scale to our operations and we believe that the current economic conditions May result in additional acquisition opportunities.
Turning more specifically the 2019, there was certainly a milestone year for all to in many ways. We continued to gain share in existing markets, while expanding our geographic footprint in may with the acquisition of Nicole we further diversified our presence into new England, adding an expanded customer base, new end markets and additional OEM relationships.
And in December we announced our business combination with B. Riley principal merger Corp, leading to our New York Stock Exchange listing in February under the ticker a LTG.
This was an important step in support of our organic and acquisition led growth opportunities by strengthening our balance sheet and repaying or previously existing debt.
Tony will provide more details on this in his remarks.
Our strong top and bottom line results for full year 2019 were consistent with the forecasted results that we provided during the D D spec process.
Net revenues increased 35% to 557 million driven by strong growth across all our revenue streams and the contribution from Nicole.
Our parts and service sales were up 35% and 51% respectively in 2019 and represent the attractiveness of our dealership model.
Adjusted EBITDA increased approximately 36% to 74 million.
As 94 million on a pro forma basis, including the recently completed liptak and Flagler acquisitions.
Now I'd like to make a few comments about what we're seeing in terms of the current impact of the Corona virus.
We operate across several states in the different regions are exhibiting their own demand characteristics and the construction side of our business. For example, some states are mandating projects shutdowns, while projects and other regions are currently still moving forward.
So all we are seeing some some slow down in the business overall it remains a fluid situation in too early to know the near term outcome and financial impact.
Also ulta is fortunate to serve diverse customer end markets amongst some markets such as automotive slowed considerably others like health care food and beverage and logistics had been very active.
Our priority is to work closely with our customers OEM partners and other stakeholders during this evolving situation.
Also for business provides an essential service as many types of equipment are integral to the delivery of food medicine, and utilities and we support important infrastructure in societal needs.
Our service technicians are parts and rental operations staff, our salespeople and all the team members to support these critical functions of all risen to the ongoing challenges we're facing they continue to work hard to build and Altus proud history and the quality reputation our company enjoys across the equipment industry.
Enterprise wide, we have an active measures to keep employees safe to sustain the business and to support our valued customers. We've taken steps to avoid exposure risk by maintaining strict operating policies and we are hearing to CDC guidelines to support our customers' needs of our communities.
We've created a task force with representation from all operations teams to coordinate prompt responses planning and communications within our supply chain and we're working closely with our OEM partners in their respective distribution networks to manage the inventory pipeline.
In spite of these challenging circumstances I want to reiterate my confidence in off this opportunity going forward, our strong operating platform profitable business model expanded geographic footprint and financial flexibility with available liquidity position us to grow our business over the long term as our industry and the broader economy.
Through these uncertain conditions.
Lastly, I want to thank all of our employees partners customers and particularly our new shareholders. We greatly appreciate your support during the past six weeks and look forward to driving long term success together.
With that I'll turn the call over to Tony.
Thank you Ryan Good evening, everybody. This is Tony Colucci CFO of voltage equipment group.
And I'd like to add my welcome to the participants on the call today.
Before I get started with my prepared remarks, I just want to reiterate with Ryan said it didnt feel like too long ago that we were on the road meeting a lot of you and your colleagues and so our thoughts are with you've got with all of you.
During this difficult time, and we hope to be back in New York City in Boston, and San Francisco wherever that may be.
Real shortly to see all you guys. So I.
Just wanted to start with the.
My remarks today are going to focus on four four key areas.
The first of which will be a brief recap of the business combination with B. Riley second of which will be 2019.
Recap of the performance of all to.
The legacy business, which will exclude lift tech and flagler for now.
As as you know those were completed as part of the DCE back process. The third key area is we want to talk.
Briefly about alters balance sheet and the dexterity of our business model and in particular emphasizing.
The significant availability.
Our reasonable leverage levels and the attractive debt.
Maturity profile that we have coming out of the de spec.
And also emphasize the dealership model, which focuses on high margin parts and service business.
The last area I would like to speak to today is to disk to speak to some of the countermeasures that we're taking.
Mitigate the impact of Govan 19 on our business and.
Some of these levers and measures and the strategic framework, we're develops based Hamilton's experience into 2008 2009 financial crisis.
So with that said I'll focus first on the first bullet point.
A brief overview of the business combination with B. Riley.
First and foremost on behalf of the the Ulta Senior management team and all of its employees. We think the outcome was a home run for the company. It allowed us to do various things from a financial perspective.
We.
We refinance all of our pre existing debt, we've reduced leveraged and by doing so removed a constraint on our organic and acquisition driven growth strategy.
The immediate example of that of course was the.
Acquisition of Flagler and lift tech.
And we now have an optimized balance sheet, which provides us with the available to quit liquidity to navigate this difficult macro environment and to potentially opportunistically pursue our our M&A strategy.
Speak a little bit to the sources of the transaction and I'll get into a deeper dive later on this call around the capital sources.
But the transaction was financed with approximately $270 million of equity.
$155 million new term loan.
And $150 million draw on the 300 million dollar ABL facility.
A couple of key points there.
In excess of 90% of B. Riley principal merger Corp. shareholders elected to roll into the equity of Alta.
Hi, Hi, number relative to others backed transactions this level of participation in the equity allowed us to reduce the size of the term loan at close and reduce the amount of we were expecting to draw on the on the ABL as well and so as a result, our pro forma debt is approximately $40 million lower than what.
We anticipated.
Lastly on this point this back transaction was structured to clearly aligned the interest of management and shareholders. I think we did that the management team collectively rolled more than 85% of our equity into the new public company with Ryan Greenawalt remaining alters largest shareholder today.
Moving onto the second key area that I wanted to speak to today, the 2019 operating and financial highlights I would say management is satisfied with the 2019 performance.
Specifically total revenue increased 35% to $557 million in 2019.
With that we reported organic growth in nearly all of our departments across every every geo and all business lines and in particular that all important parts and service revenue streams.
When you include for 12 months of contribution from the mid NGO business in New England, which was acquired in May 2019 revenue and adjusted EBITDA were approximately 603 million $74 million respectively.
And pro forma for lift Tech and Flagler 2019 revenue was approximately eight $802 million adjusted EBITDA $94 million enterprise wide.
Drilling down from there at the segment level.
The industrial segment.
Was.
Continued to be highly cash flow positive driven by the high contribution level of parts and service.
That collectively represent more than 60% of that segments gross profit.
And in the construction segment 2019 that segment remained on its growth trajectory as Michigan.
Continue to mature and serve as an example for the earlier stage, Illinois construction market.
Real importantly here year over year, the construction segment achieved 33% growth in parts and service revenue and 28% growth in rental revenue.
As you go down the list of our departments on a consolidated level, new and used equipment up 35% year over year parts up 35% service up.
50% rental revenue up 29% and finally rental equipment sales up 23% year over year to $42 million.
Keep in mind that we referred to we refer the sale of lightly used equipment from our rental fleet as a rent to sell fleet or product classes.
That fleet recall is just another mechanism for us to populate our territories with equipment and then reap the rewards of multiyear parts and service revenue streams.
All of the growth that I, just discussed or or alluded to was really the result of two primary drivers one being the Nicole acquisition out in new England into being the continued maturation and growth that we're seeing in Michigan in Illinois, and our construction segment.
Noted.
A quick note on gross profit.
We saw a slight increase there which is.
Highlighted by the construction businesses.
Revenue mix shift toward the higher margin parts and service service business.
Thing you'll note in our materials is.
The metric economic EBIT, which we defined as adjusted EBITDA less rental equipment gain on sale and net maintenance Capex. This was 43 and a half million dollars in 2019 or.
I'm, sorry, 59% of adjusted EBITDA.
We believe economic EBIT, which others might referred to as Unlevered free cash flow to be a valuable metric in assessing our business. The performance and we think it's more reflective of the cash flows available prior to growth related investment and debt service.
In summary for 2019.
Like I said management was satisfied with the results as a whole we reviewed we review the Nicole acquisition as accretive and transformational to the enterprise and so many ways, but really it's the its cash flow profile and customer end markets that enhance our flexibility, especially as we navigate a time in an environment like.
Like we have here today.
Transitioning to the third key area that I wanted to speak to was our new balance sheet in credit profile coming out of the de spec process.
I've mentioned several times throughout this call the strength of our balance sheet, but wanted to refine some of the points a little bit.
Our new ABL is a 300 million dollar five year facility.
Cost of capital of LIBOR, plus 175 provided by the syndicate of eight major lending institutions led by JP Morgan Chase there no financial covenants at close on this facility given our overall liquidity position.
And based on our $240 million borrowing base and $150 million draw a close.
We've got approximately $127 million of Undrawn capacity.
The back half of the debt piece of our capital structure is a new 155 million dollar term loan with five year mature five and a half year maturity.
Bears interest at LIBOR, plus 800 basis points.
And has a 5% amortization.
Yes on an annual basis, the credit agreement includes certain customary covenants, including a leverage covenant and given the high equity partition participation in the DCE back process.
This is allowed for plenty of room unmet that leverage covenant before we have to.
To to think about tripping any of the any of those covenants.
So all told relative to the balance sheet management do we view our balance sheet as a source of strength for alter right. Now we believe we've optimized our leverage profile and are well positioned to weather any business disruption caused by the current economic conditions.
And simultaneously continue to pursue our opportunistic.
M&A targets to expand our footprint and broaden our product and service offerings.
I'll move now and lastly to the last key area that I wanted to discuss today.
Which are the covert 19 countermeasures and downside.
Scenarios and some of the levers that we are evaluating and pulling.
Obviously, we were operating in a highly uncertain environment, but I wanted to give you guys a glimpse of some of the things we're working on and focusing on today in terms of what we're doing.
Bullet point number one in particular where foot.
Hi leave.
Our plan for Cobot 19.
It was really rooted in office performance through the last downturn.
One thing I want to note is that Ulta is a very different business today than it was more than a decade ago.
At the time of the great recession, Ulta was $50 million industrial forklift business.
Largely tied to automotive and today.
Customer and end markets are far more diversified we're in the healthcare distribution infrastructure, which had been historically more resistant to the economic cycle.
In addition, as we've already discussed also is active in multiple geographic reasons that not only have their own specific demand and operating characteristics, but they're all being impacted differently by the cobot 19 epidemic.
With that in mind.
Just to recap what happened to all to innovate no nine Alta experienced a 35% reduction in sales total sales are we to onein.
The majority of that came in the new sales department, which was off by 50% parts and service stood re relatively strong and was down 20% peak to trough. What we now know about our Nick our new England business knit go in that timeframe parts and service was off by 5%.
One of the other thing that.
Ulta was able to do in during the great recession was two agents rental fleet and in that time net book value was reduced by 25%.
Kind of highlighting the power of not having to spend on rental capex and the time time like that.
Furthermore, the despite the reduction in the new sales department those that department benefits from a very highly variable cost structure.
So all told and as a result, our EBITDA margin OE to own nine went from tenant and a half percent to 9% and the company remain profitable throughout that event.
I think it's imported juxtapose the current environment versus what happened in no way no nine not only is also a different business, but I think we're dealing with a bit of a different event here.
The o. eight or nine event took place over many months and even years.
And so all of the numbers that I just quoted would've been the result of many months of disruption and in the current situation of course, we're all hopeful that the impacts are much shorter lived and more muted in comparison with what we observed in the great recession.
In terms of the specific metrics that we're focused on.
Particular, hyper focused on managing our inventory.
Every day, making adjustments to our ordering plans working with our Oems to adapt to evolving customer needs.
We'll also keeping the long term vision in mind.
To deal with pent up demand when the macro situation improves.
On a daily basis, we're monitoring rental fleet utilization and later labor utilization and for the time being our plan is to reduce fleet capex, while continuing to support ongoing customer and demand.
Well, the pandemic will likely adversely affect our rental fleet I think it's important to note that there are certain pockets of opus end markets that have actually seen a surge in business. As a result result of the pandemic and in those this this is important for us to have rental fleet a bit available to meet that customer demand.
In addition, we've reduced discretionary spending on all major capex projects with the exception of our ongoing ERP implementation, which we believe as a high ROI and is essential tool for managing our business, particularly as we expand into different geographies.
Lastly, I think importantly, its a.
While we believe these are all prudent steps initially we are prepared to take additional actions as required by the evolving situation.
But I think we must not lose sight of what happened to Ulta and the environment. It was in Illinois, No nine which provided for plenty of M&A opportunity.
In 2008 to 2010 also made over seven acquisitions and tripled the size of the business in the process.
And we anticipate there may be similar opportunities to do acquisitions at attractive multiples as a result of this period of dislocation.
We have the financial flexibility the available incremental liquidity and the experienced management team to whether this situation.
Whereas many other dealerships remain less diverse.
In their offerings and end markets and they lack the financial resources of a well capitalized public company.
In closing I want to I want to thank as well.
Certainly everybody on this call I want to thank my team has worked tirelessly to.
And remotely too to effectuate a lot of.
The reporting that we had to hit to make our filings here recently and most importantly.
The employees a bolt equipment.
And we continue to work as one team as our guiding principle suggest so.
With that I'll turn it over for questions.
As a reminder to ask the question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q and a roster.
Again, if you would like to ask a question press star one on your telephone.
Your first question comes from the line of Alex Regal with B. Riley Your line is open.
Ryan and Tony Hopefully you can hear me.
Solutions a file in your first okay.
Thanks, Alex Thank you.
Very interesting times today, a very different than from.
Four to eight weeks ago.
Can you first give us a little bit more real time updates.
As to.
What you're seeing out in the field.
In the last week or two.
And maybe give us some examples of how some of your industrial companies.
[music].
How are they.
Work with you and how you work with them when they take their manufacturing facilities offline for two weeks.
Warehouses offline for two weeks and how does that impact.
And your parts and services business during that period.
Sure. Alex This is Ryan greenawalt, so I'll start with Tom maybe just an overview of what we're experiencing in a different geography isn't the way of.
Government response, and then turn it over to Tony that too.
Talk a little bit about pockets of what we're seeing in the business.
So this is a two week timeframe in this environment. It feels like a year. It has been a very rapidly evolving situation.
And Michigan and the New England region, just went into our shelter in place restrictions. This week. So we are literally just a couple of days into having a more muted environment to operate in.
Across our industry and we've worked closely with our trade associations with on the lift truck side. That's my heat the material handling equipment distributors Association and on the Earth moving side, it's a D associated equipment distributors both of our trade associations have been very active in working with homeland security and with the defer.
Actions.
Because our equipment is in many instances supporting essential services Tony alluded to.
Food Medicine energy there are different end markets that really can't shutdown and.
Moving material is is crucial in those areas. So we are an essential service today, all 43 of our branch locations are open.
I'm happy to report that we have not had a or an infection in our or ranks of our personnel. We do have some people who are our self quarantine due to some flu like symptoms and that kind of thing, but we have not had.
Any impact severe impact with our employees.
Going it may be region by region, So, Illinois has been.
Operating under shelter in place for just a date day or two longer than Michigan.
Massachusetts, followed Michigan by a day and New York State, where we are.
Newly operating as of just a month ago. When we closed on the the lift tech transaction that is probably the hardest hit area other than what were.
Seeing in Michigan with the Automotives shutdown, so prior to Michigan going into shelter in place.
The U. ADW works closely with the Detroit three too.
So temporarily shutter the plans to disinfect them and to make them stay for the employees to return to work.
Our understanding is that the Michigan shelter in place order is going to extend that shutdown shut down by about a week.
So this is the area here, where we sit in Detroit It feels a lot like onein.
It and that the automotive industry is kind of Greg.
In a very short period of time kind of come to the screeching halt, but we have good information that did this will be a very temporary scenario and so that's our whole, but obviously the situation is is rapidly evolving but we are are taking steps to.
Make sure that we can respond quickly to the business not only if it continues to degrade but also if if if it comes back in the next week or two that we are better position for the pent up demand.
Florida, where were also a new entrant with the Flagler acquisition.
It is we do not operate our lift truck business. There that is more of at the heavy equipment side of the business.
And we have not seen today any any real demand destruction. Most of the jobs are still happening in Florida, Florida is not under shelter in place. So I'm things there have remained buoyant and then.
Illinois, because of its business mix being a little bit more towards the warehousing and logistics end markets as opposed to the manufacturing we see in Michigan and in the upper Upper State New York.
It's also holding up a little bit better near term.
So again, a very rapidly evolving situation, but today, we are we have.
All of our our branches are open we are out in every region we have.
We're open for business, we're selling parts were sending out rental equipment and we're servicing customer equipment.
And.
You want to add there okay I think we'll see we'll take the next question.
All right, Alex unless you have a follow up to that sorry about that.
Again, if you would like to ask a question press star one on your telephone.
Your next question comes from Alex Regal with B. Riley Your line is open.
Hey, right at a follow up on that so if we use Michigan as an example, or New York State as an example, which is in a shelter in place mode and some of the plants are shut down, but yet you're branches sounds like would be opened in those markets is there a scenario thats Amir.
Number is actually deliver some of their equipment during the shutdown period.
Your branches to provide service on them during that period. So you are in effect.
Utilizing some of your labor.
Equipment during that shuts downtime or should we think about that shutout time as.
Total loss of work for two weeks, but then possibly a clawback or catch up of work 234 weeks down the road.
Alex maybe I'll take that one.
What we're seeing is sort of.
We're we're seeing pockets of mitigating factors.
And what I mean by that is where we've seen kind of a full shut down of the manufacturing facility for instance in a lot of ways.
They are shutting that facility down in cleaning it and what that means as they need different types of equipment inside of the facilities.
To effectuate that sanitation process. So we're seeing some hedges related to.
Related to some of the the impacts.
Certainly customers on the construction side in particular.
Right now we're getting into the season here in the north and so we've had customer equipment in our shop through the winter getting maintenance on it ready to ramp up here on projects in the summertime. So that were continues to be.
Available to us and so long as we don't have a more broad based shutdown of construction projects in general.
We feel strongly that that will continue continue on.
And you know we mentioned the surge that we've seen.
Specifically related to our industrial rental fleet in certain cases, where you've had this mitigating factor where you have maybe somebody that's closed.
You know in new England, or Chicago, where one customer closes, but another customer has to pick up a second shift or a third shift in specifically in the food and beverage.
And then medical.
Supply categories and so.
It's too early to tell how that all washes itself, how I don't I mean, I think in the environment that we're in right now. It's it's hard to say that is not going to be negatively impactful to the business, but how that all washes out is still a little bit too earlier to tell but the point I'm trying to make as we have seen some mitigating.
Factors as a result of this event.
This is Ryan one thing I would add Alex so the and the automotive industry.
An annual phenomenon as the plants some shut down in the summertime.
For a couple of weeks at least.
And that's a time, where they off off and bring in vendors to do maintenance when the when the plant start running so.
You would characterize is kind of a by an area if one or the other and it's a little bit of both there are certainly plants, where where we might have resident mechanics, who report their everyday in the plants closed. So those guys need either do they need to be re purpose and put to work somewhere else, but there are other plants, where it's their opening up the plan to their vendors and using this time.
Opportunistically to repair machinery that.
Can't be suspended during the normal course of their operations.
That's very helpful. And then two additional questions I'll step aside.
First as it relates to your comments about.
Managing discretionary Capex can you remind us ballpark what year.
Expectation is for maintenance Capex Twentytwenty and Hell.
[noise] flexible are you.
And modifying that.
And to 50% hypothetically.
And then secondly, kind of flipping over to M&A.
I know traditionally that you sound a lot of targets that in their minds are essentially selling their business to you for books value plus a little bits.
Yes.
Corona virus that.
Possibly creates the opportunity when you're looking at acquisitions and paying maybe a fraction of book value rather than a premium to book value.
I'll I'll take the first half of that question and maybe Ryan.
Can take the second half relative to the acquisition. So the first half of your question Alex related to Capex and maintenance Capex.
And.
I think where we think about capex really in two categories. One is replenishing the fleet from a rental perspective.
And we're like I mentioned in the prepared kind of remarks, we're hyper focused on dollar utilization.
And.
So meaning meaning if we if we're not disposing out of our fleet that that capex that maintenance Capex will go away.
And in addition, this would be a time period that.
If we need to shrink our fleet, we will do that and we'll also aged out if need be so.
When we talk about discretionary Capex is kind of the second bucket of Capex. This is more of your pure play property plant and equipment.
You know maybe.
Spending some money redoing a parking lot if you will at one of the facilities or.
Taking on a new branch at Greenfield branch and investing in a certain.
In a certain branch operation.
Some of those things as what weve completely kind of put to put a halt to here.
On the indefinite basis.
But in terms of the 2020 Capex number I think it's too early to say, whether we would come off of that but I think for sure we want to be very careful with.
The rental fleet here and.
All things equal, we we would certainly want to aged out versus replenishing new.
Thank you and then on M&A.
Yes, Alex this is Ryan I on the M&A front.
The way I would characterize it as first of all day and prioritizing our M&A opportunities during a period like this.
When we were on the road show in meeting our new investors. We were one of the things that probably a lot of people remember as our when we think about M&A. The most accretive deals for us are going to be the ones are we expand our footprint in our and our relationships with our OEM, our major OEM partners and stick to our dealership model. So there.
Our infill opportunities to do you know to grow wallet share and tangential ends of the business adjacent types of equipment that fit within our our customer portfolio, but the best deals we could be looking at right now are the ones where were.
We're we're consolidating for our major OEM partners and growing right in our core business.
And the way I would answer your question is it really depends on the quality of the of the of the business. So a business that has a large has had has been performing has market share has as it as a field population that is out there aging in consuming parts and service.
Business is going to be worth more than one that that has been underperforming in is a.
Is it something that's been maybe under manager and something that needs to be improved upon.
So I would say that for us.
Well run business with decent market share.
And the field population and in a robust parts and service opportunity book would be the floor. We've we've never really.
Purchase anything below book other than a distressed business.
And so.
Yes, the answer unfortunately kind of depends on the quality of the business but.
Book is probably a good way to think about a floor for outperforming dealership from either of our major Oems.
That's helpful. Thank you very much.
Next question comes from the line of Mike Shlisky, Mr already and company. Your line is open.
Good afternoon guys.
I was just curious.
Over the last two weeks with obtaining delivery on parts from China.
Most of the world countries, given given the situation.
Yes.
Switching.
Mission.
Hi, Michael This is Ryan so far we have not we are having.
Biweekly calls with with our two major OEM partners Heiser, Yale and Volvo and so far there have been no significant disruptions to the supply chain. The the Volvo side that Theres, a one plant that makes a small excavator that as in France that I had heard.
Some things about that plant being shut down I'm not sure if that's back up and running but not a huge not not not a.
Material.
Headwind for us, it's one product that rolls out of that line.
We're monitoring the situation closely but at this time, we haven't seen any major disruptions.
Okay great.
Sounds.
You're not giving.
For the year at this point.
I'm kind of wondering should give us any kind of sense at least.
The operating expense line.
Thank you Didnt have this issue.
Potentially trying to stay.
Okay.
Cost of cash here.
Thank you would be able to hold.
Study going forward.
Turning back to normal.
Our run rate.
Sorry.
Okay.
Hey, Michael This is this is Tony can you can you repeat your question.
Sure I was curious on operating expenses, we didnt have this virus.
On a more last go forward basis.
Normal.
Thank you.
Operating expense run rate is a good run rate.
Going forward.
For a more normal situation.
Yes.
You know Michael our Im not sure.
Maybe a good starting point, but there are some variable costs than that and that operating expense line.
Specifically as it relates to some of our sales commissions.
So to the extent that.
New sales are impacted here.
The.
The sales Commission line would go down.
So the operating expense line Im not sure is fixed if thats. What your question is I think there are some variable costs in there.
And at this point answer in certain areas of the business as we've mentioned we've been focused on reducing.
Some of those operating expenses and so.
I think it may be a good starting point, but I just want to I don't want to give the impression that that operating expense line is a is completely fix there are some variable costs in there.
But in a if you're in that goes the other way in in a normal environment, which for US is growth right.
In a normal ulta growth environment. It would go the other way where that operating expense line for instance, it includes.
Technician vans and service vehicles and so.
Service, obviously, one of the more profitable parts of our business, but if we're adding service technicians, which is a good thing we would be adding cost to that operating expense line in the form of service vehicle. It kind of works the other way kind of going to the downside so.
Okay.
The other thing to.
Yet.
The other thing to point out Michael is.
For 2020 be aware that.
Flagler lift tech will be involved here as well and so.
I would just caution to use.
Alta specifically your ultimate goes specifically on that and that number.
Sure what I can say, yes.
What I can say is we work on.
In the dealership model a lot of backlog.
So we constantly have a pipeline of sales kind of out there.
And.
We still have a week left here in March and very fluid situation, but.
Any impact here or the bulk of the impact from what we can see right now.
The virus in the pandemic would be.
More so weighted to Q2 than it will be Q1.
Because of the workload in the backlog that we had kind of in the pipeline. When this this all kind of unveiled itself.
Okay.
That makes sense as well I will ask below.
There are no further questions at this time.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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