Q3 2020 Alta Equipment Group Inc Earnings Call
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Star one on your telephone please be advised that todays conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today cemented Mcdonalds director of external reporting. Thank you. Please go ahead Madam.
Thank you good afternoon, everyone.
[music] welcome to <unk> third quarter 2020 earnings conference call with US today on the call are Ryan Greenawalt, our chairman and CEO and Tony Guzzi, Our Chief Financial Officer for today's call management will first provide a review of the quarter and then we will conduct a Q any session.
We.
We'll begin with some prepared remarks before we open the call for your questions before we get started I would like to take this opportunity to remind you that today's call contains forward looking statements, including statements about future financial results, our business strategy and financial outlook and other non historical steep.
Moms as described in our press release.
These forward looking statements are subject to certain risks uncertainties and assumptions, including those related to all those growth market opportunities and general economic and business conditions.
These statements also include our expectations regarding risk.
Related to the continued impact of the COVID-19 pandemic on our business operations and financial results. 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 financial condition.
And results of operations, 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.
Shipments are discussed in our reports filed with the SEC, including our press release that was issued today. During this call. We may present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in today's press release, which is available.
Global at investors that alter equipment dotcom.
And with that I'll now turn the call over to Ryan.
Thank you Sam and welcome to all of the equipment group's third quarter 2020 earnings Conference call.
I will provide an update on the operating environment and progress on our growth initiatives and then Tony Colucci Rcs.
Paul will walk you through our third quarter financial results.
First off I hope you on your families are safe and healthy during these very challenging times due to the ongoing COVID-19 pandemic.
We continue to be designated as an essential business and are pleased to report that all 51 branches remain fully operational today.
The strict employee.
In customer safety protocols, we implemented at the onset of the pandemic remain in place and provide a blueprint and the event our business is impacted by any subsequent cold weather related disruptions.
Once again, the ultimate team rose to the occasion and delivered quality work in serving our customer base is diverse needs since.
Since our last conference call.
Paul also suffered a tragic loss with the passing of Rob Chiles, our head of construction.
Rob was a mentor to countless individuals and an evangelist of our guiding principles, while rob's energy and enthusiasm for our business will be miss him deeply humbled and proud of how the Alta family has rallied to carry on Rob's, great work and move the business forward.
I'll now provide some highlights of our third quarter.
And looking at our third quarter results, we reported a sequential improvement in revenue driven by strong growth in our higher margin parts and service businesses.
We have recovered from the dip in the summer months and experienced steady increases in customer demand as the third quarter progressed. In addition, we did close to.
Creative acquisitions that deepen our presence in the Midwest region, and expand both our product lines and OEM relationships.
We operated at near 100% capacity and we are at pre coated levels in terms of capacity and labor utilization across our business.
Revenue was $220.6 million and we generated 21.9 million.
In dollars and adjusted EBITDA, a 10% increase over the second quarter and a slight increase over last year's comparable quarter.
As business recovered, we loosened some of our cost mitigation efforts during the quarter to facilitate topline growth our flexible cost structure and the dexterity dexterity of our business model allowed us to align expenses with revenue and increased profit.
Profitability in the quarter.
Our technician count increased by over 8% through a combination of internal growth in our Florida construction business and our acquisitions of both high low in New York City and Martin implement in Chicago land, we are continuing to actively recruit technicians in all markets to meet the growing need for equipment repair that exists across.
It's all regions.
Turning now to operations.
From a regional perspective, we saw improved demand and stability in both our construction and material handling businesses in our manufacturing regions like Michigan, Indiana, and Indiana, we saw stabilization throughout the quarter as companies continue to increase production and we have seen our labor utilization.
Returning to pre cobot levels.
In Florida, our product support business continued to ramp up with increased demand for equipment repair.
We see continued strength in high tech healthcare and food and beverage markets, particularly in the northeast and our warehouse E Commerce and logistics customers are experiencing a period of high growth, particularly in large popular.
Deletion dense markets like New York City, Boston, Chicago land in Metro Detroit and remain our fastest growing end market.
Moving to recent acquisitions in late October we announced the closing of how tractor and equipment are six acquisitions. So far this year, how serves the northern Illinois in northwest, Indiana market with the right range of.
Heavy construction mining and crushing equipment, they enjoy a great reputation as a premier service provider and have a strong relation ship with leading manufacturers such as Santa Bogan, a New addition, salt as product line in the region. The acquisition is immediately accretive to adjusted EBITDA with a strong with strong sales synergies to increase volume and profitability going forward.
Our third quarter results included Martin implement sales, which we closed on July 30, Onest Martin operates three branches in the Chicago area and sells rents in service as a full range of equipment to the construction and municipal markets. In addition to expanding our branch footprint and manufacturing relationships Martin accelerates altice penetration.
Creation of the Illinois, construction market, which is in its early stages.
Peak logic, a recent material handling acquisition has exceeded our original aquas expectations in its first three months as part of Alta. It serves a large national customer base and is focused on the growing warehousing end market, we have begun to cross.
Cross promote their services across our material handling customer base and to integrate their product and service offering with other warehouse automation solutions.
Our balance sheet remains one of our best assets on our current liquidity position supports our robust acquisition pipeline.
In summary, we.
We are pleased to deliver.
After another quarter of solid financial results driven by the great execution of our flexible dealership model. We are particularly proud that we have successfully navigated our business through the challenges brought on by the pandemic.
Alta is poised to end the year with strong momentum positioning us for growth in 2021 as the recovery takes place in the economic environment improves.
Liver.
There are many positive secular trends in our industry the urgent need for infrastructure upgrade the ongoing move towards ecommerce the accelerated adoption of advanced technologies and the increased electrification of mobile equipment.
All these provide powerful tailwind for all this future growth.
I would like.
Once again, thank our manufacturing partners and customers for their support our employees for their dedication and hard work and our shareholders for their confidence in Alta now.
Now I'll turn the call over to Tony for his presentation.
Thanks, Ryan Good afternoon, everyone and thank you for your continued interest in Ulta equipment group and.
Our third quarter financial results, it's hard to believe that we are already on the doorstep of closing out our first fiscal year as a public company.
Before I start I first want to address all of my teammates at Ulta. The past nine months have challenged us all both professionally and personally and in ways. We couldn't have dreamed of last year at this time through it all furloughs.
Most new health and safety protocols and through the tragic loss of a valued leader and friend you have all stayed the course and I'm proud to be part of a like minded group of people that stick together through times of adversity.
On the behalf of the senior leadership team. Thank you.
Second I want to welcome our new team members that Martin implemented in Howell tractor and.
The cargo land to the multifamily im excited about the prospects of integrating your talents with our existing global business in Illinois, as we continue to invest in talent infrastructure and OEM relationships in the strategic growth market for the company right.
Ryan the senior leadership team and I look forward to earning your trust.
And embracing you into Ulta as one team culture.
My remarks today will focus on three areas, one I'll be presenting the snap back in business activity that we realized in the third quarter and how that increased activity impacted our performance financial performance for the quarter.
Specifically I will focus my comments and analysis.
Phew sequential quarter over quarter metrics as the business emerge from cobot related lockdowns in the second quarter second I'll reiterate the structural benefits of our integrated dealership and rental business model I'll be discussing our product support performance over the past three quarters and how those revenue streams provided steady.
On a cash flows throughout 2020, despite volatile business conditions.
I also want to touch on our rental business, specifically utilization and its impact on year over year EBITDA.
Lastly, I will be discussing the balance sheet, our M&A and capex spend for the quarter and the impact on our leverage and liquidity.
Liquidity position at the end of Q3.
For the first portion of my prepared remarks, I'd like to present, the positive snap back in business activity that manifested itself fully in the third quarter. It should be noted that there are some slides in our presentation, which was released prior to our call today that presents this impact in greater detail than.
Then when I will discuss today.
I'd encourage everyone on today's call to review our presentation and our 10-Q, which is available on our Investor Relations website and also equipment dotcom.
So let's dive in.
For those familiar with my remarks on our previous two earnings calls recall that we have been keenly focused.
Demand for labor hours of our skilled technicians. This is a metric that provides real time data on business levels in our various geographies and business segments to quickly recap in the middle of March starting with the automotive shutdown in southeast Michigan.
We incurred what effectively was an abrupt 30% reduction in demand for labor hours.
Across our service operation.
As mentioned on the second quarter call as large portions of the economy began to reopen we saw a pretty steep rebound at the end of the second quarter, which continued throughout Q3 currently demand for labor hours has returned to just under 100% of pre covert levels. This.
[noise] reversion to the norm in demand for labor hours led led to an $11 million improvement or 19% increase in parts and service revenue in the third quarter when compared to the second.
Important to note, we've held labor efficiency, and therefore gross margin and our service departments throughout 2020, which is a testament.
Our manager's ability to match supply of labor with demand on a real time basis.
In previous quarters, I've spoken about our dealership revenue streams, particularly parts and service as having dexterity and that we are able to maintain earnings on those revenue streams in varying macroeconomic climates.
We've put this.
Business model and our management team to the test in 2020, and we believe it's a test that we solidly past specifically organic parts and service business had EBITDA of 3.7 $4.24 million in quarters, one two and three respectively. Despite having volatile.
Want to swings in revenue, it's our opinion that audit altice product support cash flows our key metric that management and investors can rely on throughout the economic cycle.
One item of note in previous quarters, we've made special mention of the cost mitigation efforts, we implemented in response to the decrease in business activity.
Total related to cobot as business picked up and then stabilize in the third quarter, we relaxed and in some instances ceased those cost mitigation efforts.
While we hold Lockdowns and Covance impact is behind US we will continue to monitor business levels and are prepared to execute the same cost cutting playbook should conditions dictate.
Great.
While our dealership model, specifically parts and service has showed its value and dexterity throughout the year, our rental business has presented to be more challenging while our rent to rent revenue was up 5.4 million on an organic basis versus the second quarter of 2020, the year over year trough has proven more difficult to dig.
Got us specifically when analyzing our utilization metrics to provide some context for the six months ended September 2020 on an organic basis, we've had on average $25 million to $30 million less equipment on rent than we did for the same six month period in 2019 said a different way.
Whereas historically, we've experienced 65% to 70% physical utilization utilization, we've been realizing closer to 60% on average.
To be clear our rental revenue is up approximately $16 million year over year, it's the utilization on our fleet that has regressed.
Now how is that lack of organic utilization impacted EBITDA. All told we've given up approximately $11 million in EBITDA year to date on an adjusted pro forma basis versus last year, and we estimate that roughly 65% of that shortfall is related to the rental business.
With that in mind.
They are certainly not alone when it comes to year over year utilization slippage as our 13% year on year reduction in rental revenue in physical utilization drop is consistent with the rental industry in general like others in the rental industry. We remain bullish on the long term prospects related to the rental business.
We believe the investments.
We made in our fleet in 2020 position us well for the recovery. However, we also need to be prudent with our fleet size size and scale our investment in rental fleet accordingly, and in line with customer demand.
Additionally, as I mentioned on previous calls it's important to point out that our rental business represents just over half of all does EBITDA.
Vince and highlights the diversity of our cash flow streams compared to the publicly traded rental houses.
As also benefits from the aforementioned product support revenue, whereas others, most almost exclusively are tied to rental.
So real briefly to recap the quarter from a profit and loss perspective revenue 220.
$21 million with $71 million coming from the all important parts and service departments, which is up approximately $15 million from the second quarter of 2020 gross margins for the quarter and the dealership related departments, new used parts and service were in line with historical levels.
From an operating income perspective and looking into.
Segments, our industrial segments continues on its profit profitable growth path as that segment produced $4.2 million of operating income for the quarter.
On the construction side when adjusting for onetime expenses, we reported a loss of $22.9 million in operating income for the quarter.
As stated previously.
With that we continue to be bullish on the long term prop prospects of our youthful construction segment as it grows and realize the benefit of a broader field population and with the recent investments we've made in Flagler Martin in whole, we expect profitability to grow in future periods.
In summary, this led to an adjusted pro forma EBITDA.
Total of approximately $22 million for the quarter, which is up slightly from the second quarter and off approximately $6 million when compared to last year.
A couple other couple of other notable highlights that I believe position us well for the future and support some of the investments we've made.
New and used equipment sales were up.
$5.3 million or 8.7% organically year over year, as we look forward to future field population gains this.
This increase in sales was primarily primarily driven by our construction segments, new and used equipment.
Witnessed sales, which increased 30.5% on an organic basis year over year.
Additionally, our construction segments product support revenues have increased 15% year over year on an organic basis, a reflection of equipment sales of years past.
And peak logics, our new design and build warehouse solutions and systems integration company is off to a great start and has outperformed expectations.
On the bottom line to thus far.
Moving onto the balance sheet and our capital profile at the end of Q3.
Two key factors to discuss here leverage and liquidity firsts liquidity recall that we closed the IPO with roughly 150 million in cash and revolving liquidity since.
Since the IPO in mid February we've acquired three in our fourth strategic businesses using existing revolving liquidity funded growth capex in our rental fleet and service the cash cost of our debt.
As of the end of Q3 Im happy to report that the business has the same level of liquidity that it had at the.
Joe or approximately $150 million.
We believe that holding liquidity at a $150 million at the $150 million level to pretend to be an impressive result, and a reflection of our cash flow profile and strong collateral base, which we used to fund these three important items without impacting.
The company's liquidity position this.
This is also a testament to how we thoughtfully positioned our capital structure and how we fund M&A.
On the leverage.
While liquidity is a function of the value of our assets and our ability to cash flow and service revolving debt leverage is a measure more directly tied to add.
The utilization.
As mentioned our rental fleet has been performing at sub optimal levels when compared to historic norms, which has impacted our leverage position at the end of the third quarter. There are two primary jar drivers for the increase in leverage the negative impact on our adjusted pro forma EBITDA when compared to.
Last year and to the aforementioned investments we've made on acquisitions in our rental fleet.
Like to comment on rental fleet for just a moment first recall that our rent to sell model, where we are selling lightly used two and three year old heavy equipment out of our fleet to drive field population, which in turn drives parts.
Parts and service revenue over the long term.
I mentioned this because a large portion of this rental fleet.
Was into the rent to sell product categories, which we know will generate profitable product support business for us in the coming years import.
Importantly, and in line with historic norms. We also expect Q4 to be a strong rental disposal quarter.
Lastly, and importantly, rental fleet Capex always precedes utilization and EBITDA.
Which timing wise it is a net negative for the company's current leverage profile.
As an example of how rental investment rent manifests itself over time on our previous call. We made note of the rental fleet investment we've made in Florida.
In recent months, our Florida construction rental business has produced approximately $400000 more in rental revenue versus the months prior to that investment being made and we expect that positive trend to continue however, it will take at least a year for that investment to fully impact our trailing 12 month EBITDA figure figure and ultimately.
Leverage.
So having discuss the details of Q3 and as I can as I conclude my remarks, I'd like to turn your attention to some of our enterprise wide pro forma trailing 12 month numbers.
If we look back at our pre cobot numbers on a pro forma basis, our business was producing approximately approximately 94 million in EBITDA.
As I mentioned, we are running about $11 million behind that number year to date and I expect that variance versus last year, albeit more muted to continue into the fourth quarter as well.
On the flip side of Covance impact, we've invested heavily and we believe prudently throughout the year and for businesses that under normal circumstances.
Senses, we know have generated of pocs approximately $13 million in EBITDA per year.
And as discussed we've also made an investment in rental fleet that we expect to lead to future EBITDA in that in the future.
As we leave 2020 behind and with an eye toward 2021 macroeconomic.
Except backs notwithstanding we believe that we can regenerate that covered really related EBITDA shortfall at a minimum.
And add additional EBITDA as we continue to cultivate field population and realize the synergies of the investments we've made in 2020.
In closing I again want to thank all of my team.
It's also for your commitment to the business during what has been a year not soon to be forgotten.
Great faith in our proven business model, our leadership team and our vision for the future.
To our investors, we appreciate the opportunity to be stewards of your capital and operate daily with your best interest in mind.
Like many of you I'm looking forward to.
And that as digit on our calendars.
Changing from a zero to a one in a few weeks, but in the meantime, I hope that each of you take some time to take inventories. The most important things in life of the next two months I wish all of you and yours, nothing but health and happiness. This holiday season. Thank.
Thank you for your time and I will turn the call back over to the operator.
Operator for acuity.
As a reminder to ask the question yes.
On your telephone withdraw your question press the pound.
Please standby, we can pilot couponing roster.
Your first question comes from the line of Alex Regal from.
That B. Riley your line is helpful.
Thank you good evening, gentlemen, very nice quarter.
Hey, Alex Thank you.
Good evening first part first question here.
In comparison to sort of pre closing activity levels.
Spec since.
There's been some mix shift is in different end markets that have been strong.
Can you talk about go into a little bit more detail on which ones are stronger today, and which ones are weaker today.
Maybe whether or not those trends can persist or you know.
Indefinitely or at least.
Yes.
A degree of time here.
Sure Alex This is Ryan.
I would say that the end market, where we're seeing kind of the strongest demand growth is anything related to the warehousing and.
And in particular E commerce.
And as I referenced in my.
Our remarks, where we're seeing that the most is kind of dense urban areas. So we were well positioned in terms of some of the population density in our footprint.
Chicago Land Greater Boston, New York City. These are all big logistics hubs and so we're seeing.
Increased interest in some of the.
The advanced technologies Autonomous solutions.
More narrow a mix mixed shift towards narrow aisle and warehousing type products, which were well positioned for.
And.
Thats ties into our strategy with peak logics, it's it's a it's a drive to get wallet share from that end market. So this is a new tool.
Tool in our bag and we can drive deeper.
Deeper penetration into that customer end market.
And then on the weaker side.
On the weaker side, we're seeing you know, we're seeing it stabilize and some of the manufacturing areas, Michigan, where we've seen.
Auto the auto market rebound, it's leveled off we sort of forecast a kind of anemic market or a flat market for next year.
That's kind of offset with Adam and other manufacturing environment is Elkhart, Indiana, Northern Indiana, which is very strong.
They're having a real.
Seeing strong demand for their their market the rvs and.
That that looks to be strong for the next couple of years.
Other areas of.
In terms of the construction market you know its Florida remains a bright spot in terms of a weaker spot.
We're kind of.
Hopeful that we see some larger infrastructure spend there were some positive things that happened with Congress. This week and kind of messaging that we're going to see continued investment there from the federal government.
So you know.
In terms of.
Weak markets, we don't see that will we just see is that is uncertain markets maybe some.
Staying on the sidelines for big purchases, which for us as long as the lights remain on and we don't have any broad shutdowns. We know we keep our mechanics busy and we keep that product support into the business moving.
Broadly speaking as it relates to the rental business when Mike.
We see that business sort of turn more positive.
Boy to Alex. This is this is Tony.
I think there seem to be just some fits and starts with different projects at least.
Yes, that's been our experience here.
Anup.
We I'm not sure we can put our finger on.
On it other than just some of the macro economic factors that are at play with Cove. It.
I'm not sure I'm not sure if the election had had something to do with.
People wanting to commit to projects or not.
So we as I mentioned in my remarks, what we have to do is we have to be kind of prudent with with our fleet size here.
In scale scale, our investment in rental fleet relative to two demand now what history would suggest is that periods of volatility customers are going to be.
Or.
Driven toward rental product as they want to maintain flexibility.
And we're hopeful hear more more recently, we have seen some more stability.
In utilization metrics.
Than we have than we did in Q2 and Q3.
So I guess.
What I would say is that that crystal ball is still fairly foggy in terms of when when we see.
Rental rental utilization metrics kind of snapping back here.
Lastly.
Your acquisition pipeline was very robust how does it compared to.
Back in February.
The acquisition prices look like today and any new.
Meaningful opportunities.
That might be outside your core markets.
So in terms of I'll start with the kind of the pricing in terms of value.
In a previous call we added.
Said that book value is generally going to be a floor on the value. We're pursuing dealerships that have exclusive rights over territories with premier brands and so there were not these aren't distressed situations, where we're trying to bottom feed were trying to buy dealerships that we're going to bolster our our.
Our footprint in our infrastructure.
So the.
I think that the prices has had remained relatively consistent we're kind of underwriting the deals the same way.
The landscape remains is kind of is fertile as it was a year ago. You know the reason that we went public with stick.
They need to.
Execute on our on our growth trajectory and we see it.
Continued landscape for that the last part of your question. There are absolutely tangential markets that we could leverage our our product support prowess and into new markets and new types of equipment and.
We are actively pursuing or at least evaluating some of those opportunities nothing that's in the near near term, but but.
Some examples would be just the general transportation over the road trucks some of the ancillary types of equipment that touch on construction like some of the.
And.
Cleaning equipment and recycling equipment.
There are lots of end markets were once you have the capability to repair electric vehicles or.
Machinery powered by diesel engines, which we can do both.
We had a lot of purview into different types of products that we could ultimately.
Add door.
Offering.
Very helpful. Thank you gentlemen.
Your next question comes from the line of Mike Shlisky from clear Securities. Your line is open.
Hello, gentlemen, good afternoon.
Good afternoon, Mike.
Hey.
So I wanted to go back to the questions earlier on your rental utilization.
So when I talk with other fleets out there it seems like the general trend was that.
The trough utilization really happened in end of June the first part of July they ramped up since.
Ended the quarter on a much.
I will do when they started almost back to back to normal again, and they've gotten stable if not better in October.
Can you give us a sense as to the shape of the curve your utilization and lot better than it started in Q3 at the very least.
Yes, Mike I can speak to that and I.
We think in general I can say that that was our experience as well that the beginning of Q3, if you know for us utilization wise.
As was softer than expected.
And and we've sort of.
Ramped up from there I would say.
The.
I issue is where we're still sort of lagging last year's levels.
Now what we've seen is utilization hold here through.
Through the end of September into October.
And I'm I'm I'm not sure exactly but probably contractors are.
Maybe that projects that have gotten pushed.
The co bid they are trying to wrap up here, so they're being elongated into Q4.
And they are trying to get things done relative to the weather so.
So we have seen a more.
Hardening, if you will and utilization more recently.
And so I would I would agree with I guess.
Maybe the general sentiment that the early part of the quarter was was worse than the latter.
Okay.
Great Thanks for that.
Can you also share some color on how the integration is going between high low and Martin and and so forth.
There are many challenges in trying to integrate companies.
You've acquired in New York, Illinois, Indiana, Florida, et cetera, without the benefit of the only to travel as much.
It has been a challenge and has the cause this kind of.
Progress in line with institutions.
Mike I'll take the the.
Maybe the first.
Part of it when we think about integration, we've kind of got the.
In the financial integration and then you've got more of the management integration.
I'll speak for the finance in IP related integration and then maybe right in mind can weigh in on the management side I guess I first want to.
I mentioned that the whole tractor deal that took place here in the last couple of weeks few few Fridays ago is fully integrated today in salt as system.
It's the first time.
Since weve.
Hi, Ben on the extend system that.
That we've taken the opportunity to cut in an acquisition target over on a weekend.
So we closed the deal on Friday.
And thanks to the professionalism and the acumen of our 18 accounting people.
On Monday, how old tractor came up cutting invoices.
Our quarters out of our extend system. So that one is actually fully integrated.
When it comes to the others, we have a we have a project plan in place.
From an integration perspective.
NIPSCO and Martin are scheduled to come in.
Onto our system at the end of the year here. So just a few weeks and theres been.
And a major initiative going on that way.
And the remainder kind of of the of the acquisitions lift Tech Flagler high low.
Will be 2021.
Initiatives and I'm not sure exactly when but.
Probably towards the middle middle of the year with.
And with each of those.
Peak logics, just to kind of rounded out peak logics, a little bit different business model.
Don't they don't have rental theyre not in parts and service in the same way, we are and so that will probably be the last last business that we and fully integrating Ryan I don't know if you want to speak to.
Kind of a manager on on the management side, we're we're kind of off to the races in terms of the integration.
One other thing that happened is not in the third quarter, but more recently to support the growth as we've we've reorganized our material handling business the industrial segment.
To allow for leadership.
Ship enterprise wide and I have promoted two individuals Alan hammersley as the president and Craig Brewbaker as the COO and that business today is being managed as one enterprise that we were having quarterly meetings, where we keep all of the regions kind of on the same CPI and bringing them on the business.
Just on later next year is going to accelerate that make that more efficient to manage it that way on our construction.
Action side, the same type of reorganization is underway, we have regional leaders driving the great Lakes region, The Florida region in the northeast, where we have the JCB side and.
Similarly, the integrated.
And in terms of sharing inventory for remarketing trying to drive rental utilization and sharing inventories across state lines things like that are well underway. So.
We look forward to the day when we have everybody operating on one business system, we chose the emphasis extend system because of it.
Its transparency.
And its scalability and we look forward to kind of.
Driving some.
More efficiency through that technology over time.
That's great color guys I want to throw one why throw in one last one if I could.
You added technicians since last quarter, some didn't probably work the entire third quarter.
Yes.
Okay. So.
You may have better rental utilization these.
For the full fourth versus the third quarter.
Certainly there seems to be a general.
Economic rebound here is it fair to say without giving us full on guidance that Q4 results should look quite a bit better than Q3.
Yes, Mike this is.
Tony I'll take that one I think.
We feel very bullish about kind of the dealership portion of our of our business. You know we have the kind of the abrupt stop in Q2.
We certainly does have spoken today in a positive fashion about biz.
This activity levels kind of stabilizing in Q3.
Part there is a bit of a lag in terms of rebuilding whip in bringing cost back that I think.
Hit us a little bit here in Q3.
It will hopefully maybe go away and in Q4, meaning.
Is that kind of I kind of feel like Q3 is a bit of a bridge to normalcy in Q4 that the more difficult thing to kind of projectors is the utilization on the on the rental side.
And as I mentioned previously.
Some of the results.
It will kind of be predicated on what happens there, but like I mentioned you know as we as we entered Q4 here, we feel pretty good about utilization levels relatively speaking.
Okay, well, thanks, so much I'll pass it along.
Thank you.
Your next question comes from the line of Brian.
I am fast from Raymond James Your line is open.
Thanks, Good morning, or good afternoon, guys.
Hi, Brian.
I'm just wondering if you can talk about the organic growth in parts and service revenue do you think thats reflective of pent up demand as restrictions east or.
Are you starting to see the benefits of an increased focus in that area.
Yes, I'll take that one Brian I think you know thankfully, we've got we've got organic growth kind of on a sequential quarter to quarter over quarter basis and year over year.
When we look at when we look at the quarter, specifically in our construction segments I'll answer both ways the quarter over quarter kind of sequential organic growth was absolutely just related to the snap back if you will.
From Cove it.
I think more importantly, when we think about the business on a longer term b.
Specifically in construction.
We continue to sort of pace at 15, Percentish on an organic basis in the parts and service segment.
And in my mind, that's that's validation of the business model where.
You've got to kind of make an investment.
Into two really would have been.
Then nascent territories.
For some of our major Oems specifically Volvo.
And you've you've got to make sure you're accessing customers, whether whether it's through rental.
And generate field population and over time that field population comes home to roost if.
If you will in the form of parts and service.
And so long as you have the technician headcount, which we've talked about grow.
Growing alongside of it you can capture that.
Profitable business, so when I think about the kind of quarter quarterly year over year organic growth.
I think about the equipment.
We sold two and three years ago.
Starting to manifest itself from a profitability perspective.
Okay, Thanks fixed Tony.
And then just on the SG any front I know you provided some color there, but just looking for more granularity if.
If you exclude the share pieced topics.
That's from past DNA, you get a SGN as a percent of revenue in line with last year is that reflective of a normal run rate or are there still some costs that could come back as the operating environment normalizes here.
No I think that's you know Q3 from NSG and aid perspective.
It was pretty normalized I made mention of kind of the cost mitigation efforts that we.
Relaxed in Q3, the majority of that was relax at the early you're in the early innings of the quarter.
And so.
You know.
One.
That to point out is when we bring.
Last quarter, when I made mention of the variable cost nature of our dealership model.
You have some natural costs like fuel for instance.
When technicians are out our aren't out dry.
Driving around the customers are not going to have as much spend in fuel all of.
Thing goes sort of cost came back to us in the third quarter here.
And I I think that.
What you saw there was a was a normalize level.
Yes, that's a that's good color that's it for me thanks.
There are no further.
Further questions at this time.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now.
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