Q4 2021 Federal Signal Corp Earnings Call
After the presentation there'll be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad.
So do you need assistance during the conference call you May signal, an operator by pressing star and there I would now like to turn the conference over to Ian Hudson Chief Financial Officer. Please go ahead.
Good morning, and welcome to Federal Signal's fourth quarter 2021 conference call.
Hudson, the company's Chief Financial Officer.
With me on the call today is Jennifer Sherman, our President and Chief Executive Officer.
We refer to some presentation slides today as well as to the earnings release, which we issued this morning.
The slides can be followed online by going to our website federal signal dot com clicking on the investor call icon and signing into the webcast.
We have also posted the slide presentation and the earnings release under the investors tab on our website.
Before I turn the call over to Jennifer I'd like to remind you that some of our comments made today may contain forward looking statements that are subject to the safe Harbor language found in today's news release and in federal Signal's filings with the Securities and Exchange Commission. These documents are available on our website.
Our presentation also contains some measures that are not in accordance with U S. Generally accepted accounting principles.
Our earnings release and filings we reconcile these non-GAAP measures to GAAP measures. In addition, we will file our Form 10-K later today.
Jennifer is going to start today with a recap of the year and then I will provide some more detail on our fourth quarter and full year financial results.
Jennifer will then provide her perspective on our performance and go over our outlook for 2022 before we open the line for any questions with that I would now like to turn the call over to Jennifer.
Thank you Ian I'd like to start by giving my profound thanks to each of our employees and our business partners for their ongoing commitment I'm immensely proud of how our teams have managed through another turbulent year, finding creative solutions when faced with widespread supply chain disruption and demonstrating tremendous Brazil.
Given the prolonged nature of the pandemic, including the impact of the resurgence of cases linked to the OMA crime variant.
Our strong performance is a testament to the efforts of our teams and the successful diversification of our revenue streams and end market exposures that has taken place over the last several years through a combination of organic growth initiatives and disciplined M&A.
Despite the ongoing challenges in the marketplace. Our teams remained relentlessly focused on serving our customers is helping us to deliver the second highest adjusted EPS in the company's history report record orders and maintain an EBITDA margin of approximately 15% towards the high end of our target range.
In addition to our strong financial performance. We also made good progress against several of our long term objectives in 2020 . One we continued to invest in internal growth initiatives by making strategic investments for the future by purchasing new machinery and equipment aimed at gaining operating efficiencies and expanding capacity.
Several of our production facilities.
We also recently completed the acquisition of two of our largest manufacturing plants, our Elgin sweeper facility in Illinois.
Well as our facility in University Park, Illinois, which is home to our domestic SSG operation.
Both of these facilities were previously leased and with the leases expiring towards the middle of next year. We are pleased to have secured the future of these operations, allowing us to better optimize the facility over the long run and leverage our 80 20 principles, we continue to invest in new product development with a particular.
Is this an electrification projects and are encouraged that these efforts will provide additional opportunities to further diversify our customer base penetrate new end markets or gain access to new geographic regions. We completed three acquisitions in 2021 with the additions of O S. W Ground force.
And is providing us with opportunities to expand our geographic footprint and augment our specialty vehicle product offerings. The integration of these businesses is going well and we see meaningful opportunities for synergies and potential for additional investments to further strengthen and broaden our position in these <unk>.
Active niche markets.
We demonstrated our commitment to returning value to our stockholders funding a combined $37 million of cash dividends and share repurchases. Our 80 20 improvement initiatives remain a critical part of our culture and we continue to focus on reducing product costs and improving manufacturing efficiencies across all of our <unk>.
Mrs.
To highlight our ongoing focus on operating as a socially responsible and sustainable manner. We also published our second annual sustainability report in the fourth quarter.
Credibly proud of the progress that we've made on our environmental social and governance initiatives and thrilled to share. Our many accomplishments highlighted in this report I'll now turn the call back to Ian to go over the numbers.
Thank you Jennifer <unk>.
Financial results for the fourth quarter and full year of 2021 are provided in today's earnings release before I talk about the fourth quarter, Let me highlight some of our full year results.
Holliday said net sales for the year were approximately one point to $1 billion up $82 million or 7% compared to last year.
Operating income for the year was $137 million compared to $131 $4 million last year.
Holliday said adjusted EBITDA for the year was $185 million compared to $182 $2 million last year.
That translates to a margin of 14, 9% this year compared to 16, 1% last year.
GAAP earnings for the year equated to $1 63 per share up seven cents per share or 4% from last year.
On an adjusted basis, we reported full year earnings of $1 75 per share up eight cents per share or 5% from last year.
For the rest of my comments I will focus on comparisons of the fourth quarter of 2021 for the fourth quarter of 2020.
Consolidated net sales for the quarter were $301 million up $7 million or 2% compared to last year.
Consolidated operating income in Q4, this year was $30 1 million.
Compared to $33 $8 million last year.
Consolidated adjusted EBITDA for the quarter was $40 million compared to $47 million last year that translates to a margin of 13, 3% in Q4 this year compared to 15, 9% last year in.
In the current year quarter, we incurred a noncash pretax pension settlement charge of $10 $3 million in connection with a defined benefit pension and utilization project and realized approximately $3 million more in discrete tax benefits than in the prior year quarter.
Including both of those items and a benefit from M&A related activity. Our income from continuing operations. In Q4. This year was $19 5 million compared to $26 million last year.
Equate the GAAP EPS of <unk> 32 per share compared to 42 cents per share last year.
On an adjusted basis EPS for Q4. This year was <unk> 40 per share, which compares to <unk> 44 per share last year.
Orders in Q4, this year with $444 million, a new record for the company and an increase of $168 million or 61% from last year.
Our orders in the current year quarter included approximately $18 million of backlog acquired in the ground force and diced acquisitions.
The unprecedented order intake contributed to our record backlog at the end of the year of $629 million more than double the amount at the end of last year.
In terms of our fourth quarter group results Esg's sales were $246 million, an increase of $8 million or 3% compared to last year.
Esg's adjusted EBITDA for the quarter was $36 2 million.
Compared to $44 $2 million last year.
That translates to an adjusted EBITDA margin of 14, 7% in Q4, this year compared to 18, 6% last year.
During the quarter various commodity costs continue to increase and chassis delivery dates slipped the pricing actions. We had previously implemented assume delivery of chassis uncertain promise dates.
As these deliveries were pushed out we experienced an unfavorable price cost headwind of around $5 million during the quarter, which was about $2 million higher than we had previously anticipated.
This impact was primarily felt within our dump truck businesses, where the customer provides the chassis and we have less control over delivery dates.
We also saw a significant increase in Corona virus related medical expenses during the quarter incurring approximately $2 million of expense associated with a handful of hospitals.
And tragically, our first COVID-19 related employees.
Within SSG sales for the quarter was $56 million compared to $57 million last year.
Ssg's adjusted EBITDA for the quarter was $11 million compared to $11 2 million a year ago and its adjusted EBITDA. In Q4. This year was 19, 7% compared to 19, 6% last year.
Corporate operating expenses in Q4, this year were $4 1 million compared to $9 $8 million last year with most of the reduction due to fair value adjustments of acquisition related liabilities.
Turning now to the consolidated income statement, where despite the year over year sales increase gross profit decreased by $8 $5 million Consol.
Consolidated gross margin for the quarter was 22, 4% compared to 25, 7% last year.
As a percentage of sales, our selling engineering general and administrative expenses for the quarter were down 50 basis points from Q4 last year.
During the fourth quarter, we recorded a $3 million benefit from acquisition related activity compared to $1 $3 million of expense last year with the majority of the year over year change driven by the fair value adjustment I just referenced.
Other items affecting the quarterly results include the pension settlement charge I mentioned earlier of $300000 increase in amortization expense and a $400000 reduction in other income.
In Q4. This year, we also recognized several discrete tax benefits, which resulted in a lower than expected effective tax rate for the quarter overall.
Overall, we recognized a $300000 tax benefit in Q4, this year compared to expense of $7 $6 million last year with the year over year change largely driven by lower pre tax income levels and the incremental discrete tax benefits, including.
Including discrete tax benefit our effective rate for the.
For 2021 was low at approximately 15% for 2022, we currently expect a tax rate of approximately 25% excluding any discrete tax benefits.
On an overall GAAP basis, we therefore earned 32 per share in Q4, this year compared with 42 per share in Q4 last year.
To facilitate earnings comparisons, we typically adjust our GAAP earnings per share for unusual items recorded in the current or prior year quarters and.
In the current year quarter, we made adjustments to GAAP earnings per share to exclude acquisition related benefits pension related charges and purchase accounting expense effects.
On this basis, our adjusted earnings in Q4. This year were <unk> 40 per share compared with 44 per share in Q4 last year.
Looking now at cash flow, where we generated $47 million of cash from operations during the quarter, bringing the total amount of year to date operating cash generation to $102 million.
Borrowings increased during the quarter with the acquisitions of ground forced in dice and the purchase of our Elgin manufacturing facility. We ended the quarter with $242 million of net debt and availability under our credit facility of $209 million.
Our current net debt leverage ratio remains low even after factoring in these acquisitions as well as our more recent purchase of our University Park manufacturing facility.
With our financial position remains strong we have significant flexibility to pursue strategic acquisitions invest in additional organic growth initiatives and return cash to stockholders through dividends and opportunistic share repurchases.
On that note, we paid a dividend of <unk> <unk> per share during the fourth quarter amounting to $5 5 million and we recently announced a similar dividend for the first quarter.
We also funded $12 million of share repurchases during the quarter.
That concludes my comments and I would now like to turn the call back to Jennifer.
Demand for our products remains at unprecedented levels with our fourth quarter order intake setting a new company record contributing to an all time high backlog at the end of the year in fact, our orders for the year exceeded $1 5 billion for the first time in the Companys history and were up 492.
$2 million or 47% from last year, we have seen improvement across the board with orders from both municipal and industrial customers up around 50% year over year.
With lead times for certain products extended as a result of this increased demand and with the need for certain customers to secure a chassis. We saw some dealers place advanced orders during the fourth quarter. This acceleration of orders, which has continued so far this year could cause some distortion.
And the comparability of our orders as we move through the year.
As we had anticipated our fourth quarter results were impacted by shortages and delays in delivery of various components, we required to manufacture our products.
In particular, a limited supply of chassis is associated with reduced allocations from chassis Oems and delivery delays forced us to constantly modify our production schedules and sporadically shut down operations at certain facilities, such disruptions impacted sales at almost all of our.
Co base businesses within our environmental solutions group.
Shortages of hydraulics pumps and certain electrical components also became more prominent this quarter, our teams have been creative and nimble and adapting and identifying solutions to these supply chain challenges.
As an example, our asset.
<unk> team has brought production of a number of components in house, including hand, stuffing soldering and testing PC boards that our suppliers were able to only partially complete.
With our diversified product and service offerings, we've been able to provide our customers with rental and used equipment to partially mitigate the current tightness in the supply chain, which has led to longer lead times for new equipment deliveries.
Overall, our aftermarket revenues in Q4, this year were up $12 million or 19% compared to last year growing to represent a higher share of esg's revenues for the quarter at around 30%.
Turning to labor towards the end of the year, we started to see an escalation of cases linked to the omicron variant, which caused a dramatic increase in employee related absences within our manufacturing facilities.
Many of our key suppliers also experienced the same.
Those trends have continued into the new year in January we were hit, particularly hard essentially all of our facilities recording almost 300 positive cases, which was about eight or nine times higher than the run rate in prior months in fact at one of our dump truck facilities, we had more than 40% of the workforce out at one point each.
With confirmed COVID-19 or through required quarantines overall, we estimate that we lost approximately 20000 direct labor hours across our facilities in January alone. As a result, we have not been able to operate as efficiently as we have plant thankfully we have seen some recent improvement in case counts.
Yeah.
Input costs related to purchase materials logistics and labor continued to rise in the quarter, Although we've seen some relief recently with the decline in steel prices aluminum has increased dramatically we.
We have also experienced delays in the receipt of customer supply chassis and our dump truck businesses at one of our truck facilities. For example, we are currently receiving about half of the chassis, we need to satisfy our current production demands.
With chassis deliveries being pushed out and with inflation at 40 year highs, we are experiencing margin pressure in our truck businesses. During the first quarter as we have throughout 2021, we have responded accordingly with pricing actions with various actions, we have taken including repricing of our backlog in a number of our.
Businesses, we are expecting to see improvements as we progressed throughout the year with more price realization expected as our backlog terms.
Looking forward, we remain focused on delivering strong results, while continuing to execute on our long term strategy. Our strong balance sheet provides opportunities for us to drive both our organic growth initiatives and pursue additional strategic acquisitions.
Over the last several years, we've transformed our end market exposure and implemented our revenue diversification strategy that has enabled us to adjust as needed to market conditions. Our aftermarket business has grown to represent about 30% of esg's revenues and we see additional opportunities to grow that business by expanding into new.
Geographies, we believe to be underserved.
We're also making progress with our electrification efforts and will be joined by the mayor of Los Angeles, and other state and local representatives for the delivery of the first to plug in hybrid electric Brougham Bear Street sweepers to be placed into service.
We have also begun demonstrations of our hybrid three wheel Pelican sweeper and solidified an agreement with a development partner for the hybrid system used in the hybrid broom bear sweeper demand for demonstrations from our dealer network is high we are exploring other ways to further integrate electrification into our suite of products with around 20%.
<unk> of our overall R&D budget allocated to these efforts.
As our orders suggest we are already seeing some of the impact from the federal stimulus funding that was introduced in 2021, providing much needed funding to state or local municipalities, whose budgets were impacted by the pandemic. We are also continuing to monitor developments with respect to a long term infrastructure legislation.
<unk>, which we believe will provide visibility for project planning and could see capital equipment demand increase in areas such as roads bridges broadband clean energy and public transportation builds out.
We anticipate this will provide significant benefits for the majority of our product offerings, including sales and rentals safe digging trucks road, marking equipment sewer cleaners Street sweepers dump trucks and trailers within our industrial markets. We continue to be bullish about our prospects with respect to our safe digging initiative.
<unk> and are monitoring further developments on the regulatory front.
With the recent increase in oil prices, we expect to see an uptick in demand for our safety of knee products. I recently attended two of our largest trade shows at these shows we showcased our road striping sewer cleaning and safety being projects, including the newest product and are expanding safe digging portfolio the true back tracks.
<unk> is a compact trailer with the power and features required at a variety of job sites to perform a wide range of tasks. This new product, which was developed by our true back innovation team and less than a year opens up a new and Mark's kit for our valuable toback lines reaction from our customer.
<unk> dealer at the show was overwhelmingly positive.
We are positioned federal signal in a manner in which we will fully participate in the post pandemic recovery through our investments in capacity within our facilities reduced lead times to where we can better respond to customer needs investing in new product development and gaining market share on the M&A pipeline.
Brian .
It remains active and we continue to believe that M&A will be an important part of our growth on the flip side like many companies. We expect the current supply chain environment and flush inflationary pressure to linger into two and 2022.
Turning now to our outlook, we remain encouraged by conditions in our end markets the ongoing execution against our strategic initiatives and the order trends that we've seen over the last few quarters, which have contributed to our record backlog entering 2022 as a reminder, seasonal effects typically result in our first quarter earnings being lower.
<unk> then subsequent quarters similar to most parts of the country. We have recently seen a dramatic increase in coronavirus cases, and quarantines that all of our domestic facilities adverse weather conditions also causes caused us to temporarily close operations at several facilities in January <unk>.
Combined with a highly unpredictable supply chain environment. These factors have caused significant disruption in operations. So far this year and we believe this uncertainty will continue at least during the first half of 2022 and.
In particular delays in receiving customer customer supply chassis have been more prevalent than we anticipated within our dump truck businesses on the other hand, we are encouraged that delivery of chassis that we procure from our suppliers for our factor alginate MRO businesses have to date been generally <unk>.
Line with our expectations.
We are also continuing to navigate our way through unprecedented inflationary pressure.
Though we have taken actions in response to supply chain constraints have been delay have delayed the realization of some of those actions.
Because of these factors we are not currently operating at our expected level of efficiency.
Nevertheless, and despite the softer than normal first quarter, we anticipate recovery over the remainder of the year and currently expect our earnings in the second half of the year.
Represent approximately 60% of our full year earnings for the full year. We currently expect to report net sales of between 1.35 billion and 145 billion and adjusted EPS of between $1 76, and $2 per share despite a headwind of approximately <unk> <unk>.
<unk> per share, resulting from the normalization of our tax rate in 2022.
With backlog as it indicated that market demand remains robust for most of our products and active M&A pipeline ongoing investments in new product development capacity expansions in our people and with anticipated multiyear tail winds from the infrastructure legislation passed in November our businesses are well.
Position for long term sustainable growth with that we're ready to open the line for questions operator.
We will now begin the question and answer session to join the question queue Chris.
<unk> Star then one on your telephone keypad.
Eric coding lodging a request if youre using a speakerphone. Please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then two.
We'll pause for a moment as callers join the queue.
Yeah.
The first question comes from Steve Barker from Keybanc capital markets. Please go ahead.
Hey, good morning.
Good morning.
I'll just start on ESG operating margin, it's been in a pretty tight range around the low 13% area for about four years now and modeling. This out it seems like 2022 margin could be similar to last year.
Can you talk about how you see a path to higher margin in ESG or is the plan more just maintaining this kind of range while growing the topline.
Yeah, I think obviously, Steve the recent acquisitions we've had.
Been included within the ESG ESG segment, I think when we think about the potential to grow.
The margins in that segment.
We do when we look at acquisitions one of the questions. We ask ourselves is whether they are operating within that target range currently.
Or whether they have the ability to get within that range. After a period of two to three years. Once we we can start applying our 80 20 principles. So I think that would be one area. The two acquisitions.
We completed in Q4.
Of those diced had a double digit EBITDA margin.
The time of acquisition and ground force was within our range towards the lower end of our target range for the group. So we think there is room to grow those those businesses. We also think theres room to grow the aftermarket businesses.
Jennifer mentioned, we're looking to expand into some new geographies that we think are underserved. So we think that margin profile would allow for some some margin improvement on the ESG side.
But am I correct in thinking that.
<unk> kind of contemplates a similar margin range in ESG in 2022, as we saw in 'twenty, one, yes, I think thats, probably faster because as we've talked about there is some pressure in the first quarter as we described because the dump truck businesses as a component of ESG. So there will be some pressure in Q1, but as we move through the year, we're expecting that to <unk>.
As we start to realize more price so I think overall.
We typically look at EBITA margin, Steve for that business at target ranges, our EBITDA margins as opposed to the operating margin because of the amortization impact as it relates to the recent acquisitions. So.
From an EBITDA margin standpoint, I still think we're expecting.
ESG would be operating in the upper half of its target range for 'twenty two.
Yeah, and the pandemic and some of the supply chain challenges.
<unk> delayed.
Some of our expectations regarding margin improvement of the recent acquisitions.
We've got plans in place we've been able to successfully improved margin profile of previous acquisitions.
And that has been delayed in part because of the pandemic and supply chain challenges.
Yeah, understood and I guess to that point when I when I think about the 40 60 front half back half weighting. It seems like Youre thinking <unk> EPS comes in well below <unk> 21.
And do you expect <unk> is below as well or is that pressure primarily in <unk> manifesting in a much weaker quarter and then more normalizing in <unk>.
It is a much weaker quarter for Q1 and more normalizing in Q2.
Got it and I'll just ask one more and then jump back in line.
As you think about your mix of organic growth and the likely pace of acquisitions. If we assume that you continue at the rate you have done what is the right incremental margin on a consolidated basis going forward.
And I know, it's a tough question to answer because of mix and acquisition integration costs and everything else, but just your guidance. This year kind of implies a mid teen or slightly below at the midpoint is that where are we kind of live if you continue to do deals at this rate.
I guess I'll go back to what Ian said is.
We're very focused when we evaluate acquisitions about whether they can operate within that target range and it's not just for acquisitions. It's also as we look at new organic.
Growth initiatives, our new projects, we look again at whether they can operate within that target range through the cycle.
And given our backlogs as we move through the supply chain I'm very challenges I'm very confident with the capacity expansions that we've done that we'll be able to move to the higher end of those ranges as we move through the year.
Particularly for our <unk> and <unk> businesses.
Got it thanks.
The next question comes from Mike <unk> from D. A Davidson. Please go ahead.
Good morning, Mike Good morning.
Good morning. This is David Johnson to provide you actually [laughter].
Okay.
A little over a year now the new presidential administration can you share any information on any changes made by osha or other government agencies that might be supportive of the safety and security business in the near term.
With respect to Osha one of the things that we monitor very closely is on the safe digging side of things and.
And we continue to see more states adopt safe digging as.
The past practice similar to what Osha has done and that we believe will be a very important tailwind for that particular business.
We haven't seen any specific action on that would benefit the SSG side.
Obviously, the as we talked about the federal stimulus package that was passed and we are.
Starting to see the benefit of that with respect to our orders.
There are certain municipalities that frankly, couldnt afford our products.
And with access to these funds they've been able to afford our products.
And again.
One of the things that I'm very encouraged about is the infrastructure legislation that was passed in November of last year.
So theres going to be some commentary this evening, but how it is going to be dispersed and we believe that's a very important catalyst for growth for most of our businesses.
Got you that's very helpful. Thank you and.
Also do you see any customers switching brands or even trying to find used trucks for up fitting.
I think right now.
Given the chassis constraints that customers are trying to find new chassis used chassis as any chassis that they can.
As I talked about on the call one of the things. We are encouraged about is although were on allocation for our non dump truck businesses. The.
The chassis supply has been more predictable, which has helped us with efficiency in those businesses and we believe based on what the chassis suppliers are saying that we should see some improvement in the second half of this year.
Awesome. Thank you very much.
The next question comes from Walter Liptak from Seaport Global Securities. Please go ahead.
Good morning, Walt Hi, good morning, good morning.
So wanted to ask about the revenue guidance.
At the low end of the 2022 sales guidance of.
<unk> three 5 billion that seems a little bit low considering.
The order entry in the backlog and things like that.
I Wonder if you could talk about what would have to go wrong.
For you to come in at the low end.
We've assumed that they're going to be improvements in supply chain in the second half of the year.
Based on what we've seen so far this year.
I said, we are encouraged about kind of the chassis predictability, particularly for our factor Allergan and MRO businesses and if those assumptions were wrong that we didn't see that improvement in the second half of the year that can move us to the lower end of the range.
Okay <unk>.
The resurgence of if we saw the other thing I would add is if we saw some type of resurgence of the Corona virus.
Similar to what we saw in January .
Which I do believe it's unprecedented.
Yes, it sounds like things are getting better, though so that's good right.
<unk>.
Yeah.
Okay.
The order entry looked great I Wonder if you could just go into a little bit more detail you made a comment in the prepared remarks about some dealers, placing orders in advance of something I Wonder if you could just flush that out a little bit.
Sure I guess, the first comment I want to make is we've done analysis and the strong orders were really across the board.
That was one of the things we are encouraged about it wasn't EBIT, we saw really nice improvement.
In both the municipal and the industrial side of the business, however, with longer lead times.
We've seen some of our dealers placed orders the other important factor is chassis availability for them.
And so in order to secure the chassis that they need.
It is easier to secure those chassis if they've placed orders.
But again I want to emphasize that we saw those strong order trends continue in January .
And we're encouraged by what we're seeing.
Okay that sounds great and maybe a last one for me is just on.
The aftermarket in ESG at 30%.
Is good what was the growth rate of after market and is that something thats sustainable.
Yes. So if you if you look at kind of Q4.
The aftermarket revenues in the aggregate were up about $12 million. So that's a growth rate of about 19%.
Then for the full year it would have been up about $56 million and that's up 24% growth rate. So.
I think what we what we described on the.
Our prepared remarks with the tightness in the supply chain, having this tool in our toolbox to be able to offer red rentals or used equipment to our customers.
We're certainly seeing the benefits of that strategy in 'twenty, one and we expect that to continue in 'twenty. Two so we think the.
The after market business continues to be an area of focus for us.
80% of <unk> revenue, that's kind of close to what we were aiming.
Aiming for.
When we started on this journey. So I think we are.
Certainly encouraged with the prospects and as we described we're looking to potentially expand into some new geographies that we think are underserved.
Absolutely.
Aftermarkets team just had a fantastic 2021 is really off to a strong start and we're continue to be encouraged by the growth opportunities.
So that business unit.
Okay, great. Thanks.
The next question comes from Chris Moore with CJS Securities. Please go ahead.
Hey, good morning, guys. Thanks for taking a few.
Yes. Good morning, maybe just trying to get a sense for the rough mix between.
Volume and price at the midpoint of revenue guidance and.
How would that would change if you were able to approach the higher end with higher rent be more more volume focused.
Yeah, I think Chris if you look at the overall.
Kind of implied growth rate in our revenue outlook, it's 11% to 20%.
There is obviously the full year contributions from the acquisitions. So that's between 40.
6% and 7% of the growth is coming from from the acquisitions and so that implies kind of organic growth of between four and 12%.
I think the pricing is probably more in the kind of 3% to 5% range based on the actions that we've taken.
Obviously, the volume is the variable in that equation as we've talked about the supply chain. So I think it's more to get to the upper end of the range, it's more of a volume.
Driver.
As we if we get more supplies and if it eases beyond what we expect then I think we would be.
Likely towards the upper end of the range or the upper half of the range and as I think about it.
We did a number of capacity expansions.
We have the backlog we have generally good access to labor.
And so <unk>.
As we move through these issues, which I'm confident we will we are in an excellent position for.
For the second half of this year and as we move into 'twenty three.
Got it that makes sense.
Hum.
We're talking about aftermarket so just in terms of.
Used equipment sales and in Q4 of them I'm, assuming that that was up meaningfully is that have any impact in your.
Kind of rental revenue in 'twenty two.
Given the difficulty to.
To build things in and have that rental fleet, where you need to be.
Hey.
Yeah, I mean, obviously with the strength of the used equipment sales and you're right. It was up about 50% year over year in Q4, Chris So it was.
Strong used equipment sales that we saw.
We had factored into our plans for 'twenty two.
In our planning processes.
A significant replenishment of our own fleets.
And in fact growing the size of the fleet. So that's all baked into our plans that we have in the factories and we've gone out and we've made sure we procure the chassis to fulfill that demand. So we.
We are still expecting rental income to grow year over year, but as I say, we had factored all of that into our plans for 'twenty. Two so that's baked into the outlook yeah to reiterate we are still on track.
With respect to the investments that we're making in our rental fleet.
For 2022 to support that year over year growth.
Got it I.
I appreciate it I'll leave it there thanks guys.
Thank you.
The next question comes from Greg Burns with Sidoti and company. Please go ahead.
Good morning, Greg Good morning.
Can you just talk about the complexion of the backlog the split between municipal and industrial and what what is tied to fixed contracts and the timing of kind.
I know how you see the the pricing realization occurring over the next year.
I think.
When we look at our orders we've seen.
I think Jennifer mentioned, it's been across the board so both municipal and industrial orders.
In 'twenty, one were both up in excess of 50%. So it's a nice bal.
Balance of Muni and and in industrial.
There are obviously some on the municipal side.
It is a little more difficult to have price adjustments of the backlog. So there is a little bit more pressure on on the municipal side of the business and I think thats, what some some of the impacts that we're expecting in Q1 on the on the dump truck side is reflective of that municipal business that is.
That is not including the price adjustments that we've made.
Okay.
In terms of the dump truck business is there anything you can do to.
The your customers get supply of chassis like can you support like user.
Procurement is get them chassis is like is there any any remediation that you could do for them.
Going forward, but rest assured we're exploring every option.
Okay.
Okay.
And then on the electric.
Certification front.
When you look at the competitive landscape, where where do you think you are in terms of.
Electrification projects or are there other competitors out there with.
Demo trucks do you have a sense of like kind of where where you sit in terms of.
Your market position in terms of electrification.
We believe with respect to the U S manufacturers in the markets. We operate we're in a leading market position on electrification on the street sweeper side of things there are some smaller European players.
That have electric offerings.
Though generally U S municipalities tend to buy from U S manufacturers.
Okay, and then when we think about electrification is that like will that expand your total addressable market or is it more is it going to be more of like a a replacement cycle accelerator.
I think it's really both.
Because given our focus on electrification and the products that we've introduced.
There are certain municipalities that have objectives in terms of buying electric vehicles. So we believe that will be in a leading position to provide those and also as replacement cycles occur.
They will consider our product vis vis competitors, given where we are on that development journey.
Okay. Thank you.
Once again, if you have a question. Please press Star then one.
The next question comes from Marco Rodriguez from Stonegate capital markets. Please go ahead.
Good morning, Mark and good morning, everybody. Good morning, Thank you for taking my questions.
I was wondering if maybe you could talk a little bit more about the chassis lead times, obviously at some place chain issues are all over the place, but can you help us kind of understand.
What are those lead times look like and in weeks or months.
Contrast that to what is a normal lead.
The lead time, and how you kind of see if I'm if.
If I remember correctly in your prepared remarks, you said youre expecting that to improve in the second half you can just kind of give us a sense of that improvement.
Sure.
You know it really varies business to business.
So with respect to our dump truck business as we do not procure the cab chassis. So it's a very it's up to it can vary depending on the type of customer.
With respect to our.
Baxter Algin morale businesses.
It's a combination in some cases, we procure the chassis in some cases our customers procure the chassis. We have worked very closely with our customers.
On a number of aggressive chassis procurement initiatives.
So lead.
Lead times are extended right now all the chassis manufacturers. The vast majority are sold out for 2022. So we're into 2023, we have our allocations.
As to our dealers for 2022.
Where there is upside is if we can procure additional chassis and our teams and our dealers are very focused on opportunities to procure additional chassis because what I said earlier as you know we're in a position where we've done a number of capacity expansions, we have relatively good access to labor.
So we're ready to go because we want to reduce our own lead times, given our unprecedented backlogs.
Got it. Thank you and then in terms of the margin pressures you guys saw.
Might have been a commentary and I appreciate some of the figures I believe I got a $5 million headwind price cost.
Most of that is in the gross margin pressure line can you, maybe just kind of unpack that area.
It seems like it came up a bit short versus at.
At least for our estimates.
Where were the big numbers that you saw and if you could help kind of rank. The pressures you saw there and I'm, assuming based on guidance that the expectations or any of that pressure should remain in Q1, and maybe alleviate a bit in Q2.
Yes, so on the gross margin front for Q4, and so that we had the $5 million RFA.
Unfavorable price cost impact in the fourth quarter.
We also had a 2 million dollar.
Increase in Corona virus medical expenses that we described in our prepared remarks, so combined that's about $7 million of pressure.
It would have really been impacting the gross margins within ESG. So when you look at that comparison Q.
Q4, we went from about 23, a little over 23% down to little little under 20% on the gross margin front in Q4, if you adjust for those two things it would've been more.
More in line I would say, although it would have still been down slightly with just some of the general inefficiencies we had.
In the supply chain disruption. So I think those are the two largest.
Variables that we mentioned in our prepared remarks that impacted gross margin in the quarter.
Got it and just the manufacturing inefficiencies that you had with with all the absence.
I don't remember if I see if you've mentioned this in the call, but that has started to improve our hazard Kruger is gone and obviously you are not operating at peak capacity because you don't have the chassis availability, but if you kind of comment on that a little bit.
Sure absolutely we've.
We've seen dramatic improvement in the second half of February .
Well, we're really back to kind of a more normal state.
In this corona virus world.
So it started.
Similar to the rest of the country.
And in our Canadian operations also it started and.
Toward the holidays in December it peaked pretty dramatically in January and then as we exited January we saw a dramatic decline.
Got it and then in terms of the M&A pipeline that.
You had mentioned you're obviously very focused on that it's an important part of your overall strategy I'm just kind of wondering here with.
With all the volatility that's out there from a macro standpoint.
Also given the fact that you guys did.
Three acquisitions last year, which I believe is the most acquisitions you've done in about a 12 month period for at least the last seven years can you maybe talk a little bit about your ability to take on more acquisitions.
We think we're very well positioned to take on more act positions and we have we're in active dialogue right now it's a critical part of our growth story.
We believe that our aftermarket business as we referenced earlier.
There are opportunities there for opportunities really across the board.
And we think we're getting a playbook down pretty well the other thing Thats important to note is two of the three acquisitions that we did in 2021 were acquisitions that we sourced they were exclusive to us and we have that ongoing dialogue going on.
And so.
We believe we've got a good playbook and we're committed to executing against that.
Got it. Thank you guys I appreciate the time.
Thank you.
This concludes our question and answer session.
I would like to turn the conference back over to Jennifer Sherman for any closing remarks.
Thank you in closing I would like to reiterate that we are confident in our long term prospects for our business in our markets. Our teams are performing at a high level and remain focused on delivering high quality results. We continue to aggressively address supply chain challenges and we believe we are winning in the marketplace with our customers.
We remain committed to investing in our businesses and our people to generate sustained long term success for our shareholders. Our foundation is strong and we are focused on delivering profitable long term growth.
Through the execution of our strategic initiative. Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yeah.
[music].
Yeah.
Okay.
[music].
Okay.
Okay.
Okay.
Yeah.
Yes.
Yes.
Yes.
Yeah.
Yeah.
Yeah.
Okay.
Mhm.
Okay.
Hum.
Okay.
Mhm.
Hum.
[music].
<unk>.
Yeah.
Yeah.
Yeah.
Okay.
Okay.
Hum.
Yeah.
Okay.
Yeah.
Okay.
[music].
Okay.
Okay.
Okay.
[music].
Yeah.
[music].
Yeah.
Oh.
Yeah.