Q1 2022 Federal Signal Corp Earnings Call
Thank you for standing by this is the conference operator welcome to the Federal Signal Corporation first quarter 2022 earnings Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded 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 should you need assistance during the conference call you May signal, an operator by pressing star Zero 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 first quarter conference call.
I mean Hudson, the company's Chief Financial Officer.
Also with me on the call today is Jennifer Sherman, our President and Chief Executive Officer.
We were affected some presentation slides today as well as to the earnings news 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 we begin I'd like to remind you that some of all 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.
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.
In our earnings release and filings we reconcile these non-GAAP measures to GAAP measures.
In addition, we will file our Form 10-Q later today.
I'm going to begin today by providing some detail on our first quarter results before turning the call over to Jennifer to provide her perspective on our performance market conditions and our outlook for the remainder of the year.
After our prepared comments, Jennifer and I will address your questions.
Our consolidated first quarter financial results provided in today's earnings release.
In summary, we delivered solid financial results for the quarter with 18% topline growth and EBITDA margin performance, where they're not target range. Despite a slow start to the year.
Consolidated net sales for the quarter with $330 million up $51 million or 18% compared to last year.
Consolidated operating income for the quarter was $28 5 million up 700.
$1000 or 3% compared to last year Consol.
Consolidated adjusted EBITDA for the quarter was $42 $2 million up $1 million or 2% compared to last year.
That translates to a margin of 12, 8% in Q1 this year compared to 14, 8% last year.
GAAP EPS for the quarter was 33 per share compared to 36 cents per share last year.
On an adjusted basis EPS for the quarter was 34 cents per share compared to 38 cents per share last year.
Order intake for the quarter was again outstanding and we again reported record orders in the first quarter, surpassing the previous high which we set in Q4 of last year in.
In total orders in Q1, this year with $453 million, an increase of $69 million or 18% compared to Q1 last year.
Backlog at the end of the quarter with $751 million. Another all time high for the company and an increase of $342 million or 83% compared to Q1 last year.
In terms of our group results Esg's net sales for the quarter with 274 million.
Yeah.
Up $46 million or 20% compared to last year.
Esg's operating income for the quarter was $26 8 million compared to $27 $1 million last year.
Esg's adjusted EBITDA for the quarter was $39 3 million in line with the prior year.
That translates to an adjusted EBITDA margin for the quarter of 14, 3% compared to 17, 2% last year.
ESG reported total orders of $388 million in Q1, this year, an improvement of $63 million or 20% compared to last year.
SSG net sales for the quarter were $56 million up $5 million or 10% from last year.
<unk> operating income for the quarter was seven 9 million up $700000 or 10% compared to last year.
<unk> adjusted EBITDA for the quarter was $8 9 million.
$100000 or 9%.
That translates to an adjusted EBITDA margin for the quarter of 15, 9% compared to 16, 2% last year.
Ssg's orders for the quarter was $65 million up $5 million or 9% compared to last year.
Corporate operating expenses for the quarter was $6 2 million down $300000 or 5% compared to last year.
The reduction was largely due to favorable mark to market adjustments of post retirement reserves.
Turning now to the consolidated income statement, where the increase in sales contributed to a $6 9 million improvement in gross profit <unk>.
Including the effects of production inefficiencies that we encountered in the early parts of the year consolidated gross margin for the quarter was 22, 9% compared to 24, 7% last year.
On a year over year basis, our pricing actions largely covered our cost increases.
Hello.
As we had anticipated this cost inflation did create some margin pressure in Q1, but with the actions. We have taken we are expecting more price realization and margin improvement as we move forward.
As a percentage of sales, our selling engineering general and administrative expenses for the quarter were down 50 basis points from Q1 last year.
Other items affecting the quarterly results include a $700000 increase in amortization expense and a $200000 increase in interest expense.
<unk> expense for the quarter was up $2 $1 million largely due to the recognition of $1 9 million fewer excess tax benefits from stock compensation activity as compared to last year.
As a result of our effective tax rate for the quarter was 25, 7% compared to 18, 4% last year.
At this time, we continue to expect our full year effective tax rate to be approximately 25%.
On an overall GAAP basis, we therefore around <unk> 33 per share in Q1, this year compared with 36 cents per share in Q1 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 in the current year quarter, we made adjustments to GAAP earnings per share to exclude acquisition related expenses.
This basis, our adjusted earnings for the quarter was <unk> 34 per share compared with 38 cents per share last year.
Looking now at cash flow, where we generated $7 million of cash from operations during the quarter.
We ended the quarter with $291 million of net debt and availability under our credit facility of $162 million.
Current net debt leverage remains low even after the funding of the purchase of our University Park facility during the quarter for approximately $28 million.
With our financial position remains strong we have significant flexibility to invest in organic growth initiatives pursue strategic acquisitions and return cash to stockholders through dividends and opportunistic share repurchases.
On that note, we paid dividends of $5 5 million during the quarter, reflecting a dividend of <unk> <unk> per share and we recently announced a similar dividend for the second quarter.
We also funded $13 $6 million of share repurchases during the quarter.
That concludes my comments and I would now like to turn the call over to Jennifer.
During the quarter, our business has worked diligently to mitigate the impact of ongoing supply chain volatility and increased corona virus related disruption that we experienced in many of our facilities in January as.
As we mentioned on our last earnings call, we were hit, particularly hard by an escalation of Covid related absences in January and essentially all of our facilities. Overall, we estimate that we lost approximately 20000 direct labor hours across our facilities in January alone Thankfully we.
A dramatic reduction in cases in February which continued into March.
After a slow start we also noted improvement in chassis deliveries within our dump truck business in March. These factors contributed to a meaningful improvement in production levels and customer deliveries as the quarter progressed.
Overall, our top line increased by over $50 million year over year with both of our groups reporting double digit revenue growth, including benefits from pricing actions and contributions from recent acquisitions.
Within our environmental solutions group, the 20% year over year sales increase was partially driven by higher sales of safe digging trucks dump bodies metal extraction support equipment and trailers our strategy to diversify our revenue streams by broadening our aftermarket offerings also.
Continued to provide benefits in the first quarter with tightness in the supply chain and extended lead times for new equipment deliveries. We again saw increased demand for rentals parts and used equipment sales overall aftermarket revenues for the quarter were up 20% compared to last year representing.
<unk> $12 million of ESG year over year rapid growth, we continue to be encouraged by the resilience and growth opportunities of our aftermarket group.
Within our safety and security systems group, the 10% sales improvement was primarily due to higher sales of public safety equipment with our efforts to expand our supply base and execution of our E. T. I principles to in source production of certain materials component availability for these products has a pre.
<unk> in recent months, which resulted in an increase in shipments compared to last year.
Despite the challenges we faced during the quarter. Our teams were successful in delivering a consolidated EBITDA margin within our target range.
Assistant performance within our target range is a key focus of ours and we continue to believe this level of sustained operational excellence differentiates federal signal from many of our specialty vehicle peers.
Demand for our products and our aftermarket offerings remains at unprecedented levels. The momentum has been across the board with orders from both municipal and industrial customers up around 25% year over year within our municipal markets. We are seeing the benefits from the American.
Rescue Plan Act, which in 2021 earmarked 350 billion for state local and territorial governments for a variety of purposes, including maintenance of essential infrastructure, such as sewer systems and St.
The first 170 billion tranche started to be distributed last year, and we are seeing that translate to new business with our first quarter orders for sewer cleaners and street sweepers, both up by more than 40% compared to last year with the second 175 billion tranche expected.
To be distributed this year, including multi year appropriation and spending deadlines, we expect to see a prolonged meaningful tailwind from these stimulus packages. This positive sentiment was widely shared by our customers and dealer partners and recent market planning meetings within our public safety and Mark.
Demand remains strong our order backlog for public safety equipment at the end of the quarter was more than double that at the same time last year. We are actively working to try to reduce the current lead times and backlog on.
On the industrial side with the recent increase in oil prices, we have seen higher demand for many of our ESG products, including vacuum motors water blasting equipment and safe digging products in fact, our first quarter orders for safe digging trucks were up 90% compared to the prior year.
Yeah.
Rental interest from industrial contractors was also high and our Jetstream business reported record revenues for its water blasting equipment rentals in the first quarter.
Within SSG, we've also seen a significant uptick in quoting activity for industrial signaling equipment and warning systems.
With the increased demand, causing lead times for certain products to become extended and with the need for certain customers to secure a chassis. We again saw some dealers, placing advanced orders during the quarter, which could cause some distortion in the comparability of our orders as we move through the year.
Now turning to supply chain, where for the majority of our vehicle based businesses with the ear within ESG chassis deliveries from the various suppliers that we utilized have largely remained on schedule with committed delivery dates within our dump truck businesses, where the customer always provides the chassis we.
Spec the floor of chess is maybe volatile for the next several quarters. However, we were encouraged with the volume of chassis deliveries that we saw in March.
Short of just of hydraulics pumps, and certain electrical components continue to make production challenging, but our teams continue to be creative and nimble and adapting and identifying solutions to these supply chain challenges.
For example, our teams have secured alternative suppliers purchase purchased certain buffer inventory start to in source or reengineer products, where possible and modified production schedules schedules based on component availability.
As we look ahead, we are closely monitoring the recent corona virus related lockdowns in China, while our direct exposure to sourcing from China is insignificant the indirect impact it may have on our supply base is currently uncertain.
On the geopolitical front, we have no operations in Ukraine, Russia, Belarus, and we do not have any direct supply chain or customer exposure and.
In response to the unprecedented inflationary environment. Our teams continue to take proactive measures such as locking in pricing and securing availability of steel based on forecasted needs and implementing price increases and surcharges to date, we have not experienced significant order cancellation.
<unk> on the announcement of our pricing actions.
Our access to labor remained strong and our teams have built a great culture, which has helped us to differentiate ourselves in our ability to attract and retain talented and dedicated employees at the majority of our facilities. As an example at our largest manufacturing facility in Streator, Illinois.
Over many years. The team has worked extensively with the local community to build awareness around job opportunities. These efforts have included partnering with local high schools and colleges toast career fairs Open shop Night scholarship program, well, then fabricator programs and even high school signing.
Days, where students can declare they are joining the Baxter team.
As a result of the team's continued efforts the team has been successful.
Filling 40 positions to support increased volumes since the beginning of the year.
During April we also successfully renegotiated our union contract, which covers about half of our employees that are Union Adversity Park, Illinois facility, which is home to our domestic SSG operations.
Access to a strong talent base was a key factor in our decision to purchase this facility during the first quarter.
Simply stated our access to labor is generally good and is not currently a constraint.
We have a number of ESG related initiatives.
<unk> focused on diversity equity and inclusion for example, we are pleased to report that 60% of our current executive officers are gender diverse placing federal signal well above the average of our industry and peer groups. We also have an ongoing focus on the environment and process improve.
For example, at our manufacturing facility in tissue Mingo, Mississippi, We have recently embarked on a phone reclamation project aimed at dramatically, reducing the purchase of new foam, thus reducing landfill content.
I know I wanted to take a few minutes to provide an update on a couple of our growth initiatives. We remain bullish about our long term prospects with respect to safe digging and continue to identify new applications for this technology for example increased demand and spend on broadband infrastructure is.
Generating additional interest in our broad range of product offerings that can vacuum excavator and or convey materials in a safe and efficient manner.
Our equipment is designed to meet the production capacity and maneuverability needs to.
To be compliant to complement the multiple horizontal drilling and trenching methods used to install this infrastructure below the surface.
With the infrastructure Bill 65 billion allocation towards broadband infrastructure. We anticipate continued demand for all of our equipment that is integral to the process of improving and expanding the infrastructure during the quarter. We introduced the true Vac truck trailer the newest Prada.
Offering and are expanding safe digging portfolio with strong order activity in the first quarter, we've already filled the majority of production slots for the year.
Electrification also remains a key area of investment we have launched our plug in hybrid electric Brougham bear sweeper and become demonstrations of our hybrid three wheel Pelican sweeper demand for demonstrations of these products within our dealer network remains high.
In collaboration with multiple chassis manufacturers our teams plan to begin field testing and all electric truck mounted sweeper later this year working with a number of different partners. Our research and development teams continue to explore other ways to fully integrate electrification into our suite of products.
As an example, within our dump truck business, our rugby team successfully incorporated our new Vera class body platform into a fully electric class seven chance.
Okay.
At the.
2022 work truck show, we expect this to be the first of several collaborations with chassis manufacturers, who are seeking to demonstrate dump truck bodies or platforms on their electric chassis.
Our aftermarket business has grown to represent approximately 30% of ESG revenues and we see additional opportunities to grow that business by expanding into new geographies, we believe to be underserved on the acquisition front, we are making good progress integrating our recent acquisitions ground force and ties.
And we were pleased with their performance in the first quarter. Our deal pipeline remains very active and we continue to expect M&A to be an important part of our future growth.
Turning now to our outlook for the rest of the year. We made we remain encouraged by conditions in our end markets.
Ongoing execution against our strategic initiatives and the order trends, we've seen over the last few quarters.
Although we expect the volatile supply chain environment to continue we are encouraged with how our teams have navigated through these challenges. So far this year with our first quarter performance our record backlog and current expectations of component availability, we are raising the low end of our full year adjusted EPS outlook.
Range by four cents, establishing a new range of $1 80 to $2. We are also increasing the low end of our full year net sales outlook range by $30 million, establishing a new range of 1.38 billion to $1 four 5 billion with our talented workforce and capacity expansion.
<unk> had several facilities our businesses are well positioned for long term sustainable continued growth once the supply chain environment normalize.
Demand for our products is at an all time high with federal stimulus and infrastructure legislation offering potential for further multi year momentum at this time I think we are ready for questions operator.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two we will pause for a mom.
As callers join the queue.
Our first question comes from Steve Barker of Keybanc capital markets. Please go ahead.
Good morning, Steve.
Hey, Good morning, guys. This is actually Ken Newman on for Steve.
Hi, Pat.
Good morning.
So my first question is I'm curious if you could just comment on where price cost ended up in the corner and just any thoughts on how we should think about price cost spread that's implied at the midpoint of the updated guidance here.
Yeah, Hey, Ken this is Dan so so as it relates to the price cost in terms of the absolute dollars, we feel that on a year over year basis. The the actions that we took.
Last year effectively covered the cost increases that we saw on a year over year basis. So that was actually slightly better than what we were anticipating and the main reason for that was because we were able to ship more than we anticipated on the dump truck side of the business with the chassis flow that we saw in March.
So.
In absolute dollars. It was it was neutral now obviously from a from a margin standpoint, there was some pressure created with the inflation that we saw as we move forward for the rest of the year, we are expecting that to continue to improve as we flush out more of the backlog and more of that ships.
So yes, we are expecting.
Margins to improve as we realize more price going forward and I guess I'll add there we took a number of additional pricing actions in Q1, and we should see the benefit of that as we move through the year.
Okay.
So that leads into my my follow up question, which is you know.
Just given that it sounds like the supply chain is improving a little bit better than you expected on the on the chassis side, obviously, you're implementing more pricing actions and do you expect margins to get better from here.
Wanted to ask you about the thought process about not bumping the higher end of the guidance and just how much conservatism is kind of embedded in the higher end there.
Yeah, I guess I'll make a couple comments as we talked about you know it was a rough January .
And our performance improved as we moved throughout the quarter.
And just to remind you there's.
There's two aspects to that.
For our non dump truck businesses.
We are seeing the situation is very similar to what it was the last time, we spoke were getting the chassis to the chassis Oems committed to deliver to us on the dump truck side of the business, where we never owned the chassis we are beholden to others.
And we did see some improvement in March as we mentioned in our prepared remarks, we expect in the dump truck side of the business for that to remain volatile as we move throughout the year.
On the non chassis supply chain front I would say it's about the same as it was when we talk to you six weeks ago.
You can sub in different components.
But what's changed is our teams are you know pretty scrappy, and getting better and better at dealing with it so given the uncertainty in the market, particularly around chassis availability for our dump truck business.
We felt comfortable raising the low end and you know we'll update the guidance as we move throughout the year.
Understood. If I can just squeeze one more in you know I think last time, you had mentioned that.
The thought about the.
The year kind of being a 40 60 split between the first half in the second half.
This to me like the quarter came in better than you expected. So is that 40 60 split still kind of in play or just how should we think about the cadence between the first and second half at this point.
Yeah, Ken I think I think that's still a reasonable estimate.
Understood. Thanks, I'll get back in the months.
Thank you.
Our next question comes from Felix <unk> of Raymond James. Please go ahead.
Good morning, Phil.
Everybody, Hey, Jennifer Hagen.
Jennifer I was curious if we could talk a little bit about the sustainability of the strength you've seen in the aftermarket book again, I think up 20% year over year.
You did mention.
You know some geographic expansion maybe in that part of the business I was hoping you could you could maybe expand on both commentary what what happens if new truck production increases do we see sort of aftermarket up.
Or how secular how secular how sticky is sort of this current run rate you're seeing.
Yeah.
Aftermarket business has a seasonality component to it based on you know that's really driven by rentals, so I'll start with that comment.
So it can vary quarter to quarter, but we have a number of strategic initiatives around our aftermarket business you referred to one of them the geographic expansion.
We're in the process of executing on that over the next quarter several quarters and we're excited about the opportunity that that presents for the company.
In addition to that we have a number of other initiatives, particularly around our used equipment.
And around parts.
We've got a project, where we are actually manufacturing certain will fit part.
And although we're in very early stages, it's gotten off to a strong start.
So it's also just a super team and I'm encouraged by the opportunities I see for that group as we move forward. My final comment would really be around the resilience that we've seen over the last couple of years for our aftermarket business and we think that that is a critical.
Component for federal signal as we move forward.
Helpful. And then I was just hoping to follow up on the chassis supply commentary you made earlier it sounds like from the from a dump body perspective March ended up being demonstrably better.
Curious, though if you could maybe talk about predictability of chassis flow in general maybe as it relates to your own internal manufacturing efficiencies or inefficiencies because of that has has that improved at all as as the Oems were talking to you.
Yeah, I think feel externally for what we internally refer to as the legacy chassis based businesses. We have so that would be the factors the allergens.
We're seeing there is that the chassis Oems are sticking to the committed delivery dates which.
<unk> run a more efficient manufacturing operation.
What wasn't happening last year was that that was very sporadic and so that made production highly inefficient and so for the majority of our vehicle based businesses within ESG that is.
Staying on schedule, so that gives us encouragement and we can plan accordingly accordingly.
As Jennifer mentioned the area, where we have less control is on the dump truck side, where the customer buys the chassis and so.
Yeah, you're absolutely correct in March we saw a noted improvement in the flow of chassis.
In February I think we were getting about half of what we what we needed to fulfill the demand that suddenly improved in March.
April has been on track.
But again I think I think we are a little cautious in the sense that we don't control the flow of chassis that.
And one month doesn't necessarily give.
Give us that.
Create a trend, but we are certainly encouraged with what we see.
Yeah, I think what I'd add to that to <unk> comments.
Our for our factor in Elgin business.
Chassis are not contributing chassis availability is not contributing meaningfully to production efficiencies, what where we're seeing the production inefficiencies as all the other components that we talked about hydraulics.
Those types of components are creating those inefficiencies in the business.
Got it and we're just getting the chance to get the OEM promise to us.
Thank you appreciate it.
Our next question comes from Mike Schilsky of D. A Davidson. Please go ahead.
Morning, Yes, Hello, good morning, everybody.
Can I touch first on well first of all it was great to see backlog growth in the quarter can you maybe tell us quantify for us how much pricing as you originally got backlog growth and maybe also to the topline growth in the quarter.
Yeah, so as it relates to the topline Mike if you look at the I think we were a little over $50 million of revenue year over year, 18% of that about 11% was organic growth in all of that.
Half of that came from price so.
That's for the the revenue in the quarter and then the orders would be generally in the same kind of ballpark.
Okay.
Great.
I, just turn to University Park now.
What's out in the quarter, we had stuff or are there any major projects that have to take place. There now that you own it couldn't go for it didn't do before.
As a as part of this year's capital budget plan.
We've got a number of investments that are pretty low level that we're looking at in terms of both our University Park and our Elgin facilities.
Elgin as you recall, we bought in Q4.
Focused on improving efficiencies, but but Mike in terms of dollars nothing of a particular magnitude I still think whereas with continue to expect our capex absent the U P facility purchase to be in the range of about $25 million to $30 million, which is.
More in line with what we would typically expect so nothing nothing significant in terms of Capex required at U P.
Okay, and and no no disruptions or shutdowns.
<unk> for that.
So do you have the correct.
No.
Okay perfect.
Interesting about the backlog quickly I wanted to touch on the timing as well I know you've had great great growth as all of that stuff is all that backlog I'm planning for 2020 two delivery.
And is the tenure of the backlog longer or shorter than you normally would have.
So not all of it will ship in 'twenty, two Mike and again it varies by product line, but we are for sewer cleaners, and particularly where we've seen some really strong demand.
We are into looking at into the first quarter of 'twenty three the the lead times are.
Uh huh.
Longer than we would like them to be and you know we are actively trying to work those down with the with the challenges and the constraints on the on the supply chain, but they are they're a little longer than we would like them to be so.
So we were trying to work those down.
I guess to clarify there are you hearing from customers that they want to make it a multi year order or commitment to get a better place and your production.
Or are they looking to plan ahead further than they have in the past it was kind of curious.
If people are prioritizing this type of equipment more than they have in previous years.
We we have very few multiyear orders as we noted in our prepared comments, we do have certain customers that we believe it placed their orders earlier than they might otherwise.
Because of our extended lead times.
However, we take a close look at demand and it's really been across the board.
And we believe that between the infrastructure Bill and American rescue plan.
With that we will provide kind of multi year tailwind.
For our equipment.
Got it got it well thanks, so much I'll pass it along I appreciate it.
Thank you.
Our next question comes from Chris Moore of CJS Securities. Please go ahead.
Good morning, I'm, sorry, good morning.
It's actually Dan for Dan Moore for Chris Good morning, Jennifer morning, Ian Thanks for all the color.
Yeah.
Maybe start with is there any way to roughly estimate how much margin was lost in Q1 relative to the inefficiencies caused by the supply chain issues as well as COVID-19 within your plants.
Yeah. It was primarily done it was primarily felt within within ESG and you'll see obviously the impact on our on the gross margin that we had.
Within ESG, we were down about 170 basis points.
Most of that was driven just from the inefficiencies we had primarily in January .
Little bit into February the other factor would be obviously.
The price cost impacts and wildly in absolute dollars.
Effectively neutral on a year over year basis, there was some margin pressure created from from that dynamic.
The other thing that impacts the margin within ESG is we had a higher concentration of chassis.
We supply.
And that's that's with our efforts to go out and procure more chassis.
We actually had more chassis revenue, which which has a dilutive margin impact. So there was about $6 million of additional chassis revenue on a year over year basis, which had an impact on the gross margin within ESG. So those are the kind of three main drivers within the margin change that you see in Q1 within ESG.
Very helpful and then.
You mentioned that the 60 40 split between H two H ones still holds any additional color commentary on just the cadence over the next over that timeframe.
Given the various moving parts, including some of the price increases that you're still putting through how should we sort of think about that margin walk are implied in the guidance. Thanks.
Yeah, I think Dan if you look back at the historical patterns driven by some of the seasonality of our aftermarket business Q2, and Q3 tend to be strong.
With Q3, probably being the strongest in terms of.
The aftermarket business just with a lot of the work taking place in the summer months strong rental activity. So we would continue to expect that and then Q4 is typically strong.
Strong as well with with on the municipal side.
SSG typically is a strong finish to the end of the year. So I think those dynamics in terms of the work for the rest of the year. We would expect similar similar patents on the aftermarket business that we've seen in prior years.
Got it and then lastly, it doesn't sound like it sounds like.
Men's remains strong across the board and rising, but any impact that you can discern from a rising interest rate environment.
On demand at this point or are any of those discussions with customers or is.
Is it more about getting as much product as they can't thank you again for the color.
Yeah, we haven't seen impact in terms of demand for our customers and I think one of the factors that differentiate us from others is just the wide range of our portfolio offerings. So you know we have obviously, we have new equipment, we've got used equipment rentals, which we talk.
What about were really strong so stir.
TG Klee, a critical initiative has been that we've got the solution for our customers.
That we can tailor to their specific needs and we believe that will continue to prove to be beneficial as we move forward.
Alright, Thanks, again and best of luck for the remainder of the year.
Thank you.
Our next question comes from Greg Burns of Sidoti and co. Please go ahead.
Good morning crowding.
Just wanted to follow up a little bit on the chassis. So it seems like.
Your suppliers are able to produce to what they promised but are you seeing anything in terms of maybe.
Potential for improvement or them to bill.
Them to be able to actually increase the supply of chassis to you or anything in the conversations you are seeing or anything out.
In the <unk>.
Macro or in the industry that would give you hope that maybe you're starting to see some increase in availability.
Yeah, again, I want to divide my comments into two sections. So first I'll talk about Baxter Elgin, our legacy businesses, which is a different experience than the dump truck businesses. So in the venture Elgin side as we talked about we're getting with the chassis manufacturers promise, but we are an allocation we have been successful in <unk>.
Terms of going out and procuring some additional chassis outside the normal channels.
So right now chassis are not our constraint.
For those businesses its really the other component parts.
Primarily hydraulics. So if we were just see some relief with respect to those other component parts and hotel Hydraulics is just one example.
We're very focused on reducing our lead times and reducing our backlogs because they're longer than we'd like them to be on the dump truck side of the business, where we don't supply. The chassis. We again are beholden to our customers and dealers to supply those chassis.
And you know as Ian mentioned, we saw improvement in March.
One month does not make a year and we continue to monitor that situation, but again, we are very focused on reducing those backlogs.
Okay and then.
In terms of the oil and gas market could you just maybe quantify the size of that business and relate that maybe to the last time you saw oil Spike you know how big that business got for you at that time and then lastly.
How the how your business might be.
Better positioned this time around maybe with some of the new products you have or you know it was a stronger aftermarket to capitalize on that opportunity.
Yeah. So in terms of the current contribution Greg it's probably wait estimates in the range of $20 million to $30 million of revenue.
If you go back to the peak.
<unk> 2015 and 2016 when.
Oil fell pretty significantly we we estimate we lost about $80 million of revenue.
And that was primarily when all we did was sell new equipment and that was largely in the safe digging vehicles. So since that time, we've seen some of that revenue change in terms of.
Most shifting more towards rental income and used equipment sales. So we think we certainly have seen renewed demand.
From oil and gas customers on the rental side, that's heavy interest in our safe digging trucks in our rental fleet, which is which is a large component of our own rental fleet. We've also seen that with our rental partners as they look to replenish fleets with us from used equipment sales out of those fleets. So it's it's certainly not back to the levels. It was.
At the peak.
In terms of the direction, it's heading it.
It's there's some momentum there, albeit I don't think we'd expect it to get back to the same levels that we saw in 15 and 16.
And because it's the nature of the revenue has changed shifting from new equipment. So it's the more of the of the rental and used equipment sales as well.
Yeah other products that increasing oil prices can have a positive impact on would include our jetstream product our guzzler products.
A small portion of our SSG products.
Okay perfect. Thank you.
Our next question comes from Walt Liptak of Seaport. Please go ahead.
Good morning.
Hi, good morning, Thanks for thanks.
And so great quarter.
Maybe a follow on to the last one about.
The OMG related product and I think you threw out a number that true back orders were up 90%.
I Wonder if you could help us with that.
One for Mike.
15, or 20 up to you know 30 40.
What's the level that we're at.
Yeah, well, it's more in the $35 million to $40 million range in terms of the orders in the quarter and again when we when we gave those stats that is just talking about the pure play.
True Vac trucks that does not necessarily include the sewer cleaner trucks.
I think many of those or the majority of those now of our sewer cleaner does come with a with a hydro package. So you can almost use it as a multipurpose vehicle. So if you look at.
That as well, though sewer cleaners, all orders in the quarter. They were up 43%, which was about $20 million of year over year improvement. So the combination of those two.
Really an indication of the growth that we're seeing on the safe digging side of things.
We also saw true vac demonstrations increase.
Q1 of this year versus last year, which is an encouraging sign also and then we introduced we continue to expand our portfolio of true back products with the introduction of our trailer trucks product.
Okay. Yeah, that's great that's good to see what's the.
The price differential between the true back truck.
And one of the trailers.
The Adobe is a prudent maybe as a percentage you don't have to give me.
A round number but.
Oh the trailers.
It's fairly small in terms of the growth of the contribution to that.
The 90%, it's relatively small because its a brand new product we just introduced.
So in terms of the dollar amount of that it's fairly small right now, but we're looking to grow it as as we you know we generate more interest in the product that we introduced it at the wet show in February .
We're currently demo the product and we're taking orders for the product for this year.
But we're in very very early stages on that initiative.
Okay, Okay, great is it.
I guess my question was is it half the price of a true back or three quarters of the price of a true back with the trail.
It's significant in terms of the price it's significantly less than a truck based product were talking more in the 80 to 120 range for the trailer, whereas the trucks the full sized trucks can setting.
Certain to be multiples of that.
Okay got it.
It gives us.
It gives us another offering it's a new end market for us it gives us another opportunity for stickiness with our customers.
Okay great.
And then on the point that you made about rental shift towards rental for the OMG markets. This time around.
Could you provide a little bit more detail about why you think that is are you picking up more rental customers.
Or is it your rental that's.
Is that your you're pushing like why why is is that this time around the service providers will be.
Renting more trucks than owning them.
Well.
If you go back to 2016, there just weren't even there are many more trucks available now the rental business for our products was really in the infancy. So there are a lot more trucks available both from us and our valued rental partners.
So that's an important component as we look at those.
Those numbers.
We also see you know this is an alternative.
And again, some end customers rent some end customers rent to own but it gives them an opportunity to either supplement their equipment.
Or depending on the nature of the project it gives them an opportunity to rent to own in some situations.
Okay Alright, great.
In your commentary about M&A and your you know your.
It sounds like you've got capital available and you're continuing to build the funnel for M&A.
Just the supply chain issues and all the inflation that we've done with does that cause you to pause at all.
On M&A are you still just as active as you were before you know last year when.
Everything tightened up.
Yeah, you know I think we've proven to be very disciplined acquirers and we're going to continue to employ that same methodology.
But our M&A pipeline is active and we believe that it will be a meaningful part of our growth story going forward.
Okay, great. Okay. Thank you.
Thank you.
Yeah.
Once again, if you have a question. Please press Star then one.
Our next question is a follow up from Steve Barger of Keybanc capital markets. Please go ahead.
Hey, Thanks, Ken Newman I appreciate the follow up here.
Wanted to follow on to the the rental comments just now I guess I'm trying to get a better sense of what's the expectation for rental growth is into the second quarter into the second half.
And specifically just any color you can give in terms of how much of that is coming from better fleet growth versus you know higher rental rates I imagine the time utilization for those fleets is pretty tapped out at this point, but any any color there would be helpful.
You know Theres a couple of components driving it one is we talked about you know there's a seasonality component typically Q2 and Q3 in the warmer months in the northern part of North America, we will see higher.
Time utilization in finance utilization on that.
Canadian market is an important part.
<unk> of our rental fleet and rental fleet opportunities.
Second would be the we have seen increase in rental rates by both us and our rental partners.
And then we have made some additions to the rental fleet.
And that can fluctuate from quarter to quarter, depending on how much we sell out of the fleet and the needs of the customers. We also talked about as a critical strategic initiative for the aftermarket group geographic expansion. So that also creates additional opportunities for us.
Is there any way you can quantify just how much of the backlog is slated for the rental fleet versus you know true third party.
Deliveries.
Yeah, Ken that the backlog that we cite is all external we don't include it in what we talk about externally any anything that is going into our own rental fleet.
Understood.
And then my last follow up here is you know just kind of also an idea of just how we should think about your expectations for aftermarket growth at this point, obviously, it's been very strong given the tight supply chain dynamics.
Is there further upside or just how much how much more do you think you can be flexing on price just given how tight the supply chain is in.
What are you seeing any push back from.
From pricing pushes on the aftermarket side at this point.
Yeah, I think Ken you know aftermarket has grown now tend to be about 30% of Esg's revenues.
Is there potential upside to that I think certainly as you look at the demand in the.
Interest we've seen in the rental fleets in Q1, which is typically the softest quarter in terms of rentals. That's been encouraging the other thing I would say is on the parts.
<unk>.
Maybe with the lead times extended.
New equipment lead times are pretty extended so people are refurbishing the existing equipment and that then translated into increased part sales. So parts, which is the largest component of what we call. Our aftermarket revenues that was up about 14%.
In Q1 versus Q1 of last year. So I think we will continue to see.
A lot of interest in parts as well as rentals and used equipment sales just with the current environment, where chassis chassis lead times have extended and so the.
Lead times for some of our own products. So yeah, we may see that tick up a little bit over 30%.
And that's really why we believe that this is a very important strategic initiative for US also I believe that the infrastructure Bill will create additional opportunities not only for whole good sales as we've talked about but also for our aftermarket group.
Yep Yep.
That makes sense I appreciate the time.
Thank you.
Our next question is a follow up from Walt Liptak of Seaport. Please go ahead.
Hi, Thanks for taking my follow up too.
For you and I Wonder if you could Oh I Wonder if you could help us with with understanding the 2022 guidance and the low end and so my question is.
You know if you were to come in at the low end of the range.
Why do you think that would be is it because you would have you know like an increase in supply chain problems again or another round of.
Ami crime.
Do you think it is that would get us to the low end.
But you know.
The chassis situation at Tbi that we talked about you know we expect it to be volatile.
Though we were encouraged by March.
So there is uncertainty there you referenced Corona virus, if we saw something like we saw in January and lost 20000 production hours that could be another issue.
The final issue that we're monitoring that we talked about is given the China shut down although we don't have a lot of direct exposure.
The chassis OEM. If there was another microchip issue, we stopped getting the chassis that had been promised to us for our vector allergen and other vehicle based businesses.
That could also be a problem.
All of those are baked into the low end of that guidance.
Okay, Alright, great. Thank you.
This concludes the question and answer session I would like to turn the conference back over to Jennifer Sherman for any closing remarks.
In closing I would like to reiterate that we are confident in the long term prospects for our businesses in our market. Our foundation is strong and we are focused on delivering profitable long term growth through the execution of our strategic initiatives, we would like to express our sincere thanks to our staff.
Holders employees distributors dealers and customers for their continued support thank you for joining us today, and we'll talk to you next quarter.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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