Q1 2022 Alta Equipment Group Inc Earnings Call
Ladies and gentlemen, please remain holding. The call will begin momentarily. Again, please remain holding. The call will begin momentarily.
Ladies and gentlemen, please remain holding they call will begin momentarily.
Ken Please your main holding it call will begin momentarily.
The.
[music].
Good afternoon and thank you for attending the Ulta Equipment Group First Quarter 2022 Earnings Conference.
Good afternoon, and thank you for attending the Alta equipment group first quarter 2022 earnings conference call. My name is for them and I will be your moderator for today's call I will now turn the call over to Jason Yeah, Meyer director of S E C reporting and.
My name is Forum, and I will be your moderator for today's call. I will now turn the call over to Jason Damire, Director of SEC Reporting and Technical Accounting with Ulta Equipment.
Technical accounting with Alta equipment group.
Thank you for them. Good afternoon everyone and thank you for joining us today. A press release detailing Alta's first quarter of 2022 financial results was issued this afternoon and is posted on our website along with a presentation designed to assist you in understanding the company's results.
Thank you for them and good afternoon, everyone and thank you for joining US today, a press release detailing <unk> first quarter 2022 financial results was issued this afternoon and is posted on our website along with a presentation designed to assist you.
In understanding the company's result.
On the call with me today are Ryan Greenwald, our Chairman and CEO , and Tony Kaluci, our Chief Financial Officer.
On the call with me today are Ryan Greenwald, our chairman and CEO and Tony <unk>, Our Chief Financial Officer.
For today's call, Management will first provide a review of the first quarter financial results. We will begin with some prepared remarks before we open the call for your questions.
For today's call management will first provide a review of the first quarter financial results. We will begin with some prepared remarks before we open the call for your questions.
Before we get started, I'd like to remind everyone that this conference call may contain certain forward-looking statements, including statements about future financial results, our business strategy and financial outlook, achievements of the company, and other nonhistorical statements as described in our press release.
Before we get started I'd like to remind everyone that this conference call may contain certain forward looking statements, including statements about future financial results, our business strategy and financial outlook achievements of the company and other non historical statements as described in our press release. These.
These forward-looking statements are subject to both known and unknown risks, uncertainties and assumptions, including those related to altered growth, market opportunities, and general economic and business conditions.
These forward looking statements are subject to both known and unknown risks uncertainties and assumptions, including those related to altered growth market opportunities and general economic and business conditions.
We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations.
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 operation.
Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call.
Although we believe these expectations are reasonable we undertake no obligation to revise any statement to reflect changes that occur after this call.
Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our reports filed with the SEC, including our press release that was issued today.
Description of these and other risks that could cause actual results to differ materially from the forward looking statements are discussed in our reports filed with the SEC, including our press release that was issued today.
During this call, we may present both GAP and non- GAAP financial measures. A reconciliation of GAP to non- GAAP measures is included in today's press release and can be found on our website at investors.altoequipment.com. I will now turn the call over to Ryan.
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 and can be found on our website at investors. The Alta equipment Dot Com I will now turn the call over to Ryan.
Thank you, Jason. Good afternoon, everyone, and thank you for joining us today. Our first quarter results reflect the ongoing strength in all the end user markets we serve and continues to validate our unique and flexible business model.
Thank you Jason Good afternoon, everyone and thank you for joining US today, our first quarter results reflect the ongoing strength in all the end user markets, we serve and continues to validate our unique and flexible business model.
I will discuss some of our first quarter financial highlights and the encouraging industry trends and we'll then provide an update regarding the solid execution upon our growth strategy including the M&A environment.
I will discuss some of our first quarter financial highlights and the encouraging industry trends and will then provide an update regarding our solid execution upon our growth strategy, including the M&A environment. Tony will then provide a more in depth review of our first quarter results.
Tony will then provide a more in-depth review of our first quarter results.
Beginning with the top line, total revenues increased 23.4% or $62.9 million to $331.7 million in the first quarter. The dedicated ALTA team continues to be laser focused on operational excellence and as a result the year-over-year improvement was driven by both organic and acquisition related growth.
Beginning with the top line total revenues increased 23, 4% or $62 9 million to two two sorry, $331 7 million in the first quarter. The dedicated Ulta team continues to be laser focused on operational excellence and as a result of year over year improvement was driven by both organic and acquisition.
Related growth.
Our construction and material handling segments produce significant year-over-year revenue growth on a combined basis. In fact, all our business segments deliver better results from the year-ago quarter as the favorable and business environment in all our end-user markets continues to be favorable despite ongoing supply chain issues and other economic headwinds.
Our construction and material handling segments produced significant year over year revenue growth on a combined basis in fact, all our business segments delivered better results from the year ago quarter as a favorable business environment in all our end user markets continues to be favorable despite ongoing supply chain issues and other economic headwinds.
Keep in mind the first quarter is historically the weakest period of the year due to seasonality issues and we are now into the peak period of activity in our market.
In mind, the first quarter is historically, the weakest period of the year due to seasonality issues and we are now into the peak period of activity in our markets.
Based on first quarter performance, we continue to maintain our adjusted EBITDA guide range of 137 million to 142 million for 2022, which would be a 16 percent increase at the midpoint over 2021 results. Let me now provide a few observations.
Based on first quarter performance, we continue to maintain our adjusted EBITDA Guide range of 137 million to 142 million for 2022, which would be a 16% increase at the midpoint over 2021 results.
Let me now provide a few observations on market conditions, our current visibility regarding demand across all our end user markets and regions remains extremely positive customer sentiment is very high and there are no signs that project activity is decelerating anytime in the near term key industry indicators also support these takeaways in our beliefs.
Our current visibility regarding demand across all our end user markets and regions remains extremely positive. Customer sentiment is very high and there are no signs that project activity is decelerating anytime in the near term. Key industry indicators also support these takeaways and our belief that the current upcycle will continue for some time.
But the current up cycle will continue for some time.
Our track record on that topic.
Yeah.
Our operating performance reflects these trends well. Demand for new and used equipment and rental equipment has eclipsed pre-pandemic geek levels. And backlogs now continue to operate record-wise.
Our operating performance reflects these trends while demand for new and used equipment and rental equipment is eclipse pre pandemic peak levels and backlog.
Backlog now continue to hover at record levels.
For example, our organic physical rental fleet utilization was up more than five percentage points from a year ago, and rates on rental equipment have also substantially improved. With more fleet on job sites, our product support business is also benefiting from higher margin parts and service revenue.
For example, our organic physical rental fleet utilization was up more than five percentage points from a year ago.
And rates on rental equipment have also substantially improved with more fleet on job sites. Our product support business is also a benefit benefiting from higher margin parts and service revenue streams.
The recently passed bipartisan infrastructure bill should also be an incremental benefit to our business at some point in the future. Overall, we are operating in a fundamentally robust expansion cycle and are focused
The recently passed bipartisan infrastructure Bill should also be an incremental benefit to our business at some point in the future. Overall, we are operating in are fundamentally robust expansion cycle and are focused.
leveraging these opportunistic conditions to grow our business and increase profitability.
On leveraging these opportunistic conditions to grow our business and increase profitability.
In terms of our growth strategy, we remain intensely focused on continuing our positive achievements from last year into 2022, which included six acquisitions that added 152 million in revenue and 15.2 million in adjusted EBITDA. Our goal is increasing our scale and improving profitability. As we have demonstrated, this includes continuing to leverage our flexible business model, improving operational excellence throughout our entire organization.
In terms of our growth strategy, we remain intensely focused on continuing our positive achievements from last year into 2022, which included six acquisitions that added $152 million in revenue and $15 2 million in adjusted EBITDA. Our goal is increasing our scale and improving profitability as we have demonstrated this includes continuing to.
Leverage our flexible business model.
Improving operational excellence throughout our entire organization.
Adding new Oems and expanding existing relationships to broaden our equipment portfolio.
increasing our end market diversification and our density within each region.
Increasing our end market diversification in our density within each region.
expanding into new states and markets that present solid growth opportunities, and continuing to execute on a robust pipeline of strategic and accretive M&A opportunities. Our track record
Expanding into new states and markets represent solid growth opportunities and continuing to execute under our boat robust pipeline of strategic and accretive M&A opportunities.
Our track record on the topic of M&A should speak for itself, we take a disciplined approach to ACA positions that will not and will not pursue an opportunity that does not fit our strategic and financial criteria. We have a solid balance sheet to support our expansion initiatives and we are confident that we can continue to grow through acquisitions and further scale our business.
We take a disciplined approach to acquisitions that will not pursue an opportunity that does not fit our strategic and financial criteria. We have a solid balance sheet to support our expansion initiatives and we are confident that we can continue to grow through acquisitions and further scale our business for continued growth in 2022.
For continued growth in 2020 two.
Our entrance into the commercial electric vehicle industry in partnership with Nikola is representative of expanding our product and service portfolio and this initiative is progressing very well. While we don't expect this venture to be a material contributor to our results in 2022, it puts us in an excellent position to be an EV truck market leader in some of the densest truck markets in the country as commercial uptake of electric vehicles accelerates.
Our entrance into the commercial electrical electric vehicle industry in partnership with Nicola is representative of expanding our product and service portfolio and this initiative is progressing very well, while we don't expect this venture to be a material contributor to our results in 2022, it puts us in an excellent position to be in EV truck market leader and some.
The dentist truck markets in the country as commercial uptake of electric vehicles accelerates. Our team has been conducting product demonstrations and we are working closely with Nicola and prospective customers on several late stage sales opportunities.
Our team has been conducting product demonstrations and we are working closely with Nikola and prospective customers on several late stage sales apps.
Lastly, we continue to structure our leadership team to drive future success for our business. In early April , we announced the appointment of Craig Brubaker as Chief Operating Officer, a new position at the company. Craig joined Alta in 1995 after completing his BS in Mechanical Engineering. As Chief Operating Officer, Craig will lead integrations of acquired businesses, share best practices across the operating units, and drive operational efficiencies and controls across the enterprise.
Lastly, we continue to structure, our leadership team to drive future success for our business in early April we announced the appointment of Craig Brewbaker as Chief operating officer, a new position at the company Craig joined alter in 1995. After completing his b S. In mechanical engineering as Chief operating Officer, Craig will lead integration of acquired businesses.
Share best practices across the operating units and drive operational efficiencies and controls across the enterprise Craig brings a great history of success and strong operational experience to this expanded role and we look forward to the contributions contributions he will continue to make as part of the Alta family.
Craig brings a great history of success and strong operational experience to this expanded role and we look forward to the contributions he will continue to make as part of the ultimate.
closing. We're excited about our opportunities in 2022 and working very hard on improving long-term shareholder value. Thank you to the entire Alta team once again and I will now turn the call over to
In closing, we're excited about our opportunities in 2022 and working very hard on improving long term shareholder value. Thank you to the entire all the team once again and I will now turn the call over to Tony.
Thanks, Ryan and good evening, everyone and thank you for your interest in Alta equipment group in our first quarter 2022 financial results I Trust that you and your families are safe and healthy and looking forward to summer as we all are here at Ulta.
Thanks, Ryan. Good evening, everyone, and thank you for your interest in Ulta Equipment Group and our first quarter 2022 financial results. I trust that you and your families are safe and healthy and looking forward to summer, as we all are here at Ulta.
My remarks today will focus on three areas. First, I'll be presenting our first quarter results, which we are pleased with, as our business continues to be positioned well in the current business climate, as we continue to experience high levels of demand for our products and services across all geographies and end markets.
My remarks today will focus on three areas first I'll be presenting our first quarter results, which we are pleased with as our business continues to be positioned well in the current business climate as we continue to experience high levels of demand for our products and services across all geographies and end markets.
Second, I'll be highlighting our material handling segment's first quarter performance. As historically this segment has been Ulta's pillar of strength from a capital efficiency and profitability perspective.
Second I'll be highlighting our material handling segments first quarter performance as historically this segment has been ulta as a pillar of strength from a capital efficiency and profitability perspective.
Lastly, I'll reiterate our thoughts around our 2022 adjusted EBITDA guidance which we reaffirmed in our press release earlier today.
Lastly, I'll reiterate our thoughts around our 2022, adjusted EBITDA guidance, which we reaffirmed in our press release earlier today.
Before I dig in, it should be noted that there are some slides in our presentation which was released prior to our call that presents our first quarter numbers in greater detail than what I will discuss here today. I encourage everyone on today's call to review our presentation and our 10Q, which is available on our Investor Relations website at ALTG.com.
Before I dig in it should be noted that there are some slides in our presentation, which was released prior to our call that presents our first quarter numbers in greater detail than what I will discuss here today.
I encourage everyone on today's call to review our presentation enter 10-Q, which is available on our Investor Relations website at E. L. T G Dot com.
for the first portion of my prepared remarks, first quarter performance.
For the first portion of my prepared remarks first quarter performance.
Before I get into the numbers, a quick reminder to investors on the seasonal elements of our business. Specifically, the construction segment in the northern geographies are subject to weather constraints in Q1, which make the sequential comparison of Q1 to Q4 difficult. Thus, the more appropriate comparison for Q1 2022 is Q1 2021. And on a year-over-year comparison, we outperformed just about every key metric.
Before I get into the numbers a quick reminder to investors on the seasonal elements of our business specifically the construction segment in the northern geographies.
Our subject to weather constraints in Q1, which makes us sequential comparison of Q1 to Q4 difficult. Thus the more appropriate comparison for Q1 2022 is Q1 2021 and on a year over year comparison, we outperformed that just about every key metric.
now as relates to the numbers. For the quarter, the company recorded revenue of $331.7 million, which is a good start to the year considering the seasonality I just mentioned. Historically, a strong Q1 in our business is a leading indicator for a full year of solid performance.
Now as it relates to the numbers.
For the quarter the company recorded revenue of $331 $7 million, which is a good start to the year considering the seasonality just mentioned historically a strong Q1 in our business as a leading indicator for a full year of solid performance.
Embedded in the $331.7 million of revenue for the quarter is a 12.2 percent organic sales increase over Q1 2021, making for a comparatively sound quarter.
Embedded in the $331 7 million of revenue for the quarter is a 12, 2% organic sales increase over Q1 2021, making for a comparatively sound quarter.
Similar to the theme of 2021, we saw continued strength in equipment sales, especially as it relates to used equipment and rental disposal.
Similar to the theme of 2021, we saw continued strength in equipment sales, especially as it relates to used equipment and rental disposals.
as rental equipment sales for the quarter came in at approximately $41 million.
Rental equipment sales for the quarter came in at approximately $41 million.
Importantly, as it relates to our product support business lines, we continue to realize organic growth in our parts and service departments in both segments, with that figure increasing an impressive 18.8% in the material handling segment and 10.2% in the construction segment year over year.
Importantly, as it relates to our product support business lines, we continued to realize organic growth in our parts and service departments in both segments with that figure increasing an impressive 18, 8% in the material handling segment and 10, 2% in the construction segment year over year.
Additionally, as it relates to our rental business, we continue to realize organic growth in both segments as well, with rental revenues increasing 15.3% in the material handling segment and 11.5% in the construction segment year over year. Importantly, and in line with our expectations, we drove higher rental revenue by effectively holding our rental fleet size flat in Q1 when compared to year end.
Additionally, as it relates to our rental business, we continued to realize organic growth in both segments as well with rental revenues, increasing 15, 3% in the material handling segment and 11, 5% in the construction segment year over year.
Accordingly, and in line with our expectations, we drove higher rental revenue why effectively holding a rental fleet size flat in Q1, when compared to Q2 year at.
This was a result of three factors. One, an increasing rental rate environment. Two, an increase in the physical utilization of our rental fleet. And three, a proven approach to our fleet size and a focus on product categories that drive attractive returns on investment.
This was a result of three factors, one and increasing rental rate environment to an increase in the physical utilization of our rental fleet and three a prudent approach to our fleet size and our focus on product categories that drive attractive returns on investment.
From an EBITDA perspective, we realized $30 million in adjusted EBITDA for the quarter, which is up $3.1 million from the adjusted level of the first quarter 2021.
From an EBITDA perspective, we realized $30 million and adjusted EBITDA for the quarter, which is up $3 $1 million from the adjusted level of the first quarter 2021.
On a trailing 12 basis we achieved 137.2 million of adjusted pro forma EBITDA which converts into 82 million of economic EBIT or on the levered free cash flow for a 60% conversion rate on EBITDA.
On a trailing 12 basis, we achieved $137 2 million of adjusted pro forma EBITDA, which converts into $82 million of economic EBIT or on the Levered free cash flow for a 60% conversion rate on EBITDA.
As I mentioned on our Q4 call, we expect to drive this free cash flow conversion metric higher in 2022, which we ultimately did in the first quarter. Increases on this metric are a function of driving utilization in the rental fleet, organic growth in our high margin product support departments, and organic growth from profitable asset-like business units such as peak lodging.
As I mentioned on our Q4 call we expect to drive this free cash flow conversion metric higher in 2022, which we ultimately did in the first quarter increases on this metric are a function of driving utilization in the rental fleet organic growth in our high margin products support departments and organic growth from profitable asset light business units.
Such as peak logics.
Lastly, and as depicted on slide 14 of our investor deck, on an adjusted pro forma basis, the business is generating just above $67 million in annual levered free cash flow to common equity prior to growth cap X. In our view, this metric is indicative of economic earnings associated with driving equity value for shareholders.
Lastly, and as depicted on slide 14 of our investor deck on an adjusted pro forma basis. The business is generating just above $67 million in annual unlevered or sorry annual levered free cash flow to common equity prior to growth Capex in our view. This metric is indicative of economic earnings associated.
With driving equity value for shareholders.
A quick update on the balance sheet and our credit profile as a quarter end. We ended the quarter with approximately $250 million in unsuppressed availability on our revolving line of credit and total leverage came in at roughly three and a half times 2022 adjusted EBITDA, certainly comfortable positions on both metrics.
A quick update on the balance sheet and our credit profile as of year end quarter, and we ended the quarter with approximately $250 million in unprecedented ability on our revolving line of credit and total leverage came in at roughly three and a half times 2022, adjusted EBITDA certainly comfortable positions on.
Both metrics.
Now, moving to the second area of my prepared remarks, I'd like to highlight our material handling segment and its performance in the first quarter. First, as the foundational element of our business, historically, the material handling segment has been all this pillar of strength in terms of its cash flow profile, which has been built over decades of strong market share for Heister Yale in key metro markets, which include Detroit, Chicago, Boston, and more recently, New York City.
Now moving to the second area of my prepared remarks, I'd like to highlight our material handling segment and its performance in the first quarter first as the foundational element of our business historically the material handling segment has been also a pillar of strength in terms of cash it's cash flow profile, which has been built over decades of strong market share for hyster Yale.
In key Metro markets markets, which include Detroit, Chicago, Boston, and more recently, New York City.
This historic strength and market share in these dense urban areas yields a large addressable field population, which then leads to recurring cash flows from our high-margin product support department.
This historic strength in market share in these dense urban areas yields a large addressable field population, which then leads to recurring cash flows from our high margin product support departments I would point investors to slide 17 of our deck, which presents several key performance indicators for the segment in Q1.
I would point investors to slide 17 of our deck, which presents several key performance indicators for the segment in Q1.
which include $5.2 million of reported operating income for the quarter, 110% fixed cost absorption rate, and an estimated 20% annual return on invested capital deployed.
Which include $5 $2 million of reported operating income for the quarter of 110% fixed costs absorption rate and an estimated 20% annual return on invested capital deployed.
While the material handling segment provides all to with reliable cash flows, the segment's reliability should not dilute the view of its opportunity for growth. As the industry at large is experiencing record levels of demand, secular trail winds and warehousing, e-commerce, logistics suggest there is no immediate end in sight.
While the material handling segment provides us with reliable cash flows the segment's reliability should not dilute the view of its opportunity for growth as the industry at large is experiencing record levels of demand are secular trail wins in warehousing E. Commerce logistics suggests there is no immediate end in sight.
I'll share a few points that support this view. Point number one, it's estimated that the U.S. currently has approximately 10 billion square feet of warehouse space with a projected need of another 1 billion by 2025.
I'll share a few points to support this view point number one it's estimated that the U S. Currently has approximately 10 billion square feet of warehouse space with a projected need of another $1 billion by 2025 points.
Point number two, the U.S. warehouse vacancy rate is currently at a record low of 3.4 percent and lease rates for warehouse space are up 16 percent since Q1 2021. Point number three, the amount of lift truck orders in North America for the five years prior to 2021 range from 240,000 units to 285,000 units annually.
Point number two the U S warehouse vacancy rate is currently at a record low of three 4% and lease rates for warehouse space are up 16% since Q1 2021 point.
Point number three the amount of lift truck orders in North America for the five years prior to 2021 range from 240000 units to two 285000 units annually in 2021 that figure figure was nearly double coming in at 458000 units in the beginning of 2000.
In 2021, that figure was nearly double, coming in at 458,000 units.
in the beginning of 2020-22 on this metric suggests continued strength.
2022 on this metric suggests continued strength.
Point number four, over 70% of U.S. lift truck market is now electric, indicating warehouse distribution and 3PLs are continuing their upward trajectory primarily due to the growth in e-commerce.
Point number four over 70% of U S lift truck market as an all electric indicating warehouse distribution and three pls are continuing their upward trajectory primarily due to the growth in E Commerce, and lastly, approximately 15% of the warehousing sector uses some form of automation in their warehouse.
And lastly, approximately 15% of the warehousing sector uses some form of automation in their warehouse. Industry estimates suggest that out of necessity, the number of warehouses using automation in their operation is expected to increase 50% by 2025.
Industry estimates suggest that out of necessity the number of warehouses using automation in their operation is expected to increase 50% by 2025.
In our view, these metrics point to strong industry tailwinds that our business will take advantage of as we go forward. And on the last two points, as it relates to electrification and automation, we intend to lead and not follow.
In our view these metrics point to a strong industry tailwind that our business will take advantage of as we go forward and on the last two points as it relates to electrification and automation, we intend to lead and not follow the strategic investments. We've made with the acquisition of Pic logics and Scott Tech positions our material handling business.
The strategic investments we made with the acquisition of PeakLogix and ScottTech positions our material handling business at the center of the technological advancement trend in the material handling industry.
At the center of the technical technological advancement trend in the material handling industry internally, we are deliberately focusing on assisting customers to better manage three key operational inputs labor energy and space. This is message through our lessons more mantra this mantra coupled with our K.
Internally, we are deliberately focusing on assisting customers to better manage three key operational inputs, labor, energy, and space.
This is messaged through our less is more mantra. This mantra, coupled with our capability to deliver real-time solutions to customers that want to electrify and automate, will solidify this segment as all the pillar of strength for years to come.
Ability to deliver real time solutions to customers that want to electrify and automate will solidify this segment as alt as pillar strength pillar of strength for years to come.
Congratulations to our teammates in the material handling segment on a great start to 2022.
Gratulation store teammates in the material handling segment on a great start to 2022.
In closing, given our first quarter results, we are reaffirming our annual adjusted EBITDA guidance of $137 million to $142 million for fiscal 2022. As all of the elements we discussed last quarter, tailwinds and headwinds alike remain in place today as we believe the current landscape will allow us to confidently execute on our business plan and drive returns for all of those shareholders over the remainder of 2022.
In closing given our first quarter results, we are reaffirming our annual adjusted EBITDA guidance of $137 million to $142 million for fiscal 2022.
As all are all of the elements, we discussed last quarter tailwind and headwinds alike remain in place today as we believe the current landscape will allow us to confidently execute on our business plan and drive returns for Altus shareholders over the remainder of 2022.
Thank you for your time and attention, and I'll turn it back over to the operator for Q&A.
Thank you for your time and attention and I'll turn it back over to the operator for Q&A.
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If for any reason you'd like to them is that a question. Please press star followed by Q again to ask a question press Star one.
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Our first question comes from the line of Matt Somerville with DA Davidson. Matt, please proceed with your question.
First question comes from the line of Matt Summerville with D. A Davidson.
Please proceed with your question.
Hi, Ryan and Tony This is well on for Matt Summerville today.
Hi Ryan and Tony, this is Will, I'm for Matt Somerville today.
Hi will.
Good evening. I want to ask you first about the aftermarket growth.
Good evening I wanted to ask you first about the the aftermarket growth.
It's still double digits in the first quarter and I'm trying to learn a little bit more what is the breakdown.
still double digits in the first quarter. And I'm trying to learn a little bit more. What is the breakdown?
approximately between the price component and the volume component of that growth rate. And bigger picture, what does the pricing power of that aftermarket business look like, especially in the kind of market?
Approximately between the price component and the volume component of that growth rate and bigger picture.
What does the pricing power of of that aftermarket business look like especially in the kind of market we're seeing today.
Yeah, well, I'll take that one. You know, we have to kind of break it into the segments. But, you know, roughly I mentioned on my prepared remarks, almost 19% organic growth and product support of material handling, and then 10% in construction. I think when you kind of look at the components, right, price and quantity, they're both trending in the right direction.
Yeah, well I'll take that one.
We have to kind of break it into it into the segments, but roughly I mentioned on my prepared remarks, almost 19% organic growth in product support in material handling and then 10 in construction.
I think when you when you kind of look at the components right price and quantity, they're both trending in the right direction parts.
And then you have to think about parts and service, and what I would say is when we look at parts specifically, we really are off to a good start, specifically in the material handling business where we're seeing upticks and over-the-counter parts.
And then you have to think about parts and service and what I would say is.
When we look at parts specifically.
We really are off to a good start.
Specifically in the material handling and the material handling business, where we're seeing upticks in over the counter parts.
We believe that this is related to the aging of the fuel population that's out there, given that new equipment supply is suffering, as we've talked about historically. And so I would say that the price increase is 50% at the high end of the organic growth that we're seeing, and probably something much less than that in the material handling business.
We believe that this is related to the aging of the field population that's out there given that.
Equipment, new equipment supply is.
Suffering as we've talked about historically.
And so you know.
I would say that the price increases 50% at the high end.
Of the of the organic growth that we're seeing and probably something much less than that in the material handling business.
Because again, we are just seeing a lot of a lot of volume on the COO.
Because again, we're just seeing a lot of volume on the counter. So roughly I would say, well, 50% on the high end is pricing versus quantity.
Counters, so roughly I would say will 50% on the <unk>.
High end is pricing.
Versus versus quantity.
Okay, great. Thank you.
And then I want to ask you about your recent appointment of a Chief Operating Officer in the business, just trying to learn what was the reasoning and your thinking behind creating that position? And ultimately, how does it free?
And then I wanted to ask you about your recent appointment.
Of a chief operating officer, and the business just just trying to learn what was what was the reasoning and youre thinking behind creating that position.
And ultimately how does it free up.
responsibilities on yours, Tony, and Ryan's part to focus on other areas.
Sponsored abilities on on yours, Tony and Ryan's part to focus on other areas of business.
Yeah.
Well, I'll take that. This is Ryan Greenewald. So Craig has been with us since the beginning of his career. And you could think of this new appointment as expanding his role to be a corporate role and an enterprise-wide role. So he's functioning in much the same set of responsibilities, but now expanded across.
Well I'll take that this is this is Ryan greenawalt, So correct Craig has been with us since the beginning of his career.
And you could think of this a new appointment is expanding his role to be at corporate role on an enterprise wide role. So he's functioning in much the same set of responsibilities, but now expanded across.
the construction vertical and also the new vertical for electric vehicles. So we're taking our best practices and that thought leadership of how to run dealerships and now applying it to the whole enterprise looking for areas that we can drive efficiency and standardization.
The construction vertical and also the new vertical for electric vehicles. So we're taking our best practices in that thought leadership of how to run dealerships and now applying it to the whole enterprise looking for areas that we can drive efficiency and standardization.
In terms of how it affects Tony's and my day-to-day responsibilities, not a whole lot. It's pulling basically one of our executives out of the operating company more into a corporate role, so in expanding that role within the organization.
In terms of how it affects Tony's in my day to day responsibilities not a whole lot. It's it's it's pulling.
Basically one of our executives out of the operating company more into a corporate role, so and expanding that that role within the organization.
Understood well congrats on finding what seems to be a great internal candidate for that job. I'll get back in queue. Thank you
Understood well congrats on finding what seems to be a great internal candidate for that job.
Get back in queue. Thank you.
Thank you thanks will.
Thank you for your question Matt. Our next question comes from the line of Alex Rygiel with B Riley.
Thank you for your question, Matt. Our next question comes from the line of Alex Rigel with B. Riley. Alex, you may proceed with your question.
Alex You May proceed with your question.
Thank you good evening, gentlemen, and really nice quarter, a couple of quick questions here.
Thank you. Good evening, gentlemen, and a really nice quarter.
Your commentary was obviously very foolish. Strong end user markets, good demand visibility, but why only reiterate EBITDA guide?
Your commentary was obviously very bullish strong end user markets, good demand and visibility.
But why only reiterate EBITDA guidance in light of such problem commentary.
You know, Alex, I mentioned kind of at the tail end of my remarks there, and we feel the same way we did a month or so ago when we built kind of the guidance, that the upside to the guidance is really going to be predicated.
You know, Alex we I mentioned kind of at the tail end of the.
My remarks there.
And we feel the same way, we did a month or so ago. When we when we when we built kind of the guidance that the upside to the guidance is really going to be predicated.
Really, two factors, one is it's going to be predicated on those equipment lines, specifically the delivery of new equipment, which we're still seeing a lot of volatility in the supply chain. So it's just, it's hard for us.
Really two factors one is it's going to be predicated on those equipment lines, specifically the delivery of new equipment, which where we're still seeing a lot of volatility in the supply chain. So it's just it's hard for us.
to kind of increase the guidance at this point, because it's sort of out of our control in terms of taking delivery. I think the bullishness that you...
222 kind of increased the guidance at this point.
Because.
It's sort of out of our control in terms of taking delivery I think the bullishness that you.
stop there for a second. The second point on the increase in organically is related to product support. And that is something we think we can't control. We're off to a good start. I think we probably need another quarter of kind of being able to see the growth here on that piece. But I keep coming back to the first point where I think we're going to be able to see
Stop there for a second the second point on the.
The increase in organically is related to product support.
And that is something we think we can't control we're off to a good start.
We probably need another quarter of kind of being able to see.
The growth here.
On that piece, but I keep coming back to the first point, where the upside to the guidance is going to be directly correlated to.
the upside to the guidance is going to be directly correlated to
<unk>.
to the equipment line items. I think the bullishness that you're, that we were trying to convey is more about this, the demand versus what might manifest itself on the P&L here this year. And so that was kind of what we were trying to articulate with the bullishness, just in terms of what we're seeing on the ground and what we're hearing from customers.
Two the equipment line items I think the bullishness that you that we were trying to convey is more about the demand.
<unk> what might manifest itself on the P&L here this year.
And so that was that was kind of what we were trying to articulate.
With the with the Bullishness just in terms of what we're seeing on the ground and what we're hearing from customers.
Okay. That's helpful and then as it relates to Nicola.
You know, can you go into a little bit more detail maybe on how that's developing when we might see, you know, first couple of sales?
Can you go into a little bit more detail maybe on.
How thats developing when we might see.
Couple of sales.
Any other commentary or thoughts as it relates to the intermediate or longer term outlook for that relationship and other relationships in the EVM?
The other commentary or thoughts as it relates to the intermediate or longer term outlook for that relationship.
Other relationships in the EV market.
Alex This is Ryan I think we would reiterate that we're going to be somewhere in the neighborhood of 10% of of.
Nickel is volume.
We are actively working on.
What we describe as late stage sales opportunities and so an announcement of that.
Of an order could be eminent we.
Can't really speak beyond that because the prospects are.
Wanting us to be confidential as they pursue emerging technologies.
that it's helpful. And lastly, Tony, can you maybe comment on how you think about interest rate risk and how you manage that risk across...
That is helpful. And then lastly, Tony can you maybe comment on.
How do you think about interest rate risk and how you manage that risk across your cap structure.
Sure.
You know, when I think about interest rates, I go right down the list here from short-term liquidity to the back end of the capital structure.
When I when I think about interest rates I go go right down the list here from short term liquidity to the back into the capital structure.
short-term liquidity with our floor plan lines.
Short term liquidity with our floor plan lines.
which are which are usually tied to you know some some index rate
Which are which are usually tied to some index rate used.
to be live or now SOFR, where we're paying a spread over an index rate. Typically, as we've discussed before, those floor plan lines are subsidized by OEMs and given the amount of, for some period of time, and given the amount of turns that we're experiencing in our inventory and that's on the floor plan lines, there's really not a lot of risk
He used to be LIBOR now sulfur.
Where we're paying a spread over an index rate.
Typically as we've discussed before those floor plan lines are subsidized by Oems and given the amount of for some period of time and given the amount of turns that we're experiencing in our inventory and that that's on the floor plan lines Theres really not a lot of risk in increase in interest rates relative.
in increase in interest rates relative to the floor plan that would manifest itself into being materially impactful to the P&L.
The floor plan that would manifest itself into being materially impactful to the P&L.
The and I'll kind of go backwards, a little bit here the bond, obviously fixed the back into the capital structure.
go backwards a little bit here. The bond obviously fixed the back end of the capital structure and we were at five and five eighths on that bond that we launched just over a year ago today.
And we know where we were at five and five eights on that bond that we launched just.
Just over a year ago today.
And so.
We feel good that that bond, that interest rate is locked in here for the next four years, which leaves kind of the middle piece, which is the draw on the ABL loan, where we were drawing I think $110, $120 million here at quarter end.
We feel good that that bond that interest rate is locked in here for the next.
Four years.
Which leads to kind of the middle piece, which is the draw on the ABL loan.
Where we were drawn I think 110 $120 million here at quarter end.
Again, we're kind of low in terms of our utilization and our leverage profile relative to going up the grid pricing-wise. So that $110,000,000, $120,000,000 is really all that's floating at the moment. We are constantly kind of thinking about what to do with that piece and whether to hedge a little bit. But again, I think we're talking about an immaterial impact. Holistically,
Very again.
Were kind of low in terms of our utilization and our leverage profile relative to generating going up the grid pricing wise.
So that 110 $120 million is really all that's floating at the moment, we we're constantly kind of thinking about what to do.
With that piece of weather to weather the hedge a little bit, but again I think we're talking about an immaterial impact holistically.
You know, we think that our business model suggests that we can pass some of this along, you know, whether inflation, higher interest rates, so on and so forth, that we can pass some of these higher costs along to customers in the form of, you know, just increased pricing. So, that's how we think about it.
We think that our business model suggest that.
We can pass some of this this along whether inflation higher interest rates.
So on and so forth.
We can we can pass some of these higher costs along to customers.
In the form of.
Increased pricing so it's always think about it.
Very helpful. Thank you very much.
Thanks, Alex. Thank you for your question, Alex. Our next question comes from the line of Brian Bass with Raymond James. Brian , you may proceed with your question.
Thanks, Alex Thank you for your question Alex.
Next question comes from the line of Brian <unk>.
Raymond James Brian You May proceed with your question.
Yes, thanks, good afternoon guys.
Thanks, good afternoon guys. As you see price increases from your suppliers, has there been any issues in passing those on to customers?
Because you see price increases from your suppliers has there been any issues in passing those on to customers.
What I would say Brian is.
really kind of thinking about, again, breaking that down into the verticals and then into the business line. So if you're just thinking about equipment, which is kind of the headliner here, equipment sales, I think on the material handling side of the business, I would say there's some customers where when there's price increases that come through, if they're not kind of
Really kind of thinking about.
Again, breaking breaking that down into the verticals and then into the into the business slides. So if you're just thinking about equipment, which is kind of the headliner here.
Equipment sales I think you know what.
Win win on that.
Cherilyn material handling side of the business.
I would say there is there's there are some customers where when there is price increases that come through.
If they're not kind of fixed.
with the OEM in terms of the backlog where one of two things happens. They either accept it and they move along or they potentially could cancel the order. I think what's important to mention here is
With the OEM in terms of the backlog.
We're one of two things happens they either they either accept it.
And they move along.
Or are they or are they potentially could cancel the order.
I think what's important to mentioned here is all of this decision, making that customers are making is relative to the to the other guy right. So what relative to our competition and so.
All of this decision making that customers are making is relative to the other guy, right? So relative to our competition. So what we're paying attention to is pricing relative to the competition. What we've seen...
We're paying attention to is pricing relative to the competition. What we've seen today is we have seen.
day is we have seen some customers drop out of the backlog because they're opportunistic and maybe can find some equipment elsewhere, but for the most part I think we're seeing some stickiness.
Some customers drop out of the backlog because they are opportunistic and maybe you can find some equipment elsewhere, but for the most part I think we're seeing some stickiness.
One of the other things that's kind of on our mind to Alex's point is the increase in interest rates. So typically our customers are financing through an operating lease or some loan their fleet buy or their equipment buy. And so that lease payment is really what we are trying to sell to customers. And so increase in pricing sometimes won't necessarily move the needle a ton on the lease payment.
One of the other things Thats kind of on our mind to Alex's point is the increase in interest rates. So typically our customers are financing through.
An operating lease or.
Or or some loan their fleet by or their equipment buy in so that that lease payment is really what what what we were trying to sell to customers and so increase in pricing.
Sometimes no won't necessarily move the needle a ton on the lease payment.
And so I would say by and large, we've been able to pass it along thus far.
And so I would say by and large we're able to either we've been able to pass it along thus far.
And then when it comes to the rest of the P&L, you know, any pricing increases that we've seen in parts, we've been able to pass along. Certainly, we've been able to pass along increased that we've seen in market relative to rental rates.
And then when it when it comes to the rest of the P&L any pricing increases that we've seen in parts, we've been able to pass along.
Certainly we've been able to pass along increases that we've seen in market relative to rental rates.
And so in the areas of our business where we're cash flow intensive, where they mean a lot to our EBITDA, part service and rental, we absolutely are able to pass it along to the customers.
So in the areas of our business, where we are with.
Cash flow intensive where they mean a lot to our EBITDA.
Parts service and rental we absolutely are able to pass it along to the customers equipment is a little bit more difficult to kind of.
The equipment is a little bit more difficult to kind of triangulate on.
Triangulate on.
Okay Fair enough, that's I would just add that when we when we talk about it being.
fair enough. I would just add that when we talk about it being
I would just add that when we talk about it being more difficult, we're talking about new equipment because you use the market.
I would just add that when we talk about it being more difficult we're talking about new equipment because you write.
The market is very liquid and pricing is real time, what I would say too Brian is just to highlight if you when you dig into the to the Q here, you'll notice that gross margins on our used and new and used equipment lines, it's up across the board.
it and pricing is real time. What I would say to Brian is just to highlight, when you dig into the queue here, you'll notice that gross margins on our new and used equipment line is up across the board.
and in particular in our construction business.
And in particular in our in our construction business.
Primarily because we've been able to, if we have the iron, we're able to kind of drive margin on sales.
Primarily because we've been able to if we if we have the iron we're able to.
Able to kind of drive margin on sales.
And on the material handling side, we're seeing increased margins and new equipment, new and used equipment, primarily, so we constantly focus on hyster Yale, but the reality is that that line, that gross margin is expanding because of peak logics at Scott Tech, where we're selling, you know, value added equipment projects that have higher margins.
On the material handling side, we're seeing increased margins in new equipment, new and used equipment primarily.
We constantly focus on hyster Yale.
But the reality is that deadline that gross margin is expanding because of peak logics and Scott Tech where were selling value added equipment projects.
That have higher margins.
Okay fair enough. Thanks.
And then, I guess we saw a nice build in inventory during the quarter. How comfortable are you with the current inventory levels as you think about meeting them?
And then I guess, we saw a nice build in inventory during the quarter. How comfortable are you with the current inventory levels. As you think about meeting that robust demand and then.
I know you had some commentary there, but are you seeing any improvement in supply chain, just relative maybe even to the last one?
I know you had some commentary there but are you seeing any improvement in supply chain just relative maybe even to the last two months when you stop.
Stop the call.
I'll take the second part of that call first, this is Ryan. I would say that across the board, not any significant improvement, but there is an area that we see an opportunistic, an opportunity, and it's that the fastest growing
I'll take the second part of that call first this is Ryan.
I would say that across the board not not any significant improvement, but there is.
An area that we see an opportunistic opportunity and it's the fastest growing part of the material handling segment today is the warehouse segment.
part of the material handling segment today is the warehouse segment. And we are positioned competitively in terms of lead times. The leading brands are out nearly twice as long as us on lead times for that segment of equipment, which is something we're trying to
And we are positioned.
Competitively in terms of lead times that the leading brands are out nearly twice as long as us on lead times for that segment of equipment, which is something we're trying to take advantage of.
And Brian to your to the first part of your question, Yes, I think we saw something along the.
And, Brian , to the first part of your question, yeah, I think we saw something along the line.
something along, you know, $40-50 million of build on the inventory line, which is actually
Something along $40 million to $50 million of build on the inventory line, which is actually.
Historically, this first quarter is when we take delivery of new equipment as we head into the sales season, specifically in our construction business.
Historically this first quarter is when we take delivery of new equipment as we head into the sales season, specifically in our construction business. So that was actually good to see.
So that was actually good to see from the low levels that we kind of ended the year at.
That from from the low levels that we kind of ended the year at.
uh... so we were we were pleased to see that the increase in inventory uh... breaking out the segments we we certainly would like to see uh... we'd like to be holding more in the material handling business uh... because we we know we can we can generate revenue if we can get it delivered and prepped and and out to customers
So we were pleased to see the increase in inventory.
Breaking out the segments, we certainly would like to see.
Like there'll be holding more in the material handling business because we know we can we can generate revenue if we can get it delivered and prepped and out to customers.
And then on the construction side, I would say, you know, we feel pretty comfortable in that that side of the house becomes a mix.
And then on the construction side I would say, we feel pretty comfortable.
In that that side of the house it becomes a mix what type of equipment do you have relative to demand.
you know, what type of equipment do you have relative to demand, and that's where some of the volatility where we see kind of fits and starts to the supply chain come into play and relative to Alex's question on guidance, that's where we have less visibility on right now.
And that's where some of the volatility.
Where we see kind of fits and starts to the supply chain come into play in relative to Alex's question on guidance, that's where we we just we have less visibility on right now.
Okay, Great I appreciate the color guys. Thanks.
Thank you Brian for your question Brian .
Thank you, Brian . Thank you for your question, Brian . Our next question is a follow-up question from Matt Somerville with DA Davidson. Matt, you may proceed with your question.
Next question is a follow up question from Matt Summerville with D. A Davidson Matt you May proceed with your question.
Thank you for taking my follow-up. This is Will Jellison again. I want to zoom in on the service line item in that business.
Thank you for taking my follow up this is Welsh Allison again I.
I wanted to zoom in on the service line item.
That business, yes.
It looks like that business historically has generated gross margins in the low to mid 60 percentage range. And they've got a little bit soft during 2021 and stand here today just below 60%. Can you talk about what is the path forward?
It looks like that business historically has generated gross margins in the low to mid 60 percentage range and that's got a little bit soft during 2021 and stand here today, just below 60% what.
Can you tell us what is the path forward.
to getting that gross margin level back to that historical low to mid 60%
To getting that gross margin level back to that historical low to mid 60 percentage range.
Yeah, Will, thanks for that. Couple things. There's nothing, number one, there's nothing. This is more just kind of a function of.
Yeah, well thanks for that.
A couple a couple of things Theres not number one there is nothing this is more just kind of.
<unk> of each something thats going on in each of the each of the segments.
something that's going on in each of the segments.
What I would point out is, in the material handling business, if you look into the queue, you'll notice that specifically at High Low, which is one of the acquisitions that we did, we had an accounting shift of mapping of costs because of the way that their system was working. And so, in the material handling segment, this quarter we saw 60 percent.
What I would point out is.
In the material handling business, if you look into the Q, you'll notice that specifically yet at high LOE, which is one of the acquisitions that we did we.
We had a we had an accounting.
A shift of mapping of cost because of the way that their system was working.
In the material handling segment.
This quarter, we saw a 60%.
gross margins which is kind of what we could expect the low 60s going forward
Gross margins, which is kind of what we could expect the low sixty's going forward.
But a lot of that has to do with just the accounting for technician time and not being able to apply it to work orders.
And so we are but a lot of that has to has to do with that.
The just the accounting for technician time, and not being able to apply it to work orders in our New York business as old system. So there's really there's really no real business impact there.
in our New York business's old system. So there's really no real business impact there.
And then on the construction, in the construction vertical, some of the businesses that we've purchased
And then on the construction.
In the construction vertical.
Some of the businesses that we purchased.
have a lower gross margin here versus our existing business, so that's impacting the line a little bit. And then we did see in Q1 a little bit of pressure from a warranty perspective. I think this has come up previously.
Have a lower gross margin here versus versus our existing business, that's impacting the line a little bit.
And then we did see in Q1.
Some a little bit of pressure from a warranty perspective I think this has come up previously.
The more number one the more of the mix of our revenue hits the warranty warranty work is lower margin.
Number one, the more the mix of our revenue heads to warranty, warranty work is lower margin, but we are kind of experiencing less margin than we had historically in terms of recovering warranty on claims. So I don't think it's anything existential that's going on. It's not indicative of our ability to pass cost along. It's some of these just more nuanced areas of the business. What I would say, too, is the construction business.
But we are kind of experiencing less less margin than we had historically in terms of recovering warranty.
On claims so.
I don't think it's anything existential that's going on it's not indicative of our ability to pass costs along.
It's some of these just more nuanced areas of the business, what I would say too is.
The construction business.
In Q1, did 56% in Q4, it was 50%. Q4 is typically a really high non-villable month with holidays. Q1, similarly with technician training in the winter months, we experienced a little bit more non-villable. So I would expect that those numbers continue to kind of ramp up here back to that, you know, 60%.
In Q1 did 56% in Q4 it was 50%.
Q4 is typically a really high non billable months with holidays Q1, Similarly with technician training in the winter months, we experienced a little bit more non billable. So I would expect that those numbers continue to to kind of ramp up here back to that 60% level.
Yeah.
Understood. That's great. Thank you. And then lastly, I'd love to get an update on what you're observing in the acquisition market and whether or not there have been any noticeable changes since we last got on the phone at the end of March.
Understood that's great. Thank you.
And then lastly, I love I'd love to get an update on what you're observing in the acquisition market and.
Whether or not there any noticeable changes since since we last got on the phone at the end of March.
This is Ryan I don't think there are noticeable changes there's still a.
This is Ryan. I don't think there are noticeable changes. There's still a landscape with a lot of sellers out there. The motivations for family businesses to sell still are the same and we're continuing to pursue a very active pipeline.
Theres still a landscape with a lot of sellers out there the motivations for family businesses to sell still are the same and.
We're continuing to pursue a very active pipeline.
Perfect. Thank you.
Thank you for your question, Matt Eric.
Thank you for your question, Matt. There are currently no further questions waiting at this time. This concludes the ALTA Equipment Group First Quarter 2022 Earnings Call. Thank you for your participation. You may now disconnect your line.
Eric currently no further questions waiting at this time.
This concludes that.
First quarter 2022 earnings call. Thank you for your participation you may now disconnect your lines.