Q3 2022 Federal Signal Corp Earnings Call
Good morning, and welcome to the Federal Signal Corporation third quarter 2022 earnings Conference call.
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I would now like to turn the conference over to Ian Hudson Chief Financial Officer. Please.
Please go ahead.
Good morning, and welcome to Federal Signal's third quarter Conference call.
Ian Hudson, the company's Chief Financial Officer.
Also with me on the call today is Jennifer Sherman, our President and Chief Executive Officer.
We will refer to some presentation slides today as well as to the earnings news release, which we issued this morning.
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 would like to remind you that some of the comments made today may contain forward looking statements that are subject to the safe Harbor language found in today's news release and in federal Signal's filings with the Securities and Exchange Commission. These documents are available on our website.
Our presentation also contains some measures that are not in accordance with U S. Generally accepted accounting principles.
Our earnings release and filings we reconcile these non-GAAP measures to GAAP measures.
In addition, we will file our Form 10-Q later today.
I'm going to begin today by providing some detail on our third quarter results before turning the call over to Jennifer to provide an update on our performance current market conditions recent acquisition activity and our outlook for the remainder of the year.
After our prepared comments, Jennifer and I will address your questions.
Consolidated third quarter financial results are provided in today's earnings release.
In summary, our businesses, we're able to deliver another solid quarter with double digit growth in net sales and earnings gross margin improvement and an adjusted EBITDA margin towards the upper end of our target range.
Consolidated net sales for the quarter were $346 million up $48 million or 16% compared to last year, Despite a $3 million unfavorable foreign currency translation impact.
Organic revenue growth for the quarter was $27 million or 9%.
Consolidated operating income for the quarter was $39 5 million up $5 2 million or 15% compared to last year.
Consolidated adjusted EBITDA for the quarter was $53 5 million up $6 1 million or 13% compared to last year.
That translates to a margin of 15, 4% in Q3 this year compared to 15, 9% last year.
Net income for the quarter was $31 8 million up $2 6 million or 9% from last year.
That equates to GAAP EPS for the quarter of 52 per share up <unk> <unk> per share or 11% from last year.
On an adjusted basis EPS for the quarter was 53 per share an improvement of <unk> <unk> per share or 10% compared to last year.
Our third quarter GAAP and adjusted EPS in both the current and prior year included certain discrete tax benefits primarily related to tax planning strategies in the current year quarter. These benefits totaled $3 8 million, which was $700000 less than the amount recognized.
The prior year quarter.
Order intake for the quarter was again strong with orders of $382 million, representing an increase of $32 million or 9% compared to Q3 last year.
Consolidated backlog at the end of the quarter set another new company record at $824 million.
That represents an increase of $337 million or 69% from last year.
In terms of our group results Esg's net sales for the quarter were $285 million, an increase of $36 million or 14% compared to last year.
<unk> operating income for the quarter was $33 9 million up.
Up $3 1 million or 10% compared to last year.
<unk> adjusted EBITDA for the quarter was $46 5 million up $3 8 million or 9% compared to last year.
That translates to an adjusted EBITDA margin of 16, 3% in Q3, this year compared to 17, 1% last year.
ESG reported total orders of $321 million in Q3, this year, an improvement of $29 million or 10% compared to last year.
SSG net sales for the quarter was $62 million up $12 million or 25% compared to last year.
<unk> operating income for the quarter was $10 5 million up $2 9 million or 38% from last year.
<unk> adjusted EBITDA for the quarter was $11 $5 million of $3 million or 35% from last year.
Ssg's adjusted EBITDA margin for the quarter was 18, 7% up 140 basis points from Q3 last year.
Ssg's orders for the quarter was $61 million of $2 million or 4% compared to last year.
Corporate operating expenses for the quarter was $4 9 million compared to $4 1 million last year.
Turning now to the consolidated income statement, where the increase in sales contributed to an $11 $9 million improvement in gross profit.
Consolidated gross margin for the quarter was 23, 9% up 10 basis points compared to last year.
As a percentage of sales, our selling engineering general and administrative expenses for the quarter were up 30 basis points from Q3 last year.
Other items affecting the quarterly results include a $300000 increase in amortization expense of $400000 reduction in other income and a $1 6 million increase in interest expense.
Tax expense for the quarter was $4 9 million.
Compared to $4 $3 million last year with the increase primarily due to the recognition of fewer discrete tax benefits in the current year quarter compared to the prior year or.
Our effective tax rate for the quarter was 13, 4% compared to 12, 8% last year.
At this time, we expect our full year effective tax rate to be approximately 22%.
On an overall GAAP basis, we therefore earned 52 per share in Q3, this year compared with 47 per share in Q3 last year.
To facilitate earnings comparisons, we typically adjust our GAAP.
GAAP earnings per share for unusual items recorded in the current or prior quarters in.
In the current year quarter, we made adjustments to GAAP earnings per share to exclude acquisition related expenses.
On this basis, our adjusted earnings for the quarter were <unk> 53 per share compared with 48 per share last year.
Looking now at cash flow, where we generated $10 million of cash from operations during the quarter, bringing the total year to date operating cash generation to $32 million.
We ended the quarter with $296 million of net debt and availability under our prior credit facility of $160 million.
We recently increased our borrowing capacity by executing a new five year $800 million credit facility, replacing the $500 million credit facility that was previously in place.
The new credit facility provides greater financial flexibility to invest in internal growth initiatives and pursue additional strategic acquisitions like total Corporation, which we acquired shortly after the end of the quarter for an initial payments of $43 million.
Terms of the new facility are more favorable to the company, reflecting our strong cash flow and balance sheet. This marks another important milestone for the company as we continue to execute on our strategic long term growth objectives.
We also remain committed to investing in organic growth initiatives and returning 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 fourth quarter.
That concludes my comments and I would now like to turn the call over to Jennifer.
Thank you Ian with benefits from pricing actions and strong aftermarket demand and contributions from recent acquisitions, our businesses, we're able to deliver double digit year over year net sales and earnings.
Gross margin improvement and an EBITDA margin towards the high end of our target range, despite supply chain disruption, which impacted production and shipments at certain facilities within our environmental solutions group early in the quarter within our environmental solutions group, we again saw increase.
<unk> demand for rental and used equipment driven in part by the extended lead times for new equipment overall, our aftermarkets revenues in Q3. This year, we're up 10% over last year, with particularly strong demand for rentals and part sales.
The growth of our aftermarket business remains a key strategic initiative and with benefits from pricing actions geographic expansion into new territories and acquisition leveraging our aftermarket platform. We were pleased to report our highest aftermarket revenues in any third quarter.
In total aftermarket revenues represented about 30% of ESG revenues for the quarter.
The volatile supply chain environment in which we are currently operating is causing us to constantly adjust our production schedules, creating a high degree of inefficiency and impacting our ability to ship unit.
During the quarter production shipments at our St earn out and manufacturing facilities were adversely impacted by supply chain disruptions, primarily related to sporadic shortages in hydraulics and specialty control components.
We are partially building trucks and completing them when the missing parts arrive.
For example in July 30% of the units scheduled to be built at our Streator facility. We are waiting for park at the end of the month.
In response, the teams worked diligently to secure additional part as well as to qualify alternative suppliers.
The encouraging news is that as the quarter progressed, we saw sequential monthly improvement in production. In fact September represented our highest weekly unit production at both facilities. This year with build rates up 35% since January .
Street Sweeper production also experienced a planned temporary decline in July as our Elgin facility implemented lean manufacturing initiatives to reconfigure one of its production lines. While the assembly line reconfiguration had a temporary impact in July production ramped back up in August .
Since September .
Towards the end of the quarter, we also experienced some customer pickup delays, resulting from hurricane and particularly in our dump body business.
We were fortunate that our facilities and employees were not directly impacted by this extreme weather event and are pleased that our equipment is playing a critical role in repairing and rebuilding the damage to housing and infrastructure in the affected areas.
Within our safety and security systems group to supply chain improvement, we started to see towards the end of last quarter continued into the third quarter.
Over the course of the last several months, our procurement and engineering teams have worked diligently to add alternative suppliers for various components like Leds and wire harnesses and a redesigned printed circuit board to replace unavailable obsolete our long lead time electronic component we have also.
Certain production in house to alleviate some pressure on our key suppliers. For example, we have added in house capacity to offset demand shortages from our contract manufacturer for printed circuit boards that are used in our pathfinder products.
With these efforts gaining traction we saw an improvement in inventory availability.
The supply chain became more reliable as the quarter progressed and our operations teams put together a robust execution plan to build out the increasing backlog by flexing the workforce working overtime and hiring additional resources.
These factors contributed to Ssg's record third quarter performance, which included 25% topline growth.
At an EBITDA margin in excess of its target range.
<unk> my comments like Q3 by reiterating that while supply chain remained burdensome, we have seen improvement within SSG and are encouraged by the recent improvement in production levels that we've seen in our street LG facilities during the quarter as production levels increased we saw.
Sequential monthly improvement in sales and despite the volatile supply chain environment, we've been operating in so far this year, we remain on track to have a record year in terms of sales and earnings.
Demand for our product offerings continues to be as strong as ever as demonstrated by our outstanding third quarter order intake of $380 million contributing to another record backlog and reflecting strength across our end markets.
Sentiment has been widely shared by our customers and dealer partners and seemed to be further solidified by the economic stimulus package, which passed in March of 2021.
What package approximately 350 billion with earmarked for state local and territorial governments for a variety of purposes, including the maintenance of our central infrastructure such as tourist systems in St.
As a provider of equipment used for essential services like sewer cleaning and street sweeping we stand to benefit meaningfully from additional aid that may be provided state and local sources for these purposes.
The Treasury began distribution of the first 175 billion tranche in the spring of 2021 and current indications are that the second tranche is expected to be released this year.
<unk> sentiment remains bullish as municipalities both small and large are continuing to place orders at historic levels based in part by a surplus of funds directly attributed to this public funding source.
This is supported by the ongoing strength of the U S municipal orders, which were up 20% for both the quarter and year to date period, with notably strong demand for street sweepers and sewer cleaners. In fact, so far this year our U S municipal orders for Street sweepers are up around $40 million or <unk> 40.
Percent over last year, while sewer cleaning orders are up $25 million or 22% over the same period.
We are also seeing strong domestic municipal demand within SSG with 9% order improvement year to date, resulting from higher demand for public safety equipment over.
Over the last few years several major urban domestic municipalities had pods, making investments in public safety equipment, such as police vehicles and related equipment.
We are pleased that this trend appears just started to reverse during Q3, we received a significant order from a major metropolitan Police Department to first in over three years and we are optimistic that other customers will follow up with renewed investment in public safety equipment.
Within our industrial end market, we've also seen a 15% year over year improvement in domestic orders.
The improvement has been almost across the board, but most notably for our true back safe digging trucks, and our guzzler industrial vacuum loaders, which collectively were up $41 million or 66% year over year.
While industrial order strength continues we have seen some softening in orders for dump bodies as customer and dealer provided stock chassis and pool chassis of all size classes remain a primary constraint for this product offering is dump bodies typically received lower prioritization from dealers when Chad.
The availability is limited based on allocations from Oems as chassis availability improves we expect to see increased orders based on pent up demand.
Turning to the $1 two trillion infrastructure, Bill, which has 550 billion for new investments in roads bridges power water and broadband infrastructure public transportation airports, we are beginning to see demand pick up in the form of equipment inquiries from contractors, who are working with state.
Department of transportation agencies on roads bridges and related projects. Additionally, conversations among our dealer channel indicate contractors are now planning out projects through 2024 and are beginning to commence with large equipment inquiries directly tied to these infrastructure funds.
I would now like to spend a minute on our acquisition of tow Hall, which we completed in early October .
<unk> is headquartered in Belgrade, Montana, and is a leading manufacturer of off road towing and hauling equipment for over 40 years tow Hall has been dedicated to designing and manufacturing the most reliable and efficient and adaptable heavy duty off road specialty medical.
Extraction support equipment, including its signature front and rear loading lowboy trailers.
<unk> patent equipment design got the product knowledge understanding of its customer specific requirements and excellent track record have allowed us to establish a leading position in the industry. <unk> also supports the recurring aftermarket needs of its customers through parts and service offerings, which represent approximately <unk> <unk>.
35% of its annual revenue.
The acquisition further bolsters, our position as an industry, leading diversified industrial manufacturer of specialty vehicles for maintenance and infrastructure markets with leading brands, a premium value, adding products and a strong supporting aftermarket platform.
The combination of Tau with ground force worldwide, which we acquired in October of last year allows us to serve our shared global customer base with a broader range of world class products and solutions.
It also creates a platform that is well positioned to capitalize on a number of tailwind expected to drive future growth and the metal extraction industry, including robust industrial activity and increased demand for precious metals and support of vehicle electrification and other Green initiative last.
Cheer tow haul generated revenues of approximately $23 million, we expect that tow hall will be able to perform within esg's target EBITDA margin range and will be accretive to earnings in 2023.
The acquisition reiterate our expectation M&A will continue to contribute meaningfully to our future growth.
Turning now to our outlook for the rest of the year.
Overall demand for our products and our aftermarket offerings remains high with our third quarter orders up 9% year over year and our backlog at the end of the quarter again, setting a new company record.
Although we expect sporadic supply chain disruption to continue in some manner for the next several quarters. Our teams continue to respond to these challenges and we are encouraged with the recent improvement we have seen.
With our performance so far this year, our record backlog and current expectations of component availability, we are raising the midpoint of our full year adjusted EPS outlook by establishing a new range of $1 91 to $2 updated from the previous range of.
$1 85 to $2.
We are also raising the midpoint of our full year net sales outlook to a new range of $1. Four 1 billion to 144 billion updated from the previous range of $1 $3 8 billion to $1 $4 5 billion.
We remain encouraged by the long term opportunities for all of our businesses, which will further benefit from the bipartisan infrastructure legislation passed by Congress.
We are already starting to see the benefits from the economic stimulus packages, which started to be made available to municipalities earlier. This year and we also expect the infrastructure Bill with 550 billion in new spending we could see capital equipment demand increased to support infrastructure investments and <unk>.
Areas, such as roads bridges electrification broadband clean energy and water and public transportation buildup.
We are a leading manufacturer of specialty infrastructure maintenance equipment and anticipate increased demand for the majority of our product offerings, including equipment sales and rentals of dump truck and trailers safe digging trucks road, marking equipment sewer cleaners and street sweepers, we expect to see a prolonged meaningful.
Tailwind from the stimulus packages.
With our strong demand and record backlog, we are not currently seeing any leading indicators of a recession our pricing actions have been generally accepted in the market and we have not experienced any meaningful order cancellation activity in fact in our businesses order cancellations have been rare.
While no company is immune to a macroeconomic recession, our backlog provides us with good visibility into 2023 and in part Insulates. The company from the more immediate effects of an economic slowdown.
Over the last several years, we have transformed our end market exposure and implemented our revenue diversification strategy that has enabled us to adjust as needed to market condition.
With that in an ongoing focus on ATI principles federal signal has become a more resilient business delivering a consistent level of EBITDA margin above most of our peers.
As Ian noted in his comments, our financial position and liquidity are strong and the recent expansion of our credit facility will further enable us to pursue strategic acquisitions like Tahoe. Our current M&A pipeline continues to be very active.
We remain committed to our vehicle application initiatives, including incorporating recent acquisitions into our electrification roadmap.
For example, the switching go product.
Which was part of the <unk> acquisition last December has entered into an agreement with an EV chassis manufacturer to build a prototype vehicle with the switching go body system the value proposition maximizes the benefits of the EV chassis by offering multi use body system capabilities that is not possible with the standard.
Spotty application in simple terms switching goes interchangeable body solution enables an end user to use one vehicle to the work of two to three trucks.
We also continue to experience a high level of demand from our dealer network for demonstrations of our plug in electric or plug in hybrid Electric Street sweeper products, specifically the broom bear in a three week three wheel Pelican and have received additional order intake our ongoing commitment.
<unk> to environmental social and governance initiatives also position us well in the communities in which we operate and as a differentiating factor in our ability to attract labor at most of our facilities.
As an example at our Streator facility, where we produce factor true back in Gaza equipment. We currently have less than 20 hourly job openings, which is less than 4% of the workforce or access to high quality employees continues to benefit from our deep roots in the street or community. For example, we've been able to <unk>.
Essentially higher well, there's from our partnership with a local community College.
In October we held an open house the facility that was attended by over 1400 employees and family members, which is a further testament to the strong bond. The team has built its employees and the local community. We are also thrilled to report that our Jetstream business was recently recognized as a top place to work in Houston for the second year.
In a row.
We recently held our annual leadership.
Offsite meeting, which was attended by over 60 executives at this event our leadership team engaged in a series of interactive sessions covering macroeconomic topics to the state of the economy.
Initiatives and a futuristic workshop as well as sessions focus more specifically on our strategic initiatives. We enjoyed welcoming leaders from recently acquired companies. This event always reminds me of how proud I am of the culture. We have developed at federal signal and I feel fortunate to work with so many talented leaders, we all up to you.
Feeling energized and excited about our future.
Although we've been operating in a difficult supply chain environment for over a year. We believe that the mitigating actions. We have taken in response will provide longer term benefits to federal signal and we will emerge a stronger company.
We recently reorganized our supply chain group to improved material availability across the organization and drive cost reduction initiatives as we leverage our scale and integrate acquired companies and.
In addition, we've expanded both our external supply base and our in sourcing capabilities. For example, we are now producing parts at certain FX solution centers that are utilized by our dump body business at our SSG at ESG team successfully collaborated to reengineer certain equipment in response to <unk>.
Co component shortages.
We are also investing in inventory securing safety stock to support production as we work towards reducing our current lead time.
With strong demand and ongoing tailwind from infrastructure stimulus are good access to labor and recent capacity expansions, we are well positioned for growth as the supply chain environment continues to improve at this time I think we are ready for questions operator.
Thank you very much.
The question and answer session.
Joe asked a question you May Press Star then one on your telephone keypad.
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Momentarily to assemble that hostess.
Yeah.
Yes.
The first question comes from Steve Barger from K.
The bank capital markets. Please go ahead.
Thanks, Good morning.
Morning, Steve.
Your updated guidance implies a record <unk> revenue performance is that coming more from the line of sight to already built product that you can ship on top of planned production or do you just expect fewer constraints in <unk>.
I think Steve what we've seen in the last couple of months suddenly of Q3 with the improvement in production.
Expected some of that to continue now.
We have some seasonality that where aftermarket tends to taper off a little bit, but I think the combination of the size of our backlog on the production improvements we've seen in the recent months gives us.
Confidence that.
The revenue will be will certainly be up Q3 and.
And so that's what's implied in the outlook.
Also we.
We expect our margins in Q4 to be up year over year.
Yes, I guess to that point, you know ESG incremental margin has obviously been tough for the last five quarters and I know a big driver of that is all of the operational challenge that you've discussed I just wanted to gauge your confidence that nothing has really changed on your ability to convert higher sales to higher margin.
You get past some of these.
Supply chain constraints.
The most encouraging fact that ISI is we track pretty carefully our production levels at Allergan and factor and then I talked about in my prepared remarks.
As we moved through July August and September we saw a sequential improvement each month.
And in September we were up 35% over January .
Although there is still some pockets of supply chain.
Overall, we're moving in the right direction.
And we're encouraged by that.
And that was baked into the guidance.
Yes.
In an unconstrained environment, how much of the $765 million of ESG backlog is shippable in 2023.
All of the all of it would be all of it so nothing nothing scheduled for 24.
That all represents orders that people want right now if they can get it.
Correct correct.
And I think I've asked this before but just to remind us what are you given the capacity expansions and what do you think.
Orderly revenue capacity is at ESG.
Again that constraint.
I mean, I think unconstrained, Steve I think we've obviously added a couple of companies into the mix.
Over the last couple of years, but I think unconstrained I think if you looked at some of our order cadence within SSG, It's certainly been.
In the $300 million, if not in excess of the $300 million range. So I think north of 300 million plus.
The impact of acquisitions.
That's perfect. Okay. Thanks ill get back in line. Thank.
Thank you.
Thank you.
Okay.
The next question comes from Mike.
From D. A Davidson <unk> company. Please proceed.
Good morning, Mike.
Yes, Hey, good morning, Thanks for taking my question can you hear me Okay, yes.
Great.
First touch on the.
The new credit facility.
Out there.
Can you just give us a couple of points as to some of the changes that might be in terms as far as that spread or any kind of ticking fees or other fees that may be involved. So we can have our model properly calibrate here, yes, so no real change in the the terms in terms of pricing, Mike It's the same or very similar spreads.
But we're in the.
Prior agreement now obviously.
Switch from LIBOR to the new software right and so.
The increase in rates.
So the interest expense is going to be higher but in terms of the other terms of the agreement and the change that some more favorable terms in terms of the covenant calculations that benefit us.
Obviously, there is the increase in the overall size of the facility.
Theres also the ability to increase it further.
For acquisitions.
<unk>.
If that need arises so I think overall, we had the credit agreement was that we previously had was going to expire in 2024.
We thought it was an opportunistic time to look to refinance it for another five years.
And also increase the facility and so we're really pleased with the outcome.
Great.
Barry I'll, just add one thing to reiterate what Ian said.
In these kind of challenging credit markets were extremely pleased with the response that we got and the terms that we got and we feel like well positions us going forward in terms of Optionality for both organic growth and inorganic growth.
Excellent.
Jonathan why don't you just give some more color on your from your own from those.
Dump body quarter comments, you made during your prepared remarks I wasn't sure are quite solid.
So I'm, probably just get sort of a little bit more priority in times of chassis.
Sure Jayson.
<unk> comments is that the new development in the industry or.
Is that the way, it's always bandwidth just I havent heard about since.
Yeah, no that does.
That's the way, it's always been and when chassis are on allocation.
It is many dealers want to commit to necessarily dump truck fleet they want to keep their options open.
So we've seen some of that over the last.
Several quarters.
As we move forward, we believe that a couple of things one there is pent up demand number two is.
We've diversified the end markets of that business pretty significantly since we purchased <unk> in 2017.
Oh SW switching go both have strong municipal exposures.
So we will start to see the benefits of that.
And then infrastructure Bill it is very difficult to imagine an infrastructure project that doesn't need a dump body.
So as we move forward, we're encouraged by the opportunity, particularly around the infrastructure funds.
And we wanted to just point out in <unk>.
Perhaps a clearer way.
One of the drivers of the softness in orders is just the prioritization of dump truck.
In the Q for chassis.
Yeah.
Okay.
That's a great color Jennifer Thank you I'll pass it along.
Thank you.
The next question comes from Chris Moore from CJS Securities. Please go ahead.
Good morning, Good morning, guys. Good morning, Yeah, maybe just back to the September the highest production rates this year.
What is that followed up and how they're looking at in October .
Yes, we're still getting our October 1st.
So more to come on that but.
Overall, we saw the beginnings of supply chain improvement at our SSG group in Q2.
And that continued in Q3 for SSG.
And as we move through the quarter.
At specifically.
Our streator and LG facilities, we saw that improvement and we are encouraged the other thing that's happening and this will have a long term benefit for the company is we've now qualified.
Additional suppliers.
We've streamlined some of our product offerings.
As a result of the supply chain challenges that we've become much more nimble in terms of responding to this.
And I believe that we will be in a better position.
Longer term as a result of it.
Got it very helpful.
Just with respect to the adjusted EPS range.
Tax rate is 22%.
Is that a lower tax rate assumption from from you after Q2 or the or the same.
It is Chris because I think we talked about the discrete benefits that we had in Q3.
So it is slightly lower than what we had previously signaled in Q2, but 22% would be the full year effective rate that were expecting.
Got it that wouldn't necessarily be a new normalized level moving down.
Just.
Just talk to that not necessarily now that would include that 22% would include the discrete benefits we recognized in Q3.
Which I think we talked about on the prepared remarks that we also had some fairly significant discrete benefits in Q3 last year.
So so.
When you look at it year over year in Q3, I think our effective rate was was it a fairly similar level of 13%. This year I think it was the high 12 last year. So we.
We had a fairly similar amount of discrete benefits in Q3 of both periods, but for the 22%.
For the full year would include the impact of the discrete benefits in the third quarter.
Got it I appreciate that and.
And just from a kind of a volume price discussion.
The midpoint of current revenue guidance of $17, 5% something like that what's the rough split between volume and price.
Yes, it's probably in terms of the organic growth. If you look in Q3, we had organic growth was about $27 million about 9% and of that about half of it was pricing.
So we would expect similar dynamics I think entering the fourth quarter.
Got it.
I appreciate it I'll leave it there.
Okay. Thanks, Thank you.
Thank you.
The next question comes from Greg Burns from Sidoti and company. Please.
Please proceed.
Good morning, Craig.
Is there any way you could quantify.
How much revenue.
Disruptions in the ESG side of the business costs.
Sorry to interrupt you have the audio was not clear from your line. Please use the handset mode.
Okay.
Can you hear me now.
<unk>.
Okay.
So is there any way you could quantify how much the disruptions.
Cost you in terms of revenue or margin.
This quarter.
It's a little tough to quantify the pinpoint an exact number Greg because.
It had some knock on effect because as we talked about in July .
We were impacted more than in August and September . So there is some kind of catch up effect that we had but.
If I were to ballpark an estimate we're talking.
$20 million ish.
High level estimate but.
As I said, it's a fairly difficult number to pinpoint.
Okay.
And then.
With the Tahoe acquisition, how much revenue is ground force a reseller of toll hauling how much.
Revenue.
Yes.
Those ground force.
Cal for all of Us.
Or is that not a meaningful number and is there any.
Additional revenue synergies between the two yes. It is.
Not so much.
They also have to resell it but what they what they can do and this is why we see some opportunities. They can go to market together.
There is situations where ground force has a strong presence in a certain geographic market, where total doesn't necessarily have a strong presence.
It also works vice versa. So I think the combination of the two teams can attack.
All of the geographic markets in which they operate so I think that's why we see a nice opportunity from that from a synergy standpoint.
In terms of the total deal we're targeting synergies of around about $3 million by the end of year three.
The majority of those are revenue synergies from leveraging both the both the distribution channels.
Okay, great. Thank you.
Thank you.
The next question comes from Walter Liptak from Stifel. Please go ahead.
Hi, Thanks, good morning, and congratulations on the good quarter.
I've got a couple of follow ons.
For some of the hall.
I think in your prepared remarks, you talked about <unk> as a platform.
And I assume that's with ground floor. So I'm wondering if you could talk about that and are there other M&A deals.
That you could that you are looking at.
And sort of this metal distractions metal.
Construction space. Thank you.
Yes, So crown force and tow hall sell to the same customers.
And they.
Ports.
The equipment that's in the mine so they basically transport to and from the mine is a way to think about it.
They are the leading providers in the world.
<unk> has certain geographic areas.
Areas that it focuses on the ground force doesn't and ground forces focused on certain areas and certain customers that <unk> dot.
So we're very excited about putting the two together under the same management team.
Leveraging the same sales channel because as we mentioned we think there is synergies there.
There is probably there could be one more deal.
Kind of complete SAP platform.
Scott.
We're still right now very focused on.
On integrating.
The two companies that we purchased but as we've previously talked about ground for us is off to a strong start and both of those companies operate within our target EBITDA margin ranges there's opportunity for improvement.
So very solid businesses.
And what we really like about them also as their parts business you talked auto Hall has 30% plus parts business.
And so as we move forward.
It does a really nice job with some proprietary parts.
In this particular market.
Okay, Great and then switching gears to another follow on.
So agency that.
<unk> started to improve production levels are getting better.
Sort of a follow on to that last question about.
About delayed shipments I wonder if you could quantify the different way like what are your lead times now in terms of months or whatever.
In normal times, where were those lead times, how much how supply chains get better how quickly could you work down that ESG backlog.
Yeah, so for several of our product lines I'll start with there too long.
And we are very focused effort to reduce those lead times.
Particularly factor, we've seen very strong orders.
For many of our products, including our factor in Elgin products.
So that's an area, where we will be focused on reducing those lead times.
Moving forward.
Particularly we are encouraged by because we've got the capacity and we've got the people and so as we move forward.
We should easily be able to reduce lead times.
And we should be able to increase throughput.
Okay.
Okay fair enough.
And then just.
New question I guess.
We are in this rising interest rate environment, it's great that you've got all the government spending for infrastructure and other things but.
How do you think the rising interest environment impacts your customers' purchases of your of your products.
Yes.
On the municipal side of things.
Don't see a big impact.
Particularly as you know sewer cleaners are often funded by water taxes and then we have the.
Multiple layers of government spending that will benefit.
Purchases of our products.
Yes.
Industrial side of things.
Where we believe our aftermarket business is so important because we have rentals as an option.
As I mentioned in my prepared remarks.
We are starting to our customers are starting to plan for some of these big infrastructure projects.
We have programs that are available to our aftermarket group if they can't afford to buy new equipment, where they can rent equipment and buy it over time if necessary. So we think we're uniquely positioned because of our ability to offer both new.
Used and rental equipment in this rising interest rate environment.
Okay alright, thank you.
Thank you.
Okay and if you have a question. Please press Star then one.
The next question comes from Fedex portion.
From Raymond James Please go ahead.
Morning, Felix good morning.
Hey, good morning.
Hey, Ian I was hoping just to follow up on something real quick, but I'm not sure if I missed it.
But can you provide how much chassis pass through revenue was in the quarter and how that compares to last year.
Yes. It was it was a little higher was about 6 million higher.
So it was about 1% of the overall revenue increase was higher chassis revenue.
It was about a drag on our margin of around about 15 basis points. This period.
Not as much of a drag as it was in Q2, but still still a slight drag on gross margin.
Okay Super helpful. And then I wanted to follow up on the September build rate commentary being the highest of the year.
You said up 35% versus January and I think that was a comment across both victory and LG.
I was hoping could you confirm that it was across both of those and then b any idea or any color for us how volumes at this point compare to sort of pre COVID-19 pre <unk> expansion levels.
Yes, so I will confirm yes. It was for factor in outlays for street or announcement.
Number two is on with respect to pre COVID-19 levels.
Out there.
Yeah.
Okay, so lower than pre Covid, yes, okay.
Okay.
And then.
Just my last one.
I understand youre, not giving guidance for 2023.
But I am kind of curious if you could directionally talk about maybe what you're hearing out of the Oems on chassis allocation into next year.
Any directional color on maybe how youre thinking about about that specifically in the municipal part of your book.
Sure.
We have received initial allocations from the chassis Oems.
And the messaging is.
About the same as 2022 with potential upside for the second half of the year.
However, all that being said as we've talked about several times.
We have programs that.
In place with our dealers, where we encourage them.
To go out and secure chassis.
Outside of our allocations.
And then in addition to that we also go out and try to secure chassis.
The onesie Twosies program from various distributors across North America.
And I know we've started that.
So as we move into 'twenty three.
We have several programs in place, where we're trying to increase the number of chassis that are available to us either through our dealers our customers who.
We're going out and trying to procure them on an individual basis.
Got it very helpful I'll stop there.
Thank you.
Thank you.
The next question comes from Steve Barger from Keybanc capital markets. Please.
Please go ahead.
Hey, Thanks, just a quick follow up sorry, if I missed this operating cash flow is running below prior year I know <unk> is typically a cash release period do you have a forecast for operating cash flow for either <unk> or the year.
We don't have a forecast necessarily Steve, but I think one thing we would say is that we would expect our cash conversion in Q4, obviously to improve.
From where it's been I think.
As you can probably see we've had some strategic inventory build.
Really to serve the backlog that we have.
There is some obviously the increase in <unk>.
Receivables that is primarily timing related I think we start to see some of that in.
In the early part of October .
The encouraging thing that we see in terms of our receivables is that we haven't seen any deterioration in terms of the aging profile of our receivables, even though its up significantly at.
At the end of September versus where it was at the end of December . So I think I think the receivables will start to turn as we enter Q4 and Thats why were expecting to see some of that cash conversion start to improve in Q4.
Got it that's perfect. Thanks, Okay. Thank you.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Jennifer Sherman for closing remarks.
Thank you in closing I would like to reiterate that we are confident in the long term opportunities for our businesses and the prospects for our recent acquisitions.
Portfolio of businesses include many market, leading brands with solid fundamentals. Our foundation is strong and we are focused on delivering profitable long term growth through the execution of our strategic initiatives.
I'd like to give a public thank you to all of our employees for their commitment creativity and dedication addressing this challenging supply chain environment.
I would also like to express our thanks to our stockholders distributors dealers and customers for their continued support thank you for joining us today.
We'll talk to you soon.
Okay.
Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.