Q1 2023 Federal Signal Corporation Earnings Call
Speaker 2: Good day and welcome to the Federal Signal Corporation first quarter earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
Speaker 2: To ask a question, you may press star, then one on a touch tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Ian Hudson, Chief Financial Officer. Please go ahead.
Speaker 3: Good morning and welcome to Federal Signals first quarter 2023 conference call. I'm Ian Hudson the company's Chief Financial Officer.
Speaker 3: Also with me on the call today is Jennifer Schonman, our President and Chief Executive Officer.
Speaker 3: We will refer to some presentation slides today, as well as to the earnings news release which we issued this morning. The slides can be followed online by going to our website, federalsignal.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 investor tab on our website.
Speaker 4: website.
Speaker 3: Our presentation also contains some measures that are not in accordance with U.S. Generally accepted accounting principles.
Speaker 3: In our earnings release and filings, we reconcile these non-GAAP measures to GAAP measures.
Speaker 3: In addition, we will file our Form 10-Q later today.
Speaker 3: I'm going to begin today by providing some detail on our first quarter results before turning the call over to Jennifer to provide her perspective on our performance, market conditions, and her outlook for the remainder of the year.
Speaker 3: After our prepared comments, Jennifer and I will address your questions.
Speaker 3: Our consolidated first quarter financial results are provided in today's earnings release.
Speaker 3: In summary, we delivered strong financial results for the quarter with double-digit year-over-year net sales and earnings growth, gross margin expansion, a 130 basis point improvement in adjusted EBITDA margin, and new records in orders and backlogs.
Speaker 3: Consolidated net sales for the quarter were $386 million, up $55 million or 17% compared to last year.
Speaker 3: Organic sales growth for the quarter was $44 million or 13%.
Speaker 3: Consolidated operating income for the quarter was $39.5 million, up $11 million, or 39% compared to last year.
Speaker 3: Consolidated Adjusted EBITDA for the quarter was $54.5 million, up $12.3 million, or 29% compared to last year.
Speaker 3: That translates to a margin of 14.1% in Q1 this year, up from 12.8% last year.
Speaker 3: Gap EPS for the quarter was 45 cents per share, up 12 cents per share or 36% from last year.
Speaker 3: On an adjusted basis EPS for the quarter was 46 cents per share up 12 cents per share or 35 percent from last year. Order intake for the quarter was outstanding and we again reported record orders surpassing the previous high which we set in Q1 last year.
Speaker 3: In total, orders in Q1 this year were $475 million, an increase of $22 million, or 5% compared to Q1 last year.
Speaker 3: Backlog at the end of the quarter was $968 million, another all-time high for the company, and an increase of $216 million, or 29% compared to Q1 last year.
Speaker 3: In terms of our group results, ESG's net sales for the quarter were $319 million of $45 million or 16% compared to last year.
Speaker 3: ESG is operating income for the quarter with $37.6 million of $10.8 million or 40% compared to last year.
Speaker 3: ESG is adjusted EBITDA for the quarter with $51.2 million, up $11.9 million or 30% compared to last year. That translates to an underjusted EBITDA margin for the quarter of 16.1%, an improvement of 180 basis points compared to last year, despite higher chatty revenues.
Speaker 3: which represented a year-over-year headwind of approximately 40 basis points.
Speaker 3: DSG reported total orders of $396 million in Q1 this year, an improvement of $8 million or 2% compared to last year.
Speaker 3: SSG's net sales for the quarter were $67 million, up $11 million or 19% from last year.
Speaker 3: As the she's operating income for the quarter was $12.1 million, up $4.2 million or 53% compared to last year.
Speaker 3: SSG's adjusted EBITDA for the quarter was $13.2 million, up $4.3 million or 48%.
Speaker 3: That translates to an adjusted EBITDA margin for the quarter of 19.8% towards the upper end of SSG's new target range and up 390 basis points compared to last year.
Speaker 3: SSG's orders for the quarter were $79 million, up $14 million, or 21%, compared to last year, with much of the increase resulting from the receipt of a large fleet order for public safety equipment from a customer in Mexico.
Speaker 3: Corporate operating expenses for the quarter were $10.2 million compared to $6.2 million last year, with about half of the increase resulting from unfavorable changes in fair value adjustments of post-retirement reserves.
Speaker 3: Turning now to the consolidated income statement where the increase in sales contributed to a $20.1 million improvement in gross profit.
Speaker 3: Consolidated gross margin for the quarter was 24.9%, a 200 basis point increase over last year. As a percentage of sales of selling, engineering, general and administrative expenses for the quarter were up 30 basis points from Q1 last year.
Speaker 3: Other items affecting the quarterly results include a $300,000 increase in amortization expense, a $400,000 increase in acquisition related expenses, a $500,000 reduction in other income, and a $3.4 million increase in interest expense.
Speaker 3: Tax expense for the quarter was $7.3 million of $200,000 from the prior year.
Speaker 3: Our effective tax rate for the quarter was 21% compared to 25.7% last year, with the reduction primarily due to a $900,000 increase in excess tax benefits associated with stock-based compensation activity and the recognition of a $500,000 benefit associated with changes in tax reserves.
Speaker 3: At this time, we expect our full year effective tax rate to be between 24% and 25%, excluding any additional discrete tax benefits. On an overall GAAP basis, we therefore earned 45 cents per share in Q1 this year, compared with 33 cents per share in Q1 last year. To facilitate earnings comparisons, we typically adjust our GAAP earnings to share for a short period of time.
Speaker 3: generated $7 million of cash from operations during the quarter, which was about the same level as Q1 last year, despite a meaningful increase in rental fleet investment during the quarter, to support anticipated strength in rental and used equipment demand.
Speaker 3: We ended the quarter with $337 million of net debt and availability under our credit facility of $415 million. Our current net debt leverage ratio remains low even after funding the acquisitions of Blasters and Trackless.
Speaker 3: With our financial position remaining strong, we have significant flexibility to invest in organic growth in Istis, pursue strategic acquisitions and return cash to stockholders through dividends and opportunistic sharey purchases.
Speaker 3: On that note, we paid dividends of $5.5 million during the quarter, reflecting a dividend of 9 cents a share, and we recently announced that we are increasing the dividend by 11% to 10 cents a share in the second quarter.
Speaker 3: That concludes my comments and I would now like to turn the call over to Jennifer.
Speaker 5: Thank you, Eve. Over the last several years, we have put several building blocks in place to fuel the long-term growth of the company. This has included making significant investments in plant expansions, new product development, and strategic acquisitions that have expanded our product offerings and geographic footprint.
Speaker 5: With those pillars in place, we announced on our year-end earnings call that we are expecting 2023 to be another record year for federal signal.
Speaker 5: We are off to a strong start with our Q1 net sales and EDS at the highest level in the company's history for the first quarter of the year.
Speaker 5: Within our environmental solutions group and improving supply chain supported higher production levels with increased sales volumes, contributions from recent acquisitions, robust aftermarket demand and strong price realization, we were able to deliver a 16% year-over-year net sales increase and 180 base...
Speaker 5: consecutive quarter of double-digit production growth, and the teams achieved their highest average daily build rates since Q1 of 2020.
Speaker 5: This strong execution contributed to a 27% year-over-year increase in street sweeper sales and double-digit increases in sales of both sewer cleaners and safe-digging trucks.
Speaker 5: Our aftermarket team also had another strong quarter with overall aftermarket revenues in Q1 this year up 22% over last year with particularly strong part sales.
Speaker 5: To meet growing demand, our FSDPO parts business has successfully increased its workforce and during the first quarter had a significant focus on reducing backlog and improving lead times in order to deliver essential parts to our dealers and minimize equipment downtime for our end customers. In addition to strong organic growth, our American
Speaker 5: We were pleased with the contributions from M&A during the first quarter. Ground Force and TOEHL continue to perform in line with our expectations. We also completed the acquisition of blasters in January and the team is off to a strong start. We are encouraged by the improving supply chain environment.
Speaker 5: We are still not out of the woods and there continue to be pockets of supply-related disruptions for certain components, specifically hydraulics and pumps.
Speaker 5: Given that, we are not yet maximizing our production capacity.
Speaker 5: Chassis availability also continues to be a constraining factor within our dump body businesses, particularly for our businesses that build on Class 5 chassis.
Speaker 5: Our Safety and Security Systems group also delivered impressive results during the quarter, including 19% top-line growth and an adjusted EBITDA margin of 19.8%, a 390 basis point improvement compared to last year, and towards the high end of the new target range announced on our last earnings call of 18-21%.
Speaker 5: As Ian mentioned, during the quarter, SSG was awarded a large international fleet order for public safety equipment and the team was able to promptly deliver about a third of the equipment during Q1. This order was another success story for the team in penetrating new geographic markets in infectiousQuickrak.
Speaker 5: with new product introductions such as the Allegiant and Reliant Value Line of LightBars.
Speaker 5: In addition, we continue to grow domestic market share and recently secured fleet orders with several new state and local municipality police departments.
Speaker 5: Overall, sales of public safety equipment in Q1 this year were up 4.5 million or 12% compared to Q1 of last year.
Speaker 5: With supply chains continuing to ease, we also saw a 35% year-over-year increase in sales of industrial signaling equipment.
Speaker 5: Demand remains strong and the team is focused on increasing throughput to reduce lead times.
Speaker 5: Over the last several years, we have made meaningful investments in organic growth within our SSG business, including purchasing the University Park facility and insourcing production of several key components in order to reduce our reliance on overseas suppliers.
Speaker 5: For example, during the first quarter of 2022, we launched the in-house production of our MicroPulse line, which leverages automated laser technology.
Speaker 5: The MicroPulse is a low profile, high performing LED lighting product for both first responder and work truck vehicles.
Speaker 5: The line includes production of both new product models and those that were previously outsourced. With the incremental revenues from new product models and lower cost production of previously outsourced models, the Microsoft Pulse production line has improved product margins and generated incremental operating income.
Speaker 5: of approximately 1.5 million in 2022, with further growth projected in 2023.
Speaker 5: In addition, we have recently invested in a third printed circuit board manufacturing line at University Park to increase production volumes of public safety equipment, achieve cost savings, and reduce reliance on our suppliers, which have been unable to meet our current demand.
Speaker 5: The new production line is expected to be operational in the third quarter of 2023. We expect the broad action taken to mitigate component shortages, including investments to in-source production and bring additional suppliers online, will provide meaningful long-term benefits to federal signal.
Speaker 5: Demand for our products and our aftermarket offerings remains at unprecedented levels with both our orders and backlog this quarter again setting new company records.
Speaker 5: There are several macroeconomic tailwinds contributing to the strong demand and I'll highlight a few of the key market trends today. Within our municipal markets, we are continuing to see benefits from the American Rescue Plan Act, which in 2021 earmarked $350 billion for state, local, and territorial governments to try and pulse a useAbility business model that Guess whatuz!
Speaker 5: for a variety of purposes, including the maintenance of essential infrastructure, such as sewer systems and streets. In the first quarter, municipal orders were up 11% compared to last year, primarily driven by significant street sweeper demand.
Speaker 5: We also continue to expect meaningful multi-year tailwinds arising from the 1.2 trillion infrastructure act, which has 550 billion earmarked for new investments in roads, bridges, power, water, and broadband infrastructure, public transportation, and airports.
Speaker 5: For example, increased demand and spend on broadband infrastructure is generating additional interest in our broad range of safe-digging products that can vacuum excavate and or convey materials in a safe and efficient manner.
Speaker 5: While we typically discuss this public funding source in the context of our ESG product offerings, we are also seeing the benefits within SSG, in particular with higher demand for warning systems.
Speaker 5: The Infrastructure Act earmarked $6.8 billion for the Federal Emergency Management Agency, or FEMA, to invest in disaster mitigation programs.
Speaker 5: This includes $500 million over five years to provide hazard mitigation assistance to local governments through the STORM Act. Typically FEMA allocates around $50 million annually for tornado, flood, and fire warning projects, but under the act funding to FEMA is...
Speaker 5: anticipated to increase by 50% annually over the five-year period. To date, we have received hundreds of proposals for communities across the country that are seeking government grants from this funding source to update or expand warning systems and are currently working with two counties that have been awarding grants totaling several million dollars to expand their tornado warning systems.
Speaker 5: With the acquisitions of Ground Force and TOHA, we have created a platform of specialty vehicles that support the extraction of metals and minerals, including lithium. With expectations that global demand for lithium ion batteries in many end markets will grow at a kegger of approximately 30% over the next 10 years or so, we are energized about the positive growth trajectory in this end market. I now want to take a few minutes to provide an update on a couple of our internal initiatives. Our focus on 80-20 improvement is deeply ingrained in our culture and has played and will continue to play a key role in driving our organic growth...
Speaker 5: On the M&A front, we are pleased to announce the closing of the Trackless acquisition in April . Trackless is a leading Canadian manufacturer of multipurpose off-road municipal tractors and a variety of attachments which provide year-round value to its customers. The Trackless integration is well underway and we are excited about the opportunities to leverage our distribution channel in the US to expand the geographic reach of Trackless products and accelerate the growth trajectory of this business. Our continued growth through disciplined M&A differentiates Federal Signal as an accumulator of leading brands of specialty vehicles and supporting aftermarket offerings.
Speaker 5: Our deal pipeline remains very active and we continue to expect M&A to be an important part of our future growth.
Speaker 5: Turning now to our outlook for the rest of the year. Demand for our products and our aftermarket offerings remains at unprecedented levels with both our orders and backlog this quarter again setting new company records.
Speaker 2: Our first question comes from Chris Moore with CJS Securities. Please go ahead. Morning, Chris. Hey, good morning. Wow, great quarter. It is a good morning. That's right. You maybe start with backlog. Maybe your thoughts in terms of the pricing of your backlog today versus six months or 12 months ago when you factor in things like year-to-date steel increase. Obviously freight costs are changing, some improving. Just kind of your thoughts on how that backlog sits.
Speaker 3: I think we feel comfortable with the pricing of the backlog.
Speaker 2: Got it. Record orders, record backlog.
Speaker 2: what's your sense of you know kind of customer perception regarding lead times? Do they feel you know less need at this point in time to to pre-order than they then it might have this time last year?
Speaker 5: Yeah, you know, we look carefully at the order trends across the business.
Speaker 5: And one of the things that was notable was that we saw strong orders on both the industrial and municipal side. We still continue to have challenges on the dump body side of the business because of the limited chassis availability, particularly for Class 5 chassis.
Speaker 3: that impact a couple of our businesses. But overall, we're still expecting strong orders in Q2, although sequential and year-over-year comparisons may be distorted kind of given the size of the backlog. And I think, Chris, we are actively trying to work down some of those lead times. That's one of the things we cited on our prepared comments was just the increased production levels that we've seen at both of our vector and Elgin facilities, and that's the second quarter.
Speaker 3: succession where we've seen meaningful improvement in production levels, you know, and that's encouraging that we're seeing some improvement on the supply chain there, but I think overall we are trying to work down some of those lead times.
Speaker 5: Yeah, I'll just add there, we were very focused on trucks per day. I'm kind of building on what Ian said. We saw 17% sequential improvement. And we were really encouraged at our largest facility. If you just look at that particular facility, we saw 22%.
Speaker 2: from Mike Ciliski with DA Davidson. Please go ahead. Good morning, Mike.
Speaker 6: Hey, good morning and thanks for taking my question. Actually, I actually want to pop on your last answer or maybe with two questions to go about the chassis comment for dump bodies.
Speaker 6: Because you had mentioned, Ian, during your prepared comments that you had a chassis headwind in the quarter. It sounded like it was a headwind that implies a positive mix for dump bodies. In other words, having more chassis positive for the dump body business, I would imagine.
Speaker 3: So can you square those two up? Did you have better chassis supply in this quarter or worse? So when we talk about chassis, my two separate kind of groups I would say is that we never provide the chassis for the dump truck business. The customer always provides the chassis.
Speaker 3: In the prepared comments what we were talking about was the other side of the business where historically we've had about a 50-50 split where you know 50% of the time we provide the chassis 50% of the time the customer provides the chassis. In the last couple of you know last year or two we've actually increased the amount of chassis that we supply because we've had you know pretty decent access to chassis.
Speaker 3: And so we've been able to provide those to our customers. We've made some strategic investments in procuring chassis on behalf of our customers. What that means from a margin standpoint is we don't make much of a margin on those chassis. It's more of a pass-through. So that has, as we increase...
Speaker 3: chassis revenue that can be a drag on gross margin and EBITDA and that was what we cited in our prepared comments that year over year the increase in the chassis revenue where we're supplying more of the chassis that caused a headwind year over year about 40 basis points on the EBITDA margin. So it's not necessarily linked to the dumb body business. Okay, so it's just mixed. Really.
Speaker 3: Correct. Oh, okay. Mixed with more chassis revenue for more chassis that we provide. Perfect, perfect. Thank you. Is that a different way? I know in the business our chassis revenue was up 12 million bucks year over year and that had, as Ian pointed out, a drag.
Speaker 6: I'm going to ask a question that can ask this two different ways. I'll just pick one. The SSG margins were very strong. It's actually solid.
Speaker 6: and survey towards the high end of the range you just put out a few months ago. So are you already thinking about maybe even an additional range higher from here given what you've learned? Or I guess what could go wrong from here in that segment to not go towards the high end of the range that you just put out in the foreseeable future?
Speaker 5: We are really encouraged by SSG's performance and as we've talked about on previous calls, they were a couple quarters ahead. We've seen a kind of supply chain improvement. I spent some time in the call talking about some of the insourcing that we've done, which has made a difference out there.
Speaker 5: They also had a large fleet order.
Speaker 5: which, you know, helped them during the quarter. And, you know, we're confident that, you know, they'll continue to operate within that range. It can fluctuate quarter to quarter.
Speaker 6: but we're really encouraged by what we saw in Q1. Okay, fair enough. And maybe one last one for me. I just want to ask about the dealer network. Given the higher interest rates we're seeing out there for floor plan or inventory type lending, or even just lending in general, are any of the dealers experiencing any challenges spanning you whileAge?
Speaker 6: adequate financing at decent rates and expecting anyone's inventory decisions and then maybe secondly, you know our other any dealerships that are Potentially experiencing financial distress distress at the moment
Speaker 5: Yeah, a couple things. One is we have several large dealers that are very well financed and very well capitalized. In addition to that, given the amount of public funding that's available for our products, that's been a positive tailwind.
Speaker 5: And the short answer to your question is we really haven't seen any issues with respect to our dealer network and we monitor it closely. We're very fortunate to have.
Speaker 2: Well, finance dealers. Outstanding. I'll leave it there. Thank you so much. Thanks, Mike. Our next question comes from Felix Boschgin with Raymond James. Please go ahead..
Speaker 7: Good morning Felix. Hey, good morning Jennifer Ian Hey, I appreciate the comments on the 17% sequential improvement and output at your two biggest facilities But but I did note that ESC sales were down just a big quarter over quarter
Speaker 7: Can you maybe square that away for us, just sort of what worked against you? And maybe if you could also comment just how much the production for in-house rental equipment might have impacted revenue or EBIT within ESG.
Speaker 7: Maybe square that away for us, just sort of what worked against you. And maybe if you could also comment just how much the production for in-house rental equipment might have impacted revenue or EBIT with an ESG. So Felix, you're talking sequentially.
Speaker 3: Yes. Okay. Yeah, so you know I think after markets was a piece of that. There is you know there is less aftermarket business in Q4 than that, sorry, in Q1 and versus Q4. The other piece would be as you pointed to was just the production of the units in the rental fleet. We added about I think about 18 million dollars gross into the rental fleet during Q1. We wouldn't have been putting any of that really in the fleet during Q4 so that's probably the biggest factor. We also had a bit of a step down at TV.
Speaker 5: their fleets through rental.
Speaker 5: through rental. So we're very encouraged by what we're seeing.
Speaker 7: Got it. And then just maybe if I could, my last one, but Jennifer, if you don't mind giving some more color around maybe specific vehicle locations. I'm curious how orders in TBEI is holding up versus maybe some of their municipal centric locations. Jackson distance medical station. October 28, 2019rylic
Speaker 5: Yeah, we're, you know, we focused on ox bodies and we gave the example in terms of what
Speaker 5: where we're seeing some softness is really on the classified chassis side of things.
Speaker 5: So two of our businesses are reliant on Class 5 chassis and those are down year over year.
That's where we've seen some softness....across the rest of the enterprise...
on the dump body side of things, we're seeing various puts and takes depending on what chassis availability is. Yeah, and I think Felix, if you look at kind of the breakdown, municipal was up 11% year over year. That's a load that is driven by strengthened streets.
Q1 of this year to Q1 of last year, that was a pretty strong comp. But even with all of that, we didn't see a major drop off year over year in any product line. The largest product line that was down year over year was probably the dump trucks, which was down about $11 million year over year in terms of orders, and that's about 15%.
But even with that order intake, it was still at a pretty good level. Got it. Really appreciate the time. Thanks Felix. Thanks Felix. Again, if you have a question, please press star then one. Our next question comes from Steve Barger with KeyBank Capital Markets. Please go ahead. Good morning. As I think about your focus on trucks per day, your guidance increase and your existing capacity.
both revenue and EPS. And that's primarily driven by the strength in the aftermarket business because you have you know three three solid months of a lot of activity. So I think our cadence would be you know we'd to your point Q1 we would expect to be the lowest.
then we'd see a step up in Q2 and then Q3 we'd expect that to be the high point. And then Q4 is always relatively strong but we would expect Q3 to be kind of the highest quarter of the year.
But presumably you wouldn't expect to see a significant drop-off in Q4 just even as aftermarket goes away, but if supply chain has improved, given your backlog, you'd be running at a high capacity, right? Right. Yeah.
presumably you wouldn't expect to see a significant drop-off in Q4 just even as aftermarket goes away but if supply chain has improved given your backlog you'd be running at a high capacity right? Right, agreed. Okay.
Your M&A strategy has obviously been focused on both on deals serving good niches. As you think about the funding environment and the visibility out there, is that driving deal multiples higher? And are you changing how you think about multiples? What looks reasonable just given how you see growth and your ability to leverage the dealer network?
You know, it all depends on the synergy numbers. And you know, we're pretty conservative when we develop those numbers. But again, we've seen multiples actually come down over the last year. I think a combination of the pandemic and supply chain challenges, particularly
as being a preferred buyer.
Yeah, okay, good. And then last quarter you talked a bit about higher than normal investment in the lease fleet and allocating the production capacity to that.
With demand this strong, are you more inclined to keep third party customers happy or to make that least fleet investment? Or how are you going to balance that as supply chain improves and you work to reduce lead times? Yeah, I think Steve the heavy investment for the year was really doing Q1 and...
The reason for that is really you want to have the units added to the rental fleet come April , May time, just when the season starts picking up. So I think the heavy loss in terms of production was during Q1, and that's one of the factors why Q1 is our lowest in terms of revenue and EPS.
Right. Yeah. And that generates, you know, obviously better revenue, but also good operating leverage as you, you know, offset the absorption.
Right. Yeah, and that generates, you know, obviously better revenue, but also good operating leverage as you, you know, offset the absorption. Phone matters.
Yep, great. Thank you. Thank you. My pleasure. Thank you. Our next question comes from Walter Lipcak with Seaport. Please go ahead. So when a man wants to be a man he leaves to a girl.
Hi, thanks. Good morning, guys. And good morning for the next quarter. Hey, I want to ask first about the you know, the skew reduction in the ox body was really interesting. And it's great to see, you know, just hear the stories about 8020 work that's happening.
But the question I have is about, you know, is this an initiative that's been ongoing and you just decided to call this one out? Or is there more of an effort to bring 8020 to some of the newly acquired businesses? Yeah, a couple things. Well, this was just one example of many.
our teams, there's a refocused effort on 80-20 across the enterprise.
And I think what's important also to note is it's such a part of our culture that we've hired a dedicated individual as part of the corporate team now that is working with each of these businesses on these 80-20 type projects.
And so we believe that will be a driving factor in our margin improvement as we go forward. Oh, that's great. Good to hear. I want to do a follow-up on the selling prices and inflation. And I wondered, are you seeing, you know, there's kind of a mix out there of some inflation and some...
material costs coming down. So I wonder if you could just comment on where you're seeing inflation in 2023 and where are selling prices going? Are you able to get price kind of across the board or are there some products that...
where pricing is a little bit more difficult. Yeah, we've seen, like many companies, wage inflation. In addition to that, steel.
We've seen that come down some depending on the type of steel that you're talking about, but that can vary month to month. We have a large percentage, as we talked about before, of our steel fixed.
As we move forward on price, that is something that, you know, it depends business to business and each one of our businesses monitor and market conditions.
we've been successful at You know price increases across the businesses as reflected in the numbers
Okay, great. And then maybe a last one, just another follow up. You commented that some of the multiples are a little bit lower. I wonder if you had a thought about why, you know, it's great that some multiples are coming down. Maybe theam selectester might be a complete
And I wonder if you have a thought about why is that? Are there more private equity funds that are liquidating to raise capital? Why do you think multiples are coming lower? I think the interest expense and the impact interest rates have on private equity models plays an important role in the types of transactions that we're looking at.
In addition to that, as we've talked about before, as we do more and more acquisitions, we've become more of a preferred buyer. And with many of our transactions, it's not all about price. It's about much more than price.
I think that I am proud of the reputation that our teams have developed with respect to M&A and execution integration. I think that will benefit us long-term as we have seen in some of the transactions that we have recently done. Trackless is a great example. Okay, that sounds great. Thanks very much. Okay, we have one minute left.
Our next question comes from Dave Storms with Stonegate Capital Markets. Please go ahead.
Can you break that out in terms of, you know, is that driven by supply chain improvements? Is that driven by the operational improvements through the 80-20 initiative that you've talked about? And how much runway do you see left there? We've seen obviously some supply chain improvements, and that's been a critical driver. We've also, you know, the teams are...
There's been a refocus, as I mentioned earlier, as we've gotten out of the nightmare of pandemic and supply chain on our 80-20 initiative. So we've seen benefits of that at various businesses across the enterprise. We continue to believe we're kind of back to, as we talked about.
Our businesses were back to that kind of Q1 of 2020 type unit production levels at a couple of our businesses. But, you know, there's still room for more. We invested in our expansion of our largest facility.
and we still believe there's more opportunity for margin expansion as supply chain improves.
And we're excited about those opportunities. Very helpful, thank you. And then Ian, you mentioned an increased demand in rentals. They are expected through the rest of the year. Do you see this coming as at the expense of sales or in concert with growing sales? And then also,
Any relation that has to any aftermarket sales through the rest of 2023? Yeah, no, I think we're expecting you know strong demand for all of our product offerings I think if you if you look at the contribution of after markets It was about 27% in of ESG's revenues in Q1
that was about the same level as Q1 of last year and also for the whole of last year. So I think our growth, you know, on the new equipment side has been keeping pace with the growth that we've seen in aftermarket. That's what we'd expect. And I think with lead times where they're at, I think having the offerings that we have where we can offer used equipment sales and rentals, that positions us really well to serve our customers.
This concludes our question and answer session. I would like to turn the conference over to Jennifer Sherman, Chief Executive Officer for any closing remarks. In closing, I'd like to reiterate that we are confident in the long-term prospects for our businesses and our markets. Our foundation is strong.