Q4 2023 Hyster-Yale Materials Handling Inc Earnings Call
We are recording this webcast and a replay will be on our website later this afternoon.
A replay will remain available for approximately 12 months I'd like to remind you that our remarks today, including answers to any questions will include comments related to expected future results of the company and are therefore forward looking statements. Our actual results may differ materially from our forward looking statements due to a wide range of risks and uncertainties that are.
<unk> in our earnings release 10-K, and other SEC filings, we may not update these forward looking statements until our next quarterly earnings conference call. We will also be referencing numbers that may be considered non-GAAP. Those reconciliations are available in our earnings release on our website.
Our presenters today are al Rankin Executive Chairman, Rajiv Prasad, President and Chief Executive Officer, and Scott <unk>, Our senior Vice President and Chief Financial Officer, and Treasurer with the formalities out of the way, let me turn the call over to Rajiv to begin.
Thanks, Christina and good morning, everyone.
We had an excellent fourth quarter.
For the third consecutive quarter, we reported revenue growth of $1 billion.
Fourth quarter operating profit improved 146% year over year, leading to a consolidated operating profit margin of four 7%.
This continued quarterly earnings.
Growth.
Led to full year 2023, net income of $126 million.
We took a $200 million increase over prior year.
And that was after.
Additional expense of nine $6 million or <unk> 47 per share related to the equity component of the company's fourth quarter stock price appreciation.
If we add that to our published performance that would have been.
<unk> 90, a share for the quarter.
Our revenues grew modestly over both the previous quarter.
Okay.
These decreases were largely seen in the Americas market.
For 2024, we expect full year bookings to increase versus 2023 anticipated market share gains in each 2024 quarter of <unk>.
Driving this improvement within a flat global market overall.
Market share gains are expected largely because of our emerging technology solutions for warehouse related markets. Our technology solutions business had very strong 2023 growth rates, we expect to build on that momentum in 2024.
As we head into 2024, we expect to be price competitive in the marketplace, we'll look to maintain targeted bookings margin.
Our backlog levels are reduced.
Reduced book and contributed to lower backlog levels in the fourth quarter.
From year end 2022 are extended backlog has decreased by 23% to its low the lowest level of spend.
2000 early 2021.
<unk> 2020 for production increases combined with an anticipated market decline in the first half of the year should allow us to further reduce extended lead times and backlog levels. This will help us bring our backlog.
To pre pandemic levels in 2024.
Given current expectations, our lead times and backlog sort of likely to remain above optimal levels on certain product lines for an extended period some areas such as our warehouse trucks are expected to return to normal.
Lead times and.
And backlog levels within 2024.
At the end of the fourth quarter, our backlog value was approximately $3 3 billion. This represents approximately 10 months of revenue and should serve as a cushion for the business.
<unk> declined more than declined more than anticipated.
It's worth noting that global industry cancellations, which can impact backlog levels trended to modest trended up modestly in 2023 and prior year rates. However, our cancellation rate remained substantially below the industry average.
Higher average unit price.
And margins in our backlog continued in the fourth quarter. This was largely due to our focus on booking orders are strong margins and benefits from prior year pricing initiatives to offset inflation.
<unk> sales price per backlog units increased 16% over the prior year and 2% over the third quarter.
For 2023 average booking prices on the other hand decreased compared with third quarter 2023, and prior year as expected.
We continued to make progress on expanding our market share in the warehouse market.
Warehouse trucks are generally lower priced and have shorter lead times.
Additional sales in this market segment increase the opportunity to sell advanced technology solutions. This can greatly enhance the value of the truck for the customer and to the highest at Yale.
We continued to balance our pricing and booking rates with production lead times on a line by line basis, maximizing profitable growth and free cash flow, while we continue to make progress on our strategic objectives.
Material and freight cost projections are a significant factor for <unk>.
Setting out backlog pricing pricing.
In 2023 material cost decreased modestly in 2024, our material costs are generally expected to stabilize and labor costs are projected to increase moderately.
As a result of geopolitical unrest, we expect elevated freight costs throughout 2020 for particularly in the first half of the year.
In this context, our strong price to cost ratio is expected to continue.
First half of 2024, as we ship higher priced backlog units. This combined with an anticipated increase in unit volume is expected to lead to higher gross margin and improved operating profit in the first half of the year compared with 2023.
Paris exemptions are set to expire in late May 2024, this combined with shipment of trucks loaded in 2024 is more competitive pricing environment.
Mix effect of increased warehouse product shipments are likely to 10 per unit margins in the second half of the year for the full year gross profit margins should be comparable to 2023 levels.
Work to reduce the impact from externally driven factors through improved manufacturing productivity and ongoing expense control will continue to monitor labor and material costs closely.
Well as the impacts from tariff and competition and we'll adjust forward pricing accordingly.
Before I turn the call over to Scott I'll comment on our working capital levels and cash flow, we continued to improve our cash flow throughout the year.
We've made progress on reducing working capital specifically, our inventory levels. However, our inventory levels remain higher than wed like largely due to lingering production challenges I mentioned earlier, we will continue to focus on an efficient and consistent flow of material building more units.
With on hand inventory.
These actions to significantly reduce excess inventory levels across 2024, I am pleased to report that we've already seen some additional progress in January 2024.
We've made significant progress reducing potential supply chain and labor constraints that can still cause isolated production shortfalls.
And increase inventory.
Our efforts extend to our dealer partners, who carefully balanced order and delivery timing with their customers' needs together, we expect significantly improved.
Throughout 2024.
We are committed to further cash flow improvements. This is a key deliverable for me and for all of our business leaders. It is also an area closely monitored by our board now I will turn the call over to Scott to cover our quarterly financials and 2024 outlook in more detail.
Thanks, Rajeev good morning, everyone I'll start by echoing received positive comments around our strong fourth quarter and full year results as well as the pace of improvement in our business.
Once again, our quarterly revenues topped $1 billion, increasing by 4% or $42 million versus the prior year.
<unk> revenue growth was mainly due to a 5% increase in lift truck sales due to the favorable effect of previously implemented price increases in all regions of.
A favorable sales mix shift toward higher priced higher capacity trucks increased part sales used to service our growing install the unit base and a favorable currency effect of $18 million primarily in Europe. These benefits were partly offset by lower shipments in all three regions.
In Q4, we shipped to 23600 units down 8% sequentially and 16% versus the prior year.
Q4 unit bookings were 16700 and were lower than both prior periods.
These declines were within healthy, but lower markets in our major geographies.
As a result of solid production output and lower booking levels, our backlog decreased to 78400 units with a value of roughly $3 3 billion.
This decrease helps improve lead times and overall customer satisfaction.
For the full year, we reported revenue of $4 1 billion.
Marking a 16% improvement over 2022.
All three businesses contributed to this increase overall.
Overall, our year over year growth significantly outpaced global GDP growth.
Moving to earnings our consolidated fourth quarter operating profit increased by 146% to nearly $49 million. This.
This resulted in a four 7% operating profit margin and a nearly 70% incremental margin as our year over year operating profit improvement outpaced our quarterly revenue growth rate.
Full year operating profit was $209 million, improving nearly $250 million versus the prior year operating profit margin for the full year was five 1%.
Q4, net income was $25 million or $1 43 per share. This compares to prior year net income of roughly $8 million and <unk> 44 per share.
Fourth quarter results included a $10 million or approximately $8 million after tax of additional incentive compensation expense related to the equity component of the company's fourth quarter stock price appreciation.
This reduced our fourth quarter earnings per share by 47.
For the full year the company generated $7 24 of earnings per share compared to a loss in 2022.
For some additional perspective I'll discuss our results by business.
The lift truck business generated $982 million of revenue in Q4 growing by $44 million year over year.
Operating profit of $54 million expanded by $27 million over the same time period.
62% incremental margin led to a five 5% operating profit margin demonstrating growth with disciplined execution.
Significant product margin increases in the Americas, and EMEA were the principal drivers.
Product margins benefited from a favorable price to cost ratio largely due to prior price increases implemented to offset inflation, along with more recently moderated material costs as well as a favorable mix shift toward higher margin products, mainly in the Americas and a shift to higher margin sales channels.
Lift trucks Q4 profit growth was tempered by higher employee related expenses, including elevated incentive compensation attributable to strong 2023 results and stock price appreciation.
We remain vigilant over our day to day expenses and continue to seek more efficient ways to leverage our assets as the business grows.
Turning to <unk>, the business reported revenues of $87 million $5 million lower than prior year operating profit increased to $2 6 million from 2.0 million in the prior year.
2020, two's operating profit included a $2 $4 million loss on sale of a business <unk>.
Excluding the effect of that sale operating profit decreased year over year due to higher operating expenses, including incentive compensation as the business continues to position itself for growth.
While tonys product margins improved over the prior year, while gross profit dollars were comparable.
Price increases implemented in prior years, along with favorable currency movements were offset by a mix shift to lower margin products and reduced sales volumes at.
At <unk> Q4, 2020, Three's operating loss was less than prior year, primarily due to lower product development costs. As a result of receiving a new U S government funding to support fuel cell R&D expenses.
Fourth quarter revenue declined versus prior year due to fewer engine shipments.
Looking ahead to 2024, we expect lift truck revenue and operating profit to increase over 2023 levels first half 2020 for operating profit is projected to improve significantly over prior year, largely due to anticipated higher unit volumes and an ongoing favorable price to cost.
Ratio, despite anticipated higher freight costs.
Second half 2020 for operating profit rates are expected to moderate compared to the first half due to the anticipated expiration of section 301 tariff exemptions and the mix effect from increased warehouse product volumes, the latter aligns with our strategy to increase market share in this important sales channel.
I'll take a moment to recap the tariff situation for context on how it applies to hyster Yale today in.
In 2018, the U S government enacted tariffs on certain products imported from China.
Subsequently exemptions were applied for and provided for on some of these tariffs.
These exemptions have been extended multiple times. It is expected that in May 2024. These exemptions will expire if that occurs the company will be required to pay the full tariff immediately increasing our material costs. We continue to argue that these exemptions are warranted and should remain in place.
While we work to reduce their impact on our product margins over time.
Moving to Baldoni 2024 revenues are anticipated to increase modestly compared to 2023 higher attachment volumes will be partially offset by lower legacy product sales to the lift truck business as they begin to phase out production of these components.
Operating profit is expected to improve year over year as higher product margins and anticipated manufacturing efficiency gains should more than offset higher material and operating costs.
At <unk>, we're focused on increasing customer product demonstrations in bookings in 2024, as well as expanding our presence in Europe and China.
Orders from current customers are booked and are expected to result in higher year over years sales in 2024.
These increased sales coupled with higher development costs related largely to new areas, new more powerful 125 kilowatt engine should produce operating results comparable to 2023.
Longer term increasing engine demonstrations should significantly strengthen the foundation for continued fuel cell engine technology adoption and improved financial returns.
At the consolidated level, we expect 2020 for operating profit to increase we anticipate net income to be comparable to a strong 2023 levels due to a higher projected income tax rate in 2024.
The expected higher tax rate results from fully utilizing our U S. Net operating losses in 2023 combined with the impact from ongoing capitalization of R&D costs for tax purposes in 2024.
The U S. Congress is currently debating an important tax law change that could reverse the ruling to capitalized R&D costs, thus treating them as a period expense. If this occurs the companys tax outlook would likely change materially.
Overall, we anticipate continued strong product margins to drive year over year profit growth in the first half of the year.
This is due to shipments of fixed price backlog units, partially reduced by the impact from higher freight costs.
The anticipated exploration of tariff exemptions and shipments of orders placed in 2024 is more competitive pricing environment will likely 10 per second half result.
We will continue to focus on ways to efficiently manage our production levels, along with ongoing component labor and overhead cost we will adjust as needed during the year.
In 2023, we made substantial progress toward our long term goals are 16% year over year revenue growth rate significantly outpace global GDP growth rates, and we achieved a greater than 20% ROTC or return on total capital employed.
We also made significant progress toward our 7% operating profit margin goal.
At our November 2023, Investor Day, we established a working capital target at 15% of sales.
We improved our performance on this metric in 2023, but more work is required to achieve our long term objective.
We expect further progress on our financial goals in 2024, and we're working to make these results more sustainable over time.
We also made progress on another critical metric cash generation the company generated cash flow from operations of almost $46 million in Q4, and we use that cash to reduce net debt by $17 million.
Or 4% compared to third quarter levels.
This increased cash comes from higher profits and our ongoing efforts to improve working capital efficiency for the full year, we generated cash from operations of $151 million. This compares to $41 million in full year 2022.
We ended 2023 was $79 million of cash on hand, and approximately $270 million of unused borrowing capacity.
As a result of our significant profitability and lower debt balances, our financial leverage as measured by debt to total capital was 56%.
This marks a 500 basis point improvement versus Q3.
As we generate additional cash we expect further leverage reductions and opportunities for accretive capital deployment.
We continue to push for working capital reductions specifically through lower inventories.
Q4, 2023 days inventory outstanding or DSO decreased by one day versus third quarter levels, we remain focused on improving inventory efficiency as production rates increase.
We're deploying technology tools to help us maximize the use of on hand inventory ultimately, reducing excess inventory levels, while supply and labor constraints can cause intermittent challenges, we anticipate significant inventory improvements in 2024.
2023 capital expenditures were $35 million compared to an initial projection of $65 million, we maintain strict capital discipline in 2023 due to ongoing economic uncertainty.
Capital expenditures are anticipated to rise to $87 million in 2020 for this significant increase compares to restrained 2023 levels and includes a return to investing for business growth and network efficiency.
<unk> 2023, we'll keep a close eye on economic conditions and adjust our spending accordingly.
In summary, we're making solid progress in our objective.
Our financial results clearly show it will continue to focus on things, we can control and leverage our process discipline to effectively work through the things that are beyond our control.
Now I'll turn the call back to Rajiv to discuss the progress we've made on our core strategies and programs Rajiv.
Thanks Scott.
We held our Investor day.
With Pops in November where I explained.
Our vision is to transform the way material moves.
From Port of homes, we plan to do this through to customer performances first while providing optimized product solutions and second by providing exceptional customer care.
Our strategic initiatives and supporting key projects will drive success on these two promises.
In 2020, full we'll invest in and execute on our core strategies that support long term profitable growth and sustainable cash generation I'll provide a few updates on these key project at <unk>.
Business.
The lift truck business primary.
Strategic focus remains on launching its modular and scalable product globally.
This business is also working on several other key projects to increase them.
Lift truck electrification increase the adoption rates for our advanced lift truck technologies expand global sourcing options.
For our container handlers using both.
Our Nijmegen in the Netherlands, and full Yang China production facilities.
We're making solid progress on these programs over the last two years.
We launched a modular scalable two to three ton internal combustion engine lift trucks.
EMEA and Americas market.
Some of these key products is accelerating and we expect to launch <unk>.
Products in the Japanese market during the first quarter of 2024.
We're making similar enhancements to the two to three ton electric truck platforms and expect these products to launch.
Globally, our 24% and 25 the.
The modular scalable.
Our platform is expected to enhance the business and suffered several ways.
By reducing costs and working capital levels.
Our supply chain shrink.
And move closer to our core factories second by helping to optimize our worldwide manufacturing footprint and finally by increasing sales volume, while providing customers with a more customizable product that better meets their needs.
On electrification, we now have two big truck electric grid.
Victor.
Third party testing of fuel cell container Hamler currently operating at the Port of Los Angeles, and a few of which factor in the port of Valencia, Spain, We anticipate delivering two new electrified fuel cell products of terminal tractor in the NIM to containment handler to a customer in Hamburg, Germany.
In 2024.
<unk> group is also actively exploring additional electrification projects within the European Union and the United States.
In lift truck business.
The lift truck business has key projects.
Focused on increasing demand for our on truck technologies by applying next generation advancements to operators took system and automated lift truck solutions. During the third quarter, we entered into a joint development agreement with a leading technology service provider to enhance.
The robotic software technology for vehicle automation.
Finally dual source.
Reduction in supply chain for our container handlers, who will help the company better meet the needs of the global market. This should provide customers with timely efficient delivery for economics.
<unk> trucks.
Zoning continues to work on streamlining and strengthening its operation as a single integrated operating entity. The company is focused on increasing as America's attachment business. While also strengthening its ability to serve key industries and customers across global markets.
Part of this effort.
One is working through expanded broad industry sales coverage breaking into new markets and regions.
We are currently expanding our product offerings and support capabilities for the recycling and port related areas.
Nevada continues to be focused on placing <unk> 45, and 60 kilowatt fuel cell production engine for demonstrations into niche heavy duty vehicle applications, where battery only electrification does not meet the market's needs.
These applications are more likely to have near term fuel cell adoption potential.
And as a result of developing a new larger 125 kilowatt fuel.
<unk> fuel cell engines for even heavier duty applications, which is projected to be available in 2025.
We've announced several projects with various third parties to test <unk> engines and targeted applications beyond the highest port equipment I've covered earlier in January in Nevada announced a joint project with <unk>.
<unk> energy for Maritime zero emission energy solutions.
We were also expects to have additional products in test application in China in EMEA and Germany by mid 2024.
Additionally, <unk> working with customers to launch modular fuel cell power generators.
Stationary and mobile application so over the next two years.
These initiatives are top priorities and I'm pleased with the progress we are.
So now I will turn the call over for closing remarks.
Thanks, Rajiv and closing.
To note that the company's significantly improved 2023 results are due not only to our global teams ongoing execution of our strategic initiatives.
But also the actions taken to offset external headwinds and improve business resiliency.
Our results continue to reflect a healthy backlog and demand for our products and solutions. These actions should better position our company for substantial profitable growth over the longer term are.
Our mature lift truck <unk> businesses are the foundation for a strong profitable business.
While we believe that the new <unk> fuel cell business has substantial growth prospects in.
In the year in future years.
I want to emphasize a point that Rajiv made earlier, our 2023 full year net income was $200 million higher than a year ago. The team has done an outstanding job moving the business forward and laying the foundation for sustainable profitability over the long term as customer demand.
Manned and supply chain return to pre pandemic norms, we are likely to experience short term cyclicality in our markets. However, I'm confident that we have a sound plan for long term growth profitability and cash generation in our core businesses.
In addition, we expect that the <unk> fuel cell business in the longer term will be a major growth contributor for <unk>.
I firmly believe we have the right team and business structure in place.
Execute our strategic programs to deliver strong 2020 for performance to achieve our long term financial goals.
To provide differentiated total shareholder returns over time.
We covered all of this in detail during our November 2023, Investor Day. If you haven't had an opportunity to review those materials I'd encourage you to listen to the replay or review the event transcript both of which are available on our website.
I will now turn to any questions you may have.
Thank you ladies and gentlemen, we will now begin the question and answer session.
You have a question. Please press the star followed by Don on your telephone keypad.
A problem that you had this been noise and.
Should you wish to cancel your request. Please press the star followed weighted to your first question comes from the line of Ben Jackson from Northland. Please go ahead.
Good morning, and congratulations on a fabulous fiscal 2023.
Haven't really haven't really long list of questions. So I'll just going to ask a few of them, but before I get into my questions. One thing just clarity what did you say your capex forecast was for 2024.
Yes, we said that would be $87 million.
87%, that's a tremendous jump I mean can you kind of walk through whats pushing that to be.
Up so much and is that like normal level on a longer term basis.
Yes, so I'll take that.
So if you look at our typically if you look at our average expense.
And capital.
<unk>.
If you go back a few years, it's been running around between $40 and $50 million.
But over the last two or three years, while we've had this.
Spike in working capital and we needed to moderate our expenditures.
We also are moderated boats.
Capex and Opex.
That continued through 2023.
But there are projects significant project as part of our growth strategy that have been.
Held back a little bit and so over the next two years. So we want to catch up on that so that is the main driver for.
The additional capex is around product development and also improving our operational footprint.
Let me pick up on the last did you just say that.
There are some things that are not at all backward looking very forward looking in terms of improving the performance of the business.
There are some programs that we think can have a major impact on our future profitability, which are going to be we think probably timely to really undertake.
At some point Gary.
2024, so there is some special things in there that are likely to evolve and move to that number at this point.
So so you said this call it.
$80 million to $90 million that will go forward at least through 2025.
Yes, I think it will be in that until the neighborhood for two years and then we'll come down to a more normal kind of run rate and it's really making up for the deficit over the last three years.
Okay, and then with all the changes with regards to taxes and stuff given occurred in guidance, where do you see as your kind of pro forma normalized tax rate for 2024 and beyond.
Okay.
So Ted I can take that I think.
Looking ahead, we expect our tax rate to be higher in 2024, primarily because we used up our <unk>.
Net operating losses in 2023, and if the current.
R&D capitalization tax law remains in effect, we're going to see a negative impact from that so we haven't quantified that yet.
It's really going to depend on our R&D spend but we do expect it to be higher than what I would call normalized given the countries that we operate in we would expect somewhere between a 25% to 27% tax rate, but that is going to be negatively impacted at least in 2024 due to R&D capitalization.
Okay.
Normal ill be quick I wanted to make sure that everybody understands what's really happening there.
Scott indicated we use of tax loss carryforwards of about was a product of the past.
This program is one that was put in place.
Tax changes that were made in relatively recent times and the capitalization of research and development expenditures, which has never really been part of taxation of corporations ever until this time began what happen.
Is that instead of expensing it as we would normally do.
Four or five years, you keep putting it on the books.
And you get a very large amount and then you can start depreciating. It. So there is a five year period under this.
Tax law, which was probably put me on <unk>.
Not because it was the right thing to do but as a so called paid for.
And the.
In order to get others.
Spending programs through Congress, so our hope and there is a bill.
That is currently the circular our hope is that this is going to go back to the way. It's always been I think that's pretty much an accurate way to put it is Scott.
I would agree with that al.
Okay.
It doesn't so if there's no demand.
Very few hundred doses for a capital intensive all capital intensive industries in the country. This is a unique situation for heavy heavy industry.
Well I can't believe they did this because he means congresses, such a thoughtful and well run organization.
Absolutely.
Okay.
But so just to make sure I understand if the law is corrected let's use that word the tax rate would be 25% to 27%, but if it's not.
It's going to be higher than that but you can't give any kind of guidance to how high it well.
Yeah, Ted what I would point you to is if you look at our R&D spend over the last couple of years.
And divide that into your forecast of pre tax earnings I mean, you can kind of back into what that would do to increase our tax rate and so.
So I would just point you to that that those disclosures and that would help you inform your estimate.
Okay, and then I'll just ask one more question and I have many more but I'll step out of line and let other people get in.
Just kind of going back into the quarter and kind of thinking about 2024, if I look at your unit shipments in the fourth quarter they were down sequentially.
It's the first time, you've seen units down in a fourth quarter since 2015.
And Tony.
It would be only the second time, you've ever seen it happen at least in the data that is available on your site, which is extensive and very very helpful.
That was driven by Americas and EMEA EMA.
And I guess, what I'm asking is.
Kind of given the.
Kind of seasonal nature, if you would have your business with fourth quarter, typically being stronger as well as the strength in your backlog and what drove the unit decline in fourth quarter and given that first quarter is typically a pretty weak quarter for you on a unit perspective, do we expect to see.
Seasonal weakness on our unit shipment level in the first quarter that is normal.
No I think.
What happened was as we've stated in our release.
We were in the middle of a number of product launches and.
Some labor issues.
Happen, particularly as it related to software.
On some of those launches so trucks are on wheels, but we couldnt ship them because.
We have to correct these issues.
So that to happen towards the second half of the book.
Quarter.
As we sit here today, we have now mostly cleared all those trucks.
Both were shipped instead of in December.
In January and early February So let me just elaborate on the point.
Under wise.
<unk> comment where that might be good.
Our point of view might be good.
Fourth quarter.
If we ship those units in the fourth quarter. It only would have made them better.
I suppose that would have been nice, but it certainly.
Extends our backlog out and if there is any kind of downturn in the market. We just got that much more coverage in the backlog to cover.
The very last couple of months of 2024, where we don't have bookings and to build.
Further in our backlog for 2025, so there is a sort of a silver lining in all of that and it is more of a timing issue from our point of view so.
We have guided we expect strong.
First half of the year.
Okay, and I am just sneak in one more then I'm going to get out of line because it's very similar to this because it's a similar question with regards to aftermarket sales again kind of down in.
Fourth quarter, typically a stronger quarter.
No.
Where does that work.
Kind of made that happen and how do we think about that as it relates to first quarter in FY 'twenty four.
Well, maybe I'll have a P&L.
Ill answer part of it and then maybe Scott can step in.
As we've said we've started to see a bit of a slowdown in the market.
And this is what this is the trend we see that as the market slows down a little bit again is coming from pretty high levels.
Then we see that reflected in the run times of the trucks so the hours.
The trucks are being used and then that is.
Proportionately impacts the amount of servicing their needs to be.
That needs to be done and therefore, the past consumption.
I think we expect.
Good to see as we've said a little bit of a slower first half from.
Economics, some of some economic slowdown around the world.
And but then we expect that to return in the second half of the year.
Okay.
Thanks.
Bottom line.
I'm not sure that was a hugely significant drop in.
In any event Scott.
The non medical action items, particularly large.
The only thing I would add to it as we've really done well on part sales. The last couple of years, So it's a drop versus pretty significant volumes.
Yes, yes, that's a good point Scott.
Mainly in Europe I believe.
Yes.
And a good one thing to look at it and how much Germany slowed down and that there are big pop consume them.
Thank you and your next question comes from the line of Chip Moore from Roth MTM. Please proceed.
Good morning, everybody. Thanks for taking my question Hi, chip.
Hey, Scott you talked about being more competitive on pricing as backlog starts to come down and I know you talked about some potential for short term cyclicality, maybe maybe two to come up maybe expand on that any implications for margins into next year.
How should we think about the potential for some of these new modular and scalable platforms to help there and then.
Back to the Capex increase how should we think about those benefits rolling through.
Yes.
Comment on that.
On the <unk>.
Price cost relationships sure.
So I think.
If you look at our business.
We are.
Very strong on the counterbalanced side of the business in Big truck.
And.
Our product range still needs to fill out.
Using the scalable modular on the warehouse side. So we do expect some of the warehouse.
Online lead times now are the shortest.
So we are being more competitive in the marketplace. So some margin compression on our warehouse business.
But one thing we are seeing is the modular scalable for im thinking about more of a 2025 2020 fixed and going forward as a mechanism for us to have.
<unk>.
Margins, because we're able to really tune the trucks and with the right cost and the right price for the customer and therefore make our target margins are better. So we think longer term that strategy, it's really starting to work.
We do in our warehouse trucks.
With the same modular.
Designed with scalability will come out more in 2025 and 2026.
So we will see the same impact then but in the meantime, we have to get through the period with the current set of products. A couple of things that I think are worth keeping in mind too.
We are seeing.
Improvements on the cost side, it's hard to say how much they may go up and where.
But we've had.
Some fairly substantial cost reductions from the time.
In the last few months and we're hopeful that some of those.
We will continue the second thing is that our customers.
For our competitors.
Many cases didn't move as rapidly to address increasing costs as we did but increasingly they caught up so a lots going to depend on what they decide to do in the marketplace as well.
And.
I think we just want to be careful and thoughtful but we're going to work very hard to keep our margins are very healthy level. So it really in some ways has been above our targets.
In recent times and so we're talking about coming down to our target margins.
Certifications rather than.
Then then having our margins decreased below what we think they ought to be in the long term, but the key thing to take take away from this discussion.
We feel that the modular scalable design and our focus on our customers.
Giving them the right solution has the potential to.
For us to perform consistently above our target margin as the program matures over the next few years.
Got it.
For color and maybe.
A follow up on on mix shift in Asps.
I think maybe theres been some unique dynamics.
They are on postpaid pandemic volumes.
For rental and heavy duty for example.
It's like warehouses and increasing them in mix as you take some share any way to think about 2025 mix should should that be more normalized or just how to think about.
So more normalized mix.
I think one thing you we feel we're likely to see is enhanced.
Truck volumes there've been supplier difficulties and in some ways we're.
More significantly in our big truck business.
Some of the other businesses.
And our bookings have really been pretty pretty strong recently and the big truck area. So.
That's a positive sign for our mix as we look forward, yes, I mean, we havent see a mixture of things we haven't talked about 2025 year.
Reeds.
And if we think about it we expect some of that.
The second half of 2024 to continue.
But then start to rise as we get into the rest of the year, but again, we're in the middle of modeling our financial for 2025, and I think we'll have a better idea of that at the next quarter.
Understood that's very helpful.
If I could ask another.
Cancellations you had some commentary there.
I think you have some.
And actually in.
Some of the generate good solutions that have been developed is actually for charging battery electric trucks.
So which is strange.
But also for backup power for.
Kind of.
Remote work, but also backup power for instance, data center et cetera, So that's been increasing and we've seen much more interest on the marine side.
And then we continue in our port equipment is going to be very important because the ports are under a lot of pressure to Decarbonize and then I think we will see slower progress on the on road solution. So I think initially there focus with medium duty trucks in batteries.
We feel for at least a third of the those solutions, which are power hungry, which have auxiliary.
Kind of.
Devices that need to be powered while the truck stationery like a garbage disposal truck.
They will probably factory run will be good enough that we think longer term.
They're going to need fuel cells. So I think that those markets probably are a little slower than we expected, but on the other hand the generator.
Market and the marine market in Port are still very very active so we have very active programs and all of those areas to marketable products.
And we'll be hitting.
<unk> quite a bit more of those about those.
Very soon.
Okay. Thank you very much.
Thank you.
Time for only one more question and your last question.
From the line of Dead Jackson from Northland. Please go ahead.
Hey, <unk>.
Hello.
Yes, sorry, I was on mute I was on mute.
Joe.
Can we talk a little bit more about bookings and backlog.
So the company and understandably, so given the supply constraints and everything else under the Sun has had.
This huge backlog, but it's working down to the book to Bill has been below one for a long time, but when I listen to you and I talk about guidance is it fair to assume that we will be moving back towards say a book to bill at <unk>.
Call. It one in the second half of 'twenty four.
It's something that you see at this point.
We don't see a decrease in volume, we just see a bit of market margin compression on the warehouse.
Trucks.
We're looking at greater volume.
Bookings and 24 million 23, yes.
Right with that strength being in the back half correct.
That's right Ted.
Right and so that's where I get into that.
Kind of cutting through those tea leaves that it would be in this in the second half of the year, then we would be able to see kind of a book to bill number that would at.
Or at least get back to one to where you're essentially you know what I'm, saying like you.
You're not eating through sort of tonnage it on a general holistic level and you won't be adding to backlog anymore.
Backlog will be trending.
I wanted to say.
Yes.
Yes, I think if we achieve.
Bookings target in 2024.
Our backlog and in 2024 will still be well above our desired level.
And are we done.
Some of our most important lines like the big trucks, and the logic counterbalanced trucks, and even our smaller counterbalance trucks.
We don't see normalization of backlog until.
Early 2026.
So there'll still be.
Over optimal backlog until then.
Does that help okay.
Yes that does.
And then a final question because I know we're at a time on a whole bunch had it written down and I lost.
What it was I was going to ask you.
We're going to need it.
So I can take I can pick it up at another time, so anyway. Thanks again thanks.
Alright. Thank you okay with that we'll conclude our Q&A session. We thank you for participating a replay of the call will be available. Later. This morning, we'll also post a transcript on our website when it becomes available. If you have any questions. Please feel free to reach out to me. My information is on the press release and I Hope you enjoy the rest of the day.
I'll now turn it back to our operator to conclude the call. Thank you.
Thank you ladies and gentlemen, this does conclude our conference for today. Thank you all for participating you may all disconnect.