Q4 2023 Alamo Group Inc Earnings Call

Company Representative: and many more. Thank you. Thank you. Good day, and welcome to the Alamo Group Incorporated fourth quarter 2023 conference call. All participants will be in a listen-only mode.

Good day and welcome to the Alamo Group incorporated fourth quarter 2023 conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

Company Representative: Should you need assistance, please signal the conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone.

After todays presentation, there will be an opportunity to ask questions.

I'll ask a question you May press Star then one on your Touchtone phone and to withdraw your question. Please press Star then two.

Company Representative: And 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 Mr. Edward Rizzuti, Executive Vice President, General Counsel, and Secretary. Please go ahead, sir.

Please note. This event is being recorded I would now like to turn the conference over to Mr. Edward Rizzuti Executive Vice President General Counsel and Secretary. Please go ahead Sir.

Edward T. Rizzuti: Thank you. By now, you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one, please contact us at 212-827-3746.

Thank you bye.

By now you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one please contact us at 2128 to 774, six and we will send you a release and make sure you're on the company's distribution list.

Edward T. Rizzuti: And we will send you a release and make sure you're on the company's distribution list. There will be a replay of the call, which will begin one hour after the call and run for one week. The replay can be accessed by dialing 1-877-344-7529 with the passcode 1294689.

It'll be a replay of the call, which will begin one hour after the call and run for one week. The replay can be accessed by dialing 187.

344, 75 to nine with the pass code 129468 times.

Edward T. Rizzuti: Additionally, the call is being webcast on the company's website at www.alamo-group.com, and a replay will be available for 60 days. Jeff Leonard, President and Chief Executive Officer, and Richard Worley, Executive Vice President, Chief Financial Officer, and Treasurer, will be on the line with me today. Management will make some opening remarks, and then we'll open up the line for your questions. During the call today, management may reference certain non-GAAP numbers in their remarks. Reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attached documents to our earnings release.

Additionally, the call is being webcast on the company's website at Www Dot Alamo dash for Dot com and a replay will be available for 60 days.

On the line with me today are Jeff Leonard President and Chief Executive Officer, and Richard worthy Executive Vice President Chief Financial Officer and treasure.

Management will make some opening remarks, and then we'll open up the line for your questions during.

During our call today management may reference certain non-GAAP numbers in their remarks reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachments to our earnings release.

Edward T. Rizzuti: Before turning the call over to Jeff, I'd like to make a few comments about forward-looking stakeholders. We will be making forward-looking statements today that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. Among those factors that could cause actual results to differ materially are the following.

Before turning the call over to Jeff I'd like to make a few comments about forward looking statements.

We will be making forward looking statements today that are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Forward looking forward looking statements involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results.

Those factors, which could cause actual results to differ materially are the following adverse economic conditions, which could lead to a reduction in overall market demand supply chain disruption labor constraints competition weather seasonality currency related issues geopolitical events and.

Edward T. Rizzuti: Adverse economic conditions, which could lead to a reduction in overall market demand. Supply Chain Disruption, Labor Constraints, Competition, Weather, Seasonality, Currency Related Issues, Geopolitical Events, and other risk factors listed from time to time in the company's SEC report. The company does not undertake any obligation to update the information contained herein, which speaks only as of this date. I would now like to introduce Jeff Leonard. Jeff, please go ahead.

And other risk factors listed from time to time in the company's SEC reports.

Company does not undertake any obligation to update the information contained herein, which speaks only as of this date.

I would now like to introduce Jeff letter Jeff. Please go ahead.

Jeff Leonard: Thank you, Ed. I'd like to again thank everyone who has joined us on the conference call today and to express our appreciation for your continued interest in Alamo. The fourth quarter shaped up broadly in line with our expectations, and we were very pleased with the financial results we've reported today. Despite headwinds in several of our service markets, our teams achieved record quarterly sales and earnings for the ninth consecutive quarter. I would now like to turn the call over to Richard Worley, who will take us through a review of our financial results for the fourth quarter. I will then provide additional comments on the results and say a few words about the outlook as we enter 2024. With our formal remarks, we look forward to taking your questions. Richard, please go ahead.

Thank you Ed I'd like to again, thank everyone, who has joined US on the conference call today and to express our appreciation for your continued interest in Malibu.

The fourth quarter shaped up broadly in line with our expectations and we were very pleased with the financial results. We reported today despite gathering headwinds in several of our served markets. Our teams achieved record quarterly sales and earnings for the ninth consecutive quarter I would now like to turn the call over to Richard Wehrli, who will take us through a review of our financial results.

For the fourth quarter I will then provide additional comments on the results and say a few words about the outlook as we enter 2024 following our formal remarks, we look forward to taking your questions. Richard. Please go ahead, thanks, Jeff and good morning, everyone. Alamo groups fourth quarter 2023 closed with an excellent performance that produced record.

Richard Worley: Thanks Jeff and good morning everyone. Alamo Group's fourth quarter 2023 closed with an excellent performance that produced record net sales and net income driven by continued strong demand for our product. Fourth quarter consolidated net sales were $417.5 million, an increase of 8% compared to $386.6 million in the fourth quarter of last year. Gross margin dollars increased by $11 million, and gross margin percent was up almost 80 basis points in the quarter compared to the fourth quarter of 2022. Both margin dollars and the percentage increase were driven by higher volume and price initiatives we've had in place along with improved productivity. Operating income for the fourth quarter came in at $44.8 million versus $42.7 million in the fourth quarter of 2022, an increase of 5%. Operating income as a percent of sales was just under 11% for the fourth quarter versus 11% for the same quarter last year. Consolidated net income for the fourth quarter was $31.5 million, or $2.63 per diluted share.

Net sales and net income driven by continued strong demand for our products fourth quarter consolidated net sales were $417 5 million.

Kris of 8% compared to $386 6 million.

The fourth quarter of last year.

Gross margin dollars increased by $11 million and gross margin percent up open was up almost 80% 80 basis points in the quarter compared to the fourth quarter of 2022.

Both margin dollars and percents and percentage increase were driven by higher volume and price initiatives. We've.

We've had in place along with improved productivity.

Operating income for the fourth quarter came in at $44.8 million versus $42 $7 million from the fourth quarter of 2022, an increase of 5%.

Operating income as a percent of sales was just under 11% for the fourth quarter versus 11% for the fourth for the same quarter last year.

It's validated net income for the fourth quarter was $31 5 million or $2, 63% 63 cents per share diluted per diluted share an increase of 8% versus net income of $29 2 million or $2.44 per diluted share for the fourth quarter of 2022.

Richard Worley: An increase of 8% versus net income of $29.2 million, or $2.44 per diluted share for the fourth quarter of 2022. However, vegetation management was off in total sales compared to the fourth quarter of 2022. We expected this softness to come in both forestry and agricultural markets. Net sales were $214.4 million, a decrease of 8% compared to $232.5 million for the fourth quarter of 2022, as we have continued to monitor dealer inventory levels, which are up but not at historical levels. We honored dealer requests during the quarter to reschedule shipments until 2024, which was the big reason for lower sales. The division's operating income for the fourth quarter was $19.8 million, down 35 percent versus $30.2 million for the same period in 2022.

Vegetation management was off in total sales compared to the fourth quarter 2022 we expect this softness.

In both forestry and agricultural markets.

Net sales were $214 4 million, a decrease of 8% compared to $232 5 million for the fourth quarter of 2022.

As weak as we've continued to monitor dealer inventory levels, which are up but not at historical levels. We honored dealer request during the quarter to reschedule shipments until 2024, which was a big reason for lower sales. The division's operating income for the fourth quarter was $19 8 million down 35% versus <unk>.

$30 2 million for the same period in 2022.

Richard Worley: Industrial Equipment Division net sales had a tremendous quarter coming in at $203.2 million, up 32% compared to $154.1 million for the fourth quarter of 2022. This was due to a solid performance across all product lines, particularly vacuum trucks, sweepers, debris collectors, and snow removal equipment. While truck chassis deliveries and component part receipts returned to more consistent cadence, there were a few late component deliveries that impacted this division's operation, although not as significantly as in previous courts.

Industrial equipment Division net sales had a tremendous quarter coming in at $203 2 million up 32% compared to $154 1 million for the fourth quarter of 2022.

This was due to a solid performance across all product lines, particularly vacuum trucks sweepers debris collectors and snow removal equipment.

Chuck <unk>, while truck chassis deliveries and component part receipts returned to a more consistent cadence there were a few late component deliveries that impacted this division's operations, although not as significantly as in previous quarters.

Richard Worley: This resulted in a substantial rise in operating income in the fourth quarter of 2023 of just over $25 million compared to $12.5 million for the fourth quarter of 2022, an increase of over 100%. Consolidated net sales were a record for the full year of 2023, coming in at just under $1.7 billion, up 12%, compared to $1.5 billion for the full year of 2022. Strong demand for our products in both divisions, along with the positive impacts of pricing initiatives and improved supply chain and productivity, were the main drivers of the increase. Solidated sales were the highest in the company.

This resulted in a substantial rise in operating income in the fourth quarter of 2023.

Twenty-three up just over $25 million compared to $12 $5 million for the fourth quarter 2022, an increase of over 100%.

Consolidated net sales were a record for the full year of 2023 coming in at just under a $1 $7 billion up 12% compared to $1 $5 billion for full year of 2022.

Strong demand for our products in both divisions, along with positive impacts of pricing initiatives and improved supply chain and productivity were the main drivers of the increase consolidated sales were the highest in the company history.

Richard Worley: 2020-2023 gross margin percent was up almost 200 basis points, and gross margin increased $77 million versus 2022, an increase of 20%. The margin improvement resulted from continued improvement in supply chain conditions, which led to efficiencies and enhanced capacity utilization. Full-year operating income for 2023 was just under $198 million, or slightly below 12% of sales compared to a full year of 2022, which was $148.6 million, just under 10% of sales, a 33% increase in operating income dollars, and a 190 basis point increase in operating income as a percent of sales. Net income for 2023 was $136.2 million, or $11.36 per diluted share, versus net income of $101.9 million, or $8.54 per diluted share, for 2022, an increase of 34%.

2000, 22023 gross margin percent was up almost 200 basis points and gross margin increased $77 million versus 2022, an increase of 20%.

Margin improvement resulted from continued continued improvement and supply chain conditions, which led to efficiencies and enhanced capital kept capacity utilization.

Full year operating income for 2023, with just under $198 million or slightly below 12% of sales compared to a full year of 2022, which was $148 6 billion just under 10% of sales.

33% increase in operating income dollars and 190% 190 basis point increase in operating income as a percent of sales.

Net income for 2023 was $136 2 million or $11.36 per diluted share versus net income of 101.9 billion or $8.54 per diluted share for 2022, an increase of 34%.

Richard Worley: The company's backlog at the end of 2023 came in at just over $860 million. That's down 15% compared to backlog levels at the end of 2022. A few additional financial items I'd like to cover that relate to the balance sheet at the end of 2023, which continues to remain extremely strong. Working capital increased $53 million compared to the end of 2022, increased primarily from higher accounts receivable and, to a lesser extent, inventory. For the full year of 2023, we will reduce our debt level on our credit facility by almost $67 million.

The company's backlog at the end of 2023 came in at just over $860 million, that's down 15% compared to backlog levels at the end of 2022.

A few additional financial lives I'd like to cover it relates to the balance sheet at the end of 'twenty at the end of 2023, which continues to remain extremely strong working capital increased $53 million compared to the end of 2022 increased primarily from higher accounts receivable and to a lesser extent inventory.

But full year of 2023, we've reduced our debt level on our credit facility by almost $67 million our bank leverage ratio at the end of 2023 was just under one to one.

Richard Worley: Our bank leverage ratio at the end of 2023 was just under 1 to 1, which is at its lowest level in just over eight years, four years, excuse me. And finally, the company's trailing 12-month EBITDA was a record, coming in at just under $247 million, up 26% compared to calendar 2022.

Which is at lowest level and just over eight years four years excuse me and finally, the company's trailing 12 month EBITDA was a record coming in at just under $247 million up 26% compared to calendar 2022.

For 2024 cash flow sheet should remain strong as our focus will be continue to reduce both inventory and debt.

Jeff Leonard: Cash flow should remain strong as our focus will continue to reduce both inventory and debt. We will remain disciplined in execution, controlling costs and expenses as inflation is expected to continue to put pressure on our market. Supply chain will continue to be a major focus to reduce the amount of work and processes we hold. So, in summary, Q4 was a record quarter for Alamo Group; sales were up 8%, which translated into an 8% increase in net income. We are also pleased that our board recently approved an increase in our regular quarterly dividend of 22 cents per share to 26 cents per share for 2024. With that, I'll turn the call back over to Jeff. Thank you, Richard.

We will remain disciplined on execution controlling costs and expenses and as inflation is expected to continue to put pressure on our margins.

Supply chain will continue to be major focus is.

To reduce the amount of work in process, we hold.

So in summary, Q4 was a record for the golfer out quarter for Alamo group sales were up eight 8%, which translated into 8% increase in net income.

We're also pleased that our board recently approved an increase of our regular quarterly dividend of 22 cents per share to 26 cents per share for 2024 with that I'll turn the call back over to Jeff.

Jeff Leonard: We want to thank everyone who joined us on the conference call today. In the fourth quarter, we produced solid financial results that were broadly in line with our expectations. We were especially pleased that our fourth-quarter results established the company's ninth consecutive quarter of record sales and earnings. Overall, our markets continued to display significant strength during the fourth quarter, although they began to diverge directionally as we closed out the year. Municipal, county, and state agencies continue to accelerate their investment in the renewal and modernization of their infrastructure maintenance fleet.

Richard we want to thank everyone, who has joined US on the conference call today in the fourth quarter. We produced solid financial results that were broadly in line with our expectations. We were especially pleased that our fourth quarter results established the company's ninth consecutive quarter of record sales and earnings overall, our markets continue to display significant strength during the fourth.

For although they began to diverge directionally as we closed out the year municipal County, and state agencies continued to accelerate their investment in renewal and modernization of their infrastructure maintenance fleets state rainy day funds remain near all time highs and ended 2023 nearly double what they were before the pandemic in 'twenty.

Jeff Leonard: State Rainy Day Funds remained near all-time highs and ended in 2023 nearly double what they were before the pandemic in 2019. The pace of spending by state and municipal governments continued to accelerate last year relative to 2022, and double-digit annual spending growth was reported again in 2023. This continued to drive robust demand across our full product offering in the Industrial Equipment Division, as well as our roadside and specialty mowing products in the Vegetation Management Division. However, the market for our forestry and tree care products was more challenging in the fourth quarter as negative trends emerged in the wood biomass market. According to the USDA, United States wood pellet exports increased 6% by weight, and the price per ton also increased 6% relative to 2022. Less positively, domestic suppliers are confronting cost pressures and tight supplies of wastewood feedstocks that are pressuring margins in the long-term supply contract, disclose planned investments, and major equipment. Higher interest rates also constrain ordering activity related to these larger and more expensive products.

<unk> 19, the pace of spending by state and municipal governments continue to accelerate last year relative to 2022 and double digit annual spending growth was reported again in 2023. This continued to drive robust demand across our full product offering in the industrial equipment division as well as our roadside and specialty mowing products.

And the vegetation management division the.

The market for our fourth Green tree care products was more challenging in the fourth quarter as negative trends emerged in the wood biomass market. According to the USDA United States Wood pellet exports increased 6% by weight and the price per ton also increased 6% relative to 2022 less positively domestic suppliers or can be.

Running cost pressures and tight supplies of waste wood feedstocks that are pressuring margins in the long term supply contracts. This slowed planned investments and major equipment higher interest.

Rates also constrained ordering activity related to these larger and more expensive products. While recent biomass market dynamics were less favorable in the final months of 2023 demand for our forestry products remained at a good level in the fourth quarter, although off from the peaks of the previous two years.

Jeff Leonard: While recent biomass market dynamics were less favorable in the final month of 2023, demand for our forestry products remained at a good level in the fourth quarter, although off from the peaks of the previous two years. In the hobby farm and ranch segment, fourth quarter trends were also mixed. After a long upward run spanning several years, cattle prices declined modestly in the fourth quarter but still ended the year with strong double-digit gains. Hog prices were lower in the fourth quarter and were down for the full year as well. Agricultural crop prices, including corn, soybeans, and wheat, all moved lower in the fourth quarter, although they remained at historically good levels.

In the hobby farm and ranch segment fourth quarter trends were also mixed after a long upward run spanning several years cattle prices declined modestly in the fourth quarter, but still ended the year with strong double digit gains hog prices were lower in the fourth quarter and were down for the full year as well agricultural crop prices, including corn soy.

Beans, and wheat, all moved lower in the fourth quarter, although they remained at historically good levels. As a result of these commodity price trends U S farmer sentiment declined in the fourth quarter.

Jeff Leonard: As a result of these commodity price trends, U.S. farmer sentiment declined in the fourth quarter. Additionally, higher interest rates that prevailed through the second half of the year caused dealers to push inventories lower. This was most notable in the hobby farm and ranch market, where dealers deferred certain planned equipment deliveries and canceled some longer lead-time orders. This dealer destocking pattern impacted orders within the vegetation management division. Dealers selling the products of our Industrial Equipment Division have not been impacted as much by higher interest rates, as they don't carry meaningful inventories of these made-to-order products. Looking at how these market forces drove our business in the fourth quarter, sales in the vegetation management division were down 8%, and new order bookings declined 34% compared to the fourth quarter of 2022. Year-end order backlog in this division declined 39% relative to the fourth quarter of 2022. However, these numbers need to be viewed with perspective, though, as the division's sales, orders, and backlog remained elevated compared to pre-pandemic levels. The division's quarterly EBITDA of 12.6% was 360 basis points lower than the prior year.

The higher interest rates that prevailed through the second half of the year caused dealers to push inventories lower this was most notable in the hobby farm and ranch market, where dealers deferred certain planned equipment deliveries and canceled some longer lead time orders. This dealer destocking pattern impacted orders within the vegetation management Division.

Dealer selling the products of our industrial equipment division have not been impacted as much by higher interest rates as they don't carry meaningful inventories of these made to order products.

Looking at how these market forces drove our business in the fourth quarter sales and the vegetation management division were down 8% and new order bookings declined 34% compared to the fourth quarter of 2022 year end order backlog in this division declined 39% relative to the fourth quarter of 2022 these numbers need to be.

Jude with perspective, though as the division sales orders and backlog remained elevated compared to pre pandemic levels. The division's fourth quarter EBITDA of 12, 6% was 360 basis points lower than the prior year. However on a full year basis, EBITDA was 80 points higher versus 2022, the division's backlog.

Jeff Leonard: However, on a full-year basis, EBITDA was 80 points higher versus 2022. The division's backlog represents a solid four months of sales at the current pace, two months longer than the level reported pre-pandemic. Fourth quarter sales were lower compared to the prior year in the forestry, tree care, and the hobby farm and ranch markets, but sales of mowers to governmental agencies were sharply higher.

Log represents a solid four months of sales at the current pace two months longer than the level reported pre pandemic.

Fourth quarter sales were lower compared to the prior year, and 433 care and the hobby farm and ranch markets, but sales of mowers to governmental agencies were sharply higher.

Jeff Leonard: Fourth quarter EBITDA was impacted by costs associated with sales incentives to motivate retail sales, although these incentives were more modest than those employed in the second and third quarters. Fourth quarter sales in the Industrial Equipment Division were 32% higher than the prior year. However, the division's order bookings in the fourth quarter were down 9% just due to a difficult comparable.

Fourth quarter EBITDA was impacted by costs associated with sales incentives to motivate retail sales. Although these incentives were more modest than those employed in the second and third quarters.

Fourth quarter sales in the industrial equipment division, where 32% higher than the prior year. The division's order bookings in the fourth quarter were down 9% just due to a difficult comparable this was the result of an extraordinarily large snow removal equipment order that was received in the final quarter of 2020 to.

Jeff Leonard: This was the result of an extraordinarily large snow removal equipment order that was received in the final quarter of 2022. The year-end order backlog in this division was 18% higher than the prior year. Fourth quarter EBITDA of 15.1% was 320 basis points higher than the prior year, with the improvement driven by better efficiency and better manufacturing flow as the chassis supply situation continued to improve. Full year EBITDA of 13.6% also marked a 320 basis point improvement versus 2022. And again, this was primarily the result of improved efficiency and higher chassis receipts. At the 2023 monthly sales pace, the division's backlog represents approximately nine months of sales. Additionally, all of the product lines within this division achieved fourth quarter sales growth in excess of 20 percent.

The year end order backlog in this division was 18% higher than the prior year fourth quarter EBITDAR of 15, 1% with 320 basis points higher than the prior year with the improvement driven by better efficiency better manufacturing flow as the chassis supply situation continued to improve.

Full year EBITDA of 13.6% also marked a 320 basis point improvement versus 2022 and again. This was primarily the result of improved efficiency and higher chassis receipts.

At the 2023 monthly sales pace. The division's backlog represents approximately nine months of sales all of the product lines. Within this division achieved fourth quarter sales growth in excess of 20%, we were especially pleased that royal truck equipment that we acquired in late October had a very strong fourth quarter with sales more than <unk>.

60% higher than the prior year Royal truck contributed nicely to the division's sales and EBITDA in the quarter. We're very excited about the new opportunities. We've identified in the highway safety market and expect we can continue to grow in this area. We were also pleased that our teams were able to substantially complete the transfer of compact sweep for.

Jeff Leonard: We were especially pleased that Royal Truck Equipment, which we acquired in late October, had a very strong fourth quarter with sales more than 60 percent higher than the prior year. Royal Truck contributed nicely to the division's sales and EBITDA in the quarter. We're very excited about the new opportunities we've identified in the highway safety market and expect we can continue to grow in this area. We were also pleased that our teams were able to substantially complete the transfer of compact sweeper manufacturing from our Kent, Washington facility to our facility in McGowanago, Wisconsin in the fourth quarter and then to divest the Kent facility. Overall, we were pleased with the results achieved in the fourth quarter despite a more mixed market environment.

Factoring from our Kent, Washington facility to our facility in Macquarie ago, Wisconsin in the fourth quarter, and then to divest the Kent facility overall.

Overall, we were pleased with the results achieved in the fourth quarter. Despite a more mixed market environment. The fact that our teams were able to offset much of the impact of the more challenging conditions in vegetation management with performance improvements in industrial equipment, clearly shows the strength of our product offering.

As we enter 2024 the trends evident in the fourth quarter are expected to continue the excess channel inventory in vegetation management will take some time to work through and it now appears that the highly anticipated benefits of an interest rate reduction may not occur until later in the year. We are closely monitoring this and we will not hesitate to our.

Jeff Leonard: The fact that our teams were able to offset much of the impact of the more challenging conditions in vegetation management with performance improvements in industrial equipment clearly shows the strength of our product offering. As we enter 2024, the trends evident in the fourth quarter are expected to continue. The excess channel inventory and vegetation management will take some time to work through, and it now appears that the highly anticipated benefits of an interest rate reduction may not occur until later in the year. We are closely monitoring this and will not hesitate to adjust our capacity as needed to match current demand. We've remained bullish on the prospects for our Industrial Equipment Division and expect the good momentum evident in the fourth quarter to continue, driven by elevated spending by governmental agencies combined with a modest sustained tailwind from the Federal Infrastructure Bill. We're expecting another sequential improvement in chassis receipts in the first half of 2024, and this will help sustain a reasonable level of organic growth. Our balance sheet is strong, and we reduced total debt by more than 22 percent, or more than $67 million, in 2023.

Just our capacity as needed to match current demand we.

We remain bullish on the prospects for our industrial equipment Division and expect the good momentum evident in the fourth quarter to continue driven by elevated spending by governmental agencies combined with a modest sustained tailwind from the federal infrastructure Bill.

We're expecting another sequential improvement in chassis receipts in the first half of 2024, and this will help sustain a reasonable level of organic growth our balance sheet is strong and we reduced total debt by more than 22% or more than $67 million. During 2023. This positions us well for what we expect will be a more act.

And in the M&A market in 2024. So in conclusion, we believe the company is in a good position as we enter 2024 and we are optimistic about our prospects for the new year.

Before closing my remarks today I'd like to thank our customers dealers suppliers are thousands of exceptional employees and our financial stakeholders for their continued support for the company. This concludes our prepared remarks, we're now ready to take your questions. So operator. Please go ahead.

Company Representative: This positions us well for what we expect will be a more active M&A market in 2024. So, in conclusion, we believe the company is in a good position as we enter 2024, and we're optimistic about our prospects for the new year. Before closing my remarks today, I'd like to thank our customers, dealers, suppliers, our thousands of exceptional employees, and our financial stakeholders for their continued support of the company. This concludes our prepared remarks. We're now ready to take your questions, so operator, please go ahead. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone.

Thank you we will now begin the question and answer session.

To ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at anytime. Your question has been addressed and you would like to withdraw. Your question. Please press Star then Q and at this time, we'll pause momentarily to assemble our roster.

And the first question will come from Mig <unk> with Baird. Please go ahead.

Good morning, Thank you for taking the question.

Hi, Mike.

Okay.

Maybe we can start with vegetation management.

Can you can you maybe give us a little more more insight into the board of cancellations.

Meg Dobre: If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered, and you would like to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Meg Dobre with Beard. Please go ahead. Good morning.

Okay did you experienced in the quarter end.

Sounds like you expect dealer Destocking to continue in 'twenty four is there a way to sort of frame.

The overhang from the destock.

Dollar terms.

I'm not sure I can give you that on this call. We can certainly put something together for you the pace of order cancellations in the fourth quarter was actually down a bit from Q3, Meg but it was still heavily concentrated in the hobby farm and ranch segment.

Jeff Leonard: Thank you for taking the question. I'm a... Maybe we can start with vegetation management. Can you maybe give us a little more insight into the border cancellations that you experienced in the quarter? It sounds like you expect dealer destocking to continue in 2024. Is there a way to sort of frame the overhang from the destock in dollar terms? I'm not sure I can give you that on this call. We can certainly put something together for you.

Where dealers canceled firstly to reprice orders as we've seen for a while and then to partially replace those new orders, but we're also kind of an off season period in that market at the moment. So I think the real tell them the tape will be how the early months of 'twenty four shape up as we head into the spring season.

But it really wasn't that unusual compared to what we saw in Q3 for example, but the order softness remains and that's really just because the inventory still remain too high out in the dealers and we continued to run incentives, which elevate our marketing costs in that division to try to move those inventories out of dealer stocks. It's been pointed out to me repeatedly that the thing you've got to think about here.

Jeff Leonard: The pace of order cancellations in the fourth quarter was actually down a bit from Q3, Meg, but it was still heavily concentrated in the hobby farm and ranch segment, where dealers cancel personally to reprice orders, as we've seen for a while, and then partially replace those new orders. But we're also kind of in an off-season period in that market at the moment. So I think the real tell of the tape will be how the early months of 24 shape up as we head into the spring season. But it really wasn't that unusual compared to what we saw in Q3, for example.

I'm a dealer perspective, as a dealer's balance sheet is denominated in dollars not units and so as the price of those units has gone up over the years. It means less units of space on the balance sheet and inventory. So it tends to squeeze short line suppliers like us today, when those balance sheet starts to come under pressure. So none of that has really surprised that we've been through it before and I think we.

Jeff Leonard: But the order softness remains, and that's really just because the inventory still remains too high out in the dealers. And we continue to run incentives, which increase our marketing costs in that division, to try to move those inventories out of dealer stocks. It's been pointed out to me repeatedly that the thing you got to think about here from a dealer perspective is that a dealer's balance sheet is denominated in dollars, not units.

Could still see some daylight sort of toward the middle of the year. This division I'm still optimistic that this system are clear up sort of towards the back end of Q2, that's just my latest hutch.

If we look at your your implied orders.

In the fourth quarter were calculated if you would orders individually and vegetation management.

Jeff Leonard: And so as the price of those units has gone up over the years, it means less units of space on the balance sheet and inventory. So it tends to squeeze short-line suppliers like us, Meg, when those balance sheets start to go up. So none of that is really surprising.

Our math is about $176 million.

And orders and I'm sort of curious if you think that this level of order intake as well.

Well, we should be thinking for 2020 for at least for the front half of 'twenty four.

Or if you expect another step.

Stepped down for instance is this destock continues to materialize yeah. That's that's a great question Megan I think what I would say about it is the bookings that you see our net so it's net of order cancellations. So it does tend to depress the order run rate and I think we'll continue to see those order cancellations slow for the next quarter or two which will drive the net booking number higher.

Jeff Leonard: We've been through it before, and I think we can still see some daylight sort of toward the middle of the year in this division. I'm still optimistic that this is going to clear up sort of toward the back end of Q2. That's just my latest experience.

Meg Dobre: If we look at your implied orders in the fourth quarter, or calculated, if you would, orders in vegetation management, our math is about $176 million in orders, and I'm sort of curious if you think that this level of order intake is... what we should be thinking for 2024, at least for the front half of 24, or if you expect another step down, for instance, as this destock continues to materialize. Yeah, that's a great question, Meg. I think what I would say about that is the bookings that you see are net, so it's net of order cancellations, so it does tend to depress the order run rate, and I think we'll continue to see those order cancellations slow for the next quarter or two, which will drive the net booking number higher.

So no I don't believe this is the new normal long term certainly not for 2020 for.

It's hard to call the bottom in the AG space, but I think when we look at what our dealers are telling us and where their inventories are where are you there at the bottom or close to it really close to it right now and so I think we should start to see those numbers ticking back up I hope that helps you a little bit.

Yeah no. It is helpful. I'm I'm I'm trying to understand from a revenue standpoint, if that's kind of where you are in terms of bookings and backlog. So from a revenue standpoint, how we should be thinking about the front half of 'twenty four relative to Q.

$214 million that you put up in the fourth quarter.

Mig this Richard we kind of think the first quarter as we move out or be relatively what you've seen here in the fourth quarter in that general range and probably somewhat into the second quarter.

Meg Dobre: So, no, I don't believe this is the new normal long term, certainly not for 2024. It's hard to call the bottom in the ag space, but I think when we look at what our dealers are telling us and where their inventories are, we're either at the bottom or close to it, really close to it right now, and so I think we should start to see those numbers ticking back up. I hope that that helps you a little. Yeah, no, it is helpful.

And then from a margin standpoint sequentially or are we looking at something similar to the fourth quarter.

We're hoping to hold it right where it's at here I think as Jeff mentioned on the repricing. We're talking about we think are good.

We think in standard gross margins, we think that will come down some but overall, we think our efficiencies and we're working on reducing our purchase price variances that we can actually start that we're pushing back to our vendors to reduce cost so our incoming and in.

Richard Worley: I'm trying to understand, from a revenue standpoint, if that's kind of where you are in terms of bookings and backlogs, so from a revenue standpoint, how we should be thinking about the front half of 24 relative to the $214 million that you put up in the fourth quarter. I think this, Richard, we kind of think the first quarter, as we move out, will be relatively what you've seen here in the fourth quarter in a general range, and probably somewhat into the second quarter. And then, from a margin standpoint, sequentially, are we looking at something similar to the fourth quarter? We're hoping to hold it right where it's at.

Our incoming cost should come down and if that's the case hopefully we'll hold the margins roughly in the same area that we're at now.

And remember there's some seasonality here the Q4 blend in the or in the revenue stream tends to be lower and that will start to increase towards the back of the first quarter and into the second so that should support works at least a modest improvement in EBITDA. It normally it does if you look at the pattern. This division.

Okay understood and then final question for me.

Richard Worley: I think, as Jeff mentioned in the repricing we're talking about, we think in standard gross margins, we think that will come down some. But overall, we think our efficiencies, and we're working on reducing our purchase price variances, that we can actually start pushing back to our vendors to reduce costs. So our incoming costs should come down, and if that's the case, hopefully, we'll hold the margins roughly in the same area that we're at now. And Meg, remember, there's some seasonality here.

Obviously, there is pressure on margin and vegetation management, we talked about the revenue on what's going on with destock.

At that point in time, do you think youre going to have to adjust capacity or adjust the cost base.

Two two at least tried to stabilize margins. If these trends continue into the back half of 'twenty.

We're working on that right now because we've had some under absorption flowed through into the P&L. We don't tolerate that all terms. So we're working on that right now.

Alright I appreciate it.

Yeah.

The next question will come from Chris Moore with CJS Securities. Please go ahead.

Jeff Leonard: The Q4 blend in the revenue stream tends to be lower, and that will start to increase toward the back of the first quarter and into the second. So that should support at least a modest improvement in EBITDA. Normally, it does, if you look at the pattern in this.

Hey, good morning, guys. Thanks for taking a couple.

Good morning, Stan same similar lines, but just in terms of the <unk>.

12% operating margin target.

Meg Dobre: Okay, understood. And then the final question for me is, obviously, there's pressure on margins and vegetation management. We talked about revenue and what's going on with DSTOC. At what point in time do you think you're going to have to adjust capacity or adjust the cost base to at least try to stabilize margins if these trends continue into the back half of 2020? We're working on that right now, Meg, because, you know, we've had some under-absorption flow through into the P&L, and we don't tolerate that long-term, so we're working on that right now. All right, I appreciate it. The next question will come from Chris Moore with CJS Securities. Please go ahead. Hey, good morning guys. Thanks for taking a couple. Good morning.

For this year is it fair to say that it'll.

It'll be challenge in the first half of the year and with a little improvement.

And the vegetation side you you're you may be backing up in that arena or just you know kind of any thoughts you have at this stage.

I do Chris I think as we move towards the back end of Q2, we will get back to that pace because as we said a moment ago that the margin should trend upward and vegetation management, particularly notably in Q2. It will start at the back end of this quarter and a couple of weeks' time, it's already starting to warm up down here in the south.

So I think that will bode well for us. So I think we'll be back there certainly within the second quarter. That's my expectation as we sit here now.

I'd say its really hard to call the bottom in AG, because it's really comes down to the sentiment of dealers and to get those dealer sentiment improvement, we need to get interest rates moving in a better direction for them.

Christopher Moore: Yeah, maybe we'll stay on the same, similar lines, but just in terms of the percent, you know, operating margin target for this year, is it fair to say that it'll be challenged in the first half of the year and with a little improvement on the vegetation side, you may be back up in that arena or just, you know, kind of any thoughts you have at this stage. I do, Chris. I think as we move toward the back end of Q2, we'll get back to that pace because, as we said a moment ago, the margin should trend upward in vegetation management, particularly in Q2. And it will start at the back end of this quarter in a couple of weeks' time. It's already starting to warm up down here in the South, so I think that'll bode well for us.

Because they're not really in a bad place right now Theyre just pessimistic about what the short term yields everybody was sort of factoring in this earlier in the year interest rate reduction, which gave us a moment of optimism and I think that got crushed fairly quickly in the hobby farm and ranch segment, but in any event, we're still going to reassess our targets, we gather up our management team, Jeff typically in the second quarter.

Early in the second quarter.

Pull together the best brains in the company revised our strategy and at that point, we will revise our targets. So I would say towards the back end of second quarter look for some news on revised targets.

Chris One thing I would point to this too and I think we all kind of seem to forget about is how well the industrial equipment Division is performing I mean their margins are up every single quarter that we've had here going back to Q2 next year and as Jeff mentioned earlier, our expectation is that's going to continue to go on as we move into the balance of 'twenty into two.

Jeff Leonard: So I think we'll be back there certainly within the second quarter. That's my expectation as we sit here now. It's really hard to call the bottom an ag because it really comes down to the sentiment of dealers, and to get dealer sentiment improved, we need to get interest rates moving in a better direction. Because they're not really in a bad place right now. They're just pessimistic about what short-term yields will be. Everybody was sort of factoring in this earlier in the year, interest rate reduction, which gave us a moment of optimism, and I think that got crushed fairly quickly in the hobby farm and ranch segment. But in any event, we're still going to reassess our targets. We gather up our management team, typically in the second quarter, early in the second quarter, pull together the best brains in the company, revise our strategy, and at that point, we'll revise our targets.

24 yourself I think that's the beauty of our business. We've got two businesses here and we can't forget about the industrial piece because their performance has done really well and Chris as Jeff One other thing I'd like to point out we had some extraordinarily high SG&A costs come through at the corporate level. This quarter because of the changes that were announced and our board of directors.

Yesterday, we had high recruiting costs and if you back those back out Thats clearly a one time event, we'd have been right on what the analysts were expecting for us in the quarter. So that's why I said I'm still bullish or there's some things going on in the background here that we know about that are just causing us to say look okay. This is a bit of a one time event in Q1 that won't repeat in Q2, So am I.

I still like where we sit very very much and as I've said for last couple of quarters. These two divisions would converge in a better place in industrial made up a little more ground than I expected in Q1, and I think our vegetation management guys did a really good job playing defense protecting their bottom line.

Jeff Leonard: So I would say, you know, toward the back end of the second quarter, look for some news on revised targets. Chris, I want to point out something, too, that I think we all kind of seem to forget about: how well the Industrial Equipment Division is performing. I mean, their margins are up every single quarter that we've had here going back to Q2 of next year, and as Jeff mentioned earlier, our expectations are that that's going to continue to go on as we move into 2024 here, so I think that's the beauty of our business. We've got two businesses here, and we can't forget about the industrial piece because their performance has gone really well. And Chris, it's Jeff.

And did a little bit better maybe than I could've hoped they could do with the pressure on the top line in that division, having said that we do have some under absorption we need to deal with it we're going to deal with this properly to make sure that we don't have that repeat in the second quarter. So that's our plan forward.

Got it that's very helpful and I and Richard they the 11.6% industrial margins this quarter there.

Is that about the top or Theres still room for even more improvement on that front no theres going to continue to be more room for that Chris because as we mentioned in there you know we still got component issues on a few items that when you're dealing with something of that magnitude at the sheer size and volume of a unit that's pretty expensive from a cost standpoint.

Jeff Leonard: One other thing I'd like to point out, you know, we had some extraordinarily high SG&A costs come through at the corporate level this quarter because of the changes that were announced on our Board of Directors yesterday. We had high recruiting costs, and if you back those out, that's clearly a one-time event we would have been right on with the analysts were expecting for us in the quarter. So that's why I said I'm still bullish. There are some things going on in the background here that we know about that are just causing us to say, look, okay, this is a bit of a one-time event in Q1 that won't repeat in Q2.

And you missed something that doesn't get that we can't complete that unit. It sits in with which our width is still I, we're pushing 31 plus million dollars in with and that's very difficult to get through it does relieve itself as you move forward, but again, sometimes you just get those things that pop out and that's.

I think if those continue to improve which we're expecting and we're pushing our procurement folks to kind of get a little bit more level loading of those deliveries of those components that we need to complete these units will continue to see margins moving in the right direction for them and it should be up.

Jeff Leonard: So I still like where we sit very, very much, and as I've said for the last couple of quarters, these two divisions would converge in a better place, and Industrial made up a little more ground than I expected in Q1, and I think our vegetation management guys did a really good job playing defense and protecting their bottom line and did a little bit better, maybe than I could have hoped they could do with the pressure on the top line in Having said that, we do have some underabsorption we need to deal with, and we're going to deal with it promptly to make sure that we don't have that repeat in the second quarter. So that's what our plan is. I got it.

Yes, when you look at that division Christy the vacuum truck business continues to perform exceptionally well the fleet utilization has been excellent all through the FERC the fourth quarter and it has started well in the first quarter as well.

And then our sweepers group is starting to gain momentum to they had a nice pick up year over year, and a nice sequential pick up quarter over quarter and our snow removal group the margins continue to expand their and their backlog is still rising. So I think when you look at the picture in the industrial Division. It looks very bullish from my point of view and we still have eliminated all of the cost.

Christopher Moore: It's very helpful. And Richard, the 11.6% Industrial Margin this quarter. Is that about the top, or is there still room for even more improvement on that front? No, there's going to continue to be more room for that, Chris, because as we mentioned, we've still got component issues on a few items that when you're dealing with something of that magnitude of the sheer size and volume of a unit that's pretty expensive from a cost standpoint, and you miss something that doesn't get, that we can' It does relieve itself as you move forward, but again, sometimes you just get those things that pop out, and that's...

Related to the inefficiencies that Richard was referring to so we've still got some running room to pick up there. So I think the outlook for industrial as bullish for months.

And Chris they came in at 12.3% EBIT for the quarter, which is a huge improvement over even Q3 by itself and I think we've been asked the question do we expect their margins to continue to go north above that and the answer is yes.

Got it okay very helpful. I'll leave it there thanks guys.

Thanks, Chris I appreciate it.

The next question will come from Mike <unk> with D. A Davidson. Please go ahead.

Yes, hi, good morning, Thanks for taking my questions I might.

Hey, there so another debt reduction here in the fourth quarter in the back half of 'twenty three.

Richard Worley: I think if those continue to improve, which we're expecting, and we're pushing our procurement folks to kind of get a little bit more level loading of those deliveries of those components that we need to complete these units, we'll continue to see margins moving in the right direction for them, and they should be up. Yeah, when you look at that division, Chris, the vacuum truck business continues to perform exceptionally well. The fleet utilization has been excellent all through the fourth quarter, and it has started well in the first quarter as well. And then our sweepers group is starting to gain momentum, too.

Given where your business is headed here.

In 2024, when you take both of those segments together I'm.

I'm curious ratio you can give us any thoughts whether you think you can get to two zero net debt at the end of the year or just any kind of brackets man.

Plans and targets for debt reduction over the next couple of quarters.

No Chris we've got roughly about Mike, It's Mike I'm, sorry, we got about 240 million 235 million in term.

So in the balance of its in our.

Revolver. The intent here is to continue to move forward in 2024 and reduced the revolver down and we do have that ability if any access cash does come in we can pay on the term on the back on the on the long term piece of it on the back end. So it doesn't have that.

Jeff Leonard: They had a nice pickup year over year and a nice sequential pickup quarter over quarter. And our snow removal group, the margins continue to expand there, and their backlog is still rising. So, I think when you look at the picture in the industrial division, it looks very bullish from my point of view. And we still haven't eliminated all of the costs related to the inefficiencies that Richard was referring to.

Our intent to continue but we have it off the zero no.

But we're going to do everything we can obviously to reduce or to eliminate the revolving piece of that debt and then continue to any excess cash we have is to pay on the on the term permanently.

Richard Worley: So, we've still got some running room to pick up there. So, I think the outlook for industrials is bullish from my point of view. And, Chris, they came in at 12.3% EBIT for the quarter, which is a huge improvement over even Q3 by itself. And I think we've been asked the question, do we expect their margins to continue to go north above that? And the answer is yes.

And Mike, we're obviously trying to keep this balance sheet she.

She is in great shape for what we're expecting for M&A Mark 24, we're already seeing some signs of that.

So obviously, that's that's the most important thing be ready to jump on the opportunities when they come.

Got it and that's kind of where I was going to go with my with my next question and that was.

You know, how it's going with the Royal truck business since you acquired it.

Christopher Moore: Okay. Very helpful. I will leave it there. Thank you, Chris.

I couldn't help but notice that your new chairman and someone who you know who is no stranger to the highway infrastructure safety business.

Michael Shlisky: Appreciate it. The next question will come from Mike Shlisky with DA Davidson. Please go ahead. Yes, hi, good morning.

And you've called this new platform.

Michael Shlisky: Thanks for taking my questions. Hi Mike, Hey there, So another debt reduction here in the fourth quarter and the back half of 23. Given where your business is headed here in 2024 when you take both the segments together, I'm curious, Rich, if you can give us any thoughts on whether you think you can get to zero net debt by the end of the year or just any kind of guidance around your plans and targets for any debt reduction over the next couple of quarters. No, Chris, we've got roughly about, Mike, I'm sorry, we've got about $240 million, $235 million in term.

You mentioned it.

In the opening comments I can make this really muggy tell us that the number of our sizing of the M&A candidates you could maybe add to that group over the next 18.

18 months itself.

This space Mike.

Mechanical markets basically like it's fairly fragmented and there's a lot of middling sized companies companies in that 30 to 70 million annual revenue range, but then there's a couple of big players in that space that we like.

Right, Great deal and so Youre right, Rick Prout, our new incoming chairman announced this morning.

Richard Worley: So, and the balance of it is in our revolver. The intent here is to continue to move forward in 2024 and reduce the revolver debt. And we do have that ability; if any excess cash does come in, we can pay on the term on the back, on the long-term piece of it on the back end. So it doesn't, you know, that's our intent to continue, but will we have it off to zero? No.

<unk> has a background in that space that he was with me out at the Astro show the American traffic safety show a few days ago kind of kicking the tires on a few things. So we like the space. We think we can grow there and we think there are near term opportunities there.

Got it and then if I could maybe wrap up with a more broad question.

When you put together the outlook for margins in it.

Both the groups and the outlook for.

Richard Worley: But we're going to do everything we can, obviously, to reduce or eliminate the revolving piece of that debt and then continue to pay on the term permanently. And Mike, we're obviously trying to keep this balance sheet in great shape for what we're expecting to be a better M&A mark in 2024. We're already seeing some signs of that.

Essentially turning around and vegetation and obviously strong growth in industrial here I just want to get you know can you give us some kind of a sense as to whether you.

We expect a year of growth net net more revenues and margins.

2024.

On a holistic basis.

Richard I.

I think probably with you want to look at the two divisions. The industrial we expect revenue levels to be higher than they were in 2023.

Jeff Leonard: So obviously that's the most important thing to be ready to jump on the opportunities when they come. Got it. And that's kind of where I was going to go with my next question, and that was... How is it going with the Royal Truck Business since you acquired it? I couldn't help but notice that your new chairman is someone who is no stranger to the highway infrastructure safety business, and you called this your next new platform. I know you mentioned it in some of your opening comments, so could you maybe give us a little more detail as to the number or sizing of the MNA candidates you could maybe add to that group over the next, you know, 12, 18 months or so? This space, Mike, is a typical kind of market space we like. It's fairly fragmented. There are a lot of middling-sized companies, companies in that 30 to 70 million annual revenue range.

2024, the vegetation management, I think probably it's going to be a bit soft as we invest in did you start the half first half of the year, but we think we can gain some momentum and try to get something that's relatively in the general same ballpark of where we were in 2023.

Yeah, I still think theres some.

Net net for growth Mike I'm, the optimist in the group because I do believe we're near the bottom on AG I was the first one to say look it's hard to call. The bottom when you immersed in the business when the guys running the business our deep in it it's hard to call the bottom, but all the signals that IC, telling me we are either at the bottom or very very very close to it and in the hobby farm <unk> Ranch segue.

So I still I'm still an optimist on 2024, and as I said I'm very very bullish on where our industrial division is going they still got great momentum there still booking good orders again, they had a kind of a difficult comparable from a booking point of view and I think I meant.

Jeff Leonard: But then there's a couple of big players in that space that we like a great, great deal. And so you're right. Rick Perot, our new incoming chairman, announced this morning, has a background in that space. And he was with me out at the ATSA show, the American Traffic Safety Show, a few days ago kind of kicking the tires on a few things. So we like the space.

That's no removal or a year ago at this time.

But they had a great quarter and their backlog is up like 18%.

Jeff Leonard: We think we can grow there, and we think there are near-term opportunities. Got it. And if I can maybe wrap up with a more broad question. When you put together the outlook for margins in both the groups and the outlook for potentially turning around in vegetation and obviously strong growth in industrial here. I just want to give, you know, can you give us some kind of sense as to whether we expect a year of growth, net-net, for revenues and margins in 2020, on a list. I think probably, if you want to look at the two divisions, the industrials, we expect revenue levels to be higher than they were in 2023. For vegetation management, I think it's probably going to be a bit soft, as we mentioned as you start the first half of the year, but we think we can gain some momentum and try to get something that's relatively in the general same ballpark of where we were in 2023.

So they're really well positioned to continue to gain ground here and that is our strategy is one of our market segments softens, the others accelerate and if we can keep doing that we're in a really nice place.

So I think youll see us refresh our targets Mike here in a couple of months and I think there'll be well received as much.

Just a thought there so so wrapped up in one segment.

Up nicely in the other segment in both do have.

Margin opportunities in 24 as well both segments.

Yes, that's my belief.

Alright, I'll leave it there thanks guys.

Thanks, Mike I appreciate it.

Again, if you have a question. Please press one please press Star then one our next question will come from Tim Moore with E. F. Hutton. Please go ahead Sir.

Thanks, and great full year organic sales growth and wonderful backlog finished on the industrial equipment side, but new orders definitely ahead of my forecast there.

Jeff Leonard: Yeah, I still think there's some root net worth for growth, Mike. I'm the optimist in the group because I do believe we're near the bottom on ag. I was the first one to say, look, it's hard to call the bottom when you're immersed in the business, when the guys running the business are, you know, deep in it. It's hard to call the bottom.

I just want to drill more into one topic that investors really werent, believing or maybe overlooking when your stock prices.

Third and 60 in October and based on some calls I was getting it seems like a very good catalyst I know Richard start highlighting them as topic three questions ago, but yeah.

Jeff Leonard: But all the signals that I see tell me we are either at the bottom or very, very, very close to it in the hobby farm and ranch segment. So I'm still an optimist about 2024. And as I said, I'm very, very bullish on where our industrial division is going. They still have great momentum, and they're still booking good orders. Again, they had a kind of difficult comparable from a booking point of view.

Just the industrial equipment operating margin runway.

We know that.

You got to you'll be getting operating leverage growth just from volumes and Richard mentioned getting the went down with the procurement team.

And more.

Inefficiencies taken out can you maybe dive into more you know just on the inefficiencies and any.

Any way to kind of ballpark.

8% back to maybe being recovered on normalization of supply chain components and delays in or not need to restart those lines of production to finish off the final assembly steps.

Jeff Leonard: And I think I mentioned that snow removal order a year ago at this time. But they had a great quarter, and their backlog is up like 18%. So they're really well positioned to continue to gain ground here. And that is our strategy: as one of our market segments softens, the others accelerate. And if we can keep doing that, we're in a really nice place. So I think you'll see us refresh our targets Mike here in a couple of months. And I think they'll be well received. So just so it's all there, so, so, flat up in one segment.

How far back yes luxury there yeah, let me let me take the first crack at that and I think Richard wants to add a comment or two as well it could be that I have all look like you guys.

When you look at the chassis situation, Tim there are still problems, but all the truck builders are having again frame rails out of Mexico. They all share one supplier and so believe it or not.

Michael Shlisky: Well, up next in the other segment, and both do have Marginal Opportunities in 24 as well. Yes, that's my belief. All right, I'll leave it there. Thanks, Mike. Appreciate it. Again, if you have a question, please press 1, please press star, then 1. Our next question will come from Tim Moore with EF Hutton. Please go ahead, sir.

The St. Petersburg steal the framework is holding up production for all the major Oems in North America. That's issue number one in issue number two is Allison transmission has been having difficulties at the moment getting the transmissions that we need for the vacuum trucks and that has set back the pace of recovery in the truck chassis market a little bit having said that we're going to get.

Christopher Moore: Thanks, and great full-year organic sales growth and wonderful backlog finish on the industrial equipment side with new orders. Definitely ahead of my forecast there. I just want to drill more into one topic that, you know, investors really weren't believing or maybe overlooking where your stock price is. I know Richard started highlighting this topic three questions ago, but just the industrial equipment operating margin runway. We know that.

Hundreds more chassis in 2024 than we were in 2023 I think we are in a very very strong position and we are finally, starting to get a nice diversity of chassis coming in after working to diversify our supply channels.

Six months or so ago. So I think we're probably better than 80% back in terms of the supply chain itself, but we still have these shop floor inefficiencies when when something like a framework doesn't kanamori transmission doesn't comment suddenly a chassis that you are expecting to receive doesn't show up on your door.

Jeff Leonard: You know, you'll be getting operating leverage growth just from volumes, and Richard mentioned getting the whip down on the procurement team, and more, you know, inefficiencies taken out. Can you maybe dive into more on the inefficiencies front and any way to kind of ballpark? You know, if you're 80% back and maybe being recovered on normalization of supply chain components and delays, you know, not needing to restart those lines of production to finish off, you know, the final assembly steps, you know, how far back are you? Yeah, let me take the first crack at that. And I think Richard wants to add a comment or two as well. He's giving me that eyeball look, like he always does.

And then there's still some labor issues in some of our bigger plants not not labor.

Russ just shortage.

Of getting enough people to be able to run these plants the way we run them want to run it.

We want to run them, but I would say, it's much better now than it was a quarter ago and I think it's going to continue to approve go ahead Richard.

You know I think Tim on that.

A key to me here, it's not is it.

It is it is chassis.

But our with this high not because of chassis or whip is high because of component parts or lack of them when we need them.

Theyre here on time and they are efficient we're open when we opened the work order we run right through it and we complete and close.

Jeff Leonard: When you look at the chassis situation, Tim, there are still problems that all the truck builders are having getting frame rails out of Mexico; they all share one supplier. And so, believe it or not, a kind of straight piece of bent steel, the frame rail is holding up production for all the major OEMs in North America. That's issue number one, and issue number two is Allison Transmission has been having difficulties at the moment getting the transmissions that we need for the vacuum trucks. And that has set back the pace of recovery in the truck chassis market a little bit. Nevertheless, having said that, we're going to get hundreds more chassis in 2024 than we did in 2023. I think we are in a very, very strong position.

We ended up missing something we have to go park that unit and it could be less I've said before 90% to 95% complete and we can't finish it and we have to go start on something else until the component gets it that's the efficiencies that we keep pushing back on that we have to work on that procurement.

Government needs to do a better job and help us out there and trying to make sure that those components are delivered to us on time with a good quality cost price.

Item in there so that helps us because.

<unk> is starting to is probably about the worst thing you can do and it's worse in the industrial division than it is in vegetation management.

Thanks for that color and I will return and Jeff add a little bit I'd, just add a little more color for you Tim the supply chain problems were actually more of an issue in the fourth quarter and vegetation management. Some of the bigger components that we need for the forestry side started to be more disruptive than we have seen for a while and that caused us some real headaches and forestry up and are more bark.

Jeff Leonard: And we are finally starting to get a nice diversity of chassis coming in after working to diversify our supply channels, you know, six, six months or so ago. So I think, you know, we're probably better than 80% back in terms of the supply chain itself. But we still have these shop floor inefficiencies when something like a frame rail doesn't come or a transmission doesn't come and suddenly a chassis that you're expecting to receive doesn't show up at your door. And then there's still some labor issues in some of our bigger plants, not labor unrest, just shortage of getting enough people to be able to run these plants the way we run them. Want to run them the way we want to run But I would say it's much better now than it was a quarter ago, and I think it's going to continue to improve. Go ahead, Rick.

Business that we were not anticipating so we're battling our way through that.

But net net as you look across the company. We are in a much better place steel prices are looking a little bit favorable as we ended the year, so that could be a little bit of a tailwind for us for at least the first few months of 2024.

So on balance as I said, I think I've called the bottom you guys can all tell me as long a quarter or two from now and in the AG space.

But I'm, calling bottom and I think I'm up opportunistic optimistic about where the next couple of quarters May go and I, certainly think we're going to be back to very nice running by about the middle of this year and the vegetation management Division.

Jeff Leonard: I, you know, I think, Tim, the key to me here is not as it is; it is the chassis. But our width is high, not because of the chassis. Our width is high because of component parts or a lack of them when we need them. If they're here on time and they're efficient, we're open. When we open the work order, we run right through it, and we complete and close.

Great that's really good.

Always appreciate your candor and it's just such a good improvement there even on industrial equipment compared to a year and a half or two years ago with the.

Going back to the final step and it's just nice to for investors to know that like you are not there yet on a per cent, but there's still that extra operating margin level expansion just from it when you get there.

Richard Worley: But when we end up missing something, we have to go park that unit. And it could be, as I said before, 90% to 95% complete. And we can't finish it, and we have to start on something else until the component gets in. That's the efficiency that we keep pushing back on, that we have to work on, that procurement needs to do a better job and help us out there, and trying to make sure that those components are delivered to us on time with a good quality cost price item in them. So that helps us because stopping and starting is probably about the worst thing you can do, and it's worse in the industrial division than it is in vegetation management. Thanks for that color, Richard and Jeff. I'll just add a little more color for you, Tim. The supply chain problems were actually more of an issue in the fourth quarter for vegetation management.

Yes.

As I've said.

When you go into the industrial equipment Division, Tim the vacuum truck business is our steady performer and they're doing great and we were able to add nicely to the rental fleet.

We expect to add significantly to the rental fleet as we go into 2024, that's going to be very positive that's very profitable business for us and then our sweeper and debris collector business, which has been running okay. Not perfectly the last couple of quarters of 2023 really picked up the pace in the fourth quarter and it's got a really good start we came out of the gate in 'twenty four.

<unk> also with a very good backlog. So that's an improvement and then our snow removal group was at its best point in years from a profitability point of view with an exceptionally strong background.

Backlog so the outlook in snow is very nice for us right now too.

Jeff Leonard: Some of the bigger components that we need for the forestry side started to be more disruptive than we had seen for a while, and that caused us some real headaches in forestry up in our Moorbark business that we were not anticipating, so we're battling our way through that. But net-net, as you look across the company, we are in a much better place. Steel prices are looking a little bit favorable as we end the year, so that could be a little bit of a tailwind for us for at least the first few months of 2024. So on balance, as I said, I think I've called the bottom.

That's great and I can't wait till things are firing on all cylinders for industrial and it gets back to the 12% plus operating margin pretty pretty easily you should.

The outlook, but one just switching gears since most of my questions already answered on the vegetation side, what about just any updates on upcoming launches are trade shows for hybrid and electric product offerings, you know U S and European cities and towns, they're starting to pursue better no duty cycles and more environmental friendly fleet mixes.

Maybe you can talk about there and launches and introductions.

Yeah, well, we launched an electric mower.

Jeff Leonard: You guys can all tell me I'm wrong a quarter or two from now in the ag space, but I'm calling the bottom, and I think I'm optimistic about where the next couple of quarters may go. And I certainly think we're going to be back to very nice running by about the middle of this year in vegetation management. Great, that's really good.

In our French operations about a year ago, that's starting to really gain momentum now and celebrate very well.

We've started to expand the production of the hybrid hybrid timber Wolf shipper that we make in the U K and we're going to bring that to the north American market here very shortly so that's positive or small compact hybrid street sweeper has come out of the gate very very well.

Christopher Moore: We always appreciate your candor, and it's just such a good improvement, though, even on industrial equipment, compared to a year and a half or two years ago with the. Going back to the final step, it's just nice for investors to know that you're not there yet 100%, but there's still that extra operating margin level expansion just from it when you get there. As I said, when you go into the Industrial Equipment Division, Tim, the vacuum truck business is our steady performer, and they're doing great, and we were able to add nicely to the rental fleet and expect to add significantly to the rental fleet as we go into 2024. That's going to be very positive; that's a very profitable business for us.

It actually surprised us with the momentum behind that so that's looking very positive and then I think you probably saw our all electric Street sweeper.

Six.

At the show at Con Expo and we've been had a little bit of a setback there in that the electric chassis or delayed.

From the supplier that we're not going to get as many of those in the first quarters, we'd hope, but I mean, we're talking about.

About chassis you count on one hand, so it's not a needle mover from that point of view, but.

But the momentum momentum is very very good and I continue to believe this company in a very good position there really bright news was our larger electric sweeper has proven to give more operating hours and we expect it on a charge the batteries. The battery packs are performing better. So we're getting a more net yield product productivity time out of that product than we were.

Christopher Moore: And then our sweeper and debris collector business, which has been running okay, not perfectly, the last couple of quarters of 2023 really picked up the pace in the fourth quarter, and it's got a really good start. We came out of the gate in 24, also with a very good backlog. So that's an improvement. And then our snow removal group was at its best point in years from a profitability point of view with an exceptionally strong background backlog. So the outlook for snow is very nice for us right now.

<unk> and.

And the early customers that have seen it had been very very impressed with that and I was too from an engineering point of view, how well that's turned out so we're in a great position there from my perspective.

Yeah, that's great color on the battery pack from and I'm, a big fan of that hybrid timber wolves chip participants knew phenomenally well in North America as it rolls out, but I'm thankful that separately I appreciate that's a neat machine.

Okay, Tim Thanks.

Okay.

The next question is a follow up from Mig <unk> with Baird. Please go ahead.

Jeff Leonard: That's great. I can't wait until things are firing on all cylinders for industrial, and you get back to the 12% plus operating margin pretty easily. You should be happy with the outlook.

Alright, thanks for the follow up.

In an industrial.

It is there is there a way to frame for us.

Pricing and.

In your backlog. So if we're looking at the 18% increase year over year end backlog, how much of that would be price relative to volume.

Christopher Moore: Just switching gears, since most of my questions are already answered on the vegetation side, what about just any updates on upcoming launches or trade shows for hybrid and electric product offerings? US and European cities and towns are starting to pursue better duty cycles and more environmentally friendly fleet mixes. Anything you can talk about there in terms of launches and introductions? Yeah, well, we launched an electric mower in our French operations about a year ago.

Yeah.

I would probably tell you two thirds of that is more volume than it is for price, but our price has gone up every single every single month, we made adjustments in every single quarter on our backlog. So yes, it's in there.

Meg.

Okay.

The purchased through the <unk>.

Purchase cost side of that equation is flat, meaning we're not seen much price escalation from our suppliers at the moment a little bit on the chassis, but its very very modest. So most of that gain is in fact, just good running.

Jeff Leonard: That's starting to really gain momentum now and sell very, very well. We've started to expand the production of the hybrid Timberwolf chipper that we make in the UK, and we're going to bring that to the North American market here very shortly, so that's positive. Our small compact hybrid street sweeper has come out of the gate very, very well and actually surprised us with the momentum behind that, so that's looking very positive. And then I think you probably saw our all-electric street sweeper, the M6, at the show at ConExpo, and we've had a little bit of a setback there in that the electric chassis is delayed from the supplier.

In the business from my point of view, So I think the majority of that is true growth.

I see.

I ask the question because I'm trying to.

Figure out what's a reasonable expectation for revenue growth in industrial in 2024 right.

Your backlog is high it sounds to me that.

While there is still some supply chain issues youre expecting more chassis in 2004, and then you did you had in 'twenty three so your volume should be up pricing is positive and should help you. So.

Jeff Leonard: We're not going to get as many of those in the first quarter as we'd hope, but I mean, we're talking about chassis you can count on one hand, so it's not a needle mover from that point of view. But the momentum is very, very good, and I continue to believe this company is in a very good position. The really bright news was our larger electric sweeper has proven to give more operating hours than we expected on a charge of the batteries. The battery packs are performing better, so we're getting more net yield productivity time out of that product than we were expecting.

Can you maybe help us understand what the reasonable expectation for revenue and 24.

Okay.

Yeah, I think when you look at that Division made a couple of things I mean in terms of the chassis. We have available in some parts of the business were actually sold out for 2024, which is great.

Jeff Leonard: And the early customers that have seen it have been very, very impressed with it, and I was, too, from an engineering point of view, how well that's turned out. So we're in a great position there from my perspective. Yeah, that's a great color on the battery packs, and I'm a big fan of that hybrid Timberwolf chip.

Sheets haven't been delivered yet so I think you will see nice revenue growth out of the industrial division. They are feeling bullish about where they sit right now and they've come out of the gate very strongly in the first quarter so far.

I can't be specific about that obviously, but we like the momentum and what we see there. So I think there's plenty of room for organic revenue growth in the industrial Division.

Christopher Moore: I think it's going to do phenomenally well in North America as it rolls out. But thanks a lot. Yeah, that's it for Richard.

Meg Dobre: I appreciate it. Okay, Tim, thanks. The next question is a follow-up from Meg Dobre with Baird. Please go ahead. Thanks for the follow-up. In industrial, is there a way to frame for us pricing in your backlog?

We were with that division had yesterday at our board meeting and Mike likes where he is sitting in.

And the backlog has never been higher in that business, it's a beautiful spot to be in and then as you point out with regard to the chassis. We're gonna get hundreds more chassis in 2024 at least that's what we've been promised than what we saw in 2023 that will flow through in a couple of them nice ways. Our rental fleet should go up very nicely.

Richard Worley: So if we're looking at the 18% increase year-over-year in backlog, how much of that would be priced relative to volume? I would probably tell you two-thirds of that is more volume than it is for price, but our prices have gone up every single month. We've made adjustments in every single quarter on our backlog, so yeah, it's in there. Thank you. The purchase cost side of that equation is flat, meaning we're not seeing much price escalation from our suppliers at the moment. A little bit on the chassis, but it's very, very modest.

Hopefully by triple digits, but certainly by double digits in terms of unit count and.

And that helps because we are running that fleet. So hard right now it's hard to keep up with it the utilization. So high you are putting a lot of wear and tear on the trucks to the fleet.

Jeff Leonard: So most of that gain is, in fact, just good running in the business from my point of view. So I think the majority of that is true growth.

But secondly, it is helping our sweeper business that has a big backlog and has been constrained on that and we're building trucks now on our debris collector group in Richmond that they've sort of been the poor guy.

Meg Dobre: I ask the question because I'm trying to figure out what's a reasonable expectation for revenue growth and industrial in 2024, right? I mean, your backlog is high. It sounds to me that while there are still some supply chain issues, you're expecting more chassis in 2024 than you had in 2023. So your volume should be up.

Are aligned to get chassis and theyre starting to get chassis slowing through again, so I think we're going to see nice organic growth in the in the industrial Division Yeah. One other thing too to that Meg in 2024 will be a full year of Royal truck.

Jeff Leonard: Pricing is positive and should help you. So can you maybe help us understand what's a reasonable expectation for revenue in 2024? Yeah, I think when you look at that division, Meg, there are a couple of things.

And that will probably definitely pushed their sales above double a double digit increase.

Okay, well thank you.

Okay Yep.

Jeff Leonard: I mean, in terms of the chassis we have, Bill, when some parts of the business were actually sold out for 2024, which is great, but those machines haven't been delivered yet. So I think you will see nice revenue growth out of the industrial division. They're feeling bullish about where they sit right now, and they've come out of the gate very strongly in the

This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks. Please go ahead.

Okay. Thank you very much I appreciate everybody joining the call today.

And we look forward to having you join our first quarter conference call in May of 2024. Thank you.

Jeff Leonard: I can't be specific about that, obviously, but we like the momentum and what we see there. So I think there's plenty of room for organic revenue growth in the industrial division. We were with that division head yesterday at our board meeting, and Mike likes where he's sitting, and the backlog has never been higher in that business. It's a beautiful spot to be in.

Okay.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

Okay.

Yes.

Okay.

[noise] [music].

Jeff Leonard: And then, as you point out, with regard to the task. We're going to get hundreds more chassis in 2024. At least that's what we've been promised, than what we saw in 2023. That will flow through in a couple of nice ways. Our rental fleet should go up very nicely, hopefully by triple digits, but certainly by double digits in terms of unit count. And that helps because we're running that fleet so hard right now; it's hard to keep up with it.

Okay.

[noise].

Richard Worley: The utilization is so high, you're putting a lot of wear and tear on the trucks in the fleet. But secondly, it's helping our sweeper business, which has a big backlog and has been constrained by that. And we're building trucks now on our debris collector group in Richmond, and they've sort of been the poor guys waiting at the back of the line to get chassis, and they're starting to get chassis flowing through again. So I think we're going to see nice organic growth in the industrial division. Yeah. One other thing too, Meg, in 2024, it will be a full year of Royal Truck, and that will probably definitely push their sales above a double-digit increase.

Yeah.

[music].

Meg Dobre: Okay. Well, thank you. This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead. Okay, thank you very much.

Company Representative: I appreciate everybody joining the call today, and we look forward to having you join our first quarterly conference call in May of 2024. Thank you. The conference is now concluded.

Company Representative: Thank you for attending today's presentation. You may now disconnect. www.globalonenessproject.org. Thank you. Thank you.

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Yeah.

[music].

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