Q4 2023 Alta Equipment Group Inc Earnings Call

March 14, 2024

Call over to adjacent Dannemeyer director of SEC reporting and technical accounting with Alta equipment group.

Thank you Matt.

Good afternoon, everyone and thank you for joining us today.

Yes, really detailing altra fourth quarter and full year 2023 financial results was issued this afternoon and is posted on our website along with a presentation designed to assist you in understanding the company's results.

The call with me today are Ryan Greenwald, our chairman and CEO and Tony <unk>, Our Chief Financial Officer.

For today's call management will first provide a review of our fourth quarter and full year 2023 financial results. We will begin with some prepared remarks before we open the call for your questions.

Please proceed to slide two.

Yeah.

Before we get started I'd like to remind everyone that this conference call may contain certain forward looking statements, including statements about future financial results, our business strategy and financial outlook achievements of the company and other non historical statements as described in our press release.

These forward looking statements are subject to both known and unknown risks uncertainties and assumptions, including those related to ultra growth market opportunities and general economic and business conditions. We have based these forward looking statements largely on our current expectations and projections about future events and financial trends.

Yeah.

Good afternoon, and thank you for attending to Alta equipment group fourth quarter and full year 2023 earnings Conference call. My name is Matt and I'll be your moderator for today's call I would now like to turn the call over to adjacent Dannemeyer director of SEC reporting and technical accounting with Alta equipment group.

That we believe may affect our business financial condition and results of operations.

Although we believe these expectations are reasonable we undertake no obligation to revise any statement to reflect changes that occur after this call.

Thank you Matt.

Good afternoon, everyone and thank you for joining us today.

Descriptions of these and other risks that could cause actual results to differ materially from these forward looking statements are discussed in our reports filed with the SEC, including our press release that was issued today.

Really detailing altra fourth quarter and full year 2023 financial results was issued this afternoon and is posted on our website along with a presentation designed to assist you in understanding the company to adult.

During this call we may present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in today's press release and can be found on our website at investors <unk>.

The call with me today are Ryan Greenwald, our chairman and CEO and Tony Colucci, Our Chief Financial Officer.

I'll turn equipment Dot Com I will now turn the call over to Ryan.

Thank you Jason Good afternoon, everyone and thank you for joining us today I'll begin with a quick overview of our fourth quarter and full year 2023 results then provide our current assessment regarding the business conditions in our end user markets followed by an update on our growth strategy. After I conclude Tony will provide a detailed analysis.

Please proceed to slide two.

Yeah.

Regarding our financial and operating performance.

I am pleased to report we achieved record results in 2023, our performance without a impossible without the complete dedication and solid execution by the altra team I sincerely. Thank you.

These forward looking statements are subject to both known and unknown risks uncertainties and assumptions, including those related to altered growth market opportunities and general economic and business conditions. We have based these forward looking statements largely on our current expectations and projections about future events and financial trends.

The momentum in our business clearly continued during the fourth quarter as we capitalize on the broad based strength in our end user markets total revenues grew 21, 7% over the year ago quarter to a quarterly record of $521 5 million for the fourth quarter and increased 19, 4% to $1 9 billion for the year.

We believe may affect our business financial condition and results of operation.

Although we believe these expectations are reasonable we undertake no obligation to revise any statement to reflect changes that occur after this call.

Revenues for our construction segment increased 22% to $328 1 million in the fourth quarter and 12, 9% to $1 1 billion for the year.

<unk> handling revenue increased 16% to $179 million for the quarter and 19, 4% to $681 5 million for the year.

During this call we may present, both GAAP and non-GAAP financial measures.

Reconciliation of GAAP to non-GAAP measures is included in today's press release and can be found on our website at investors got Alta equipment Dot Com I will now turn the call over to Ryan.

New and used equipment sales grew 25, 5% from $817 2 million in 2022 to just over $1 billion. This year.

This is an annual record and as we celebrate this milestone we should also highlight the versatility and resilience of our business model, which generated over $519 6 million and high margin parts and service revenue across the business segments in 2023, an increase of 17, 7% year over year.

Thank you Jason Good afternoon, everyone and thank you for joining us today I'll begin with a quick overview of our fourth quarter and full year 2023 results then provide a current assessment regarding the business conditions in our end user markets followed by an update on our growth strategy. After I conclude Tony will provide a detailed analysis.

Also as unique in the breadth of our product offerings, the scale of our addressable market and the defensiveness of our market position. Our focus is on driving and sustaining long term equipment field population and driving aftermarket support penetration so an increasingly diversified customer base, providing our customers with best in class support to keep their fleets.

Regarding our financial and operating performance.

I am pleased to report we achieved record results in 2023, our performance without a impossible without the complete dedication and solid execution by the Altra team I sincerely. Thank you <unk>.

And our business clearly continued during the fourth quarter as we capitalize on the broad based strength in our end user markets.

Highly utilized so theres little downtime as possible remains the central focus of our operations at the end of the year, we had over 1300 factory trained and certified revenue producing technicians.

Total revenues grew 21, 7% over the year ago quarter to a quarterly record of $521 5 million for the fourth quarter and increased 19, 4% to $1 9 billion for the year.

Today's investor presentation includes on slide 10, an overview of some of the attractive features of <unk> equipment dealership business model, including protected exclusive areas of primary responsibilities are apr's exclusive rights to OEM replacement arcs proprietary.

Revenues for our construction segment increased 22% to $328 1 million in the fourth quarter and 12, 9% to $1 1 billion for the year material.

Proprietary diagnostic software to service the field population.

In material handling revenue increased 16% to $179 million for the quarter and 19, 4% to $681 5 million for the year.

Warranty repair work that must be performed by authorized dealers factor.

Factory training to assure expert product support capabilities and our newest highest product support revenue streams with pricing power given exclusivity for replacement parts and scarcity of skilled labor.

New and used equipment sales grew 25, 5% from $817 2 million in 2022 to just over $1 billion. This year. This is an annual record and as we celebrate this milestone we should also highlight the versatility and resilience of our business model, which generated over $519 6 million.

Another important differentiator of a dealer integrated rental business is our ability to utilize our widespread and professional sales team to get the most return on retailing used rental equipment to customers rather than simply offloading to an auction house. This allows us to keep the valuable aftermarket returns from our parts and service expertise within our apr's not to downgrade.

<unk>.

And our rental capabilities, but I want to reiterate that our business is a core competency lies in our operational excellence is a top performing dealer, providing full scope equipment solutions to our customers through professional sale and service capabilities.

I will talk about current business.

Our outlook for 2024 is positive positive is there are multiple opportunities for continued growth in our business segments and expansive end user markets. Most importantly, the positive sentiment from our customers is continuing into this year.

Visibility is encouraging for our construction and material handling segment and supply chain to have normalized and we have strong equipment orders already on the books for the year as a result demand for our product support services will grow as well.

Industry related data also supports our view for this year total U S. Construction.

<unk> increased significantly year over year and January non.

Nonresidential construction starts are forecast to increase from $441 billion last year to 458 billion in 2024.

Federal infrastructure spending is also expected to accelerate as many of these major projects have yet to break ground.

And contract awards are strong in both the northeast and Florida, where we operate.

Additionally, state Dot's 2020 for fiscal year budgets are more than 10% higher than last year.

The onshoring trended manufacturing continues and much of our northern territory.

And general contractors and subcontractors are extremely busy with Paul backlogs with lack of manpower remaining an ongoing challenge.

In the material handling segment, where we enjoy arguably the most diverse and market end market exposure of any industry. We are focused on the themes of labor and energy efficiency as the market settles in at record levels pre Covid, we are continuing to make progress on expanding our market share in the warehouse market, along with Hyster, Yale and <unk>.

Ally product lines additional sales in this market segment increased our opportunity to sell advanced technology solutions, leading to more complex unprofitable customer relationships for both dealer and OEM.

Our diversified growth strategy continues to prove very successful as proven by our financial and operating growth over last three years, we have demonstrated our ability to significantly expand our business organically through acquisition and entering new end user markets.

During 2023, we achieved organic growth of 12, 3% by increasing our market share expanding our product portfolio and entering new territories. We will continue to expand our geographic footprint and product portfolio in our existing business segments by leveraging our existing OEM relationships and developing partnerships with new manufacturers.

Our three acquisitions last year are representative of our strategy and.

In previous quarters, we discussed our acquisition of <unk> material handling expanding our lift truck market coverage in new England and.

In October we acquired burst equipment company, a premier supplier compact construction and turf equipment with three locations in Illinois.

This acquisition gives us further coverage and market penetration on the Metro Chicago market and further growth opportunities in the highly fragmented complex segment of the construction equipment market.

November we acquired also industries are privately held Canadian equipment distributor with locations in Ontario, and Quebec.

Results of this first investment in Canada for our construction equipment segment.

<unk> has built a high performing equipment dealership in the aggregate and mining space, a growing end market in that region.

Also in November we established a new OEM relationship with case power and equipment, which allowed also to enter the central and Western Pennsylvania markets, initially serving Pittsburgh and surrounding areas with plans to further expand into central Pennsylvania in 2024.

Serving general construction infrastructure and residential and nonresidential construction contractors, both locations will sell and service. The full lineup of case heavy compact and sub compact equipment in attachments.

The 16 acquisitions, we completed since going public in 2020 are major contributors to our success, providing $537 million in revenue and $65 million and adjusted EBITDA.

We are continuing to pursue accretive acquisitions and opportunities, which would further expand the scale and scope of product offerings for our customers.

We also remain committed to our E mobility strategy to leverage the emerging alternative energy related opportunities in the commercial trucking segment in.

In addition to our current initiatives with class eight tractors. We're also evaluating additional segments, including both heavy duty class six and seven.

And light duty class three through five evenings.

Our approach aligns with our current field population strategy and include sales parts and service and turnkey charging infrastructure solutions.

In closing 2023 was and it wasn't.

It was an outstanding year for our business and we are focused on continued growth profitability and balanced capital allocation.

Lastly, we strive everyday to foster a culture of empowerment, and accountability and opportunity and we rally around the shared purpose delivering trust that makes a difference I want to again, thank our employees for their dedication in delivering trust to our customers our business partners and to our valued shareholders. Our shared purpose is at the foundation of our corporate <unk>.

<unk>, which is ultimately what makes also the premier equipment dealership platform. We are today ill now turn it over to Tony to discuss our financial performance in more detail.

Thanks, Ryan and good evening, everyone and thank you for your interest in Alta equipment group and our fourth quarter and full year 2023 financial results. We're proud of our 2023 performance and before I start I first want to congratulate my own teammates for their hard work and dedication.

And do the business and to our customers in 2023.

Our results mirror, our culture, which is grounded in our guiding principles and all of us continuously developing our one team approach to the business day in and day out. Thank.

Thank you to all of <unk> employees, which now numbers.

3000, strong and ranges from Illinois, Illinois to Maine, and from Florida to the northern regions of Quebec and Ontario.

My remarks today will focus on three areas first I'll briefly present, our fourth quarter results, which will include specific comments on what was strong operating cash flow in Q4 second.

Second I'll present and comment on our full year 2023 results.

<unk> on several key themes and metrics for the year.

Lastly, I'll provide guidance for 2020 for adjusted EBITDA and discuss the assumptions and puts and takes that underpin. The annual guide as part of that discussion I'll provide some insights into Q1, given where we are in the calendar.

Before I get to my talking points. It should be noted that I'll be referencing slides from our presentation throughout the call today I'd encourage everyone on today's call to review our presentation and our 10-K, which is available on our Investor Relations website at <unk> Dot com.

With that said for the first portion of my prepared remarks and is presented in slides 12 to 21 in the earnings deck.

Quarter performance.

For the quarter the company recorded record revenue of approximately $522 million.

Which is up a notable $93 million versus Q3 Q4 of last year and represents the first $500 million quarter in the company's history.

$522 million of revenue for the quarter reflects a 17% organic increase over Q4 2022, making for another comparatively strong quarter against increasingly more difficult comps spin.

And ranges from Illinois, Illinois to Maine, and from Florida to the northern reaches of Quebec and Ontario.

My remarks today will focus on three areas first I'll briefly present, our fourth quarter results, which will include specific comments on what was strong operating cash flow in Q4.

Specifically equipment sales, which are usually very strong in Q4, and we are again this year increased $70 million for the quarter to $336 million.

I will present and comment on our full year 2023 results.

Just to pause here for a moment because of the unprecedented level of equipment sales were a highlight for the quarter.

Focusing on several key themes and metrics for the year.

For the year, we placed approximately $205 million more equipment into field population when compared to 2022.

Lastly, I will provide guidance for 2020 for adjusted EBITDA and discuss the assumptions and puts and takes that underpin. The annual guide as part of that discussion I'll provide some insights into Q1, given where we are in the calendar.

Why is that important.

Recall that in Q1 represented information to investors that supported that for every incremental dollar of equipment, we were able to sell it to field population that we could expect approximately 50.

Annual high margin product support revenue overtime.

So it follows that in a year, where we sell $205 million more equipment than we did in the previous year, we have great confidence that additional product support revenues will be there for years to come.

With that said for the first portion of my prepared remarks and is presented in slides 12 to 21 in the earnings deck fourth quarter.

Moving on to product support our products, our parts and service business lines.

Performance.

In spite of the quarterly comp hurdles getting more difficult product support revenues were approximately $130 million for the quarter up $11 $5 million.

For the quarter the company recorded record revenue of approximately $522 million.

Which is up a notable $93 million versus Q3 Q4 of last year and represents the first $500 million quarter in the company's history.

Or over 10% organically versus last year.

Turning to rental our rental business held up well for the quarter, given we typically see a falloff sequentially as we move from Q3 to Q4, each year rental revenues were a solid $55 million for the quarter.

$522 million of revenue for the quarter reflects a 17% organic increase over Q4 2022, making for another comparatively strong quarter against increasingly more difficult comps spin.

From an EBITDA perspective, we realized $49 7 million and adjusted EBITDA for the quarter, which is up $7 million from the adjusted level of <unk>.

Specifically equipment sales, which are usually very strong in Q4, and we are again this year increased $70 million for the quarter to $336 million.

Fourth quarter, 2022, and $3 $6 million on a pro forma basis. So all told an extremely strong quarter to end the year from a sales and EBITDA perspective with the quarter coming in on the high end of our expectations again, primarily due to the large beat in equipment sales.

Just to pause here for a moment because of the unprecedented level of equipment sales were a highlight for the quarter.

For the year, we placed approximately $205 million more equipment into field population when compared to 2022.

From a cash flow perspective, the quarter was extremely strong as free cash flows from operations as we defined it on slide 32, where approximately $50 million for the quarter as we benefited not only from the strong P&L performance, but from the leveling off of inventory and rental fleet levels versus Q3 the lead.

Why is that important recall that in Q1 represented information to investors that supported that for every incremental dollar of equipment. We are able to sell it to field population that we could expect approximately 50 <unk>.

Annual high margin product support revenue over time.

It follows that in a year, where we sell $205 million more equipment than we did in the previous year, we have great confidence that additional product support revenues will be there for years to come.

Operating cash flow for the quarter and our view is indicative of the company's steady state cash flow capability importantly, the cash flow for the quarter allowed us to deploy $45 million of capital into accretive.

Moving onto product support our products, our parts and service business lines.

<unk> and <unk> acquisitions without impacting liquidity and also allowed for some deleveraging in the quarter.

In spite of the quarterly comp hurdles getting more difficult product support revenues were approximately $130 million for the quarter up $11 5 million.

Truly was an excellent quarter for the balance sheet.

Now I'll turn it over to turning to our results for the full fiscal year. The company recorded $1 $88 billion in revenue in 2023, as we are now pacing towards $2 billion of revenue on a pro forma basis on the adjusted EBITDA line. The company achieved $191 $4 million in 2022 coming in at the <unk>.

Or over 10% organically versus last year.

From an EBITDA perspective, we realized $49 7 million and adjusted EBITDA for the quarter, which is up $7 million from the adjusted level.

High end of our latest iteration of our guidance for the year.

<unk>, the $191 4 million of adjusted EBITDA converting into approximately $122 million of economic EBIT, our version of steady state Unlevered and Levered free cash flow.

Fourth quarter, 2022, and $3 $6 million on a pro forma basis.

All told an extremely strong quarter to end the year from a sales and EBITDA perspective, with the quarter coming in on the high end of our expectations again, primarily due to the large beat in equipment sales.

On average invested capital of approximately $800 million in 2023, we finished the year at just over 15% economic EBIT yield or return on invested capital a key metric that measured our capital measures our capital deployment decisioning and directly impacts management's compensation.

Moving on to equity cash flows and as depicted on slide 15 of our investor deck on an adjusted pro forma basis. The business is now generating approximately $92 million in annual Levered free cash flow to common equity.

The level of operating cash flow for the quarter and our view is indicative of the Companys steady state cash flow capability importantly, the cash flow for the quarter allowed us to deploy $45 million of capital into accretive.

In our view this metric is indicative of economic earnings power associated with driving equity value for shareholders X growth Capex.

<unk> and <unk> acquisitions without impacting liquidity and also allowed for some deleveraging in the quarter.

On this metric momentarily.

Ah.

Quick check in on the balance sheet as of yearend and as depicted in slide 16, we ended the quarter with approximately $219 million of cash and availability on our revolving line of credit facility with $36 million suppressed.

Truly was an excellent quarter for the balance sheet.

Now turning over to <unk>, turning to our results for the full fiscal year. The company recorded $1 $88 billion in revenue in 2023, as we are now pacing towards $2 billion of revenue on a pro forma basis.

From a leverage perspective as mentioned previously we were able to delever in the quarter as total leverage came in at roughly three seven times 2022, adjusted pro forma EBITDA down two tenths from last quarter. Despite the two acquisitions.

On the adjusted EBITDA line, the company achieved $191 4 million in 2022.

And at the high end of our latest iteration of our guidance for the year importantly.

Importantly, the $191 4 million of adjusted EBITDA converting into approximately $122 million of economic EBIT, our version of steady state Unlevered and Levered free cash flow.

Lastly on the balance sheet I wanted to note the quarter over quarter flattening in our inventory and rental fleet levels. As we ended Q4 at $495 million of inventory and $590 million of rental fleet ex M&A.

Both of these figures are effectively flat versus where we ended Q3 2023.

As mentioned in previous calls as equipment supply chain to begin to normalize at the end of 2022 Alta like many other industry participants felt unprecedented level of inventory replenishment in the first half of 'twenty, three which put pressure on working capital in and led to redeployment of Floorplan lines.

As I mentioned on our Q2 call we expected the pace of this replenishment to moderate significantly in the second half of the year and we are seeing just that.

In our view this metric is indicative of economic earnings power associated with driving equity value for shareholders X growth Capex more on this metric momentarily.

Before I leave 2023, I would focus participants to slide 23 of today's presentation that we presented last quarter.

Recaps, where the company stands today versus where we were just four years ago at our IPO in February of 2020.

Ah.

I will let the recap speak for itself, but did want to note for investors that the company is now generating.

<unk> $92 million of free cash flow to equity on an annual basis ex growth capex or approximately $2 84 per share as of year end.

This compares to <unk> 74 per share and this metric at the time of the IPO.

So in summary, we've grown this metric forex in four years with minimal dilution along the way, yes, we continue to see our stock price to not be reflective of this progress.

We are cognizant of this disconnect to what we believe to be fair value for our equity and as we head into 2024. This disconnection may inform our capital allocation decision decisioning as we balanced potential stock buybacks.

Both of these figures are effectively flat versus where we ended Q3 2023.

Versus what is presented to us via the M&A pipeline.

Finally for the last area of my prepared remarks, I would like to discuss the 2024 adjusted EBITDA guidance, which was included in today's earnings release.

In terms of the guideline guidance range itself, we expect to report $207 5 million to $217 $5 million of.

As I mentioned on our Q2 call we expected the pace of this replenishment to moderate significantly in the second half of the year and we are seeing just that.

Adjusted EBITDA for the full year 2020 for a.

A few observations on the Guy first and foremost as Ryan mentioned in his remarks, we continue to feel positive about the overall demand drop backdrop in our customer base and we believe the industry data supports our sentiment.

Before I leave 2023, I would focus participants to slide 23 of today's presentation that we presented last quarter.

Recaps, where the company stands today versus where we were just four years ago at our IPO in February of 2020.

Second we again expect to drive organic growth and product support revenues in 2024 by an amount that we expect will be in line with our historic performance in parts and service, while adding skilled technicians is continually more difficult youre in in euro organic growth in product support is something we expect to rise to the challenge on into <unk>.

I will let the recap speak for itself, but did want to note for investors that the company is now generating.

$92 million of free cash flow to equity on an annual basis ex growth capex or approximately $2 84 per share as of year end.

This compares with 74 per share on this metric at the time of the IPO.

Pete annually and the $205 million of incremental field population generated in 2023 supports our views and product support.

So in summary, we've grown this metric forex in four years with minimal dilution along the way, yes, we continue to see our stock price to not be reflective of this progress.

For 2024.

When it comes to rental our expectation is to at least hold rental utilization figures at 2023 levels.

Relative to rental rates much like the rest of industry participants are participants, we arent expecting much more than inflationary increases in 2024.

Most importantly, when it comes to our rental business given our rent to sell business model. We have no plan to increase the size of the rental fleet in any material fashion in 2024 like we did in 2003.

Versus what is presented to us via the M&A pipeline.

Finally for the last area of my prepared remarks, I would like to discuss the 2024 adjusted EBITDA guidance, which was included in today's earnings release.

Said investors should expect quarter to quarter ebbs and flows in the rental fleet size throughout the year, which is in line with our industry.

In terms of the guide range guidance range itself, we expect to report $207 5 million to $217 5 million of adjusted EBITDA for the full year 2024.

Lastly on the potential for equipment sales in 2024.

First we sold $1 $1 billion of equipment in 2023, as we along with equipment dealership industry overall saw record levels of sales. This year make no mistake make no mistake. This year's comps on equipment sales for our industry will be as challenging as they've ever been as Oems and industry analysts alike, maybe calling.

For flattish or even down equipment sales this year, we'd like to think that given our position in the market and the opportunities ahead of us to take share in certain regions that we are hopeful to at least hold if not exceed 2023 equipment sales levels. This year.

Pete annually and the $205 million of incremental field population generated in 2023 supports our views and product support.

To close on the commentary on 2024 expectations I wanted to give some insights insights into Q1, given where we are in the calendar first Q1, given seasonality has long been our most difficult quarter of the year and given our experience Q1 performance Hasnt necessarily performed performed.

For 2024.

When it comes to rental our expectation is to at least hold rental utilization figures at 2023 levels relative to rental rates much like the rest of industry participant to participants.

Over the remainder of the year.

We arent expecting much more than inflationary increases in 2024.

With that as a backdrop a couple of things to note first investors as to what to expect for this quarter.

Most importantly, when it comes to our rental business, given our rent and sell business model. We have no plan to increase the size of the rental fleet in any material fashion in 2024 like we did in 'twenty three.

First as it relates to <unk>, which had a record debut under <unk> ownership.

In 2023, and they had a record quarter in Q1 of 2023 recall that eco versus as a master distributor selling equipment to sub dealers and in early 2023 and supply chains, we're normalizing eco versus sub dealers were restocking, which led to its record first quarter.

Said investors should expect quarter to quarter ebbs and flows in the rental fleet size throughout the year, which is in line with our industry.

Lastly on the potential for equipment sales in 2024.

Currently at this point in the quarter and given that sub dealers' inventories are back to normal levels. We don't expect the eco versus to repeat what they did in Q1 of 2023 that said the expectation for the full year 2024 is that equal versus will come close to matching 2020 Three's performance.

Second as mentioned previously we had unprecedented Q4 on the equipment sales lines.

Which exceeded internal expectations as customers took advantage of year end tax depreciation rules leftover budgets and we're generally more available to our sales team. After the construction season to assess and replenish their fleets before the new year in summary, the record activity in Q4 in equipment sales led to a pull forward of equipment sales in December.

<unk> and a hangover that impacted January that said, we are confident that the January hangover was isolated as we saw snapback in February and are experiencing a solid march as our parts service and rental businesses are all very busy and on track to be clear the larger demand framework for 2024 that we have.

Over the remainder of the year.

With that as a backdrop a couple of things to note first investors as to what to expect for this quarter.

First as it relates to <unk>, which had a record debut under <unk> ownership.

References today are all solidly in place.

In 2023, and they had a record quarter in Q1 of 2023 recall that <unk> is a master distributor selling equipment to sub dealers and in early 2023 and supply chains, we're normalizing eco versus sub dealers were restocking, which led to its record first quarter.

To summarize we are confident in the annual guide and in our long term prospects, especially given all of the aforementioned factors, including the increased field population that was generated this past year and we are committed to the execution to execution and having 2024 be another year of growth for Alta equipment group.

Currently at this point in the quarter and given that sub dealers' inventories are back to normal levels. We don't expect the eco versus to repeat what they did in Q1 of 2023.

In closing I again want to thank all of my teammates at also for your commitment to our business and to each other throughout 2023, you embodied our guiding principles in 2023, and our results are reflective of that.

That said the expectation for the full year 2024 is that equal versus will come close to matching 2020 Three's performance.

To our investors. We appreciate your support and confidence in 2023, and we look forward to driving shareholder value in 2024. Thank.

Second as mentioned previously we had unprecedented Q4 on the equipment sales side, which exceeded internal expectations as customers took advantage of year end tax depreciation rules leftover budgets and we're generally more available to our sales team after the construction season to assess and replenish their fleets before the <unk>.

Thank you for your time and I'll turn it back over to the operator for Q&A.

Yeah.

If you'd like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two.

To ask a question press star one.

New year in summary, the record activity in Q4 in equipment sales led to a pull forward of equipment sales in December and a hangover that impacted January.

As a reminder, if youre using a speakerphone. Please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered.

That said, we are confident that the January hangover was isolated as we saw snapback in February and are experiencing a solid march as our parts service and rental businesses are all very busy and on track to be clear the larger demand framework for 2024 that we have reference here today are all solidly in place.

The first question is from the line of Matt Summerville with D. A Davidson your line is now open.

Thanks a.

Couple of questions I wanted to be clear Tony can you sort of talk through your capital deployment priorities for 24 in the context of not only the stock price of course as you referenced but what specifically you guys are seeing in the M&A market from a multiple standpoint, if you still feel you can do.

Leverage neutral acquisitions or leverage accretive like you did in Q4, and then how youre thinking about.

Maybe just using this year's cash to reduce leverage sort of knowing that the market's appetite for leverages thoughts maybe what it was a couple of years ago and then a follow up thank you.

Sure Matt Thank you.

To our investors. We appreciate your support and confidence in 2023, and we look forward to driving shareholder value in 2024. Thank.

The first well.

The first piece here on capital allocation and multiples I think it would be.

Yeah.

To say that we'd be able to do deals sub 337 like we did in the.

Thank you for your time and I'll turn it back over to the operator for Q&A.

If you'd like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question press Star one as a reminder, if youre using a speakerphone. Please remember to pick up your handset before asking your question. We will pause here briefly is questions. They registered.

In Q4, there and that was really the <unk> acquisition, we were able to get some equity into the deal which was great to partner up with that entrepreneur that wanted to join joining forces with Ulta.

And so with leverage accretive to.

To be sure and also accretive to shareholders, but I don't think we will see deals in the three <unk> range.

Right.

The first question is from the line of Matt Summerville with D. A Davidson your line is now open.

It wouldn't be appropriate for us to say that that would that would be something that would continue.

What I will say is we still believe that theres deals.

Thanks.

Couple of questions I want to be clear Tony can you sort of talk through your capital deployment priorities for 2004 in the context of not only the stock price of course as you referenced but what specifically you guys are seeing in the M&A market from a multiple standpoint, if you still feel you can do.

Deals out there that look very familiar with that.

Look very similar to how we've executed executed in the past.

$537 million of revenue 65 million of EBITDA that we bought at 4% to five times, we still think is in front of us.

And we.

<unk>.

Leverage neutral acquisitions or leverage accretive like you did in Q4, and then how you're thinking about maybe just using this year's cash to reduce leverage sort of knowing that the market's appetite for leverages thoughts maybe what it was a couple of years ago.

The pipeline itself.

Continues to be to be active.

Now some of the growth as we've talked about before inside of each of our major dealer networks.

Yes.

Is sort of tempered the bigger you get.

That's why relationships with cases, Ryan mentioned in some of these other Oems that we're partnering with all <unk> partnered with a company called Mccluskey.

Thank you.

Sure Matt Thank you.

The first well the first piece here on capital allocation and multiples I think it would be.

Which we hope to do more with.

On and on so.

We still think that the pipeline could be accretive relative to where we're trading at.

To say that we'd be able to do deals sub 337 like we did in the.

But to the extent, it's not or to the extent that the stock is.

In Q4, there and that was really the <unk> acquisition, we were able to get some equity into the AWL deal, which was great to partner up with that entrepreneur that wanted to join joining forces with Alta.

Depressed relative to what we think is fair value, we wouldn't hesitate to.

Dip into the buyback program that's in place.

And so with leverage accretive to.

In terms of funding of M&A deals and taking on more debt.

To be sure and also accretive to shareholders, but I don't think we will see deals in the <unk> range.

You could see that we de levered in the quarter.

After what I have been referring to as the great replenishment rate, which was an increase of.

It wouldn't be appropriate for us to say that that would that would be something that would continue.

What I will say is we still believe that theres.

Organically 80, some odd million in rental fleet in 'twenty three.

Deals out there that look very familiar with that.

<unk> million dollars give or take.

Look very similar to how we've executed executed in the past the.

Inventory.

That certainly we don't expect this year. So we do expect to maybe have some excess cash flows that we can continue to delever with again over the entirety of the year, maybe not necessarily quarter to quarter, especially in Q1.

$537 million of revenue 65 million of EBITDA that we bought at 4% to five times, we still think is in front of us.

And we and the.

And so we still think that we would be able to fund M&A deals.

The.

The pipeline itself.

Continues to be to be active now.

To the.

To the tune of 10 or $15 million of EBITDA.

Now some of the growth as we've talked about before inside of each of our major dealer networks.

That anything beyond that in terms of size.

Is sort of tempered the bigger you get.

Scope, where it would be something sizeable.

We would be mindful of leverage wherever we're at in the calendar before we.

But thats why relationships with case as Ryan mentioned in some of these other.

Funded a larger deal with all that we want to be mindful of leverage so long answer Matt I apologize for that but hopefully it's helpful.

Oems that we're partnering with ultra has partnered with a company called Mccluskey.

Which we hope to do more with.

On a non so.

No those comprehensive I appreciate that.

We still think that the pipeline could be accretive relative to where we're trading at.

Maybe Ryan if you can just take a minute and give a little bit more granularity around.

But to the extent it is not or to the extent that the stock is.

You mentioned material handling indeed being more diverse business segment, just maybe kind of a walk around what youre seeing in terms of the key end markets and maybe highlight what sounds like is a more concerted go forward.

Depressed relative to what we think is fair value, we wouldn't hesitate to.

Dip into the buyback program.

Here and in place.

In terms of funding of M&A deals and taking on more debt.

Effort being put into in particular the weyerhaeuser.

You can see that we de levered in the quarter.

Okay.

After what I have been referring to as the great replenishment rate, which was an increase of organically.

Organically 80, some odd million in rental fleet in 'twenty three.

$1 billion give or take.

Hi, I'm not sure.

Inventory.

If you're on mute.

Sorry, I was on mute.

Okay, sorry about that guys.

I'll start with the first piece of that which is the question about the diversity of the end markets. So we do believe that with our product portfolio. Our end market exposure is.

And so we still think that we would be able to fund M&A deals.

To the.

To the tune of 10 or $15 million of EBITDA.

As diverse as it could be it.

That anything beyond that in terms of size.

It's everything from the supply chain, the raw materials that go into manufacturing to in our upper Midwest footprint, a lot of manufacturing and advanced manufacturing all the way through to obviously distribution and logistics.

Scope, where it would be something sizeable.

We would be mindful of leverage wherever we're at in the calendar before we.

Funded a larger deal with all that we want to be mindful of leverage so long answer Matt I apologize for that but also it's helpful.

And the focus on the warehousing market is something that we are doing right alongside hyster, Yale they've been putting a lot of <unk>.

No that was comprehensive I appreciate that.

Maybe Ryan if you can just take a minute and give a little bit more granularity around.

Effort into product development for that end market fast growing end market and.

It's an opportunity for us to get closer to our customer to be.

To help them take cost out of their business through.

Better labor utilization.

And the price points of those trucks tends to be lower there.

Effort being put into in particular the warehousing.

But more of a high volume lower price point per unit, but it still has the high touch aspect of reoccurring revenue through planned maintenance and contract maintenance.

Okay.

And then Matt there was a second part to your question.

Hi, I'm not I'm not sure.

Yes, yes.

If you're on mute.

Yes, Thanks, Ryan I was more looking for just some give some color on some of the end market trends you're seeing across.

Sorry, I was on mute.

Okay, sorry about that guys.

Whether it be automotive food beverage medical et cetera. The places you play in and material handling.

I'll start with the first piece of that which is the question about the diversity of the end markets.

Just in terms of demand I would say that the demand is healthy and I referenced in the call that it's kind of leveling off at what pre Covid would have been.

So we do believe that with our product portfolio our end market exposure is.

As diverse as it could be it did start it's everything from the supply chain the materials that go into manufacturing.

Record levels, but it is coming off of the <unk> of Covid.

Last year, we were coming off record back record bookings in the previous year. So that it ended up being record deliveries for us, which as you know.

And our upper Midwest footprint, a lot of manufacturing and advanced manufacturing all the way through to obviously distribution and logistics.

Reflected in the revenue.

And the focus.

Going forward, we see.

On the warehousing market is something that we are doing right alongside hyster, Yale they've been putting a lot of.

Hi, towing of that phenomenon, which is why we're focused on really market penetration and driving share in the faster growing end of the market, which we think is the warehouse market.

Effort into product development for that end market in fast growing end market and.

It's a it's an opportunity for us to get closer to our customer to be.

Got it thank you.

Help them take cost out of their business through.

Yeah.

Better labor utilization.

Thank you for your question.

And the price points of those trucks tends to be lower there because it's a bit more of a high volume lower price point per unit, but it still has the high touch aspect of reoccurring revenue through planned maintenance and contract maintenance.

Next question is from the line of the Steven Ramsey with Thompson Research Group. Your line is now open.

Hey, good evening.

To continue the line of thought on in market.

Some of the large rental companies have talked about local projects growing but at a more modest pace, while mega projects are ramping up.

And then Matt there was a second part to your question.

Yes, yes.

Yes, Thanks, Ryan I was more looking for just some give some color on some of the end market trends you're seeing across.

Talked about some of the some of the highway work state Dot funding that being strong, but curious how you think about the local more normal sized projects versus the large mega projects impacting your results this year.

Whether it be automotive food beverage medical et cetera. The places we play in in material handling.

Just in terms of demand I would say that the demand is healthy and I referenced in our in the call that it's it kind of leveling off at what pre Covid would have been.

Stephen I'll take that we've historically tried it's really difficult for us to delineate by by market whats federally stimulated versus local demand but.

Record levels, but it is coming off of the peaking as of Covid.

Last year, we were coming off record back record bookings in the previous year. So that it ended up being record deliveries for us, which as you know.

But I think what we're seeing is.

There is a little bit of a pullback but.

Reflected in the revenue.

Lengthening of the sales cycle for your kind of your general contractor with core product that.

Going forward, we see.

By telling of that phenomenon, which is why we're focused on you know really market penetration and driving share in the faster growing end of the market, which we think is the warehouse market.

It is not.

Not true on the on the <unk>.

Big visible highway type jobs I think we're seeing you know one of the things. That's true is that labor utilization is the key to construction right now you can't stimulate something when everyone's already got a job you can't sell a excavator whenever no. One has an operator to put in the seat and so any softening that we're seeing kind of a.

Got it thank you.

Yeah.

Thank you for your question.

Next question is from the line of Steven Ramsey with Thompson Research Group. Your line is now open.

Non res just general construction I think that Youre seeing that there is like this kind of pent up demand for big projects that have been installed by our local demand and thats. The way that I would think we always talk about it as earnings to the cycle that we haven't really been in a trough we have been more than this just keep adding earnings to the game and I think that phenomenon is playing out with some others.

Hey, good evening.

To continue the line of thought on in market.

Some of the large rental companies have talked about local projects growing but at a more modest pace, while mega projects are ramping up you talked about some of the some of the highway work state dot funding that being strong, but curious how you think about the local more normal size.

If it to larger larger type jobs right now.

Okay. That's helpful and then I'm curious on the complementary service lines curious how those performed in the fourth quarter and what is the outlook.

<unk> versus the large mega projects impacting your results this year.

For that unit in 2024.

Stephen I'll I'll take that we've historically tried it's been it's really difficult for us to delineate by by market, what's kind of federally stimulated versus local demand.

Steve just so I have it where are you when you say ancillary service lines I just wanted to make sure. We answer your question appropriately define that for me.

But I think what we're seeing is.

Sorry more of the complementary products Scott had peak logic there.

There is a little bit of a it's not a pullback, but a lengthening of the sales cycle for your kind of your general contractor with core product that is not.

Those companies that how those are expected to perform in 2024.

Not true on the on the Big visible Highway type jobs. I think you were seeing you know one of the things. That's true is that labor utilization is the key to construction right now you can't stimulate something when everyone's already got a job you can't sell a excavator whenever no. One has an operator to put in the seat.

Yes, I mean peak logics.

We've said that.

And I think the whole industry rate. It was it was white hot.

When we bought that business it was <unk>.

Combined business, which is now peak logic, Scott taking peak are now kind of combined one and the same but.

So any softening that we're seeing kind of a non res just general construction I think that youre seeing that there is like this kind of pent up demand for big projects that have been installed by our local demand and that's the way that I would think we always talk about it as earnings to the cycle that we haven't really been in a trough we bid more and that's just so we keep adding earnings to the game.

Call it revenues of roughly.

$30 million to $35 million combined back in 2020.

That that doubled more than doubled in 'twenty, one and 'twenty two and in 'twenty three we saw a bit of a pullback.

And these are these are larger projects that are probably a little bit more interest rate sensitive.

And I think that phenomenon playing out with some other pivot to larger larger type jobs right now.

Because there are larger capex projects for our customers.

Okay. That's helpful and then I'm curious on the complementary service lines curious how those performed in the fourth quarter and what is the outlook.

And so if there is a part of our business, where we do think that there was an impact of interest rates.

It was in that <unk> business.

For that unit in 2024.

What I will say is.

<unk>.

Was part of the strategy and rationale for that deal was to take us from the JV to the varsity relative to just intellectual capabilities design.

Steve just so I have it where are you when you say ancillary service slides I just want to make sure. We answer your question appropriately define that for me.

Design build and getting us into some customers that we otherwise would not have.

And we've been able to do that and so.

Sorry more of the complementary products Scott had peak logic there.

Judging judging Pete just kind of on its own with without.

Those companies that how those are expected to perform in 2024.

Including kind of some of the synergies generated with our legacy material handling business, probably isn't isn't fair. So we're still very bullish.

Yes, I mean peak logics.

We've said that.

Slide 23 is kind of being a down year.

And I think the whole industry rate. It was it was white hot.

For peak and we've got backlog.

It's taking customers a little bit longer to to pull the trigger we think thats interest rate related but that's how that's going I will say Midwest mind, just to kind of round it out I'd put that in the.

When we bought that business it was <unk>.

Combined business, which is L. Pic logic, Scott taking peak are now kind of combined one and the same but.

Call it revenues of roughly.

A similar a similar kind of ancillary projects.

30% to $35 million combined back in 2020.

They're in the aggregate space that is probably immaterial to our overall kind of revenue line.

That doubled more than doubled in 'twenty, one and 'twenty, two and 23, we saw a bit of a pullback.

But it is performing very well and we've definitely generate some synergies.

And these are these are larger projects that are probably a little bit more interest rate sensitive.

With customers or been able to get customers to to recognize our capabilities in the.

Because they're larger capex projects for our customers.

The larger quantities et cetera. So.

Yes.

And so if there is a part of our business, where we do think that there was an impact of interest rates.

Still running fine.

That's excellent and then last one for me your G&A as a percentage of gross profit.

Was in that peak logics business.

What I will say is peak logics.

Continues to trend down on a total basis and in both material handling and construction equipment unit.

Part of the strategy and rationale for that deal was to take us from the JV to the varsity relative to just intellectual capabilities.

Is this expected to continue again next year this cost discipline of G&A versus GT.

Design build and getting us into some customers that we otherwise would not have.

And we've been able to do that and so.

Yes, Steven Thanks for the question I've got some numbers in front of me and I'm, just going to read them out here.

Judging judging Pete just kind of on its own with without.

G&A ex <unk>.

Including kind of some of the synergies generated with our legacy material handling business probably isn't as in fares. So we're still very bullish.

Ex M&A ex depreciation and amortization Q2, 105, Q Q3 107.

Slide 23 is kind of being a down year.

And then Q4 here about $111 million again ex ex M&A.

For peak and we've got backlog.

It's taking customers a little bit longer to pull the trigger we think thats interest rate related but that's how that's going I will say Midwest mind, just to kind of round it out I would put that in the.

That increase in Q4 is almost going to be exclusively related to the increase that we saw.

Equipment sales because we have commissions primarily in bonuses those sales that impacted that that line item. So.

A similar a similar kind of ancillary projects.

They are in the aggregate space, that's probably immaterial to our overall kind of revenue line.

I wouldn't expect Q4 to be indicative of the go forward certainly.

We've added some G&A because of the acquisitions.

But it's performing very well and we've definitely generate some synergies.

With with customers or been able to get get customers to recognize our capabilities in the.

And the way that I think about G&A is a little bit more as a percentage of revenue or EBITDA.

Or I'm, sorry, gross profit ex depreciation then I would just gross profit overall just because.

The larger quantities et cetera. So.

Yes.

Ill still running fine.

The rental business with so much depreciation and the gross profit line. So.

That's excellent and then last one for me your G&A as a percentage of gross profit.

I think Q4 is a little bit of an anomaly there at the 111.

<unk> continues to trend down on a total basis and in both material handling and construction equipment unit.

We'd expect that to come down and kind of even out a little bit.

Excellent. Thank you for the color.

Is this expected to continue again next year this cost discipline, the G&A versus GP.

Thank you for your question.

Next question is from the line of Steve Hansen with Raymond James Your line is now open.

Yes, Steven Thanks for the question I've got some numbers in front of me and I'm, just going to read them out here we <unk>.

Yeah.

Yes, thanks, guys. Thanks for the time.

Wanted to go back to your guidance or not.

G&A ex.

Ex M&A ex depreciation and amortization Q2, 105, Q Q3 107.

Wasn't sure if it was aspirational or not but I think you suggested you wanted to hold the line on equipment sales for the year, maybe just a bit of additional color on there.

And then Q4 here about $111 million again ex ex M&A.

Im sorry difficult I think as you suggest.

What does the guide assuming effectively on the new equipment side.

That increase in Q4 is almost going to be exclusively related to the increase that we saw.

Yes, Hey, Steve.

New equipment as well.

Equipment sales because we have commissions primarily in bonuses those sales that impacted that that line item. So.

Said since we started doing these calls for years ago is always as part of the reason we do an annual guide number one.

I wouldn't expect Q4 to be indicative of the go forward certainly.

And the other part of the reason, we don't guide to revenue because.

As we saw in the fourth quarter things can really kind of ebb and flow and sometimes these ebbs and flows are difficult to just project quarter over quarter.

We've added some G&A because of the acquisitions.

And the way that I think about G&A is a little bit more as a percentage of revenue or EBITDA.

And the other thing when we when we sit down and we budget we have great confidence.

Or I'm, sorry, gross profit ex depreciation then I would just gross profit overall just because.

In our in our parts and service lines.

Relative confidence I should say.

The rental business with so much depreciation and the gross profit line. So.

Versus the equipment line item, which can be more impact impacted by macro trends and interest rates.

I think Q4 is a little bit of an anomaly there at the 111, we'd expect that to come down and kind of even out a little bit.

Sentiment.

Et cetera, et cetera, now all the things all the signs point toward a strong 2024 as Ryan mentioned in his remarks, Dod budgets looking strong talking to our customers. We're working on these projects kind of ready to.

Excellent. Thank you for the color.

Thank you for your question.

Next question is from the line of Steve Hansen with Raymond James Your line is now open.

Ready to let it let it fly here is.

Okay.

As the spring.

Yes, thanks, guys. Thanks for the time.

Hits Us and so we felt we feel pretty good.

Wanted to go back to your guidance or not.

The reason that we feel like we can hold that line, rather to maybe being down and I'll caveat all of this and saying.

Wasn't sure if it was aspirational or not but I think you suggested you wanted to hold the line on equipment sales for the year, but maybe just a bit of additional color on there.

Being down a little bit off of peak wouldn't be wouldn't be the worst thing ever especially.

So are difficult I think as you suggest but what does the guide assuming.

Especially given the GPS.

Activity on the new equipment side.

How impactful they already to EBITDA relative to.

Yeah, Hey, Steve.

Rental revenue or parts and service.

New equipment, we have.

But that said, we do have some areas of our business, where we expect to take share.

Said since we started doing these calls for years ago is always as part of the reason we do an annual guide number one.

And that's I guess, what I would highlight to answer your question specifically so we've got places that we've just entered two.

The other part of the reason, we don't guide to revenue because.

As we saw in the fourth quarter things can really kind of ebb and flow and sometimes these ebbs and flows are difficult to just project quarter over quarter.

Entered into in the past 18 months like Toronto and the material handling.

Space, where we expect to take share.

And there are some other pockets.

And the other thing when we when we sit down and we budget we have great confidence.

In upstate New York on the construction side and the.

In our in our parts and service lines.

The list goes on so it would be it would be us taking share that could.

Relative confidence I should say.

Versus the equipment line item, which can be more impact impacted by macro trends and interest rates.

Could he helped maybe offset what might be flat to down.

<unk>.

Sentiment.

That's helpful. Thank you.

Et cetera, et cetera, now all the things all the signs point toward.

And just as a follow up to your capital allocation.

Our strong 2024 as Ryan mentioned in his remarks, Dod budgets looking strong.

For the year I mean, how do you view that that framework between buyback and growth.

Looking at our customers who are working on these projects kind of ready to.

Or even deleveraging for that point I mean, how are you viewing that window right now I mean, the stock is completely disconnected I think as you suggest does it not make sense to maybe focus on the buyback and some deleveraging as opposed to more growth I mean, how are you really thinking about that for the year relative to this M&A pipeline.

Ready to let it let it fly here.

As the spring hits Us and so we felt we feel pretty good.

The reason that we feel like we can hold that line, rather to maybe being down and I'll caveat all of this and saying being down a little bit off of peak wouldn't be wouldn't be the worst thing ever.

Yes, Steve.

Okay.

We've got a slide in the deck that suggests we're trading at that also would be trading at something like <unk>.

Especially given the GPS.

Impactful they already to EBITDA relative to.

$5 eight I think the numbers in the deck.

Rental revenue or parts and service.

EBITDA.

That that multiple despite it being something maybe that we feel is not appropriate.

But that said, we do have some areas of our business, where we expect to take share.

And that's I guess, what I would highlight to answer your question specifically so we've got places that we've just entered two.

It's still a bit higher than where we've transacted at in the past.

And in the M&A pipeline right four to five so we still think even if we're trading at six there is a turn or two of spread there relative to the M&A pipeline and Thats before you get into any sort of synergies or.

Entered into in the past 18 months like Toronto and the material handling.

Space, where we expect to take share.

And there are some other pockets.

Upstate New York on the construction side and the.

Discussions about what we can do with the business versus where it might be today. So.

The list goes on so it would be it would be us taking share that.

Yes.

Could he helped maybe offset what might be flat to down.

Some of it is time right what does the pipeline look like in the over.

Market.

Over the near term.

That's helpful. Thank you.

And what what where are we at in the calendar right. We've talked about Q1 being a little bit rougher.

And just as a follow up to your capital allocation.

Decision for the year I mean, how do you view that that framework between buyback and growth.

And so we just kind of monitor the situation.

And kind of on a.

On a real time basis are always kind of thinking about that.

Or even deleveraging for that point I mean, how are you viewing that window right now I mean, the stock is completely disconnected I think as you suggest does it not make sense to maybe focus on the buyback and deleveraging as opposed to more growth I mean, how are you really thinking about that for the year relative to the M&A pipeline.

That decisioning the other element that you mentioned to us.

Leverage and we also want to be mindful of that and so.

Especially where interest rates are we may have had felt differently two years ago about that.

Yes, Steve.

Tenant of the framework of this decision.

Yeah.

Because interest rates were much lower so.

We've got a slide in the deck that suggests we're trading at that also would be trading at something like.

I'm not trying to evade your answer but there is all of the different dynamics that.

Five eight I think the number is in the deck.

Forward EBITDA.

<unk>.

Come into that scenario, but we still think that M&A would we could do M&A in an accretive fashion.

That that multiple despite it being something maybe that we feel is not appropriate.

Interest rates being higher would suggest we want to delever.

It's still a bit higher than where we've transacted at in the past.

But if those two things arent there that we wouldn't hesitate to do buybacks.

And in the M&A pipeline right four to five so we still think even if we're trading at six.

No I appreciate it that's good color thanks for the framework.

A turn or two of spread there relative to the M&A pipeline and Thats before you get into any sort of synergies or.

Thank you for your question.

Next question is from the line of Min Cho with B Riley. Your line is now open.

Discussions about what we can do with the business versus where where it might be today. So.

Yes.

Great. Thank you, Hey, Ryan Tony and congrats on the strong end to a strong year.

Yeah.

Some of it is time right what does the pipeline look like in the <unk>.

Couple of questions that came in.

Joseph <unk> rental rates can you talk to kind of what the trends were on a year over year basis and it sounds like.

Over the near term.

And and what what where are we at in the calendar right. We've talked about Q1 being a little bit rougher.

For 2024.

And so we just kind of monitor the situation.

Tony I think that you said that you expect it to be pretty flat, excluding any inflationary impacts, but if you could just confirm that please.

And kind of on a on a real time basis are always kind of thinking about that.

That decisioning the other element that you mentioned to us.

Yes, I think I think I can't just to take your question in reverse I think we can confirm that we would expect inflationary and maybe a little bit more.

Our leverage and we also want to be mindful of that and so.

Especially where interest rates are we may have had felt differently two years ago about that.

More there.

No.

So much I wanted to just pointed out two though so much of our rental business is a function of our service promise and when we're renting large.

Tenant of the framework of this decision.

Because interest rates were much lower so.

Yeah.

Not trying to evade your answer but there is all of the different dynamics.

<unk> 40 ton articulated dump trucks.

Effectively customers are renting our technicians.

<unk>.

Come into that scenario, but we still think that M&A would we could do M&A in an accretive fashion.

And a lot of ways and so while if theres an asset to be rented that has cost of capital and return on capital they need.

Interest rates being higher would suggest we want to delever.

We need to develop a rental rate. We also have this other component of labor that we need to be compensated for it so.

But if those two things arent there that we wouldn't hesitate to do buyback.

No I appreciate it that's good color thanks for the farmer.

I say that because sometimes we feel like.

We may be able to get a premium relative to.

Thank you for your question.

Some.

One of the things that you might see in the industry relative to maybe you are talking to rental rates.

Next question is from the line of Min Cho with B Riley. Your line is now open.

Great. Thank you, Hey, Ryan Tony and congrats on a strong.

Are some of the other publicly traded pure play rental houses. So maybe we can do a little bit better, but I don't think we're expecting to I guess.

<unk> strong year.

Couple of questions. Thank you ma'am.

Is the point there when we talk about the guide.

Terms of the <unk> rental rates can you talk to kind of what the trends were on a year over year basis and it sounds like.

The first part of your question on rates and how they played out in 'twenty three.

I would say mid single digits is probably where we landed there.

For 2024.

Tony I think that you said that you expect it to be pretty flat, excluding any inflationary impacts, but if you could just confirm that please.

I saw something the other day that said the last three years.

Around 20% give or take a total.

Increase in rental rates I would put us in that category.

Yes, I think I think I can't can just to take your question in reverse I think we can confirm that but we would expect inflationary and maybe a little bit more.

Over the last three years.

With this year being mid single digits, maybe maybe a tick north of there.

More there.

No.

So much I wanted to just point out too, though so much of our rental business is a function of our service promise and when we're renting large.

Okay.

And in terms of any material handling side of the business I know, Brian mentioned kind of a focus on the way our housing which does tend to be a little bit lower margin.

<unk> 40 ton articulated dump trucks.

Effectively customers are renting our technicians.

I would imagine that youre seeing an increased shift into like electrical or electric lifts I was just wondering how does that impact your margin.

And a lot of ways and so while if theres an asset to be run at that has a cost of capital and return on capital that need to develop a rental rates. We also have this other component of labor that we need to be compensated for it so.

Is that more or less positive for your parts and service opportunities longer term.

I can I can I can take that one as well.

I say that because sometimes we feel we feel like.

We may be able to get a premium relative to.

We actually have some.

Some data in our 10-K referenced in our 10-K men that.

Some of the things that you might see in the industry relative to maybe you are talking to rental rates.

The International Truck Association put out some some data the other day that suggests 67% two thirds, let's call. It of all forklifts sold in the U S. Our electrified.

Are some of the other publicly traded pure play rental houses. So maybe we can do a little bit better, but I don't think we're expecting to I guess.

Is the point there when we talk about the guide.

You can probably flipped that versus versus gas or diesel.

The first part of your question on rates and how they played out in 'twenty three.

Alright, and propane or diesel.

I would say mid single digits is probably where we landed there I.

You could flip that on its head.

20 years ago, something like that and so.

I saw something the other day that said the last three years.

The trend continues it's leveled off a little bit.

Around 20% give or take a total.

But the electrification of forklift is kind of already come to the market. So any any impact on our business would be minimal what we know just because of.

The increase in rental rates I would put us in that category.

Over the over the last three years.

With this year being mid mid single digits, maybe maybe a tick north of there.

Cost.

The accounting exercises internally is that we think an electric truck basically yields.

Okay.

65% to 70% of what a what a gas truck would relative to parts and service, but that's been the case for <unk>.

And in terms of any material handling side of the business I know, Brian mentioned kind of a focus on the way our housing which does tend to be a little bit lower margin.

Business for quite some time so.

I would imagine that youre seeing an increased shift into electrical electric lifts I was just wondering how does that impact your margin.

The further electrification, we'd like to think that we could.

Any offset in product support or any impact in product support of any further instead of electrification in the material handling business would be more than offset by our prowess in charging and alternative energy and some of these things that are a little bit more cutting edge lithium.

Is that more or less positive for your parts and service opportunities longer term.

I can I can I can take that one as well.

Promising lithium batteries et cetera.

We actually have some.

Some data in our 10-K oar referenced in our 10-K men that.

Yeah.

Okay.

Okay Man. This is Ryan another thing I wanted to just make sure we correct is that the.

The International Truck Association put out some some data the other day that suggests 67% two thirds, let's call. It of all forklifts sold in the U S. Our electrified.

The warehouse product.

So the margins are actually higher telling the new vehicle versus Ryder forklifts.

You can probably flipped that deal versus versus gas or diesel.

Might've been a misunderstanding, there, but less product support yield electric but.

Alright, and propane or diesel.

Certainly more margin on the front end.

You could flip that on its head.

Oh, Okay, I must have I missed something there.

20 years ago, something like that and so.

<unk>.

And then.

The trend continues it's leveled off a little bit.

I guess, just an update on Nicola saw that day.

But the electrification of a forklift has kind of already come to the market. So any any impact on our business would be minimal what we know just because of.

They produced and sold some of their hydrogen fuel trucks and it looks like somebody there be EV trucks should be kind of back in the market second half probably not a big impact for you in 2024 I was just wondering if you could talk to how you are doing with that relationship.

Cost.

The accounting exercises internally is that we think an electric truck basically yields.

65% to 70% of what a what a gas truck would relative to parts and service, but that's been the case for <unk>.

Yes, I can take that this is Brian.

So we've been along with our customers patiently waiting for the the recall to be executed upon and as you read that is going to start in earnest in Q2.

Our business for quite some time so.

The further electrification, we'd like to think that we could.

Any offset in product support or any impact in product support of any further rental of electrification in the material handling business would be more than offset by our prowess in charging and alternative energy and some of these things that are a little bit more cutting edge lithium.

What we're really excited about continues to be.

We think in our marketplace.

Foot print is in the north that.

The proposition for long haul transportation.

Prowess in lithium batteries et cetera.

Battery electric that it's a very narrow strike zone of application relative to the opportunity for longer haul and for heavier duty, which is going to point towards a hydrogen solution.

Yeah.

Okay.

Okay Man. This is Ryan another thing I wanted to just make sure we correct is that the.

The warehouse product.

And they've.

Sold their first fleet of trucks right now they are focused on California, where theres a little bit of infrastructure, but we remain very excited about our strategic footprint. We think that you know outside of the west coast, where.

So the margins are actually higher and I'm, telling the new vehicle versus Ryder forklifts.

Sure.

Might have been a misunderstanding, there, but less product support yield electric but.

Certainly more margin on the front end.

Where we reside is going to be where theres early adoption of these types of vehicles and we think we're well positioned to be part of it.

Oh, Okay, I must have I missed something there.

And then.

To answer the first part of your question, probably not a huge material impact this year, it's going to really start in the second half.

I guess, just an update on Nicola saw that day.

They produced and sold some of their hydrogen fuel trucks and it looks like somebody there be EV trucks.

This recall on the electric side it feels like it cost us almost a calendar year of.

Being kind of back in the market second half.

Momentum, but it's but it is it's not that there is still a building pipeline of demand in.

On a big impact for you in 2024 I was just wondering if you can talk to how you are doing with that relationship.

We're hopeful that they can execute on this next piece of the strategy, which is to get those trucks back in the field.

Yes, I can take that this is Brian.

So we've been along with our customers patiently waiting for the the recall to be executed upon and as you read that is going to start in earnest in Q2.

Alright, great. Thank you.

Okay.

Thank you for your question.

The next question is from the line of Ted Jackson with Northland Securities. Your line is now open.

Well, we're really excited about it continues to be.

Thanks, and I'd like to Echo congratulations on the quarter and the year.

We think in our marketplace, where our where our footprint is in the north that.

Thanks, Tom So my first question just rolling over so.

The proposition for long haul transportation.

So rolling rolling over to kind of M&A pipeline I'm, just kind of curious when youre looking through the opportunities are in front of you are you seeing more opportunity on the construction side or on the material handling side and then within those opportunities is it.

Battery electric that it's a very narrow strike zone of application relative to the opportunity for longer haul and for heavier duty, which is going to point towards a hydrogen solution.

More kind of tuck in.

And they have.

Sold their first fleet of trucks right now, they're focused on California, where theres a little bit of infrastructure, but we remain very excited about our strategic footprint. We think that you know outside of the west coast, where.

Filling in you would your geographic footprint or is it pushing you into new geographies is question number one two parts.

Yes, I'll take the first part of that because it's pretty easy to delineate.

Where we reside is going to be where theres early adoption of these types of vehicles and we think we're well positioned to be part of it.

Material handling versus construction in terms of the growth strategy.

With Hyster Yale.

But to answer the first part of your question, probably not a huge material impact this year, it's going to really start in the second half and.

<unk> of our.

Exclusivity or much.

<unk>.

Firmer and we can't compete with any of their dealer networks globally outside of we have our APR, that's exclusive with them and that's our that's our APR for material handling for forklifts.

This recall on the electric side it feels like it cost us almost a calendar year.

You know momentum, but it's but it is it's not that there is still a building pipeline of demand.

That piece of the business.

We're hopeful that they can execute on this next piece of the strategy, which is to get those trucks back in the field.

Our growth with Hyster, Yale there is potential growth with them. We're the second largest dealer in the world for Hyster Yale today, we cover north of 20% of the.

Yeah.

Alright, great. Thank you.

Okay.

The addressable market for U S and Canada.

Thank you for your question.

The next question is from the line of Ted Jackson with Northland Securities. Your line is now open.

And.

They've been very open about.

Turning to get their dealer network down to a manageable size and there's still there's a little room to go there.

Thanks, and I'd like to Echo congratulations on the quarter and the year.

Thanks, Tom So my first question is rolling over so.

And there's also the opportunity to grow internationally, which we started with the.

So rolling Rolling over to you know kind of M&A pipeline I'm, just kind of curious when youre looking through the opportunities are in front of you are you seeing more opportunity on the construction side or on the material handling side and then within those opportunities is it.

The investment in Canada.

<unk>.

On the construction side, it's a much broader category.

What we define as construction equipment, it's everything from the small.

More kind of tuck in and.

Turf and agricultural type things that we sell in northern Michigan through our Kubota dealership and in areas of Chicago, All the way up to the link belt cranes that we represent in Michigan and so it's a much more open playing field. There are many more types of equipment dealers.

Filling in you would your geographic footprint or is it pushing you into new geographies is question number one.

Yeah, I'll take the first part of that because it's pretty easy to delineate.

Material handling versus construction in terms of the growth strategy.

More I guess fertile.

Area for consolidation for US today, we are in the later innings of that consolidation strategy in material handling and we're just getting started in construction I guess is the way I would characterize it.

With Hyster Yale.

The lines of our exclusivity.

Exclusivity or much.

Firmer and we can't compete with any of their dealer networks globally outside of you know we have our APR, that's exclusive with them and that's our that's our APR for material handling for forklifts.

Okay.

Shifting over next question's kind of sticking in the broader themes.

That moat ex this week.

I've got a couple of questions around things that came out of that one is spin.

That piece of the business.

Our growth with Hyster, Yale there is potential growth with them, where we're the second largest dealer in the world for Hyster Yale today, we cover north of 20% of the.

<unk> spending three days there.

Amazing to me how much.

Demo ing how much.

Addressable market for U S and Canada.

Yeah.

For space was taking and have taken up by automation and robotics.

And.

They've been very open about trying to get their dealer network down to a manageable size and there is still that there's a little room to go there.

And clearly that's a trend its not that its not much of a secret, but as you would think about the move towards automation and the move towards more robotics, how does that.

And so there is also the opportunity to grow internationally, which we started with.

Does it challenge you in terms of your ability to find.

The investment in Canada.

With why I T.

On the construction side, it's a much broader category.

The kind of technician that would service that is it does it make it harder for you to recruit I mean, I could see that being the case I could see it making it easier for you to recruit and then kind of.

What we define as construction equipment, it's everything from the small.

Turf and agricultural type things that we sell in northern Michigan through our Kubota dealership in areas of Chicago, all the way up to the link belt cranes that we represent in Michigan and so it's a much more open playing field. There are many more types of equipment dealers.

Tie in question to that is is that I know that you guys have some exposure and do some distribution around some robotics in some automated products as you know.

From where you sit is where are we within.

More I guess fertile.

Kind of the deployment of that kind of technology I mean, I know, we're early innings, but I mean is this stuff actually really getting deployed.

Area for consolidation for us today, where we're in the later innings of that consolidation strategy in material handling and we're just getting started in construction I guess is the way I'd characterize it.

What kind of in your material handling, it's a world what kind of.

Like how much of the pie does it take.

Okay.

Let's start with the first piece of the question so the.

Shifting over next question kind of sticking in the broader themes.

We see.

At <unk> this week.

Automation and robotics as an opportunity.

I've got a couple of questions around things that came out of that one is.

Our core business segment, which is as we've highlighted today, we really think it's all about product support and the aftermarket and we think that that same thing will play out.

<unk> spending three days, there and it was amazing to me how much.

Demo ing how much.

In robots robotics, and other advanced material handling solutions.

Yeah.

Core space was taking and have taken up by automation and robotics.

The question of technical aptitude or ability or recruit ability is actually it's the second is it was the second think positioning positive which is that it's actually easier it's harder to train someone to be a full.

And clearly that's a trend its not that its not much of a secret, but as you would think about the move towards automation and the move towards more robotics, how does that.

Does it challenge you in terms of your ability to find.

Fully functional heavy diesel engine mechanics. It works on all types of all the breath of heavy equipment that we have in our portfolio.

Harder to train it takes longer to train than some of these electric material handling machines, which.

Tie in question to that is is that I know that you guys have some exposure and do some distribution around some robotics in some automated products as you know from where you sit is where are we within.

Is there.

Theres less diagnostics it is going to be more component replacement. It's just it's a different skill set and it's going to be more happening with a laptop and with heavy tools and machinery I guess.

The best way to to delineate the two.

Kind of the deployment of that kind of technology I mean, I know, we're early innings, but I mean is this stuff actually really getting deployed you know kind of what kind of in.

And then just.

Sorry.

There was a multi part question what was the second.

In your material handling to world what kind of.

Yes.

Like I.

Like how much of the pie does it take.

I mean.

I've seen some of your alls marketing literature that you have around and you know you guys do have.

Okay.

Well, let's start with the first piece of the question so the.

Product offerings.

We see Automd.

In your in your.

Automation and robotics as an opportunity in our core business segment, which is as we highlighted today, we really think it's all about product support and the aftermarket and we think that that same thing will play out.

What do you call it.

Where we're at in the lifecycle.

Right.

And so just getting started robotics.

Mhm.

We're early innings and we're early days in it.

In robots robotics, and other advanced material hailing solution.

There is a lots of calm and we were well positioned but we're just scratching the surface and we're excited about that.

The question of technical aptitude or ability or recruit ability is actually it's the second it was the second think positioning positive which is that it's actually easier.

We have we have allied lines and we have some some some parts of our portfolio that are more emerging.

<unk> technologies, but what we're really excited about is what hyster yale's working on.

It's harder to train someone to be a full.

Our flagship partner and.

You know fully functional heavy diesel engine mechanic that works on all types of all the breath of heavy equipment that we have in our portfolio.

Can see their.

To that market and I'm being innovators and we're excited to be part of that.

Like us in a couple of our other peers and their dealer networks are really well positioned to capitalize on that.

Harder to train it takes longer to train than some of these electric material handling machines, which is.

No I spent about an hour and a half in their booth this weekend.

Theres less diagnostics, it's going to be more component replacement. It's just it's a different skill set and it's going to be more happening with our laptops and with heavy tools and machinery I guess.

Have a good story and they had a nice demo of some stuff in there.

My My final questions, which are really just kind of nitpicky and really for Tony but Tony in 'twenty four.

The best way to.

To delineate the two.

<unk> hit part of it with regards to what Youre expecting for rental equipment, but whats your capex for 'twenty, we're going to be X rental.

And then just.

Sorry.

There was a multi part question what was the second.

Yes.

10 at $10 million is a good number for that figure.

Like I.

I mean.

I've seen some of your all marketing literature that you have around and you know you guys do have.

This would be for things like.

Lease hold improvements at a branch.

Product offerings.

Parking lot a new roof. This this kind of stuff.

In your in your.

What do you call it.

Refurbishing on this space if needed cranes et cetera to $10 million of that event is a good number there.

Where we're at in our life cycle.

Right.

And so just getting started a robotics.

Mhm.

Okay and then my last question, which is really nitpicky is just.

We're early innings and we're early days in it.

Out of curiosity on the cash flow statement, what is gain on bargain.

There is a lots of calm and we were well positioned but we're.

We're just scratching the surface and we're excited about.

Purchase a business.

We have we have allied lines and we have some some some parts of our portfolio that are more emerging.

Okay.

Gain gain on bargain.

Gain on bargain purchase is brought to us by general accounting principles.

Technologies, but what we're really excited about is what hyster yale's working on it.

Our.

Fair valuing of assets and purchase price allocation it as effectively as saying that the assets that were purchased in the <unk> transaction.

They're our flagship partner and.

Can see their commitment to that market and then being innovators and we're excited to be part of that.

Feel like Austin, a couple of our other peers and their dealer network are really well positioned to capitalize on that.

Sure.

Worth more than more than your payable paid for it.

No I spent about an hour and a half and their booth. This weekend. They had a very good story and they had a nice demo of some stuff in there.

And there's obviously judgment that comes into that.

Some factors that I won't I won't get into but that's what that was.

My My final questions, which are really just kind of nitpicky, and and really for Tony but Tony in 'twenty. Four you hit part of it with regards to what Youre expecting for rental equipment, but whats your capex for 'twenty, we're going to be X rental.

Alright, well again, congrats on the quarter and the year I look forward to 2024.

Thank you Ted.

Thank you for your question.

There are no additional questions waiting at this time that will conclude the conference call on behalf of the company. Thank you for your participation you may now disconnect your lines.

Ken at $10 million is a good number for that figure.

<unk>.

This would be for things like leasehold improvements at a branch.

Parking lot a new roof. This this kind of stuff.

<unk> on this space if needed.

Say et cetera, $10 million of that event is a good number there.

Okay and then my last question, which is really nitpicky is just it's more of a curiosity.

Actually on the cash flow statement, what is gain on bargain.

Purchase a business.

Okay.

Gain gain on bargain.

Gain on bargain purchase is brought to us by general accounting principles.

And fair valuing of assets and the purchase price allocation it as effectively as saying that the assets that were purchased in the <unk> transaction.

Worth.

Worth more than more than you pay more paid for it.

And there's obviously judgment that comes into that.

Different factors that I won't I won't get into but that's what that was.

Alright, well again, congrats on the quarter and the year I look forward to 2024.

Yes.

Thank you Ted.

Thank you for your question there are no additional questions waiting at this time that will conclude the conference call on behalf of the company. Thank you for your participation you may now disconnect your lines.

Thank you for your question there are no additional questions waiting at this.

Q4 2023 Alta Equipment Group Inc Earnings Call

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