Q2 2024 Hyster-Yale Materials Handling Inc Earnings Call
Unknown Executive: Close the call with his perspective, and then we'll open it up for your questions.
Effective and then we'll open it up for your questions.
Unknown Executive: Let's start with some second-quarter highlights. I'm pleased to say that we again generated exceptionally strong quarterly results and exceeded our expectations. Revenue growth continued, and profits were up significantly versus prior year.
Unknown Executive: Let's start with some second quarter highlights. I'm pleased to say that we again generated exceptionally strong quarterly results and exceeded our expectations. Revenue growth continued, and profits were up significantly versus the prior year. In fact, our second quarter consolidated operating profit and margins reached higher levels than ever before.
Speaker Change: I will close the call with his perspective and then we'll open it up for your questions.
Speaker Change: Let's start with some second quarter highlights. I'm pleased to say that we again generated exceptionally strong quarterly results and exceeded our expectations.
Unknown Executive: In fact, our second quarter consolidated operating profit and margins reached higher levels than ever before.
Speaker Change: Revenue growth continued and profits were up significantly versus prior year. In fact, our second quarter consolidated operating profit and margins reached higher levels than ever before.
Scott Minder: Scott will have more detail on this later in the course.
Unknown Executive: Scott will have more detail on this later in the call. Before I discuss our markets and operations, I'd like to share a change in how we think about our bookings and backlog. As you can see in our earnings release, we've decided to provide total dollar values instead of unit counts for these measures. Let me explain why.
Unknown Executive: Before I discuss our markets and operations, I'd like to share a change in how we think about our bookings and backlogs. As you can see in our running release, we've decided to provide total dollar values instead of unit counts for these measures. Let me explain why.
Speaker Change: Scott will have more detail on this later in the course.
Scott: Before I discuss our markets and operations, I'd like to share a change in how we think about our bookings and backlog.
Unknown Executive: Hyster-Yale is rapidly becoming a solution space. We're increasingly focused on complex value-adding technology solutions for our customers that include trucks as well as advanced on-truck technologies. Additionally, per unit truck sales values differ substantially across the product lines. As a result, aggregate unit bookings data is less meaningful when analyzing our performance. This changed the total bookings and backlog dollar values is more in line with industry standards.
Unknown Executive: Hyster-Yale is rapidly becoming a solutions-based market. We're increasingly focused on complex, value-adding technology solutions for our customers that include trucks, as well as advanced on-truck technologies. Additionally, per-unit truck sales values differ substantially across the product line. As a result, aggregate unit bookings data is less meaningful when analyzing our performance. This change to total bookings and backlogged dollar values is more in line with industry standards. I'll share an additional explanation around our outlook for context.
Scott: As you can see in our earnings release, we've decided to provide total dollar values instead of unit counts for these measures. Let me explain why. Hyster Yale is rapidly becoming a solutions-based company.
Scott: Additionally, per-unit truck sales values differ substantially across the product lines.
Scott: As a result, aggregate unit bookings data is less meaningful when analyzing our performance.
Unknown Executive: I'll share an additional explanation around our outlook for context. If quarter our release discusses factory and retail bookings, factory bookings represent orders placed directly with the manufacturer or on the factory. These are typically for larger quantities and may include custom specifications. Retail bookings are orders placed through dealers with specific end-customer purchase orders and are typically for smaller quantities. All retail orders are factory orders, but not all factory orders become retail orders immediately, and some could be cancelled.
Scott: This change to total bookings and backlogged dollar values is more in line with industry standards.
Unknown Executive: This quarter, our release discussed factory and retail bookings. Factory bookings represent orders placed directly with the manufacturer or at the factory. These are typically for larger quantities and may include custom specifications. Retail bookings are orders placed through dealers with specific and customer purchase orders and are typically for smaller quantities. All retail orders are factory orders, but not all factory orders become retail orders immediately, and some could be cancelled.
Scott: I'll share an additional explanation around our outlooks of context. This quarter, our release discusses factory and retail bookings. Factory bookings represent orders placed directly with the manufacturer or on the factory.
Scott: These are typically for larger quantities and may include custom specifications.
Scott: Retail bookings are orders placed through dealers with specific end-customer purchase orders and are typically for smaller quantities.
Unknown Executive: By netting these two measures, we can see if stock and backlog are building, which occurs when factory orders outpace retail orders, or are being drawn down when retail orders outpace factory orders. Now, here's what we see in the market and with our operations. Based on market industry data and our internal estimates, we believe that the global lift truck market was below its prior levels in Q2 2024. This decline was driven by a significant decrease in the Americas and a more moderate reduction in the MEA.
Unknown Executive: By netting these two measures, we can see if stock and backlog are building, which occurs when factory orders outpace retail orders or are being drawn down when retail orders outpace factory orders.
Scott: All retail orders are factory orders, but not all factory orders become retail orders immediately, and some could be cancelled.
Scott: By netting these two measures, we can see if stock and backlog are building, which occurs when factory orders outpace retail orders.
Unknown Executive: Now here's what we see in the market and with our operations. Based on market industry data and our internal estimates, we believe that the global lift truck market was below prior in quarter to 2024. This decline was driven by a significant decrease in the Americas and a more moderate reduction in the MEA. Current market data from the Industrial Truck Association or ITA showed a 56% year-over-year decrease in quarter to 2024, North America factory bookings. These reduced North America factory booking rates were expected compared to the highly elevated levels reached during the pandemic and subsequent period of supply change shortages.
Scott: or are being drawn down when retail orders outpace factory orders.
Scott: Now here's what we see in the market and with our operations.
Scott: Based on market industry data and our internal estimates, we believe that the global lift truck market
Unknown Executive: Current market data from the Industrial Truck Association, or ITA, showed a 56% year-over-year decrease in Q2 2024 North America factory booking rates. These reduced North America factory booking rates were expected compared to the highly elevated levels reached during the pandemic and subsequent period of supply chain shortages. That said, the decline was steeper and earlier than we anticipated.
Scott: was below prior in Q2 2024.
Scott: This decline was driven by a significant decrease in the Americas and a more moderate reduction in the MEA.
Scott: Current market data from the Industrial Truck Association, or ITA, showed a 56% year-over-year decrease in Q2 2024 North America factory bookings.
Scott: These reduced North America factory booking rates were expected compared to the highly elevated levels reached during the pandemic and subsequent period of supply chain shortages.
Unknown Executive: That said, the decline was steeper and earlier than we anticipated. In effect, these recent low-factory booking levels are quickly moving total average bookings back to a normalized growth trend line. The company expects below trend North America factory booking levels to continue into early 2025.
Unknown Executive: In effect, these recent low factory booking levels are quickly moving total average bookings back towards a normalized growth trend line. The company expects below-trend North America factory booking levels to continue into early 2025. We are working diligently to ensure those low-level bookings fill open production slots in 2024 and 2025 until normalized booking levels come back. As we reported in the release, our dollar-valued factory bookings declined to $380 million in Q2 2024 from $680 million in Q2 2023 and $520 million in Q1 2024.
Speaker Change: That's Fed.
Speaker Change: The decline was steeper and earlier than we anticipated.
Speaker Change: In effect, these recent low factory booking levels are quickly moving total average bookings back towards a normalized growth trend line.
Unknown Executive: After this relatively short period of demand correction, the market is expected to return to more normalized growth rates over time. We are working diligently to ensure those low-level bookings fill, open production slots in 2024 and 2025 until normalized booking levels come back. As we reported in the release, our dollar value factory booking is declined to 380 million in quarter two 2024 from 680 million in quarter two 2023 and 520 million in quarter one 2024. While we increased our America's market share in the first half of the year, this was not enough for factory bookings to offset the steep market decline.
Speaker Change: The company expects below-trend North America factory bookings levels to continue into early 2025.
Speaker Change: After this relatively short period of demand correction, the market is expected to return to more normalized growth rates over time.
Speaker Change: We are working diligently to ensure those low-level bookings fill open production slots in 2024 and 2025 until normalized bookings levels come back.
Speaker Change: As we reported in the release, our dollar value factory bookings declined to $380 million in Q2 2024, from $680 million in Q2 2023 and $520 million in Q1 2024.
Unknown Executive: While we increased our America's market share in the first half of the year, this was not enough for factory bookings to offset this deep market decline. The dollar value of our second quarter 2024 America's factory bookings decreased by 56% year over year and 36% sequentially. We believe four factors contributed to this substantial decline.
Unknown Executive: Dollar value is our second quarter 2024; America's factory bookings decreased by 56 per cent year over year and 36 per cent sequentially.
Speaker Change: While we increased our America's market share in the first half of the year, this was not enough for factory bookings to offset this deep market decline.
Speaker Change: Dollar value of our second quarter, 2024, America's factory bookings decreased by 56% year-over-year and 36% sequentially.
Unknown Executive: We believe four factors contributed to this substantial decline. First, border cancellations by customers who no longer need previously played borders due to lower than expected activity. Second, shorter lead times. Third, customer and dealer requests to delay shipments of current backlog orders due at times that better suit their needs. And finally, current retail bookings being fulfilled from existing unshift factory bookings or from current dealer stock levels.
Unknown Executive: Order cancellations by customers who no longer need previously placed orders due to lower-than-expected activity. Second, shorter lead time.
Speaker Change: We believe four factors contributed to this substantial decline. First, order cancellations by customers who no longer need previously placed orders due to lower-than-expected activity. Second, shorter lead times.
Unknown Executive: Third, customer and dealer requests to delay shipments of current backlog orders to a time that better suits their needs. And finally, current retail bookings being fulfilled from existing unshipped factory bookings or from current dealer stocks. Considering the company's strong global backlog, including in the Americas, shipments are expected to continue at sound levels for the remainder of 2024. The Americas few remaining open 2024 production slots are expected to be filled between August and December.
Speaker Change: Third, customer and dealer requests to delay shipments of current backlog orders to a time that better suits their needs. And finally, current retail bookings being fulfilled from existing unshipped factory bookings or from current dealer stock levels.
Unknown Executive: Considering the company's strong global backlog, including in the Americas, shipments are expected to continue at sound levels for the remainder of 2024. The Americas' few remaining open 2024 production slots are expected to be filled between August and December.
Speaker Change: Considering the company's strong global backlog, including in the Americas, shipments are expected to continue at sound levels for the remainder of 2024.
Unknown Executive: This segment is working to extend this backlog by filling open 2025 production slots, largely in the second half of the year. We anticipate the America's market share will continue to increase over the remainder of 2024 and into 2025. These projections are driven by the recently introduced one to three and a half ton modular scalable Crux now reaching their full market potential and additional modular scalable products expected to launch in late 2024 and the first half of 2025.
Unknown Executive: This segment is working to extend its backlog by filling open 2025 production slots largely in the second half of the year. We anticipate America's market share will continue to increase over the remainder of 2024 and into 2025. These projections are driven by the recently introduced one to three and a half ton modular scalable trucks, now reaching their full market potential, and additional modular scalable products expected to launch in late 2024 and the first half of 2025. It has increased more slowly than in the Americas over the past few years.
Speaker Change: The Americas few remaining open 2024 production slots are expected to be filled between August and December .
Speaker Change: This segment is
Speaker Change: Working to extend this backlog by filling open 2025 production slots largely in the second half of the year.
Speaker Change: We anticipate the America's market share will continue to increase over the remainder of 2024 and into 2025. These projections are driven by the recently introduced 1 to 3.5 ton modular scalable trucks.
Speaker Change: Now reaching their full market potential and additional modular scalable products expected to launch in late 2024 and the first half of 2025.
Unknown Executive: Our EMEA and JPEG orders increase more slowly than in the Americas over the past few years. So the market downturn is not as steep for these regions.
Unknown Executive: So the market downturn is not as steep for these regions. EMEA and JPIC factory orders were $150 million in Q2 2024 compared to $160 million in both Q2 2023 and Q1 2024. As in the Americas, we expect EMEA's and JPIC's market share to strengthen with the production rate ramp-up of the new 1-3.5 ton modular scalable products and the launch of other new products. Production slots in EMEA and JPEG are also largely filled for the balance of 2024, with some lines already in a strong backlog position for 2025.
Speaker Change: Our EMEA and JPEG order.
Unknown Executive: EMEA and JPEG factory orders were 150 million in quarter to 2024 compared to 160 million in both quarter to 2023 and quarter to 2024. As in the Americas, we expect EMEAs and JPEG's market share to strengthen with the production rate ramp-up of the new one to three and a half ton modular scalable products and the launch of other new models. Production slots in EMEA and JPEG are also largely filled for the balance of 2024, with some lines already in strong backlogs positioned for 2025. We expect our current backlogs to act as a shock absorber, keeping global shipments generating in line with our 2024 production expectations.
Speaker Change: increase more slowly than in the Americas over the past few years. So the market downturn is not as steep for these regions.
Speaker Change: EMEA and JPIC factory orders were $150 million in Q2 2024 compared to $160 million in Q3 2020.
Speaker Change: In both Q2 2023 and Q1 2024. As in the Americas, we expect EMEA's and JPIC's market share to strengthen with the production rate ramp-up of the new 1 to 3.5 ton modular scalable products and the launch of other new products.
Speaker Change: Production slots in EMEA and JPEG are also largely filled for the balance of 2024, with some lines already in strong backlog position for 2025.
Unknown Executive: We expect our current backlog to act as a shock absorber, keeping global shipments generally in line with our 2024 production expectations. However, certain lines, particularly those for JPEGS and EMEA's lower-value warehouse products, are expected to have lower shipments in the second half of 2024 compared to the first half. Global production levels may moderate in 2025 without market or share improvements above our current expectations.
Unknown Executive: However, certain lines, particularly those for JPEG and EMEA's lower value warehouse products, are expected to have lower shipments in the second half of 2024 compared to the first part.
Speaker Change: We expect our current backlog to act as a shock absorber.
Speaker Change: Keeping global shipments generally in line with our 2024 production expectations.
Speaker Change: However, certain lines, particularly those for JPEGS and EMEA's lower-value warehouse products, are expected to have lower shipments in the second half of 2024 compared to the first half.
Unknown Executive: Global production levels may moderate in 2025 without market or sharing improvements above our current expectations.
Unknown Executive: Over the past 18 months, our results have benefited from strong pricing tailwinds and a significant order backlog, which led to product margins above our target levels.
Scott Minder: Over the past 18 months, our results have benefited from strong pricing tailwinds and a significant order backlog, which led to product margins above our target level. Looking forward, we are focused on maintaining competitively priced products at or above our target margin level. We expect to achieve this by introducing new models, decreasing costs, and through ongoing pricing difficulties. Before I turn the call over to Scott, I'll point out that despite the market weakness, the lift truck industry is quite resilient and has gone through similar cycles in the past.
Speaker Change: Global production levels may moderate in 2025 without market or share improvements above our current expectations.
Unknown Executive: Looking forward, we are focused on maintaining competitively priced products at or above target margin levels. We expect to achieve this by introducing new models, decreasing costs, and through ongoing pricing disciplines.
Unknown Executive: Before I turn the call over to Scott, I'll point out that despite the market weakness, the live track industry is quite resilient and has gone through similar cycles in the past. We plan to push through this latest market downturn by using our backlog and new factory orders, while still delivering when our customers promise to provide optimized product solutions and exceptional customer care. We'll continue to execute on our strategic initiatives and key projects to fulfill these promises.
Speaker Change: We expect to achieve this by introducing new models, decreasing costs, and through ongoing pricing disciplines.
Scott Minder: We plan to push through this latest market downturn by using our backlog and new factory orders while still delivering on our customers' promise to provide optimized product solutions and exceptional customer care. We will continue to execute on our strategic initiatives and key projects to fulfill these promises. There are many successful projects occurring across all our businesses. We've provided those details in our Fortitude 2024 investment, which is currently available on Hyster-Yale's website. I encourage you to check it out for more information. I'll turn the call over to our CFO, Scott, to provide more detailed financial results and outlook.
Speaker Change: We plan to push through this latest market downturn by using our backlog and new factory orders while still delivering on our customers' promise to provide optimized product solutions and exceptional customer care.
Unknown Executive: There are many successful projects occurring across all our businesses with provided those details in order to 2024 Investor Day, which is currently available on HISTIA website. I encourage you to check it out for more information.
Speaker Change: We've provided those details in our Fortitude 2024 Invest-A-Day.
Scott Minder: I'll turn the call over to our CFL to provide more detailed financial results and outlook. As Rajeev mentioned, our Q2 2024 results were quite strong, building on a very healthy first quarter, and they were significantly better than we expected. Insolidated revenue rose to nearly $1.2 billion, up more than 7% from Q2 2023. Insolidated operating profit increased ahead of expectations, though approximately $95 million, rising 63% year over year. Our operating profit margin of 8.2% increased by 280 basis points from a year ago, while our net income increased by 65% to $63 million over the same period.
Scott Minder: As Rajiv mentioned, our Q2 2024 results were quite strong, building on a very healthy first quarter, and they were significantly better than we expected. Consolidated revenue rose to nearly $1.2 billion, up more than 7% from Q2 2023. Consolidated operating profit increased ahead of expectations to approximately $96 million, rising 63% year-over-year. Our operating profit margin of 8.2% increased by 280 basis points from a year ago, while our net income increased by 65% to $63 million over the same period. Now I'll provide some color bit by bit.
Speaker Change: As Rajiv mentioned, our Q2 2024 results were quite strong, building on a very healthy first quarter, and they were significantly better than we expected.
Rajiv: Consolidated revenue rose to nearly $1.2 billion, up more than 7% from Q2 2023.
Speaker Change: Consolidated operating profit increased ahead of expectations to approximately 96 million dollars, rising 63% year-over-year.
Scott Minder: Now I'll provide some color by business. Let truck revenues grew 8% versus the prior year due to higher average selling prices and a favorable impact from reduced dealer incentive programs. As a result of previously implemented price increases, average lift truck selling prices increased 23% year over year. A favorable product mix in the quarter more than offset the effect of lower unit volume. Mixed improved in both the Americas and in EMEA compared to the prior year. This was driven by increased sales of 5 value options of Class 5 internal combustion engine trucks in the Americas and higher sales of Class 1 and Class 5 trucks, including big trucks in EMEA.
Scott Minder: Lift truck revenues grew 8% versus the prior year due to higher average selling prices and a favorable impact from a reduced dealer incentive program. As a result of previously implemented price increases, average lift truck selling prices increased 23% year over year. A favorable product mix in the quarter more than offset the effect of lower unit volume. Mix improved in both the Americas and in EMEA compared to the prior year.
Speaker Change: A favorable product mix in the quarter more than offset the effect of lower unit volumes.
Scott Minder: This was driven by increased sales of high-value options of Class 5 internal combustion engine trucks in the Americas and higher sales of Class 1 and Class 5 trucks, including big trucks in EMEA. However, despite these mixed benefits, EMEA revenues dropped, mainly due to unit volumes resulting from lower year-over-year market demand. In Q2 2024, Lip Truck operating profit was $103 million, increasing 65% year-over-year. Operating profit margins of 9.2% continued to outpace targeted levels, improving by 320 basis points versus the prior year.
Scott Minder: Despite mixed benefits, EMEA revenues dropped mainly due to unit volumes resulting from lower year-over-year market demand. In Q2 2024, lift truck operating profit was $103 million, increasing 65% year-over-year. Operating profit margins of 9.2% continued to outpace targeted levels, proven by 320 basis points versus the prior year. This increase was driven by higher unit margins primarily due to three factors. A larger percentage of units sold that included all prior price increases, a strong price to cost ratio, particularly in the Americas, and a mix shift toward higher price, higher margin, class 5 trucks in EMEA.
Speaker Change: Despite mixed benefits, EMEA revenues dropped, mainly due to unit volumes resulting from lower year-over-year market demand.
Speaker Change: Lip Truck Operating Profit was $103 million, increasing 65% year-over-year.
Scott Minder: This increase was driven by higher unit margins, primarily due to three factors. A larger percentage of units sold that included all prior price increases. A strong price-to-cost ratio, particularly in the Americas, and a mixed shift toward higher price, higher margin Class 5 trucks in EMEA.
Speaker Change: A larger percentage of units sold that included all prior price increases.
Scott Minder: Lower year-over-year operating profit in our JPEG segment and increased operating expenses globally partly offset these year-over-year profit improvements.
Scott Minder: Lower year-over-year operating profit in our JPIC segment and increased operating expenses globally partly offset these year-over-year profit improvements. At Balzoni, revenues increased 6% compared to both last year and sequentially as a result of higher sales volume. This allows Bolzoni's manufacturing plants to run more efficiently, thus lowering per-unit costs.
Speaker Change: A strong price-to-cost ratio, particularly in the Americas, and a mixed shift toward higher price, higher margin Class 5 trucks in EMEA.
Scott Minder: At Balzone, revenues increased 6% compared to both last year and sequentially, as a result of higher sales volume.
Scott Minder: This allows Balzone's manufacturing plants to run more efficiently, but lowering per unit cost. Gross profit was comparable to the prior year as the favorable impact from higher volumes offset increased material in freight costs.
Speaker Change: At Balzoni, revenues increased 6% compared to both last year and sequentially as a result of higher sales volumes.
Scott Minder: Gross profit was comparable to the prior year as the favorable impact from higher volumes offset increased material and freight costs. However, due to higher warranty and employer-related costs, Balzoni's operating profits decreased versus the prior year. Moving to Novera, the business remains focused on increasing its sales pipeline. However, the hydrogen fuel cell industry is facing slower customer adoption.
Speaker Change: This allows Balzoni's manufacturing plants to run more efficiently, thus lowering per-unit costs.
Scott Minder: Due to higher warranty and employer-related costs, Balzone's operating profit decreased versus the prior year.
Speaker Change: Gross profit was comparable to the prior year as the favorable impact from higher volumes offset increased material and freight costs.
Scott Minder: Moving to Nevera, the business remains focused on increasing its sales pipeline. However, the hydrogen fuel cell industry is facing slower customer adoption. This is due to ongoing hydrogen supply constraints in delayed fuel cell vehicle development programs. Despite Nevera's strong product demonstration efforts, these industry constraints are delaying Nevera's bookings and reducing its overall endage shipments.
Speaker Change: Due to higher warranty and employer-related costs, Balzoni's operating profits decreased versus the prior year.
Speaker Change: Moving to Nivera, the business remains focused on increasing its sales pipeline. However, the hydrogen fuel cell industry is facing slower customer adoption.
Scott Minder: This is due to ongoing hydrogen supply constraints and a delayed fuel cell vehicle development program. Despite Nuvera's strong product demonstration effort, these industry constraints are delaying Nuvera's bookings and reducing its overall engine shipment. As a result, Nuvera's Q2 2024 revenues decreased to $0.2 million from $1.0 million in Q2 2023. The resulting operating loss was above the prior year largely due to increased product development and lease costs. Before I move to our cash and balance sheet results, I'll detail the effect of taxes on our business.
Speaker Change: This is due to ongoing hydrogen supply constraints and delayed fuel cell vehicle development programs.
Scott Minder: As a result, Nevera's Q2 2024 revenues decreased to 0.2 million from 1.0 million in Q2 2023. The resulting operating loss was above prior year, largely due to increased product development and lease costs.
Speaker Change: Despite Nuvera's strong product demonstration efforts,
Speaker Change: As a result, Nuvera's Q2 2024 revenues decreased to $0.2 million from $1.0 million in Q2 2023. The resulting operating loss was above prior year largely due to increased product development and lease costs.
Scott Minder: Before I move to our cash and balance sheet results, I'll detail the effect of taxes on our business. Our second quarter income before income taxes was up 77% compared to the prior year, while net income improved by 65%. The net income increase was tempered by an effective tax rate of 29% in Q2 2024 compared to a 24% rate in the prior year quarter. This increased rate results from the U.S. government's current R&D capitalization requirements. Company is unable to place taxes assets on its balance sheet due to its U.S. valuation allowance position. Businesses that invest in R&D activities are required to capitalize.
Scott Minder: Our second quarter income before income taxes was up 77% compared to the prior year, while net income improved by 65%. However, the net income increase was tempered by an effective tax rate of 29% in Q2 2025, compared to a 24% rate in the prior year quarter. This increased rate results from the U.S. government's current R&D capitalization requirements. Thus, the company is unable to place tax assets on its balance sheet due to its U.S. valuation allowance.
Speaker Change: Before I move to our cash and balance sheet results, I'll detail the effect of taxes on our business.
Speaker Change: Our second quarter income before income taxes was up 77% compared to the prior year, while net income improved by 65%.
Speaker Change: This increased rate results from the U.S. government's current R&D capitalization requirements.
Scott Minder: Businesses that invest in R&D activities are required to capitalize these expenses and recognize them over time. This effectively increases taxable income over a 5 to 15-year period. Next, I'll turn to the balance sheet. The company's financial leverage continued to improve in the second quarter. Our 51% debt-to-total capital ratio improved 200 basis points from the March 31st level, mainly due to higher earnings. Net debt improved by 9% compared to the prior year, but increased sequentially as a result of additional debt required for working capital. In the second quarter, we had an unused borrowing capacity of $217 million.
Speaker Change: The company is unable to place tax assets on its balance sheet due to its U.S. valuation allowance position.
Scott Minder: of these expenses and recognize them over time. This effectively increases taxable income over a five to 15-year period.
Scott Minder: Next I'll turn to the balance sheet. Some of these financial leverage continued to improve in the second quarter. Our 51% debt to total capital ratio improved 200 basis points from the March 31st level, mainly due to higher earnings. That debt improved by 9% compared to the prior year, but increased sequentially as a result of additional debt required for working capital needs. In the second quarter, we had unused borrowing capacity of $217 million. This declined from the previous quarter due to the higher debt level and lower available borrowing capacity. The latter was due to the expiration of a temporary increase to the company's asset-based lending facility.
Speaker Change: Next I'll turn to the balance sheet.
Speaker Change: Net debt improved by 9% compared to the prior year, but increased sequentially as a result of additional debt required for working capital needs.
Scott Minder: This declined from the previous quarter due to the higher debt level and lower available borrowing capacity. The latter was due to the expiration of a temporary increase to the company's asset-based lending facility. As of June 30th, working capital represented 18.3% of sales.
Speaker Change: In the second quarter, we had unused borrowing capacity of $217 million.
Speaker Change: This declined from the previous quarter due to the higher debt level and lower available borrowing capacity.
Scott Minder: As of June 30th, working capital represented 18.3% of sales. This metric improved over both the prior year and the sequential quarter, but remains well above our targeted level of 15%. We continue to focus on decreasing working capital, particularly through inventory reductions. In that regard, Q2-2024 inventory decreased 6% from Q1 and 4% compared to prior year levels. Both finish goods and raw material inventory is declined.
Speaker Change: The latter was due to the expiration of a temporary increase to the company's asset-based lending facility.
Scott Minder: This metric improved over both the prior year and the sequential quarter, but remains well above our targeted level of 15%. We continue to focus on decreasing working capital, particularly through inventory reduction. In that regard, Q2 2024 inventory decreased 6% from Q1 and 4% compared to prior year levels. Both finished goods and raw material inventories declined.
Speaker Change: As of June 30th, working capital represented 18.3% of sales.
Speaker Change: This metric improved over both the prior year and the sequential quarter, but remains well above our targeted level of 15%.
Speaker Change: We continue to focus on decreasing working capital, particularly through inventory reductions.
Speaker Change: In that regard, Q2 2024 inventory decreased 6% from Q1 and 4% compared to prior year levels. Both finished goods and raw material inventories declined.
Scott Minder: Looking ahead, we expect our consolidated full year 2024 financial results to improve compared to our prior projections due to the better-than-expected second quarter results and further financial improvements in the second half of the year. For the live truck business, we anticipate continued year-over-year revenue growth in the second half of 2024 driven by shipments of higher price, higher margin, backlog units. Foss inflation, particularly for ocean-born freight, is expected to temper the favorable price-to-cost ratio in the second half of the year. Higher inflation and operating expenses are likely to reduce second half 2024 operating profits modestly compared to the prior year.
Scott Minder: Looking ahead, we expect our consolidated full-year 2024 financial results to improve compared to our prior projections due to the better-than-expected second quarter results and further financial improvements in the second half of the year. For the lift truck business, we anticipate continued year-over-year revenue growth in the second half of 2024, driven by shipments of higher price, higher margin backlog units. Cost inflation, particularly for ocean-borne freight, is expected to temper the favorable price-to-cost ratio in the second half of the year.
Speaker Change: Looking ahead, we expect our consolidated full-year 2024 financial results to improve compared to our prior projections due to the better-than-expected second quarter results and further financial improvements in the second half of the year.
Speaker Change: For the lift truck business, we anticipate continued year-over-year revenue growth in the second half of 2024, driven by shipments of higher-priced, higher-margin backload units.
Scott Minder: Higher inflation and operating expenses are likely to reduce second half 2024 operating profits modestly compared to the prior. For Q3, we anticipate revenues to increase with operating profits comparable year over year. Additionally, sequentially, Lyft Trucks' third quarter revenues and operating profit are expected to decrease from the strong second quarter results due to normal business seasonality and elevated trade costs.
Speaker Change: Cost inflation, particularly for ocean-borne freight, is expected to temper the favorable price-to-cost ratio in the second half of the year.
Scott Minder: For Q3, we anticipate revenues to increase, with operating profits comparable year-over-year.
Speaker Change: Higher inflation and operating expenses are likely to reduce 2nd half 2024 operating profits modestly compared to the prior year.
Scott Minder: Sequentially, Live Truck's third quarter revenues and operating profits are expected to decrease from the strong second quarter results due to normal business seasonality and elevated freight costs. For bull zoning, we anticipate higher gross profits in the second half of 2024, despite an expected revenue decline. Maldonie continues to focus on increasing production of higher margin attachments while phasing out lower margin legacy component sales to the live truck business. As a result, operating profit is expected to increase year-over-year with higher gross profits partly offset by increased operating expenses. At Newvera, the business is working to increase customer product demonstrations in orders in the second half of the year.
Speaker Change: For Q3, we anticipate revenues to increase with operating profits comparable year-over-year.
Speaker Change: Sequentially, Lyft Trucks' third quarter revenues and operating profit are expected to decrease from the strong second quarter results due to normal business seasonality and elevated trade costs.
Scott Minder: For Bolzoni, we anticipate higher gross profits in the second half of 2024, despite an expected revenue decline. Maldoni continues to focus on increasing production of higher-margin attachments while phasing out lower-margin legacy component sales to the lift truck business. As a result, operating profit is expected to increase year over year, with higher gross profits partly offset by increased operating expenses. At Nuvera, the business is working to increase customer product demonstrations and orders in the second half of the year.
Speaker Change: For Bolzoni, we anticipate higher gross profits in the second half of 2024, despite an expected revenue decline.
Speaker Change: Maldoni continues to focus on increasing production of higher-margin attachments while phasing out lower-margin legacy component sales to the lift truck business.
Speaker Change: As a result, operating profit is expected to increase year-over-year, with higher gross profits partly offset by increased operating expenses.
Scott Minder: The combination of higher sales and lower operating expenses is expected to reduce the second half operating loss compared to the prior year. Newvera shipments are anticipated to increase in the second half of the year compared to the prior year. This improvement is driven by current and expected customer orders from Newvera's new hydrogen-powered Dero emission global generator first introduced in May of this year.
Scott Minder: The combination of higher sales and lower operating expenses is expected to reduce the second half operating loss compared to the prior year. Nuvera shipments are anticipated to increase in the second half of the year compared to the prior year. This improvement is driven by current and expected customer orders for Nuvera's new hydrogen-powered, zero-emission mobile generator, first introduced in May of this year. We're excited about this new product, which has generated a lot of market interest since its debut at the Advanced Commercial Vehicle Technology Show.
Speaker Change: At Nuvera, the business is working to increase customer product demonstrations and orders in the second half of the year.
Speaker Change: The combination of higher sales and lower operating expenses is expected to reduce the second half operating loss compared to the prior year.
Speaker Change: Nuvera shipments are anticipated to increase in the second half of the year compared to the prior year. This improvement is driven by current and expected customer orders for Nuvera's new hydrogen-powered, zero-emission mobile generator, first introduced in May of this year.
Scott Minder: We're excited about this new product. It's generated a lot of market interest since its debut at the Advanced Commercial Vehicle Technology Show. New Vera developed a generator in collaboration with a major power management services provider to help meet the growing market needs for clean energy solutions. This generator helps to fill a gap for on-site rapid recharging electric vehicles in the need for on-site power and challenging environments, such as those with limited access to grid power, located in emission-controlled zones, or operating in sub-zero conditions or noise-sensitive areas. We expect increased demand for this new Vera product leading up to the California Air Resources Board for part of the Euro-emission Generator Mandate, which begins in 2028.
Scott Minder: Nuvera developed the generator in collaboration with a major power management services provider to help meet the growing market needs for clean energy solutions. This generator helps to fill a gap for on-site rapid recharging of electric vehicles in the need for on-site power in challenging environments, such as those with limited access to grid power or located in emission-controlled zones or operating in sub-zero conditions or noise-sensitive areas.
Speaker Change: We're excited about this new product.
Speaker Change: It's generated a lot of market interest since its debut at the Advanced Commercial Vehicle Technology Show.
Speaker Change: Nuvera developed the generator in collaboration with a major power management services provider to help meet the growing market need for clean energy solutions.
Speaker Change: This generator helps to fill a gap for on-site rapid recharging of electric vehicles in the need for on-site power in challenging environments such as those with limited access to grid power,
Scott Minder: We expect increased demand for this new Vera product leading up to the California Air Resources Board's, or CARB, Zero Emission Generator Mandate, which begins in 2028. Sales of this product should help bridge the gap between more robust customer adoption of hydrogen fuel cells and overall hydrogen availability. At the consolidated level, we anticipate second-half revenues to increase, while operating profit will likely moderate slightly compared to the second half of 2023. We expect net income in the second half of the year to be comparable to the prior year due to lower interest and tax expenses.
Speaker Change: Located in Emission Controlled Zones or Operating in Sub-Zero Conditions or Noise Sensitive Areas.
Speaker Change: We expect increased demand for this new VERA product leading up to the California Air Resources Board, or CARB, Zero Emission Generator Mandate, which begins in 2028.
Scott Minder: Sales of this product should help bridge the gap to more robust customer adoption of hydrogen fuel cells and overall hydrogen availability.
Scott Minder: At the consolidated level, we anticipate second half revenues to increase, while operating profit will likely moderate slightly compared to the second half of 2023. We expect net income in the second half of the year to be comparable to the prior year through the lower interest in tax expenses.
Speaker Change: Sales of this product should help to bridge the gap to more robust customer adoption of hydrogen fuel cells and overall hydrogen availability.
Speaker Change: At the consolidated level, we anticipate second-half revenues to increase, while operating profit will likely moderate slightly compared to the second half of 2023.
Scott Minder: Overall, a modest third quarter decline is expected to be offset by a fourth quarter improvement. Companies' effective tax rate is likely to be modestly higher than prior year, largely due to the capitalization of research and development expenses. But the low prior expectations through a higher US earnings base.
Scott Minder: Overall, a modest third-quarter decline is expected to be offset by a fourth-quarter improvement. The company's effective tax rate is likely to be modestly higher than the prior year, largely due to the capitalization of research and development, but below prior expectations through a higher U.S. earnings base. For the full year 2024, we continue to focus on reducing leverage and improving cash flows through increased inventory efficiency. We expect 2024 capital expenditures to be $60 million, down from a prior projection of $84 million. This estimated capital spending still includes substantial growth in efficiency investments while ensuring adequate liquidity. We continue to expect a significant increase in 2024 cash flow from operations compared to 2023.
Speaker Change: We expect net income in the second half of the year to be comparable to the prior year due to lower interest and tax expenses.
Speaker Change: Overall, a modest 3rd quarter decline is expected to be offset by a 4th quarter improvement.
Speaker Change: Company's effective tax rate is likely to be modestly higher than prior year, largely due to the capitalization of research and development expenses.
Scott Minder: For the full year 2024, we continue to focus on reducing leverage in improving cash flows through increased inventory efficiency. We expect 2024 capital expenditures to be $60 million, down from a prior projection of $84 million. This estimated capital spending still includes substantial growth and efficiency investments while ensuring adequate liquidity. We continue to expect a significant increase in 2024 cash flow from operations compared to 2023.
Speaker Change: but below prior expectations through a higher U.S. earnings base.
Speaker Change: For the full year 2024, we continue to focus on reducing leverage and improving cash flows through increased inventory efficiency.
Speaker Change: We expect 2024 capital expenditures to be $60 million, down from a prior projection of $84 million.
Speaker Change: This estimated capital spending still includes substantial growth in efficiency investments while ensuring adequate liquidity.
Alfred Rankin: Now, I'll turn the call over to our Executive Chairman for his closing comments. Thanks, Scott. Our strong second quarter results reflect the progress we've made in our mission to provide application tailored solutions to a broad customer base. This means we're not just selling lift trucks, but value-edit systems complete with on-truck technologies such as operator assist systems and full automation. We are continuing the transition to modular and scalable products, which accomplishes many of our objectives, streamlining our production process, producing supply chain costs, improving working capital levels, and delivering customizable systems in a timely manner. We've launched our one to three and a half ton internal combustion engine products globally, and we will further expand our one to three and a half ton modular and scalable product line later this year and next.
Speaker Change: We continue to expect a significant increase in 2024 cash flow from operations compared to 2023. Now, I'll turn the call over to our Executive Chairman for his closing comments. Out.
Unknown Executive: Our strong second quarter results reflect the progress we've made in our mission to provide application-tailored solutions to a broad customer base. This means we're not just selling lift trucks but value-added systems. With on-truck technologies such as operator assist systems and full automation, we are continuing the transition to modular and scalable products, which accomplishes many of our objectives and streamlines our production process. Increasing supply chain costs, improving working capital levels, and delivering customizable systems in a timely manner.
Speaker Change: Thanks, Scott.
Speaker Change: Our strong second quarter results reflect the progress we've made in our mission to provide application-tailored solutions to a broad customer base.
Speaker Change: This means we're not just selling lift trucks, but value-added systems complete with on-truck technologies such as operator-assist systems and full automation.
Speaker Change: We are continuing the transition to modular and scalable products.
Speaker Change: which accomplishes many of our objectives, streamlining our production process.
Unknown Executive: We've launched our one to three and a half ton internal combustion engine products globally, and we will further expand our one to three and a half ton modular and scalable product line later this year and next year. Additionally, we are continuing our efforts at Nuvera and Balzoni to position those businesses as leaders in their industries. Growing opportunities for clean energy and application-specific solutions will be key drivers of our success. Reflecting on our business performance and outlook, I believe our second quarter results were excellent, and our future prospects remain strong. With our current backlog and expected bookings, we believe we are well prepared to weather softening markets and volatility for the remainder of the year and into 2025. Now we will turn to questions.
Speaker Change: Producing Supply Chain Costs, Improving Working Capital Levels, and Delivering Customizable Systems in a Timely Manner.
Speaker Change: We've launched our 1-3.5 ton internal combustion engine products globally, and we will further expand our 1-3.5 ton modular and scalable product line later this year and next year.
Alfred Rankin: this year. Additionally, we are continuing our efforts at New Vera and Balzone to position those businesses as leaders in their industries. The growing opportunities for clean energy and application specific solutions will be key drivers of our success. Reflecting on our business performance and outlook, I believe our second quarter results were excellent and our future prospects remain strong.
Speaker Change: Additionally, we are continuing our efforts at Nuvera and Balzoni to position those businesses as leaders in their industries.
Speaker Change: The growing opportunities for clean energy and application-specific solutions will be key drivers of our success.
Alfred Rankin: With our current backlog and expected bookings, we believe we are well prepared to weather softening markets and volatility for the remainder of the year and into 2025.
Speaker Change: Reflecting on our business performance and outlook, I believe our second quarter results were excellent and our future prospects remain strong. With our current backlog and expected bookings,
Unknown Executive: Now we will turn to questions. Thank you.
Speaker Change: We believe we are well prepared to weather softening markets and volatility for the remainder of the year and into 2025.
Unknown Executive: Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star, followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star, followed by the number two. If you are using a speaker phone, please lift the handset before pressing any key. One moment, please, for your first question.
Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone; you will hear a prompt that your hand is. If you wish to decline from the polling process, please press the star followed by the number zero. If you are using a speakerphone, please lift the handset before pressing the button. One moment, please, for your first question. Our first question is from Chip Moore from Ross Capital.
Chip Moore: Hey, thanks for taking the question. I appreciate it.
Speaker Change: Now we will turn to questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number 1 on your touchtone phone. You will hear a prompt that your hand has been raised.
Speaker Change: If you wish to decline from the polling process, please press the star followed by the number 2.
Chip Moore: Our first question is from Chip Moore from Ross Capital. Hey, thanks for taking the question. Appreciate it.
Speaker Change: If you are using a speakerphone, please lift the handset before pressing any key.
Chip Moore: I wanted to ask, hey, everybody, I wanted to follow up maybe, Al, on your last comments. And just in general, you talked about global production levels potentially moderating in 2025. I think he also talked about bookings growth normalizing at some point during the year. Maybe just a finer point on how you're thinking about those dynamics and how you're approaching 2025 right now.
Speaker Change: One moment, please, for your first question.
Chip Moore: I wanted to ask, hey everybody, I want to follow up, maybe Alan, your last comment, and just in general, you talked about level production levels, you know, potentially moderating in 2025. I think you also talked about bookings growth, normalizing at some point during the year, maybe just to find a point on how you're thinking about those dynamics and how you're approaching 2025 right now. I think I asked your regime to come in, and then I'll supplement with anything that I have beyond that. Chip, I think maybe the best way to think about it because we have the most current data about the market in North America, and that seems to be the most volatile market right now.
Speaker Change: Our first question is from Chip Moore from Ross Capital.
Chip Moore: Hey, thanks for taking the question. Appreciate it.
Speaker Change: I wanted to ask, hey, everybody, I want to follow up, maybe, Al, on your last comments and just in general, you know, you talked about
Speaker Change: Global Production Levels, you know, potentially moderating in 2025. I think you also talked about bookings growth normalizing at some point during the year. Maybe just put a finer point on how you're thinking about those dynamics and how you're approaching 2025 right now.
Unknown Executive: I think I'd ask Rajiv to comment, and then I'll supplement with anything that I have beyond that.
Rajiv Prasad: Sure, Chip, I think maybe the best way to think about it is because we have the most current data about the market in North America, and that seems to be the most volatile market right now. So if you look at historic data and a trend line for our market, you'll see that it's been growing, if you average out the spikes and the troughs, been growing steadily since, let's say, 2005. I think we looked at data back then.
al: I think I'd ask Rajiv to comment and then I'll supplement with anything that I have beyond that.
Rajiv: Sure. Chip, I think maybe the best way to think about it, because we have the most current data about the market in North America, and that seems to be the most volatile market right now.
Rajiv Prasad: So, you know, if you look at in a historic data and a trend line for our market, you'll see that, you know, it's been growing. If you average out the spikes and the trust, been growing steadily since, let's say, 2005. I think we looked at data back to then. And what happens is whenever there is a spike over the trend line, it's more, it's as, you know, fairly soon followed by a trough. Now, starting in mid 2021, we had a massive spike in order volume that lasted for about two years and really kind of eased off by middle of 2023.
Rajiv: So, you know, if you look at, you know, historic data and a trend line for our market, you'll see that, you know, it's been growing if you average out the spikes and the troughs.
Rajiv Prasad: And what happens is whenever there is a spike over the trend line, it's more, it's, you know, fairly soon followed by a trough. Now, starting in 2021, we had a massive spike in order volume that lasted for about two years and really kind of eased off by the middle of 2023. And then we've seen since then a fairly sharp decline. Now, in reality, what's going on is that our customers are placing a huge amount of orders.
Rajiv: It's been growing steadily since, let's say, 2005.
Rajiv: I think we looked at data back to then.
Rajiv: And what happens is, whenever there is a spike over the trend line, it's more, it's, you know, fairly soon followed by a trough.
Rajiv: Now starting in mid-2021, we had a massive spike in order volume that lasted for about two years.
Rajiv Prasad: And then we've, what we've seen since then is a fairly sharp decline. Now, in reality, what's going on is our customers put a huge amount of orders in. I think if you think back to the pandemic, you know, people were ordering things. You know, we couldn't spend money on anything else. So, people were buying things, and that drives a lot of demand for, you know, moving material. But the issue was that we could not, nobody put extra capacity in, and the suppliers were constrained. So, although there was a huge amount of orders, the shipment pretty much stayed at the levels they were before the pandemic.
Rajiv: and really kind of eased off by middle of 2023.
Rajiv: And then we've, what we've seen since then is a fairly sharp decline.
Rajiv Prasad: I think if you think back to the pandemic, you know, people were ordering things, we couldn't spend money on anything else. So people were buying things, and that drove a lot of demand for, you know, moving material. But the issue was that we could not, nobody put extra capacity in, and the suppliers were constrained.
Rajiv: Now, in reality, what's going on is...
Rajiv: Our customers put a huge amount of orders in. I think if you think back to...
Rajiv: At the pandemic, you know, people were ordering things, you know, we couldn't spend money on anything else.
Rajiv: So people were buying things, and that drives a lot of demand for, you know, moving material. But the issue was that we could not, nobody put extra capacity in, and the suppliers were constrained. So although there was a huge amount of orders, the shipment pretty much stayed.
Rajiv Prasad: So although there was a huge amount of orders, the shipment pretty much stayed at the levels they were before the pandemic. And it's only recently that customers are starting to get, you know, the trucks they ordered back in 22 and 23. And of course, the environment's changed a little bit since then, and they're figuring out what to do with the truck.
Rajiv Prasad: And it's only recently that customers are starting to get, you know, the trucks they ordered back in 22 and 23. And of course, the environments changed a little bit since then, and they're figuring out what to do with the trucks. So, what we've seen in the marketplace is still, you know, kind of RFQ or request for quote activities still good, but decisions are taking much longer to make by customers. And I think that's a sign of the customers really looking at, you know, how to digest the trucks they're being delivered that are being delivered now.
Rajiv: at the levels they were before the pandemic.
Rajiv: And it's only recently that customers are starting to get, you know, the trucks they ordered back in 22 and 23.
Rajiv Prasad: So what we've seen in the marketplace is still, you know, the kind of RFQ or request for quote activity is still good, but decisions are taking much longer to make by customers. And I think that's a sign of customers really looking at, you know, how to digest the trucks that are being delivered now and then really not wanting to order well ahead of when they need the truck and waiting for the lead time to normalize. So I think that's the dynamic that's playing out in the industry. If you think about it financially, there isn't, you know, there's not a big drop.
Rajiv: And, of course, the environment's changed a little bit since then.
Rajiv: And they're figuring out what to do with the truck. So what we've seen in the marketplace...
Rajiv: is still, you know, kind of RFQ or request for quote activity is still good, but decisions are taking much longer to make by customers. And I think that's a sign of the customers really looking at
Rajiv Prasad: And then really not wanting to order well ahead of when they need the truck and waiting for the lead times to normalize. So, I think that's the dynamic that's playing out in the industry. If you think about financially, there isn't, you know, there's not a big drop; you know, you look at the PMI data, it's not a big drop. So, I think the market is stable. I think, as Al said, but we see this. Spike for two years, and we're going to see a bit of a draw in a trough while it makes up for it.
Rajiv: You know, how to digest the trucks that are being delivered now, and then really not wanting to order well ahead of when they need the truck and waiting for the lead times to normalize.
Rajiv Prasad: You know, if you look at the PMI data, it's not a big drop. So I think the market is stable, as Al said. But we see this spike for two years, and we're going to see a bit of a drop in a trough while it makes up for it. Now, it's less elsewhere. The spike wasn't as big in Europe and Asia if you exclude China, and then the trough will also be pretty shallow. And from the data we are getting and estimating, we see Europe and Asia Pacific will normalize. Now we have our backlog. So I think that's the dynamic that's going on in the marketplace.
Rajiv: So I think that's the dynamic that's playing out in the industry. If you think about financially, there isn't, you know, there's not a big drop.
Rajiv: You know, you look at the PMI data, it's not a big drop, so I think the market is stable, I think, as Al said, but we see this...
Rajiv Prasad: Now, it's lesser elsewhere. The spike wasn't as big in Europe and Asia, if you exclude China. And then the trough will also be pretty shallow. And from the data we are getting and estimating, we see Europe and Asia Pacific will normalize quicker, and it's already in the process of doing that. We think America's will, North America will go into early 2025 before it normalizes. Now, we have our backlog. So, I think that's the dynamic that's going on in the marketplace. We have our backlog, as we've said for the last few conference calls, to, you know, absorb that trough.
Rajiv: Spike
al: For two years and we're going to see a bit of a drop in a trough
al: While it makes up for it now, it's lesser elsewhere. The spike wasn't as big in Europe and
al: And Asia, if you exclude China, and then the trough will also be pretty shallow. And from the data we are getting and estimating, we see Europe and Asia-Pacific will normalize quicker.
al: It's already in the process of doing that. We think North America will go into early 2025 before it normalizes.
Rajiv Prasad: We have our backlog, as we've said, for the last few conference calls to, you know, absorb that trough, and we really have done that this quarter, and we will be doing that again over the next couple of quarters. As we said, our backlog is about $2.5 billion. At normal times, with the current market rates and pricing, that would be somewhere between $850 and $1 billion. So that's the excess backlog we've still got to work through. Does that help?
al: Now we have our backlog. So I think that's the dynamic that's going on in the marketplace.
Rajiv Prasad: And really, we've done that this quarter, and we will be doing that again over the next couple of quarters. As we've said, our backlog is about two and a half billion dollars. At normal times, our market rates and pricing, that would be somewhere between 850 and a billion dollars. So, that's the excess backlog we've still got to work through.
al: We have our backlog, as we've said, for the last few conference calls.
al: to, you know, absorb that trough. And we really we've done that this quarter, and we will be doing that again over the next couple of quarters.
al: As we've said, our backlog is about $2.5 billion.
al: At normal times, the current market rates and pricing, that would be somewhere between $850 and $1 billion. So that's the excess backlog we've still got to work through. Does that help?
Rajiv Prasad: Does that help?
Rajiv Prasad: Let me just add to that. It's a moderate way, if I could. It's very easy in this industry to think that the market is directly and immediately associated with revenues and operating profit. But, as you've outlined, when the market goes into a backlog and the backlog is in an excess position, the real question is, what are the prospects for shipping? As it's shipping that turns into revenues, and as Rajeev indicated, we have a substantial backlog. We're continuing to receive bookings in, particularly in North America, where this situation is most significant. And between the existing backlog and the bookings levels we are receiving, we're filling the open slots in a reasonable fashion.
Unknown Executive: Let me just add to that in a moderate way, if I could. It's very easy in this industry to think that the market is directly and immediately associated with revenues and operating profit. But as Rajiv has outlined, when the market goes into a backlog, and the backlog is in an excess position, the real question is, what are the prospects for shipping, as it's shipping that brings in revenues. And, as Rajiv indicated, we have a substantial backlog.
Speaker Change: Let me just add to that only in a moderate way, if I could.
Speaker Change: It's very easy in this industry to think that the market is directly and immediately associated with revenues and operating profit, but as Rajiv has outlined,
Speaker Change: When the market goes into a backlog and the backlog is in an excess position, the real question is, what are the prospects for shipping?
Unknown Executive: We're continuing to receive bookings, particularly in North America, where this situation is most significant, and between the existing backlog and the booking levels we are receiving, we're filling the open slots in a reasonable fashion, and there are relatively few open slots left for 2024.
Rajiv: As it's shipping that turns into revenues.
Rajiv: And as Rajiv indicated, we have a substantial backlog. We're continuing to receive bookings in particularly in North America where this situation is most significant.
Rajiv: And between the existing backlog and the bookings levels we are receiving,
Rajiv Prasad: And there're relatively few open slots left for 2024. So the shipment levels and therefore the revenues and therefore the operating profits are pretty much within a view for us.
Rajiv: We're filling the open slots in a reasonable fashion.
Unknown Executive: So the shipment levels and, therefore, the revenues and, therefore, the operating profits are pretty much within view for us. 2025, particularly in the second half, may depend on returning bookings to more normal levels. But we think there's adequate time for that to occur unless there's a big downturn in the economy in general in the United States. And at this point, you know, that's really not in anybody's economic forecast. Obviously, it could happen.
Speaker Change: and there are relatively few open slots left for 2024.
Rajiv Prasad: 2025, particularly in the second half, may depend on the return of bookings to more normal levels, but we think there's adequate time for that to occur, unless there's a big downturn in the economy in general in the United States. And at this point, that's really not in anybody's economic forecast. Obviously, it could happen, but we do this as much more of an adjustment of factory bookings to get back. As Rajeev said, to normalize rates over time, and that our shipping shipments can continue at the appropriate level. So our encouragement is to keep your eye on shipments and keep the bookings in perspective in terms of the lags that are involved before they turn into it.
Speaker Change: The shipment levels and therefore the revenues and therefore the operating profits are pretty much
Speaker Change: within view for us.
Speaker Change: 2025, particularly in the second half.
Speaker Change: May depend on return bookings to more normal levels, but we think there's adequate time for that to occur, unless there's a big downturn in the economy in general in the United States.
Speaker Change: And at this point...
Speaker Change: You know, that's really not in anybody's economic forecast. Obviously, it could happen, but we view this as much more of an adjustment of factory bookings to get back, as Rajiv said, to
Unknown Executive: But we view this as much more of an adjustment of factory bookings to get back, as Rajiv said, to normalized rates over time and that our shipments can continue at the appropriate level. So our encouragement is to keep your eye on shipments and a little and keep the bookings in perspective in terms of the lags that are involved before they turn into
Speaker Change: Normalized
Rajiv: Rates over time.
Speaker Change: and that our shipments can continue at the appropriate level. So our encouragement is to keep your eye on shipments and keep the bookings in perspective in terms of the lags that are involved before they turn into shipments.
Rajiv Prasad: This is a very helpful color, Rajiv, and Alan. I guess a follow-up on that excess buffer, the backlog, you know, still historically elevated. Can you talk about cancellations that you've seen and risks that, you know, those could accelerate? Yeah, I mean, firstly, I'll talk about the industry. We've certainly seen industry have cancellations. There are some very, there are general reasons for that where customers, you know, order trucks, and they don't need them anymore, but mostly special cases. I probably won't go into each one, especially about that competitive. In our case, we saw in a normalized levels of cancellation until about four months ago, when we saw some larger cancellations predominantly from third-party rental companies, and as they've seen their utilization drop, and also retail and some light manufacturing.
Unknown Executive: That's very helpful color, Rajiv and Al. And I guess a follow-up on that excess buffer, the backlog, you know, still historically elevated. Can you talk about cancellations that you've seen and the risk that, you know, those could accelerate? Yeah, I mean, firstly,
Speaker Change: That's a very helpful color, Rajiv and Alan. I guess a follow-up on that excess buffer, the backlog, you know, still historically elevated. Can you talk about cancellations that you've seen and risks that, you know, those could accelerate?
Unknown Executive: Yeah, I mean, firstly, I'll talk about the industry. We've certainly seen some cancellations. There are some very serious reasons for that. Customers, you know, order trucks and they don't need them anymore, but mostly special cases; probably won't go into each one, especially about our competitors. In our case, we saw normalized levels of cancellation until about four months ago, when we saw some larger cancellations, predominantly from third-party rental companies.
Speaker Change: Yeah, I mean, firstly, I'll talk about the industry. We've certainly seen industry have cancellations. There are some very...
Unknown Executive: And as they've seen their utilization drop, and also retail, and some light manufacturing. And I think, again, they're just matching, you know, their... As you can imagine, there's been a lot of change in retail, with new store openings or new store modernization. I think some of that's been scaled back, and that's reflected in some of the cancellations and deferrals. And then, you know, light manufacturing, again, they're scaled back in what their plan was to expand that element, and so we've seen some of that. We did a quick survey with our customer base, and we expect that to normalize within the next couple of months. It's not a big concern for us.
Rajiv Prasad: And I think, again, they're just matching. You know, there, as you can imagine, there's been a lot of change in retail: new store opening, or new store modernization. I think some of that's been scaled back. That's reflected in some of the cancellations and deferrals. And then, you know, light manufacturing, again, they're scaled back in what their plans was to expand that element, and so we've seen some of that. We've done a quick survey with our customer base, and we expect that to normalize within the next couple of months, but it's not a big concern for us.
Speaker Change: Third-party rental companies, and as they've seen their utilization drop, and also retail and some light manufacturing, and I think, again, they're just matching, you know, their...
Speaker Change: Element and so we've seen some of that. We've done a quick survey with our customer base and we expect that to normalize within the next couple of months with it's not a big concern for us.
Chip Moore: Got it. Okay, no, that's, that's very helpful.
Chip Moore: Got it. Okay, no, that's, that's very helpful. And maybe if I could ask one more, more so on the longer term operating model. Obviously, we've got to get through some normalization here and potential cyclicality that we'll see what happens. But just as you look out, can you expand how you're thinking about the manufacturing and supply chain optimization piece? I think in the slides, you talked about a 70% reduction in suppliers over the next four years. That definitely caught my attention.
Chip Moore: And maybe if I could ask one more, more so on the longer term operating model. Obviously, we've got to get through some normalization here and potential sick quality; that we'll see what happens. But just as you look out, can you expand how you're thinking about the manufacturing and supply chain optimization piece? I think in the slides, you talked about a 70% reduction in suppliers over the next four years that definitely caught my attention. Just being on that, and how are you thinking about free cash flow generation in particular? When do you think we start to see that?
Speaker Change: Got it. Okay. No, that's, that's very helpful. And maybe if I could ask one more, more so on the longer term operating model, obviously, we've got to get through some normalization here.
Chip Moore: Just expand on that. And how are you thinking about free cash flow generation in particular? When do you think we will start to see that accelerate? Sure.
Unknown Executive: Sorry. Sure.
Unknown Executive: I'll cover it at a high level, Chip, if you don't mind. So if you look at our old platform that we're phasing out in the one to three, I'll just use this as an example, one to three and a half ton trucks. Um, globally, we had 750 suppliers, let's say, at a round number for those products. Moving forward, that's going to be closer to 150.
Speaker Change: 4 years that definitely caught my attention just being on that and how are you thinking about Pre-cash flow generation in particular when you think we start to see that accelerate
Unknown Executive: I'll cover it at a high level, Chip, if you don't mind. So if you look at our old platform that we're, you know, phasing out in the one to three, I'll just use this as an example, one to three and a half ton trucks globally. We had 750 suppliers, let's say, at a, at a round number for those products. Moving forward, that's going to be closer to 150. So, you know, that's a dramatic reduction in suppliers globally. And the, of course, then each supplier gets more, you know, more business. And what we're asking some of the larger suppliers to do is now get closer to our key plants.
Chip Moore: Sure. I'll cover it at a high level, Chip, if you don't mind. So if you look at our old platform that we're, you know, phasing out in the one to three, I've just used this as an example, one to three and a half ton,
Unknown Executive: So, you know, that's a dramatic reduction in suppliers globally. And, of course, then each supplier gets more, you know, more business, and what we're asking some of the larger suppliers to do is now get closer to our key plans. So they can provide products just in time and sequence. That's the, you know, that's where we think that we're going to change the characteristics of our working capital as it affects the manufacturing inventory. The other thing is that we're again.
Chip Moore: Globally, we had 750 suppliers, let's say, at a round number for those products. Moving forward, that's going to be closer to 150.
Chip Moore: So, you know, that's a dramatic reduction in suppliers globally.
Chip Moore: And the, of course, then each supplier gets more, you know, more business. And what we're asking some of the larger suppliers to do is now get closer to our key plants.
Unknown Executive: So they can, you know, provide products just in time and sequence. and that's the, you know, that's where we think that we're going to change the characteristics of our working capitalists as it affects the manufacturing inventory. The other thing is we're, again, near our major manufacturing sites, we're putting in mod centers where, you know, trucks can have some additions put on the trucks that our customers need and then ship directly to. These are mostly for major accounts so they can be shipped directly again in accelerating the cash cycle.
Chip Moore: That's the, you know, that's where we think that we're going to change the characteristics of our working capital as it affects the manufacturing inventory. The other thing is we are, again,
Chip Moore: Near our major manufacturing sites, we're putting in mod centers where, you know,
Chip Moore: Put on the trucks that our customers need and then ship directly to, these are mostly for major accounts, so they can be shipped directly, again, accelerating the cash cycle.
Unknown Executive: So there's some actions; you know, those are just a couple of examples of a host of actions we've got planned over the next few years.
Rajiv Prasad: Maybe Rajiv, if I could add on the free cash flow generation chip, you know, we have a significant goal in inventory or working capital reduction this year. And we made some progress on that in Q2. We said inventory was down about 6%, mainly on the working, or the working process, and the raw materials where we're having some success in holding back incoming material and using that to build on hand. And so, while we're behind a bit from where we expected, I think you did see some progress in Q2, and we expect that to accelerate in Q3, which will help get us toward that goal of significant free cash flow or operating cash flow generation this year as compared to last year.
Unknown Executive: Transcripts provided by Transcription Outsourcing, LLC. Work, or the working process and the raw materials, where we're having some success in holding back incoming material and using that to build on hand. So while we're behind a bit from where we expected, I think you did see some progress in Q2. And we expect that to accelerate in Q3, which will help get us toward that goal of significant free cash flow or operating cash flow generation this year as compared to last year. I'd add to that.
Chip Moore: where we're having some success in holding back incoming material and using that to build on hand. So while we're behind a bit from where we expected,
Speaker Change: I think you did see some progress in Q2, and we expect that to accelerate in Q3, which will help get us toward that goal of significant free cash flow or operating cash flow generation this year as compared to last year.
Unknown Executive: I'd add to that, in addition to the effect on inventory that Scott just described, that payables are at a somewhat reduced level at the moment, and as we get back to a normalized situation in terms of the inventory reduction, the payables will also go up. So you have a significant net reduction with our target being to have that pretty much enhanced out, I believe, by the end of the year.
Scott Minder: I'd add to that that, in addition to the effect on inventory that's not just described, that payables are at a somewhat reduced level at the moment. And as we get back to a normalized situation in terms of the inventory reduction, the payables will also go up. So you have a significant net reduction, with our target being to have that pretty much enhanced. God, I believe by the end of the year. That's correct out.
Speaker Change: at the moment.
Speaker Change: And as we get back to a normalized situation in terms of the inventory reduction, the payables will also go up. So you have a significant net reduction with our target being to have that pretty much in hand, Scott, I believe, by the end of the year.
Chip Moore: Great, very helpful. If I could sneak one last one in just separately. Nuvera, you talked about some of the interest there in these newer generator products that the market seems to have developed fairly rapidly just Transcripts provided by Transcription Outsourcing, LLC.
Chip Moore: Great, very helpful.
Rajiv Prasad: I could sneak one last one in just separately. New Vera, you talked about some of the interest there on these newer generator products that market seems to develop fairly rapidly. Just expand a bit on what you're seeing there and that potential opportunity. Yeah, sure. You know, I think as we, we're working with a partner, we put the prototype together and we felt that this was an area that would be valuable to some segments of the market. And the team took that prototype, you know, after testing it, they took it to the one of the ACT show, Clean Air kind of show in California for vehicles.
Scott: That's correct, yeah.
Scott: Great. Very helpful. If I could sneak one last one in just separately. Nuvera, you talked about some of the interest there on these newer generator products. That market seems to have developed fairly rapidly.
Unknown Executive: Yeah, sure. I think as we worked with a partner, we put a prototype together, and we felt that this was an area that would be valuable to some segments of the market. And the team took that prototype, you know, after testing it, they took it to one of the ACT shows, a clean air kind of show in California for vehicles, and we got an amazing response to that.
Speaker Change: Expand a bit on what you're seeing there and that potential opportunity.
Speaker Change: Yeah, sure. You know, I think as we, between working with a partner, we put a prototype together and we felt that this was an area that would be valuable to some segments of the market.
Unknown Executive: I mean, from many segments that we hadn't thought about. We thought about the primary ones, which are which were recharging vehicles. You know, in the field and also in some of the high congestion in a kind of rental environment such as airports and, you know, major cities where there is, you know, an electricity supply is a constraint for charging vehicles. But then we started hearing about, you know, people wanted zero emission charges, charging solutions, not really charging is power, you know, mobile power solutions for, you know, film sets and, you know, for working in a city where there's noise and pollution constraints pretty much all over the world in major cities.
Speaker Change: And the team took that prototype, you know, after testing it, they took it to the one of the ACT show, clean air kind of show in California for vehicles. And we got amazing response to that. I mean, from
Rajiv Prasad: And we got amazing response to that. I mean, from many segments that we hadn't thought about, we thought about the primary ones, which was recharging vehicles. You know, in the field and also in some of the high congestion in a kind of rental environment, such as airports and, you know, kind of major cities, where there is electricity supply is a constraint for charging vehicles. But then we started hearing about, you know, that people wanted zero emission charges charging solutions, not really charging is power, you know, mobile power solutions for, you know, film sets and, you know, for working in a city where there's noise and pollution constraints, pretty much all over the world in major cities.
Speaker Change: You know, in the field and also in some of the high congestion in a kind of rental environment such as
Speaker Change: Airports and, you know, kind of major cities where there is, you know, electricity supply is a constraint.
Speaker Change: for charging vehicles. But then we started hearing about, you know, that people wanted zero emission charging solutions. Not really charging, it's power.
Speaker Change: you know, mobile power solutions for, you know, film set, and
Rajiv Prasad: So now the team is really, you know, understanding the needs by segment, developing the prototype into a finished product and, you know, kind of doing the initial launch. early next year, and then we'll go into full production launch later on in 2025. That's the plan for what we will call the Hydrocharge System.
Unknown Executive: So now the team is really, you know, understanding the needs by segment, developing the prototype into a finished product and, you know, kind of doing the initial launch early next year, and then we'll go into full production later on in 2025. So that's the plan for what we'll call the hydrocharge system.
Speaker Change: You know, for working in a city where there's noise and pollution constraints.
Speaker Change: pretty much all over the world, in major cities. So now the team is really, you know, understanding the needs by segment, developing the prototype into a finished product. And, you know, kind of doing the initial launch.
Speaker Change: Early next year, and then we'll go into full production launch later on in 2025. So that's the plan for what we'll call the HydroCharge system.
Unknown Executive: Fantastic. I appreciate all the color. I'll hop back in queue. Thanks very much.
Christina Kmetko: Ladies and gentlemen, again, if you have any questions, please press the star followed by the number one on your touchtone phone, and you will hear your you will hear a prompt that your hand has been Again, if you have any questions, please press the star followed by the number one on your touchtone phone, and you will hear a prompt that your hand has been raised. There are no further questions at this time. I'd now like to turn the call back over to Ms. Christina Kmetko for final closing comments.
Speaker Change: Fantastic. I appreciate all the color. I'll back in a few. Thanks very much.
Unknown Executive: If you have any questions, please press the star, follow it with the number one on your touchstone phone, and you will hear a prompt that your hand has been raised. Again, if you have any questions, please press the star, follow it with the number one on your touchstone phone, and you will hear a prompt that your hand has been raised.
Speaker Change: Ladies and gentlemen, again, if you have any questions, please press the star followed by the number one on your touchtone phone, and you will hear a prompt that your hand has been raised.
Speaker Change: Again, if you have any questions, please press the star followed by the number one on your touchtone phone, and you will hear a prompt that your hand has been raised.
Unknown Executive: There are no further questions at this time.
Christina Kmetko: I'd now like to turn the call back over to Ms. Christina Kmetko for final closing comments. Okay, thank you so much. We appreciate everybody's participation. A replay of the call will be available later this morning, and we'll also post a transcript on the website when it becomes available. If you do have any follow-up questions, please reach out to me. My information is in the press release.
Christina Kmetko: Okay, thank you so much. We appreciate everybody's participation. A replay of the call will be available later this morning, and we'll also post a transcript on the website when it becomes available. If you do have any follow-up questions, please reach out to me. My contact information is in the press release. Hope you enjoy the rest of your day, and I'll turn it back over to Nick to conclude the call.
Speaker Change: There are no further questions at this time. I'd now like to turn the call back over to Ms. Christina Kmetko for final closing comments.
Christina Kmetko: Okay, thank you so much. We appreciate everybody's participation. A replay of the call will be available later this morning and we'll also post a transcript on the website when it becomes available.
Unknown Executive: Hope you enjoy the rest of the day, and I'll turn it back over to Nick to conclude the call.
Christina Kmetko: If you do have any follow-up questions, please reach out to me. My information is in the press release. I hope you enjoy the rest of your day, and I'll turn it back over to Nick to conclude the call.
Unknown Executive: Thank you.
Operator: Our replay of this presentation will be available by dialing 888-660-6345 using the passcode 98465 until Wednesday, August 14, 2024 at 11:59 p.m. Eastern Time Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Unknown Executive: Our replay of this presentation will be available by dialing 888-660-6345 using the passcode 98465 until Wednesday, August 14, 2024, at 11:59 PM Eastern Time.
Nick: Thank you.
Nick: A replay of this presentation will be available by dialing 888-660-6345.
Nick: Using the passcode 98465 until Wednesday, August 14, 2021.
Unknown Executive: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a good one.
Speaker Change: in 2024 at 11.59 p.m. Eastern Time.
Nick: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a good one.
Speaker Change: Okay. Can I have sound? Yes.