Q3 2024 Alta Equipment Group Inc Earnings Call

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Thank you. Bye-bye.

Speaker Change: Good afternoon and thank you for attending the Alter Equipment Group 3rd Quarter 2024 Earnings Conference Call. My name is Elliot and I'll be your moderator for today's call. I'll now turn the call over to Jason Dammeyer, Director of SEC Reporting and Technical Accounting with Alter Equipment Group.

Jason Dammeyer: Thank you, Elliot. Good afternoon, everyone, and thank you for joining us today. A press release detailing Alta's third quarter 2024 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.

Jason Dammeyer: On the call with me today are Ryan Greenawalt, our Chairman and CEO, and Tony Colucci, our Chief Financial Officer.

Jason Dammeyer: For today's call, management will first provide a review of our third quarter 2024 financial results. We will begin with some prepared remarks before we open the call for your questions. Please proceed to slide 2.

Jason Dammeyer: 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.

Jason Dammeyer: 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.

Jason Dammeyer: We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations.

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

Jason Dammeyer: 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.

Speaker Change: 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.altaequipment.com. I will now turn the call over to Ryan.

Ryan Greenawalt: Thank you, Jason. Good afternoon, everyone, and thank you for joining us today. I will begin with a quick overview of our third quarter results, then provide a current assessment of the business conditions in our end-user markets.

Ryan Greenawalt: Tony Colucci will then present a more detailed analysis of our financial and operating performance for the quarter and our outlook for the balance of 2024.

Ryan Greenawalt: But before we dive in, I want to take a moment to recognize and extend our thoughts to our Florida team members who have been impacted by Hurricanes Helene and Milton. We know this has been a challenging time and your resilience and dedication are inspiring. We're committed to standing by you every step of the way as you navigate the recovery process.

Now to my prepared remarks.

Ryan Greenawalt: Like many other industrial companies, our third quarter results continue to be impacted by the ongoing uncertainty in our end-user markets, particularly regarding customers' commitment to capital investments and purchasing new equipment.

Ryan Greenawalt: This dynamic has been most impactful in our construction equipment segment where new and used equipment revenues decreased by 44.5 million or 29.5% on an organic basis. Many customers put capital investments on hold in the third quarter while they awaited election outcomes and more clarity on interest rates.

Ryan Greenawalt: However, post-election, sentiment has already improved, and we anticipate that customers will deploy capital more broadly in the fourth quarter and into 2025.

Ryan Greenawalt: During the third quarter, we also saw positive impacts from our business optimization initiatives as we reduced general and administrative expenses when compared to earlier in the year. Despite a difficult revenue quarter, we are proud of the progress made with our balance sheet, reducing rental fleet and working capital, which allowed us to deleverage by nearly $40 million in the quarter.

Ryan Greenawalt: While the equipment sales market has been disappointing in 2024, our dealership model with diverse revenue streams has shielded our business from market cyclicality.

Ryan Greenawalt: Our rent-to-sell approach to the equipment rental market also enabled us to react quickly, selling off lightly used fleet and right-sizing our balance sheet efficiently.

I will now talk about segment performance.

Ryan Greenawalt: In our Construction Equipment segment, revenues declined as demand softened, leading to a drop in new and used equipment sales. Rental revenue also decreased in this segment based on lower-than-expected physical utilization of equipment.

Ryan Greenawalt: Product support revenues held up and was boosted by additional technician headcount and higher market rates for labor.

Ryan Greenawalt: Despite these competitive pressures, we continue to capture market share thanks in part to the market positioning of our product portfolio and our lead time advantage in certain product models.

Ryan Greenawalt: Collectively, from all segments, our high-margin product support business continues to perform strongly, with revenue increasing 7.8% to $140.2 million.

Ryan Greenawalt: This demonstrates the stability of our dealership model that our dealership model provides, ensuring that our business remains resilient even amidst fluctuations in the equipment market.

Ryan Greenawalt: Turning to e-mobility, we have an exciting update regarding process progress in this segment, specifically our efforts to commercialize hydrogen fuel cell electric vehicles.

Ryan Greenawalt: We are excited to share that Alta has delivered Nikola Fuel Cell EV trucks to DHL, marking a significant advancement in our electrification strategy. Alta is providing these vehicles to DHL on a turnkey, full-service lease.

Ryan Greenawalt: The first fuel cell electric vehicles, or FCEVs, have been deployed in Illinois, complementing the battery electric vehicles we already have operating in the Chicagoland area. Our product will be serviced out of our Calumet City, Illinois facility, ensuring top-notch maintenance and uptime.

Turning to Future Outlook.

Ryan Greenawalt: Looking ahead to 2025, we expect a normalization in the oversupply of new equipment in the first half of the year and construction equipment spending to be supported by easing interest rates and more favorable lending conditions.

Ryan Greenawalt: Infrastructure-related project pipelines are strong, and state DOT budgets are expected to remain elevated.

Ryan Greenawalt: The recent election outcome may further drive near-term demand for construction equipment fueled by anticipated infrastructure investments and favorable policies. Additionally, the administration's proposed tax cuts, regulatory reductions, and incentives for domestic manufacturing could prompt businesses to expand facilities.

Ryan Greenawalt: The opportunities in our material handling business remain favorable. We are confident that our strong relationship with HysterGale, unmatched product support capabilities, and resilient diversified end markets will enable us to capture further market share in 2025. We are particularly focused on increasing our share of the electrified product classes, where we maintain a competitive advantage in lead times.

Ryan Greenawalt: Additionally, we expect our e-mobility business to gain further traction as customers begin the shift to electrify their vehicle fleets. We currently have a sales backlog of approximately $20 million, with most of that expected to convert in the next six months.

Now I'd like to elaborate on our strategic focus.

Ryan Greenawalt: At Alta Equipment Group, our success and sustainability are powered by a purpose-driven culture that aligns with our strategic vision.

Ryan Greenawalt: Our focus is centered on three key areas. One, optimizing our business. Two, delighting our customers. And three, developing and retaining top talent.

Ryan Greenawalt: Our guiding principles, invest in the best, passion for excellence, mutual respect.

One Team, and Customers for Life.

Ryan Greenawalt: continue to shape our leadership and operations. They are the foundation of our purpose-driven culture and the key to achieving sustainable growth and shareholder value.

Ryan Greenawalt: To further support our shareholders and in line with our positive outlook for 2025, our Board of Directors has expanded our Share Buy Back program to $20 million, which we will deploy if opportunistic dislocations between the company's long-term value and share price arise.

In conclusion.

Ryan Greenawalt: While 2024 has presented its challenges, the dedication of our nearly 3,000 employees to our core principles has been unwavering. I'm incredibly proud of their commitment, which has been instrumental in navigating this tough market.

Ryan Greenawalt: As we look to 2025, we remain focused on executing our strategy, fostering a culture of trust and excellence, and positioning Alta Equipment Group for long-term success. Now I'll turn it over to Tony for a detailed analysis of our financial and operating performance.

Tony Colucci: Thanks, Ryan. Good evening, everyone, and thank you for your interest in Alta Equipment Group and our third quarter 2024 financial results.

Tony Colucci: Before I begin, I wanted to tell you that I've been working at Pettit.

Tony Colucci: of Hurricane Celine and Milton which affected our Ulta family and valued customers in Florida as well as Hyster Yell and our sister dealers in North Carolina.

Tony Colucci: Your resilience and commitment to one another, your communities, and to our business is inspiring and our thoughts and full support continue to be with all of you through the rebuilding process.

Tony Colucci: My remarks today will focus on three areas. First, I'll be presenting our third quarter results as our performance lagged expectations as we saw the equipment sales and rental environment deteriorate versus Q2.

Tony Colucci: Second, I'll reference key balance sheet movements in the quarter which counterbalance the challenge quarter on the P&L and is indicative of our business model's ability to efficiently flex in a difficult market.

Tony Colucci: As part of that commentary, I'll update investors on our efforts to optimize the business from a fleet and cost perspective as we head towards year-end.

Tony Colucci: Lastly, I'll update our adjusted EBITDA guidance range for 2024, and in doing so, present a pro forma benchmark financial profile for the business, and discuss what needs to happen relative to our 2024 performance for us to achieve this target profile.

Tony Colucci: Before I get to my talking points, it should be noted that I will be referencing slides from our investor presentation throughout the call today. I'd encourage everyone on today's call to review our presentation and our 10Q, which is available on our investor relations website at altg.com.

Tony Colucci: With that said, for the first portion of my prepared remarks and as presented in slides 11 to 16 on the earnings deck, third quarter performance.

Tony Colucci: For the quarter, the company recorded revenue of $448.8 million, which is down $17.4 million versus Q3 of last year, and down $39.3 million sequentially against Q2, with the majority of that missed coming from the new and used equipment sales line.

Tony Colucci: Embedded in the $448.8 million of revenue for the quarter is product support revenue of $140.2 million.

Tony Colucci: Despite challenges on the new equipment sales line, importantly, we continue to realize organic growth in our high-margin parts and service departments, with that figure increasing 4% year-over-year.

Tony Colucci: To close out the revenue lines, as it relates to our rental business, we sell rental revenues of $53.7 million to the quarter, which was effectively flat versus last year, and flat sequentially versus Q2.

Tony Colucci: Breaking down the segments, our material handling segment was effectively flat year-over-year at approximately 170 million dollars of revenue for the quarter as we navigated depressed equipment sales market and continue to work through notable equipment sales backlog.

Tony Colucci: Importantly, material handling equipment sales margins have held up relatively well versus last year despite the increase of lift truck supply in the market.

Tony Colucci: Additionally, product support revenues increased 3.5% year-over-year while rental revenue held relatively flat. Notably, segment level income from operations for the third quarter came in at 7.1 million dollars.

Tony Colucci: On to the construction segment. We achieved $262.3 million in revenue for the quarter, representing a decrease of $41.4 million organically when compared to last year.

Tony Colucci: Despite continued organic growth in parts of service and increasing gross margins and product support.

Tony Colucci: We continue to lag our prior numbers and expectations on equipment sales as those sales were down $40.6 million versus last year on an organic basis and down $31.8 million sequentially versus Q2 2024.

Tony Colucci: We continue to see our small to mid-sized contractor customer base reluctant to spend on new equipment in the face of the election and interest rate macro backdrop.

with the most acute impact affecting our September results.

Tony Colucci: Lastly, as it relates to the construction rental fleet, rental revenues were effectively flat versus last year and sequentially versus Q2.

Tony Colucci: Notably, the history of our construction business suggests that Q3 rental revenue typically outpaces Q2, a phenomenon that we did not see play itself out this past quarter.

Tony Colucci: In the master distribution segment, we achieved total revenues of $18.2 million, which came in slightly higher than last year.

Tony Colucci: All told, on a consolidated basis, we realized $43.2 million of adjusted EBITDA for the quarter, which is down $7.8 million from the adjusted level of third quarter 2023. On a trailing 12-month basis, adjusted pro forma EBITDA is now $178 million.

Tony Colucci: which converts into $91.7 million of pro-forma economic EBIT or the company's version of steady-state unlevered free cash flow.

Tony Colucci: In summary, new and used equipment sales and physical utilization in our rental fleet primarily concentrate in our construction segment, underperform sequentially versus Q2, and relative to our internal expectations for the quarter.

Tony Colucci: As a mitigating factor, our product support business once again proved its resilience and acted as a protective element against a volatile equipment sales line and continued to grow organically in the quarter.

Now for the second portion of my prepared remarks.

Tony Colucci: Despite a tough quarter for the P&L in what is a difficult-to-predict spot market for construction equipment, we view our cash flow and balance sheet performance as a net positive for the quarter.

Tony Colucci: As depicted on slide 19, and in line with plans that we've discussed previously, we're able to react to a depressed demand environment by reducing rental fleet by $18.2 million and optimize working capital during the quarter, both of which led to us paying down funded debt by $39 million in the quarter.

Tony Colucci: Additionally, after two quarters of SG&A expenses at approximately $115 million per quarter, we saw that number come in at approximately $111 million in Q3.

Tony Colucci: indicative of management's focus on our optimization efforts centered on the right products, right people, and right customers.

Tony Colucci: Lastly, and also as depicted on slide 19, I wanted to note for investors that we have been responsible with our capital deployment in 2024, given business conditions.

Tony Colucci: As noted in previous calls, and in line with our flexible business model, after spending $75.9 million of growth capital on the rental fleet in 2023, we have not grown the fleet in 2024.

Tony Colucci: effectively preserving cash flows to pay down debt and not overly speculate on long-term rental demand for heavy equipment.

Tony Colucci: With all that said, from a leverage ratio perspective, despite a challenged numerator for the quarter in terms of adjusted EBITDA, our progress on the denominator, funded debt, allowed us to keep our leverage ratio intact.

Tony Colucci: as that metric came in at 4.6 times trailing 12 months adjusted EBITDA as of 9.30.

Tony Colucci: Investors should keep in mind that as quickly as our leverage ratio has increased in 2024, it can reverse just as quickly in the future. Additionally, investors should note that our debt is covered by tangible assets, mainly in the money rental fleet and parts inventory.

Tony Colucci: While our EBITDA can have been flow quarter to quarter, asset coverage on the balance sheet is less volatile, and to that end, management estimates that at the end of Q3, the company had an estimated billion dollars of tangible assets at fair market value to cover its 820 million dollars in net debt.

Tony Colucci: Lastly, on the balance sheet for the quarter, we ended the quarter with an extremely comfortable $320 million of liquidity, which provides for maximum flexibility to operate the business in any macro environment that may be out ahead of us.

Tony Colucci: Now, for the last portion of my prepared remarks, I'll discuss our final update to guidance for fiscal year 2024 and provide a high level target financial profile for the business on what we believe is an achievable state.

Tony Colucci: In terms of the guide, we now expect to report between $170 million to $175 million of adjusted EBITDA for the full year 2024.

Tony Colucci: A few observations here. First, with Q3 coming in below expectations, a reduction to the full year guide was justified as we have achieved $127.6 million in adjusted EBITDA through the first three quarters of 2024.

Tony Colucci: Effectively, given the new annual guide range, on the low end we are expecting a repeat of Q3's $43.2 million adjusted EBITDA, and on the high end something closer to $50 million in Q4.

Tony Colucci: As has been the case the entire year, the variation in that number lies primarily on the hard-to-predict equipment sales line in our construction segment.

Tony Colucci: While the early signs of Q4 are encouraging from an equipment sales perspective, any perceived pickup in equipment sales versus Q3 will likely be offset by our normal seasonal pullback in rental revenue.

Tony Colucci: In summary, given these competing factors, we are effectively guiding to a $43 to $48 million of adjusted EBITDA in Q4, which in turn yields the $170 to $175 million of adjusted EBITDA for the fiscal year 2024.

Tony Colucci: With that guidance in mind and in referencing slide 21, I want to provide investors and analysts with a pro forma view of what we believe is the target financial profile for the business at two billion dollars in revenue, just to reset context given the underperformance of 2024.

Tony Colucci: To be clear, we haven't concluded our budgeting process for 2025, so this slide and common area should not be construed as guidance, but as a north star for what we believe the financial picture of the business looks like in an optimized state at $2 billion in revenue.

Tony Colucci: You will note that slide 21 suggests, one, EBIDTA of $200 million, a level that we have achieved on a pro forma basis historically.

Tony Colucci: The 67% conversion rate is again a level that has been achieved by the business historically.

Tony Colucci: 3. Cash interest of $65 million, which assumes no further deleveraging, and interest rates holding at current levels.

Tony Colucci: And lastly, investors should know at the bottom of the slide, which leaves $65 million of return to the common equity holder.

Tony Colucci: Again, this isn't meant to be guidance for 2025, but when we think about what we've built over the past five years and what we're striving for at a high level, this is the target, which has gotten away from us in 2024.

Tony Colucci: Now, the question is, what are the factors that will again allow us to achieve this level of performance? Broadly, and as we look back on 2024, it's three major things.

Tony Colucci: One, our estimates suggest that the 2024 equipment markets, which impacted both volume and gross margins on sales, cost the business approximately $20 million to be built.

Tony Colucci: 2. Our product support departments, while continuing to modestly grow on an organic basis, have underperformed internal forecasts and are on pace to achieve mid-single-digit growth in 2024.

Tony Colucci: Annually and historically, our target has been to grow product support revenues by at least 10 percent.

Tony Colucci: That said, even if one were to apply an inflationary figure on our approximately $560 million of annual product support revenue at a 50% plus gross margin, the math suggests another $10 million of EBITDA tailwind, so $172.5 million in 2024.

Tony Colucci: EBITDA number, and again, gets us closer to the target profile.

Lastly,

Tony Colucci: We have and will continue to be focused on the SG&A line and as we have saw progress of this in Q3, as we've noted here today. Again, continual focus on this line will only act as another tailwind to bridge the gap between our performance in 2024 and the targeted profile we are aspiring to.

Which brings me to 2025.

Tony Colucci: As a foundational comment, our business has not met our expectations in 2024, and specifically we, as well as many others in and around our industry, overestimated customer demand for equipment.

Tony Colucci: And it's now clear, underestimated, the impact of the uncertainty around the U.S. election and interest rates would have on customer sentiment.

Tony Colucci: That said, the election is over, and interest rates are on the downtrend. As Ryan mentioned, sentiment already appears to have shifted in the past week, and there are long-term tailwinds in each of our business segments.

Tony Colucci: that suggests a reversion back to our historic growth path could be in order in 2025.

Tony Colucci: In that outcome, history will suggest that 2024 was a pause for our customers and not a hard stop, and if experience is our guide, things can't turn as quickly for us in 2025 as they moved against us in 2024.

Tony Colucci: In closing, I would say that we remain bullish about our long-term prospects at Alta and our confidence in our enduring business model.

Tony Colucci: We look forward to operating in a more clear environment in 2025.

Speaker Change: In the meantime, Ryan and I wish all of our 3,000 teammates and all be listening tonight.

a safe, healthy, and happy holiday season.

Speaker Change: Thank you for your time and attention, and I'll now turn it back over to the operator for Q&A.

Speaker Change: Thank you. If you would like to ask a question please press star followed by one on your telephone keypad. If you would like to withdraw your question please press star followed by two.

Speaker Change: When preparing to ask a question, please ensure your device is unmuted locally.

Speaker Change: First question comes from Matt Somerville with DA Davidson. Your line is open, please go ahead.

Speaker Change: Hey there, you've got Canyon Haze on for Mt. Somerville today. Thanks for taking the questions.

Speaker Change: So I kind of wanted to start initially in the equipment sales, if we could maybe get a little bit more color on product lines, geographies, sort of where the weakness is stemming from, if it's broad-based, and maybe how that has changed since we talked the last three months ago. Thanks.

Hey Kenny, it's Tony.

I don't know that much has changed relative to geography.

Speaker Change: in terms of impact. You know if we look at our construction business, Michigan and Florida are the two larger geographies just relative to the others.

And I would just say that the...

Speaker Change: the downturn or the deterioration in equipment sales was more acute than of course we expected and what trend was as we saw in Q2. But it would be both of those regions.

that drove up the majority of the year-over-year variance.

Speaker Change: Okay, thank you. And it would be, I would say too, it would be more the heavy equipment lines versus maybe some of the smaller compact product categories just to answer your question.

Yeah, great. Appreciate it.

Speaker Change: When we think about ALTA returning back to kind of targeted leverage ranges, should we think about an increase in the denominator, or EBITDA, or would there be kind of a larger decrease in the amount of actual sort of debt on the balance sheet? And kind of to that question,

Speaker Change: How much more cash do you think could be pulled from the fleet and is there an ability to do M&A that's...

Speaker Change: kind of a creative-to-the-leverage profile at these kind of market valuations. Thanks.

Speaker Change: I think you'll be taking those in reverse. I do think that we can do a creative M&A

Speaker Change: getting, like we've done historically here, this time last year when we did the Alt deal, I think we can do a creative M&A even at these current kind of trading prices for Alta. Whether or not they're leverage or creative or not, I guess I would answer the same way. Given where our leverage profile is, seller's sort of willingness maybe to take some equity, I think we can be creative to do M&A that way.

Speaker Change: So I don't think anything changes there. Your comment or your question on numerator, denominator, I think what we said that we would be able to do or be focused on at the end of Q2 was reducing the fleet.

and then used the equipment.

Speaker Change: somewhere between 30 and 50 million dollars. We've got to 18 in the quarter here.

Speaker Change: We'll be focused on the denominator, certainly at some point, Canyon.

Speaker Change: as we talked about in kind of our target financial profile, we need the numerator to participate here in getting leverage kind of back in line. So it's a combination of both and I wouldn't pick one or the other, but we're focused on both.

Thank you.

Speaker Change: We now turn to Stephen Ramsey with Thompson Research Group. Your line is open, please go ahead.

Stephen Ramsey: Good evening. I wanted to get some perspective from you around the context.

Stephen Ramsey: and this profile of $2 billion at an implied 10% EBITDA margin.

Speaker Change: Similar to slightly lower, yet the rental fleet may be a bit lower, yet also a higher level of economic EBIT. So I'm curious the puts and takes.

Speaker Change: of how you see the business as different on that pro forma profile versus looking back at the couple of years leading up to the pause year of 2024.

I think, Steve, I, the.

where I would go is just a more capital efficient.

Speaker Change: business relative to those prior years. So if you think about rental revenue, just rent to rent revenue in the EBITDA margins, you know, our margins are no different in that department than some of the larger rental houses, right? Which trade, you know, 50% or higher, let's say, on an EBITDA margin basis.

But it's capital intense, right, the rental business. And so...

Speaker Change: We've never really gotten too caught up in our EBITDA margin, more focused on

capital efficiency. So despite it maybe being higher historically,

Speaker Change: I think what we were trying to paint a picture of, we want to be more dealership than rental house, we want to be more capital efficient than we've been historically. So it's a different 10% EBITDA wise, and that more of it's pushing to the bottom line.

Speaker Change: and and versus versus maybe getting reinvested into the business. And so that would be the difference. It's not it's not

Speaker Change: meant to be taken as, hey, we're going to be less profitable. It's actually the opposite, where we want to be more dealership, less rental house, and be more capital efficient.

Speaker Change: in the third quarter versus the first half. But I wanted to clarify, is that expected to stick in Q4 and in 2025? Or basically, is it fair to annualize that at a $15 or $16 million range, or how should we think about that?

Speaker Change: Yeah, clearly, you know, it's SG&A, obviously, which has the selling element to it. When I when I compare quarters,

Speaker Change: Our Q3 here on the top line was similar to Q1. And we're down, as you mentioned, if you compare Q1 to Q3, 4 million bucks.

on that line item.

Speaker Change: I think, Steve, we have implemented a few things to get rid of some fixed costs here.

where the majority of that will stick.

Speaker Change: That said, and the other thing to point out, we did note an uptick here in October.

and we feel like we're optimistic here about...

Speaker Change: Q4 and so commissions to the sales team are likely up. So it's a long way maybe of saying we expect the majority of that to stick but maybe not all of it as we head to Q4 here.

Okay, okay. That's helpful and I'll stop there. Thanks.

Speaker Change: Our next question comes from Ted Jackson with Northland Securities. Your line is open, please go ahead.

Thanks very much.

Speaker Change: Listen to the Hyster Yale call, and they talk about, you know, the demand for, you know, I guess you call bookings for lift trucks in 2025. And, you know, the forecast is for them to actually be down.

Speaker Change: through 25 with, you know, really a soft, you know, call it, you know, first half of 25 and then a pickup in the second half of the year. And granted, you know, they're an equipment OEM, you're a distributor, but can you sort of, you know, I don't know, cascade that?

Alta as it is for High Street Yale

Tony Colucci: Yeah, hey, Ted, I'll take maybe the front end of that. This is Tony, and then we'll let Ryan weigh in. There's obviously this lag.

Ryan Greenawalt: Right between between what they're kind of forecasting for 25 and then then our view the other element of it is

Ryan Greenawalt: just the ability to take share on the ground as well as allied products, right? Hyster Yale is obviously a major partner of ours, but it's not the entirety of the material handling business.

What we read the comments, what I would say is.

We have a good six to eight months of backlog.

Ryan Greenawalt: that give us some bullishness to say we can at least stay.

Ryan Greenawalt: flat relative to the 23 performance, let's say through the first half of the year.

Ryan Greenawalt: And then I think what, what Eister Yehl mentioned is that they expect bookings to kind of start to come back mid-year. And at that point, I think lead times will be more shorter than they are now. So.

Ryan Greenawalt: You know, when I read their call, they kind of were expecting a flat 2025 in North America. I think they've got some other challenges throughout the globe.

Ryan Greenawalt: But we're not forecasting anything probably other than a flat year in equipment sales for Hysteria Health for 2025.

primarily because of our backlog.

Speaker Change: Yeah, I mean, well, I mean, in fairness to them, they feel that the backlog should be able to allow them to sort of bridge over to where, you know, order.

Speaker Change: orders pick up. So, but nonetheless, you know, it's like, I mean, you look at the end market, you know,

Speaker Change: It's clearly softer in the here and now, and it's like most heavy equipment markets. You know, everyone's kind of on the sidelines in the near term. The comment that stuck with me, Ted, is that the bookings they're taking right now are...

Speaker Change: taking up their production slots toward the end of 25. And obviously, the delivery to the actual customers would push beyond that.

Speaker Change: right for us. So now you're talking about potentially getting into 26.

Ryan Greenawalt: This is Ryan. Tony mentioned it, but I think it's also important to just highlight that we're North America-centric, and they commented that they see a stable market in North America for next year, offsetting tougher areas.

Speaker Change: Okay, shifting over to really more the construction side, you know, hurricanes, if I recall, typically have a bit of a demand to push for

Speaker Change: Alta, when you look at what's happening for you with regards to fourth quarter, how much of that do you think might be driven by the impact from the hurricanes within, you know, the southeast?

Speaker Change: Ted, what we end up, first of all, the human elements at the human element, you know, which is first and foremost, and we both made comments about just kind of how difficult that that's been.

Speaker Change: What ends up happening and what we've seen here recently in our Florida business is an uptake of compact equipment.

Speaker Change: kind of almost, almost, you know, immediately as people are, you know, usually using small wheel loaders and skid steers to kind of clean up. We'll usually see an impact in rental, maybe of those types of units.

Speaker Change: I would say in the broad scheme of things, it adds maybe some elements of demand over the long run, but immaterial probably overall.

Speaker Change: When we when we think about that business, but we did we did see compact equipment pick up almost immediately, but nothing material that you know, we should be

noting, I guess.

Speaker Change: Okay, and then my third and final question, just shifting over to HDNA to make sure I understood the answer from the previous...

questioner.

Speaker Change: On SG&A, when I think about fourth quarter, you have brought it all down, but what you're saying is, you know, you probably, you're not, like, it's not like you're going back to whatever it was, $114 million, $115 million, but it's fair to expect to see some sequential growth.

Speaker Change: within your OPEX, given the fact that you expect to see...

Speaker Change: sales be up sequentially also. That's pretty much the message that was came through at the last Q&A.

Q3.

Speaker Change: I would expect a similar number, maybe down a little bit as we continue to kind of realize cost savings from the 110. On the upside, right, if we layer on another $40 million of revenue or $50 million of revenue, which could be achievable.

Speaker Change: A majority of that would be coming from the equipment line, which now you're paying commissions on to the tune of maybe a million bucks or something like that, given a certain level of GP. So when Steve asked the question, you know, how much do you expect that to stick? And I said the majority of that four million.

Speaker Change: That that's kind of where I was where I was getting it two million sticks And maybe maybe there's some variance on the rest of it

Speaker Change: Okay, all right, that was crystal clear. So thanks very much for taking my questions.

and the first one is the first one.

Thanks, Ted. Oh, no, it's a question.

Speaker Change: Our next question comes from Min Cho with eRiley Securities. Your line is open, please go ahead.

Speaker Change: Hey there. Good evening, gentlemen. Just a couple of questions here. First, in terms... Yeah. Can you hear me?

Yeah, we've got you.

Speaker Change: Okay, great. Thank you. In terms of your product support business, obviously that was up nicely. Can we talk a little bit about headcount growth, kind of on a year-of-year basis, and how the...

Speaker Change: You know how that process has been looking and hiring and retaining

Your text.

Speaker Change: I'll take the number side of it. Ryan could talk just maybe more strategically. We're up head count wise versus the beginning of the year.

Speaker Change: You know, what I would say is we're focused on as being

Ryan Greenawalt: as efficient as possible with the technicians that we've had. We've talked about right products, right people.

Ryan Greenawalt: And so we are up, it's a nominal number. But Ryan, do you wanna talk more briefly just about the environment?

Ryan Greenawalt: The environment is has been challenging you know that over the last couple of years we've been we've seen union unionization efforts in the Midwest we've seen wage pressures

Ryan Greenawalt: but you know it's a way one of the I guess defenses against that is it is a way that we use our scale to our advantage we have full-time recruiters we're actively apprenticing in the trade

Ryan Greenawalt: So, we're staying out in front of the demand and we're successfully onboarding technicians every day, but it is the dearth of individuals in the skilled trades has never been more acute than it is today.

Yeah.

Speaker Change: Okay, just turning over to your e-mobility business. So it sounds like a nice kind of deal here with DHL. Now, as of last quarter, I thought backlog stood at $25 million, and now it looks like it's closer to $20. Did we lose something, or was there some revenue this quarter that burned through? And just any update you can give in terms of the Harbinger relationship.

Speaker Change: I'll take the front end of that and leave the Harbinger for Ryan. We did have revenue of less than a million bucks in the quarter, but we did have some revenue that ate away, obviously, let's just call it a million bucks worth of that. The rest of it is not gone, but probably been pushed out.

Speaker Change: These, what we are finding is these are long sort of sales cycles here.

Speaker Change: especially as it relates to charging infrastructure, administration associated with, you know, getting vouchers squared away for customers. And so that extra five

Speaker Change: I would think of it as just getting pushed out versus getting canceled.

Speaker Change: But the $20 million has, you know, customers' names associated with it. It's just a matter of getting through some of the administration and then the infrastructure from a charging perspective, and we'll be able to execute on that pipeline.

Speaker Change: Do you want to take the Harbinger? Yeah, on the Harbinger side, there's not a lot more to report since last quarter. It's a startup product. We have broad coverage for them in our territories where we operate.

Speaker Change: And we're excited that in 2025 we'll be bringing online a facility here in Metro Detroit where we'll be able to demo the truck, bring customers in to see, sorry, the vans and medium duty trucks.

Speaker Change: and, you know, start building towards deliveries in the second half of next year.

Thank you. Thank you.

Speaker Change: Okay, and then just finally a question on just your material handling business.

Speaker Change: Can you talk a little bit about, was there any change in terms of some of your market trends? Any of them get softer during the quarter or have improved? And maybe not even in the third quarter, but kind of looking out into the fourth quarter.

Speaker Change: One of the, what comes to mind, and Min, I want to just make sure I point something out that you referenced here. Some of the optimization that I was talking about when we're saying right people, right products, I do want to point out that year-to-date our service revenues are up 150, I'm sorry, our service

Speaker Change: revenue gross margin is up 150 basis points, which is indicative of us being as efficient as possible with the technicians that we have. So I just, I wanted to point that out for for analysts and investors.

Speaker Change: Your question your question on material handling the one end market that does come to mind

Speaker Change: and I think this is probably not a surprise, but the automotive business.

in our Legacy Material Handling segment.

Speaker Change: has been challenged, I think, more so this quarter than it has in the first half.

Speaker Change: And we're seeing that impact in parts revenue and a little bit on the service side as well. So that is one end market that we've got our eye on.

Okay, great. Thank you.

Speaker Change: Thank you. We now turn to Steve Hansen with Raymond James. Your line is open, please go ahead.

Speaker Change: and I think that's what I'm going to say. Wonderful. You know, I think it's more clear for us as a main. I think I see a little pricing backdrop for new equipment and perhaps you've been used. And the impact on that into the balance of the year and into next year as well as you think about your target profile.

Steve, this is Tony.

Speaker Change: I think we found kind of the level here at the at the bottom end in terms of pricing. You know if you look at our margins

Speaker Change: kind of quarter over a quarter. They were in again, but something like 12%. So I feel like we found kind of the bottom in terms of pricing. We still are observing kind of competitors doing some things that

We won't participate in on some

in some geographies.

Speaker Change: and in some product categories, but it feels to me as though the bottom is in. Ryan had mentioned in his prepared remarks that.

Speaker Change: and in his quote in the press release that we felt like

Speaker Change: we still have probably six months to work through the excess supply and by a lot of kind of industry benchmarks that that's that's kind of suggesting the case here so I think uh before maybe we see we see an uptick potentially in in margin so hopefully that gives you you know some perspective.

Speaker Change: Yeah, I know that's helpful. Thank you. Maybe as a follow-up to that, Dan, I know last quarter, maybe a quarter prior, you started to talk about some of the more aggressive behavior.

Speaker Change: on the competing OEs. Have you seen the incentive programs change out there, pull back at all in the section of perhaps this demand increase that's out there, or is it still too early to see any indication on conditions getting more favorable from a competitive standpoint?

Speaker Change: You know what we have seen is some of the OEMs that we represent getting a little bit more aggressive and with financing programs and leasing programs so that's been

Speaker Change: in that regard. So we were pleased to see some of these kind of programs come out from our OEMs. I think it's still too early, Steve, to prognosticate on how that's going to impact us.

I think that the

that

Speaker Change: future here for equipment sales and construction for Alta is going to be brighter primarily because of having the election behind us, a little bit more clarity on an interest rate trend versus, you know, what we're concerned with in pricing at this point, if that makes sense.

Speaker Change: No, that's helpful. Thank you. And just to give a follow up, I might have missed it earlier, I apologize because I dropped, but how do you feel about current inventory levels as it stands today? I know in past quarters, you said you felt more comfortable, but as you think about the right sizing of fleet and rental and even in your new equipment side, I mean, how are you feeling about the ability to generate some excess cash flow here to pay down additional debt? Thanks.

Speaker Change: Yeah, I think we're pleased with the way that we executed in Q3, as we noted. We were able to pay down almost $40 million.

of Funded Debt on the backs of

Speaker Change: some decrease in used equipment, as well as $18 million of acquisition costs gone from the rental fleet. So.

Speaker Change: As I mentioned earlier, I think we can keep that pace up.

Speaker Change: in the rental fleet and squeeze, let's say, another $20 million out of the rental fleet here before the end of the year. And then we're going to let the market kind of decay, you know, as we keep kind of paring back and, as I mentioned to Steve, be more capital efficient.

with our rental fleet.

Speaker Change: Q4 is typically, if you look back last year, typically a...

a really strong quarter on the working capital as well.

Speaker Change: So, it's a long way of saying we're not there yet with where we want to be in terms of our rental fleet size. I think we've managed when I look out across the landscape at.

Speaker Change: some of the comparable companies that are out there. I think we've managed this inventory supply thing about as good as anybody, keeping our turns relatively in line and not letting it get too far away from us. So,

Speaker Change: I'm pleased with with the performance kind of year to date but we've got we've got more to do there to to squeeze let's say another you know 20-30 million dollars out of it in the fourth quarter.

Speaker Change: We have no further questions, so I'm going to hand back to Ryan Greenawalt for any final remarks.

Ryan Greenawalt: No further remarks from management. That'll conclude the call. Thank you.

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