Yahoo Finance Alta Equipment Group Inc. (NYSE:ALTG) Q1 2024 Earnings Call Transcript
Alta Equipment Group Inc. (NYSE:ALTG) Q1 2024 Earnings Call Transcript May 11, 2024
Alta Equipment Group Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon and thank you for attending the Alta Equipment Group First Quarter 2024 Earnings Conference Call. My name is Bethany and I'll be your moderator for today's call. I will now turn the call over to Jason Dammeyer, Director of SEC Reporting and Technical Accounting with Alta Equipment Group.
Jason Dammeyer: Thank you, Bethany. Good afternoon, everyone, and thank you for joining us today. A press release detailing Alta's first 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. On the call with me today are Ryan Greenawalt, our Chairman and CEO; and Tony Colucci, our Chief Financial Officer. For today's call, management will first provide a review of our first quarter 2024 financial results. We will begin with some prepared remarks before we open the call for your questions. Please proceed to Slide 2. Before we get started, I'd like to remind everyone that this conference call may contain certain forward-looking statements, including statements about future financial results, our business strategy and financial outlook, achievements of the company and other non-historical statements as described in our press release.
These forward-looking statements are subject to both known and unknown risks, uncertainties and assumptions, including those related to Alta's growth, market opportunities and general economic and business conditions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Although, we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. 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.
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 first quarter results, then provide a current assessment of the business conditions in our end user markets. Tony Colucci will then walk through a detailed analysis regarding our financial and operating performance for the quarter and our outlook for the balance of 2024. There is an earnings presentation available for today's call that both Tony and I will be referencing. Our results for the quarter, consistent with historical patterns were impacted by seasonal factors, particularly winter weather affecting our Construction Equipment segment in Northern regions. Despite this, we achieved $441.6 million in revenue, up $20.9 million year-over-year, driven by continued strength in our markets.
Our combined product support and rental revenues grew organically by $6.3 million, reflecting the sustained high levels of activity and equipment utilization in our regions. Notably, our equipment sales margins were impacted by a shift in revenue mix, which Tony will further explain in his prepared remarks. While new equipment sales and margins may face challenges from market dynamics, we remain focused on leveraging our dealership capabilities and value proposition to capture market share. Slides 5 through 7 of today's investor presentation highlight the strength of the product support and rental businesses within the core dealership platform for both construction and material handling, highlighting the resilience of the business model. Looking forward, we are optimistic about the construction end markets, the backlog of work and activity levels that our customers indicate continued strength for our product support and rental business lines.
Industry indicators are favorable for our end market demand, nonresidential starts are forecast to increase in 2024 and state transportation budgets are up double-digits in our Midwest and Florida markets year-over-year. Federal infrastructure and mega projects are still accelerating, providing long-term opportunities across our geographic footprint. In our Material Handling business, we have solid visibility based on our current customer backlog. Our diverse end markets offer opportunities across numerous verticals. Full year 2024 global lift truck market unit volumes are projected to remain strong compared to pre-pandemic levels, but decrease moderately from a year ago. We are very excited about the commitment Hyster-Yale is making to driving innovation in the product portfolio and market leadership with regards to technological innovation.
We are working closely with them on initiatives like advancing fuel cell vehicles at major ports and zero emission battery-powered terminal tractors for use in our mineral transportation hubs. We are also collaborating along with the Hyster-Yale dealer network and implementing wide-scale technology enhancements such as operators assist systems and vehicle automation for improved safety and efficiency. We believe we are positioned to drive additional market share in our markets given our strategic footprint and the strength of the Hyster-Yale product portfolio. Our M&A activity since our public offering underscores the success of our growth strategy with 16 strategic acquisitions at accretive valuation multiples. We remain committed to pursuing accretive transactions that complement our core business and enhance long-term shareholder value.
We continue to expand our geographic reach and product portfolio within existing business segments by leveraging strong OEM relationships and forging partnerships with new OEMs that meet our criteria. Furthermore, we are exploring new business segments in tangential or complementary equipment markets. The opportunity to electrify the medium-duty over-the-road truck fleet over the next decade is substantial, driven by the convergence of market demand and legislative mandates for zero tailpipe emissions. We are actively exploring ways to position ourselves at the forefront of this transformative trend, leveraging our expertise and resources. The transition to electric vehicles for medium-duty commercial vehicles drives a compelling parallel to the evolution of the electric forklifts over the last 50 years.
Initially, electric forklifts faced skepticism and challenges similar to those now encountered by medium-duty EVs, such as concerns over performance, run time and upfront costs. However, advancements in technology and growing environmental awareness gradually transformed the forklift industry. Over time, electric forklifts gained acceptance due to their efficiency, lower operating costs, reduced emissions and improved battery technology. As technology continues to advance the infrastructure develops, we anticipate a parallel trajectory for medium-duty EVs, ultimately leading to widespread adoption and integration into the transportation ecosystem. In summary, while the first quarter was challenging, we are extremely optimistic that our business is poised for a successful 2024, especially with better visibility into the year.
Thank you for your continued support and confidence in our company's strategy. 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 first quarter 2024 financial results. I trust that you and your families are looking forward to summer as we all are here at Alta. Before I begin, I want to thank my 3,000 Alta teammates for their hard work in the first quarter, which, given weather and operating conditions, took focus, perseverance and commitment to our customers and to one another to navigate. Thank you. My remarks today will focus on two primary areas. First, I'll be presenting our first quarter results, which were naturally affected by the seasonal impact of winter weather on the construction business in our northern regions, but nevertheless, saw continued revenue growth and strengthened our product support and our rental offerings.
I will also provide details on the equipment revenue mix shift year-over-year, which impacted our equipment gross margins in Q1 on a consolidated basis. I'll also discuss specifics of how our core business segments performed well in the quarter. And our headwinds experienced at Ecoverse and Peaklogix, two of our subsidiaries impacted the quarter on a comparative basis. Second, I'll discuss our outlook for the remainder of the year, including current insights into some of our activity-based KPIs as we turned the seasonality corner in April. 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 10-Q, which is available on our Investor Relations website at altg.com.
Before I get into the first quarter performance, again, as I mentioned, the construction segment in our northern geographies is subject to weather constraints in Q1, which makes the sequential comparison of Q4 2023 difficult to Q1 2024. With that said, for the first portion of my prepared remarks and in line with Slides 10 through 19 in the earnings deck, first quarter performance. For the quarter, the company achieved record Q1 revenue of $441.6 million, up $21 million or 5% versus Q1 of last year. Embedded in the $441.6 million of revenue is a $14.7 million or 6% organic sales increase in our core material handling and construction segments, making for a comparatively strong quarter in our core business against a record level comparative.
Specifically, rental revenue increased 7.1% organically for the quarter in our core business segments. Our product support businesses once again grew $3.2 million organically in the quarter amidst the difficult operating environment. To fully understand the quarter, it's necessary to break down the business segment by segment. First, our Material Handling segment, excluding Peaklogix and more on Peak in a minute, had strong organic revenue growth of 11.8% in the quarter. Specifically, new and used equipment sales were up an impressive 23% versus last year as new lift truck equipment availability, specifically from Hyster-Yale was improved year-over-year. Additionally, rental revenue was up 5% -- a notable 5% year over-year. Our product support business lines were relatively flat versus Q1 of 2023 as more prep in delivery of the increased level of new equipment led to more non-billable time in Q1 2024 when compared to Q1 2023.
From a gross margin perspective in the Material Handling segment, again, ex-Peaklogix, equipment parts and service gross margins were all improved or stable versus last year. Notably, when you take Peaklogix out of the equation, new equipment sales gross margins were stable despite an increase of the equipment supply in the market, making for an overall more competitive pricing environment year-over-year. To focus briefly on Peaklogix, first, recall that Peaklogix is a subsidiary company in our Material Handling segment that designs, builds and implements automated warehouse solutions for end markets up and down the material handling spectrum. Strategically, Peak provides our sales force and our material handling customer base with high-end automation solutions that our core lift truck business does not.
Peak, as we've mentioned previously, was incredibly active and highly profitable post-pandemic as customers took advantage of financing what our larger long-term CapEx projects at attractive interest rates. And given employment levels in the work-from-home movement, automation at customer sites became more of a necessity versus a choice. As we moved further away from the pandemic as interest rates rose, Peak's customers have been more reluctant to take on large automation projects. From a comparative perspective, in Q1 of 2023, Peak was still working off of 2021 and 2022 backlog related to the aforementioned tailwinds, tailwinds that have dissipated in the current climate. In terms of impact, Peak was down approximately $9 million of revenue year-over-year and at roughly 30% gross margins, one can do the math on the impact to EBITDA for the quarter.
To summarize the Material Handling segment, our core lift truck business, which makes up 93% of the revenues in our Material Handling segment is off to a positive start for the year while Peak underperformed, impacting the segment overall on a comparative basis. On to the Construction segment. From a revenue perspective, against a difficult comp, especially as it relates to equipment sales, the segment was up $6.6 million of revenue and experienced organic growth on each revenue line as equipment sales, parts, service and rental, all contributed to the growth in the quarter. Notably, rental revenue was up nearly 8%. And our product support lines increased approximately 6% organically despite a challenging weather environment. From a gross margin perspective, the Construction segment saw a year-over-year reduction in margin as we navigate a competitive new equipment environment driven by the increased supply in the market compared to last year.
Nonetheless and notably, our rental disposal margins held strong at nearly 28% for the quarter. On to the Master Distribution segment which houses our Ecoverse subsidiary. To understand Ecoverse's performance for the quarter, it's important to understand its business model. First, recall that Ecoverse has master distribution rights for the United States and Canada through exclusive agreements with several European OEMs that manufacture high-end environmental processing equipment. As a master distributor, Ecoverse sells equipment and purchases from the OEMs to a sub-dealer network that it manages through contractual agreements for various designated territories throughout North America. Ecoverse's OEMs were no different than equipment OEMs around the world in terms of the supply chain challenges that afflicted the delivery of new equipment to dealers since the pandemic.
As I've noted previously and as it relates to our core business, 2023 was the great replenishment when it comes to equipment dealers restocking their inventories to normal pre-pandemic levels. In particular, the first quarter of 2023 spoke for a big portion of the great replenishment and Ecoverse's sub-dealers were no different as they restocked their yards with Ecoverse's equipment in Q1 of '23, leading to an unprecedented level of sales and EBITDA for Ecoverse. With Q1 of 2023 as context, the same restocking dynamic was not apparent in the first quarter of '24 as Ecoverse's sub-dealers were sitting on a normalized level of equipment. All told, Ecoverse's revenues were down $13.9 million for the quarter and given its 25% equipment margin profile, its year-over-year performance led to a headwind for the enterprise of approximately $4 million of EBITDA versus Q1 of '23.
More on why we think this quarter is not indicative of the future for Ecoverse in a moment. With the segment performance in mind and I would refer participants to the adjusted EBITDA bridge on Slide 13 of our presentation, on a consolidated basis, we realized $34.1 million of adjusted EBITDA for the quarter, which is down $6.7 million from the adjusted level in 2023. As discussed and as presented in Slide 13 of our presentation, our core businesses outperformed Q1 2023, while the aforementioned dynamics around the Ecoverse and Peak served as the primary tailwind -- headwinds for our business in the first quarter. That said we expect each of the impacting factors listed on Slide 13, which challenged Q1 performance to become less impactful on a relative basis for the remainder of the year, which is a good segue into guidance and a discussion on our outlook for the remainder of the year.
First, I would reiterate Slide 7, which is a window into our daily activity, specifically as it relates to rental utilization and labor productivity. As you will see on Slide 7, our rental fleet is experiencing its natural seasonality as we head further into the construction season and labor productivity has held stable at high levels. Simply put, these KPIs provide technical support to the anecdotal conversations that we are having with our customers daily, which is that they are busy. This customer activity should bode well for our product support and rental revenue lines for the foreseeable future. When it comes to Ecoverse, which was the biggest driver of the EBITDA variance for the quarter, we believe that Q1's performance is isolated and timing-related and not a signal for the future.
In fact, Ecoverse produced almost $7 million of revenue in April versus $12.8 million for the entirety of Q1. We remain excited about Ecoverse, its business model and its prospects going forward. Relative to Peaklogix, we believe that that business unit will remain challenged as long as the current interest rate environment holds. But similar to Ecoverse, believe in the long-term synergies between Peak and our core lift truck business. Lastly, investors should keep in mind that the two businesses acquired in Q4 of 2023, Burris and Ault are both seasonal businesses housed in our Construction segment. And EBITDA from both of those businesses will be heavily weighted to the remainder of the year versus Q1. In summary, we remain bullish about our prospects for the fiscal year 2024.
With that commentary as context, given Q1 performance and the current competitive new equipment environment, we are adjusting the top end of our adjusted EBITDA guidance for the year from $217.5 million to $212.5 million while keeping the $207.5 million floor of the range in place for 2024. In closing, I want to once again thank my Alta teammates for again rising to the operating challenges that Q1 presented our business. Your teamwork, dedication is infectious. And it is the core of what makes Alta Equipment Group special. Thank you for your time and attention. And I will turn it back over to the operator for Q&A.
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