Good afternoon and thank you for attending the Alta Equipment Group Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Matt and I'll be your moderator for today's call. I'll now like to turn the call over to Jason Dammeyer, Director, SEC Reporting and Technical Accounting with Alta Equipment Group.

Thank you, Matt. Good afternoon everyone, and thank you for joining us today. A press release detailing Alta's fourth quarter and full year 2023 financial results was issued this afternoon and is posted on our website along with the 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 fourth quarter and full year 2023 financial results. We will begin with some prepared remarks before we open the call for your questions. Please proceed to Slide 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.

Thank you, Jason. Good afternoon everyone, and thank you for joining us today. I'll begin with a quick overview of our fourth quarter and full year 2023 results. Then provide a current assessment regarding the business conditions in our end user markets, followed by an update on our growth strategy. After I conclude, Tony will provide a detailed analysis regarding our financial and operating performance. I am pleased to report we achieved record results in 2023. Our performance would not have been possible without the complete dedication and solid execution by the Alta team. I sincerely thank you. The momentum in our business clearly continued during the fourth quarter as we capitalized on the broad based strength in our end user markets. Total revenues grew 21.7% over the year ago quarter to a quarterly record of $521.5 million for the fourth quarter and increased 19.4% to $1.9 billion for the year. Revenues for our construction segment increased 22% to $328.1 million in the fourth quarter and 12.9% to $1.1 billion for the year. Material handling revenue increased 16% to $179 million for the quarter and 19.4% to $681.5 million for the year. New and used equipment sales grew 25.5% from $817.2 million in 2022 to just over $1 billion this year. This is an annual record and as we celebrate this milestone we should also highlight a versatility and resilient of our business model, which generated over $519.6 million in high margin parts and service revenue across the business segments in 2023, an increase of 17.7% year-over-year. Alta is unique in the breadth of our product offerings, the scale of our addressable market and the defensiveness of our market position. Our focus is on driving and sustaining long-term equipment field population and driving aftermarket support penetration to an increasingly diversified…

Thanks, Ryan. Good evening, everyone, and thank you for your interest in Alta Equipment Group and our fourth quarter and full year 2023 financial results. We're proud of our 2023 performance and before I start, I first want to congratulate my Alta teammates for their hard work and dedication to the business and to our customers in 2023. Our results mirror our culture, which is grounded in our guiding principles and all of us continuously developing our one team approach to the business day in and day out. Thank you to all of Altas employees, which now numbers 3,000 strong and ranges from Illinois to Maine and from Florida to the northern regions of Quebec and Ontario. My remarks today will focus on three areas: First, I'll briefly present our fourth quarter results, which will include specific comments on what was strong operating cash flow in Q4. Second, I'll present and comment on our full year 2023 results, focusing on several key themes and metrics for the year. Lastly, I'll provide guidance for 2024 adjusted EBITDA and discuss the assumptions and puts and takes that underpin the annual guide. As part of that discussion, I'll provide some insights into Q1, given where we are on the calendar. Before I get to my talking points, it should be noted that I'll be referencing slides from our presentation throughout the call today. I'd encourage everyone on today's call to review our presentation and our 10-K, which is available on our investor relations website at altg.com. With that said, for the first portion of my prepared remarks and is presented in Slides 12 to 21 in the earnings deck, fourth quarter performance. For the quarter, the company recorded record revenue of approximately $522 million, which is up a notable $93 million versus Q3…

[Operator Instructions] The first question is from the line of Matt Summerville with D.A. Davidson.

Couple questions, I want to be clear, Tony. Can you sort of talk through your capital deployment priorities for ‘24 in the context of not only the stock price of course as you referenced, but what specifically you guys are seeing in the M&A market from a multiple standpoint, if you still feel you can do leverage neutral acquisitions or leverage accretive like you did in Q4. And then how you're thinking about maybe just using this year's cash to reduce leverage sort of knowing that the market's appetite for leverage is not maybe what it was a couple of years ago? And then I have a follow-up.

On the first piece here on capital allocation and in multiples, I think it would be to say that we'd be able to do deals sub 3, 3.7 like we did in Q4 there, and that was really the Burris acquisition. We were able to get some equity into the Ault deal, which was great to partner up with that entrepreneur that wanted to join forces with Alta. And so it was leverage accretive, to be sure and also accretive to shareholders. But I don't think we'll see deals in the 3x range. It wouldn't be appropriate for us to say that would be something that would continue. What I will say is we still believe that there is deals out there that look very familiar -- that look very similar to how we've executed in the past. The $537 million of revenue, $65 million of EBITDA that we bought at 4x to 5x, we still think is in front of us. And the pipeline itself continues to be active. Now some of the growth, as we've talked about before inside of each of our major dealer networks is sort of tempered the bigger you get. But that's why relationships with CASE, as Ryan mentioned and some of these other OEMs that we're partnering with, Ault is partnered with a company called McCloskey, which we hope to do more with on and on. So we still think that the pipeline could be accretive relative to where we trading at but to the extent it's not or to the extent that the stock is depressed relative to what we think is fair value, we wouldn't hesitate to dip into the buyback program that's here and in place. In terms of funding of M&A deals and taking on more debt, you can see that we delevered in the quarter after what I've been referring to as the great replenishment, right, which was an increase of organically $80 million some odd in rental fleet and $2,300 million give or take of inventory. That certainly we don't expect this year. So we do expect to maybe have some excess cash flows that we can continue to delever with, again, over the entirety of the year, maybe not necessarily quarter to quarter, especially in Q1. And so we still think that we would be able to fund M&A deals to the tune of $10 million or $15 million of EBITDA with debt, anything beyond that in terms of size and scope, where it would be something sizable, we would be mindful of leverage wherever we're at in the calendar before we funded a larger deal with all debt. We want to be mindful of leverage. So long answer, Matt. I apologize for that but hopefully it's helpful.

No, that was comprehensive. Maybe Ryan, if you can just take a minute and get a little bit more granularity around you mentioned material handling indeed being more diverse business segment. Just maybe kind of a walk around what you're seeing in terms of the key end markets and maybe highlight what sounds like is a more concerted go forward effort being put into, in particular, the warehousing market?

I'll start with the first piece of that which is the question about the diversity of the end markets. So we do believe that with our product portfolio, our end market exposure is as diverse as it could be. It's everything from the supply chain and raw materials that go into manufacturing to in our upper Midwest footprint a lot of manufacturing and advanced manufacturing all the way through to obviously distribution and logistics. And the focus on the warehousing market is something that we are doing right alongside Hyster-Yale. They've been putting a lot of effort into product development for that end market and it's fast growing end market. And it's an opportunity for us to get closer to our customer to help them take costs out of their business through better labor utilization. And the price point of those trucks tends to be lower. It's a bit more of a high volume, lower price point per unit but it still has the high touch aspect of reoccurring revenue through planned maintenance and contract maintenance. And then Matt, there was a second part to your question.

Yes. I was more looking for just some color on some of the end market trends you're seeing across whether it be automotive, food, beverage, medical et cetera, the places you play in material handling.

Just in terms of demand, I would say that the demand is healthy. I referenced in the call that it's kind of leveling off at what pre-COVID would have been record levels, but it is coming off of the peakiness of COVID. Last year, we were coming off record back -- record bookings in the previous year, so that ended up being record deliveries for us, which is reflected in the revenue. Going forward, we see a plateauing of that phenomenon, which is why we're focused on really market penetration and driving share in the faster growing end of the market, which we think is the warehouse market.

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

Maybe to continue the line of thought on end markets, some of the large rental companies have talked about local projects growing but at a more modest pace, while mega projects are ramping up. You talked about some of the highway work, state DOT funding that being strong. But curious how you think about the local more normal sized projects versus the large mega projects impacting your results this year?

Steven, I'll take that. We've historically tried it's really difficult for us to delineate by market what's kind of federally stimulated versus local demand. But I think what we're seeing is there is a little bit of a -- it's not a pullback, but a lengthening of the sales cycle for kind of your general contract or with core product that is not true on the big visible highway type jobs. And I think we're seeing one of the things that's true is that labor utilization is the key to construction right now. You can't stimulate something when everyone's already got a job. You can't sell a excavator whenever no one has an operator to put in the seat. And so any softening that we're seeing, kind of the non-res, just general construction I think that you're seeing that there is like this kind of pent-up demand for big projects that have been stalled by all the local demand. And that's the way that I would think. We always talk about it as innings to the cycle that we haven't really been in a trough, we've been more in this, we keep adding innings to the game. And I think that phenomenon's playing out with some of the pivot to larger type jobs right now.

And then I'm curious on the complimentary service lines, curious how those performed in the fourth quarter and what is the outlook for that unit in 2024?

Just so I have it, where are you are when you say ancillary service lines, I just want to make sure we answer your question appropriately. Define that for me.

Sorry. More of the complimentary products, Scott Tech, PeakLogix, Baron, where those companies, how those are expected to perform in 2024?

s Yes. I mean, PeakLogix, we've said that they and I think the whole industry, it was white hot. When we bought that business, it was that combined business, which is now PeakLogix, Scott Tech and Peak are now kind of combined one and the same but call it revenues of roughly, $30 million, $35 million combined back in 2020. That doubled more than doubled in ‘21 and ‘22. And in ‘23, we saw a bit of a pullback, these are larger projects that are probably a little bit more interest rates sensitive because they're larger CapEx projects for our customers. And so if there is a part of our business where we do think that there was an impact of interest rates, it was in that PeakLogix business. What I will say is PeakLogix was part of the strategy and rationale for that deal was to take us from the JV to the varsity relative to just intellectual capabilities, design build and getting us into some customers that we otherwise would not have. We've been able to do that. And so, judging Peak just kind of on its own without including kind of some of the synergies generated with our legacy material handling business probably isn't fair. So we're still very bullish despite ‘23 kind of being a down year for Peak. And we've got backlog. It's taking customers a little bit longer to pull the trigger. We think that's interest rate related, but that's how that's going. I will say Midwest mine, just to kind of round it out, I put that the a similar kind of ancillary projects. They're in the aggregate space. It's probably immaterial to our overall kind of revenue line. It's performing very well. And we've definitely generated some synergies with customers or been able to get customers to recognize our capabilities in the larger quarries et cetera. All still running fine.

And then last one from me, your G&A as a percentage of gross profit continues to trend down on a total basis and in both material handling and construction equipment units. Is this expected to continue again next year, this cost discipline of G&A versus GP?

I've got some numbers in front of me, and I'm just going to read them out here. We -- G&A, ex M&A and ex depreciation and amortization, Q2 $105 million, Q3 $107 million and then Q4 here about $111 million again ex M&A. That increase in Q4 is almost going to be exclusively related to the increase that we saw in equipment sales because we have commissions primarily and bonuses on those sales that impacted that line item. So I wouldn't expect Q4 to be indicative of the go forward. Certainly, we've added some G&A because of the acquisitions. And the way that I think about G&A is a little bit more as a percentage of revenue or EBITDA or -- I'm sorry, gross profit ex depreciation than I would just gross profit overall just because the rental business with so much depreciation in the gross profit line. So I think Q4 is a little bit of an anomaly there at the $111 million. We'd expect that to come down and kind of even out a little bit.

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

I wanted to go back to your guidance. Not wasn't too sure if it was aspirational or not, but I think you suggested you wanted to hold the line on equipment sales for the year. Maybe just a bit of additional color on there. The comps are difficult, I think, as you suggest but what is the guide assuming effectively on the new equipment side?

New equipment, as we've said since we started doing these calls four years ago, is always as part of the reason we only do an annual guide, number one. And the other part of the reason we don't guide to revenue because as we saw in the fourth quarter, things can really kind of ebb and flow. And sometimes these ebbs and flows are difficult to just project quarter-over-quarter. And the other thing, when we sit down and we budget, we have great confidence in our parts and service lines, or relative confidence, I should say, versus the equipment line item, which can be more impacted by macro trends, interest rates, sentiment, et cetera, et cetera. Now all the things all the signs point toward a strong 2024. As Ryan mentioned in his remarks, DOT budget is looking strong. Talking to our customers who are working on these projects, kind of ready to let it fly here as the spring hits us. And so we feel pretty good. The reason that we feel like we can hold that line rather to maybe being down, and I'll caveat all of this in saying being down a little bit off of peak wouldn't be the worst thing ever, especially given the GPs and how impactful they are to EBITDA relative to rental revenue or parts and service. But that said, we do have some areas of our business where we expect to take share. And that's, I guess, what I would highlight to answer your question specifically. So we've got places that we've just entered to -- entered into in the past 18 months like Toronto in the metro handling space, where we expect to take share. And there's some other pockets in Upstate New York on the construction side, and the list goes on. So it would be us taking share that could help maybe offset what might be flat to down market.

And just as a follow-up to your capital allocation decision for the year, I mean, how do you view that framework between buyback and growth or even deleveraging for that point? I mean, how are you viewing that window right now? I mean, the stock is completely disconnected, I think, as you suggest. Does it not make sense to maybe focus on the buyback and some deleveraging as opposed to more growth? I mean, how are you really thinking about that for the year relative to M&A pipeline?

Yes, Steve. We've got a slide in the deck that suggests we're trading at that Ault would be trading at something like 5.8, I think the number is in the deck, forward EBITDA. So that multiple, despite it being something maybe that we feel is not appropriate is still a bit higher than where we've transacted at in the past, in the M&A pipeline 4 to 5. So we still think even if we're trading at 6, there's a turn or 2 of spread there relative to the M&A pipeline. And that's before you get into any sort of synergies or discussions about what we can do with the business versus where it might be today. So, some of it is time. What does the pipeline look like in the over the near-term? And where are we at in the calendar, right? We've talked about Q1 being a little bit rougher. And so we just kind of monitor the situation and kind of on a real time basis are always kind of thinking about that decisioning. The other element that you mentioned was leverage and we also want to be mindful of that. And so especially where interest rates are, we may have had felt differently twoyears ago about that tenant of the framework of this decision because interest rates were much lower. So I'm not trying to evade your answer, but there's all of the different dynamics that come into that scenario. But we still think that M&A would -- we could do M&A in an accretive fashion. Interest rates being higher would suggest we'd want to delever. But if those two things aren't there, then we wouldn't hesitate to buy back.

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

Congrats on the strong -- end to a strong year. Couple of questions. In terms of 4Q rental rates, can you talk to kind of what the trends were on a year-over-year basis? And it sounds like for 2024, Tony, I think that you said that you expect it to be pretty flat, excluding any inflationary impact but if you could just confirm that please?

Yes. I think I can just to take your question in reverse. I think we can confirm that. We would expect inflationary maybe a little bit more there. So much I want to just point out too though, so much of our rental business is a function of our service prowess. And when we're renting large 40 ton articulated dump trucks effectively customers are renting our technicians in a lot of ways. And so while if there's an asset to be rented that has cost of capital and return on capital, that need to develop a rental rate, we also have this other component of labor that we need to be compensated for. And so, I say that because sometimes we feel like, we may be able to get a premium relative to some of the things that you might see in the industry, what relative to maybe URI talking to rental rates or some of the other publicly traded pure play rental houses. So maybe we can do a little bit better, but I don't think we're expecting to, I guess is the point there when we talk about the guide. The first part of your question on rates and how they played out in ‘23, I would say mid single-digits is probably where we landed there. I saw something the other day that said the last three years around 20% give or take of total increase in rental rates. I would put us in that category over the last three years, with this year being mid single-digits, maybe a tick north of there.

And in terms of your material handling that side of the business, I know Ryan mentioned kind of a focus on the warehousing, which does tend to be a little bit lower margin, but I would imagine that you're seeing an increased shift into like electrical or electric lifts. I was just wondering how does that impact your margins? Is that more or less positive for your parts and service opportunities longer term?

I can take that one as well. We actually have some data in our 10-K or reference in our 10-K Min that the International Truck Association put out some, some data the other day that suggests 67%, 2/3 let's call it of all forklifts sold in the U.S. are electrified. You can probably flip that deal versus gas or diesel or I should say propane or diesel. You could flip that on its head in 20 years ago, something like that. And so, the trend continues, it's leveled off a little bit, but the electrification of forklift has kind of already come to the market. So any impact on our business would be minimal. What we know just because of cost accounting exercises internally is that we think an electric truck basically yields 65% to 70% of what a gas truck would relative to parts and service. But that's been the case in our business for quite some time. So the further electrification, we'd like to think that we could -- any offset in product support or any impact in product support of any furtherance of electrification in the material handling business would be more than offset by our prowess and charging and alternative energy. And some of these things that are a little bit more cutting edge, lithium prowess and lithium batteries, et cetera.

Min this is Ryan. Another thing I wanted to just make sure we correct is that on the warehouse product the margins are actually higher on selling the new vehicle versus rider forklifts. So I'm might have been a misunderstanding there, but less product support yield on electric, but certainly more margin on the front end.

And then, I guess, just an update on Nikola. Saw that they produced and sold some of their hydrogen fuel trucks and looks like some of their BEV trucks should be kind of back in the market second half, probably not a big impact for you in 2024, but just wondering if you could talk to kind of how you're doing with that relationship?

Yes, I could take that. This is Ryan. So we've been along with our customers patiently waiting for the recall to be executed upon. And as you read, that's going to start in earnest in Q2. What we're really excited about continues to be the -- we think in our marketplace, where our footprint is in the North that the proposition for long haul transportation on battery electric, it's a very narrow strike zone of application relative to the opportunity for longer haul and for heavier duty, which is going to point towards a hydrogen solution. And they've sold their first fleet of trucks. Right now they're focused on California where there's a little bit of infrastructure, but we remain very excited about our strategic footprint. We think outside of the West Coast, where we reside is going to be where there's early adoption of these types of vehicles and we think we're well positioned to be part of it. But to answer the first part of your question, probably not a huge material impact this year. It's going to really start in the second half. And this recall on the electric side feels like it costs us almost a calendar year of momentum, but it's not dead. There's still a building pipeline of demand and we're hopeful that they can execute on this next piece of the strategy, which is to get those trucks back in the field.

Next question is from the line of Ted Jackson with Northland Securities.

Congratulation on the quarter and year. So my first question is rolling over to kind of M&A pipeline. I'm just kind of curious when you're looking through the opportunities there in front of you, are you seeing more opportunity on the construction side or on the material handling side? And then within those opportunities, is it more kind of tuck-in and filling in, you would, your geographic footprint? Or is it pushing you into new geographies? It's question number one. Two parts.

Yes, I'll take the first part of that because it's pretty easy to delineate material handling versus construction in terms of the growth strategy. With Hyster-Yale, the lines of our exclusivity are much firmer. And we can't compete with any other dealer network globally outside of we have our APR that's exclusive with them and that's our APR for material handling for forklifts kind of that piece of the business. Our growth with Hyster-Yale, there is potential growth with them. We're the second largest dealer in the world for Hyster-Yale. Today, we cover north of 20% of the addressable market for U.S. and Canada. And they've been very open about trying to get their dealer network down to a manageable size and there's still there's a little room to go there. And there's also the opportunity to grow internationally, which we started with the investment in Canada with YIT. On the construction side, it's a much broader category as what we define as construction equipment. It's everything from the small, turf and agricultural type things that we sell in Northern Michigan through our Kubota dealership and in areas of Chicago, all the way up to the link belt cranes that we represent in Michigan. And so it's a much more open playing field. There are many more types equipment dealers. It's a much more, I guess, fertile area for consolidation for us today. We're in the later innings of that consolidation strategy and material handling and we're just getting started in construction, I guess, is the way I would characterize it.

Shifting over next question, kind of sticking in the broader themes. I was at Modex this week and, I got a couple of questions around things that came out of that. One is spending three days there. It was amazing to me how much demoing, how much floor space was taken up by automation and robots. And clearly, that's a trend. It's not that it's not much of a secret. But as you think about the move towards automation and the move towards more robotics, how does that-- does it challenge you in terms of your ability to find the kind of technician that would service that? Is it does it make it harder for you to recruit? I mean, I could see that being the case. I could see it making it easier for you to recruit. And then kind of my tie in question to that is, is that I know that you guys have some exposure and do some distribution around some robotics and some automated products. From where you sit is where you sit is where are we within kind of the deployment of that kind of technology? I mean, I know we're early innings, but I mean, is this stuff actually really getting deployed. What kind of in your material handling's world, what kind of like, how much of the pie does it take?

Let's start with the first piece of the question. So we see automation and robotics as an opportunity in our core business segment, which is as we highlighted today, we really think it's all about product support in the aftermarket. And we think that that same thing will play out in robotics and then other advanced material handling solutions. The question of technical aptitude or ability or how recruitability is actually it's the second -- it was the second thing position you positive, which is that it's actually easier. It's harder to train someone to be a fully functional heavy diesel engine mechanic that works on all types the breadth of heavy equipment that we have in our portfolio. That's harder to train and takes longer to train than some of these electric material handling machines, which is there's less diagnostics. It's going to be more component replacement. It's just it's a different skill set. It's going to be more happening with a laptop than with heavy tools and machinery, I guess, is the best way to delineate the two. Then just what's the sorry, Ted there was a multipart question. What was the second question?

Well that goes into, like you know, I mean, I've seen some of your all marketing literature that you have around it. And you guys do have product offerings in your -- what do yo call it?

Where we're at in the lifecycle. It's just getting started.

[indiscernible] robotics and automation.

to robotics and automation.

It were early innings. We're early days and there's a lot to come and we we're well positioned, but we're just scratching the surface. And we're excited about that we have allied lines and we have some parts of our portfolio that are more emerging technologies. But what we're really excited about is what Hyster-Yale's working on that they're our flagship partner and you can see their commitment to that market and being innovators. And we're excited to be part of that. And we're feel like us in a couple of our other peers in their dealer network are really well positioned to capitalize on that.

I spent about an hour and a half in their booth this weekend. They had a good story and they had a nice demo of some stuff in there. My final questions, which are really just kind of nitpicky and really for Tony, but this, Tony in ‘24, you hit part of it with regards to what you're expecting for rental equipment, but what's your CapEx for ‘24 going to be ex-rental?

$10 million is a good number for that figure. This would be for things like leasehold improvements at a branch, parking lot, a new roof this kind of stuff. Refurbishing office space if needed, cranes, et cetera. $10 million, not a bad is a -- is a good number there.

And then my last question, which is really nitpicky is I just -- it's more out of curiosity. On the cash flow statement, what is gain on bargain purchase of business?

Gain on bargain or gain on bargain purchase is brought to us by general accounting principles and fair valuing of assets in purchase price allocation. It effectively is saying, Ted that the assets that were purchased in the Burris transaction were worth more than we paid for it. And there's obviously judgment that comes into that different factors that I won't get into, but that's what that was.

Well again, congrats on the quarter in the year. I look forward to 2024.

Thank you for your question. There are no additional questions waiting at this time. That'll conclude the conference call. On behalf of the company, thank you for your participation. You may now disconnect your lines.