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.

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.

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…

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…

[Operator Instructions] Our first question comes from the line of Matt Summerville with D.A. Davidson. Please go ahead.

Thanks. A couple of questions. First, if you were to put together a chart similar to Chart 13 with respect to the top end walk down on guidance, what would be -- what would the green bars look like that are maybe doing better? And then, I guess, can you kind of bucket where the downside ends up coming from between Peak, between Ecoverse, some of the other items you talked about? Just help understand or help us understand kind of order of magnitude, the impact puts and takes on the full year EBITDA guide?

Matt, it's Tony. I think what we were trying to -- what I was trying to address is that as I mentioned, Ecoverse, right, which was the biggest driver of the variance in the quarter. And we have the impact for the first quarter on Slide 13, $4.3 million. We think that the comps for Ecoverse get easier, number one, for the rest of the year. And as I mentioned, they did $7 million, give or take, in April. So off to a relatively good start here for Q2. Similarly, Peaklogix would have the same sort of sentiment, I guess, or dynamics surrounding it as they became more impacted by the elements of having a customer base sensitive to interest rates, again, large CapEx projects, et cetera. They would have started to feel that impact in Q2 of last year. So I think one is the comps get easier, which means the headwind that impacted Q1 in our mind won't be there in the quarters going forward. Relative to the last thing on Slide 13, as you know, we always burdened EBITDA with interest on floor plan new showroom-ready floor plan. Obviously, that became more of an issue towards the latter half of 2023 and the comp there gets easier as well. Relative to the core businesses, we feel good about Material Handling. We had a strong quarter, as I mentioned, something 23% year-over-year equipment sales on an organic basis in the core Material Handling business. So we feel like that's on trend. Construction, we didn't necessarily, that the acquisition sort of if you're looking at on a pro forma basis, Ault and Burris, their EBITDA will really start to kick in now kind of thing, Q2 through Q4, while we were absorbing their fixed costs in kind of the first quarter. What I will say is if there is a headwind we have our eye on and that impacted Q1 a little bit relative to expectations, it's construction equipment sales. And I think a lot of the comps that have been out discussing the pricing dynamics in the market, dealer channels being stocked up and -- but also while end markets are still strong fundamentally. So if we've got our eye on anything relative to the guidance, it's construction equipment sales that provides the variable. But we feel really good about rental parts and service over the remainder of the year in our core businesses.

Thank you for that detail. Maybe just a quick follow-up on parts and service. Growth there organically decelerated a bit. I know you called out maybe a little bit of some weather-related challenges. But what's your full year expectation for organic growth in parts and service? And then maybe can you comment on what you're seeing in terms of rental rates as well as utilization levels versus a year ago? Thank you.

Sure. Matt, I think what we saw in rental rates is probably low single-digits maybe to mid-single-digits in the first quarter here. Utilization on a -- and we provided that, by the way, in terms of just equipment on rent. And you can back into kind of physical utilization or dollar utilization based on the size of our fleet. But I think that held up pretty well year-over-year. The fleet was bigger. But in terms of dollars on rent, we held up pretty well year-over-year rental revenue. Just all told was up more than that sort of low-single-digits rate, which means we just have more dollars on rent because we -- I think the number was 8% and our construction business rent-to-rent business was up. So that's rental. In terms of product support, we've messaged that we -- especially in our construction business that there's so much build population that's a little bit more in its infancy in certain markets than our Material Handling business. We would be disappointed if we didn't see low-double-digit, high-singles on that number in terms of product support combined, parts and service combined organic growth year-over-year. Material Handling will be a little bit more muted than that, just given kind of the -- just the dynamic and the maturity around that business. So yes, it did -- I think part of what we saw relative to the mild winter was less cold start issues, less repairs around snow removal kind of activity, right? Somebody maybe impairs a piece of equipment because of snow removal and so some of that impacted Q1. But hopefully, that helps, Matt, in terms of just where we expect to be. We'd like to be high-single-digits kind of on a combined basis here.

Understood. Thanks, Tony.

Our next question comes from the line of Kathryn Thompson with Thompson Research Group. Please go ahead.

Thank you for taking my questions today. This is more just on a broad market end market. Look, could you give a little bit more color just in terms of megaproject dynamics? And have you seen any notable change in the pace for going into mega projects? And importantly, any update on pricing on that particular end market? Thank you.

This is Ryan. I'll take that. I would say that relative to what we see megaprojects, it's stable. We don't see any big changes in pricing per se. I think the projects in general, as we've said, Kathryn, is kind of -- it just -- it creates longer term demand where our contractors who might be working on a megaproject, if you will, we're always once removed. Our equipment is being used by customers, which then are using the equipment on a potential megaproject site. And we have anecdotal evidence that we know our customers are on some of these projects. But what it does is it gives them confidence that they're going to be busy for longer. And we continue to hear that from customers that maybe are on this project that these are long-term multiyear projects that kind of create what Ryan has termed kind of adding innings to the game in terms of any sort of potential construction cycle. What we keep saying is, there's, only so much resources in the construction supply chain and you come back to the labor element of things. And there's only so much labor that can actually get into some of the equipment that we sell our customers to execute on these projects. So anyway, hopefully, that's helpful commentary.

Yes. Well, with that visibility and with your Construction Equipment segment, there has been a negative mix. But there is margin expansion opportunity for that segment. With that increased consistent visibility with megaprojects, I mean, presumably, that would help with better pricing and which would be supportive of margin growth. I mean is that something you are seeing in the market right now?

I think when we think about margin growth in our construction business, it's a mix toward product support, meaning parts and service revenue versus selling equipment to contractors that might be working on a megaproject. So to the extent one of our customer's needs equipment to be on a megaproject, we love it, obviously. But it's all in the end game of driving field population, whether that field population makes its way to a private non-res project or a large megaproject. Frankly, sometimes we're not sure because contractors are working on both all kinds of things. And again, in the vein of just our Gillette model where we're putting razors out in the field and we want to sell the blades.

And that was the point I was getting to exactly. Thank you very much.

Thank you, Kathryn.

Thank you. Our next question comes from the line of Alex Rygiel with B. Riley. Please go ahead.

Thank you and good evening, gentlemen. A couple of quick questions here. First, equipment sales in the quarter were stronger than I had expected. And this should be a positive trend kind of confirming the success of building that field population, just one of your core goals. But it doesn't take into consideration pricing volume mix. So can you talk a bit about volume growth and directionally, how you think about volume growth through the remainder of the year?

Alex, this is Tony and thanks for the question. I think what you saw in Q1 and this is where I tried to provide as much detail on each segment. But to answer your question appropriately, you really got to go segment by segment. Volume growth in Q1 relative to our core Material Handling, core lift truck business, for sure was up 23% I think the number was year-over-year on a organic basis, mainly on the backs of just the new equipment and specifically Hyster-Yale. What we have mentioned historically is margins on forklift historically have been on the lower end if we look at our entire portfolio in terms of just gross margin selling equipment. Does it bode well down the road for additional product support? We'd like to think we're taking share when our volumes are up in Material Handling, which again will bode well for the future. So we expect to deliver more Material Handling equipment in 2024 than we did in '23. And I think that we're off to a good start. What that does though is it does put pressure on gross margin sort of on a relative basis. And then when we have what went on at Peak in the quarter, it further sort of impacts things. But that's how I would kind of mention or answer the question on Material Handling. Construction volume, we still -- as we see, we have a lot of -- we know that equipment is being utilized. Our service call intake is stable or growing as we get into the season here. Rental equipment, remember, Alex, we've kind of got this rent-to-sell model. And so to the extent that volumes off of our balance sheet and onto a customer's maybe weans a little bit, it could mean that…

That's helpful. And then any chance you can comment on the P&L impact of the difficult weather and if this is recoverable in kind of the second quarter? Or is it just lost?

Yes, I think that's probably -- that's part of the reason why, Alex, we adjusted our guidance down. We felt like the top end of the range probably wasn't achievable given the Q1 performance. The weather is tough to calibrate. I think some of it, you could -- our service margins and construction were down year-over-year. And some of it, I think, is related to weather. Just as we've had technicians in our Construction business that maybe were prepared for the snow season and cold starts and again, snow removal-related damage work that never really happened given the mild winter. And then, you just have just soft ground that also impacted. So that would be the first place I would go. But it's really hard for us to kind of put a number on year-over-year weather sort of impacts.

Thank you.

Thanks Alex.

Thank you. Our next question comes from the line of Ted Jackson with Northland Securities. Please go ahead.

Thanks very much. A lot of my stuff has been asked, but I've got a few more. I want to circle back, if you would, into the construction new and used equipment demand. There's a couple of things I want unpack here. And one of them is, is if you listen to, say, like the Caterpillar call and CNH calls related to construction, both of those companies essentially look at the North American market or the Americas market, North American market to be flat to down in low-single-digits. And then, behind that, there's another of smaller, more specialty equipment manufacturers that I've had discussions with. And they've definitely seen a little -- an impact in terms of some of the booking stuff interest rates. But the fact of the matter according to them and everyone else I talk to is that the demand in terms of like projects is there. I mean the government funding has been put in place. These projects have gotten the go ahead and the equipment is needed to be purchased. And the pause is just because there's been a rapid change in terms of interest rates and the outlook for them. And it's created some uncertainty, which you would think that the demand is there regardless at some point that that equipment has to be put into the field. So where I'm going with it is with that as a backdrop and kind of the -- with regards to the commentary from CAT and CNH in particular, I mean, is it fair to assume that when we look at just the new and used equipment volume for Alta that we should see something at least similar, something essentially flat to down for '24?

So Ted, I'll take that one, and Ryan, if you've got any comments. I would say I'm going to let's start off by just saying that we think that the demand part of the equation remains pretty stable for the balance of this year. But what we're describing is basically, you've got all the dealer channel is full. And we aren't competing with the OEMs. We're competing with the other dealers, the CAT dealers, the tier dealers. And today, we're all selling from full rental fleets, full inventory. And that's going to impact how aggressive the marketplace is. So for us to hold share in this market, even with the demand backdrop, it's going to potentially be hard for us to hold margins at the same time. I would just say that we...

But it's not a unit volume situation. This is -- you're concerned with regard to that.

It's [indiscernible] the delivery, yes, the supply chain broke free and now you've got all the inventories are normalizing at the same time.

Okay. Jumping over to Material Handling. I mean you kind of got that answer for me anyway. But one of the nuances within Hyster-Yale is that a lot of the backlog that they've been kind of pushing through and starting to deliver has been on the larger end, kind of a higher margin product. Is that the case in terms of the stuff that's starting to flow through your P&L? And then when you get into kind of bigger systems versus our units versus smaller units, is there a better margin profile for them for you as a distributor? Or is that not the case?

Ted, this is Ryan again. The margin profile by product category is going to be more related to how specialized and how the competitive environment for it. So the largest by volume type of machine in our construction equipment business is excavators. And it's also the most competitive excavators by unit volume.

Yes. He was mentioning Hyster-Yale, but...

I'm talking about Hyster-Yale Materials Handling Material Handling.

Yes, Material Handling. Ted, what I can say about our mix relative to Hyster-Yale came out with the new narrow aisle product a couple of years ago, supply chain issues sort of delayed, let's say, the market's ability to kind of -- well, there was delayed deliveries frankly on that class of product. What I will say is we're getting -- we're making headway into that Class II narrow-aisle product line that's becoming a bigger mix of our business. I think in terms of big trucks, Alta has always been a dominant force in our -- specifically in our Midwest geographies with larger high-capacity trucks. The margin profile between the two is relatively the same overall. But I would say our mix is definitely starting to shift toward the Class II, because of some of the innovations and broadening of the product portfolio in Hyster-Yale. Yes. Ted, now that I understand your question, what I was saying holds true for large trucks within the Hyster-Yale world. So it's less -- there's less competition. We hold higher margin generally speaking than the hard-align-product.

Okay. Okay. And then my final comment, which is in the question, is I'm just going to defend you from yourself. You guys have -- came in here, well, little contrite with really kind of a downbeat tone. And I mean maybe I talked to you too much, Tony. But when I look at the guidance and I look at least my model against consensus, I mean, I was kind of below the low end of your range anyway. And the consensus when I look at it is at the low end of your range. So I give yourself a little -- don't beat yourself up so much. I guess that's all I'm saying. Your quarter was great and your outlook doesn't throw me off. Okay?

Thank you, Ted. Yes. Certainly, it -- that's not what we want to message. We feel good about the remainder of the year. Thanks, Ted.

Thank you. Our next question comes from the line of Steve Hansen with Raymond James. Please go ahead.

Yes. Thanks guys. Most of the questions have been answered. But I did want to circle back on the competitive commentary and just the broader channel inventories being relatively full here. I mean, how do you feel about your own inventory and the ability to work that down through the next couple of quarters in order to free up some cash? And how do you think about that in the broader context of the balance sheet? There hasn't been much discussion on the balance sheet today. But just trying to get a broader sense for how you want to manage through this environment.

Yes. Thanks, Steve. The balance sheet was relatively stable, which is quarter-over-quarter some, I think, immaterial moves to the rental fleet and inventory and AR in general, which is why we didn't focus on it. Liquidity is still in a good position, leverage holding at the midpoint of our guidance. So -- but on your question relative to inventory, we think we're trying to -- we try to target two turns of inventory, maybe a little bit less than that in our Construction business and maybe a turn higher than that in our Material Handling business on new equipment. And remember, the Material Handling, it's a little bit of -- you're not buying for stock. These are large fleets that are going to Fortune 500 companies that are purchased well in advance. So there's a little bit of prep and delivery time in our shops on the Material Handling side. But then the fleets are gone and delivered and invoiced. So the bigger impact to your question is on the Construction side. We think we're at a good level inventory-wise. I could see it spiking up maybe a little bit more from where we're at from here as we work through with manufacturers to take delivery. But we think we've got enough equipment on the balance sheet right now to kind of hold steady. So I guess what I'm saying is, I don't see any large reduction. I don't see any large kind of increase. We feel like we're in a good spot to keep turning at the levels that I mentioned and just go from here.

Okay. That's helpful. Thanks. And then just wanted to go back. I think it might have been Ryan's comment earlier about the most competitive aspects of the market being in excavator. But I mean, just as a broader sweep, it sounds like the construction side has been more competitive. Are there specific lanes or verticals where you're seeing the most competition? And just curious if that's filtering into that rental side on the same vertical or not?

The competition that we're seeing is in the heavy construction. So the heart of the line Volvo products, large wheel loaders, large excavators, articulated, 40-ton articulated dump trucks. I think maybe less so on the compact end of the market.

Very helpful. Thank you.

There are no additional questions waiting at this time. I would like to pass the conference back to Ryan Greenawalt, CEO with Alta Equipment Group for any closing remarks.

Thank you for joining us today. That concludes the call.

That concludes today's conference call. I hope you all enjoy the rest of your day. You may now disconnect your lines.