Good afternoon, and thank you for attending the Alta Equipment Group Third 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 the Jason Dammeyer, Director of SEC Reporting and Technical Accounting with Alta Equipment Group.

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. 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 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. 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 nonhistorical 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 third quarter results, then provide a current assessment of the business conditions in our end-user markets. 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. 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 Helen 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. 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 in purchasing new equipment. 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. However, post-election, sentiment has already improved, and we anticipate that customers will deploy capital more broadly in the fourth quarter and into 2025. 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. While…

Thanks, Ryan. Good evening, everyone, and thank you for your interest in Alta Equipment Group and our third quarter 2024 financial results. Before I begin, I want to acknowledge the effect of Hurricane Haline and Milton, which affected our Alta family and valued customers in Florida as well as Hyster, Yale and our sister dealers in North Carolina. 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. My remarks today will focus on 3 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. Second, I'll reference key balance sheet movements in the quarter, which counterbalanced a challenged quarter on the P&L and is indicative of our business model's ability to efficiently flex in a difficult market. 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. 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. 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. 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. For the…

Thank you. [Operator Instructions]. First question comes from Matt Summerville with D.A. Davidson. Your line is open. Please go ahead.

Hey, there. You've got Canyon Hayes on for Matt Summerville today. Thanks for taking the questions. 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 last three months ago? Thanks.

Canyon, it's Tony. I don't know that much has changed relative to geography in terms of impact. 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 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 were -- that drove the majority of the year-over-year variance.

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.

Yes. Great. I appreciate it. 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, how much more cash do you think could be pulled from the fleet? And is there an ability to do M&A that's kind of accretive to the leverage profile of these kind of market valuations? Thanks.

I think we've taken those in reverse. I do think that we can do accretive M&A getting -- like we've done historically here this time last year when we did the Alta deal. I think we can do accretive M&A even at these current kind of trading prices for Alta. Whether or not they're leverage accretive or not, I guess I would answer the same way, given where our leverage profile is, sellers sort of willingness maybe to take some equity, I think we can be accretive to do M&A that way. So I don't think anything changes there. Your comment -- or your question on numerator denominator, I think we -- what we said that we would be able to do or be focused on at the end of Q2 was reducing the fleet and in used equipment somewhere between $30 million and $50 million. We got to $18 million in the quarter here. I would expect us to stay on pace there. We are actively continue to sort of pare back the fleet to try to hit our numerator and denominator metrics when it comes to financial utilization, where we want to be trading in the mid-30s on that metric. And so we'll be focused on the denominator. Certainly, at some point, Canyon, 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.

We now turn to Steven Ramsey with Thompson Research Group. Your line is open. Please go ahead.

Good evening. I wanted to get some perspective from you around the context of the pro forma financial profile, given trailing 12-month revenue, $1.9 billion with an EBITDA margin just above 9% and this profile of $2 billion at an implied 10% EBITDA margin. So I guess maybe the first question, looking back in time, 2022 and 2023 pro forma lower revenue, yet EBITDA margin exceeded 10% with the targeted pro forma profile, the margin similar to slightly lower, yet the rental revenue -- the rental fleet may be a bit lower, yet also a higher level of economic EBIT. So I'm curious the puts and takes 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, where I would go is just a more capital-efficient business relative to those prior years. So if you think about rental revenue, just rent-to-rent revenue and the EBITDA margins, our margins are no different in that department than some of the larger rental houses, right, which trade 50% or higher, let's say, on an EBITDA margin basis. But it's capital intense, right, the rental business. And so we've never really gotten too caught up in our EBITDA margin, more focused on capital efficiency. So despite it maybe being higher historically, I think what we're 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 is pushing to the bottom line and versus maybe getting reinvested into the business. And so that would be the difference. It's not 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.

Okay. That's great. That's great color. That's helpful. And then on the G&A reduction of $4 million in the third quarter versus the first half, 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 million or $16 million range? Or how should we think about that?

Yes. Clearly, it's SG&A, obviously, which has the selling element to it. When I compare quarters, 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 on that line item. I think, Steve, we have implemented a few things to get rid of some fixed costs here. where the majority of that will stick. 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 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. That's helpful. And I'll stop there. Thanks.

Our next question comes from Ted Jackson with Northland Securities. Your line is open. Please go ahead.

Thanks very much. So my first question for you is going to shift over to the material handling world. If you listen to the Hyster, Yale call, they talk about the demand for, I guess, you call bookings for lift trucks in 2025. And the forecast is for them to actually be down through '25 with really a soft, call it, first half of '25 and then a pickup in the second half of the year. And I granted they're an equipment OEM, you're a distributor. But can you sort of, I don't know, cascade that and explain maybe why that might not be the same forecast for Alta as it is for Hyster, Yale?

Yes. Hey, Ted, I'll take maybe the front end of that. This is Tony and then let Ryan weigh in. There's obviously this lag right, between what they're kind of forecasting for '25 and then our view. The other element of it is 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 6 to 8 months of backlog that give us some bullishness to say we can at least stay flat relative to the '23 performance, let's say, through the first half of the year. And then I think what Hyster, Yale mentioned is that they expect bookings to kind of start to come back midyear. And at that point, I think lead times will be more shorter than they are now. So 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. But we're not forecasting anything probably other than a flat year in equipment sales for Hyster, Yale for '25. Primarily in terms of our backlog...

Yes. I mean, in fairness to them, they feel that the backlog should be able to allow them to sort of bridge over to where orders pick up. So -- but nonetheless, it's like -- I mean, you look at the end market, and it's clearly softened here and now, and it's like most heavy equipment markets. No one, everyone is kind of the sidelines in the near term.

The comment that stuck with me, Ted, is that the bookings they're taking right now are production slot -- taking up their production slots toward the end of '25. And obviously, the delivery to the actual customers would push beyond that right for us. So now you're talking about potentially getting into '26.

Ted, 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.

Okay. Shifting over to really more of the construction side. Hurricanes, if I recall, typically have a bit of a demand push for 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 the Southeast?

Ted, what we end up -- first of all, the human element, which is first and foremost, and we both made comments about just kind of how difficult that's been. What ends up happening and what we've seen here recently in our Florida business is an uptake of compact equipment kind of almost immediately as people are 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. I would say in the broad scheme of things, it adds maybe some elements of demand over the long run, but immaterial probably overall when we think about that business. But we did see compact equipment pick up almost immediately, but nothing material that we should be noting, I guess.

Okay. And then my third and final question, just shifting over to SG&A to make sure I understood the answer from the previous questioner. On SG&A, when I think about fourth quarter, you have brought it all down, but what you're saying is 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 within your OpEx, given the fact that you expect to see sales be up sequentially also. That's pretty much the message that was -- came through at the last Q&A.

I think that's right. I think if -- obviously, if we don't expect to, but if we -- on the low end, as I mentioned, if we repeat Q3, I would expect a similar number, maybe down a little bit as we continue to kind of realize cost savings from the $110 million. On the upside, right, if we layer on another $40 million of revenue or $50 million of revenue, which could be achievable, a majority of that would be coming from the equipment line, which now you're paying commissions on to the tune of maybe $1 million or something like that, given a certain level of GP. So when Steve asked the question, how much do you expect that to stick, and I said the majority of that $4 million, that's kind of where I was getting it, $2 million sticks and maybe there's some variance on the rest of it.

Okay. All right. That was crystal clear. So thanks very much for taking my questions.

Thanks Ted.

Our next question comes from Min Cho with B. Riley Securities. Your line is open. Please go ahead.

Hey there. Good evening gentlemen. Just a couple of questions here. First, in terms…

Hey, Min.

Yes, can you hear me?

Yes, we've got you.

Okay. So 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-over-year basis? And how the -- how that process has been looking and hiring and retaining your tech?

I'll take the number side of it. Ryan can talk just maybe more strategically. We're up headcount-wise versus the beginning of the year. What I would say is we're focused on is being as efficient as possible with the technicians that we've had. We've talked about right products, right people. And so we are up. It's a nominal number. But Ryan, do you want to talk more briefly just about the environment?

The environment has been challenging. Over the last couple of years, we've been -- we've seen unionization efforts in the Midwest. We've seen wage pressures. But 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 apprentices in the trades. So we're staying out in front of the demand, and we are 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.

Yes. 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 million. 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?

I'll take the front end of that and leave the harbinger for Ryan. I mean we have some -- we did have revenue. It was less than $1 million in the quarter, but we did have some revenue that away, obviously, let's just call it, $1 million worth of that. The rest of it is not gone, but probably been pushed out. These -- what we are finding is these are long sort of sales cycles here, especially as it relates to charging infrastructure, administration associated with getting vouchers squared away for customers. And so that extra pie, I would think of it as just getting pushed out versus getting canceled. But the $20 million has 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. You want to take the harbinger?

Yes. On the harbinger side, there's not a lot more to report since last quarter. It's a start-up product. We have broad coverage for them in our territories where we operate. 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 and start building towards deliveries in the second half of next year.

Okay. And then just finally, a question on just your material handling business. 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?

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 -- sorry, our service 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 analysts and investors. Your question on material handling, the one end market that does come to mind, and I think this is probably not a surprise, but the automotive business in our legacy Material Handling segment has been challenged, I think, more so this quarter than it had in the first half. 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.

Thank you.

We now turn to Steve Hansen with Raymond James. Your line is open. Please go ahead.

[Indiscernible]. I wanted to focus in on the construction market here first, if I may. How do you guys feel about the pricing backdrop for new equipment and perhaps even 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. I think we found kind of the level here at the bottom end in terms of pricing. If you look at our margins kind of quarter-over-quarter, they were in again to 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, in some geographies and in some product categories. But it feels to me as though the bottom is in. Ryan had mentioned in his prepared remarks that -- and in his quote in the press release that we felt like we still have probably six months to work through the excess supply and by a lot of kind of industry benchmarks that's kind of suggesting the case here. So I think before maybe we see an uptick potentially in margins. So hopefully, that gives you some perspective there.

Yes. No, that's helpful. And maybe as a follow-up to that then, I know last quarter or maybe the quarter prior, you started to talk about some of the more aggressive behavior on the competing OEs. Have you seen the incentive programs change out there, pull back at all in reflection 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?

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 well received by the sales team here. But I think that -- and that's good for Alta, but I think that's just maybe some of these OEMs catching up to the market with -- in that regard. So we are pleased to see some of these kind of programs come out from our OEMs. But I think it's still too early, Steve, to prognosticate on how that's going to impact us. I think that the 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 what we're concerned with in pricing at this point, if that makes sense.

No, that's helpful. Thank you. And just maybe 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 sort of rightsizing the fleet in 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.

Yes. 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 some decrease in used equipment as well as $18 million of acquisition costs gone from the rental fleet. So -- as I mentioned earlier, I think we can keep that pace up 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 dictate as we keep kind of paring back and as I mentioned to Steve, be more capital efficient with our rental fleet. Q4 is typically, if you look back last year, typically a really strong quarter on the working capital as well. 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 maybe 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 I'm pleased with the performance kind of year-to-date, but we've got more to do there to squeeze, let's say, another $20 million, $30 million out of it in the fourth quarter.

Appreciate the color. Thanks.

We have no further questions. I'll now hand back to Ryan Greenawalt for any final remarks.

No further remarks from management. That will conclude the call. Thank you.

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.