ALTA EQUIPMENT GROUP INC. Q3 FY2024 earnings call

• Acknowledged and extended thoughts to Florida team members impacted by Hurricanes Helen and Milton.
• Third quarter results impacted by end-user market uncertainty, especially in Construction Equipment segment where new and used equipment revenues dropped. Business optimization initiatives reduced G&A expenses. Balance sheet improved with reduction in rental fleet and working capital, leading to ~$40 million debt reduction.
• Segment performance: Construction Equipment segment revenues down due to soft demand, rental revenue down, product support revenue held up; Material Handling segment revenue modestly up due to sales backlog progress, product support continued to grow. High-margin product support business strong.
• E-mobility update: Delivered Nikola fuel cell EV trucks to DHL on a turnkey full-service lease, with vehicles deployed in Illinois complementing existing battery electric vehicles.
• 2025 outlook: Expect normalization of new equipment oversupply in first half, construction equipment spending supported by easing interest rates, strong infrastructure project pipelines, and potential demand boost from election outcomes. Material handling business opportunities favorable, e-mobility business expected to gain traction. Board expanded share buyback program to $20 million.

In the Construction Equipment segment, revenues declined as demand softened, with new and used equipment sales decreasing. Rental revenue also dropped, but product support revenues held up and were boosted by additional technician headcount and higher labor rates. The Material Handling segment saw modest revenue growth largely due to progress on a substantial sales backlog, and product support continued to grow. Collectively, high-margin product support business increased 7.8% to $140.2 million. The Construction Equipment segment had revenues of $262.3 million, down $41.4 million organically year-over-year. The Material Handling segment was effectively flat year-over-year at ~$170 million in revenue. Product support revenue in the Construction segment was boosted, and in the Material Handling segment, it grew 3.5% year-over-year. Rental revenues were flat in both segments.

• For 2024, adjusted EBITDA guidance range is $170 million to $175 million. Q4 adjusted EBITDA expected to be $43 million to $48 million.
• Pro forma financial profile target includes EBITDA of $200 million historically, 67% economic EBIT conversion rate, cash interest of $65 million, and $65 million return to common equity holders.

• End-user market uncertainty, particularly regarding customers' capital investment commitments.
• General economic and business conditions affecting the equipment market.
• Fluctuations in the equipment sales market and competitive pressures in certain segments.

Q: Get color on equipment sales weakness in terms of product lines, geographies, and changes since last three months?

A: Tony Colucci said downturn in construction business was more acute than expected, with Michigan and Florida regions driving most year-over-year variance, and more impact on heavy equipment lines versus compact ones.

Q: Thoughts on Alta returning to targeted leverage ranges, cash from fleet, and accretive M&A?

A: Tony Colucci said can do accretive M&A, fleet reduction continued with focus on denominator and numerator, and can pull more cash from fleet with active fleet paring.

Q: Perspective on pro forma financial profile, G&A reduction, and its stickiness?

A: Tony Colucci said target is more dealership than rental house for capital efficiency, G&A reduction majority sticks but some variance in Q4 due to sales team commissions.

Q: Material handling demand vs Hyster, Yale forecast?

A: Tony Colucci said Alta has 6-8 months backlog, Hyster, Yale forecast flat North America market in 2025 with bookings picking up midyear, and Ryan Greenawalt noted North America-centric focus.

Q: Impact of hurricanes on fourth quarter construction demand?

A: Ryan Greenawalt said compact equipment picked up immediately but impact was immaterial overall.

Q: SG&A and sequential growth in fourth quarter?

A: Tony Colucci said majority of Q3 G&A reduction sticks but some variance with sales growth affecting commissions.

Q: Product support headcount growth and e-mobility backlog?

A: Tony Colucci said product support headcount up with recruitment efforts, e-mobility backlog pushed out due to long sales cycles; Ryan Greenawalt noted harbinger business with demo facility to open in Metro Detroit in 2025.

Q: Construction market pricing backdrop and competitive behavior?

A: Tony Colucci said pricing bottomed out, some OEMs more aggressive with financing/leasing programs but too early to prognosticate impact; Steven Hansen asked about inventory levels, with Tony Colucci saying fleet reduction continued and more cash flow expected to pay down debt.