Alta Equipment Group Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Overview: Despite turbulent macro environment, Alta employees performed well. Equipment sales challenged but demand improved in September and October. Backlog in Material Handling over $100 million. SG&A down $25 million year-to-date due to cost savings.
• Construction Segment: Demand from private capital spending tight but strong for long-term infrastructure work. Florida and Michigan seeing positive project activity. Industry data suggests construction entering healthier demand phase.
• Material Handling Segment: Industry volumes soft, but Alta carries healthy backlog. Food and beverage and distribution customers performing well. Early signs of recovery in automotive demand and reindustrialization in U.S. regions. Completed divestiture of Dock and Door division.
• Business Optimization: Focus on strengthening flywheel, streamlining workflows, sharpening accountability, and improving customer cost to serve. Product Support remains engine of value creation.
• Financials: Revenue $422.6 million, 5.8% organic reduction. Product Support steady. Rental revenues down Y/Y but up sequentially. Adjusted EBITDA $41.7 million, slight reduction Y/Y. Free cash flow before rent-to-sell decisioning $25 million for quarter, $80 million YTD.

Segment Performance

• Material Handling: New and used equipment down $1.6 million year-over-year but up sequentially. Despite industry bookings for new forklifts running below historic norms, Alta kept pace with prior year by selling allied lines and tariff-free used equipment. Carries a backlog over $100 million of new allied and used equipment into Q4. Product Support revenues in Material Handling outpaced Q2 by nearly 4%. Adjusted EBITDA for the segment was $17.5 million in Q3, up year-over-year and sequentially versus Q2.
• Construction: Equipment sales volatile, but October was the strongest month for new equipment sales in the year, with over $75 million in October alone, nearly 60% of Q3 equipment sales. Product Support revenues grew in the segment. Adjusted EBITDA details for the segment were discussed but specific numbers weren't detailed beyond general context.
• Master Distribution (Ecoverse): Impacted by tariffs, with sales and margins eroded. Mitigation efforts like supply chain resourcing, target pricing increases, and supplier cost sharing are in place, and the segment is expected to contribute more to EBITDA in the future.

Guidance

• Adjusted EBITDA for fiscal year 2025 expected to be between $168 million to $172 million.
• Free cash flow before rent-to-sell decisioning expected to be between $105 million and $110 million for the fiscal year 2025.
• Believes in a path back to $200 million of EBITDA driven by reversion to industry norms in equipment volumes and margins, mitigation of tariffs impact on Ecoverse, and reversion of PeakLogix to historic norms as interest rates come down.

Risks

• Persistent headwinds related to tariffs, manufacturing softness, and customer caution.
• Impact of interest rate uncertainties on customer capital spending.
• Blunt impact of tariffs on Ecoverse business, affecting sales and margins.
• Volatility in construction equipment sales compared to other segments.

Q: Can we talk about Construction Equipment? It sounds like based on equipment sales for October that the business, some of the roadblocks that have been slowing the business like funding of projects, availability of labor seems to have moved to the side and you'd anticipate at least an early upswing in that business, both from a sales and a margin perspective. Is that the right way to look at it?

A: I think, Liam, you said it well. From a sales perspective, I think we're -- as I mentioned, on the margin thing, we're cautiously optimistic. But from a sales perspective, certainly, we think exactly along the lines of how you described that October could be a harbinger of things to come.

Q: I wanted to continue that line of thought on Material Handling, the backlog being over $100 million. Maybe I heard you say you described it as stable. Maybe can you put that in context of the first half of the year, the backlog size where it was a year ago. But part of my thought process is sales have been increasing sequentially off of the Q1 levels. You talked about a great order in the prior quarter. Is this reducing the backlog? Or are there more orders filling it back up?

A: Yes. Steven, I'll take a shot at that. This is Tony. Just to clarify Ryan's comment there, the PO that he referenced is not going to be impactful for '25 here. It's more of a long-term kind of opportunity. Anyway, I believe we started in Material Handling, we started the year with $125 million of backlog. We're in the low $100s million here, as we mentioned. And so we have had some burn off of the backlog. As we mentioned last quarter, when we think of backlog, we're not just thinking of our Hyster-Yale new lift trucks, part-of-the-line lift trucks. We've got allied lines that we do very well with. And then used equipment, which given tariffs, there's an opportunity to really move used equipment from a pricing and competitive perspective. And so I think the burn off is, for us, less about maybe demand, which has been tepid and more about lead times from the factory coming down in terms of Hyster-Yale just being able to deliver more quickly given their production levels. So I would just say that the backlog is not down necessarily at Alta because of a massive decrease, although it's down, but more so just the lead times impacting it.

Q: On the divestiture of Docks and Doors unit, I guess, kind of why now at this point, given still keeping PeakLogix, maybe there wasn't synergy between the businesses necessarily. But why now? And then secondly, I may have missed it in the prepared comments, if that was an impact to the 2025 EBITDA guide?

A: Sure, Steve. I'll take the -- I'll go in reverse. Very minimal impact on the EBITDA guide. That business probably less than $1 million of EBITDA on an annual basis. I think on the Dock and Door strategically, and Ryan can weigh in, too. But overall -- recall, we did one acquisition several years ago of a Dock and Door business in Boston. The rest of that business or the majority of that business was inherited through an acquisition of the Hyster-Yale dealer in New York City. And so as we have kind of done a strategic review on all of the different business lines that we're in and trying to drive synergies between those, what our core business is with the Hyster-Yale products and what is the Dock and Door business, the more we looked at it, the more we thought that this would be better off in somebody else's hands, that was just focused on it. The other thing I would add is don't draw any parallels between what PeakLogix does and what Dock and Door does, very different kind of offerings, if you will, and go-to-market strategies, customers, et cetera. So anything else to add there? Ryan Greenawalt: I think that's well said. It's around -- the moat around the business, we prefer the exclusive rights, and there's more aftermarket yield on selling vehicles than selling [indiscernible]