Good afternoon. Thank you for attending today's Alta Equipment Group Fourth Quarter 2021 Earnings Conference Call. My name is Tania and I will be your moderator for today's call. Our lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end.

If you would like to ask a question, please press star one on your telephone keypad. I will now like to pass the conference over to our host, Jason Dammeyer with Alta Equipment Group. Please go ahead..

Thank you [Indiscernible]. Good afternoon, everyone. And thank you for joining us today. A press release detailing Alta's fourth-quarter and full-year 2021 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 the fourth-quarter and full-year financial results. We will begin with some prepared remarks before we open the call for your questions.

Before we get started, I'd like to remind everyone that this 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 altered growth market opportunities, and general economic and business conditions.

We have based these forward-looking statements largely on our current expectation 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..

our commitment to environmental sustainability, including a focused strategy to drive customer adoption and commercial viability of various electromobility solutions, our thoughtful diversity and inclusion policies, the safety of our employees and technicians and the overall purposeful, dedicated and inclusive culture that we have created and continue to develop with each day.

These areas of the business are a top priority for Alta, and we are excited that we will be able to share more about them in greater detail as we move forward through the year. In closing, we had a great 2021 that sets us up well for 2022 as we look to scale our business, deliver strong financial results, and drive long-term shareholder value.

Thank you to the Alta team once again, for all your hard work in driving a momentous year for the company. I will now turn it over to Tony..

Thanks, Ryan. Good afternoon, everyone. And thank you for your interest in Alta Equipment Group and our fourth-quarter and full-year 2021 financial results. We feel strongly about how the business performed in 2021, and look forward to more growth and positive outcomes in 2022.

I first want to congratulate all of my Alta teammates for the hard work and dedication to our company in 2021. I especially want to acknowledge our skilled technicians. Our customer's businesses earned on job sites and on shop floors across our footprint by our technician base.

And they continue to meet every challenge and embody our customers for life guiding principle, each and every day. A big thank you to all of Alta's skilled technicians. Additionally, I want to welcome our new team members from Ginop Sales, Ambrose Equipment, and Midwest Mine to the Alta family.

The senior leadership team is committed to carrying on the impressive legacies of each of those respective businesses and we look forward to earning your trust. My remarks today will focus on three key areas.

First, I'll be presenting our fourth-quarter performance, which exceeded our expectations as the business continues to gain ground year-over-year on some key metrics.

Second, I thought it was an appropriate time to recap Alta's M&A activity over the past two years, as well as provide commentary on our capital structure and operating cash flows, give the company a solid framework to continue on its M&A path.

Lastly, I will provide guidance for 2022 adjusted EBITDA and discuss the relative elements and assumptions that drive the metrics.

Real briefly, it should be noted that there are some slides in our presentation, which was released prior to our call today, that presents our fourth quarter and full-year numbers in greater detail than what I will discuss today.

I'd encourage everyone to review our presentation and our 10-K, which is available on our Investor Relations website at altaequipment.com. For the first portion of my prepared remarks, the fourth quarter and full-year performance. First, the P&L.

For the quarter, the company recorded revenue of $356 million, the highest quarterly sales figure in the company's history. This milestone was driven by an unprecedented $223 million of equipment sales and a $133 million in product support and rental revenues.

Embedded in the $356 million of revenue is a 19% organic growth rate, or an incremental $54 million of revenue over the fourth quarter of 2020.

Quickly focusing in on our Parts and Service business lines for the quarter, Construction Product support achieved an increase of $7.1 million in revenue versus Q4 2020 on an organic basis, representing approximately 21% year-on-year growth.

While the Material Handling Product support business achieved an increase of $4.5 million in revenue versus Q4 2020 on an organic basis, representing approximately 12% year-on-year growth.

Additionally, and we've made a point to provide investors with a quarterly check-in on rental utilization, nothing but positive momentum here, as physical utilization held at approximately 70% in Q4. This is notable, given utilization effectively held versus Q3, 2021.

Historically, we've seen a fall-off in utilization in Q4 given seasonality, but we didn't see that same level of fall-off in Q4 of this year. Lastly, we continue to see market rental rates trend upwards as the lack of new equipment supply continues to drive rates higher.

From an EBITDA perspective, we realize $37.7 million in adjusted EBITDA for the quarter, again a record quarterly result. Adjusted EBITDA on a pro forma basis for Q4 is also up substantially from $29.2 million in the fourth quarter of 2020, to just over $40 million for the same quarter 2021.

On an annual basis for fiscal year 2021, the company recorded just over $1.2 billion in revenue, and we're now pacing at over $1.3 billion of revenue on a pro forma basis. On the adjusted EBITDA line, the company achieved $120 million in adjusted EBITDA in 2021, outpacing our expectations and beating our guidance for the year.

Importantly, the $120 million of adjusted EBITDA converted into $63 million of economic [Indiscernible], our version of unlevered free cash flow for our free cash conversion rate of 53%.

Lastly, and as depicted on Slide 19 of our investor deck on and an adjusted pro forma basis, the business is generating just above $60 million in leverage free cash flow to common equity prior to growth CapEx. In our view, this metric is indicative of economic earnings associated with driving equity value for shareholders.

Next, I want to give a quick update on the balance sheet and our credit profile as of year-end. The record fourth-quarter of EBITDA led to deleveraging of the balance sheet as total leverage declined to 3.5 times at year end from 3.7 times at the end of Q3 2021. This rig of our growth strategy.

Additionally, I'll describe how our capital structure and operating cash flows provide the foundational element of our ability to execute on our M&A pipeline. In early 2020 prior to the IPO, Ryan and I noticed that we believed we could purchase approximately $15 million of EBITDA annually at reasonable valuations.

Two years later, as we look back, we've done exactly that and I would refer everyone to slide 16 of our investor presentation. As we've acquired $33 million in EBITDA since the IPO at valuations generally raging from 4 to 5 times trailing EBITDA. All accretive deals to Alta shareholders.

The $33 million of EBITDA acquired brought with it an incremental $329 million of revenue, 19 additional branch locations, and approximately a 150 skilled technicians.

In addition to being valuation accretive, the 11 acquisitions also fortified existing OEM relationships, or introduced us to new strategic OEMs, built-out important automation and design expertise in both operating segments, and diversified our end market exposure.

While M&A is in our DNA, we're selective on our criteria and are mindful of where, when, and how much capital we allocate to a deal. We believe our M&A performance in 2020 and 2021 is proof positive in this regard.

I mentioned that I touched on how we believe our capital structure and cash flow profile provide the foundational element of our ability to execute on the M&A pipeline. And I'll refer investors to Slide 25 of our deck, which depicts my commentary.

First as investors may recall, the company raised a high yield bond in April 2021, that we viewed as a game changer for several reasons. One, it decreased our cost of debt and at the same time, fixed the interest rate on a large portion of our debt. An important point as we've now seen interest rates scale up, just one year later.

Two, we generated an incremental, $140 million of liquidity that can be accessed to deploy relatively cheap debt capital into attractive return profiles on accretive M&A deals. Three, there is no amortization or restricted financial covenants on the board, which gives us maximum flexibility to route cash flows as we see fit.

In the end, the bond access semi-permanent capital at the back end of our capital structure. The second element of the capital structure to note is our $350 million ABL revolver, which is collateralized by the company's rental fleet, parts inventory, and accounts receivable.

The undrawn portion of the revolver provides our cash liquidity or dry powder for growth initiatives including M&A.

Given that we are typically acquiring tangible assets in our deals, the advance rate on those assets effectively provides for a notable portion of the capital needed to execute on a deal without having a dollar per dollar impact on liquidity.

The second major piece of the M&A financing framework is Alta's positive cash flow profile as evidenced by our economic EBIT in 2021 of $63 million. These cash flows are used to sweep down against the revolver, thereby naturally deleveraging the business and generating more dry powder organically.

And I'd like 25 of our deck, we saw this play out in real-time in 2021. You can see that the liquidity generated by the tangible assets associated with target companies in additions to our rental fleet helped to offset the liquidity needed for growth initiatives.

Meanwhile, the business generated positive cash flows throughout the year, which acted as a positive influencer on leverage and liquidity. In summary, we believe this structure provides the perfect capital bases for us to execute on our M&A strategy and drive accretive returns for Alta shareholders.

Finally, and for the last part of my prepared remarks, I'd like to discuss the 2022 adjusted EBITDA guidance, which was included in today's earnings release.

First, we've again chosen to provide guidance on annual adjusted EBITDA for 2022, as we believe this metric is most indicative of the cash-flow generation of the business and is a familiar incomparable metric for investors.

Additionally, we believe in annual EBITDA will look versus quarterly reflects our longer-term approach to decision-making, as well as solves for seasonality and the ebbs and flows in equipment sales month-to-month and quarter-to-quarter, which are both typical of our business and our industry.

Second, in terms of the guidance range itself, we expect to report $137 million to $142 million of adjusted EBITDA for the full-year 2022. A few observations and assumptions on the guide. One, we feel great about how we ended the year in Q4, and we believe the tailwinds that positively impacted the business in 2021 will continue in 2022.

Second, we had a strong year of rental utilization in 2021 in fact we had similar or slightly higher utilization levels in 2022.

Third, while we have guided to the adjusted EBITDA metric only, we do expect to continue to drive profitability metrics higher as our C segment continues to realize operating leverage and our Material Handling business benefits from our investment in automation and system integration.

Fourth in terms of assumptions, our bullishness on the demand factors that will impact our business in 2022 are slightly tempered by two macro supply factors affecting the landscape.

First, the variability associated with OEM supply chains in the delivery and deployment of new equipment and rental fleet could act as a governor on growth in sales and rental revenue in 2022. Second, the ever increasing challenge on attracting and growing our skilled technician base. Certainly Alta is not alone when navigating the tight labor market.

For us in the end, are up. To drive organic product support revenue is directly correlated to our skilled technician headcount. Having said that, historically, we have an excellent track record of attracting and retaining skilled labor and continue to put important resources towards this effort as our people are our most valuable asset.

Lastly, and given the calendar, as it relates to where we are tracking on the annual guidance so far in 2022, what I can say is that what we have seen in Q1 2022 is continued strength across all of our business lines and end markets which provides us real-time confidence and solid support for the annual guidance.

Similar to last year, to the extent any of the underlying assumptions are macro factors related to the guidance change, we will update investors accordingly. In closing, I want to thank all of my teammates at Alta for your commitment to the business and to each other throughout 2021.

To our investors, we appreciate your support and confidence in 2021 and we look forward to continuing on our growth path in driving shareholder value in 2022. Thank you for your time, and I will turn it back over to the operator for Q&A..

Thank you. [Operator instructions] First question is from the line of Alex Rygiel with B. Riley. Your line is open..

Thank you Ryan and Tony. Fantastic quarter and excellent year. Congratulations..

Thanks, Alex..

A couple quick questions here. First, Tony, as it relates to the guidance you mentioned that the relationship with Nikola and the expectation for revenue from that relationship implied in your guidance is minimal.

Can you expand upon that a little bit? I understand that Nikola is expected to -- we're hoping to deliver something in the order of 300 to 500 trucks this year. How should we think about that contribution to Alta? I suspect obviously it would be second half weighted.

But why not start to include it in your guidance yet?.

Alex, thanks for the question. First of all, just to be clear, the guidance is really just embedded or the foundation of it is the two core segments with -- without any impact from the EV segment. And we wanted to be conservative there.

Just given the startup nature with Nikola, we're cognizant of the numbers in terms of truck deliveries that you mentioned there. But we also have some startup costs probably that may offset any gross profit that we were able to make maybe on some truck sales.

So for all those reasons, and again, the back-half weighting, we chose to just guide really with the two core business segments..

That's helpful. And then also as it relates to guidance, guidance appears to be somewhat tempered by timing and delivery of new equipment by OEM partners. Can you talk about, clearly I suspect that they've had some delivery timing challenges for the better part of the last months or so.

Are those starting to ease yet or is there any visibility as to when that might?.

Alex this is Ryan, I'll take that one. It's hard to generalize because of the breadth of our portfolio, but I think most accurate to say that it is tempered off, but at historically high level.

We have record lead-times and most of our products, things that we delivered this year were sold last year, and orders that we're taking this year for the most part will be delivered in 2023. It's stabilized, but it's still, it's a very tight market, historically tightened and remains elevated..

One last question, I'll get back in the queue. Clearly because of that tight market your rent a bit is very strong, and it's obviously our high-margin business, as well as parts and services.

Is there any capital or are you looking to invest more capital into that rental business, high demand given the long lead times for new products?.

This is Tony, I'll take that one. You know in terms of the rental fleets [Indiscernible].

Thank you very much.

Thank you Mr. Rygiel. The next question is from the line of Bryan Fast with Raymond James, your line is open..

Thanks. Good afternoon. We saw a strong I guess, rental utilization in the year-end.

I think you provided some color, but could we get some more color on what you've seen more recently in the last few months in 2022?.

I'll take that one, Bryan. We -- what I would say is I mentioned in my prepared remarks is we have typically specifically in the North saw a dip in physical utilization going from, Q3 to Q4 and October and November stayed really hot in terms of just physical utilization.

And we really didn't see much of a dip at all until the very end of December and that dip was probably more muted than it has been in years past. What I would also mention is we're in Florida, large chunk of our fleet is in Florida which obviously is not impacted by the weather.

And we have held physical utilization right throughout the year down in Florida at a really high level. And that continues into Q1 down in Florida. So what I would say up north here is, in Q1 we certainly see a dip. There's Frost laws that prevent us from shipping large equipment in the winter time in the north.

So we definitely see a dip like we have in the past. But what I would say is it's probably been more muted than it has historically. Utilization-wise..

Okay, thanks. That's very helpful.

And then just on Nikola, as that relationship continues to solidify with the new dealer territory in Arizona, could you provide some thoughts on what we should look for in terms of milestones or next steps?.

Sure. I'll take that. This is Ryan. I think that's the first milestone for us would be announcing a large order. So we're working closely with Nikola, and they are indications of interest, there are demos that are happening. And our anticipation is that at some point this year we're able to broadcast customer number one for Alta equipment..

Okay, thanks. That's it for me..

Thank you, Mr. Fast. [Operator Instructions] The next question is from the line of Matt Summerville with D.A. Davidson. Your line is open..

Thanks. I have a couple of questions. I know it's tough to have visibility from the top-line today when you think about equipment sales, so I want to focus on product support.

As we think about '22, and based on what you've seen now for the better part of the first three months of the year, what do you feel is a realistic organic growth rate or range we should expect to see our product support for Alta in '22?.

Matt, good to hear from you and thanks for the question. This is Tony. We always have to think about the segments bifurcated from one another as the construction segment it's realized.

Organic growth numbers in the double-digits for quite some time now as we take share for our OEMs drive field population hire mechanics in kind of run the Alta playbook in the territories that we're at.

As I mentioned on my prepared remarks that the bottleneck can be tech headcount, which is always difficult, we are good at it, as I mentioned, but that can connect as a bit of a governor.

Having said that, we expect product support in the Construction business to continue to run very strong especially in some of the newer geographies that we've entered through M&A Upstate New York being one of the newest kind of territories that we've entered in Florida as well.

I would expect something in the double-digits would be the expectations there and product support in the Construction segment. The Material Handling segment,.

a more mature business, as we think about organic growth rates year-on-year in that business recall that it was more impacted with COVID in 2020 probably then our construction business was, and historically the growth rate therapy and 5% or 10% and I would expect probably a return to that norm overall, especially as we are able to kind of pass along pricing increases on parts and labour.

So hopefully that gives you some idea of the expectation there..

Appreciate Tony. In terms of pricing, can you talk about what rent pricing looked like in 21 versus 20? And what you anticipate to realize on top of that in 22 over 21 and if you're able to give the same color on product support, that would be helpful as well. Thank you..

You know that's a difficult question, Matt. I'll take the product support piece first. The product support piece I've certainly -- of similar to the equipment markets when there's a dearth of supply, rates tend to go higher. What I would say though is every market is different that the competitive landscape is different.

And so rates are different across the board, just given when you compare and contrast the geographies. But in general, certainly something along the lines of 3% to 5% in terms of rates on product support just pricing, I guess I would say. And on the rental piece, which by the way, we would expect to continue into '22 here.

On the rental plea -- the rental piece, I think again, factors that are very specific to different regions can vary. But we saw multiple single-digit increases in the markets that we're in.

And for the equipment categories that we're in, in 2022 or I'm sorry, in 2021 and remains to be seen in 2022, but everything suggest that we -- the trends may continue here..

All right. And then I'll go ahead and ask one more. Just I'm going to your warehouse solutions business, which is left the lift truck, like the automation stuff. How big is that business for Alta as of year-end '21.

And what can you scale that to this year if there's -- I feel like you've referenced backlogs statistic just pertaining to that piece to the business in the past. I could be wrong. But if you guys could do a deeper dive on the automation piece embedded in the material handling, that I'll be great..

Sure Matt, I will take that one. I want to say the Material Handling business was somewhere along the lines of and we produced some data last quarter on peak Logic specifically. And of course on top of that, we have the investment in Scott Tech.

So combined that business -- Matt, I may have to get back I don't have it top of mind, but I want to say that that business was about $50 million combined when we bought it so between 2022 and 2021 for Scott Tech, and we would have saw something along the lines of 25% growth on that metric in 2021 here.

The question then becomes, what it looks like for 2022 solet’s just say we did $65, $70 million maybe this year.

And a lot of the same types of issues impact that business, supply chain being one of them in skilled labor being the other little bit different skilled labor in terms of having appropriate amount of project engineers and design engineers in that space, which are also kind of in high demand here.

So anyway, hopefully that helps Matt, answer your question..

Thank you. I appreciate thanks Tony..

Thank you Mr. Summerville. There are no additional questions at this time. Thank you for attending today's Alta Equipment Group fourth quarter 2021 earnings conference call. You may now disconnect your lines..