Alta Equipment Group Inc
NYSE:ALTG
Earnings Call Analysis
Q4-2023 Analysis
Alta Equipment Group Inc
Alta Equipment Group revealed a vibrant picture in its financial results for the fourth quarter and full year 2023. The company, expressing pride in their performance and appreciating its 3,000-strong workforce, reported record revenue for the quarter at approximately $522 million, signifying a substantial $93 million uptick from the previous year and marking the company's first ever $500 million quarter. Achieving a 17% organic growth over Q4 of 2022, the company's equipment sales surged by $70 million to $336 million, showcasing exceptional sales which, according to the management's expectations, should translate to continued revenue streams in the form of product support. Moreover, the firm's product support and rental revenues also displayed healthy growth of over 10% and resilience in a typically weaker Q4, respectively.
For the full year, Alta's revenues soared to $1.88 billion, approaching a milestone of $2 billion when factoring in pro forma bases. The company ended the year with $191.4 million in adjusted EBITDA, sitting comfortably at the higher end of their guidance. Emphasizing the company's efficiency, the adjusted EBITDA translated into approximately $122 million of economic EBIT. This financial prudence yielded an economic EBIT return on invested capital of over 15%, which the management stressed is closely tied to their thoughtful capital deployment strategies and consequently influences executive compensation. Laying out an investor-friendly narrative, Alta also unveiled an adjusted pro forma annual levered free cash flow to common equity of approximately $92 million, conveying a robust economic earnings potential and an appeal to shareholders, especially when considering the company's quadrupling of this metric since their IPO four years prior.
Looking into the crystal ball, the company's executives projected cautious optimism. For the full year of 2024, the management provided an adjusted EBITDA guidance ranging between $207.5 million to $217.5 million. Although the equipment sales for the upcoming year are anticipated to be challenging, potentially flattening or dipping in the broader industry, the company remains hopeful to maintain or even surpass the 2023 levels. The increased equipment field population in the previous year is seen as a catalyst for sustained growth, reinforcing the management's confidence in the company's long-term prospects and their commitment to another growth year in 2024.
Alta's capital allocation remains an intricate play among various factors, including stock price valuation, M&A opportunities, and market leverage disposition. Their M&A strategy is articulated around the possibility of engaging in deals at 4 to 5x multiples, as they have in the past, rather than exceptionally low multiples akin to recent transactions. The management seems poised to leverage buyback programs if stock prices do not encapsulate the intrinsic value perceived by the company. Deleveraging has been highlighted as a priority, and while potential for accretive M&A's remains, the executive's vigilance about leverage levels suggests an astute approach to utilizing debt for future deals, underlying a judicious balance of growth and financial health.
The management's foresight in end market diversification appears strategic, with particular attention to the fast-growing warehousing market. Partnering with Hyster-Yale, they envision tapping into this segment to build closer customer relationships and drive reoccurring revenue through maintenance contracts. While acknowledging a plateau in demand post-COVID peaks, the demand remains vibrant across key sectors such as automotive, food, beverage, and medical. These healthily diversified end markets seem to form a hedging cushion, positioning Alta to penetrate markets more deeply and seize a larger share, particularly in emerging rapid-growth segments.
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Good afternoon, and thank you for attending the Alta Equipment Group Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Matt, and I'll be your operator for today's call. I would now like to turn the call over to Jason Dammeyer, Director of SEC Reporting and Technical Accounting with Alta Equipment Group.
Thank you, Matt. Good afternoon, everyone, and thank you for joining us today. A press release detailing Alta's fourth quarter and full year 2023 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 Anthony Colucci, our Chief Financial Officer. For today's call, management will first provide a review of our fourth quarter and full year 2023 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 investor.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 fourth quarter and full year 2023 results then provide a current assessment regarding the business conditions in our end user markets, followed by an update on our growth strategy. After I conclude, Tony will provide a detailed analysis regarding our financial and operating performance. I am pleased to report we achieved record results in 2023. Our performance would not have been possible without the complete dedication and solid execution by the Alta team. I sincerely thank you. The momentum in our business clearly continued during the fourth quarter as we capitalized on the broad-based strength in our end-user markets. Total revenues grew 21.7% over the year ago quarter to a quarterly record of $521.5 million for the fourth quarter and increased 19.4% to $1.9 billion for the year. Revenues for our Construction segment increased 22% to $328.1 million in the fourth quarter and 12.9% to $1.1 billion for the year. Material Handling revenue increased 16% to $179 million for the quarter and 19.4% to $681.5 million for the year. New and used equipment sales grew 25.5% from $817.2 million in 2022 to just over $1 billion this year. This is an annual record. And as we celebrate this milestone, we should also highlight the versatility and resilience of our business model, which generated over $519.6 million in high-margin parts and service revenue across the business segments in 2023, an increase of 17.7% year-over-year. Alta is unique in the breadth of our product offerings, the scale of our addressable market and the defensiveness of our market position. Our focus is on driving and sustaining long-term equipment field population and driving aftermarket support penetration to an increasingly diversified customer base, providing our customers with best-in-class support to keep their fleet highly utilized with as little downtime as possible remains a central focus of our operations. At the end of the year, we had over 1,300 factory trained and certified revenue-producing technicians. Today's investor presentation includes on Slide 10, an overview of some of the attractive features of Alta's equipment dealership business model, including protected exclusive areas of primary responsibilities or APRs, exclusive rights to OEM replacement parts, proprietary diagnostic software to service the field population, warranty repair work that must be performed by authorized dealers, factory training to assure expert product support capabilities and annuitize product support revenue streams with pricing power, given exclusivity for replacement parts and scarcity of skilled labor. Another important differentiator of a dealer integrated rental business is our ability to utilize our widespread and professional sales team to get the most return on retailing used rental equipment to customers rather than simply offloading to an option house. This allows us to keep the valuable aftermarket returns from our parts and service expertise within our APRs, not to downgrade our rental capabilities, but I want to reiterate that our business' core competency lies in our operational excellence as a top performing dealer providing full-scope equipment solutions to our customers through professional sales and service capabilities. I'll now talk about current business. Our outlook for 2024 is positive is there are multiple opportunities for continued growth in our business segments and expansive end user markets. Most importantly, the positive sentiment from our customers is continuing into this year. Visibility is encouraging for our Construction & Material Handling segment as supply chains have normalized, and we have strong equipment orders already on the books for the year. As a result, demand for our product support services will grow as well. Industry-related data also supports our view for this year. Total U.S. construction contracts increased significantly year-over-year in January. Nonresidential construction starts are forecast to increase from $441 billion last year to $458 million in 2024. Federal infrastructure spending is also expected to accelerate as many of these major projects have yet to break ground and contract awards are strong in both the Northeast and Florida where we operate. Additionally, state DOT 2024 fiscal year budgets are more than 10% higher than last year. The onshoring trend in manufacturing continues in much of our northern territory. And general contractors and subcontractors are extremely busy with full backlogs with lack of manpower remaining an ongoing challenge. In the Material Handling segment, where we enjoy arguably the most diverse and end market exposure of any industry, we are focused on the themes of labor and energy efficiency as the market settles in at what were record levels pre-COVID. We are continuing to make progress on expanding our market share in the warehouse market along with Hyster-Yale and our allied product lines. Additional sales in this market segment increased our opportunity to sell advanced technology solutions, leading to more complex and profitable customer relationships for both dealer and OEM. Our diversified growth strategy continues to prove very successful as proven by our financial and operating growth over the last 3 years. We have demonstrated our ability to significantly expand our business organically through acquisitions and entering new end user markets. During 2023, we achieved organic growth of 12.3% by increasing our market share, expanding our product portfolio and entering new territories. We will continue to expand our geographic footprint and product portfolio in our existing business segments by leveraging our existing OEM relationships and developing partnerships with new manufacturers. Our 3 acquisitions last year are representative of our strategy. In previous quarters, we discussed our acquisition of M&G Material Handling, expanding our lift truck market coverage in New England. In October, we acquired Burris Equipment Company, a premier supplier compact construction and turf equipment with 3 locations in Illinois. This acquisition gives us further coverage and market penetration in the Metro Chicago market and further growth opportunities in the highly fragmented compact segment in the construction equipment market. In November, we acquired Ault Industries, a privately held Canadian equipment distributor with locations in Ontario and Quebec. This result as first investment in Canada for our Construction Equipment segment. Alta has built a high-performing equipment dealership in the aggregate and mining space, a growing end market in that region. Also in November, we established a new OEM relationship with CASE Power & Equipment, which allowed also to enter the Central and Western Pennsylvania markets initially serving Pittsburgh and surrounding areas with plans to further expand into Central Pennsylvania in 2024. Serving general construction, infrastructure and residential and nonresidential construction contractors, both locations will sell in service the full lineup of case, heavy compact and subcompact equipment and attachments. The 16 acquisitions we completed since going public in 2020 are major contributors to our success, providing $537 million in revenue and $65 million in adjusted EBITDA. We are continuing to pursue accretive acquisitions and opportunities, which would further expand the scale and scope of product offerings for our customers, we also remain committed to our e-mobility strategy to leverage the emerging alternative energy-related opportunities in the commercial trucking segment. In addition to our current initiatives with Class A tractors, we are also evaluating additional segments, including both heavy-duty Class 6 and 7 and light-duty Class 3 through 5 EMS. Our approach aligns with our current field population strategy and include sales, parts and service and turnkey charging infrastructure solutions. In closing, 2023 was an outstanding year for our business, and we are focused on continued growth, profitability and balanced capital allocation. Lastly, we strive every day to foster a culture of empowerment, accountability and opportunity, and we rally around the shared purpose, delivering trust that makes a difference. I want to again thank our employees for their dedication and delivering trust to our customers, our business partners and to our value to shareholders. Our shared purpose is at the foundation of our corporate culture, which is ultimately what makes also the premier equipment dealership platform we are today. I'll now turn it over to Tony to discuss our financial performance in more detail.
Thanks, Ryan. Good evening, everyone, and thank you for your interest in Alta Equipment Group and our fourth quarter and full year 2023 financial results. We're proud of our 2023 performance. And before I start, I first want to congratulate my Alta teammates for their hard work and dedication to the business and to our customers in 2023. Our results mirror our culture, which is grounded in our guiding principles and all of us continuously developing our One Team approach to the business day in and day out. Thank you to all of Alta's employees, which now numbers 3,000 strong and ranges from Illinois to Maine and from Florida to the northern regions of Quebec and Ontario. My remarks today will focus on 3 areas: First, I'll briefly present our fourth quarter results, which will include specific comments on what was strong operating cash flow in Q4. Second, I'll present and comment on our full year 2023 results, we'll be focusing on several key themes and metrics for the year. Lastly, I'll provide guidance for 2024 adjusted EBITDA and discuss the assumptions and puts and takes that underpin the annual guide. As part of that discussion, I'll provide some insights into Q1, given where we are in the calendar. Before I get to my talking points, it should be noted that I'll be referencing slides from our presentation throughout the call today. I'd encourage everyone on today's call to review our presentation in our 10-K, which is available on our Investor Relations website at altg.com. With that said, for the first portion of my prepared remarks and is presented on Slides 12 to 21 in the earnings deck, fourth quarter performance. For the quarter, the company recorded record revenue of approximately $522 million, which is up a notable $93 million versus Q4 of last year and represents the first $500 million quarter in the company's history. $522 million of revenue for the quarter reflects a 17% organic increase over Q4 2022, making for another comparatively strong quarter against increasingly more difficult comps. Specifically, equipment sales, which are usually very strong in Q4 and were again this year, increased $70 million for the quarter to $336 million. Just to pause here for a moment because the unprecedented level of equipment sales were a highlight for the quarter. For the year, we placed approximately $205 million more equipment into field population when compared to 2022. Why is that important? Recall that in Q1, we presented information to investors that supported that for every incremental dollar of equipment we are able to sell into field population that we could expect approximately $0.50 of annual high-margin product support revenue over time. So it follows that in a year where we sell $205 million more equipment than we did in the previous year, we have great confidence that additional product support revenues will be there for years to come. Moving on to product support, our parts and service business lines. In spite of the quarterly comp hurdles getting more difficult, product support revenues were approximately $130 million for the quarter, up $11.5 million or over 10% organically versus last year. Turning to rental. Our rental business held up well for the quarter, given we typically see a falloff sequentially as we move from Q3 to Q4 each year. Rental revenues were a solid $55 million for the quarter. From an EBITDA perspective, we realized $49.7 million in adjusted EBITDA for the quarter, which is up $7 million from the adjusted level of fourth quarter 2022 and $3.6 million on a pro forma basis. So all told, an extremely strong quarter to end the year from a sales and EBITDA perspective, with the quarter coming in on the high end of our expectations, again, primarily due to the large beat and equipment sales. From a cash flow perspective, the quarter was extremely strong as free cash flows from operations, as we defined on Slide 32, were approximately $50 million for the quarter as we benefited not only from the strong P&L performance, but from the leveling off of inventory and rental fleet levels versus Q3. The level of operating cash flow for the quarter, in our view, is indicative of the company's steady-state cash flow capability. Importantly, the cash flow for the quarter allowed us to deploy $45 million of capital into accretive Burris and Ault acquisitions without impacting liquidity and also allowed for some deleveraging in the quarter. Truly was an excellent quarter for the balance sheet. Now turning over -- turning to our results for the full fiscal year. The company recorded $1.88 billion in revenue in 2023 as we are now pacing toward $2 billion of revenue on a pro forma basis. On the adjusted EBITDA line, the company achieved $191.4 million in 2022, coming in at the high end of our latest iteration of our guidance for the year. Importantly, the $191.4 million of adjusted EBITDA converted into approximately $122 million of economic EBIT, our version of steady-state unlevered free cash flow. On average invested capital of approximately $800 million in 2023, we finished the year at just over 15% economic EBIT yield or return on invested capital, a key metric that measures our capital deployment decision and directly impacts management's compensation. Moving on to equity cash flows. And as depicted on Slide 15 of our investor deck, on an adjusted pro forma basis, the business is now generating approximately $92 million in annual levered free cash flow to common equity. In our view, this metric is indicative of economic earnings power associated with driving equity value for shareholders ex growth CapEx. More on this metric momentarily. A quick check in on the balance sheet as of year-end and as depicted on Slide 16. We ended the quarter with approximately $219 million of cash and availability on our revolving line of credit facility with $36 million suppressed. From a leverage perspective, as mentioned previously, we were able to deliver in the quarter as total leverage came in at roughly 3.7x 2022 adjusted pro forma EBITDA, down 0.2 from last quarter despite the 2 acquisitions. Lastly, on the balance sheet, I wanted to note the quarter-over-quarter flattening in our inventory and rental fleet levels as we ended Q4 at $495 million of inventory and $590 million of rental fleet ex M&A. Both of these figures are effectively flat versus where we ended Q3 2023. As mentioned in previous calls, as equipment supply chains began to normalize at the end of 2022, Alta, like many other industry participants saw an unprecedented level of inventory replenishment in the first half of '23, which put pressure on working capital and led to redeployment of loci lines. As I mentioned on our Q2 call, we expected the pace of this replenishment to moderate significantly in the second half of the year, and we have seen just that. Before I leave 2023, I would focus participants to Slide 23 of today's presentation that we presented last quarter, which recaps where the company stands today versus where we were just 4 years ago at our IPO in February of 2020. I will let the recap speak for itself, but did want to note for investors that the company is now generating $92 million of free cash flow to equity on an annual basis ex growth CapEx or approximately $2.84 per share as of year-end. This compares to $0.74 per share on this metric at the time of the IPO. So in summary, we've grown this metric 4x in 4 years with minimal evolution along the way, yet we continue to see our stock price to not be reflective of this progress. We are cognizant of this disconnect to what we believe to be fair value for our equity. And as we head into 2024, this disconnection may inform our capital allocation decisioning as we balance potential stock buybacks versus what is presented to us via the M&A pipeline. Finally, for the last area of my prepared remarks, I would like to discuss the 2024 adjusted EBITDA guidance, which was included in today's earnings release. In terms of the guidance range itself, we expect to report $207.5 million to $217.5 million of adjusted EBITDA for the full year 2024. A few observations on the guide. First and foremost, as Ryan mentioned in his remarks, we continue to feel positive about the overall demand backdrop in our customer base, and we believe the industry data supports our sentiment. Second, we again expect to drive organic growth in product support revenues in 2024 by an amount that we expect will be in line with our historic performance in parts and service. While adding skilled technicians is continually more difficult year in and year out, organic growth and product support is something we expect to rise to the challenge on and to risen repeat annually, and the $205 million of incremental field population generated in 2023, supports our views and product support for 2024.When it comes to rental, our expectation is to at least hold rental utilization figures at 2023 levels. Relative to rental rates, much like the rest of industry participants, we aren't expecting much more than inflationary increases in 2024. Most importantly, when it comes to our rental business, given our rent to sell business model, we have no plan to increase the size of the rental fleet in any material fashion in 2024, like we did in '23. That said, investors should expect quarter-to-quarter ebbs and flows in the rental fleet size throughout the year, which is in line with our history. Lastly, on the potential for equipment sales in 2024. First, we sold $1.1 billion of equipment in 2023 as we, along with the equipment dealership industry overall, saw record levels of sales this year. Make no mistake, this year's comps on equipment sales for our industry will be as challenging as they've ever been. As OEMs and industry analysts alike may be calling for flattish or even down equipment sales this year, we'd like to think that given our position in the market and the opportunities ahead of us to take share in certain regions that we are hopeful to at least hold, if not exceed 2023 equipment sales levels this year. To close on the commentary on 2024 expectations, I wanted to give some insights into Q1, given where we are in the calendar. First, Q1 given seasonality has long been our most difficult quarter of the year. And given our experience, Q1 performance hasn't necessarily performed performance over the remainder of the year. With that as a backdrop, a couple of things to note for investors as to what to expect for this quarter. First, as it relates to Ecoverse, which had a record debut under Alta's ownership in 2023, and they had a record quarter in Q1 of 2023. Recall that Ecoverse is a master distributor selling equipment to sub-dealers and in early 2023, as supply chains were normalizing, Ecoverse sub dealers were restocking, which led to its record first quarter. Currently, at this point in the quarter, and given that sub dealers inventories are back to normal levels, we don't expect the Ecoverse repeat what they did in Q1 of 2023. That said, the expectation for the full year 2024 is that Ecoverse will come close to matching 2023's performance. Second, as mentioned previously, we had an unprecedented Q4 on the equipment sales line, which exceeded internal expectations as customers took advantage of year-end tax depreciation rules left over budgets and we're generally more available to our sales team after the construction season to assess and replenish their fleets before the new year. In summary, the record activity in Q4 in equipment sales led to a pull forward of equipment sales in December and a hangover that impacted January. That said, we are confident that the January hangover was isolated as we saw snapback in February and are experiencing a solid March as our parts, service and rental businesses are all very busy and on track. To be clear, the larger demand framework for 2024 that we have referenced here today are all solidly in place. To summarize, we are confident in the annual guide and in our long-term prospects, especially given all of the aforementioned factors, including the increased field population that was generated this past year. And we are committed to the execution to execution and having 2024 be another year of growth for Alta Equipment Group. In closing, I again want to thank all of my teammates at Alta for your commitment to our business and to each other throughout 2023. You embodied our guiding principles in 2023, and our results are reflective of that. To our investors, we appreciate your support and confidence in 2023, and we look forward to driving shareholder value in 2024. Thank you for your time, and I will turn it back over to the operator for Q&A.
[Operator Instructions]. The first question is from the line of Matt Summerville with D.A. Davidson.
A couple of questions. I want to be clear, Tony, can you talk through your capital deployment priorities for '24 in the context of not only the stock price, of course, as you referenced, but what specifically you guys are seeing in the M&A market from a multiple standpoint, if you still feel you can do leverage neutral acquisitions or leverage accretive like you did in Q4? And then how you're thinking about maybe just using this year's cash to reduce leverage, knowing that the market's appetite for leverage is not maybe what it was a couple of years ago? And then I have a follow-up.
Sure, Matt. On the first piece here on capital allocation and multiples, I think it would be to say that we'd be able to do deals sub 37% like we did in Q4 there, and that was really the Burris acquisition. We were able to get some equity into the Ault deal, which was great to partner up with that entrepreneur that want to join forces with Alta. And so it was leverage accretive to be sure and also accretive to shareholders. But I don't think we'll see deals in the 3x range. It wouldn't be appropriate for us to say that, that would be something that would continue. What I will say is we still believe that there's deals out there that look very similar to how we've executed in the past. The $537 million of revenue, $65 million of EBITDA that we bought at 4 to 5x, we still think is in front of us. And the pipeline itself continues to be active. Now some of the growth, as we've talked about before, inside of each of our major dealer networks is tempered the bigger you get. But that's why relationships with CASE, as Ryan mentioned, and some of these other OEMs that we're partnering with, Ault has partnered with a company called McCloskey, which we hope to do more with on and on. So we still think that the pipeline could be accretive relative to where we're trading at. But to the extent it's not or to the extent that the stock is depressed relative to what we think is fair value. We wouldn't hesitate to dip into the buyback program that's here and in place. In terms of funding of M&A deals and taking on more debt, you could see that we delivered in the quarter. After what I've been referring to is the great replenishment, which was an increase of organically $80-some-odd million in rental fleet in $100 million, give or take, of inventory. That certainly we don't expect this year. So we do expect to maybe have some excess cash flows that we can continue to deliver with, again, over the entirety of the year, maybe not necessarily quarter-to-quarter, especially in Q1. And so we still think that we would be able to fund M&A deals to the tune of $10 million or $15 million of EBITDA with debt. Anything beyond that in terms of size and scope where it would be something sizable, we would be mindful of leverage wherever we are at in the calendar before we funded a larger deal with all debt. We want to be mindful of leverage. So long answer, Matt. I apologize for that, but hopefully, it's helpful.
No, that was comprehensive. I appreciate that. Maybe, Ryan, if you can just take a minute and get a little bit more granularity around -- you mentioned material handling indeed being more diverse business segment. Just maybe a walk around what you're seeing in terms of the key end markets and maybe highlight what sounds like is a more concerted go-forward effort being put into, in particular, the warehousing market.
I'll start with the first piece which is the question about the diversity of the end markets. So we do believe that with our product portfolio, our end market exposure is as diverse as it could be. It's everything from the supply chain and raw materials that go into manufacturing to in our Upper Midwest footprint, a lot of manufacturing and advanced manufacturing, all the way through to, obviously, distribution and logistics. And the focus on the warehousing market is something that we are doing right alongside Hyster-Yale. They've been putting a lot of effort into product development for that end market. It's a fast-growing end market. And it's an opportunity for us to get closer to our customer to help them take costs out of their business through better labor utilization. And the price point of those trucks tends to be lower. It's a bit more of a high volume, lower price point per unit, but it still has the high-touch aspect of reoccurring revenue through planned maintenance and contract maintenance. And then, Matt, there was a second part to your question.
Yes. Thanks, Ryan. I was more looking for just some color on some of the end market trends you're seeing across whether it be automotive, food, beverage, medical, et cetera, the places you play in material handling.
Just in terms of demand, I would say that the demand is healthy. I referenced in the call that it's leveling off at what pre-COVID would have been record levels, but it is coming off of the peakiness of COVID. Last year, we were coming off a record bookings in the previous year. So that ended up being record deliveries for us, which is reflected in the revenue. Going forward, we see a plateauing of that phenomenon, which is why we're focused on really market penetration and driving share in the faster-growing end of the market, which we think is the warehouse market.
Next question is from the line of Steven Ramsey with Thompson Research Group.
Maybe to continue the line of thought on end markets. Some of the large rental companies have talked about local projects growing but at a more modest pace while mega projects are ramping up. You talked about some of the highway work, state DOT funding that being strong. But curious how you think about the local more normal-sized projects versus the large mega projects impacting your results this year.
Steven, I'll take that. We've historically tried, it's really difficult for us to delineate by market what's federally stimulated versus local demand. But I think what we're seeing is there is a little bit of a -- it's not a pullback, but a lengthening of the sales cycle for kind of your general contractor with core product that is not true on the big visible highway type jobs. I think we're seeing -- one of the things that's true is that labor utilization is the key to construction right now. You can't stimulate something when everyone's already got a job. You can't sell an excavator whenever no one has an operator to put in the seat. And so any softening that we're seeing the nonresident general construction. I think that you're seeing that there is like this kind of pent-up demand for big projects that have been installed by all the local demand, and that's the way that I would think. We always talk about it as innings to the cycle that we haven't really been in a trough. We've been more in this, just to keep adding innings to the game. And I think that phenomenon is playing out with some of the pivot to larger type jobs right now.
Okay. That's helpful. And then I'm curious on the complementary service lines. Curious how those performed in the fourth quarter? And what is the outlook for that unit in 2024?
Steve, just so I have it, when you say ancillary service line, I just want to make sure we answer your question appropriately to find that for me.
Sorry, more of the complementary products, ScottTech, PeakLogix, Burris where those companies -- how those are expected to perform in 2024?
Yes. I mean PeakLogix, we've said that the -- and I think the whole industry, it was white hot. When we bought that business, it was that combined business, which is now PeakLogix, ScottTech and Peak are now combined one and the same. But call it, revenues of roughly $30 million, $35 million combined back in 2020. That doubled more than doubled in '21 and '22. And in '23, we saw a bit of a pullback. And these are larger projects that are probably a little bit more interest rate sensitive because they're larger CapEx projects for our customers. And so if there is a part of our business where we do think that there was an impact of interest rates, it was in that PeakLogix business. What I will say is PeakLogix was part of the strategy and rationale for that deal was to take us from the JV to the varsity relative to just intellectual capabilities, design build and getting us into some customers that we otherwise would not have. And we've been able to do that. And so judging Peak on its own without including some of the synergies generated with our legacy material handling business probably isn't fair. So we're still very bullish despite '23 being a down year for peak, and we've got backlog. It's taking customers a little bit longer to pull the trigger. We think that's interest rate related, but that's how that's going. I will say Midwest mine, just to round it out, I put that into a similar ancillary projects. They're in the aggregate space that's probably immaterial to our overall revenue line, but it's performing very well, and we've definitely generated some synergies with customers or been able to get customers to recognize our capabilities in the larger quarries, et cetera. So yes, all still running fine.
That's excellent. And then last one for me. Your G&A as a percentage of gross profit continues to trend down on a total basis and in both material handling and construction equipment units. Is this expected to continue again next year, this cost discipline of G&A versus GP?
Yes, Steven, thanks for the question. I've got some numbers in front of me, and I'm just going to read them out here. G&A ex M&A and ex depreciation and amortization, Q2 $105 million, Q3 $107 million and then Q4 here, about $111 million, again ex M&A. That increase in Q4 is almost going to be exclusively related to the increase that we saw in equipment sales because we have commissions primarily in bonuses on those sales that impacted that line item. So I wouldn't expect Q4 to be indicative of the go forward. Certainly, we've added some G&A because of the acquisitions. And the way that I think about G&A is a little bit more as a percentage of revenue or EBITDA -- or I'm sorry, gross profit ex depreciation, then I would just gross profit overall just because the rental business with so much depreciation in the gross profit line. So I think Q4 is a little bit of an anomaly there at the 1.11. We'd expect that to come down and even out a little bit.
Next question is from the line of Steve Hansen with Raymond James.
Yes. I wanted to go back to your guidance. I wasn't too sure if it was aspirational or not, but I think you suggested you wanted to hold the line on equipment sales for the year. Maybe just a bit of additional color on there. The comps are difficult, I think, as you suggest, but what is the guide assuming effectively on the new equipment side?
Yes. Steven, new equipment, as we've said since we started doing these calls 4 years ago is part of the reason we only do an annual guide, number one. And the other part of the reason we don't guide to revenue because as we saw in the fourth quarter, things can really ebb and flow, and sometimes these ebbs and polls are difficult to just project quarter-over-quarter. And the other thing, when we sit down and we budget, we have great confidence in our parts and service lines or relative confidence, I should say, versus the equipment line item, which can be more impacted by macro trends, interest rates, sentiment, et cetera, et cetera. Now all the signs point toward a strong 2024, as Ryan mentioned in his remarks, DOT budget is looking strong, talking to our customers, we're working on these projects, ready to let it fly here as the spring hits us. And so we feel pretty good. The reason that we feel like we can hold that line rather to maybe being down. And I'll caveat all of this and saying, being down a little bit off of Peak wouldn't be the worst thing ever, especially given the GPs and how impactful they are to EBITDA relative to rental revenue or parts and service. But that said, we do have some areas of our business where we expect to take share. And that's, I guess, what I would highlight to answer your question specifically. So we've got places that we've just entered into in the past 18 months like Toronto and the material handling space, where we expect to take share. And there are some other pockets in upstate New York on the construction side and the list goes on. So it would be us taking share that could help maybe offset what might be flat to down market.
That's helpful. And just as a follow-up to your capital allocation decision for the year, how do you view that framework between buyback and growth or even deleveraging for that point? How are you viewing that window right now? I mean the stock is completely disconnected, I think, as you suggest, does it not make sense to maybe focus on the buyback and some deleveraging as opposed to more growth? How are you really thinking about that for the year relative to the M&A pipeline?
Yes, Steve. We've got a slide in the deck that suggests we're trading at that Alta would be trading at something like 5.8%. I think the number is in the debt forward EBITDA. So that multiple, despite it being something maybe that we feel is not appropriate, it's still a bit higher than where we've transacted at in the past in the M&A pipeline, 4 to 5. So we still think, even if we're trading at 6, there's a turn or 2 of spread there relative to the M&A pipeline. And that's before you get into any synergies or discussions about what we can do with the business versus where it might be today. Some of it is time. What does the pipeline look like over the near term? And where are we at in the calendar. We've talked about Q1 being a little bit rougher. And so we just monitor the situation and on a real-time basis are always kind of thinking about that decisioning. The other element that you mentioned was leverage, and we also want to be mindful of that. And so especially where interest rates are, we may have felt differently 2 years ago about that tenet of the framework of this decision because interest rates were much lower. So I'm not trying to evade your answer, but there's all of the different dynamics that come into that scenario. But we still think that we could do M&A in an accretive fashion. Interest rates being higher would suggest we'd want to deliver. But if those 2 things aren't there, then we wouldn't hesitate to buy back.
Next question is from the line of Min Cho with B. Riley.
Congrats on a strong end to a strong year. A couple of questions. In terms of the 4Q rental rates, can you talk to what the trends were on a year-over-year basis? And it sounds like for 2024, Tony, I think that you said that you expect it to be pretty flat, excluding any inflationary impact, but if you could just confirm that, please.
Yes, I think I can just to take your question in reverse. I think we could confirm that. We would expect inflationary maybe a little bit more there. I want to just point out too, though, so much of our rental business is a function of our service prowess. And when we're renting large 410 articulated dump trucks, effectively, customers are renting our technicians in a lot of ways. And so while there's an asset to be rented that has cost of capital and return on capital that you need to develop a rental rate, we also have this other component of labor that we need to be compensated for. And so I say that because sometimes we feel like we may be able to get a premium relative to some of the things that you might see in the industry relative to maybe URI talking to rental rates or some of the other publicly traded pure-play rental houses. So maybe we can do a little bit better, but I don't think we're expecting to, I guess, is the point there when we talk about the guide. The first part of your question on rates and how they played out in '23, I would say mid-single digits is probably where we landed there. I saw something the other day that said the last 3 years, around 20%, give or take, of total increase in rental rates. I would put us in that category over the last 3 years with this year being mid-single digits, maybe a tick north of there.
Okay. And in terms of your material handling side of the business, I know Ryan mentioned focus on the warehousing, which does tend to be a little bit lower margin. But I would imagine that you're seeing an increased shift into electrical or electric lifts. I was just wondering, how does that impact your margins? Is that more or less positive for your parts and service opportunities longer term.
I can take that one as well. We actually have some data in our 10-K or referenced in our 10-K in that the International Truck Association put out some data the other day that suggests 67%, 2/3, let's call it, of all forklifts sold in the U.S. are electrified. You can probably flip that deal versus gas or diesel or actually propane or diesel. You could flip that on its head in 20 years ago, something like that. And so the trend continues. It's leveled off a little bit, but the electrification of forklift has already come to the market. So any impact on our business would be minimal. What we know just because of cost accounting exercises internally is that we think an electric truck basically yields 65% to 70% of what a gas truck would relative to parts and service. But that's been the case in our business for quite some time. So the further electrification, we'd like to think that we could -- any offset in product support or any impact on product support of any further ends of electrification in the material handling business would be more than offset by our prowess in charging and alternative energy and some of these things that are a little bit more cutting-edge, lithium probes and lithium batteries, et cetera.
Okay. Min, this is Ryan. Another thing I wanted to just make sure we correct is that in the warehouse product, the margins are actually higher on selling the new vehicle versus rider forklift. So I might have been a misunderstanding less product support yield under electric, but certainly more margin on the front end.
Okay. Got it. I misery there. And then I guess, just an update on Nikola, saw that the that they produced and sold some of their hydrogen fuel trucks and it looks like some of their BEV trucks should be back in the market second half, probably not a big impact for you in 2024. But just wondering if you could talk to how you're doing with that relationship.
Yes, I can take that. This is Ryan. So we've been, along with our customers patiently waiting for the recall to be executed upon. And as you read, that's going to start in earnest in Q2. What we're really excited about continues to be the -- we think in our marketplace, where our footprint is in the north that the proposition for long-haul transportation on battery electric, it's a very narrow strike zone of application relative to the opportunity for longer haul and for heavier duty, which is going to point towards a hydrogen solution. And they have sold their first fleet of trucks. Right now, they're focused on California, where there's a little bit of infrastructure, but we remain very excited about our strategic footprint. We think outside of the West Coast, where we reside is going to be where there's early adoption of these types of vehicles, and we think we're well positioned to be part of it. But to answer the first part of your question, probably not a material impact this year. It's going to really start in the second half. And this recall on the electric side, it feels like it costs us almost a calendar year of momentum, but it's not dead. There's still a building pipeline of demand, and we're hopeful that they can execute on this next piece of the strategy, which is to get those trucks back in the field.
Next question is from the line of Ted Jackson with Northland Securities.
And I'd like to echo congratulations on the quarter and the year. So my first question, just rolling over to M&A pipeline. I'm just curious, when you're looking through the opportunities that are in front of you, are you seeing more opportunity on the construction side or on the material handling side? And then within those opportunities, is it more tuck-in and filling in, you would your geographic footprint? Or is it pushing you into new geographies? That's question number one, 2 parts.
Yes, I'll take the first part of that because it's pretty easy to delineate material handling versus construction in terms of the growth strategy. With Hyster-Yale, the lines of our exclusivity are much firmer and we can't compete with any other dealer network globally outside of -- we have our APR that's exclusive with them, and that's our APR for material handling for forklifts, that piece of the business. Our growth with Hyster-Yale, there is potential growth with them. We're the second largest dealer in the world for Hyster-Yale. Today, we cover north of 20% of the addressable market for U.S. and Canada. And they've been very open about trying to get their dealer network down to a manageable size, and there's a little room to go there. And there's also the opportunity to grow internationally, which we started with the investment in Canada with [ YIT ]. On the construction side, it's a much broader category is what we define as construction equipment. It's everything from the small turf and agricultural type things that we sell in Northern Michigan through our Kubota dealership and in areas of Chicago all the way up to the link belt cranes that we represent in Michigan. And so it's a much more open playing field. There are many more types of equipment dealers. It's a much more, I guess, fertile area for consolidation for us today. We're in the later innings of that consolidation strategy and material handling, and we're just getting started in construction, I guess, is the way I'd characterize it.
Okay. Shifting over next question kind of sticking in the broader themes. I was at MODEX this week and I got a couple of questions around things that came out of that. One is spending 3 days there. It was amazing to me how much demoing how much floor space was taken up by automation and robots. And clearly, that's a trend. It's not that it's not much of a secret. But as you think about the move towards automation and the move towards more robotics, does it challenge you in terms of your ability to find the kind of technician that would service that? Does it make it harder for you to recruit? I mean, I could see that being the case, I could see it making it easier for you to recruit. And then my tie-in question to that is, is that I know that you guys have some exposure and do some distribution around some robotics and some automated products from where you sit is where are we within the deployment of that kind of technology. I mean I know we're early innings, but I mean is this stuff actually really getting deployed. In your material handling world, how much of the pie does it take?
Let's start with the first piece of the question. We see automation and robotics as an opportunity in our core business segment, which is, as we highlighted today, we really think it's all about product support in the aftermarket. And we think that, that same thing will play out in robotics and other advanced salute material handling solutions. The question of technical aptitude or ability or recruit ability, it was the second thing position positive, which is that it's actually easier. It's harder to train someone to be a fully functional heavy diesel engine mechanic that works on all type -- the breadth of heavy equipment that we have in our portfolio. That's harder to train and takes longer to train than some of these electric material handling machines, which is there's less diagnostics. It's going to be more component replacement. It's a different skill set. It's going to be more happening with a laptop than with heavy tools and machinery. I guess is the best way to delineate the 2. And then sorry, Ted, that was a multipart question. What was the second question?
Yes. Well, that goes into like -- I mean, I've seen some of your old marketing literature that you have around and you guys do have product offerings that in your, what I call it, where we're at in the life.
Yes. Right. The robotics and automation. We're early innings, and we're early days, and there's a lot to come, and we're well positioned, but we're just scratching the surface. And we're excited about that we have allied lines, and we have some parts of our portfolio that are more emerging technologies. But what we're really excited about is what Hyster-Yale is working on as they're our flagship partner, and you can see their commitment to that market and being innovators, and we're excited to be part of that. And we feel like us and a couple of our other peers in their dealer networks are really well positioned to capitalize on that.
No, I spent about 1.5 hours in their booth this week and they had a good story, and they had a nice demo of some stuff in there. My final question is, which are really just net picky and really for Tony. But Tony, in '24, you hit part of it with regards to what you're expecting for rental equipment. But what's your CapEx for '24 are going to be extensile?
Ted, $10 million is a good number for that figure. This would be for things like leasehold improvements at a branch, a parking lot, a new roof, this stuff, refurbishing on the space, if needed, cranes, et cetera. $10 million of that bet is a good number there.
Okay. And then my last question, which is really net picky. It's more out of curiosity. On the cash flow statement, what is gain on bargain purchase of business?
Gain on gain on bargain purchase is brought to us by general accounting principles and fair valuing of assets and purchase price allocation. It effectively is saying, Ted, that the assets that were purchased in the Burris transaction were worth more than you paid for it. And there's obviously judgment that comes into that different factors that I won't get into, but that's what that was.
All right. Well, again, congrats on the quarter and the year. I look forward to 2024.
Thank you for your question. There are no additional questions waiting at this time. That will conclude the conference call. On behalf of the company, thank you for your participation. You may now disconnect your lines.