Good day, and welcome to the Alamo Group Incorporated Fourth Quarter 2023 Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Mr. Edward Rizzuti, Executive Vice President, General Counsel and Secretary. Please go ahead, sir.

Thank you. By now, you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one, please contact us at 212-827-3746, and we will send you a release and make sure you are on the company's distribution list. There will be a replay of the call, which will begin 1 hour after the call and run for 1 week. The replay can be accessed by dialing 1-877-344-7529 with the passcode 1294689. Additionally, the call is being webcast on the company's website at www.alamo-group.com, and a replay will be available for 60 days. On the line with me today are Jeff Leonard, President and Chief Executive Officer; and Richard Wehrle, Executive Vice President, Chief Financial Officer, and Treasurer. Management will make some opening remarks and then we will open the line for your questions. During the call today, management may reference certain non-GAAP numbers in their remarks. Reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachments to our earnings release. Before turning the call over to Jeff, I'd like to make a few comments about forward-looking statements. We will be making forward-looking statements today that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties which may cause the company's actual results in future periods to differ materially from forecasted results. Among those factors which could cause actual results to differ materially are the following; adverse economic conditions which could lead to a reduction in overall market demand, supply chain disruptions, labor constraints competition, weather, seasonality, currency-related issues, geopolitical events, and other risk factors listed from time to time in the company's SEC reports. The company does not undertake any obligation to update the information contained herein, which speaks only as of this date. I would now like to introduce Jeff Leonard. Jeff, please go ahead.

Thank you, Ed. I’d like to again thank everyone who's joined us on the conference call today and to express our appreciation for your continued interest in Alamo. The fourth quarter shaped up broadly in line with our expectations and we were very pleased with the financial results we reported today. Despite gathering headwinds in several of our served markets, our teams achieved record quarterly sales and earnings for the ninth consecutive quarter. I would now like to turn the call over to Richard Wehrle, who will take us through a review of our financial results for the fourth quarter. I will then provide additional comments on the results and say a few words about the outlook as we enter 2024. Following our formal remarks, we look forward to taking your questions. Richard, please go ahead.

Thanks, Jeff, and good morning, everyone. Alamo Group's fourth quarter 2023 closed with an excellent performance that produced record net sales and net income, driven by continued strong demand for our products. Fourth quarter consolidated net sales were $417.5 million, an increase of 8% compared to $386.6 million in the fourth quarter of last year. Gross margin dollars increased by $11 million and gross margin percent was up almost 80 basis points in the quarter compared to the fourth quarter of 2022. Both margin dollars and percentage increases were driven by higher volume and price initiatives we've had in place, along with improved productivity. Operating income for the fourth quarter came in at $44.8 million versus $42.7 million in the fourth quarter of 2022, an increase of 5%. Operating income as a percent of sales was just under 11% for the fourth quarter versus 11% for the same quarter last year. Consolidated net income for the fourth quarter was $31.5 million, or $2.63 per diluted share, an increase of 8% versus net income of $29.2 million or $2.44 per diluted share for the fourth quarter of 2022. Vegetation management was off in total sales compared to the fourth quarter of 2022. We expected this softness coming in both forestry and agricultural markets. Net sales were $214.4 million, a decrease of 8% compared to $232.5 million for the fourth quarter of 2022. As we have continued to monitor dealer inventory levels, which are up, but not at historical levels, we honored dealer requests during the quarter to reschedule shipments until 2024, which was a big reason for lower sales. The division's operating income for the fourth quarter was $19.8 million, down 35% versus $30.2 million for the same period in 2022. Industrial Equipment division net sales had a tremendous quarter, coming in at $203.2 million, up 32% compared to $154.1 million for the fourth quarter of 2022. This was due to a solid performance across all product lines, particularly vacuum trucks, sweepers, debris collectors, and stone removal equipment. While truck chassis deliveries and component part receipts return to a more consistent cadence, there were a few late component deliveries that impacted this division's operations, although, not as significantly as in previous quarters. This resulted in a substantial rise in operating income in the fourth quarter of 2023, just over $25 million compared to $12.5 million for the fourth quarter of 2022, an increase of over 100%. Consolidated net sales were a record for the full year of 2023, coming in at just under $1.7 billion, up 12% compared to $1.5 billion for the full year of 2022. Strong demand for our products in both divisions, along with positive impacts of pricing initiatives and improved supply chain and productivity were the main drivers of the increase. Consolidated sales were the highest in the company’s history. 2023 gross margin percent was up almost 200 basis points, and gross margin increased $77 million versus 2022, a 20% increase. The margin improvement resulted from continued improvement in supply chain conditions, which led to efficiencies and enhanced capacity utilization. Full year operating income for 2023 was just under $198 million or slightly below 12% of sales compared to a full year of 2022, which was $148.6 million, just under 10% of sales, a 33% increase in operating income dollars and a 190 basis point increase in operating income as a percent of sales. Net income for 2023 was $136.2 million or $11.36 per diluted share versus net income of $101.9 million or $8.54 per diluted share for 2022, an increase of 34%. The company's backlog at the end of 2023 came in at just over $860 million. That's down 15% compared to backlog levels at the end of 2022. A few additional financial items I'd like to cover that relate to the balance sheet at the end of 2023, which continues to remain extremely strong. Working capital increased $53 million compared to the end of 2022, increased primarily from higher accounts receivable and to a lesser extent, inventory. For the full year of 2023, we reduced our debt level on our credit facility by almost $67 million. Our bank leverage ratio at the end of 2023 was just under 1:1, which is at the lowest level in just over four years, excuse me. And finally, the company's trailing 12-month EBITDA was a record coming in at just under $247 million, up 26% compared to calendar 2022. For 2024, cash flow should remain strong as our focus will be continuing to reduce both inventory and debt. We will remain disciplined in execution on controlling costs and expenses as inflation is expected to continue to put pressure on our margins. Supply chain will continue to be a major focus to reduce the amount of work in process we hold. So in summary, Q4 was a record quarter for Alamo Group. Sales were up 8%, which translated into an 8% increase in net income. We are also pleased that our Board recently approved an increase of our regular quarterly dividend of $0.22 per share to $0.26 per share for 2024. With that, I'll turn the call back over to Jeff.

Thank you, Richard. We want to thank everyone who joined us on the conference call today. In the fourth quarter, we produced solid financial results that were broadly in line with our expectations. We were especially pleased that our fourth quarter results established the company's ninth consecutive quarter of record sales and earnings. Overall, our markets continue to display significant strength during the fourth quarter, although they began to diverge directionally as we closed out the year. Municipal, county, and state agencies continue to accelerate their investment in the renewal and modernization of their infrastructure maintenance fleets. State rainy day funds remain near all-time highs and ended 2023 nearly double what they were before the pandemic in 2019. The pace of spending by state and municipal governments continued to accelerate last year relative to 2022, and double-digit annual spending growth was reported again in 2023. This continued to drive robust demand across our full product offering in the Industrial Equipment division, as well as our roadside and specialty mowing products in the vegetation management division. The market for our forestry and tree care products was more challenging in the fourth quarter as negative trends emerged in the wood biomass market. According to the USDA, United States wood pellet exports increased 6% by weight, and the price per ton also increased 6% relative to 2022. Less positively, domestic suppliers are confronting cost pressures and tight supplies of wood feedstocks that are pressuring margins in the long-term supply contracts. This slowed planned investments in major equipment. Higher interest rates also constrained ordering activity related to these larger and more expensive products. While recent biomass market dynamics were less favorable in the final month of 2023, demand for our forestry products remained at a good level in the fourth quarter, although off from the peaks of the previous two years. In the hobby farm and ranch segment, fourth quarter trends were also mixed. After a long upward run spanning several years, cattle prices declined modestly in the fourth quarter but still ended the year with strong double-digit gains. Hog prices were lower in the fourth quarter and were down for the full year as well. Agricultural crop prices, including corn, soybeans, and wheat, all moved lower in the fourth quarter, although they remained at historically good levels. As a result of these commodity price trends, US farmer sentiment declined in the fourth quarter. The higher interest rates that prevailed through the second half of the year caused dealers to push inventories lower. This was most notable in the hobby farm and ranch market, where dealers deferred certain planned equipment deliveries and canceled some longer lead-time orders. This dealer destocking pattern impacted orders within the vegetation management division. Dealers selling the products of our Industrial Equipment division have not been impacted as much by higher interest rates, as they don't carry meaningful inventories of these major order products. Looking at how these market forces drove our business in the fourth quarter, sales in the vegetation management division were down 8%, and new order bookings declined 34% compared to the fourth quarter of 2022. Year-end order backlog in this division declined 39% relative to the fourth quarter of 2022. These numbers need to be viewed with perspective, though, as the division's sales, orders, and backlog remained elevated compared to pre-pandemic levels. The division's fourth quarter EBITDA of 12.6% was 360 basis points lower than the prior year. However, on a full year basis, EBITDA was 80 points higher versus 2022. The division's backlog represents a solid four months of sales at the current pace, two months longer than the level reported pre-pandemic. Fourth quarter sales were lower compared to the prior year in forestry, tree care, and the hobby farm and ranch markets, but sales of mowers to governmental agencies were sharply higher. Fourth quarter EBITDA was impacted by costs associated with sales incentives to motivate retail sales, although these incentives were more modest than those employed in the second and third quarters. Fourth quarter sales in the industrial equipment division were 32% higher than the prior year. The division's order bookings in the fourth quarter were down 9% due to a difficult comparable. This was the result of an extraordinarily large snow removal equipment order that was received in the final quarter of 2022. The year-end order backlog in this division was 18% higher than the prior year. Fourth quarter EBITDA of 15.1% was 320 basis points higher than the prior year, with the improvement driven by better efficiency and better manufacturing flow, as the chassis supply situation continued to improve. At the 2023 monthly sales pace, the division's backlog represents approximately nine months of sales. All of the product lines within this division achieved fourth quarter sales growth in excess of 20%. We were especially pleased that Royal Truck equipment, which we acquired in late October, had a very strong fourth quarter, with sales more than 60% higher than the prior year. Royal Truck contributed nicely to the division's sales and EBITDA in the quarter. We're very excited about the new opportunities we have identified in the highway safety market and expect we can continue to grow in this area. We were also pleased that our teams were able to substantially complete the transfer of compact sweeper manufacturing from our Kent, Washington facility to our facility in Mukwonago, Wisconsin, in the fourth quarter, and then to divest the Kent facility. Overall, we were pleased with the results achieved in the fourth quarter, despite a more mixed market environment. The fact that our teams were able to offset much of the impact of the more challenging conditions in vegetation management with performance improvements in industrial equipment clearly shows the strength of our product offering. As we enter 2024, the trends evident in the fourth quarter are expected to continue. The excess channel inventory and vegetation management will take some time to work through, and it now appears that the highly anticipated benefits of an interest rate reduction may not occur until later in the year. We are closely monitoring this and will not hesitate to adjust our capacity as needed to match current demand. We've remained bullish on the prospects for our industrial equipment division and expect the good momentum evident in the fourth quarter to continue, driven by elevated spending by governmental agencies, combined with a modest sustained tailwind from the federal infrastructure bill. We're expecting another sequential improvement in chassis receipts in the first half of 2024, and this will help sustain a reasonable level of organic growth. Our balance sheet is strong, and we've reduced total debt by more than 22%, or more than $67 million during 2023. This positions us well for what we expect will be a more active M&A market in 2024. So, in conclusion, we believe the company is in a good position as we enter 2024, and we're optimistic about our prospects for the new year. Before closing my remarks today, I'd like to thank our customers, dealers, suppliers, our thousands of exceptional employees, and our financial stakeholders for their continued support for the company. This concludes our prepared remarks. We're now ready to take your questions. So operator, please go ahead.

Thank you. We will now begin the question-and-answer session. And the first question will come from Mig Dobre with Baird. Please go ahead.

Good morning. Thank you for taking the question.

Hi, Mig.

Maybe we can start with vegetation management. Can you maybe give us a little more insight into the order cancellations that you experienced in the quarter? And it sounds like you expect dealer destocking to continue in 2024. Is there a way to frame the overhang from the destock in dollar terms?

I'm not sure I can give you that on this call. We can certainly put something together for you. The pace of order cancellations in the fourth quarter was actually down a bit from Q3, Mig, but it was still heavily concentrated in the hobby farm and ranch segment where dealers canceled initially to reprice orders, as we've seen for a while, and then to partially replace those new orders. But we're also in an off-season period in that market at the moment. So I think the real tale of the tape will be how the early months of 2024 shape up as we head into the spring season. But it really wasn't that unusual compared to what we saw in Q3, for example. But the order softness remains, and that's really just because the inventory still remains too high out in the dealers. We continue to run incentives, which elevated our marketing costs in that division to try to move those inventories out of dealer stocks. It's been pointed out to me repeatedly that the thing you got to think about here from a dealer perspective is the dealer's balance sheet is denominated in dollars, not units. As the price of those units has gone up over the years, there have been fewer units of space on the balance sheet to hold inventory. So it tends to squeeze short line suppliers like us maybe when those balance sheets start to come under pressure. None of that is really surprising; we've been through it before. I think we can still see some daylight towards the middle of the year for this division. I'm still optimistic that this will clear up towards the back end of Q2. That's just my latest thought.

If we look at your implied orders in the fourth quarter or calculated, if you would, orders in vegetation management, our math is about $176 million in orders. And I'm curious if you think that this level of order intake is what we should be thinking for 2024, at least for the front half of 2024? Or if you expect another step down, for instance, as this destock continues to materialize?

Yeah, that's a great question, Mig. I think what I would say about it is the bookings that you see are net, so it's net of order cancellations. So it does tend to depress the order run rate. I think we'll continue to see those order cancellations slow for the next quarter too, which will drive the net booking number higher. So no, I don't believe this is the new normal for long-term revenue, certainly not for 2024. It's hard to call the bottom in the ag space. But I think when we look at what our dealers are telling us and where their inventories are, we're either at the bottom or close to it right now. I think we should start to see those numbers ticking back up. I hope that helps you a little bit.

Yeah. No, it is helpful. I'm trying to understand from a revenue standpoint, how that positions you in terms of bookings and backlog. So from a revenue standpoint, how we should be thinking about the front half of 2024, relative to the $214 million that you put up in the fourth quarter?

Mig, this is Richard. We kind of think the first quarter, as we move out, will be relatively what you've seen here in the fourth quarter in that general range and probably somewhat into the second quarter.

And then from a margin standpoint, sequentially, are we looking at something similar to the fourth quarter?

We're aiming to maintain our current position. As Jeff mentioned regarding the repricing, we expect our standard gross margins to decrease somewhat. However, we believe our efficiencies will improve, and we are actively working on reducing our purchase price variances, which will allow us to negotiate better prices with our vendors. This means our incoming costs should decrease. If that happens, we hope to keep our margins approximately where they are now.

And Mig, remember, there's some seasonality here. The Q4 spend in the revenue stream tends to be lower, and that will start to increase towards the back of the first quarter and into the second. So that should support at least a modest improvement in EBITDA; normally, it does, if you look at the pattern in this division.

Okay. Understood. And then the final question for me is, obviously, there's pressure on margin in Vegetation Management. We talked about the revenue and what's going on with destock. At what point in time do you think you're going to have to, adjust capacity or adjust the cost base to at least try to stabilize margins if these trends continue into the back half of 2024?

Yeah. We're working on that right now, Mig, because we've had some under-absorption flow through into the P&L. And we don't tolerate that long-term. So we're working on that right now.

The next question will come from Chris Moore with CJS Securities. Please go ahead.

Hey. Good morning, guys. Thanks for taking, I have a couple.

Hi, Chris.

Good morning. Maybe stay on the same lines, but just in terms of the 12% operating margin target for this year. Is it fair to say that it will be challenged in the first half of the year and with a little improvement, the vegetation side, you may be back up in that arena? Or just kind of any thoughts you have at this stage?

I do, Chris. I think as we move towards the back end of Q2, we'll get back to that pace because, as we said a moment ago, the margin should trend upward in the Vegetation Management, particularly notably in Q2. It will start at the back-end of this quarter in a couple of weeks' time. It's already starting to warm up down here in the south. So I think that will bode well for us. So, I think we'll be back there certainly within the second quarter. That's my expectation as we sit here now.

Got it. Thanks.

Chris, one other point to this too, I think we all kind of seem to forget about is how well the Industrial Equipment division is performing. I mean their margins are up every single quarter that we've had here going back to Q2 of last year. And as Jeff mentioned earlier, our expectation is that that's going to continue as we move into balance into 2024 here. So I think that's the beauty of our business, we've got two businesses here, and we can't forget about the industrial piece because their performance has done really well.

And Chris, it's Jeff. One other thing I'd like to point out, we had some extraordinarily high SG&A costs come through at the corporate level this quarter, because of the changes that we announced in our Board of Directors yesterday. We had high recruiting costs. And if you back those back out, that's clearly a one-time event. We'd have been right on what the analysts were expecting for us in the quarter. So that's why I said I'm still bullish, and there are some things going on in the background here that we know about that are just causing us to say, look, this is a bit of a one-time event in Q1 that won't repeat in Q2. I still like where we sit very, very much. As I've said for the last couple of quarters, these two divisions would converge in a better place, and industrial made up a little more ground than I expected in Q1. I think our vegetation management guys did a really good job playing deep in protecting their bottom line and did a little bit better maybe than I could have hoped they could do with the pressure on the top line in that division. Having said that, we do have some under absorption we need to deal with, and we're going to deal with it promptly to make sure that we don't have that repeat in the second quarter, and that's our plan for me.

Got it. That's very helpful. And Richard, the 11.6% industrial margin this quarter, is that about the top? Or is there still room for even more improvement on that front?

No, there's going to continue to be more room for that, Chris, because as we mentioned, there are still component issues on a few items. When you're dealing with something of that magnitude, and the sheer size and volume of a unit that's pretty expensive from a cost standpoint, and you miss something, that unit sits in WIP. Our WIP is still high. We're pushing $31-plus million in WIP and that's very difficult to get through. It does relieve itself as you move forward. But again, sometimes you just get those things that pop out.

Yes. When you look at that division, Chris, the vacuum truck business continues to perform exceptionally well. The fleet utilization has been excellent all through the fourth quarter and has started well in the first quarter as well. Our sweeper group is starting to gain momentum too, they had a nice take-up year-over-year and a nice sequential pickup quarter-over-quarter, and our snow removal group, the margins continue to expand there, and their backlog is still rising. So I think when you look at the picture in the Industrial division, it looks very bullish from my point of view. We still haven't eliminated all of the costs related to the inefficiencies that Richard was referring to, so we've still got some running room to pick up there. I think the outlook for Industrial is bullish from my point of view.

And Chris, they came in at 12.3% EBIT for the quarter, which is a huge improvement over even Q3 by itself. I think we've been asked the question, do we expect their margins to continue moving north above that? The answer is yes.

Got it. Okay. Very helpful. I will leave it there. Thanks, guys.

Thanks, Chris. Appreciate it.

Your next question will come from Mike Shlisky with D.A. Davidson. Please go ahead.

Yes. Hi. Good morning. Thanks for taking my questions.

Hi, Mike.

Hi there. So another debt reduction here in the fourth quarter and the back half of 2023. Given where your business is headed here in 2024 when you take both segments together. I'm curious, Rich, if you can give us any thoughts on whether you think you can get to zero net debt by the end of the year? Or just any kind of brackets around your plans and targets for any debt reduction over the next couple of quarters?

No, Chris, we have approximately $240 million, $235 million in term debt. The rest is in our revolving credit facility. We plan to continue making progress in 2024 and will work to reduce the revolving debt. If we receive excess cash, we can pay down the term debt at the end. Our goal is to keep reducing or eliminate the revolving portion of that debt and to permanently lower any excess cash on the term debt.

And Mike, we're obviously trying to keep this balance sheet in great shape for what we're expecting to be a better M&A market in 2024. We're already seeing some signs of that. So obviously, that's the most important thing, be ready to jump on the opportunities when they come.

Got it. And that's kind of where I was going to go with my next question, and that was how's it going with the Royal Truck business since you acquired it? I couldn't help but notice that your new Chairman is someone who has no stranger to the highway infrastructure safety business, and you called this your next new platform. I know you mentioned in some of your opening comments, but could you give us a little more detail of the number or sizing of the M&A candidates you can maybe add to that group over the next 12 to 18 months or so?

This space, Mike, is a typical kind of market space we like. It's fairly fragmented. There's a lot of middling size companies in that $30 million to $70 million annual revenue range, but then there's a couple of big players in that space that we like a great deal. Rick Parod, our new incoming Chairman announced this morning has a background in that space and he went with me out of the ATSSA show, the American Traffic Safety Show, a few days ago, kind of picking the tires on a few things. We like the space. We think we can grow there and we think there's near-term opportunities there.

Got it. And if I can maybe wrap up with a more broad question. When you put together the outlook for margins in both groups and the outlook for potentially turning around in vegetation and obviously, strong growth in industrial here. I'd just like to get some kind of sense as to whether you expect a year of growth net-net for revenues and margins in 2024 on a holistic basis.

Rich, you want to take first?

No, I think probably what you want to look at is the two divisions. The Industrial, we expect revenue levels to be higher than they were in 2023. For the vegetation management, I think probably it's going to be a bit soft as we mentioned as you start the first half of the year, but we think we can gain some momentum and try to get something that's relatively in the general same ballpark of where we were in 2023.

Yes, I still think there's some net-net for growth, Mike. I'm the optimist in the group because I do believe we're near the bottom on Ag. It’s hard to call the bottom when you're immersed in the business. When the guys run in the business, it's hard to call the bottom. But all the signals that I see tell me we are either at the bottom or very, very, very close to it in the hobby farm and ranch segment. So, I'm still an optimist on 2024. And as I said, I'm very bullish on where our industrial division is going. They still have great momentum, they're still booking good orders. Again, they had a difficult variable from a booking point of view, but they had a great quarter, and their backlog is up 18%. So, they're really well positioned to continue to gain ground here. That is our strategy, as one of our market segments softens, the others accelerate. If we can keep doing that, we're in a really nice place. So, I think you'll see us refresh our targets, Mike, here in a couple of months, and I think they'll be well received. That's my answer.

Just to follow-up there. So, flat to up in one segment, up nicely in the other segment, and both do have margin opportunities in 2024 as well, both segments?

Yes, that's my belief.

Our next question will come from Tim Moore with EF Hutton. Please go ahead.

Thanks. And great full-year organic sales growth and wonderful backlog finished on the Industrial Equipment side with new orders definitely ahead of my forecast there. I just want to drill more into one topic. Investors really weren't believing or may be overlooking when your stock price was $160 in October and based on some calls I was standing, but it seems like a very good catalyst. I know Richard started highlighting this topic three questions ago, but just the Industrial Equipment operating margin runway. We know that you'll be getting operating leverage growth just on volumes. Richard mentioned getting the WIP down with the procurement team and more inefficiencies taken out. Can you maybe dive into more just on the inefficiencies front? And any way to kind of ballpark if you're 80% back to maybe being recovered on normalization of supply chain components and delays, not needing to restart those lines of production?

Yes. Let me take the first crack at that, and I think Richard wants to add a comment or two as well. He's given me that eye look like he does. When you look at the chassis situation, Tim, there are still problems that all the truck builders are having getting frame rails out of Mexico. They all share one supplier and so believe it or not, kind of a straight piece of bent steel, the frame rail is holding up production for all the major OEMs in North America. That's issue number one. The second issue is Allison Transmission has been having difficulties at the moment getting the transmissions that we need for the vacuum trucks. That has set back the pace of recovery in the truck chassis market a little. Having said that, we're going to get hundreds more chassis in 2024 than we were in 2023. I think we are in a very, very strong position and we are finally starting to get a nice diversity of chassis coming in after working to diversify our supply channels six months or so ago. I'd say we're probably better than 80% back in terms of the supply chain itself. However, we still have these shop floor inefficiencies when something like a frame rail doesn't come or a transmission doesn’t come and suddenly a chassis that you're expecting to receive doesn't show up on your door. There are still some labor issues in some of our bigger plants, not labor unrest, just a shortage of getting enough people to be able to run these plants the way we want to run them. But I would say it's much better now than it was a quarter ago, and I think it's going to continue to improve. Go ahead, Rick.

I believe the main issue is not just the chassis itself but that our work in progress is high due to the lack of component parts when we need them. If they arrive on time and function efficiently, we can quickly complete and close the work orders. However, when we are missing a part, we have to stop working on that unit. It may be nearly complete, but we cannot finish it until the component arrives. This inefficiency is what we need to address. We require better support to ensure these components are delivered to us on time with good quality and reasonable cost. Stopping and starting work is highly inefficient, and this problem is more pronounced in the Industrial division compared to vegetation management.

Thanks for that color, Richard and Jeff.

Just to provide a bit more detail, the supply chain issues were actually more significant in the fourth quarter for Vegetation Management. Some of the larger components we require for certain sizes began to disrupt operations more than we had experienced recently, resulting in unexpected challenges in forestry within our Morbark business. We are managing through these difficulties. Overall, however, the company is in a much improved position. Steel prices are looking somewhat favorable as we concluded the year, which could provide us with some positive momentum for at least the initial months of 2024. Overall, I believe we have reached the low point. You can tell me in a quarter or two regarding the agricultural sector, but I am optimistic about what the next few quarters will bring. I am confident that we will see significant progress by the middle of this year in the Vegetation Management division.

That's great. That's really good. I always appreciate your candor. This is such a good improvement though, even on industrial equipment compared to 1.5 years or two years ago with the going back to the final staffing. Just thanks for investors to know that like you're not there yet 100%, but there's still that extra operating margin level expansion, just from when you get there. One other...

As I said, when you go into the industrial equipment division, the vacuum truck business continues to perform exceptionally well. The fleet utilization has been excellent all through the fourth quarter and it has started well in the first quarter as well. Then our sweeper and debris collector business, which has been running okay, not perfectly the last couple of quarters of 2023 really picked up pace in the fourth quarter, and it got a really good start. We came out of the gate out of 2024 with a very good backlog. So that's an improvement. Our snow removal group is at its best point in years from a profitability point of view with an exceptionally strong background – backlog. So the outlook in the snow is very nice for us right now too.

That's great. And I can't wait to things for fire on all cylinders from industrial and you get back to the 12% plus operating margin pretty easily, you should, with the outlook for them. One, just switching gears since most of my questions are already answered on the vegetation side. What about just any updates on upcoming launches or trade shows for hybrid and electric offerings? US and European cities and towns are starting to pursue better duty cycles and more environmentally friendly fleet mixes. Anything you talk about there in launches and introductions?

Yes. We launched an electric mower in our French operations about a year ago. That's starting to really gain momentum now and sell very, very well. We've started to expand the production of the hybrid timber wood chipper that we make in the UK and are going to bring that to the North American market here very shortly. That's positive. Our small compact hybrid street sweeper has come out of the gate very, very well and actually surprises us with the momentum behind that. So that's looking very positive. I think you probably saw our all-electric street sweeper, the M6, at the show at ConExpo. We've had a little bit of a setback here in that the electric chassis are delayed from the supplier, and we're not going to get as many of those in the first quarter as we'd hoped. But, I mean, we're talking about chassis you can count on one hand, so it's not a needle mover from that point of view. The momentum is very, very good, and I continue to believe this company is in a very good position. The really bright news with our larger electric sweeper has proven to give more operating hours than we expected on a charge of the batteries. The battery packs are performing better, so we're getting more net yield productivity time out of that product than we were expecting, and the early customers that have seen it have been very, very impressed with that.

Yes. That's great color on the battery pack. And I'm a big fan of that hybrid Timberwolf sweeper to continue predominantly well in North America as a whole now. But thanks a lot. Appreciate it.

That's a neat machine. Okay, Tim. Thanks.

The next question is a follow-up from Mig Dobre with Baird. Please go ahead.

Thanks for the follow-up. In Industrial, is there a way to frame for us pricing in your backlog? So, if we're looking at the 18% increase year-over-year in backlog, how much of that would be priced relative to volume?

I would probably tell you, two-thirds of that is more volume than it is for price. Our prices have gone up every single month; we've made adjustments in every single quarter on our backlog. So yeah, it's in there.

Mig, the purchase cost side of equipment is flat, meaning we're not seeing much price escalation from our suppliers at the moment, a little bit on the chassis, but it's very, very modest. So, most of that gain is in fact just good running in the business from my point of view. I think the majority of that is true growth.

I see. I asked the question because I'm trying to figure out what's a reasonable expectation for revenue growth in Industrial in 2024, right? I mean, your backlog is high. It sounds to me that while there's still some supply chain issues, you're expecting more chassis in 2024 than you had in 2023. So your volume should be up. Pricing is positive and should help you. So, can you maybe help us understand what the reasonable expectation for revenue in 2024?

Yeah. I think when you look at that division, make a couple of things. In terms of the chassis, we have failed in some parts of the business where actually sold out for 2024, which is great. Those machines haven't been delivered yet. So I think you will see nice revenue growth out of the Industrial division. They're feeling bullish about where they sit right now, and they've come out of the gate very strongly in the first quarter so far. I can't be specific about that, obviously, but we like the momentum and what we see there. So I think there's plenty of room for organic revenue growth in the Industrial division. We were with that division had yesterday at our Board meeting, and Mike likes where he's sitting. The backlog has never been higher in that business, it's a beautiful spot to be in. As you point out, regarding the chassis, we're going to get hundreds more chassis in 2024, at least that's what we've been promised than what we saw in 2023. That will flow through in a couple of nice ways. Our rental fleet should go up very nicely, hopefully by triple digits, but certainly by double digits in terms of unit count, and that helps because we're running that fleet hard right now. It's hard to keep up with it. The utilization is so high, you're putting a lot of wear and tear on the trucks in the fleet. Secondly, it's helping our sweeper business that has a backlog and has been constrained on that, and we're building trucks now in our Debris Collector Group in Richmond, and they've sort of been the poor guys at the back of the line to get chassis, and they're starting to get chassis flowing through again. So, I think we're going to see nice organic growth in the Industrial division.

One other thing to that, Mig, in 2024 will be a full year of Royal Truck and that will probably definitely push their sales above a double-digit increase.

Okay. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead.

Okay. Thank you very much. I appreciate everybody joining the call today. We look forward to having you join our first quarter conference call in May of 2024. Thank you...

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