Good afternoon and thank you for attending the Ulta Equipment Group First Quarter 2025 Earnings Conference Call. My name is Lydia and I'll be your moderator for today's call. I'll now turn the call over to Jason Dammeyer, Director of SEC Reporting and Technical Accounting with Ulta Equipment Group.

Thank you Lydia. Good afternoon everyone and thank you for joining us today. A press release detailing Ulta's first quarter 2025 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 Greenewalt, our Chairman and CEO, and Tony Colucci, our Chief Financial Officer. For today's call, management will first provide a review of our first quarter 2025 financial results. We will begin with some prepared remarks before we open the call for your questions. Please proceed to slide two. 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 non-historical statements as described in our press release. These forward-looking statements are subject to both known and unknown risks, uncertainties, and assumptions, including those related to altered growth market opportunities and general economic and business conditions we have based these forward-looking statements largely on our current 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 gap and non-gap financial measures a reconciliation of gap to non-gap measures is included in today's press release and can be found on our website at investors.alteequipment.com I will now turn the call over to Ryan.

Thank you, Jason. Good afternoon, everyone, and thank you for joining us today to review our results for the first quarter of 2025. I will begin with an overview of key trends we're seeing in our business and close with our outlook for the year. After that, I'll hand it over to Tony to walk through the financials in more detail. As many business leaders have echoed this earnings season, the first quarter brought its share of challenges, driven by uncertainty around U.S. trade policy, tariffs, and broader economic sentiment. Despite those headwinds, our first quarter results reflect the underlying strength and resilience of our business model. We remained focused on disciplined execution and saw continued stability across several key segments. Let me start with construction equipment.

Operating trends in our construction equipment segments were stable and reflective of typical seasonal dynamics in our Northeast and Midwest regions.

As weather improved in late March, we saw fleet deployments in those regions pick up naturally as construction activity increased. Looking further south, the Florida construction market remains strong, buoyed by ongoing investment from both the Florida Department of Transportation and the federal government. Our overall market in construction equipment expanded modestly year over year. The stability we're seeing in construction equipment is attributable to infrastructure-related projects. These projects, unlike general non-residential construction continue to drive steady demand for heavy equipment while some geographies have seen some softening in local private non-residential construction we are also encouraged by some early signs that the regulatory headwind on permitting of new large-scale projects is easy turning to our material handling segment while new equipment sales were down compared to the elevated delivery volumes we saw in q1 of last year we were encouraged by two important factors. First, we experienced stronger margins on both new and used equipment sales, which helped offset the lower delivery volumes. And second, we saw solid bookings throughout the quarter, which positions us well for a healthy pipeline in the back half of 2025. Our product support business held strong and remains a critical pillar of strength. Now to the macro environment. Regarding tariffs, while the situation remains fluid based on current information from our OEM partners, we believe that the associated cost increases and surcharges are manageable. We're confident this will allow us to remain competitive across our markets, and we have been encouraged by the partnership displayed by our OEMs as we collectively navigate these challenges. Together, the resilience of our end markets, the stability and product support, and our clear operational execution support our decision to reiterate guidance on an organic basis as we continue executing on our purpose-driven strategy we've sharpened our focus on aligning the right products with the right customers in every market we serve this quarter our operational priorities reflect the deliberate effort to optimize resources strengthen margin performance and deepen customer engagement across both geography and segments by refining our portfolio and tailoring our go-to-market approach to the unique dynamics of each region, we are creating the structural clarity and accountability needed to drive sustained profitable growth. As part of this focus, we've made the strategic decision to divest substantially all of our aerial equipment rental business in the Chicago land market, a business we built organically over the past seven years.

While we're proud of what we created, this particular segment no longer aligned with our long-term objectives.

Competitive pressures, limited product support yield, and the highly commoditized nature of aerial equipment made it clear that our capital could be more effectively deployed in areas with stronger strategic fit and higher return potential. Finally, I want to update you on a key capital allocation decision. Our Board of Directors has authorized the indefinite suspension of our quarterly dividend. This decision was made with a clear eye towards value creation. Given the current disparity between our stock price and our view of Alta's intrinsic worth, we believe shareholders will benefit more from capital return via buybacks. As part as part of this shift, the board has increased our share repurchase program by $10 million, bringing the total to $30 million. Concurrently, the board has allocated $10 million to a Rule 10b-5-1 plan enabling repurchases during restricted periods through a third-party fiduciary, thereby enhancing the company's ability to execute on the repurchase program. This strategy reinforces our belief that Altus shares represent a compelling investment and we are committed to executing on this buyback initiative. In summary, quarter one demonstrated the durability of our business, the effectiveness of our strategic initiatives, and our continued focus on long-term value creation. We remain confident in our positioning for the remainder of 2025, and we appreciate your continued support as we execute our growth and capital allocation strategies. With that, I'll turn the call over to Tony, who will walk through our financials in more detail.

Thanks, Ryan. Good evening, everyone, and thank you for your interest in Ulta Equipment Group and our first quarter 2025 financial results. Before getting into the quarter, I want to begin by recognizing our employees, customers, and partners for their support and resiliency thus far in 2025 as we navigate the impacts both puts and takes of a dynamic macro environment. I'd also like to welcome our 28 new teammates in Quebec City, Canada, whom joined us through the La Chariots acquisition in Q1. We are excited to be expanding our footprint for the Yale brand in our material handling segment across Northeast Quebec. Myself and the rest of the team look forward to earning your trust. My remarks today will focus on three key areas first i'll present our first quarter financial results which were naturally affected by the seasonal impacts of winter weather on the construction business in our northern regions but overall we're in line with expectations as part of that discussion i'll touch on cash flows for the quarter and check in on the balance sheet with a few comments on the impact of the divestiture of our aerial business in illinois and the planned use of proceeds from that transaction Second, I'll discuss the reaffirmation of our fiscal year 2025 adjusted EBITDA guidance. As part of that discussion, I will discuss a few notes and underpinning assumptions in the guide, including our view on tariffs and their influence on our prospects for the remainder of the year. Lastly, I'll comment on our rebalanced capital allocation strategy, what it means for shareholders, and why we think this is the appropriate move at this time. Before I get to my talking points, it should be noted that I will be referencing slides from our investor presentation throughout the call today. I'd encourage everyone on today's call to review our presentation and our 10Q, which is available on our investor relations website at altg.com. With that said, for the first portion of my prepared remarks, and in line with slides 9 through 19 in the earnings deck, first quarter performance. For the quarter, the company recorded revenue of $423 million, dollars, a reduction of 4.2 percent versus last year. The quarter was underpinned by solid performance year-over-year in our product support departments, which was offset primarily by $15.7 million in reduced new equipment sales in our material handling segment and lower rental revenues from our construction segment, with the latter issue being strategic in nature and related to our fleet optimization plan that began in the second half of 2024. I would also note that Ecoverse, the portfolio company in our master distribution segment, outperformed last year's revenue figure by 35.9% in the quarter, a function of solid end market demand for environmental processing equipment and sub-dealer appetite to stock inventory this year, as opposed to the oversupplied equipment market that was Q1 of 24. Lastly, on revenue, as noted, we had reduced new equipment sales in our material handling segment year over year. While we were slightly disappointed in this result, especially given the difficult comp. We note, one, that some of this variance was timing-related in terms of being able to prep and deliver units to our customers. Two, we have yet to see any major cancellations in our lift truck sales pipeline. And three, as Ryan mentioned, we were encouraged by Q1 lift truck bookings overall, which we believe will have a positive influence on the back half of 25 and will potentially allow us to pick up some of equipment sales variance realized in q1 over the remainder of the year while overall revenue suffers on a suffered on a comparative basis gross margins and operating expenses outperformed in the quarter from a gross margin perspective two things of note one stabilization and new and used equipment gross margins on a sequential basis and two we realized the 230 basis point year-over-year increase in service gross margin a function of the ongoing initiative to drive technician efficiency with the bulk of the positive variance coming specifically from our construction segment, where the variance was 290 basis points. The increase in service gross margin percentage helped to offset the overall revenue miss in the quarter by adding $2.7 million in gross margin, which converts at a high rate to the bottom line for the enterprise year-over-year. On the SG&A line, we realized the positive impact and continuation of our 2024 expense optimization initiatives in the quarter, as this line was down a notable $7.9 million year-over-year, with a sizable portion of this variance being related to fixed expense reductions that we expect will hold over the remainder of the year. Investors may recall that I highlighted these two items, product support efficiencies and SG&A reductions, on our last call as two of the top underpinning factors of our fiscal year 2025 EBITDA guidance. And performance through the first quarter confirms those two factors. In summary for the quarter, as it relates to the P&L, efficiency gains in our service department and expense reductions overall nearly offset the year-over-year reductions and overall gross profit related to reduced equipment sales and rental revenue, as we recorded $33.6 million of adjusted EBITDA for the quarter, down just to half a million dollars versus Q1 of 24. Important to note that the company was able to realize nearly the same level of EBITDA year over year on a reduced balance sheet as the gross book value of our rental fleet is down 25 million dollars year over year as we aim to drive rental utilization and ultimately returns on invested capital higher in 2025. In terms of cash flows for the quarter I would point investors to slide 13 slides 13 and 14 which we presented for the first time on our last call as a reminder slide 13 presents the definitional foundation of rent to rent fleet versus rent to sell equipment As noted on the slide, rent-to-rent is treated and invested in via maintenance capex like a traditional fixed asset. Notably, rent-to-rent fleet is meant to be held for the long term, and the return on investment in the rent-to-rent fleet will come via the rental stream on that fleet over many years. As opposed to rent-to-rent, rent-to-sell equipment should be viewed more like an analyst would view general inventory, as it is meant to be a temporary or short-term investment equipment to take advantage of market demand for lightly used, primarily heavy construction equipment. On to slide 14, which presents the cash flows both before and after RTS or rent-to-sell decisioning. As noted for the quarter, free cash flow before rent-to-sell decisioning, a metric that we believe functions as a proxy for operating cash flows prior to other capital decisioning, was approximately $23 million in the quarter. Investors should note that if one were to layer our full year guidance on top of these numbers and assume a similar conversion rate on EBITDA, we would be pacing towards approximately $120 million in free cash flow before rent to sell decisioning in 2025. Last point on slide 14, similar to last quarter, the slide is fully reconcilable to our gas-based statement of cash flows, and that reconciliation is available in Appendix B of the earnings presentation. To check in on the balance sheet as of 3-31 and as depicted on slide 15, we ended the quarter with approximately $290 million of cash and availability on our revolving line of credit facility. A quick note on the divestiture of our aerial fleet rental business in Illinois and its expected impact on the balance sheet. First, this was a leveraged a creative deal for Alta as the business was producing approximately $4 million of pro forma e-modal on an annual basis. Second, in terms of cash proceeds, we received $18 million in cash at close from the seller, but also retained $2 million of working capital, mainly customer receivables, which will convert to cash in the short run, effectively yielding approximately $20 million in cash proceeds on the transaction. The intention is that we will allocate this $20 million in proceeds to our outstanding debt and pick up approximately $10 million in liquidity given the calculated impact to the borrowing base. In total, post-divestiture, we will near $300 million in liquidity, which is a comfortable amount to navigate any business climate that may ahead of us. Moving on to the second portion of my prepared remarks, 2025 adjusted EBITDA guidance, which was reaffirmed on an organic basis in today's earnings release. In terms of the guidance range itself, we now expect to report $171.5 million to $186.5 million of adjusted EBITDA for the full year 2025. The shifting of the guidance is exclusively related to the divestiture of our aerial business in Illinois, as previously mentioned, and the seasonally adjusted EBITDA associated with that business. A few notes and assumptions on the reaffirmation of the guide. First, our solid Q first quarter performance was in line with expectations from an EBITDA perspective and the early read on April performance doesn't suggest much deviation from our overall plan for the year. Second, the stability in infrastructure-based end markets, we believe, will act as an insulator against potential macro volatility for our construction sites. Third, we expect continued accretion quarter over quarter in our product support gross margin performance, specifically in our service department, driven by a continued focus on technician efficiency. Additionally, as discussed, we also expect a continuation of the outperformance that we saw in Q1 on the SG&A line on a comparative basis as we had throughout the year lastly while material handling equipment revenues were off year over year we were encouraged by the pace of bookings we saw in q1 and outside of any unforeseen demand degradation due to something out of our control it's our expectation that this pace and bookings will bode well for material handling sales in the back half of 25. now in terms of downside risk first and something that we mentioned on our q4 call we continue to believe that the oversupply of construction equipment in the industry impacted Q1 2025 margins on equipment sales year over year and we expect, so long as demand for equipment holds up, that the supply overhang will continue to recede throughout the summer and we expect to see some reversion in equipment margins in the back half of 25. As mentioned previously, we observe sequential stabilization in this regard in Q1. Second, and this will come as no surprise, our guidance is predicated on no significant demand reduction stemming from a recession in the United States or the reinstatement of the 90-day pause tariffs. In the current state, we believe that the surcharges we have observed from our major OEMs, which has effectively ranged from 0% to 10% are manageable for us to remain competitive in the marketplace. However, any further significant increases, we believe, will push the situation beyond manageable and reduce customer demand. Additionally, the primary area of concern that we are monitoring closely relative to tariffs is the impact on the manufacturing sector, primarily as it relates to our material handling segment and our operations in the Midwest and Canada. Moving on to the last portion of my prepared remarks, a few comments on the rebalance capital allocation strategy announced earlier this evening. To start, and as depicted on slide 18, we have always used the word balance when it came to our capital allocation strategy, and we have pressed each of the areas depicted on slide 18 at various points in our five years as a public company. First, it was pressing on a creative M&A. Then it was to reward shareholders with a dividend given our increased size, specifically in product support revenues and our defensive cash flow profile. At times, it has been pressing on organic growth, whether it be rental fleet, new business lines, or new geographies. More recently, in the second half of 2024, it was to press on debt pay down as we quickly optimized rental fleet in the face of reduced demand. And along the way, we have opportunistically, albeit at a modest amount, been able to buy back shares when our reporting windows, attractive share price, and the lack of opportunity to allocate capital elsewhere all converged. While our strategy to date has encompassed all of the capital allocation buckets, they have been strategic and timely in terms of opportunity, and this latest rebalancing is just that, timely and strategic for our shareholders. To be clear, the dividend suspension is a recognition of the value of the opportunity via the share buyback and a redeployment of dollars earmarked for shareholders versus a signal of anything else related to our business, our performance, or our prospects. In fact, it's the opposite. The authorization of the $10 million increase in the buyback program and the allocation of $10 million into a 10B-5-1 plan is the company investing in itself on behalf of shareholders as we take advantage of the disconnect between our share price and Alta's intrinsic value, which is predicated on our future, our resilient business model, our diverse regions and customer base, our supply partnerships, and most importantly, our best-in-class team. In closing, I want to thank my Alta teammates for a solid start to the fiscal year amidst the fluid backdrop. I wish you all the best as we head into the summer months and look forward to updating investors on our Q2 performance in August.

Thank you for your time, and I will turn it back over to the operator for Q&A. thank you please press star followed by the number one if you'd like to ask a question and ensure your device is unmuted locally when it's your turn to speak if you change your mind your question's already been answered you can withdraw from the queue by pressing star followed by the number two our first question comes from stephen ramsey with thompson research group please go ahead your line is open uh good evening everyone um i thought that the vestiture uh was an interesting deal.

The logic of it makes complete sense. Do you feel like there are more assets within the company where you could do this kind of thing to manage the portfolio and manage the capital structure?

I see. This is Ryan. I could take that one. I think that we're looking at it as more of a product line scenario from here.

It would be more surgical what we see from here i guess is the best way to answer that steve i would i would just add that you know through through some of the m a we have picked up as ryan mentioned some product lines um that were just ancillary maybe to the strategic underpinnings of various various deals um and i i like ryan's term there surgical um and just trying to optimize gotcha okay and then um you discussed this but wonder if you could elaborate more on the parts and service gross margin improvement, particularly with the lower revenue.

Impressive to see that. Can you talk about a little bit more what's happening in the near term and the runway on operating optimization that can help in FY25 and potentially beyond?

Sure, Steve. You know, if you, as I mentioned in my prepared remarks, if you kind of peel back the onion and look at which segment sort of outperformed or drove this it was our construction segment and you know relative to our material handling segment our construction segment there's been a lot of M&A in that segment and we're relatively youthful on a relative basis in terms of you know operating in areas like Florida upstate New York and even chicagoland it's in some regard and so you know it just been more focused on non-billable time training technicians you know managing all the way down to the work order level to just make sure that we're minimizing non-billable time and and putting the right person on the right job from a from a technician perspective and as i mentioned we expect this to continue. But it's really a salute kind of to our managers in the construction business and a sort of focus in on efficiency that we expect to continue.

Okay, great to hear. And then last one for me, I think the capital allocation edits and adjustments make sense to me. How do you think about just philosophically capital return, debt reduction, maybe near term, long term, if there's any divergence in kind of how you want to use the excess capital coming in to manage the capital structure?

Steve, I think if we want to kind of, you know, just kind of recut the message that I mentioned in my prepared remarks is, you know, we're going to be opportunistic. And right now that means the right thing to do is to redeploy the dividend. We mentioned that we will be taking the $20 million in proceeds from the aerial fleet deal to pay down debt. And just as a matter of course, you know, excess cash flows beyond those things are going to be servicing the revolver. So, you know, we're just going to continue to execute and continue to remain nimble. And there's all sorts of, there's multiple parameters, right? And the share price is one of the parameters and an important one. And to the extent that the share price is punished to the point where it makes sense to do what we're doing, we want to show investors and shareholders that will be supportive. And so this is our living up to the word balance in our minds. And, you know, we're excited about this share repurchase program because we think we can drive a lot of value here.

That's helpful. Thank you, guys.

Our next question comes from Ted Jackson with Northland Security. Please go ahead.

Thanks very much.

Hey, Ted.

I got a couple questions. One of them is just on, like, the material handling business. I'm curious, when you see the order strength and stuff that you're having within that business, maybe you could kind of parse out, you know, from a vertical level where you're seeing that from. I know you have some exposure within the auto market just by default, and, you know, I think that that market might be a little challenged, and so I'm kind of curious where you're, you know, seeing, for lack of a better term, strength in there and where you might be seeing weakness? That's my first question.

Stability, I think, is the word, Ted, that I would use. And that's our kind of our biggest end market now in material handling is food and beverage and all of the sort of ancillary, all the offshoots of just food and beverage. I would say utilities are standing out in terms of strength as well as just medical. So just throw that into the sort of human sustenance. And that's a little bit annuitized relative to some of the other categories. You know, at the moment, and well, at least in Q1, we didn't see any real pullback in kind of bookings in manufacturing. Now, Q1, recall, was before Liberation Day. And so, you know, there's a lot of conversations we're having around manufacturing in the regions that I mentioned in the Midwest and Canada specifically with the automotive sector. But that's where I think there's more of the kind of the unknown in the material handling businesses and manufacturing for us. And the strengths, I would say, is, you know, anything around food and beverage, utilities, and the medical industry.

And you didn't see, I mean, maybe you're too far back, but it wasn't like you got into April and there was like a pause, a slowdown. I mean, I've heard that on a number of calls that things were fine, and then in April, it was just kind of...

Ted, without getting into the numbers that we see for April in terms of just, you know, demand outlook, I would classify it as stable, actually, for us. Okay.

Okay. And then shifting over just on two fronts with regards to tariffs, one on the distribution, you know, the environmental business, you do import equipment from Europe in that business.

Is there any tariff exposure for you from, you know, within that particular, you know, domain? yeah ted that that's actually um the the most direct uh impact in terms of you know just we are the importer for master distribution primarily from europe the good news about kind of having direct line of sight is we are in contact with the oem uh oems i should say uh over in europe up and actively kind of, you know, the push and pull of what to do with what is now 10%, which, again, you know, feels manageable and you sort of, let's say, share in the impact. But to the extent some of the 90-day pause tariffs go back into place, you know, that's where I would caveat the impact on master distribution. So, for now, manageable there, but you're right, directly impactful, and anything further, you know, could, yeah, prove to be negative.

And would that be the same with Volvo? I mean, I recall from listening to their call that, you know, they're, you know, basically kind of expressed that most of the equipment that they sell here in the States, they do import. Are you sitting on a 10% – are they sitting on a 10% tear, too, and would also have a negative consequence if the 90-day snapback happens?

You know, Ted, it's not as direct with Volvo as it is with some of the OEMs for master distribution. I would also point out that Volvo does final assemble a fair amount of product in the U.S., and in terms of their supply chain and the impacts, we just don't have that level of granular sort of understanding. What I will say is, and we're not going to quote specific vendors on this call in terms of surcharge, just from a competitive perspective, what I will say is Volvo is on the lower end of the zero to 10% range in terms of the impact thus far on our buy price.

Okay. And then my last, which is just more of a curiosity. You know, you have, you know, this nice business and material handling in Canada and, you know, in some ways it's somewhat contiguous to some of your upper Midwest stuff. Is there any issues with you being able to, you know, I mean, or maybe you don't even do it, but you know what I'm saying, like keep inventory, parts inventory and being able to bring them back and forth between different locations? Does that cause any kind of, you know what I'm saying, does this current situation cause any kind of recalibration of how you might run portions of your business because of that, you know, dynamic?

Ted, the two businesses, you know, some of the tax laws force this upon you, but they run pretty much independent of one another. And I think some of this stuff would just sort of emphasize that independence of them running independent. There's not a lot of, you know, intercompany sales going on, et cetera. So I think some of the tariff stuff would just reinforce some of that independence, or I'm sorry, the, yeah, the operational independence of the business units.

Okay, well, that's it for me. Thanks for taking my questions. Talk to you. Thanks, Pat.

Our next question comes from Laura Mayer with B-Riley Securities.

Please go ahead. hi thanks for taking the question sure so my first question is can you provide any update on the e-mobility business and are you seeing any slowdown there tied to the new administration um i can i i could take that if ryan wants to jump in so um our our e-mobility business right is relatively nascent um immaterial amount of revenue um that's come through there and just given the kind of startup nature of some of the OEMs that we've worked with, you know, it just hasn't been a big part of our business. What I will say is our OEM, Nikola, as probably many of are aware, filed for bankruptcy. There's still, that is still ongoing. What we can say from the company's perspective, like we've told investors all along, that we were going to be asset light in terms of our commitment to, you know, hard assets and infrastructure relative to this business. And that has served us well here. And we don't have any material impacts to report from Nikola's situation, which is a good thing. On top of that, in terms of the go forward strategy, I would turn it over to Ryan.

Sure. What I would just add is that we're well positioned to jump into the opportunity as it starts to mature. You know, we've credentialized our team for charging, integrating charging infrastructure and the delivery of compressed hydrogen gas. So we were kind of all ready to go. And this setback with Nikola, you know, definitely was a setback with our strategy, but we are evaluating other potential class 8 vendors and we continue to work with our other OEMs on you know the early stage commercialization of some of these other technologies for more of the last mile and lighter duty applications for electric vehicles okay thanks my second question is do you see more favorable pricing for potential acquisitions yeah Laura I'll take that one you know we have

uh ryan's been at this longer than i but i've been with the company 10 years and you know the the the general ebbs and flows of macro uh dynamics whether it be the pandemic uh or even the great recession you know back in 08 and 09 multiples that have trended kind of in the same range um i think what happens in times of volatility in in my 10 years with the company is you do tend to have management teams that um or ownership groups that have succession planning issues that don't want to deal with another um let's just say you know downturn for lack of a better term um and and there may be more opportunity i don't so it's one way to say i don't think it impacts pricing but it could impact opportunity uh for us to pick up a strategic asset okay thanks that's helpful I'll pass it on thank you thank you we have no further questions so this concludes our Q&A session as well as the conference call thank you very much for joining us today you may now disconnect your line