What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-22 · 55 added, 60 removed, 105 unchanged (52% of the section changed)

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Actual results in future periods may differ materially from those expressed or implied because of a number of risks and uncertainties which are discussed below and in the Forward-Looking Information section beginning on page 14 .

We experienced strong demand for our products in 2023 together with improving supply chain conditions which facilitated higher throughput and better operating efficiency, leading to record net sales and income for the full year.

We experienced strong demand for industrial equipment products in 2024 while demand for forestry, tree care, and agricultural mowing products weakened.

Gross profit margins declined slightly due to weaker Vegetation Management Division sales that slowed our production cadence and adversely impacted production efficiency.

Market conditions are mixed;

governmental and industrial product demand is robust while vegetation product demand has been hampered by higher interest rates and elevated channel inventories.

While our supply chain has improved, there are lingering supply chain issues and we continue to face labor challenges in some of our locations.

governmental and industrial product demand is robust while vegetation product demand has been hampered mainly by higher interest rates and elevated channel inventories.

2024 Performance

In 2023, the Company's net sales increased by 12% and net income increased by 34% compared to 2022.

The increase in both net sales and net income was primarily due to a strong demand for our products and improving operating conditions, particularly in the later part of the year.

Margins improved due to the increase in demand along with pricing actions which helped mitigate inflation cost pressures.

However, our full-year results were constrained to some extent by higher input costs, ongoing supply chain disruptions, and skilled labor shortages, all of which had a greater impact on our results earlier in the year.

The Company's Vegetation Management Division experienced a 4% increase in net sales for the full year of 2023 compared to the full year of 2022.

The increase in net sales was primarily due to continued strong customer demand for our products and positive pricing actions.

The division's income from operations for 2023 was up 13% versus the full year of 2022, due to improved sales, positive pricing actions,and better productivity, but offset by higher input costs, lingering supply chain disruptions, labor constraints, and higher marketing costs.

The Company's Industrial Equipment Division net sales were up 23% for the full year of 2023 compared to the full year of 2022.

The division's net sales were strong in each of the product lines:

excavator and vacuum trucks, street sweepers, debris collectors, and snow removal equipment.

The division's income from operations for 2023 was up 89% versus the full year of 2022, driven by significant sales growth and improved operating efficiencies, but offset by higher input costs and certain key supplier issues, most notably, a shortage of truck chassis earlier in the year.

Consolidated income from operations was $198.0 million for the full year of 2023 compared to $148.6 million in 2022, an increase of 33%.

The Company's backlog decreased 15% to $859.8 million at the end of 2023 versus the backlog of $1.0 billion at the end of 2022.

The decrease in the Company's backlog was primarily attributable to a decline in Vegetation Management Division product orders which returned to normal levels from a historical perspective.

Inflationary Impacts

In 2023, the cost of commodities, components, parts, and accessories was higher compared to the cost of those items purchased in 2022, mainly as a result of inflationary pressure.

Inflation moderated in the second half of 2023 and we anticipate that trend will continue in 2024 with the average cost of commodities, components, parts, and accessories increasing slightly when compared to the average costs in 2023.

In 2024, the Company's net sales decreased by 4% and net income decreased by 15% compared to 2023.

The decrease in net sales was primarily driven by weak forestry, tree care, and agricultural mowing markets, leading to lower demand in the Vegetation Management Division.

Additionally, the sale of Herschel Parts on August 16, 2024, had a negative impact on year-over-year sales, though it was immaterial on a full-year basis.

These challenges were nearly offset by strong sales growth in the Industrial Equipment Division.

The decline in net income was due to lower product demand in the Vegetation Management Division, which affected production efficiency, along with associated separation costs incurred to reduce division capacity.

In the Industrial Equipment Division, nonrecurring costs related to the five-week labor strike at Gradall Industries negatively impacted second-quarter results.

The Company reached a new five-year collective bargaining agreement at its Gradall plant in May 2024.

The Company's Vegetation Management Division experienced a 20% decrease in net sales for the full year of 2024 compared to 2023 due to a steep decline in forestry, tree care and agricultural mowing markets.

The Division’s backlog has declined 47% year-over-year and is now at pre-Covid levels.

Income from operations for 2024 decreased by 54% compared to 2023, reflecting market downturn and costs associated with separation and reduction of capacity.

The Company continues to implement cost-saving initiatives and enhance operational efficiency, with the goal of improving operating margins.

The Company's Industrial Equipment Division reported a 19% increase in net sales for the full year of 2024 compared to 2023.

Sales growth was strong in all product lines, with excavators, vacuum trucks, sweepers & safety, and snow removal contributing to year-over-year growth.

Income from operations for 2024 rose 43% versus 2023, driven by increased demand, greater operational efficiencies, and an improvement in supply chain performance and truck chassis availability.

Consolidated income from operations was $165 million for the full year of 2024 compared to $198 million for the full year of 2023, a decrease of 17%.

The Company's backlog decreased 22% to $669 million at the end of 2024 versus the backlog of $860 million at the end of 2023.

The following discussion should be read in conjunction with the consolidated financial statements of the Company and the notes thereto included elsewhere in this Annual Report on Form 10-K.

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Fiscal 2024 compared to Fiscal 2023

The Company’s net sales in the fiscal year ended December 31, 2024 (“2024”) were $1,628.5 million, a decrease of $61.2 million or 3.6% compared to $1,689.7 million for the fiscal year ended December 31, 2023 (“2023”).

The decrease in sales was attributable to weaker market demand in forestry, tree care, and agricultural mowing markets, partially offset by continued strong demand for industrial equipment.

Vegetation Management net sales were $785.2 million in 2024 compared to $979.0 million in 2023, a decrease of $193.8 million or 19.8%.

The decline was primarily driven by the sustained weakness in forestry, tree care, and agricultural mowing markets.

The sale of Herschel Parts on August 16, 2024 was immaterial to the year-over-year sales decrease.

Industrial Equipment net sales were $843.3 million in 2024 compared to $710.6 million in 2023, representing an increase of $132.7 million or 18.7%.

The increase was a result of strong performance in all product lines including excavator and vacuum trucks, sweepers & safety, and snow removal equipment.

Gross profit for 2024 was $412.5 million (25.3% of net sales) compared to $453.6 million (26.8% of net sales) in 2023, a decrease of $41.1 million.

The decrease in gross profit was primarily attributable to the decline in Vegetation Management market demand, resulting in production inefficiencies, and the impact of costs to reduce capacity and separation expenses as the Division adjusted to market conditions.

In addition, profitability was also impacted by the five-week strike at Gradall in Ohio, which negatively affected the Industrial Equipment Division.

Selling, general and administrative expenses (“SG&A”) were $231.5 million (14.2% of net sales) in 2024 compared to $240.2 million (14.2% of net sales) in 2023, a decrease of $8.7 million.

The decrease in SG&A expenses in 2024 was attributable to labor cost savings actions taken in Vegetation Management partially offset by additional costs from the acquisition of Royal Truck.

Amortization expense in 2024 was $16.2 million compared to $15.5 million in 2023, an increase of $0.7 million due to Royal Truck acquisition in the fourth quarter of 2023.

Interest expense for 2024 was $20.5 million compared to $26.1 million in 2023, a decrease of $5.6 million or 21.3%.

The decrease in interest expense in 2024 was primarily due to debt reduction.

Interest income for 2024 was $2.6 million compared to $1.5 million in 2023, an increase of $1.1 million or 77.6%.

The increase in 2024 was primarily due to higher cash on hand.

Other income (expense), net was income of $2.7 million during 2024 compared to income of $1.8 million in 2023.

The increase was primarily driven by foreign exchange transaction gains, offset by fixed asset losses.

Provision for income taxes was $33.7 million (22.5% of income before income taxes) for 2024 compared to $39.0 million (22.2% of income before income taxes) in 2023.

Net income for 2024 was $115.9 million compared to $136.2 million in 2023, with the decrease in 2024 net income resulting from the factors described above.

Fiscal 2023 compared to Fiscal 2022

The Company’s net sales in the fiscal year ended December 31, 2023 (“2023”) were $1,689.7 million, an increase of $176.1 million or 11.6% compared to $1,513.6 million for the fiscal year ended December 31, 2022 (“2022”).

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Net income for 2023 was $136.2 million compared to $101.9 million in 2022, with the increase in 2023 net income resulting from the factors described above.

Fiscal 2022 compared to Fiscal 2021

The Company’s net sales in the fiscal year ended December 31, 2022 (“2022”) were $1,513.6 million, an increase of $179.4 million or 13.4% compared to $1,334.2 million for the fiscal year ended December 31, 2021 (“2021”).

The increase in sales was attributable to continued strong customer demand for our products in both the Vegetation Management and Industrial Equipment Divisions and improved pricing.

Negatively impacting net sales were higher costs for materials and inbound freight, supply chain disruptions and a shortage of skilled labor.

Also, currency translation negatively affected sales as the U.S.

dollar strengthened against the currencies of international countries where we operate.

Net Vegetation Management sales were $937.1 million in 2022 compared to $812.7 million in 2021, an increase of $124.4 million or 15.3%, coming from a strong performance in all product lines, particularly forestry and tree care and agricultural and governmental mowing equipment in both North America and Europe.

Supply chain disruptions, labor constraints and unfavorable input cost changes constrained this division during 2022.

Currency translation effects also negatively impacted net sales in this division.

Net Industrial Equipment sales were $576.6 million in 2022 compared to $521.5 million in 2021, representing an increase of $55.1 million or 10.5%.

The increase was mainly due to continued solid results in our excavator and vacuum truck product lines with modest support from other product lines.

This division was also negatively impacted by ongoing supply chain disruptions and logistics issues in 2022, including delays in receiving truck chassis and component parts from supply chain partners.

Gross profit for 2022 was $376.5 million (24.9% of net sales) compared to $334.5 million (25.1% of net sales) in 2021, an increase of $42.0 million.

The increase in gross profit was mainly attributable to higher sales volume during 2022 compared to 2021 as well as improved pricing.

Profitability was negatively impacted by supply chain disruptions, shortages of component parts, along with higher costs of materials and inbound freight.

These factors led to lower profitability as a percentage of sales in 2022 as compared to the same period in 2021.

Selling, general and administrative expenses (“SG&A”) were $212.6 million (14.0% of net sales) in 2022 compared to $202.9 million (15.2% of net sales) in 2021, an increase of $9.7 million.

The increase in SG&A expenses in 2022 was attributable to higher administrative, marketing and engineering expenses as the Company returned to pre-pandemic expense levels.

Amortization expense in 2022 was $15.3 million compared to $14.6 million in 2021, an increase of $0.7 million.

Interest expense for 2022 was $14.4 million compared to $10.5 million in 2021, an increase of $3.9 million or 36.3%.

The increase in interest expense in 2022 primarily came from higher interest rates and increased borrowing levels.

Borrowing levels rose in 2022 primarily because of the need for the Company to increase its inventory levels to accommodate stronger market demand and to mitigate supply chain challenges.

We anticipate borrowing levels will continue to be pressured by higher inventory requirements unless and until the supply chain situation improves.

Other income (expense), net was expense of $0.7 million during 2022 compared to income of $1.9 million in 2021.

The expense in 2022 was primarily the result of an excise tax audit and to a lesser extent, changes in exchange rates.

The income in 2021 was primarily due to changes in exchange rates and the sale of a facility in the Netherlands for $3.4 million.

Provision for income taxes was $32.4 million (24.1% of income before income taxes) for 2022 compared to $29.3 million (26.7% of income before income taxes) in 2021.

Net income for 2022 was $101.9 million compared to $80.2 million in 2021, with the increase in 2022 net income resulting from the factors described above.

Liquidity and Capital Resources

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As of December 31, 2024, the Company had working capital of $667.2 million, which represents an increase of $77.2 million from working capital of $590.0 million as of December 31, 2023.

The increase in working capital was primarily a result of volume-driven and inflation-driven increases in accounts receivable as well as a volume driven increase in inventory to support the Company's backlog.

The increase in working capital was primarily a result of higher cash and cash equivalents.

Capital expenditures were $25.0 million for 2024, compared to $37.7 million for 2023.

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Net cash provided by operating activities was $209.8 million for 2024, compared to $131.2 million for 2023.

The increase of cash from operating activities is primarily the result of stronger net income driven by sales growth and a significantly lower year-on-year change in operating assets compared to 2022.

The increase of cash from operating activities is primarily the result of improved receivables and inventory compared to 2023.

Net cash used in investing activities was $22.2 million for 2024, compared to $52.6 million for 2023.

The increase in investing activities is driven by the acquisition of Royal Truck.

Net cash used by financing activities was $76.9 million for 2023, compared to net cash provided of $24.5 million for 2022.

This reduction in cash provided by financing activities is due to repayment of revolving credit.

The decrease in investing activities was in part driven by the acquisition of Royal Truck in 2023.

Net cash used by financing activities was $32.0 million for 2024, compared to net cash used of $76.9 million for 2023.

This reduction in cash used by financing activities is due to repayment of revolving credit.

The Company had $147.2 million in cash and cash equivalents held by its foreign subsidiaries as of December 31, 2024.

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The Agreement also contains various covenants relating to limitations on indebtedness, limitations on investments and acquisitions, limitations on the sale of properties and limitations on liens and capital expenditures.

The Agreement also contains

other customary covenants, representations and events of defaults.

The Agreement also contains other customary covenants, representations and events of defaults.

The expiration date of the 2022 Credit Agreement, including the Term Facility and the Revolver Facility, is October 28, 2027.

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If this occurs, the Company’s results of operations would be adversely impacted.

In 2023, the cost of commodities, components, parts, and accessories was higher compared to the cost of those items purchased in 2022, mainly as a result of inflationary pressure.

In 2023, we worked to mitigate some of the effects of cost increases through pricing actions.

However, cost inflation is an ongoing challenge that could have a material impact on the Company's business and financial results, particularly if the current inflationary environment materially worsens.

In 2024, while inflation moderated compared to prior years, the cost of commodities, components, parts, and accessories remained elevated relative to historical levels.

Throughout 2024, we continued to implement strategic pricing actions and operational efficiency measures to help offset these sustained cost pressures.

While the rate of inflation decreased during 2024, prices for many key inputs remained higher than pre-pandemic levels.

Looking ahead to 2025, we expect the cost environment to remain challenging, though with less volatility than in recent years.

We anticipate modest increases in the average cost of commodities, components, parts, and accessories compared to 2024 levels.

However, cost inflation continues to be an ongoing challenge that could have a material impact on the Company's business and financial results, particularly if there are unexpected shifts in political policy changes (including the imposition of tariffs), global economic environment or supply chain dynamics.

New Accounting Pronouncements

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Goodwill represents the excess of consideration transferred over the estimated fair value of the net assets acquired in a business combination.

Assigning estimated fair values to the assets acquired and liabilities assumed requires the use of significant estimates, judgments, inputs, and assumptions regarding the fair value of intangible assets that are separately identifiable from goodwill, inventory step-up, and property, plant, and equipment, and are based on available historical information, future expectations, and assumptions determined to be reasonable but are inherently uncertain with respect to future events, including economic conditions, competition, the useful life of the acquired assets and other factors.

historical information, future expectations, and assumptions determined to be reasonable but are inherently uncertain with respect to future events, including economic conditions, competition, the useful life of the acquired assets and other factors.

Such significant estimates, judgments, inputs, and assumptions include, when applicable, the selection of an appropriate valuation method depending on the nature of the respective asset, such as the income approach, the market or sales comparison approach, or the cost approach;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis