Alta Equipment Group Inc. (ALTG) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Alta Equipment Group Full Year 2019 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Sinem McDonald, Director of External Reporting. Thank you. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to our year-end 2019 conference call. With me today are Ryan Greenawalt, Alta's Chairman and CEO; Anthony Colucci, Alta's CFO. We will begin with some prepared remarks before we open the call for your questions. Before we begin, I'd like to remind you that today's call contains forward-looking statements, including statements about future financial results, our business strategy and financial outlook and other nonhistorical statements as described in our press release. These forward-looking statements are subject to certain risks, uncertainties and assumptions, including those related to Alta's growth, market opportunities and general economic and business conditions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our reports filed with the SEC, including our press release that was issued today. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's press release, which is available at investors.altaequipment.com. I'd now like to turn the call over to Ryan.

Thanks, Sinem, and welcome to Alta's first earnings conference call as a public company. I'd like to start off by saying that we hope you are all staying safe during this unprecedented time due to the spread of the coronavirus. Our thoughts go out to those affected by the virus, and we are grateful to the health care teams working on the front lines to contain the spread. At Alta, our top priority is ensuring the health and safety of our colleagues, customers and partners in our communities. On today's call, I will first provide a brief refresh on Alta's corporate story and share our excitement about the growth opportunities we see over the long term. Then I'll share key operating and financial highlights for full year 2019, which were included in today's filing. Then I'd like to spend some time on the impacts we are currently seeing in our markets as a result of the coronavirus and how we're managing our business in this fluid environment. I'll then turn it over to Tony Colucci, our Chief Financial Officer, who will provide a more detailed review of our business combination with B. Riley Principal Merger Corp., a special purpose acquisition company, and the 2019 financial results before we open the call up for questions. As many of you know, we began trading in the public markets on February 18. And given the uncertain environment we have all been operating in over the past 6 weeks, it certainly has been an eventful but also very productive experience to say the least. Our corporate team has shown tremendous resilience and determination during this time, and I'm extremely grateful for their efforts. I also want to commend the entire Alta Equipment organization, along with our recently added colleagues from acquired businesses, for successfully executing the transactions to bring Alta public. These achievements highlight the strength of this team, which is so critical to our strategy going forward. Given our brief life as a public company, let me take a step back to provide an overview of Alta Equipment and our growth strategy. We operate a premium equipment dealer platform in 43 locations across Michigan, Illinois, New England, New York and Florida, offering a best-in-class brand portfolio that creates significant cross-selling opportunities. We have exclusive agreements with leading OEMs in the industrial and construction equipment markets, including Hyster-Yale, Volvo and JCB. Alta is a one-stop shop for our customers' equipment, parts, service and rental needs, which has allowed us to achieve strong revenue growth over the past 5 years while providing predictable and steady cash flows. Our business model consists of populating our exclusive territories with new, used and rental equipment and then harvesting the field population to grow higher-margin aftermarket parts and service revenue. Our expertise in attracting and retaining skilled technicians is a key driver of our parts and service strategy, and skilled technicians represent approximately half of our entire workforce of over 1,700. Our strong operating platform has led to 18 successful acquisitions over the past 11 years, including the acquisitions of Flagler, the Volvo dealership for Florida, and Liftech, the Hyster-Yale and JCB dealer for Upstate New York and Vermont. These acquisitions closed concurrently with the business combination. Our acquisition pipeline is aided by dynamics in the equipment dealer space which is large and fragmented, consisting of many independent family owned and operated businesses. OEMs are actively encouraging consolidation of their dealer networks and prefer to partner with larger, well-capitalized dealers. OEMs view Alta as an acquirer of choice, and they have supported our acquisition of sister dealers, which often lack scale or do not have ownership succession plans. We believe that there's an attractive pipeline of potential M&A targets and would add scale -- that would add scale to our operations, and we believe that the current economic conditions may result in additional acquisition opportunities. Turning more specifically to 2019. It was certainly a milestone year for Alta in many ways. We continue to gain share in existing markets while expanding our geographic footprint. In May, with the acquisition of NITCO, we further diversified our presence into New England, adding an expanded customer base, new end markets and additional OEM relationships. And in December, we announced our business combination with B. Riley Principal Merger Corp., leading to our New York Stock Exchange listing in February under the ticker ALTG. This was an important step in support of our organic and acquisition-led growth opportunities by strengthening our balance sheet and repaying our previously existing debt. Tony will provide more details on this in his remarks. Our strong top and bottom line results for full year 2019 were consistent with the forecasted results that we provided during the de-SPAC process. Net revenues increased 35% to $557 million, driven by strong growth across all our revenue streams and the contribution from NITCO. Our parts and service sales were up 35% and 51%, respectively, in 2019 and represent the attractiveness of our dealership model. Adjusted EBITDA increased approximately 36% to $74 million and was $94 million on a pro forma basis, including the recently completed Liftech and Flagler acquisitions. Now I would like to make a few comments about what we are seeing in terms of the current impact of the coronavirus. We operate across several states, and the different regions are exhibiting their own demand characteristics. On the construction side of our business, for example, some states are mandating project shutdowns while projects in other regions are currently still moving forward. So while we are seeing some slowdown in the business overall, it remains a fluid situation and too early to know the near-term outcome and financial impact. Also, Alta is fortunate to serve diverse customer end markets. And while some markets, such as automotive, have slowed considerably, others like health care, food and beverage and logistics have been very active. Our priority is to work closely with our customers, OEM partners and other stakeholders during this evolving situation. Alta's business provides an essential service as many types of equipment are integral to the delivery of food, medicine and utilities, and we support important infrastructure and societal needs. Our service technicians, our parts and rental operations staff, our salespeople and all the team members who support these critical functions have all risen to the ongoing challenges we are facing. They continue to work hard to build on Alta's proud history and the quality reputation our company enjoys across the equipment industry. Enterprise-wide, we have enacted measures to keep employees safe, to sustain the business and to support our valued customers. We've taken steps to avoid exposure risk by maintaining strict operating policies, and we are adhering to CDC guidelines to support our customers and the needs of our communities. We've created a task force, with representation from all operations teams to coordinate prompt responses, planning and communications within our supply chain. And we are working closely with our OEM partners and the respective distribution networks to manage the inventory pipeline. In spite of these challenging circumstances, I want to reiterate my confidence in Alta's opportunity going forward, our strong operating platform, profitable business model, expanded geographic footprint and financial flexibility with available liquidity position us to grow our business over the long term as our industry and the broader economy work through these uncertain conditions. Lastly, I want to thank all of our employees, partners, customers and, particularly, our new shareholders. We greatly appreciate your support during the past 6 weeks and look forward to driving long-term success together. And with that, I'll turn the call over to Tony.

Thank you, Ryan. Good evening, everybody. This is Tony Colucci, CFO of Alta Equipment Group. And I'd like to add my welcome to the participants on the call today. Before I get started with my prepared remarks, I just want to reiterate what Ryan said. It didn't feel like too long ago that we were on the road meeting a lot of you and your colleagues. And so our thoughts are with all of you during this difficult time, and we hope to be back in New York City and Boston and San Francisco, wherever that may be, real shortly to see all you guys. So I just wanted to start with that. My remarks today are going to focus on 4 key areas, the first of which will be a brief recap of the business combination with B. Riley, second of which will be 2019 recap of the performance of Alta, the legacy business, which will exclude Liftech and Flagler for now. As you know, those were completed as part of the de-SPAC process. The third key area is we want to talk briefly about Alta's balance sheet and the dexterity of our business model and, in particular, emphasizing the significant availability, our reasonable leverage levels and the attractive debt maturity profile that we have coming out of the de-SPAC. And also emphasize the dealership model, which focuses on high-margin parts and service business. The last area I would like to speak to today is to speak to some of the countermeasures that we're taking to mitigate the impacts of COVID-19 on our business. And some of these levers and measures in the strategic framework were developed based on Alta's experience in the 2008, 2009 financial crisis. With that said, I'll focus first on the first bullet point and give a brief overview of the business combination with B. Riley. And first and foremost, on behalf of the Alta senior management team and all of its employees, we think the outcome was a home run for the company. It allowed us to do various things from a financial perspective. We refinanced all of our pre-existing debt. We've reduced leverage. And by doing so, we removed a constraint on our organic and acquisition-driven growth strategy. The immediate example of that, of course, was the acquisition of Flagler and Liftech. And we now have an optimized balance sheet, which provides us with the available liquidity to navigate this difficult macro environment and to potentially opportunistically pursue our M&A strategy. Speak a little bit to the sources of the transaction, and I'll get into a deeper dive later on this call around the capital sources. But the transaction was financed with approximately $270 million of equity, $155 million new term loan and $150 million draw on a $300 million ABL facility. A couple of key points there. In excess of 90% of B. Riley Principal Merger Corp. shareholders elected to roll into the equity of Alta, a high number relative to other SPAC transactions. This level of participation in the equity allowed us to reduce the size of the term loan at close and reduce the amount of -- we were expecting to draw on the ABL as well. And so as a result, our pro forma debt is approximately $40 million lower than we had originally anticipated. Lastly on this point, the SPAC transaction was structured to clearly align the interest of management and shareholders. I think we did that. The management team collectively rolled more than 85% of our equity into the new public company, with Ryan Greenawalt remaining Alta's largest shareholder today. Moving on to the second key area that I wanted to speak to you today, the 2019 operating and financial highlights. I would say management is satisfied with the 2019 performance. Specifically, total revenue increased 35% to $557 million in 2019. With that, we reported organic growth in nearly all of our departments across every geo in all business lines and, in particular, that all important parts and service revenue streams. When you include for 12 months of contribution from the NITCO business in New England, which was acquired in May 2019, revenue and adjusted EBITDA were approximately $603 million and $74 million, respectively. And pro forma for Liftech and Flagler 2019 revenue was approximately $802 million, adjusted EBITDA of $94 million enterprise-wide. Drilling down from there at the segment level. The Industrial segment was -- continue to be highly cash flow positive, driven by the high contribution level of parts and service that collectively represent more than 60% of that segment's gross profit. And in the Construction segment, 2019, that segment remained on its growth trajectory as Michigan continue to mature and serve as an example for the earlier-stage Illinois construction market. Real importantly here, year-over-year, the Construction segment achieved 33% growth in parts and service revenue and 28% growth in rental revenue. As you go down the list of our departments on a consolidated level, new and used equipment up 35% year-over-year, parts up 35%, service up 50%, rental revenue up 29%. And finally, rental equipment sales up 23% year-over-year to $42 million. Keep in mind that we refer to -- we refer the sale of lightly used equipment from our rental fleet as our rent-to-sell fleet or product classes. That fleet recall is just another mechanism for us to populate our territories with equipment and then reap the rewards of multiyear parts and service revenue streams. All of the growth that I just discussed or alluded to was really the result of 2 primary drivers: one being the NITCO acquisition out in New England; and two being the continued maturation and growth that we're seeing in Michigan and Illinois in our Construction segment. Note -- quick note on gross profit. We saw a slight increase there, which is highlighted by the construction businesses, revenue mix shift towards the higher-margin parts and service business. One thing you'll note in our materials is the metric economic EBIT, which we define as adjusted EBITDA less rental equipment gain on sale and net maintenance CapEx. This was $43.5 million in 2019 or 80 -- I'm sorry, 59% of adjusted EBITDA. We believe economic EBIT, which others might refer to as unlevered free cash flow, to be a valuable metric in assessing our business performance. And we think it's more reflective of the cash flows available prior to growth-related investment and debt service. In summary, for 2019, like I said, management was satisfied with the results as a whole. We reviewed the NITCO acquisition as accretive and transformational to the enterprise in so many ways. But really, it's cash flow profile and customer end markets that enhance our flexibility, especially as we navigate a time in an environment like we have here today. Transitioning to the third key area that I wanted to speak to was our new balance sheet and credit profile coming out of the de-SPAC process. I've mentioned several times throughout this call the strength of our balance sheet, but wanted to refine some of the points a little bit. Our new ABL is a $300 million, 5-year facility with a cost of capital of LIBOR plus 1 75. It's provided by a syndicate of 8 major lending institutions led by JPMorgan Chase. There are no financial covenants at close on this facility given our overall liquidity position. And based on our $240 million borrowing base and the $150 million draw at close, we've got approximately $127 million of undrawn capacity. The back half of the debt piece of our capital structure is a new $155 million term loan with a 5-year -- 5.5-year maturity. It bears interest at LIBOR plus 800 basis points and has a 5% amortization on an annual basis. The credit agreement includes certain customary covenants, including a leverage covenant. And given the high equity participation in the de-SPAC process, this has allowed for plenty of room on that leverage covenant before we have to think about tripping any of those covenants. So all told, relative to the balance sheet, management view -- we view our balance sheet as a source of strength for Alta right now. We believe we've optimized our leverage profile and are well positioned to weather any business disruption caused by the current economic conditions and simultaneously continue to pursue opportunistic M&A targets to expand our footprint and broaden our product and service offerings. I'll move now and lastly to the last key area that I wanted to discuss today, which are the COVID-19 countermeasures and downside scenarios and some of the levers that we're evaluating and pulling. Obviously, we're operating in a highly uncertain environment, but I wanted to give you guys a glimpse of some of the things we're working on and focusing on today in terms of what we're doing. Bullet point #1. In particular, we are highly -- our plan for COVID-19 was really rooted in Alta's performance through the last downturn. One thing I want to note is that Alta is a very different business today than it was more than a decade ago. At the time of the Great Recession, Alta was a $50 million industrial forklift business, largely tied to automotive. And today, our customer and end markets are far more diversified. We're in health care, distribution, infrastructure, which have been historically more resistant to the economic cycle. In addition, as we've already discussed, Alta is active in multiple geographic regions that not only have their own specific demand and operating characteristics, but they're all being impacted differently by the COVID-19 epidemic. With that in mind, just to recap what happened to Alta in '08 and '09, Alta experienced a 35% reduction in sales, total sales '08 to '09. The majority of that came in the new sales department, which was off by 50%. Parts and service stood relatively strong and was down 20% peak to trough. What we now know about our New England business, NITCO, in that time frame, parts and service was off 5%. One of the other things that Alta was able to do in -- during the Great Recession was to age its rental fleet. And in that time, net book value was reduced by 25%, kind of highlighting the power of not having to spend on rental CapEx in a time like that. Furthermore, despite the reduction in the new sales department, those -- that department benefits from a very highly variable cost structure. And so all told and as a result, our EBITDA margin '08 to '09 went from 10.5% to 9%, and the company remained profitable throughout that event. I think it's important to juxtapose the current environment versus what happened in '08 and '09, not only is Alta a different business, but I think we're dealing with a bit of a different event here. The '08, '09 event took place over many months and even years. And so all of the numbers that I just quoted would have been the result of many months of disruption. And in the current situation, of course, we're all hopeful that the impacts are much shorter-lived and more muted in comparison with what we observed in the Great Recession. In terms of the specific metrics that we're focused on, in particular, hyper-focused on managing our inventory every day, making adjustments to our ordering plans, working with our OEMs to adapt to evolving customer needs while also keeping the long-term vision in mind to deal with pent-up demand when the macro situation improves. On a daily basis, we're monitoring rental fleet utilization and labor utilization. And for the time being, our plan is to reduce fleet CapEx while continuing to support ongoing customer and demand. While the pandemic will likely adversely affect our rental fleet, I think it's important to note that there are certain pockets of Alta's end markets that have actually seen a surge in business as a result of the pandemic. And in those businesses, it's important for us to have rental fleet available to meet that customer demand. In addition, we've reduced discretionary spending on all major CapEx projects, with the exception of our ongoing ERP implementation, which we believe has a high ROI and is an essential tool for managing our business, particularly as we expand into different geographies. Lastly, and I think importantly, it's -- while we believe these are all prudent steps, initially, we are prepared to take additional actions as required by the evolving situation, but I think we must not lose sight of what happened to Alta and the environment it was in, in '08 and '09, which provided for plenty of M&A opportunity. From 2008 to 2010, Alta made over 7 acquisitions and tripled the size of the business in the process. And we anticipate there may be similar opportunities to do acquisitions at attractive multiples as a result of this period of dislocation. We have the financial flexibility, the available incremental liquidity and the experienced management team to weather this situation, whereas many other dealerships remain less diverse in their offerings and end markets and they lack the financial resources of a well-capitalized public company. In closing, I want to thank as well, certainly, everybody on this call. I want to thank my team who has worked tirelessly to -- and remotely to effectuate a lot of the reporting that we had to hit to make our filings here recently. And most importantly, the employees of Alta Equipment. And we continue to work as one team as our guiding principle suggests. So with that, I'll turn it over for questions.

[Operator Instructions] Your first question comes from the line of Alex Rygiel with B. Riley.

Ryan and Tony, hopefully, you can hear me. And congratulations on filing your first 10-K.

Thanks, Alex.

Thank you.

Very interesting times today and very different than from 4 to 8 weeks ago. Can you first give us a little bit more sort of real-time update as to what you're seeing out in the field within the last week or 2? And maybe give us some examples of how some of your industrial companies -- how they work with you and how you work with them when they take their manufacturing facilities offline for 2 weeks or they take their warehouses offline for 2 weeks? And how does that impact sort of your parts and services business during that period?

Sure. Alex, this is Ryan Greenawalt. So I'll start with maybe just an overview of what we're experiencing in the different geographies in the way of government response and then turn it over to Tony to talk a little bit about pockets of what we're seeing in the business. So this is -- a 2-week time frame in this environment feels like a year. It has been a very rapidly evolving situation. And Michigan and the New England region just went into our shelter-in-place restrictions this week, so we are literally just a couple of days into having a more muted environment to operate in. Across our industry, and we've worked closely with our trade associations, both on the lift truck side, that's MHEDA, the Material Handling Equipment Distributors Association. And on the earthmoving side, it's AED, Associated Equipment Distributors. Both of our trade associations have been very active in working with Homeland Security and with the different jurisdictions. Because our equipment is, in many instances, supporting essential services, Tony alluded to food, medicine, energy, there are different end markets that really can't shut down. And moving material is crucial in those areas. So we are an essential service. Today, all 43 of our branch locations are open. I'm happy to report that we have not had an infection in our ranks of -- our personnel. We do have some people who are self-quarantined due to some flu-like symptoms and that kind of thing, but we have not had any impact -- severe impact with our employees. Going maybe region by region, so Illinois has been operating under shelter-in-place for just a day or 2 longer than Michigan. Massachusetts followed Michigan by a day. And New York state, where we are newly operating as of just a month ago when we closed on the Liftech transaction, that is probably the hardest-hit area, other than what we're seeing in Michigan with the automotive shutdown. So prior to Michigan going into shelter in place, the UAW worked closely with the Detroit 3 to temporarily shutter the plants to disinfect them and to make them safe for the employees to return to work. Our understanding is that the Michigan shelter-in-place order is going to extend that shut down by about a week. So this is the area here where we sit in Detroit, it feels a lot like '09 in that the automotive industry is kind of in a very short period of time kind of come to a screeching halt, but we have good information that this will be a very temporary scenario. And so that's our hope. And obviously, the situation is rapidly evolving, but we are taking steps to make sure that we can respond quickly to the business, not only if it continues to degrade, but also if it comes back in the next week or 2 that we are -- were positioned for the pent-up demand. Florida, where we're also a new entrant with the Flagler acquisition, it is -- we do not operate our lift truck business there. That is more of the heavy equipment side of the business. And we have not seen today any real demand destruction. Most of the jobs are still happening in Florida. Florida is not under shelter in place. So things there have remained buoyant. And then Illinois, because of its business mix being a little bit more towards the warehousing and logistics end markets, as opposed to the manufacturing we see in Michigan and in the upper state New York, it's also holding up a little bit better near term. So again, a very rapidly evolving situation. But today, we are -- we have all of our branches are open. We are out. In every region, we have -- we're open for business. We're selling parts. We're sending out rental equipment, and we're servicing customer equipment. Tony, you want to add there? Okay. I think we'll take the next question. Alex, unless you have a follow-up to that. Sorry about that.

[Operator Instructions] And your next question comes from Alex Rygiel with B. Riley.

Ryan, I had a follow-up on that. So if we use Michigan as an example or New York State as an example, which is in a shelter-in-place mode and some of the plants are shut down, but yet your branches sounds like would be open in those markets. Is there a scenario that some of your customers actually deliver some of their equipment during the shutdown period to your branches to provide service on them during that period? So you are in effect utilizing some of your labor and some of your equipment during that shutdown time? Or should we think about that shutdown time as sort of a total loss of work for 2 weeks, but then possibly a claw back or a catch-up of work 2, 3, 4 weeks down the road?

Alex, maybe I'll take that one. What we're seeing is sort of -- we're seeing pockets of mitigating factors. And what I mean by that is where we've seen kind of a full shutdown of a manufacturing facility, for instance, in a lot of ways, they're shutting that facility down and cleaning it. And what that means is they need different types of equipment inside of the facilities to effectuate that sanitation process. So we're seeing some hedges related to some of the impacts. Certainly, customers on the construction side, in particular, right now, we're getting into the season here in the north. And so we've had customer equipment in our shop through the winter getting maintenance on it, ready to ramp up here on projects in the summertime. So that work continues to be available to us. And so long as we don't have a more broad-based shutdown of construction projects in general, we feel strongly that, that will continue on. And we mentioned the surge that we've seen specifically related to our industrial rental fleet in certain cases, where you've had this mitigating factor where you have maybe somebody that's closed in New England or Chicago, where one customer closes, but another customer has to pick up a second shift or a third shift and specifically in the food and beverage and then medical supply categories. And so it's too early to tell how that all washes itself out. I don't -- I mean I think in the environment that we're in right now, it's hard to say that it's not going to be negatively impactful to the business, but how that all washes out, it's still a little bit too early to tell. But the point I'm trying to make is we have seen some mitigating factors as a result of this event.

This is Ryan. One thing I would add, Alex, so in the automotive industry, an annual phenomenon is the plant shutdown in the summertime for a couple of weeks at least. And that's the time where they often bring in vendors to do maintenance, when the plants aren't running. So you would characterize it as kind of a binary, it's one or the other, and it's a little bit of both. There are certainly plants where we might have resident mechanics who report there every day and the plants closed. So those guys need either -- they need to be repurposed and put to work somewhere else. But there are other plants where it's -- they're opening up the plant to their vendors and using this time opportunistically to repair machinery that can't be suspended during the normal course of their operations.

That's very helpful. And then 2 additional questions, and I'll step aside. First, as it relates to your comments about managing discretionary CapEx. Can you remind us ballpark what your expectation is for maintenance CapEx in 2020? And how flexible are you in modifying that by 10% to 50% if hypothetically necessary? And then secondly, kind of flipping over to M&A. I know traditionally that you have found a lot of targets that, in their mind, are essentially selling their business to you for book value plus a little bit. Does this coronavirus event possibly create the opportunity when you're looking at acquisitions and paying maybe a fraction of book value rather than a premium to book value?

I'll take the first half of that question and then maybe Ryan can take the second half relative to the acquisition. So the first half of your question, Alex, related to CapEx and maintenance CapEx. And I think we're -- we think about CapEx really in 2 categories. One is replenishing the fleet from a rental perspective, and we're -- like I mentioned in the prepared kind of remarks, we're hyperfocused on dollar utilization and -- so meaning, if we're not disposing out of our fleet, that CapEx, that maintenance CapEx will go away. And in addition, this would be a time period that if we need to shrink our fleet, we will do that. And we'll also age it out if need be. So when we talk about discretionary CapEx, this is kind of the second bucket of CapEx, this is more of your pure-play property, plant and equipment. Maybe spending some money redoing a parking lot, if you will, at one of the facilities, or taking on a new branch, a greenfield branch and investing in a certain branch operation. Some of those things is what we've completely kind of put a halt to here on an indefinite basis. But in terms of the 2020 CapEx number, I think it's too early to say whether we would come off of that. But I think, for sure, we want to be very careful with the rental fleet here. And all things equal, we would certainly want to age it out versus replenishing new.

And then on M&A?

Yes. Alex, this is Ryan. On the M&A front, the way I would characterize it is, first of all, in prioritizing our M&A opportunities during a period like this, when we were on the road show and meeting our new investors, we -- one of the things that probably a lot of people remember is our -- when we think about M&A, the most accretive deals for us are going to be the ones where we expand our footprint and our relationships with our major OEM partners and stick to our dealership model. So there are infill opportunities to grow wallet share in tangential ends of the business, adjacent types of equipment that fit within our customer portfolio. But the best deals we could be looking at right now are the ones where we're consolidating for our major OEM partners and growing in our core business. And the way I would answer your question is it really depends on the quality of the business. So a business that has a large -- has had -- has been performing, has market share, has a field population that's out there aging and consuming parts and service that business is going to be worth more than one that has been underperforming and is something that's been maybe undermanaged or something that needs to be improved upon. So I would say that for a well-run business with decent market share and a field population and a robust parts and service opportunity, book would be the floor. We've never really purchased anything below book other than a distressed business. And so I guess the answer, unfortunately, kind of depends on the quality of the business. But book is probably a good way to think about a floor for the performing dealership from either of our major OEMs.

Your next question comes from the line of Mike Shlisky with Dougherty & Company.

I was just curious, have you seen any issues over the last few weeks with obtaining delivery on parts from China or Italy or other parts of the world or even parts of this country given the whole virus situation? Or have you been able to source what you need for your technicians?

Michael, this is Ryan. So far, we have not. We are having biweekly calls with our 2 major OEM partners, Hyster-Yale and Volvo. And so far, there have been no significant disruptions to the supply chain. The Volvo side, there's a one plant that makes a small excavator that is in France that I had heard some things about that plant being shut down. I'm not sure if that's back up and running, but not a huge -- not a material headwind for us. It's one product that rolls out of that line. We're monitoring the situation closely. But at this time, we haven't seen any major disruptions.

Okay. Great. And it sounds like -- and I totally understand that you're not giving a ton of guidance for the year at this point. But I'm kind of wondering if you could give us any kind of sense at least as to -- on the operating expense line. If you didn't have this issue with the virus and potentially trying to save on some costs and some cash here, do you think you would be able to hold that steady going forward? Perhaps if things turn back to normal, the pro forma run rate from 2019 might be a good place to kind of start in a more normalized environment going forward?

Michael, this is Tony. Can you repeat your question?

Sure. I was curious on operating expenses. If we didn't have this virus, if you -- on a more normalized go-forward basis, if and when things turn normal, do you think that the 2019 pro forma operating expense run rate is a good run rate to think of going forward for a more normal situation, hopefully, later in 2020 at least?

Michael, I'm not sure that may be a good starting point, but there are some variable costs in that operating expense line, specifically as it relates to some of our sales commissions. And so to the extent that new sales are impacted here, the sales commission line would go down. So the operating expense line, I'm not sure, is fixed, if that's what your question is. I think there are some variable costs in there. And at this point in certain areas of the business, as we've mentioned, we've been focused on reducing some of those operating expenses. And so I think it may be a good starting point, but I just want to -- I don't want to give the impression that, that operating expense line is completely fixed. There are some variable costs in there. But in a -- if you're -- and that goes the other way. In a normal environment, which for us is growth, right -- in a normal Alta growth environment, it would go the other way with that operating expense line. For instance, it includes technician vans and service vehicles. And so service, obviously, one of the more profitable parts of our business. But if we're adding service technicians, which is a good thing, we would be adding cost to that operating expense line in the form of a service vehicle. And it kind of works the other way kind of going to the downside, so.

Okay. That makes sense.

The other thing that -- yes, the other thing to point out, Michael, is for 2020 be aware that Flagler and Liftech will be involved here as well. And so I would just caution to use Alta specifically or Alta, NITCO specifically on that number.

Sure. Of course.

What I can say -- yes, what I can say is we work on in the dealership model a lot of backlog. And so we constantly have a pipeline of sales kind of out there. And we still have a week left here in March and a very fluid situation. But any impact here or the bulk of the impact from what we can see right now of the virus and the pandemic will be more so weighted to Q2 than it will be Q1, just because of the workload and the backlog that we had kind of in the pipeline when this all kind of unveiled itself.

Okay, sure. That makes sense as well. I will pass it along.

There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.