Edward Rizzuti: Yes, pure governmental, Mike. Rents 40% to 45% of total revenue. Pure governmental. And then there are contractors that straddle that, as you know I’ve discussed before. We have contractors that buy a lower and use it for both private and public works when they get a contract to mow along the State Highway. So the number is not pure there is, but that’s the best of the number we’ve been able to produce.
Michael Shlisky: Got it. I appreciate it. Can you tell us a little bit about the health in your dealer network, especially the dealers that mainly serve the private sector. My guess is a lot of those are simply ag dealers or larger other brand dealers that make the prime mover. Just want to make sure that you’re not seeing dealers unable to even take inventory at this point.
Edward Rizzuti: Actually, we’re not, Mike. We haven’t seen any pressure on our accounts receivable. We had 1 large Forester dealer last year that we bought [indiscernible] that was going to go insolvent and returned a quite a bit of inventory to us. That was one of the large cancellations I mentioned on the call.
That dealer has since gotten back on speed and is ordering some equipment from us again. So that’s been a positive move. I mean, obviously, dealers are being very cautious right now, Mike, you know that because you track the space closely, but I don’t see any that are under particular duress and like in any probability to favor at this point.
Michael Shlisky: Got it. Maybe one last one for me. During the first quarter, one of the large machinery players, a bit larger than Alamo, kind of serves adjacencies like quarry and aerial work platforms. That company launched their own brand of vegetation management equipment with mulchers, chippers and so on. I’m not even sure if their price overlap, but they [indiscernible] if we heard of it, I wanted to kind of see if there was overlap. And tell us a little bit about — in the past, I wouldn’t normally have any issues with some start-up company trying to displace Morbark or other Alamo brands. But this is a pretty large and well-funded parent companies. So can you just maybe give us some commentary on the strength of the Morbark brand, your distribution and your customer base and if you have any plans to kind of help defend your market share if this brand makes any kind of traction?
Jeffery Leonard: Mike, I’m pretty confident. I know that brands are talking about, and we know those products very well. That product line needs a significant refresh that it hasn’t received yet, not ours, the competitors. So we don’t see any short-term threat from that at all. As far as the strength of our dealer network, we have long-term loyal dealers at Morbark that have been with us a very long time, are deeply invested in the aftermarket business related to those machines, which where most of the money is made, those big machines are long lived. They run 15, 20 years. So the parts revenue stream runs a long time, which is a fairly big barrier to switching for any large dealer in the space.
So no, I’m not particularly concerned about that. We know that company well. They’ve always been that this is not a new thing in a sort of refreshing their space a little bit.
Operator: The next question comes from Mig Dobre from Baird.
Mircea Dobre: In Industrial Equipment, can you guys confirm what the contribution from acquisitions was in the quarter revenue-wise?
Richard Wehrle: We normally don’t, but probably $15 million roughly.
Mircea Dobre: $15 million, okay, appreciate that.
Edward Rizzuti: That’s the sales [indiscernible] give you the sales for $15 million.
Jeffery Leonard: If you back that out, the Industrial division was still up 20%.
Mircea Dobre: Yes, yes, yes. And Jeff, you spent quite a bit of time on the whole supply chain issue and chassis and so on. And I was kind of hoping that we’d be done having these kinds of discussions, but apparently, we’re not.
Jeffery Leonard: Yes, we, too Mig.
Mircea Dobre: It sounds like there were some issues in the quarter, but things are getting better. I mean, I can’t really see where that impacted you. Would you have been able to recognize higher revenue in Industrial Equipment if it wasn’t for that? I mean what was the net impact of the supply chain issues?
Jeffery Leonard: Yes, the short answer is that, yes, we would have been able to get more revenue out in the quarter. The sillier issue of these frame rails for the truck. I’ve mentioned before, as you can certainly talk with Daimler and the other big guys about it. They all share our common supplier in Mexico who’s been having production problems for a long time. It is getting better, though, maybe for sure. And we’ve got quite a bit more chassis during the first quarter than we did during the fourth and the third of last year.
And for a year, I can challenge you, once the chassis supply situation improved, industrial would really hit its stride and is doing that. So I don’t want to say there are no constraints, but I also don’t want to say these are dropped seriously been living with them for a while, and they are steadily improving. The Allison transmission what is another really strange analysis is normally a very, very reliable supplier. They’ve had some quality problems that are related to castings and other things. But the main issue is the transmission control modules are in short supply. And I don’t know who their supplier is, but it’s been a significant problem for them.
And that affects the sort of the high end of the vacuum truck business. But we’ve done a pretty good job scrambling around that may define chassis off lots and other places to keep our production rolled. So I don’t think that really had a big constraining impact. We probably could have done another perhaps $5 million in the quarter without those challenges in industrial just to take a ballpark guess at it.
Richard Wehrle: Yes. Something else to add to that, Mig, if you look at our 10-Q, WIP is like $30 million, which continues to remain too high for our liking, but over half of that is going to be industrial. And as Jeff mentioned, if we could just get a few things to just be more in a consistent cadence. And they change. Every quarter, we have something else that’s causing some sort of an issue for a delay. But normally, in that division, they’re about half of that $12 million to $15 million — of that industrial division. They’re normally around about half of that. So that, as Jeff said, that leaves you between $5 million and $7 million of extra sales that we could — potentially could have had during the quarter.
Mircea Dobre: That’s interesting. So again, the fact that things are getting better on the supply chain side, I mean you have healthy amount of backlog in the segment, what’s the right way to think about revenue sequentially as the year progresses here?
Jeffery Leonard: Yes. I think we’ll continue to see high single-digit revenue growth in that division for the balance of this year. Maybe a little bit better than that, depending on how things play out over time. We have this strike running at the moment date, which is obviously a concern. We need to get that resolved. And if that gets resolved in a timely manner, then I think my statement will be fairly correct. And I said high single digit, not low.
Mircea Dobre: But I’m curious, and I’m sorry to press you on this a little bit because there’s a pricing element to all of this, right? That’s — and backlog presumably has a pricing tailwind. So if you’re sort of saying that you can grow at least high single digit, does that really imply any real volume growth coming out of your plans — maybe some, but it doesn’t sound like a lot. And I’m wondering why not more leverage there.
Jeffery Leonard: Well, I mean, I think that we’re still having to just kind of pace the build in our plans. I mean we’re building at a rate that actually is a very attractive rate right now. And that has the added effect of improving the efficiencies across those operations. Richard and Dan referenced to the under-absorption in our vegetation management facilities, we have the opposite effect going on in our investments to improve that absorption continues to improve.
I’m just being a bit cautious here that there’s a lot going on right now in that new Philadelphia plant, where we have the strike, is a big plant for us. We’re continuing to negotiate there. We’re negotiating again yesterday. That 1 needs to get solved. We need to get that strike settled, and I think we can do a bit better than that.
But we’ve already lost a couple of weeks of production in the second quarter as a result of that strike, and we’re not going to get that back, obviously. Hence, the caution. But you’re right, the momentum is really, really good in industrial right now, both in terms of sales and orders and obviously, efficiency in the operations. Our snow removal group is just doing an amazing job right now at a profit level we’ve never seen before, very strong backlog, very strong ordering. And we are considering taking some steps to expand our capacity at the moment, which will involve some investments. At the same time, our [indiscernible] here is running at — that’s there’s level of profit we haven’t ever seen in that business before and running very, very well.
And then we have the added boost from the Royal Truck acquisition which has been very nice. So maybe I’m just being too cautious here, maybe I don’t want to over forecast, but I think the growth is going to be very, very nice for the rest of the year.
Richard Wehrle: Something else to add to that, Mig, this division just like the vegetation, they put their price increases in the first part of January, like 2.5% to 3% range and make some areas maybe a little bit more, but nothing huge. On average, it’s about 3%, and Industrial did $250 million worth of new orders. So that kind of tells you we’re still getting some pretty good volume of units coming through in the new order pace that we’ve got in all product lines in that division.
Mircea Dobre: No, I appreciate all the detail here. And you kind of got to some of the things that I’ve been wondering because there’s a question to be asked about capacity, right? I mean it’s — are you to the point now where you’re just operating at full capacity, and you might be struggling a little bit to increase the volume that’s coming out of the plan. So while you have great backlog, you might have some constraints elsewhere. That’s kind of what I was trying to figure out.
Jeffery Leonard: We’re not. But there’s a lot of moving pieces right now. As we’ve mentioned to previous quarters, we closed our sweeper plant out in Washington State, and we moved that production into our Wisconsin plant, which is our [indiscernible] plant. There, that’s getting settled down now, and that production is starting to ramp up very nicely.
So we are moving things around within the company that’s causing us to see some delay in the revenue. I think the revenue build that you’re expecting to see. But I still like the direction in industrial right now. It is looking really, really positive and all parts of that division are running very well at the moment. The only negative I can say about that division is the strike, and I think that’s just the times that we’re in at the moment, but the parties are continuing to negotiate in good faith with a high goodwill to get a contract with in place. So I’m really confident about a bit sold to.
Mircea Dobre: Understood. I do want to ask a couple of questions about Vegetation Management. And as you discussed here, there’s still channel inventory that has to be worked through. But it sounds like you’re highlighting some things like interest rates, for instance, that who knows what the path is going to be on a go-forward basis.
So I guess my question to you is that if nothing changes, if nothing changes in the broader macro environment. How are you thinking about your production and your revenue in this segment for the rest of the year? Is Q1 a $223 million high watermark, and we should be seeing a gradual sort of production decline here to destock the channel? Or are you thinking differently?
Jeffery Leonard: Mig, that’s a great question. I think as you look at it piece by piece, and I’m going to slice it here because it’s the only way I know how to answer your question. I think that we’re going to see the large end of forestry recover sooner because there’s a need for those machines. And again, the fundamentals in that business remain pretty positive. We have the only negative feedstock side that I gave some color on during the call, and we’re starting to see some rebirth in that business already. They had to put into the first quarter. As to our mower business, our traditional mower business, particularly our bush hog business, had a very nice first quarter and a nice end to it as well. So that’s coming back.
But some of our other brands particularly in the ag space are still struggling a lot with excess channel inventory that you know that story as well as I do. So as I think about how vegetation revenue is going to be going forward, a lot depends on whether the orders continue to flow in at least the same pace that we saw in Q1 for the next couple of quarters.
We have a couple of quarters where the backlog in that space. And if we’re going to hold on to that level of backlog, which is a very traditional level for that division from a long-term point of view, that I think the revenue will be stable. If the orders don’t flow in the second quarter and in third, then I think you’re going to see a tapering of revenue in that division until we conclude the channel inventory out but it’s not going to be a collapse given the backlog that we have there. Again, the order rate in parts of that business are already picking up. So it just depends a lot on how the next few weeks shape up in terms of the order book, particularly in the hobby farm and ranch segment, from my point of view.
