Alamo Group, Inc.

Ladies and gentlemen, welcome to the Alamo Group first quarter 2019 earnings conference call. Today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. If you have a question, please press star followed by the one key on your touch-tone telephone. If you would like to withdraw your question, please press the star key followed by the two key, and if you are using a speakerphone, please lift the handset before making your selection. This conference is being recorded today, Thursday, May 2, 2019. I will now turn the conference over to Mr. Ed Rizzuti, VP, General Counsel, and Secretary of the Alamo Group. Sir, please go ahead.

Thank you. By now, you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one, send you a release and make sure you are on the company's distribution list. There will be a replay of the call, which will begin one hour after the call and run for one week. The replay can be accessed by dialing 1-888-203-1112 with the passcode 768-9407. Additionally, the call is being webcast on the company's website at www.palmo-group.com, and a replay will be available for 60 days. On the line with me today are Ron Robinson, President and Chief Executive Officer, Dan Malone, Executive Vice President, Chief Financial Officer, and Richard Worley, Vice President, Treasurer, and Corporate Controller. Management will make some opening remarks, and then we'll open up the line for your questions. During the call today, management may reference certain non-GAAP numbers in their remarks. Reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachment to your earnings release. Before turning the call over to Ron, I'd like to make a few comments about forward-looking statements. We will be making forward-looking statements today that are made pursuant to the State Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. Among those factors which could cause actual results to differ materially are the following. Market demand, competition, weather seasonality, currency-related issues, geopolitical issues, and other risk factors listed from time to time in the company's SEC reports. The company does not undertake any obligation to update the information contained herein, which speaks only as of this date. I would now like to introduce Ron. Ron, please go ahead.

Thank you, Ed, and we want to thank all of you for joining us today. Dan Malone, our CFO, will begin our call with a review of our financial results for the first quarter. I will then provide a few more comments on the results and Following that, we'll look forward to taking your questions. So, Dan, please go ahead.

Thank you, Ron. Record first quarter 2019 sales of $261.9 million beat the prior year quarter by 10%. Organic sales growth was 8.4% without the impact of the Dutch power acquisition, which we completed in March. Industrial Division first quarter 2019 sales of $158.4 million represented a nearly 20% increase over the prior year quarter. All product groups contributed to this division's continued strong organic sales growth. Agricultural Division for the first quarter of 2019 sales were $53.2 million, down 9.3% from the prior year quarter. High crop yields and U.S. trade disputes continue to negatively affect crop prices, farm income, and demand for new equipment. We estimate retail sales of rotary cutters, the primary product in this division, are down 5 to 10 percent industry-wide compared to the prior year quarter. Recent adverse weather conditions have also reduced equipment usage, negatively affecting agricultural parts sales. Furthermore, this division's sales were affected by the installation of a paint system upgrade, which shut down production in its largest manufacturing facility for several days in January. European Division first quarter 2019 sales were $50.3 million, up 6.5% over the prior year quarter, but down 1.2% without the effect of the Dutch power acquisition. Excluding an unfavorable currency translation effect of $3.5 million, this division's local currency organic sales growth was 6.3% above the prior year quarter. First quarter 2019 gross margin of $63.3 million grew 5% over the prior year first quarter. Our first quarter gross margin was 24.2% of sales, which compares to 25.3% of sales for the prior year quarter. The compression of percentage gross margin was due to several factors. First, the carryover impact of material cost increases had yet to be fully offset by mitigating pricing actions. By the end of the quarter, we began to see this effect easing due to reduced steel costs and a lower mix of free price increase shipments. Percentage gross margins were also affected by an unfavorable mix of high margin aftermarket part sales to total sales. While part sales grew 3.9% over prior year, they totaled 18.4% of first quarter 2019 sales compared to 19.5% in the prior year quarter, with the difference mainly due to higher growth of industrial division whole goods sales year over year. First quarter 2019 operating income of $22.6 million was 5.8% higher than the prior year quarter. primarily due to industrial division organic sales growth and partially offset by the factors constraining gross margins already discussed. First quarter 2019 operating income was 8.6% of sales compared to 9% of sales for the prior year quarter. That income for the first quarter was at a record $15.3 million for $1.30 for diluted shares compared to prior year quarter net income of $14.6 million, or $1.24 per diluted share. Record first quarter 2019 EBITDA was $28.9 million, which was up 7.7% over the prior year quarter. Trailing 12-month EBITDA of $126.5 million was up 13.3% over the prior year trailing 12-month results. Net cash used by operating activities in the first quarter of 2019 totaled $32.4 million, which compares to $28.1 million net cash used in the prior year quarter. The year-to-year difference of $4.3 million was mostly due to the EBITDA growth being more than offset by higher receivables and inventories. While most of this working capital investment is driven by higher whole goods demand in the industrial division, Slowing agricultural equipment retail sales also had a negative impact. This is because a first quarter retail sale usually generates a replacement order and the related receivable from the dealer becomes immediately due and payable prior to its invoice term. Also impacting operating cash flow was continued growth in demand for vacuum trucks. This resulted in a $7.5 million increase in our rental fleet investment compared to a $5.7 million increase in the prior year quarter. Investing cash flows were primarily the use of $50.5 million to fund the Dutch power acquisition. Capital spending for the first quarter of 2019 was $5.3 million, compared to $7.6 million for the prior year quarter. This difference is primarily due to the timing of projects, as we expect capital spending for the year to be above prior year levels. Due to the Dutch power acquisition and, to a lesser extent, high levels of investment in working capital, rental fleet, and capital assets, debt net of cash increased $69.9 million over the prior year first quarter. Our order backlog remains at a very healthy level, ending the first quarter at $258 million, including the Dutch power acquisition, which is about 8.4% higher than the prior year first quarter. Without the acquisition, backlog increased 2.6% year-over-year. In summary, our first quarter 2019 results were highlighted by record first quarter sales up 10%, record first quarter net income up almost 5%, record first quarter EBITDA of nearly $29 million, completion of the Dutch power acquisition, and a strong quarter-end backlog

Okay, thank you, Dan. We're pleased to once again start off another physical year in a positive fashion with record sales and earnings. As usual, there were some pluses and minuses in the quarter, and certainly our industrial division was one of the big pluses as they had another strong quarter with good sales and earnings growth. and we believe they are poised, due to their backlog and the market outlook, to continue to move forward in 2019 at a very healthy pace. On the other hand, our ag division had a weaker start to the year, and we were constrained by the continuing soft agricultural market conditions, which was further limited in the first quarter by some adverse weather conditions. And we were also a little disappointed by our margins, which were a little weaker than they should have been. There were several factors contributing to this, including a little higher level of shipments, particularly at the start of the year in January, that were booked prior to price increases we had implemented late last year in response to input cost inflation in the second half of 2018. We also had the cost and associated disruption in January due to a major system upgrade at our biggest agricultural plant. Both of these situations are now behind us, and while the soft agricultural market and lower farm incomes are continuing to constrain sales, we feel our margins started to improve in the second half of the first quarter and should continue to improve. we feel the pace of input cost increases have actually softened somewhat compared to last year. And in some areas such as steel have actually come down a little, not only in ag, but across all of our business areas. Our European operations actually did well, particularly given the somewhat overall softer economic conditions in continental Europe. But due to currency changes in the first quarter of 2019 compared to the previous year, What was increased sales before acquisitions in local currency ended up as a decrease when translated to U.S. dollars, as Dan pointed out. And while we cannot control exchange rates, we actually feel the outlook for our European operations remains positive on a local basis. And this will certainly be helped by the acquisition in March of Dutch Power Company. Dutch Bower is a very nice fit with our overall strategy. They provide some very nice complementary products to add to our existing range, and they're just a good, well-run company and good addition we're glad to have as part of Alamo Group. And we're also pleased, you know, I know we've commented in the last couple of years about the, you know, we're looking at a lot of acquisition opportunities, but valuations have been a bit of a challenge. But we're pleased that this year already we're looking at, you know, we've now completed one. We're looking at others. The pipeline remains very buoyant. And I think valuations are a little bit more in actionable ranges for us. So an acquisition activity is not the only thing that we're actively keeping busy. We actually have a lot of initiatives we are pursuing right now. This includes a higher level of capital spending aimed at improving our manufacturing technology and making us more efficient. Some of this we've even discussed previously, like the new plant we're building in Wisconsin, which will allow us to combine the three super products, vacuum truck facilities in that area, into one much more efficient plant. But there's a lot of other initiatives involved. On technology, they're not as big, but they should individually provide very nice returns on the incremental investments we're making in that area. We're also very pleased that our ongoing development efforts is resulting in a steady stream of new and innovative products that we can add to our range. Some of the very recent examples of that is our McConnell Robocut mowers in Europe. and our Alamo Industrial Mantis power units that has recently been introduced to the markets here in North America. So we continue to believe that product development will be a big driver of our ongoing organic growth. We also had some other internal developments, which I think will benefit our company moving forward that I think are worth commenting on. The first is that I know in December, we announced that we were going to implement a share repurchase program aimed at sort of limiting any creep in our stock. And I'm glad to say we have already begun to implement that program, and that is underway. And the second that we just announced in yesterday's press release is that there's going to be a change in our reporting that we will implement later this year. For years, we have been reporting partly according to product lines and partly by geography, whereas this will change and we'll put all of our reporting along product lines, which we will believe will make us a little more transparent, as well as, you know, help us operate more efficiently internally because putting all product groups together. So we wouldn't change from going from three reporting divisions to two, just industrial and ag. since our European division has always been a mix of the same two divisions. So as you can see, we have a lot going on at Alamo Group. And while there are certainly some challenges along the way, we feel the stability and strength of our markets in general and our ongoing improvement initiatives, combined with some acquisitions and new product introductions, will continue to lead us very positively throughout this current 2019 And as usual, we thank you for your support in this journey. And with that, I would like to open the floor to any questions you might have.

All right. Thank you. At this time, we'll open the floor for questions. If you would like to ask a question, please signal by pressing the star key followed by the 1 key on your touchtone phone now. Please make sure that your mute function is turned off to allow your signal to reach our equipment. Again, that is star one to ask a question, and we'll pause momentarily to allow everyone an opportunity to signal for questions. Okay. Our first question will come from Joe Mandillo with Pedodian Company.

Hi, guys. Good morning.

Good morning, Joe. Good morning, Joe.

Wanted to ask on the agriculture sector. So I'm wondering, you talked about how, I think at least in the press release, if not also in your commentary there, related to weather and that being a factor. In addition to, obviously, we've heard from other companies that the sector overall is still weak here. Just wondering, sort of especially with the weather comments, how you're thinking about growth as we progress through the year relative to the 6% X currency that we saw in the first quarter?

Yeah, I mean, it's really sort of hard to say. I mean, you know, certainly I think weather may have affected some spare parts sales a little because the farmers were a little slower getting into the fields. But, I mean, I think, you know, once they get in there, the activity will pick up. But certainly farm incomes are down. And we feel that, I mean, like I say, you know, we're seeing that equipment purchases in total have been off. Yeah, I think weather, I mean, there's still some rain in the Midwest. And, I mean, but that's fairly localized. So, I mean, I think on a broad basis, I think weather will get better. Like I say, the winter was a little later. So, you know, it caused some delays. I don't see it causing any delays. major disruptions long-term. I mean, you know, like to the whole year, just some delays. But I think it's just the ag conditions themselves. There's a little too much grain in storage. And so, I mean, they need to, you know, they need to get crop prices up before I think we're going to see equipment sales start to rebound.

Okay. And then on the margin side, First off, could you quantify how much costs were related to the system upgrade?

You know, like I say, I mean, I know exactly what the system calls upgrade costs, but it was the disruptions and, you know, like in other areas that – and I don't think we handled it as well as we should, to be honest. You know, we're – But, you know, I can't give you a number for that.

The actual system upgrade was only, you know, the expense out of that was a couple hundred thousand dollars, but it was really more of the days we were not producing product that was the main cost.

Joe, it lasts a little over more than a week, and it just kind of shut us down for a little bit because you can't obviously run your lean process until you get it fixed, so.

Okay, so that as well as the adverse sort of price-cost situation, which I assume improves maybe even starting in the second quarter, that must have cost over a million dollars at least, would you say?

Correct. Yeah, all that over a million, yes.

Okay. And in terms of the price-cost, I guess overall, but you certainly sort of highlighted it more at the ag segment, that starts to improve in second quarter, considering the price increases that you have put in place?

Yes, absolutely. I mean, because the ag sector is one of the sectors where we sort of do out-of-season, pre-season sales for dealer stocking orders. And, you know, so we had, I mean, you know, some backlog at the end of the year. That was prior to our latest price increases. So we, yeah, so... But most of that is behind us. Most of that backlog is now shipped at the lower margins. And I think, you know, most of what we're shipping, you know, going forward is all at higher margins. Plus, in the second and third quarters, our aftermarket parts are a higher percentage of our agricultural sales while, you know, because those are the active quarters for farm activity. That's when they're, you know, like say the first and fourth quarters is more, is higher percent of equipment sales versus the Second and third are, you know, the percent of part sales goes up.

We know that some of our material costs are coming down because we've negotiated based upon orders placed, you know, back in the fourth quarter. And so with the lead times of those particular products, we know that those are going to be coming as well.

Okay, great. And then at the industrial segment, you know, very strong quarter on the top line. Part of that, I assume, was a little bit of that was due to the favorable comp and the fact that you did have some production disruptions in the first quarter last year with that strike at the one facility of yours. Could you sort of give us an idea, if you can at all, how much of that was related to sort of that comp and what is sort of normalized there? I mean, 20% is not sort of normalized, I assume you would agree. Any way of sort of defining what sort of normal growth was?

Actually, it was a high percentage of that growth was normalized. In this case, just because the backlog went up. I mean, you know, we actually had very good bookings in the quarter. We were helped by some new product introductions. But, yeah, no, actually... Like I say, the comp effect was actually fairly minimal.

Oh, okay.

It only affected the gray all plant. The gray all plant was the one where we had the... In some things, I know even last year we were saying our snow group was off a little. This year, like I say, the late winter and heavy snow throughout this year certainly maybe caused farmers to be late, but it made our snow division actually have a pretty good year. Our finish last year very strong and start this year very good. So, I mean, you know, snow was up, and that had nothing to do with sort of the great all-strike last year. So, I mean, like I said, the comps were a little off from last year, but this year, you know, like I said, it was just great. solid performance across all products within the division.

Yeah, I think last year we said it was only about $5 million impact on the top from a sales standpoint.

Okay. This is related to the strike, Joe. Right, right, right.

Okay, just lastly, and I'll hop back in queue, I'm just curious regarding the new segment reporting. Is there any more color or how significant is this, I guess, in terms of productivity and cost improvements or whatnot? Could you speak to that or any more color regarding that? How significant it is?

There won't be a lot. I think it will make us more efficient internally as we're having units same kind of products in Europe and the U.S. start working together better and make that a little bit more, you know, efficient and make the flow of information between the units go a little bit better. You know, I don't think this is a major change, but this, you know, we actually truly are changing the way we operate the business internally. I mean, you know, doing a reorganization, and so, you know, we had to – We have to tell, you know, everybody that we're doing it. It's not a big deal, but I think it's the right deal. And, you know, it'll just be a pretty small incremental effect, but it'll help us be more efficient moving forward.

Okay. Great. Thanks a lot.

Appreciate it. Thank you, Joe. Thanks.

All right. Thank you. Again, to ask a question, please press star 1. And our next question comes from DeForest Pinman with Walthausen & Co.

Hi, thanks for taking the questions. Just when we're thinking about backlog, while material's been moving around, can you help us understand if the implied margin in the backlog is higher or lower versus what we've been doing maybe over the last quarter, last couple quarters?

Yeah, I think...

You know, like I said, we have most of the – they had a little low-margin product in ag in the backlog. We actually still have a little low-margin product in Europe in our Revard unit in backlog, which is probably going to take another couple of quarters. In fact, that – I mean, because we had some big bookings early last year, we've had cost increases that have – the second, the third quarter of this year. Well, I mean, I've been being shipped for the last two quarters and for the next two quarters. So that's a little bit. But I would say in general, you know, like those, that's, our backlog is a higher margin than it was revealed in the first quarter. We definitely had, you know, like I say, it had some, residual ag products. So I think, I mean, in total, our margin and our backlog will be better in the second and third quarters. And combined with the fact that costs aren't going up quite as much, steel prices are actually coming down. And the fact that, you know, like I say, we did some price. Last year was an odd year. Usually we do one price increase a year. You know, we did actually two last year and already one this year. So I think the margin of backlog is we're in better shape than we were, say, three, four months ago.

Okay, that's very helpful.

And it's heavily focused on the ag. I mean, because, I mean, the industrial stuff usually is more build to order. Right. And, you know, we don't have the, you know, big lump orders like we do in ag or like we did this one in Europe in Brevard. So, I mean, you know, that kind of stuff, we respond quicker on pricing, on cost changes. And the majority of the backlog is in industrial divisions.

Okay, very helpful. On the inventories, they were touched on in the press release. It sounds like to some extent there's inventory build on the queue. It's kind of across the board, raw materials, work of process, finished goods, and Dutch Power probably added some, is going to add some inventory or did add inventory in the quarter. Can you help us understand how that moves over the course of the year? Do we have any internal target that you're willing to share in terms of where we think that inventory needs to go, either in terms of absolute dollar basis or inventory turn metrics?

You know, last year, of course, when prices were going up, but lead times were going up. And so, I mean, I think we found ourselves, I mean, you know, ordering sort of in advance. And so we, you know, end up with a little too much. You know, I think we didn't plan our inventory as well. So, yeah. And then when ag sales fell off a little this quarter, I mean, we actually had inventory in the backlog to meet demand that didn't fully develop. So we ended up with a little more there. I think we just didn't manage that as well as we should have. But, yeah, I mean, we don't – I mean, to give out – I mean, we have individual targets for units that we, you know, we think need to get back in line. I mean, just for sort of gross numbers, I mean, I think the next quarter or two, we need to reduce at least $20 million out of inventory, you know, adjusted for whatever sales increase there are. But, I mean, just on today's basis, I mean, I expect to get at least $20 million out in the next quarter or two.

Okay, that's helpful. And then we've closed the Dutch Power deal. Can you give us an update on the deal pipeline and maybe help us understand some of the multiples that you're seeing?

Yeah, the deal pipeline is staying pretty active. I mean, we're seeing lots of stuff. I mean, half of them we're not interested in. I mean, it doesn't really fit us and our strategy. But even the things we are, we like. I mean, we're actually – we're all – on this call from our side is spending a lot more time on just analyzing and looking at the deals right now than we typically do. And that's why I said, I mean, you know, it always comes down to a case-by-case basis. But I think in general, we're seeing that valuations have softened a little bit. And, you know, so, yeah, I mean, you know, you know, Not that we're ever paying these double-digit multiples, but I'm seeing those last several deals I have actually seen since the first of the year have been certainly below that. I think that bodes well for us. It'll come down to a case-by-case basis, but at least we're getting more to look at. I think we've done one, and I think we're seeing a couple other things that we're interested in that are probably actionable. you know, valuations that are actionable. That will allow us, I mean, our goal is not as much what the multiple is as what we think within a couple of years we can have it, you know, that needs to be making the same kind of returns as our organic, you know, as our internal businesses are already. So that's sort of where our target is. And so we analyze each case of, excuse me, what we can do, you know, between synergies and growth opportunity, excuse me, synergies and growth opportunities, what would, you know, can we get it to where it's making the same kind of returns that our existing businesses already are within a reasonably short period of time? Because, I mean, you know, since we're sort of mature products, mature markets, I mean, this isn't some, you know, 10-year strategy. If we can't get there in the next year or two, I think you would be disappointed. So that's how we try to evaluate things to... and come up with multiples, but we're seeing more that are coming in that are available and sort of within the ranges that we think we can achieve that.

Okay, that's a very helpful caller. Can you update us on what type of epithelial leverage you're comfortable with at this time when it comes to doing the deal?

Yeah, you know, geez. You know, we're fairly conservative. I mean, you know, we've, you know, certainly... I mean, all of our borrowing is sort of unsecured and very low covenant light. And usually, you know, three, three and a half times leverage multiples, you know, we can maintain that. I mean, if you go above that, I think, you know, a little more restrictions and all like this. But, geez, even within that, I mean, we can do – three or four hundred million dollars worth of, I mean, you know, have that kind of, you know, with our EBITDA and the EBITDA of what the acquisition target brings, like I said, three or four hundred million dollars I'd be glad. I'd love to find something at that range that we could buy. And we'd probably even be willing to do more than that. But if we did more than that, we'd probably want to do more of a combination of debt and equity rather than all that. Just because, again, we're fairly conservative thinking and we want to have dry powder at all. Just because we do an acquisition doesn't mean we're we're out of the acquisition market for a while because, you know, we want to continue to be active in there. So, but like I said, even with conservative leverage, three, three and a half, I mean, that gives us more than enough capacity to do anything we're looking at right now.

Okay. Once again, helpful caller. And then just update us on the outlook for share with purchases, given the authorization. Okay. Do you need how you balance potential share repurchases with potential deals?

Well, I think the share repurchases are fairly, you know, like I say, we're not, you know, trying to do a big share repurchase. We're just trying to avoid the steady creep in our stock due to things like stock options and stocks. So, you know, we're not doing a lot, and I don't see that being affected since the amount we're doing. I mean, you know, the total amount we said we'd buy was over a multi-year period. So in any one year, we're not doing a lot, and I don't see that going to be – that would be affected by acquisitions or any other thing. I mean, we still raised our dividend even with the stock repurchase. I don't see that being affected by – by anything else we're doing. You know, like I say, we're very conservatively financed, I mean, conservative financial structure, and like I say, nothing we're going to do is going to, either way, would inhibit us from doing that program.

Okay. Thank you. That's all my questions.

Thank you very much. Thank you, DeForest.

All right. Thank you. Again, to ask a question, please press star one. And our next question will come from Joe Mondello with the Dodian Company.

Hi, guys. Just a couple of follow-up questions. I was wondering what the backlog looks like organically, so excluding dust power?

Yeah.

Percentage-wise?

Yeah. I think I said 2.6% year-over-year.

Yeah. Organically, the backlog was up another 2.6%. With Dutch Power, it was up 8%.

Okay. And could you just walk us through maybe some of the strengths and weaknesses within the backlog? Because that does sort of project a slowing from, you know, I think it was up 10% at the end of the fourth quarter.

You know, yeah, the slowing parts, you know, industrial was up, ag was down a little bit. Actually, Europe without that power was off a little. But, I mean, you know, I know in Europe it was against some very strong comparables last year. So, I mean, I think, I mean, like I said, backlog is important, but as we said, in some ways we don't want it to get too big because then, you know, like I say, if it gets too far out, we like to keep our deliveries fairly reasonable. So I would say, yeah, I'd like a little more backlog now. In ag, industrial is a more than healthy level, and I think you're at a reasonable level for, I mean, being able to maintain good, you know, lead times. So, you know, so like I said, I think, and as I said, last year's first quarter, you know, somebody was a little bit off in the sales, was actually very strong in booking. So I think backlog to me is at a healthy level other than likes to do a little bit more in ag.

Right. And backlog's only about a quarter's worth of revenue, right? So it's not, you get a lot of bookings on a quarter and-

It's a little bit more than that because you remember about 20% of our sales are aftermarket parts, and those don't really flow to the backlog number.

Yeah. Right. Okay. Good point. Okay. All right. And then at the European segment, I was surprised to see – certainly beat my expectations on the growth excluding currency – I know you had some supplier constraint issues at the end of last year and some issues over there. Was part of the growth some timing because of supplier constraints and any other issues that you were seeing over in that French operations or even in the K2 maybe? Was that things were just a timing issue and it was just pushed in the first quarter and then going forward, not to expect that kind of growth going forward? But maybe just talk about why that was so strong.

Well, no, I mean, you know, the issues we were more in the third quarter, and like I said, I think we had solved most of those by the fourth quarter. Like I said, in France, we still got a little bit of low-margin backlog in one of our units. But, yeah, no, I think, I mean, we've been helped in Europe, I mean, by some new product introductions. I mentioned the RoboCut. at our McConnell unit in England. And so I think, yeah, I think our UK group actually has done quite nicely. You know, there's a little bit of slowing, I think, in the overall European economy. More on the continent, I think. You know, the UK, we've still got this Brexit overhang. And I think part of that is actually the orders have been coming pretty smoothly, even with Brexit. But they're not coming in advance. I mean, people aren't, you know, they're ordering kind of day-to-day stuff pretty regularly, but they're not doing some of the big preseason orders like maybe they've done in years past. because, you know, they don't mind ordering something that's going to be delivered next month. They don't want to order something that's going to be delivered six months when they don't know what the tariff rate between England and France are going to be and this type of stuff. So, you know, that's still a bit of an overhang, and I'm kind of disappointed they just keep kicking the can down the road. I think, you know, they had this big deadline into March, and then there was one in the middle of April, and now it's, what, October? I forget the date. You know, but I'm kind of losing track of these important deadlines. But, you know, so all in all, like I said, I think our U.K. group is certainly doing better, but our French group is actually, like I say, is actually up a little too, even though they got a little bit of some low-margin backlog. And I think we're a little pleased the Dutch power, you know, like I say, we've been, This is a lack of acquisition activity in Europe the last couple of years, but this is a good one. It really fits nicely with us. And, you know, I think we'll be able to do some of that throughout some of the rest of our distribution. So, yeah, actually Europe is helping out reasonably well for us. And, like I say, it would be a little bit more evident if it wasn't for currency.

Right. Two more questions. I was just wondering what your sort of outlook related to investing in the rental fleet and, you know, could you talk about sort of utilization rates and, you know, sort of demand that you're seeing overall there?

Yeah, I mean, our demand and utilization rates are holding up at or above our expectations at our most, You know, like we got two new, you know, the two that are the weakest are the two newest because, I mean, we're still just building up the fleet there. You know, we added two branches there last year. And due to our constraints on production, we actually have not fully staffed those from a product point of view. And so, you know, like I say, we still have some internally pent-up demand. to get our equipment at all of our units, especially the two newer ones. So that's continuing to drive that. And utilization rates are holding up at or above our expectations. And, you know, we'll probably open another branch as well this year as we continue to open, which will, you know, like I say, setting up another branch too. So that seems to be progressing at a healthy pace.

And, you know, Joe, we're also expect to be higher than we are at the interview Q1. Our expectations, we're at 49 million. We want to grow it more than that. Sure. Yeah.

That's the equipment in the rental fleet, right?

Right. All right. Well, that actually does it for me.

Okay. Thanks, Joe. Thanks.

All right. Thank you. And at this time, there are no further questions in the queue, so I would like to turn the conference back over to management for closing remarks.

All right. Well, again, thank you all very much for joining us today. Glad to be off to a decent start for 2019. There's always a few challenges, but I think we feel good about the outlook for the company. And, again, thank you for joining us, and we look forward to speaking with you on our second quarter conference call in August. Have a good day. Thank you.

Thank you, ladies and gentlemen. This concludes today's teleconference, and you may now disconnect. Please enjoy the rest.