Alta Equipment Group Inc Aktie

Good afternoon, and thank you for attending today's Alta Equipment Group's First Quarter 2026 Earnings Conference Call. My name is Melissa, and I will be your moderator for today's call. I will now turn the call over to Jason Dammeyer, Vice President of Accounting and Reporting. Please proceed.

Thank you, Melissa. Good afternoon, everyone, and thank you for joining us today. A press release detailing Alta's first quarter 2026 financial results was issued this afternoon and is posted on our website, along with a presentation designed to assist you in understanding the company's results. On the call with me today are Ryan Greenawalt, our Chairman and CEO; and Tony Colucci, our Chief Financial Officer. For today's call, management will first provide a review of our first quarter 2026 financial results. We will begin with some prepared remarks before we open the call for your questions. Please proceed to Slide 2.

Before we get started, I'd like to remind everyone that this conference call may contain certain forward-looking statements, including statements about future financial results, our business strategy and financial outlook, achievements of the company and other nonhistorical statements as described in our press release. These forward-looking statements are subject to both known and unknown risks, uncertainties and assumptions, including those related to 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 and can be found on our website at investors.altaequipment.com. I will now turn the call over to Ryan.

Thank you, Jason, and good afternoon, everyone. I appreciate you joining us today to review Alta Equipment Group's first quarter 2026 results. I will begin with an overview of our performance and the dynamics that shape the quarter, walk through what we are seeing across our 3 business segments and close with our outlook for the balance of the year. Tony will then take you through the financials in more detail.

First quarter performance was impacted by a slower start to the year than we had expected. Total revenues were $410.5 million, down 3% year-over-year, and adjusted EBITDA was $28.1 million. Those results reflect a combination of seasonal dynamics and what we see as 2 discrete factors rather than any sort of indication of soft underlying demand. First, our fourth quarter equipment sales were exceptionally strong as customers accelerated purchases before year-end to capture the tax benefits of the new legislation. That pull forward was meaningful, and it created a natural headwind to Q1 equipment volumes that was more than anticipated.

Second, we experienced unusually harsh winter conditions across our Midwest and Northeast markets early in the quarter that constrained field service activity, parts demand and rental utilization in January in particular. Our Material Handling segment generated revenues of $150.5 million, down approximately 4.7% year-over-year. New and used equipment sales were the primary driver of that decline, consistent with the broader softness in the lift truck industry over the past 18 months. The more important story is what we see in forward indicators. We are seeing early signs of improvement in material handling bookings and backlog.

Anecdotally, March was the strongest single booking month we have recorded since June of 2023. These early wins give us confidence in the trajectory of the segment as we move through the year. External signals are also promising as the ISM Purchasing Managers Index has recently turned positive after 2 years of contraction, which is a leading indicator for the lift truck industry. The sales cycle in this business creates a natural lag between booking activity and recognized revenue. The data we are seeing today gives us confidence that material handling equipment sales will strengthen meaningfully as the year progresses. Customer demand across our core verticals, including food and beverage, distribution and logistics and manufacturing remained solid during the quarter.

We are also beginning to see improving activity in automotive manufacturing across our upper Midwest markets as the industry recalibrates production priorities following the pullback from certain EV-related programs. Our Construction Equipment segment generated revenues of $244.3 million, essentially flat from a year ago. Underlying demand conditions remain stable with quoting activity strong across our markets. We've seen particular strength in heavy earthmoving equipment markets in Florida and have recently opened a new branch in Fort Pierce to serve that growing demand. Our construction business is levered to fully funded state and federal infrastructure spending. That distinction matters in the current environment. State DOT budgets in our geographies continue to grow.

Federal Highway Administration funding from the Infrastructure Investment and Jobs Act is still in its early to mid-deployment stage with the bulk of spending forecast for the coming years. A federal highway reauthorization bill is expected in September, which will give the state DOTs a significant additional commitment for road and bridge work. Nonresidential construction also remains an important end market for our business, and any improvement in that sector would represent an additional source of demand acceleration going forward. Rental revenues reflected the continued repositioning of the fleet towards higher utilization and stronger returns.

We reduced gross book value by approximately $59.5 million year-over-year to $524.6 million. This is intentional capital management, not a reflection of demand. We are protecting share while prioritizing margin quality, and we are positioned to convert recovering demand into earnings as activity builds through the year. Our Ecover verse Master Distribution segment generated $17.1 million in revenue for the quarter. New equipment margins were pressured by tariffs since early 2025. We believe the first quarter marks the end of that compression. Renegotiated OEM pricing and the recent Supreme Court ruling on tariffs are anticipated to help restore normal gross margins on our European-sourced environmental processing equipment going forward. We expect this segment's profitability to improve through the balance of the year.

A defining theme of the quarter was balance sheet discipline. We generated $20.8 million in operating cash flow, an improvement of $38.3 million versus the first quarter of 2025. That reflects rigorous rental fleet management, improved working capital positioning and reduced interest expense. Interest expense declined $2.4 million year-over-year to $19.5 million, a direct result of the delevering actions we took in 2025. The fundamentals driving our 2026 outlook remain intact even as we update our guidance to reflect first quarter performance. The conditions underpinning that guidance are taking shape as expected.

Material handling bookings are inflecting, construction activity is picking up as the season opens, infrastructure spending tailwinds are building, Eco verse margin headwinds are resolving and our execution on fleet optimization, cost management and capital allocation is consistent with the plan. As we enter peak season, the primary levers in front of us are service utilization and rental fleet productivity. These are within our control, and they are where our focus is concentrated.

In closing, Q1 was a quarter defined by difficult conditions, strong execution on capital discipline and improving forward momentum. The organization is focused, the strategy is clear and the underlying business is healthy. Our priorities for 2026 are consistent: core business growth and product support and high-return segments, operational optimization, targeted talent development and selective M&A where we see clear strategic and financial fit.

I want to recognize our approximately 2,700 employees who serve our customers every day across our 85 locations. They are the foundation of this business and their commitment is what makes the Alta model work. I will now turn the call over to Tony, who will further detail the booking trends we're seeing, how they flow through our EBITDA bridge and why we remain confident in anchoring our updated guidance as the year progresses.

Thanks, Ryan. Good evening, everyone, and thank you for your interest in Alta Equipment Group and our first quarter 2026 financial results. Before getting into the quarter, I want to begin by recognizing our employees, customers and partners for their support and resiliency thus far in '26 as we collectively navigated the impacts of a difficult winter season and embark on what we believe will be a busy remainder of the year. My remarks today will focus on 3 key areas.

First, I'll present our first quarter financial results, which were naturally affected by the seasonal impacts of winter weather. But overall, were amplified given the harsher conditions observed year-over-year. As part of that discussion, I'll touch on the momentum we saw build through the quarter and then check in on cash flows and the balance sheet, where we were pleased with our performance and which helps to set the foundation for better returns going forward. Second, I'll give an EBITDA drill down for Q1 in terms of what we were expecting versus actual performance and how we believe that our dealership business will inflect throughout the remainder of the year. Lastly, I'll comment on our updated guidance range and why we believe several KPIs are trending positively, which gives us confidence for the coming quarters.

Before I get to my talking points, it should be noted that I will be referencing slides from our investor presentation throughout the call today. I'd encourage everyone on today's call to review our presentation and our 10-Q, which is available on our Investor Relations website at altg.com. With that said, for the first portion of my prepared remarks and in line with Slides 12 through 23 in the earnings deck, first quarter performance.

For the quarter, the company recorded $410 million $410.5 million of revenue, a reduction of 2.1% versus last year on an organic basis, namely on reduced new and used equipment sales year-over-year, a reflection of pull-forward tax buyers in Q4, continued stress on deliveries in the Material Handling segment and modestly compressed volumes in the Construction segment. That said, our history and the inflection we are seeing in important KPIs, especially in our Material Handling segment, have us bullish that Q1 will far and away be the low point on equipment sales for the year. While overall new and used equipment revenue suffered on a comparative basis, gross margins outperformed in the quarter in both of our major segments.

Importantly, gross margin saw a 240 basis point increase versus Q4 a hopeful signal that pricing and supply-demand dynamics in the equipment markets are improving. On the operating expense line, while the year-over-year results present an increase of $800,000, it should be noted that the company's self-insured health plan expense was responsible for approximately $3 million of that variance given the transition to a new health plan in Q1 of '25, where claims were delayed and an unfortunate increase in the volume of larger claims in Q1 of '26.

We expect this expense to normalize over the remainder of the year and the stop-loss limits take effect on larger claims. In summary for the quarter, as it relates to the P&L, we recorded $28.1 million of adjusted EBITDA, which was below our internal expectations given some of the headwinds mentioned previously related to health care costs, weather and a delayed start to the construction season and outside pull-ahead buying in Q4.

Having said that, I would point investors to Slide 7 of our investor presentation, which shows the EBITDA momentum we observed throughout the quarter as March was 3x January on the EBITDA line. Keep in mind, this EBITDA momentum is expected to continue into the construction busy season and is also expected to be bolstered by the increased equipment booking environment in Material Handling, which increased over 20% in our markets in the quarter, as depicted on Slide 8.

In terms of cash flows, despite the challenged P&L in the quarter, we were able to generate meaningful positive GAAP operating cash flows as that metric came in at a positive $20.8 million. This is a reflection of disciplined inventory and working capital management and rental fleet optimization. As presented on Slide 18, this dynamic led to us holding net leverage effectively flat versus year-end in what typically is a quarter where we see leverage tick up. Separate but related, this cash flow performance also allowed us to maintain our cash liquidity position of approximately $250 million as well.

Moving on to the second portion of my prepared remarks, I'll drill down on our EBITDA performance in Q1 and how that informs the remainder of the year. As mentioned previously, the business underperformed our internal expectations in the quarter. With that as context, Slide 23 lays out how we're thinking about the bridge from the first quarter performance into the balance of the year. At a high level, some of the Q1 shortfall is tied to timing-related factors within the dealership business, primarily weather and equipment demand pull forward, which we view as largely recoverable. Why do we believe that? Improving booking trends, a growing backlog and sequential momentum exiting the quarter all supports our expectation for recovery as we move through the year.

In contrast, the rental business remains in a planned transition phase where fleet optimization and disposition activity will continue to introduce some variability. To be clear, as we head into the construction season, our rental revenues in Construction segment will increase as April saw an incremental $25 million of fleet on rent when compared to March. However, we are focused on driving returns on capital in our rental business versus low ROI EBITDA, and we'll continue to right size the fleet with the endgame being a more capital-efficient rental business that supports market demand and our customers' needs for our specialized equipment and best-in-class service.

Moving on to the last portion of my prepared remarks, which sessions on guidance for the remainder of the year and how the dynamic I just described in our dealership-centric model underpins our confidence in the updated range. As presented on Slide 22, overall, we are reducing the range of the EBITDA guide by $5 million in each end of the range given Q1 performance as the updated range is now $167.5 million to $182.5 million for FY 2026. we now expect $100 million to $110 million of free cash flow before rent to sell decisioning for the year, both of which are expected to be back half weighted and keep us on target to be below our 4.5x leverage target by year-end.

In terms of the key assumptions that underpin the guide, I would refer investors to the EBITDA bridge we provided last quarter that showed the path to the company generating $180 million of EBITDA in 2026. Two of the largest steps to that EBITDA bridge related to: one, industry volumes normalizing; and two, gross margin solidifying first and then improving over time. And we got good news on both items in Q1. First, given market volumes as depicted on Slide 8, which also parallel various industry participants messaging, an upcoming reversion to the norm in equipment volumes appears at hand. On the second EBITDA bridge factor, we saw a 240 basis point increase in new and used equipment margins quarter-over-quarter with industry participants all signaling reduced dealer inventories and a stabilizing pricing environment. Additionally, we believe Ecover' tariff-related margin compression is now largely behind us as renewed pricing agreements with OEMs and IPA tariff relief takes hold.

All told, these 2 KPIs suggest that the majority of our plan remains intact in our dealership equipment sales-related operations. When it comes to the Rental segment, while activity is inflecting positively, we remain steadfast in our pursuit of driving utilization and matching an appropriate level of rental fleet with demand in each of our markets. Lastly, the company continues to drive efficiencies throughout the organization and in particular, our product support departments, where we are focused on technician productivity and working with customers that value our technical and industry capabilities. While this initiative may come at the sacrifice of the top line and product support, it will improve overall profitability and ultimately EBITDA of the dealership and create a more sustained business model going forward.

In closing, I wish you all the best as we head into the summer months and look forward to updating investors on our Q2 performance in August. Thank you for your time, and I'll turn it back over to the operator for Q&A.

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

In Materials Handling, you highlighted bookings being as strong as they've been in almost 3 years. You talked about the automotive sector as being -- is picking up. Are there any other verticals within your markets that are showing life as well? Or is it just isolated to the automotive field?

Liam, this is Tony. Definitely not isolated to automotive. I think we're seeing the beginnings of a comeback in automotive, but the bookings increase was pretty broad-based. We saw it basically in each region in a lot of different end markets, distribution, food and beverage, automotive and manufacturing, as we mentioned, as well as energy and utilities and even some activity in defense, as you can imagine, things moving in -- with more activity in that realm of the world. So it was broad-based. It was each region and not necessarily -- certainly not just isolated to automotive.

Great. And on construction, there's a lot of potential end market or macro -- let's call it, pent-up macro demand. You've got weather and then you also have the release of funding. Are you seeing anything in terms of bookings or any kind of clues that bookings will pick up into the second half of the year?

Yes. Liam, over time, Q1 in the construction business, specifically in the North is always difficult to kind of get a barometer on things in terms of the sales that get booked in Q1. And as we mentioned and as depicted on some of the slides, the industry actually was down in our geographies again. I think it was 6% year-over-year. That is not indicative of what we're seeing on the ground, especially in places like Florida, where we see lots of quoting activity, customers are busy. And we had a delayed -- as everybody on the call that's from the northern regions, we had a delayed start to the construction season.

And so some of the deliveries that typically maybe would have gone out in March because of weather didn't make their way out until April or even getting started right now on projects. So we agree with you that certainly, we expect that for the construction business, Q1 to be a low point like it always is. But I think that inflection could be even stronger given what we had to deal with in the winter and sort of the delay of getting started here.

Your next question comes from the line of Steve Hansen with Raymond James.

I wanted to follow up on the prior question just on the gross margin front. You referenced the improvement that you're seeing there as sort of positive indication. I mean any additional detail on sort of what you're seeing from the competitive environment, inventories on the ground? I mean, how are you seeing that margin improvement play out and which verticals in particular?

Yes. So I think, Steve, to the point, I think you look at a lot of the industry, those that follow the industry and some of the surveys that are out there, dealer inventories are coming down and from some of the household OEM names in the construction segment that we follow, certainly, dealer channels, they've said publicly, have rightsized. In the meantime, OEMs are seeing pricing continuing to go up. PPI on wholesale construction equipment and machinery in general, plus 5%, I think, in the first quarter, again, tariffs still impactful. And so what we have seen on the top line from OEMs, Caterpillar John Deere in particular, has been a lot of discounting to clear the dealer channel. And I think what we're starting to see here is less discounting coming from some of the major players.

So our focus on margin is probably more dialed in relative to construction because it's more sensitive to our EBITDA line. And so when we think of gross margin, we think about it more in the construction construct or context versus material handling. But I think it's a combination of less supply in the market, which is good for used equipment, too, by the way. So we're seeing better margins on used equipment as values come back as well as just the lack or the reduction in discounting from some of the major players.

That's really helpful. And just on the rental fleet repositioning, I mean, just when do you -- from a time line perspective and a sizing perspective, like how long do you think to execute the balance of that plan? And sort of what kind of capital takeout do you think ultimately would get you to where you want to be?

Yes. Thanks, Steve. And this is what part of my commentary was associated with is having a rental fleet that's underperforming, obviously just impacts the debt load. And sometimes if you get something on rent at a low rate, it could be leverage dilutive. And so what we're focusing on is trying to find the right balance of rental fleet, especially in our northern regions where we're seasonal. And so carrying underutilized equipment through the winter time sometimes gets difficult. And so we're ahead of plan.

We had $30 million of rental disposals, which we're proud of. Team did a great job here in Q1. So we're ahead of plan in terms of what we thought we would be able to do through Q1. But at these rental revenue levels, we probably still have another $30 million or so to go, and we hope to get there by year-end, Steve. So we're going to match come hell or high water. We're going to find the utilization targets here, and we hope to get there by year-end to answer your question.

Your next question comes from the line of Ted Jackson with Northland Securities.

A couple of questions. First of all, on the material handling side of things, I mean, I don't know if you listened to the Hyster-Yale call, but their expectations with regards to shipments in the second half of this year are crazy robust. Are you -- you're one of the larger distributors. I mean, what kind of ramp do you think you're going to see in material equipment sales in the second half of the year? Just some color around that.

Part of our bullishness on the guidance that I mentioned is exactly related to a really strong back half in material handling, and it's in concert with what you heard from Hyster-Yale yesterday. So very much correlated. Obviously, there's a bit of a little bit more delay between their production, their booking process production, shipment to the dealer and then us prepping and delivering. So it could be another month or 2 of equipment on the ground before we get things delivered. But we're early in the year and their lead times are such that this is all 2026 revenue that I think we can book. In terms of how hard that inflection can happen. I just revert to how hard it inflected the other way here over the last couple of years where we saw shipments go down 20%, give or take, on a volume basis. And so I think we can have that same level of reversion in the second half here. Now things need to continue. We had strong bookings in April, which was consistent with what we put on one of the slides here in March. So we're feeling bullish that the second half is going to be good for Material Handling.

Well, it sounds like you should be feeling pretty bullish about '27 too.

Yes. It's been a prolonged, I think Ryan mentioned, right, as did Liam there, it's almost 3 years and the bookings in March were as high as they were in June of '23. In June of '23, if I have that month right, that was a good time for the Material Hyster-Yale segment. So we will take March and April bookings here for as long as the customers will have us.

Okay. On my next question, just kind of thinking about things from more of a seasonal standpoint. There's a lot of a change with regards to the ability to depreciate equipment. You talked about how you think that a large portion of your particularly construction equipment sales that happened in the fourth quarter might have been pulled from the first quarter because of that and that you might not have recognized how that was going to impact first quarter when you were exiting 2025. And when I look at like, say, the last 5 years, and just I just kind of wanted to see differential. The average sequential decline over the last 5 years has been 18.5% and the media has been down 26.5%, and you were down almost I guess the question is, do you see -- I mean, maybe even thought about it that this change with regards to depreciation and being able to expense is going to change the seasonality of the equipment business where you would have perhaps more robust fourth quarters than you might have had historically and weaker first quarters for the same reason?

Ted, I think the one big beautiful build here in the declines or the increases and decreases, I think the numbers, as I recall, Q3, we did roughly $300 million of new and used equipment sales -- I'm sorry, $200 million. Q4, we did $300 million. And then Q1 here, we do another $200 million or so. And so that radical sort of or violent, if you will, up and down. I do think the one big beautiful bill now that we have -- it was new for '25. And so I don't expect it to be as violent going forward. I would be surprised. I think this was a lot of people that were waiting for that to be in place, maybe for a couple of years. But now that it is in place, I wouldn't -- we're always going to have year-end buyers to take advantage of tax depreciation, but my gut is telling me in my history that this year was a little bit of an anomaly.

Okay. And then my last question, shifting over to the rental fleet, and it's been touched on. I mean I think it's admirable and it's actually -- it's going to be pretty exciting as you bring this fleet in line and start improving the utilization rates of your rental fleet. You brought it down sequentially, it looks like the last 4 quarters. Right now, you're ending rental fleet at $525 million. At what point do you find that your fleet is rightsized? I mean is it $500 million? Is it $450 million? Is there some kind of way for us to kind of think about that and maybe a time line of where you think you're going to get there?

Yes, Ted, I think the plan -- based on the plan for this year, which, as I mentioned, we're a little -- we were several million dollars off in Q1 on just rental revenue. But for us, it's not necessarily -- based on the plan, I should say this to answer your question, we expect it to be sub-$500 million by the end of the year on that was what is at the end of Q1, $525 million. Based on what we know about rental -- the rental revenues in the plan. Now we're a little bit below that, which potentially means we will drop even further below the $500 million.

But for us, it's finding utilization targets versus nominal levels of fleet. And we've got to go out and compete for business, too, and start to drive revenue. So it's more about the numerator denominator than it is hitting a target. So that's a long way of saying the original plan was to be sub-$500 million. We've given Q1 performance, that's still intact, and we expect to be there by the end of the year.

What would be your target in terms of that utilization rate?

We want to be in the high 60s from a sort of what we would call dollar weighted time utilization, like physical utilization of fleet on rent over a calendar year divided by total fleet. And what that typically means is that we're -- our rental revenue is trading divided by average acquisition cost is something in the mid- to high 30s, what we would call dollar utilization or financial utilization. We're just not there yet.

We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.

Good afternoon, and thank you for attending today's Alta Equipment Group's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Regan, and I will be your moderator for today's call. I will now turn the call over to Jason Dammeyer, Vice President of Accounting and Reporting with Alta Equipment Group. Please proceed.

Thank you, Regan. Good afternoon, everyone, and thank you for joining us today. A press release detailing Alta's fourth quarter and full year 2025 financial results was issued this afternoon and is posted on our website, along with a presentation designed to assist you in understanding the company's results.

On the call with me today are Ryan Greenawalt, our Chairman and CEO; and Tony Colucci, our Chief Financial Officer. For today's call, management will first provide a review of our fourth quarter and full year 2025 financial results. We will begin with some prepared remarks before we open the call for your questions. Please proceed to Slide 2.

Before we get started, I'd like to remind everyone that this conference call may contain certain forward-looking statements, including statements about future financial results, our business strategy and financial outlook, achievements of the company and other nonhistorical statements as described in our press release. These forward-looking statements are subject to both known and unknown risks, uncertainties and assumptions, including those related to 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 and can be found on our website at investors.altaequipment.com. I will now turn the call over to Ryan.

Thank you, Jason, and good afternoon, everyone. We appreciate you joining us to review Alta Equipment Group's fourth quarter and full year 2025 results.

I'll begin with an overview of our performance, highlight trends across our business segments and outline how we're positioning Alta for long-term value creation as we look toward 2026 and beyond. We finished the year on a solid note. After operating through nearly 2 years of elevated inventories, tariff-driven cost pressures and broader macro uncertainty, we are entering 2026 with a noticeably healthier backdrop.

Fourth quarter demand for new and used equipment rebounded meaningfully. Lower interest rates, tax clarity following the one big beautiful bill and improving customer sentiment all contributed to a more constructive environment heading into the new year. As expected, we experienced seasonal declines in product support and rental, and the early onset of winter in several of our northern markets amplified that pullback. Even with that impact, while quarterly performance came in short of expectations, we delivered ta record quarter for equipment sales. Inventories are starting to normalize.

Competitive discounting is moderating and customers are returning to more typical fleet replenishment cycles across both Construction and Material Handling segments. Importantly, the broader economic data aligns with what we are seeing in order activity. Construction employment posted one of its strongest gains in more than 2 years and manufacturing employment turned positive for the first time since early 2023.

The tone in the market has improved, and we are beginning to see that translate into real demand. Turning to our Construction segment. We exited 2025 with real momentum. Our strategy remains intentionally anchored to customers tied to long-term fully funded infrastructure programs. That discipline continues to provide visibility and stability, particularly as we enter 2026.

Florida stands out as a key growth driver with a significant pipeline of transportation projects set to begin in the coming quarters. Across our broader footprint, quoting activity is already running ahead of where we started 2025, an encouraging leading indicator. Dealer inventories are normalizing. Competitive intensity is easing, and we are beginning to see early restocking behavior. Importantly, demand for high-value specialty equipment remains strong. A great example of our differentiated value proposition with Volvo, our team Michigan team sold the first 2 Volvo EC950F ultra-high reach machines globally.

These units are purpose-built for heavy demolition, one of the toughest, most demanding end markets. That win speaks to Alta's technical expertise, our deep customer relationships and the strength of the Volvo partnership in complex applications where performance, safety and uptime are mission-critical. Deliveries are scheduled for the second quarter. OEM pricing support has improved, helping to offset last year's tariff impacts.

While OEMs are projecting a stable 2026 market overall, we believe Alta is positioned towards the upper end of that range, supported by our infrastructure-weighted customer base, geographic exposure and our ability to execute in specialized high-spec applications.

Turning to Material Handling. The trend entering 2026 is similarly encouraging. Quote activity has improved meaningfully from late year lows. Bookings strengthened to start the year, our share position improved and backlog is up year-over-year. While it's still early, the direction is clearly positive and consistent with what we're hearing from customers across our regions. Importantly, given the natural sales cycle in Material Handling from quote-to-order to delivery, any meaningful volume acceleration will be second half weighted. What we are seeing today in quotes and backlog gives us confidence in that setup.

Customers are reengaging in fleet planning as replacement cycles begin to normalize. That's particularly evident in several of our core verticals, food and beverage, distribution, pharmaceuticals and logistics, where activity levels remain steady, and capital conversations are becoming more constructive. With improved OEM pricing support and a stabilizing manufacturing environment, we expect demand to build as the year progresses, positioning 2026 as a year of sequential strengthening with momentum carrying into the back half.

Master Distribution delivered double-digit revenue growth in 2025 as we expanded our presence across structurally attractive environmental processing markets, including biofuels, waste and recycling. While tariffs impacted tariff impacts and supply chain timing created meaningful margin pressure throughout the year, underlying demand remains fully intact. Throughout 2025, we demonstrated resilience, sustaining quality EBITDA, generating cash flow and sharpening our focus on the core. We operated with discipline, we protected margin, and we allocated capital intentionally.

Our M&A strategy remains active but selective. Over the past 2 years, we have refined our acquisition criteria with greater rigor around cultural alignment, return thresholds, OEM fit and post-close integration capability. Going forward, we will pursue opportunities that clearly meet those standards, consolidating high-quality independent dealers, strengthening strategic OEM relationships and selectively expanding complementary capabilities where we see durable returns. Equally important, the divestiture of noncore assets reflects our commitment to focus and capital redeployment towards higher return opportunities.

If you turn to Slide 10, our 2028 and beyond framework, the ambition is clear. Over $200 million of high-quality EBITDA, approximately $1.4 billion in equipment sales, mid- to high single-digit annual growth in product support and a disciplined leverage target of approximately 3.5x. That is the profile we are building toward. To achieve this, we are executing against 5 strategic priorities.

Sales Transformation. We are aligning the right products, the right people and the right customers, ensuring we go to market with best-in-class offerings that command leadership positions. Leadership upgrades across Material Handling, Peaklogix and targeted Construction geographies are already strengthening execution.

Market Volume Normalization. As equipment markets stabilize closer to pre-COVID addressable levels, we are positioned to capture share gains in our strongest regions through coverage density, OEM alignment and customer intimacy.

Third, scaling growth platforms. Peaklogix and Ecoverse represent scalable growth platforms, both have credible paths to becoming $100 million-plus businesses over time, supported by structural industry tailwinds.

Technology-Led Efficiencies. Our ERP transformation is foundational. It positions Alta for AI enablement, automation, improved data visibility and structural cost efficiency. We expect meaningful operating leverage while enhancing the customer experience.

And lastly, a Destination for Skilled Trades. Nearly half of our workforce is in the skilled trades, investing in the best, recruiting, developing and retaining top technical talent remains a core competitive advantage and a key driver of customer loyalty.

In closing, we enter 2026 with improving market conditions, normalized inventories, expanding product support opportunities and a focused disciplined strategic plan. The organization is aligned. We are operating with greater clarity, and we believe the industry is turning the corner.

Before turning it over to Tony, I want to thank our more than 2,800 employees for their commitment and resilience, our OEM partners for their continued support and our shareholders for their confidence in Alta's long-term direction. Your dedication continues to define who we are and how we win, fulfilling our purpose of delivering trust that makes a difference.

With that, I'll hand it over to Tony Colucci to walk through the financials in more detail.

Thanks, Ryan. Good evening, everyone, and thank you for joining us to review Alta Equipment Group's fourth quarter and full year 2025 financial results. Before getting into the details, I want to thank my teammates across Alta for their hard work and dedication throughout 2025. Operating through a challenging environment requires focus, resilience and commitment, and I appreciate the efforts the team made to support our customers and the business throughout the year.

My remarks today will focus on 3 areas. First, I'll start with fourth quarter performance, where you'll see the combined impact of strong equipment sales, disciplined fleet reductions and meaningful deleveraging. Second, I'll discuss full year 2025 results and the financial themes that shape the year. Finally, I'll walk through our EBITDA bridge from 2025 results to our 2026 guidance and the assumptions that underpin it.

Before I get to my talking points, it should be noted that I will be referencing slides from our investor presentation throughout the call today. I'd encourage everyone on today's call to review our presentation and our 10-Q -- 10-K, which is available on our Investor Relations website at altg.com.

First, starting with the fourth quarter and as depicted on Slides 12 through 15. Alta generated approximately $509 million of revenue in Q4, an increase of $11 million year-over-year. This was driven primarily by higher equipment sales. New and used equipment sales totaled approximately $301 million for the quarter, up $13.8 million versus Q4 2024 and up a notable $90 million sequentially from Q3 2025, reflecting improved capital investment conditions throughout our customer base. Importantly, this strong level of equipment sales activity translated directly into strong operating cash flows and balance sheet improvement. Combined with our ongoing fleet -- rental fleet reductions, the company was able to meaningfully delever in the quarter with net debt reduced by approximately $25 million sequentially.

Turning to product support. Parts and service revenue remained stable year-over-year and totaled $127.4 million for the quarter despite an early onset of winter in 2025, which made our seasonal downturn more acute than expected. In a quarter with naturally less field workdays, product support margins expanded by 330 basis points, reaching 46.1% in the quarter, driven by pricing discipline and technician productivity. Rental revenue declined $4.7 million in the quarter or nearly 10% year-over-year, which was mostly anticipated and directly tied to our continued reduction of the rental fleet.

As shown on Slide 22, we reduced total rental fleet gross book value by approximately $38 million during the year. These actions supported both improved returns on capital and additional cash generation used to reduce leverage. Adjusted EBITDA for the quarter was $40.6 million, essentially flat year-over-year. While headline EBITDA was stable, the quality of earnings improved with a higher contribution from product support and lower reliance on rental equipment sales. More on that momentarily.

Looking briefly at the segments on Slides 13 through 15. Material Handling generated $15.4 million of adjusted EBITDA, a reduction of $2.9 million versus last year, mainly attributed to lower revenues. Construction delivered $26.4 million of adjusted EBITDA, up modestly year-over-year as SG&A reductions and revenue mix improvements offset pressure on equipment margins.

And Master Distribution returned to positive EBITDA in the quarter, mainly reflective of improved volumes and gross margins year-over-year.

Now moving on to the full year view of 2025. For the year, and as presented on Slide 16, Alta generated $1.84 billion of revenue and $164.4 million of adjusted EBITDA, down modestly from 2024. To drill in briefly, the year is best understood through 3 financial themes.

First, equipment markets remained pressured throughout much of the year, particularly in our Material Handling segment. Additionally, new and used equipment gross margins continued to decline off of 2023 highs to 14.1%, down approximately 100 basis points year-over-year, reflecting tariff-related impacts, competitive discounting and continued oversupply in both of our major segments.

Second, we took deliberate actions to reduce capital intensity and reduced our fixed cost base. Rental activity declined primarily by design as we prioritize returns on capital and cash flow over episodic and asset-heavy rental revenues. In terms of the reduction in SG&A, the over $20 million decrease primarily reflects deliberate structural actions we took across the organization, including tighter headcount management, simplification of our operation and more disciplined spend controls. Importantly, most of these initiatives are not temporary deferrals. They represent a sustainably lower cost base that will improve incremental margins as volumes recover.

Third, and most importantly, earnings quality improved, primarily in our Construction business. As detailed on Slide 21, the Construction segment adjusted EBITDA declined modestly year-over-year. However, product support EBITDA within the segment increased more than $13 million, while gains on rental equipment sales declined by approximately $11 million. This shift reflects a higher contribution from recurring service-driven earnings and a leaner cost structure, resulting in more durable and predictable EBITDA. This shift, alongside the aforementioned reductions in SG&A, improved the underlying operating profile of the segment and has positioned the Construction business for stronger operating leverage as markets normalize.

Now turning now to cash flow and the balance sheet and as presented on Slides 23 and 24. In 2025, despite lower EBITDA, Alta generated approximately $105 million of free cash flow before Rent-to-Sell decisioning and $103.1 million after Rent-to-Sell decision. As a result, as shown on Slide 24, we exited the year with approximately $249 million of total liquidity, reduced net debt by approximately $25 million sequentially in the quarter and ended the year at 4.9x net leverage.

Deleveraging remains a clear priority as we move through 2026. And based on our plan, we have a path to be below 4.5x by the end of the year. With 2025 results as context, let me turn our outlook -- to our outlook and the bridge to 2026 adjusted EBITDA. As shown on Slide 28, we begin 2025 adjusted EBITDA -- we begin with 2025 adjusted EBITDA of $164.4 million and bridge to the midpoint of our 2026 guidance of $180 million. Overall, this bridge reflects disciplined execution and a normalization of activity toward long-term historical levels, not a return to peak conditions.

We expect new and used equipment volumes to recover modestly as industry activity reverts closer to long-term averages across both Material Handling and Construction. We expect this recovery to be second half weighted, specifically in the Material Handling segment. Alongside that, equipment margins are expected to improve modestly, driven by a healthier mix, better alignment between inventory and demand and less competitive pricing pressures in the marketplace. Product support is another meaningful contributor as we intend to get back on a growth path in this business line in 2026.

As general activity ramps and fleets replaced in prior years continue to age, we expect ongoing compounding in parts and service revenue, supported by stable utilization, technician productivity and pricing discipline. We also expect modest improvement in rental utilization even if on a smaller rental fleet, consistent with our focus on returns on capital versus fleet growth.

In 2026, we expect Master Distribution to contribute to the 2026 EBITDA lift as well, reflecting improved volumes and margins as trade and tariff-related conditions stabilize and 2025 OEM price renegotiations take hold. Offsetting these positives, we expect lower contribution from rental equipment sales consistent with our continued de-fleeting strategy and longer hold periods to maximize return.

Finally, the bridge includes catch-all adjustments for cost increases, reflecting higher variable costs associated with increased activity levels, normal inflationary pressures and ongoing investments to support the business. Taken together, no single item drives the bridge. Rather, it reflects a cumulative impact of multiple incremental improvements across the business layered on to a more normalized demand environment and a structurally lower cost base.

In closing, while 2025 was another challenging operating year for the business, our customers and our partners, Alta exits the year leaner and better positioned to take advantage of the future as we continue to refocus on our core dealership capabilities and drive earnings quality and returns on capital. Thank you for your time and attention. I'll now turn it back to the operator for Q&A.

[Operator Instructions]. Our first question is from the line of Laura Maher of B. Riley Securities.

My first question is on reshoring. Is any of that translating into rail equipment demand today? Or should we think of that as more of a 2027 and beyond story?

This is Ryan. I'll take that. I think that, that's a longer-range demand driver. We're seeing the benefits of it, especially in the North, where we've got an advanced manufacturing economy, but it's too early to be utilizing our equipment. These are sort of projects that are earmarked, but not really active yet.

I would agree with that. I think what Ryan's commentary was on new manufacturing builds versus just general activity ramping in existing manufacturing facilities, and we would expect some of that to potentially impact 2026 here.

Great. Thanks. And then on the Construction front, do you anticipate any more federal funding coming through?

Like anything at the federal-level, hard to handicap. I believe the latest CHIPS Act, Infrastructure Act has -- we're probably in the fifth or sixth inning of that money being deployed. We made mention and Ryan's quote today, talked about $14.6 billion of let jobs here recently that are going to hit the ground.

So there's plenty left in the federal kind of quiver, if you will, to kind of catalyze the DOT spending -- or sorry, infrastructure spending for the next couple of years. As you know, Laura, we always tend to stick closer to our state DOT budgets, and those just continue to ramp and stay at peak levels. Florida, we're seeing a lot of activity. Michigan had a new roads bill last year. And so yes, we feel good that regardless of what happens here maybe to continue federal spending beyond what's been approved, we've got several years left at least.

Our next question comes from the line of Robert Murphy of Raymond James.

Just a quick question here on the 2026 guidance. I was hoping you can walk through some of the scenarios and factors that would kind of drive results to land in both the high and low end of that range? And then kind of derivatively off of that, how much of the year-over-year improvement from '25 to '26 do you see as kind of being broader macro versus kind of Alta-specific initiatives?

I'll take that one, Robert. I think on the -- you're referring to Slide 28. We -- the first part of your question on what can make it go one way or the other, the industry on the Construction side in terms of volumes has got, I think, a pretty sober growth number, somewhere between flat and 5% if you pay attention to a lot of the prognosticators and larger OEMs that are out there. If that goes higher, I think we can end up on the high side.

Material Handling, which has been in such a doldrum here recently, we made note in one of our slides of I think the -- our market slipped under 30,000 units of ITA, which is a long-time low for our markets. And to the extent that reverts more heavily and more quickly, you could see the high side of the guide. I think rental utilization, getting back to 35% financial utilization more quickly than we anticipate could also do it. So that's just general activity.

And then the big driver, I think, would be the manufacturing base. We have -- we didn't grow in parts and service and Material Handling last year. And I think to the extent the Midwest comes back with activity levels that could meaningfully have us beat. Any of those things go the other way, and you could see the downside to the equation. I think to your question on what can we control, what can't we control, we've taken costs out of the business. That's going to be -- that's just ongoing in terms of initiatives. We're always looking to get lighter from a fixed cost base.

I think on price and quantity in the product support departments at some level, we can control that with our recruiting efforts to meet demand with supply in terms of technicians and then just making sure that we're staying with the market for the service that we provide our customers relative to pricing. So beyond that, we're always sort of beholden in the equipment sales line to the marketplace.

And as you can see in the first 2 bars here or columns on the bridge, there's less that we can control. But we feel good that we're -- with quoting activity, what we've been through the last 2 years that we will see some sort of reversion here. So I would weight it 65-35 to the things that are a little bit more outside of our control. That said, as Ryan mentioned, we've got some sales transformation initiatives going on. We intend to drive share over the long run with some of those initiatives. And to the extent those take hold sooner rather than later, that's something that's also in our control.

Okay. Great. Really appreciate the color there. Just shifting to margins quickly on the Construction side. So new equipment margins look like they were down year-over-year and sequentially. But it sounds like there's some positive indicators there as well on the supply side. I was just wondering if you could provide a bit more color kind of on that environment, kind of where we're at in the cycle there? And if you've seen any incremental improvements even as 2026 is kind of -- we're in whatever, late February now, if there's been indications of improvement kind of as the year has been building here.

Yes. This has been an ongoing theme now for 2 years, the continued kind of compression on equipment margins. I do think we believe that the industry, as we sit here, is still a little bit oversupplied. You really have to get granular by geography and by product category. But we do think there'll be some relief.

And as you know, it comes down to aggression from our own OEMs as well to kind of keep things competitively priced for us. But if you kind of pay attention to the marketplace and what publicly has been said by some of our large competitors, we would expect less discounting dollars to be put into the marketplace in '26 relative to '24 and '25, which means hopefully, a more -- a less competitive environment for our products. We do think that's a little bit back-end weighted relative to the year. But I guess that's how I would answer that one, Robert.

Okay. Great. Really appreciate it. And then just one more before I turn the line here. Just on capital allocation, how do you guys kind of think about debt paydown? I know you have the leverage targets here for both '26 and '28. How do you kind of balance that with prospective M&A buybacks and dividend reinstatement potentially as well? Any color there would be appreciated.

Sure, Robert. I think we cut the dividend, the common dividend in Q2 of last year as we saw kind of the challenges in the business, the leverage moving higher than we want to be. And until the leverage kind of snaps back to a more normal level or we feel better about conditions on the ground, which we do today. But until that kind of turns into the results on the P&L and on the balance sheet, I would expect us to be status quo with using excess cash flow to continue to delever.

Ryan has made mention of the sticking a little bit cleaner and closer to our defined criteria on M&A, so smaller strike zone that way. So a long way of saying we don't expect to hit -- bring the dividend back in the short run. We do have a 10b5-1 Plan in place for share buybacks, which I would say is immaterial relative to just the cash flows of the business. But for now, the priority is taking care of the balance sheet on an organic basis with our cash flows.

Our next question comes from the line of Steven Ramsey of Thompson Research Group.

I wanted to start with, you've had 6 quarters of year-over-year EBITDA declines, though Q4 was virtually flat. So a good trajectory there. Do you feel that EBITDA can show year-over-year growth in all 4 quarters of FY '26? Or is this something that builds as we progress through the year?

Steven, it's a really good question. And I do think we're expecting more of a build throughout the year. How that plays out relative to kind of beating quarter-over-quarter, I would Q1 is always difficult for us. For those on the call that live in the North, they know that even this week, we got hit with a day or so where in the Northeast, for instance, just hard to get technicians on the road. So we've had a little bit of a difficult start here just on product support side of the business.

So -- but there's reasons to be hopeful in Q1, that's a long way of saying I think it will be more back-end weighted, the EBITDA beats. And so long as we can kind of get out of Q1 here, we have a better look at what Construction activity looks like specifically, we'll have a better barometer. But all told, we're expecting more of the beat to come in the back half of the year. And part of that is, as we build backlog in Material Handling, some of the commentary Ryan made about bookings being pretty decent here in the first -- in January, February and those bookings then converting to revenue in the back half.

Okay. That's helpful color and makes sense. I wanted to hear a bit more on the competitive intensity that's easing up in the Construction Equipment side of things, and you did not mention that Material Handling. Maybe it's just different drivers for each segment in the year. But the gross margin cadence for Construction Equipment specifically, is that a competitive intensity-driven factor primarily? Or are there other factors that can support gross margins for Construction Equipment sales?

So just to make sure I have it. Things that go beyond competitive pricing pressures that drive margin.

That's right. How much is -- that's right. Yes.

Yes. Look, I think that for sure is number one. Let's say, this is a mature marketplace where you've got household names competing for market share every day. And so what it comes down to is a value proposition to the customer, whether you can keep them up and running, and that's something that's near and dear to Alta and the 1,200 mechanics or 1,300 mechanics that we have on the ground every day. And so you can -- yes, you can drive more margin by treating the customers right and having them be willing to pay for keeping their equipment up and running. But beyond that, I would say it's a mature marketplace, pricing matters and the competitive dynamics with the OEMs are always at the forefront.

Steven, this is Ryan. The one thing I would add is that the more commoditized the product category, the more it's based on supply and demand and not other factors. So tonight, we featured -- we had a high-profile sale of some high-end Volvo excavators that are purpose-built for tough applications. That would be something you could point to that you can hold higher margin where you have a product that really differentiates itself with the competitive landscape.

Okay. That's helpful color. And then last one for me. Interesting to hear the long term or the multiyear targets on Peaklogix and Ecoverse and reaching $100 million of sales for each unit in 2028. Can you ballpark the current size and margin profiles of those 2 units and what the margin profile would be if they achieve those 28 revenue targets?

Sure, Steve. You can see Ecoverse just in our Master Distribution segment. It's a one-for-one. Ecoverse did $67 million this past year. And I would say can push well past that. But anyway, that one is a one-for-one with our Master Distribution segment. Peak is probably half of that $100 million today, give or take. And we know that it has the capacity to do more. We've made investments -- continue to make investments in talent in that business. And for those that aren't aware, Peaklogix is warehouse systems integration group. And so I think automated warehouses. We own a software called Peak Pro that we're investing in. And so emerging technologies in the warehouse and distribution space. There are several comps out there, multiple comps out there in the universe that are several hundred million dollar businesses or even several billion-dollar businesses. And we've got to take our share of that marketplace. And so the margin profile, you can see, Steve, with Ecoverse and our Master Distribution segment, obviously been impacted here more recently than with tariffs, but I would expect that to scale similar to the profile that it has scaled at previously. And then with Peaklogix, their gross margins are somewhere 30-ish percent, maybe north of that. And EBITDA margins in the mid-teens would be the goal, high teens even. So to give you a perspective.

Our next question comes from the line of Ted Jackson of Northland Securities.

I was concerned that maybe my hand did not get raised. Congrats on the quarter, and I think the outlook that you provided is very constructive. So my first question was you actually touched on, I had wanted to touch base with regards to weather. You had an impact in the fourth quarter. The weather has been pretty -- for some of your core regions has not been that great in the first quarter either. I mean, how should we think about first quarter in terms of performance? Is this is going to be more of a services parts impact? Or does it have a big impact on your equipment sales, too? Maybe just a little -- maybe if you could just kind of talk a little bit through the first quarter and how we should think about it given that -- I mean, it's some of the worst weather we've seen in quite a bit of time.

Yes. Ted, I wouldn't expect it to impact on a year-over-year basis, Q1, I wouldn't expect much of an impact in the equipment sales department. for sure. And then obviously, we have Florida, which we always know is a big contributor to our Construction business. So equipment sales, I would say, less impacted. parts and service probably most acutely as we try to get technicians on the road where you may lose a little bit of time.

And then rental would be kind of somewhere in the middle of the acute impact on parts and service versus equipment. So that being said, rental in the Material Handling business, probably not impacted because it's majority of it's out indoor. And in Construction, we have our seasonal low anyway for the rental business. And so again, I think maybe a little bit of impact there in the rental side in Construction. But anyway, long-winded way of saying parts and service would be where we would see it.

Okay. And then jumping over to tariffs. You have OEMs that have had more than their fair share in terms of share of exposure. Obviously, you have yourself. I know it's really early with regards to the Supreme Court decision. But I mean, is that the kind of thing where you -- have you had any discussions with, say, like a Volvo, just because it's kind of big one about what the thought process is with this latest turn of events and what it might mean for their businesses and what it might mean for their pricing and such as we kind of move forward. And then obviously, the same thing holds true with Ecoverse and your own business there. And I have a couple more behind it.

Ted, I'll take that one. This is Ryan. That's -- it's hard to answer. But what I would say is that it's consistent across our OEMs that we're seeing the decision is a positive that overall, we believe this will have -- create more certainty on the tariff policy. And despite the volatility near term with some temporary tariffs, we -- it's more of defining what is not possible going forward than what is. We kind of knew what the rules of engagement were, and it feels like we're back to the old rules, and that's probably a good thing for just calming the market.

Our OEMs aren't overreacting. It's not -- we're not anticipating a big rebate, so to speak. This has been kind of absorbed by the OEMs and by the dealers. We didn't price -- push a lot of pricing into the market. So don't expect a lot of volatility trying to clean up a mess in that regard either. So we take it as a positive. It's going to be a couple more months of some uncertainty, but we think overall, it's creating more clarity.

I mean I don't know about Volvo per se. But I mean, I know from listening to like talking to like CNH and a few others that they've instituted -- they haven't fully compensated for all the tariffs. But they've taken 3% to call it, 5% price increases in front of it. And so with that kind of in mind, will there be a price adjustment down? Or is this the kind of thing where -- you know what I'm saying?

Prices never go down. Yes. I think that likely it sets a new high watermark, and we sort of manage with discounting and supply and demand dynamics, but unlikely that we would see big price decreases going forward.

Okay. Then just shifting over, I got 2 more questions. Going over to Material Handling, you're seeing a pickup in -- you're seeing a pickup in order activity. I know from listening to Hyster-Yale and what they're trying to do, they have slowed production to build backlog. So when you -- when I listen to you talk about Material Handling in an improving market and a stronger back half, how much of that is being driven by an actual turn and strengthening in terms of actually bookings orders? How much of that is because the -- the fulfillment time line has been extended because of the actions of Hyster.

I'm going to say it's the prior, Ted. It has little to do with fulfillment. Yes, it's bookings because we've got -- especially on the lift truck side, we've got transparency into what's been booked. And there's that obvious lag time to when it is delivered, but we're seeing booking activity up year-over-year, and we see that as a leading indicator of a strengthening market.

And is there any particular verticals where you're seeing that strengthening happen? Anything that's kind of -- I'm saying that it's kind of really distinct to Alta in and of itself? Or is it very generic in terms of the ability to provide...

I'm not going to -- I don't want to speak to the industry volumes because we're sort of -- our end markets are dependent on the geographies we serve. Where we're focused is making sure that we protect and defend our share of the rider forklifts, our traditional bread and butter, where we've seen some pressure over the last couple of years, and that was where we're excited to see kind of a snapback on our share. And again, it's early, and we don't report that on a quarterly basis, but we're bullish in that regard that we see some of our share snapping back where it needs to.

Ryan, you sound superstitious. I don't want to jinx you. My last question, the dialing down of kind of the Rent-to-Sell business and the efforts to improve your capital utilization. Can you just kind of talk about what's the end game for that? I mean, are we there now? Or is there more to go? Maybe kind of talk through where you see the finish line?

Yes, Ted, we're not quite there yet. We made mention of trying to get to, based on our plan, sub-4.5 on our leverage by the end of the year. Now that's predicated on hitting the $180 million of EBITDA as well as offloading some fleet that's part of kind of this rationalization program. And that number is something like $40 million still that we would like to get out of the fleet. So -- and we expect to do that over the next 12 months during the fiscal year, get through the majority of that.

So we still are not hitting the KPIs we need to in the rental business, and we will continue to pare back the size of the fleet, not just in rent and sell categories, but also in the Material Handling business if we don't see appropriate utilization. So I would say we're 70% through kind of what we would have deemed as excess a year or so ago.

Thank you all for your questions. That will conclude today's Q&A session and call. On behalf of the company, thank you for joining and participating. Enjoy the rest of your day.

Good afternoon, and thank you for attending the Alta Equipment Group Third Quarter 2025 Earnings Conference Call. My name is Harry, and I'll be your moderator for today's call. I will now turn the call over to Jason Dammeyer, Vice President of Accounting and Reporting with Alta Equipment Group. Please go ahead.

Thank you, Harry. Good afternoon, everyone, and thank you for joining us today. A press release detailing Alta's third quarter 2025 financial results was issued this afternoon and is posted on our website, along with the presentation designed to assist you in understanding the company's results. On the call with me today are Ryan Greenawalt, our Chairman and CEO; and Tony Colucci, our Chief Financial Officer. For today's call, management will first provide a review of our third quarter 2025 financial results. We will begin with some prepared remarks before we open the call for your questions. Please proceed to Slide 2.

Before we get started, I'd like to remind everyone that this conference call may contain certain forward-looking statements, including statements about future financial results, our business strategy and financial outlook, achievements of the company and other nonhistorical statements as described in our press release. These forward-looking statements are subject to both known and unknown risks, uncertainties and assumptions, including those related to 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 and can be found on our website at investors.altaequipment.com. I will now turn the call over to Ryan.

Thank you, Jason, and good afternoon, everyone. I appreciate you joining us to review Alta Equipment Group's third quarter 2025 results. I'll begin with an overview of our performance, highlight trends across our business segments and share why we're optimistic headed into Q4 and 2026.

Our team once again demonstrated focus and discipline through what remains a turbulent macro environment. Despite persistent headwinds related to tariffs, manufacturing softness and customer caution, Alta employees continue to perform exceptionally well, demonstrating our culture of accountability, customer focus and operational excellence. While equipment sales were challenged this quarter, the underlying tone of demand improved steadily through September and into October, which turned out to be our strongest month of the year for new equipment sales, predominantly within our Construction Equipment segment. Our Construction Equipment sales in October alone topped $75 million, which is nearly 60% of our entire equipment sales in Q3. With that, we believe the pattern witnessed in the third quarter reflected a shift rather than an indication of softness as customers seemingly elected to push purchases from Q3 into Q4 as they awaited more definite signals on interest rate direction and year-end tax benefits under the One Big Beautiful Bill Act.

That timing dynamic, coupled with greater confidence in backlogs and financing sets the stage for what we believe is the beginning of a fleet replenishment cycle. As we sit here today, our backlog in Material Handling remains over the $100 million mark, helping to provide visibility for the next several quarters. Even with muted volumes during the quarter, productivity and cash flow remained resilient. SG&A is down roughly $25 million year-to-date, driven by structural cost savings, improved efficiency and a disciplined execution. Those efficiencies are now embedded in our run rate and provide for operating leverage as the market rebounds.

Turning the focus now to our Construction segment. Our Construction Equipment segment performed admirably given continued tightness in private capital spending. Demand from customers tied to long-term fully funded infrastructure work remains strong. In Florida, permitting activity on large DOT and Corps of Engineers projects has accelerated, translating to greater deliveries early in Q4. In Michigan, the legislature's record $2 billion road and bridge funding package is already driving new bid activity and multiyear visibility. These are durable tailwinds that reinforce our position as a key equipment partner on essential public works projects.

Taken together with rate relief and the tax incentives of the Big Beautiful Bill, we see construction entering a healthier demand phase. Industry data suggests we're bottomed -- we've bottomed in the general purpose construction markets throughout our various APRs, positioning Alta for growth as replenishment gains momentum in 2026. In this regard, we've prepared a new slide this quarter, Slide 7, which shows the industry volume disconnect we've experienced from our regional norms, specifically in the last few years. We believe a reversion to normal industry levels in our APR can quickly return some of the volume losses we've experienced. And given some of the tailwinds we see, the environment is prepared for a rebound.

Turning over to our Material Handling segment. Industry volumes have also exhibited multiyear softness as illustrated on Slide 7. Material Handling revenue was essentially flat year-over-year. The Midwest and Canadian markets remain soft, primarily due to automotive and general manufacturing weakness. In contrast, our food and beverage and distribution customers continue to perform well. We're seeing early signs of recovery in automotive demand, the ongoing -- sorry, automotive demand, the ongoing reindustrialization of U.S. key regions, particularly the Great Lakes Mega region is creating powerful long-duration demand tailwinds across Alta's end markets.

As manufacturers, logistics, operators and infrastructure investors expand capacity in these high-growth corridors, the need for reliable material handling, construction and power solutions continue to rise. Nowhere is this more evident than in the power and utility sector where investment in grid modernization, renewable integration and data center infrastructure is accelerating. Alta is uniquely positioned to capitalize on this trend, combining our deep regional footprint, OEM partnerships and product support capabilities to serve the expanding industrial base and the critical infrastructure that underpins it.

During the quarter, we completed the divestiture of our Dock and Door division, another deliberate step in sharpening our portfolio and focusing resources on our core dealership operations. This transaction reflects our commitment to capital discipline and reinvestment in higher return areas of the business. Alta's business optimization efforts are centered on strengthening the company's flywheel, delivering the right product to the right customer executed by the right people, while deepening the resilience and profitability of our core operations.

Through disciplined execution, we are streamlining workflows, sharpening accountability and improving customer cost to serve across every business line. Product Support remains the engine of Alta's value creation model, driving reoccurring revenue and lifetime customer relationships through best-in-class parts, service and rental solutions. At the same time, we are refining our product portfolio to concentrate capital and talent around the brands, segments and geographies that align most directly with Alta's long-term strategy and OEM partnerships.

Together, these actions form a cohesive approach to business optimization, reinforcing operational excellence, advancing our unified strategy and accelerating the virtuous cycle of customer intimacy and sustainable growth. In closing, as we enter the fourth quarter, we're seeing tangible signs of recovery across our business. Deferred demand from the third quarter is now flowing into the pipeline, supported by a steady acceleration in infrastructure and public works funding across our key markets.

At the same time, recent interest rate reductions and the incentives introduced under the One Big Beautiful Bill are beginning to restore contractor confidence, creating a more constructive environment for capital investment and sustained customer activity heading into year-end. In short, we believe this -- the industry is turning the corner, and Alta is exceptionally well positioned to capture that upswing.

Before turning it over to Tony, I want to thank all 2,800 members of team Alta for their focus, execution and commitment to our purpose of delivering trust that makes a difference. Your resilience and customer dedication continue to define who we are and how we win. With that, I'll hand it over to Tony Colucci to walk through the financials in more detail.

Thanks, Ryan. Good evening, everyone, and thank you for your interest in Alta Equipment Group and our third quarter 2025 financial results. Before getting into the quarter, I want to begin by recognizing our employees, customers and partners for their support in Q3. Our business model is resilient, but it takes commitment, collaboration and trusting partnerships to execute on that resiliency day-to-day. Thank you to all.

My remarks today will focus on 3 key areas. First, I'll present our third quarter financial results, which reflect a challenged equipment sales and rental environment overall, although we believe some of these challenges may be dissipating. As part of that discussion, I'll give a brief financial overview of the quarter for each of our 3 segments. Lastly, I'll touch on the balance sheet and cash flows for the quarter.

Second, I'll be presenting what we believe to be the company's bridge back to $200 million of EBITDA and the factors impacting that bridge. Lastly, I'll discuss our expectations for the remainder of the year on both adjusted EBITDA and free cash flow before rent-to-sell decisioning. Throughout my remarks, I'll be referencing information presented on Slides 10 through 21 in our earnings deck. I encourage everyone to follow along with the presentation and review our 10-Q, both available on our Investor Relations website at altg.com.

First, for the quarter, the company recorded revenue of $422.6 million, a 5.8% organic reduction versus last year. Revenues retreated sequentially in the quarter, mainly on equipment sales. However, Product Support remained steady and was up sequentially versus Q2 as I'll remind investors that our parts and service departments continue to act as an annuitized and stable cash flow stream in what is clearly a volatile equipment sales environment. As it relates to equipment sales, as mentioned, we believe that similar to last year, customers pushed off capital spending in Q3 for more clarity on interest rates and their own business' annual performance relative to the tax incentives available in the Big Beautiful Bill.

Both of those factors, we believe, helped drive our highest equipment sales number of the year in October and provides a tailwind for Q4 equipment sales overall. Lastly, rental revenues are down $5.3 million year-over-year, but up $2.1 million sequentially, with the year-over-year decrease largely related to our strategic decision to reduce the size of our rent-to-sell fleet as we focus on better utilization and ultimately enhance returns on investment in rental fleet.

Now focusing in on the segments for the quarter. First, Material Handling. As mentioned previously and as presented on Slide 11, new and used equipment in our Material Handling segment were down a modest $1.6 million year-over-year. But notably, the line was up on a sequential basis. As despite industry bookings for new forklifts continuing to run below historic norms, we have been able to keep pace with the prior year through selling allied lines and tariff-free used equipment to our customer base. Also important to note, and as Ryan mentioned, that despite demand challenges for the industry, Alta continues to carry a healthy backlog of equipment, over $100 million worth of new allied and used equipment into Q4.

In terms of Product Support revenues, while we continue to run behind last year's pace in parts and service, most predominantly in our Midwest and Canadian geographies, I mentioned on our Q2 call that we believe that we have found a bottom in these departments, and that dynamic played out in Q3 as Product Support revenues in material handling outpaced the second quarter by nearly 4%. As noted on Slide 11, adjusted EBITDA was up year-over-year and sequentially versus Q2, coming in at $17.5 million in Q3 for the segment.

On to our Construction segment and as highlighted on Slide 12. As a precursor to my comments, I would reset for investors that equipment sales in our CE segment can be and have historically been volatile, especially when compared to equipment sales in our Material Handling segment and certainly when compared to our other revenue streams. This volatility has certainly been evident in both 2024 and 2025 as macro factors such as interest rates, tax laws, election fears, tariff and trade policy uncertainty and customer backlog and local funding can all impact the CE customers -- CE segment customers' decisioning on when to purchase a piece of equipment.

With that as a backdrop, we saw equipment sales in our CE segment drop $18.7 million versus last year Q3. That said, based on what we saw in October, we believe Q3 will be an anomaly as customers pushed ahead decisioning in Q4 given the expectations for interest rate reductions and year-end tax plan. Lastly, on equipment sales from a new and used equipment gross margin perspective, while we continue to run below historic level gross margins on new and used equipment, gross margins on new and used equipment were up slightly on a sequential basis, a hopeful sign that supply and demand dynamics in the marketplace are normalizing and that we may have found a bottom on this metric.

On to Product Support, which grew roughly 3% year-over-year in the Construction segment and where we continue to outperform internal profitability metrics. Further to that point, as presented on Slide 14, while the segment stand-alone EBITDA is down $2.4 million year-to-date, the mix of the $75 million of EBITDA in 2025 is of a higher quality versus '24. Specifically, while 2024's EBITDA was more heavily weighted to opportunistic rental equipment sales and related gains, 2025's EBITDA is more -- been more heavily weighted to perpetual profitability gains in the form of increased gross margins and product support as well as a reduced SG&A load.

This realignment from less consistent equipment sales to more reliable recurring product support profitability creates a more resilient and capital-efficient business going forward. Lastly, from a segment perspective, Master Distribution, which houses our Ecoverse business. The story for the quarter continues to be tariff related as nearly all of the segment's key metrics have been negatively impacted year-over-year. That said, a stabilizing trade environment between the U.S. and the EU and mitigating measures in the form of pricing actions and OEM risk sharing to best maneuver through this situation have been largely implemented, and we expect will take further hold and bear fruit in Q4.

Overall, we are cautiously optimistic that the worst of the trade-related impacts on the segment in 2025 are now behind us. In summary, for the quarter, the company generated $41.7 million of adjusted EBITDA, a slight reduction versus last year on a pro forma basis and mainly driven by reduced episodic equipment sales in our CE segment. Lastly and notably, as we focus on driving ROIC, the company was able to realize nearly the same level of EBITDA year-over-year on a leaner balance sheet as the gross book value of our rental fleet is down nearly $30 million year-over-year.

In terms of cash flows, and I'm referencing Slide 16, for the quarter, free cash flow before rent to sell decisioning was approximately $25 million for the quarter and stands at roughly $80 million year-to-date.

To quickly check in on the balance sheet as of September 30 and as depicted on Slide 17, we ended the quarter with approximately $265 million of cash and availability on our revolving line of credit facility, plenty of capacity in term to navigate the business in this climate.

Before closing my comments on the quarter, I'd like to quickly address the impact of Big Beautiful Bill had on the company's income statement in Q3. First, holistically, the company views the enactment of the Big Beautiful Bill as a net positive for both the company and for our customers. From the company's perspective, the effective removal of the interest rate -- the interest expense limitation in the Big Beautiful Bill will save the company cash taxes in the future and over time, will enhance our liquidity position.

That said, given the reduction in the interest limitation, we had to take a notable onetime noncash income tax expense to establish a valuation allowance against our net operating loss assets. For clarity, this onetime expense has no impact on the company's operations, its cash liquidity position or its financing capacity. We welcome the benefits of the Big Beautiful Bill for both us and our customers going forward.

Moving on to the second portion of my prepared remarks. The company's view on the potential bridge back to $200 million of EBITDA and the factors impacting that bridge. As presented on Slide 7 and as discussed earlier by Ryan, equipment values in our regions in each of our major segments have been depressed in recent years when compared to industry norms and in the case of our CE segment in the face of increased state and federal DOT spending in recent years. To illustrate the financial impact of Slide 7 and the reversion to the norm on equipment volumes and a few other elements, we present the EBITDA bridge on Slide 20.

First, the starting point of the EBITDA bridge is our current midpoint of the FY 2025 adjusted EBITDA guidance. Next, the first step in the bridge is the incremental EBITDA created given Alta's current market share if equipment volumes simply revert back to historic norms. Note that this element represents $17 million in EBITDA in the bridge. Next, the second step of the bridge is related to a reversion of the norm on gross profit margins on equipment sales. As we've discussed on many calls recently, there has been an oversupply of equipment in the market -- in the equipment markets for nearly 2 year now -- 2 years now, which has led to an unprecedented competitive pricing environment that ultimately depressed equipment sales margins.

The $10 million of EBITDA in this step represents a reversion to the norm on gross margins associated with the normalized level of equipment sales. Next, the third level of the bridge is related to Ecoverse, a business unit that in 2025 has experienced an outside level of impact from tariffs given its business model. The abrupt and blunt impact of the tariffs on this business can't be overstated.

As a master distributor of environmental processing equipment that is sourced from Europe, Ecoverse relies on a constant flow of equipment and parts from that region and historically has not held a lot of stock inventory. Thus, the quick implementation of the tariffs was difficult to navigate and the time line on mitigation efforts had a longer tenor than keeping up with the marketplace. Thus, sales were impacted and margins quickly eroded. That said, since the outset of the tariffs, our team at Ecoverse has been effectively and actively working on mitigation efforts, which included supply chain resourcing, target pricing increases and supplier cost sharing.

We believe these mitigation efforts are largely in place and the road back to Ecoverse contributing to the enterprise from an EBITDA perspective is ahead of us. Thus, the $7 million EBITDA step here.

Next, we believe strongly that PeakLogix, our systems integration and warehouse automation business will revert to historic norms as interest rates come off their highs and CapEx projects get greenlighted for automation projects at customers within our material handling footprint. Thus, the $3 million reversion to the norm for PeakLogix in this column. Lastly, the $7 million negative EBITDA in the last step of the bridge is simply the incremental costs associated with the steps -- with steps 1 and 2 in the bridge.

Overall, we believe the $30 million bridge on Slide 20 presents a simplistic -- presents simplistic hard evidence that a reversion to the norm in terms of industry equipment sales volumes and margins and a normal operating environment for both the Ecoverse and Peak provide for a logical path back to the company's target of $200 million of EBITDA. Moving on to the final portion of my prepared remarks, adjusted EBITDA and free cash flow before rent-to-sell decisioning for 2025. First, in terms of our adjusted EBITDA guidance for the year, we now expect to report between $168 million to $172 million of adjusted EBITDA for the fiscal year 2020 (sic) [ 2025 ] . Notably, the updated range implies a better sequential Q4 versus Q3.

Lastly, despite the reduction in the guidance on adjusted EBITDA, we are effectively holding our guidance on free cash flow before rent-to-sell decisioning, which is again presented on Slide 21. As a reminder, free cash flow before rent to sell is a metric that we believe appropriately measures the true free cash flow generation capacity of the business in a steady state and removes the impact of the decisions we make with our rent-to-sell fleet.

Overall, we expect free cash flow before rent-to-sell decisioning to be between $105 million and $110 million for the fiscal year 2025. In closing, I would say that we remain bullish about our partnerships, our employees and the long-term prospects at Alta and are confident in our enduring business model. Ryan and I would like to wish all of our 2,800 teammates and all of you listening tonight a healthy and happy holiday season. Thank you for your time and attention, and I will turn it back over to the operator for Q&A.

[Operator Instructions] The first question today will be from the line of Liam Burke with B. Riley Securities.

Can we talk about Construction Equipment? It sounds like based on equipment sales for October that, that business, some of the roadblocks that have been slowing the business like funding of projects, availability of labor seems to have moved to the side and you'd anticipate at least an early upswing in that business, both from a sales and a margin perspective. Is that the right way to look at it?

I think, Liam, you said it well. From a sales perspective, I think we're -- as I mentioned, on the margin thing, we're cautiously optimistic. But from a sales perspective, certainly, we think exactly along the lines of how you described that October could be a harbinger of things to come.

Okay. But what would be the gating factor? I'm looking at your gross margins year-over-year were flat. I think Tony called out that they were up sequentially. What's to stop that movement to sort of move it back to their historic levels?

Liam, I think this is the first time we've been up sequentially. And so the messaging here is, hopefully, we've -- in several quarters, if not years. So hopefully, maybe we found a bottom. We continue to see some flattening in used equipment prices. But overall, we still think that the marketplace in construction equipment is still generally oversupplied. And until that oversupply or that overhang kind of fully mitigates itself, I think we'll continue to see gross margins at these levels. Now it has been dissipating in terms of the overhang. We have seen pricing kind of firm. And so it would follow that, we could see an upswing there in the coming year or so.

Okay. And then just quickly on Materials Handling. You highlighted some of the stronger pockets of the business, particularly food and beverage. And are you seeing any kind of movement on the manufacturing front? I know inshoring is going to be a long-term cycle, but are you seeing any lift on the traditional manufacturing side?

Go ahead, Ryan.

I'll take that one. This is Ryan. I think the lift we're seeing is more related to the replenishment cycle getting extended out than it is, the market demand being driven by -- the demand side of the equation is still -- has some pressure. And it's -- we think it's a near-term issue related to the tariff impact, in particular, on autos and the implications for the portfolio, the shift to EVs that was happening largely in the Michigan APR and in the northern part of our territory.

There's some rationalization happening right now that's taking product out of the market in pockets. But what we're seeing is the fleet replenishments are back on track. Things that were delayed are back on track. We saw one of our biggest POs in that sector ever come through last quarter. So it's helping build the backlog and keep it what we're calling stable. But the longer-term trend, we think, is very bullish for our regions that -- we have a workforce that knows how to build things, and we have now policy that's going to encourage more to happen in our geographic footprint.

[Operator Instructions] And the next question today will be from the line of Steven Ramsey with Thompson Research Group.

I wanted to continue that line of thought on Material Handling, the backlog being over $100 million. Maybe I heard you say you described it as stable. Maybe can you put that in context of the first half of the year, the backlog size where it was a year ago. But part of my thought process is sales have been increasing sequentially off of the Q1 levels. You talked about a great order in the prior quarter. Is this reducing the backlog? Or are there more orders filling it back up?

Yes. Steven, I'll take a shot at that. This is Tony. Just to clarify Ryan's comment there, the PO that he referenced is not going to be impactful for '25 here. It's more of a long-term kind of opportunity. Anyway, I believe we started in Material Handling, we started the year with $125 million of backlog. We're in the low $100s million here, as we mentioned. And so we have had some burn off of the backlog. As we mentioned last quarter, when we think of backlog, we're not just thinking of our Hyster-Yale new lift trucks, part-of-the-line lift trucks. We've got allied lines that we do very well with.

And then used equipment, which given tariffs, there's an opportunity to really move used equipment from a pricing and competitive perspective. And so I think the burn off is, for us, less about maybe demand, which has been tepid and more about lead times from the factory coming down in terms of Hyster-Yale just being able to deliver more quickly given their production levels. So I would just say that the backlog is not down necessarily at Alta because of a massive decrease, although it's down, but more so just the lead times impacting it.

Okay. That's good. That's helpful context. And one more on material handling, parts and service gross margin very strong despite the flattish revenue. Can you talk about what drove that and how you think about the gross margin for the aftermarket and material handling going forward?

Yes. I think, Steven, in some of our regions, we have midyear increases from a pricing perspective. Certainly, some of the things we've talked about in terms of focusing on the right products and reducing non-billable labor can impact that as well. So those are some of the things that would impact service margins here in the third quarter. The way that we think about it over the long term in terms of modeling is taking a longer-term kind of view on margins. And if you look at it over the long term, the margins remain pretty stable.

Okay. Helpful. And then in Construction Equipment, I wanted to hear some of the nuance where parts sales were barely up while services grew mid-single digit. Can you talk about the delta between those lines and if that had -- or how that impacted the strong margin of that revenue line in the segment?

You know, Steve, that is probably just -- sometimes they don't move necessarily in conjunction with one another, depending on over-the-counter sales at the branches and how they move versus field service as an example. I don't know that I would draw any correlation or story that service was up relative to parts.

Okay. That's helpful. And then last one for me. On the divestiture of Docks and Doors unit, I guess, kind of why now at this point, given still keeping PeakLogix, maybe there wasn't synergy between the businesses necessarily. But why now? And then secondly, I may have missed it in the prepared comments, if that was an impact to the 2025 EBITDA guide?

Sure, Steve. I'll take the -- I'll go in reverse. Very minimal impact on the EBITDA guide. That business probably less than $1 million of EBITDA on an annual basis. I think on the Dock and Door strategically, and Ryan can weigh in, too. But overall -- recall, we did one acquisition several years ago of a Dock and Door business in Boston. The rest of that business or the majority of that business was inherited through an acquisition of the Hyster-Yale dealer in New York City.

And so as we have kind of done a strategic review on all of the different business lines that we're in and trying to drive synergies between those, what our core business is with the Hyster-Yale products and what is the Dock and Door business, the more we looked at it, the more we thought that this would be better off in somebody else's hands, that was just focused on it. The other thing I would add is don't draw any parallels between what PeakLogix does and what Dock and Door does, very different kind of offerings, if you will, and go-to-market strategies, customers, et cetera. So anything else to add there?

I think that's well said. It's around -- the moat around the business, we prefer the exclusive rights, and there's more aftermarket yield on selling vehicles than selling [indiscernible]

With no further questions on the line at this time, this will conclude the Alta Equipment Group Third Quarter Earnings Conference Call. Thank you to everyone who is able to join us today. You may now disconnect your lines.

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

Thank you, Lydia. Good afternoon, everyone, and thank you for joining us today. A press release detailing Alta's second quarter 2025 financial results was issued this afternoon and is posted on our website, along with a presentation designed to assist you in understanding the company's results.

On the call with me today are Ryan Greenawalt, our Chairman and CEO; and Tony Colucci, our Chief Financial Officer. For today's call, management will first provide a review of our second quarter 2025 financial results. We will begin with some prepared remarks before we open the call for your questions.

Please proceed to Slide 2. Before we get started, I'd like to remind everyone that this conference call may contain certain forward-looking statements, including statements about future financial results, our business strategy and financial outlook, achievements of the company and other nonhistorical statements as described in our press release. These forward-looking statements are subject to both known and unknown risks, uncertainties and assumptions, including those related to Alta's growth, market opportunities and general economic and business condition. 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 and can be found on our website at investors.altaequipment.com.

I will now turn the call over to Ryan.

Thank you, Jason. Good afternoon, everyone, and thank you for joining us to review Alta Equipment Group's result -- results for the second quarter of 2025. I'll begin with a high-level overview of our performance, discuss key trends across our business segments and share our outlook for the remainder of the year. Then I'll turn it over to Tony to walk through our financials in more detail.

Amid persistent uncertainty around trade policy, interest rates and broader macro sentiment, Alta delivered a strong second quarter, underscoring the resilience of our diversified model and the advantage created by disciplined operational execution even as pockets of the market remain volatile.

Our Construction Equipment segment once again demonstrated its strength, driven by robust demand for heavy earthmoving machines, particularly in federal and state DOT infrastructure projects. New and used equipment sales increased by $21.5 million, supported by strong demand in many key markets and improving customer sentiment. Our Midwest and Canadian operations, particularly in aggregate and mining markets through Alta and Midwest Mine continue to outperform last year, reflecting strong momentum in those sectors.

In Florida, the overall market remains resilient, particularly in infrastructure, though we've seen temporary pauses in select private nonresidential projects due to a combination of contractor labor constraints and permit timing delays. While Construction rental revenue was down from prior year, this was primarily due to our strategic initiative to rightsize our rental fleet and the divestiture of aerial fleet assets in Chicagoland during the quarter, resulting in a segment fleet size nearly $60 million below the prior year period. We entered the second half of the year with a strong sales backlog, sufficient Product support staffing and accelerated customer interest in both large infrastructure and contact equipment projects.

Our Material Handling segment faced some headwinds this quarter, particularly in Michigan and Illinois, where spending among automotive and general manufacturing customers remained cautious. That said, Alta's performance was notably resilient. Materials Handling revenues were modestly up quarter-over-quarter, driven by a favorable shift in sales mix, specifically increased volumes in used equipment and allied products. Our allied product lines in the Material Handling segment refer to specialty equipment offerings that serve niche applications, typically commanding higher margins than core new lift truck sales due to their specificity, technical requirements and limited competitive alternatives.

While Hyster-Yale reported sober, softer bookings industry-wide, we're seeing a different trend within our business. Bookings momentum across new, used and allied categories has remained strong year-to-date with encouraging activity in multiple regions and sectors and allied product lines comprising nearly 50% of our new equipment sales year-to-date.

While Product support and fleet utilization were modestly down, most regions maintained steady backlogs and our internal July bookings showed positive signs, particularly in margin-accretive categories.

Turning to our Master Distribution segment. We are pleased with the continued improvement of the business with total revenues increasing 25% to $20.9 million. Our sales team has been focused on driving stronger dealer engagement and expanding channel activity, including strategic and brand expansion across our dealer network. That said, the segment continues to face volatility tied to global trade policies and exchange rates between the U.S. and EU. We're actively managing those risks and remain focused on margin preservation and inventory velocity.

Looking more holistically across all segments, our expense and inventory optimization initiatives continue to deliver results with SG&A down over $20 million year-to-date. We also continue to execute on our capital allocation strategy. During the quarter, we repurchased nearly 1.2 million shares at an average price of $5.64 per share under our $30 million buyback program, which has $17.7 million in remaining availability.

Looking ahead, our outlook for the balance of the year remains encouraging, especially if we see a definitive conclusion on trade policies and a downward trending interest rates. Our customers are optimistic about the benefits of the tax incentives contained within the One Big Beautiful Bill, which could positively impact demand for new equipment across our business lines later this year. The resiliency of our business model and the diversity of our end markets continue to provide stability through down cycles and a distinct competitive advantage in the market.

I want to express my sincere thanks for the entire Alta team for their hard work and dedication to the continued success of our business. With that, I'll now turn the call over to Tony, who will walk through our financials in more detail.

Thank you, Ryan. Good evening, everyone, and thank you for your interest in Alta Equipment Group and our second quarter 2025 financial results.

Before getting into the quarter, I want to begin by recognizing our employees, customers and partners for their continued efforts and support in Q2. Our performance is a reflection of our employees and our partners who have exhibited strength and resiliency amidst the dynamic macro environment.

My remarks today will focus on 3 key areas. First, I'll present our second quarter financial results, which reflect the seasonal uplift we have come to expect, especially in our Construction segment in our Northern regions. As part of that discussion, I will give a brief financial overview of the quarter for each of our 3 segments with a deeper dive into our Construction segment's performance in the quarter and how its earnings quality has improved year-over-year. Lastly, I'll touch on the balance sheet and cash flows for the quarter.

Second, I'll discuss our expectations for the remainder of the year and introduce a new annual guidance measure, free cash flow before rent-to-sell decisioning, which will provide investors with a better understanding of the company's view on cash flow expectations for the year. I'll also briefly discuss the slight adjustment we are making to the top end of our adjusted EBITDA guidance range for fiscal year 2025.

Lastly, I'll comment on the progress we've made on our rebalanced capital allocation strategy, which was updated at the end of Q1. Throughout my remarks, I'll be referencing information presented on Slides 9 through 19 in our earnings deck. I encourage everyone to follow along with the presentation and review our 10-Q, both available on our Investor Relations website at altg.com.

First, for the quarter, the company recorded revenue of $481.2 million, a slight reduction of 1.4% versus last year, but up a meaningful $58.2 million sequentially over Q1. Revenues in the quarter were underpinned by solid performance in our Construction and Master Distribution segments, which together sold $24.7 million more new and used equipment year-over-year, a 15.4% increase. The new and used equipment sales growth in our Construction and Master Distribution segments was offset partially by $8.3 million reduction in new and used equipment sales in our Material Handling segment. Next, in our parts and service or Product support departments, revenue was down 2.6% when compared to last year, but up slightly on a sequential basis. Important to note that some of this Product support revenue decline is strategic as we continue to optimize our Product support business, specifically in our Construction segment to drive our labor gross margins higher and reduce SG&A spend. Lastly, rental revenues are down $7.4 million year-over-year, largely related to our strategic decision to reduce the size of our rent-to-sell as we focus on better utilization and ultimately enhance returns on our investment in rental fleet.

Now focusing on the segments for the quarter. First, in our Construction segment, as highlighted on Slide 11. As mentioned, new and used equipment sales outperformed Q2 of '24 by nearly $22 million, a 15% increase year-over-year. We saw strong demand in our Northern regions and continue to benefit from our customers' relationships in the resilient infrastructure and aggregate and mining end markets. However, from a new and used equipment gross profit perspective, we continue to run below historic levels and our expectations as industry oversupply continues to be a thing.

On to Product support, where while we saw modest gains in revenue year-over-year, we continue to outperform on our profitability metrics, specifically in our service department as we saw gross margins gain 290 basis points year-over-year, a salute to our operations team's commitment and focus on efficiency gains in 2025. Further to that point, I wanted to highlight our Construction segment's performance and how our team has been able to improve the business year-over-year.

To provide a visual, I would point investors to Slide 13 in our investor presentation. As you will note, while the segment's stand-alone EBITDA is relatively flat versus last year at $50 million, the makeup of the $50 million is different. Specifically, while 2024's EBITDA was more heavily weighted to opportunistic rental equipment sales and related gains, 2025's EBITDA has been more heavily weighted to perpetual profitability gains in the form of increased gross margins as well as reduced SG&A load. This realignment from less consistent equipment sales to more reliable recurring Product support profitability creates a more resilient business and provides for increased operating leverage for when equipment sales and gross margins return to previous levels.

We are proud of the progress we made to date in our Construction segment and look forward to continuing the effort going forward. On to Material Handling, as previously mentioned and included on Slide 11, new and used equipment sales in our Material Handling segment were down $8.3 million year-over-year. But notably, the line was up on a sequential basis.

A couple of items of note here. One, we believe that the Material Handling customer base as opposed to the Construction customer base has been more affected by the trade policy uncertainties, especially some of our larger customers with greater import/export exposure as they decision long-term capital commitments. Two, we still have yet to see any major cancellations in our lift truck sales pipeline; and three, as Ryan mentioned, our year-to-date lift truck bookings when combining new Hyster-Yale, used equipment and allied equipment are modestly up year-over-year, and we also saw strong bookings in the month of July, which provides a level of confidence heading into the second half.

In terms of Product support revenues in Material Handling, while we continue to run behind last year's pace in parts and service, most predominantly in our Midwest and Canadian geographies, we believe we have found a bottom in these departments and that our Product support activity will stabilize throughout the remainder of the year.

Lastly, from a segment perspective, Master Distribution, which houses our Ecoverse business. The story for the quarter here is simple, and its tariff related. While Ecoverse has seen stronger demand from stocking dealers and its waste management end markets year-over-year, the impact of tariffs on gross margins in the quarter was acute. Ultimately, a more stable trade environment between the United States and the European Union will enhance predictability for our business and our customers. But in the meantime, we've taken mitigating measures in terms of pricing actions and OEM risk sharing to best maneuver through this situation and are cautiously optimistic that the mitigation efforts will take hold through the second half of the year.

In summary, for the quarter, efficiency gains in our service department and expense reductions led the way to $48.5 million of adjusted EBITDA. Lastly, and notably, as we focused on driving ROIC, the company was able to realize nearly the same level of EBITDA year-over-year on a leaner balance sheet as the gross book value of our rental fleet is down nearly $50 million.

In terms of cash flows and in referencing Slide 15, for the quarter, free cash flow before rent-to-sell decisioning was approximately $32 million and stands at $55 million year-to-date. More on our expectation for fiscal year 2025 on this metric momentarily.

To quickly check in on the balance sheet as of 6/30 and as depicted on Slide 16, we ended the quarter with approximately $280 million of cash availability on our revolving line of credit facility, plenty of capacity and term to navigate any business climate that lies ahead.

Moving on to the second portion of my prepared remarks, 2025 adjusted EBITDA guidance and introduction to free cash flow before rent-to-sell decisioning guidance for 2025. First, free cash flow before rent-to-sell decision, which again is presented on Slide 15. In terms of the metric itself, free cash flow before rent-to-sell is a metric that we believe appropriately measure the true cash flow generation capacity of the business in a steady state and removes the impact of the decisions that we make with our rent-to-sell fleet, which like inventory and as observed over our recent history, can ebb and flow materially as we navigate and match OEM supply chains with customer demand and customer preference to either rent or buy. In summary, we expect free cash flow before rent-to-sell decisioning to be between $105 million and $115 million for the fiscal year 2025.

In terms of the reduction of the top end of our adjusted EBITDA guidance for the year, we now expect to report $171.5 million to $181.5 million of adjusted EBITDA for 2025. The trimming of the top end of the guidance is primarily related to: one, the impact of tariffs on our Ecoverse business in Q2 and the risk associated with regaining margins over the back half of '25. And two, the expected continued drag in our product support and rental departments in our Material Handling segment, specifically in the Midwest and in Canada.

In terms of the factors that we believe will continue to have a positive impact on our business in the second half, first, stability in infrastructure-based end markets will continue to act as an insulator against macro volatility in our Construction segment. Second, we expect the continued accretion quarter-over-quarter from our product support gross margin performance, specifically in our service department, driven by a continued focus on technician efficiency.

Additionally, we expect a continuation of the outperformance that we saw throughout the first half on the SG&A line on a comparative basis as we head throughout the remainder of the year. Third, while material conviction in the history and resiliency of the industry's booking cycle and in specific end markets like food and beverage and general human sustenance categories. Additionally, our ability to drive revenue in allied product categories that sit alongside our Hyster-Yale offerings and our strong July bookings give us confidence headed into the second half.

Finally, we expect the recently enacted One Beautiful -- Big Beautiful Bill to serve as a tailwind for equipment demand. The reinstatement of 100% bonus depreciation and expanded Section 179 expensing limits have generated year-end demand for us in the past as customers look to capture these upfront tax benefits when purchasing heavy equipment.

For the last portion -- moving on to the last portion of my prepared remarks, a quick update on the renewed capital allocation strategy that was announced alongside our Q1 earnings. As a reminder, the Board authorized a $10 million upsizing of the company's buyback program to $30 million and the allocation of $10 million into a 10b5-1 plan, all of which was effective after our Q1's earnings call. I'm pleased to report the company is able to deploy the repurchase -- to deploy capital to repurchase over 1.1 million shares or approximately 3.4% of the shares outstanding in the quarter. We remain committed to taking advantage of any disconnections in the marketplace with our buyback program should further opportunities present themselves.

In closing, I want to thank my Alta teammates for all of their efforts during the first half of 2025 and look forward to a strong back half of the year. I wish you all the best and look forward to updating investors on our Q3 performance in November.

Thank you for your time, and I will turn it back over to the operator for Q&A.

[Operator Instructions] Our first question comes from Steven Ramsey with Thompson Research Group.

Maybe to start with one of the topics at the end, Big Beautiful Bill potentially benefiting demand. I guess, first, would you expect that to impact one segment more than another? Secondly, is any of this embedded in the guidance or towards the high end? Or do you think the benefits of this may flow in 2026?

Thanks for the question, Steve. This is Tony. I'll take that one. We -- throughout my history here, which is more than 10 years, whenever we have some stability or regulatory changes that impact a fiscal tax year, which in this case, is 2025, not '26, we usually see the impact right at the tail end of the year, and I'm talking November and December, primarily as companies start to look at their tax situation on a fiscal year basis and decide whether to take advantage of bonus depreciation, Section 179, et cetera. It also happens to be kind of the end of the year in the Northern regions in our construction business when customers are sitting down with their CPA.

So definitely Q4 weighted typically when it does have an impact. In terms of impact one way or the other, I guess I would slightly lean toward Construction in terms of where it might be most impactful. But we've seen it historically impact Q4 in the Material Handling business as well. So not a 2026 issue. I think, if anything, really late here in '25. In terms of the guidance, I think it would -- any accretion would help us get to the top end of our range that we've provided here today.

Okay. That's helpful color. And then on Material Handling, you cited hesitancy among your customer base, but still relatively resilient. But then July bookings were strong. Does that tell you that the hesitancy may be subsiding? Or how do you interpret if there is any change of trend or outlook from your customer base there?

Steven, this is Ryan. I can take that one. The bookings tend to be volatile. These are fleets that are up for replenishment. So what we're seeing, I think, is a regional weak sentiment, in particular, related to the pockets of our geography that have exposure to auto manufacturing. But that said, fleets that are coming due are being replenished. And that's what we're seeing in our business is when a fleet is up for replenishment, they're not kicking the can. They're signing up for a new fleet.

That's great. And I wanted to highlight, as you guys did a good story on G&A discipline looks like it was strong in both segments. Maybe to confirm how you expect that to play out in the second half? And then is there room for more benefits in 2026?

Sure, Steve. I think probably recall that, right, it's SG&A, so selling expenses. And we would love to have more selling expenses, right, in the back half of the year. And specifically, I'm thinking commissions on the sale of equipment, right? So we'd always want to have more of those. We're happy to pay commissions when the team sells more equipment.

But from a fixed cost perspective, I would say we wouldn't expect much more in the back half than what we've seen here throughout the first half in terms of just the nominal level. We think we've gotten to a good level. We've had some just efficiencies that maybe outpaced expectations related to insurance this year so far. And we're self-insured on a lot of things and so that can be a little bit of feast or famine in certain quarters.

But I think the way to answer it is we've kind of found a bottom, we think, on the fixed cost for the year. We'll continue to kind of pound away, but we were really pleased with Q2, and we hope to kind of at least hold that level from a fixed cost perspective. Again, we'd love to pay more sales variable expenses throughout the rest of the year because it just benefits everybody. But hopefully, that helps, Steve.

For sure, it does. Okay last one for me on the Construction Equipment and maybe to tie together the demand side as well as potential boost of purchasing of equipment for the Big Beautiful Bill. Do you get a sense from customers that if Construction activity stays where it is, if it doesn't recover meaningfully in the second half, that your customer base, contractors would still be willing to purchase equipment given the tax benefits of doing so? Or do you think they are factoring in higher interest rates and demand that maybe isn't coming off the bottom or an outlook for backlogs leading activity in early '26 that maybe would keep them from taking advantage of the bill?

Steve, it's hard to say, but I'll give you -- take a shot at it. I think the best -- the #1 thing that gets our customers to commit to -- equipment on the construction side is the belief in their backlog. And that remains strong in terms of just sentiment. Then thereafter, I think all of the other factors start to play in, interest rates, tax, where they're at tax-wise for the year, Big Beautiful Bill, et cetera. So I still believe that backlog and confidence is what will carry the day in terms of customers wanting to buy at year-end. If all things are equal, though, and they feel good about or at least halfway decent about their backlog, I don't know why they wouldn't take advantage of the bonus depreciation and commit to assets. So for us, I think it's more confidence in backlog than just starting with taxes, if that helps.

Our next question comes from Liam Burke with B. Riley Securities.

Ryan, on the -- construction business geographically, you talked about Florida being strong now. How about the other geographies that your distributors are serving?

The way I'd answer that is the geographies that are more manufacturing oriented are -- we're still seeing that same sort of weakness in those markets. So even though we're talking about construction, those markets, sentiment in the industrial markets tends to be softer than, let's say, Florida.

Just a quick sub bullet to that, Liam. We've mentioned our Northern regions had a good first half. Some of that is us taking share despite maybe just softness in the marketplace. And just to clarify Ryan's comments on Florida, same kind of story. Florida market, we've seen a few delays in projects, just fits and starts on permitting or potential labor issues on a project, but we're still bullish. There's tons of money flooding in from the DOT down in Florida. And we -- like I said, we've had some share gains there as well.

Great. And on the M&A front, do you see opportunities backing up now that the market is firming up and the people out there looking for help?

Liam, this is Ryan. I can take that one. On the M&A front, our story is pretty consistent that a weak economic cycle can break some things loose. But for the most part, these are generational assets, and it's more about finding assets that there's a succession planning issue or something like that, that's the catalyst versus the economic cycle. And our theme in terms of the demographic theme and the backdrop for M&A with the OEMs is still very solid. We see lots of opportunities across the segments.

And our next question comes from Steve Hansen with Raymond James.

I just wanted to focus on the margin profile for Mid. You provided some good commentary in your opening remarks. Just can you maybe speak to that competitive environment and whether you feel like it's starting to saturate or whether we're starting to get some sort of floor or some sort of support in the margin profile? And I'll start with the Construction Equipment first on the new side. Are you seeing any evidence that margins are starting to stabilize?

Yes. I think that -- I think generally, Steve, stabilization is a good term, especially in the heavy equipment categories, the heavier categories. One of the things that we noticed in Q2 and really even in Q1 is that compact equipment has been a little bit more challenged in terms of gross margin. I think that ties back to some of the private non-res maybe pressure, so like smaller projects, et cetera.

So -- and then in the face of a lot of supply in the market. So some of the pressure that we saw in Q2 was not necessarily in the bigger heavy stuff, where I feel like we found the bottom, but more on the compact side, which was a little bit of a surprise. We -- our call at the beginning of the year that we thought we would be through some of the supply gut -- sorry, glut in the marketplace, not necessarily our own inventory, we think that's in good shape. But in the marketplace, we continue to kind of see it. So it's kind of a little bit annoying to have the supply where it's at in the marketplace. But I think things have kind of stabilized. I wouldn't expect to pull back from here.

Okay. That's really helpful. And just on the rental side, you guys have rightsized the fleet down fairly materially. Are you starting to see the benefits of that in the sense that utilization is improving? Or how would you characterize utilization and even just rate, generally speaking, across the fleet maybe in your territories?

I would -- yes, we're still not -- we're improved on utilization, just given numerator denominator, we've cut the size of the fleet. We're not where we want to be. We're probably somewhere in the low 60s in terms of physical utilization, and we want to be maybe near the high 60s. So still lagging on that KPI. But considering where we -- what we've done, we would have been much worse off. So yes, a little bit more room to go that way. And then I can't remember the second part of your question there, Steve.

No, I think you touched on it. I was just curious about the -- just -- actually, sorry, the rate side was one other question of whether rates.

We've seen rates pretty much hold in, hold firm. Nothing really to report one way or the other. I mean certain product categories maybe 1 or 2-point gains, while others may be 1 or 2 points down. But that's a long way of saying stable on rates.

Thank you. At this time, we have no further questions. So this concludes our call today. Thank you very much for joining. You may now disconnect your line.