ALTG earnings call transcript, November 9, 2026

Good morning, everyone, and thank you for joining us today. A press release detailing Alta's third quarter 2026 financial results was issued yesterday and is posted on our website along with a presentation designed to assist you in understanding the company. These results on the call with me today are Ryan Greenewalt, 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 2026 financial results. We will begin with some prepared remarks. Before we open the call for your questions, please proceed to slide two. 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 are business strategy and financial outlook achievements of the company and other non historical 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 altered 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 yesterday. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in yesterday's press release and can be found on our website at investors.altaequipment.com. I will now turn the call over to Ryan.

Turning first to construction equipment, market deliveries in our territories are up approximately 5% year-to-date, despite moderating growth in the third quarter. Demand remains supported by infrastructure, municipal spending, energy, and industrial investment. These trends are consistent with Volvo Construction Equipment's recent commentary. Volvo reported strong North American order growth during the third quarter and continues to anticipate market growth in 2027. We're also seeing a healthier, competitive environment than a year ago, with dealer inventories mildly. moderating more rational pricing and stabilized used equipment values. Together, these conditions are supporting improved equipment margins and profitability, and we believe construction equipment is well positioned as we enter next year. Turning to material handling. We're seeing increasingly. we're seeing increasingly. clear signs of a cyclical recovery. Industry bookings in our territories increased approximately 67% in the third quarter, bringing year to date growth to 27%. These trends are consistent with Heister Yell's recent commentary that customers are beginning to replace. Aging fleets after an extended period of deferred capital spending. We're also benefiting from a broader product portfolio that allows us to compete across more applications and price points, particularly in warehousing and distribution. Our peak lodge.

Capabilities provide another avenue to participate in larger, more complex customer projects. While customer delivery schedules and equipment availability have delayed the conversion of some orders into revenue, underlying demand remains encouraging. We're entering 2027 with a stronger backlog and greater visibility into future equipment deliveries, positioning material handling to be an important contributor to our earnings recovery. Beyond the improving demand environment, we're making meaningful progress. Initiatives designed to improve Alta's operating efficiency, capital productivity, and cash generation. One of the clearest examples is our rental business. Over the past several quarters, we've focused on matching fleet investment more closely to customer demand and eliminating underutilized assets. Despite the smaller fleet, rental revenue increased sequentially during the third quarter, while gross margins improved in both construction equipment and material handling. This is exactly the type of improvement we're working toward. We're reducing capital tied up in the business while improving the productivity of the assets we retain. Our continued focus on utilization, fleet mix, and capital discipline creates an opportunity for stronger cash generation and returns as demand improves. We're also making progress improving the underlying profitability of our operating platform. Since becoming public, we've grown from 43 to 85 locations, building a substantial business with strong OEM relationships and extensive

progress. Our priority now is generating greater productivity from that investment. We're focused on technician productivity, service pricing and realization, parts and service absorption, and more consistent execution across our branches. We're also reducing operating expenses and improving how we deploy inventory equipment and personnel throughout the organization. We're seeing tangible early results from these initiatives even before experiencing the full benefit of recovering equipment sales volumes. Looking ahead, we believe 2027 presents an opportunity for these internal improvements to coincide with a more favorable demand environment. Material handling is entering next year with significantly stronger bookings and backlog. Construction equipment continues to benefit. From durable investment trends and our rental business is generating better productivity from a smaller fleet. The opportunity is to grow revenue across a more efficient operating structure with less incremental capital required to support that growth. Combined with our recurring product support business, this should improve the quality and durability of earnings through the cycle. Our longer term strategy remains focused on growing market share, expanding product support, scaling complementary businesses like PeakLogic and EcoVerse, and strengthening our balance sheet. In closing, we've spent the last several years building Alta's platform. We're now focused on generating more earnings and cash flow from the packed capital we've already invested. The opportunity ahead isn't simply to recover.

the earnings we've lost during the downturn. It's to emerge as a stronger business capable of generating better returns and more durable cash flow through the cycle. That's why we're increasingly constructive about Alta's prospects in 2027 and beyond. I want to thank our approximately 26. 600 employees for their continued commitment to our customers and to improving the business. And with that, I'll turn the call over to Tony.

Good morning, everyone. And thank you for your interest in Alta Equipment Group in our third quarter. 2026 financial results. Our third quarter results reflect continued progress against the operating capital priorities we established entering 2026. Before getting into the quarter, I want to thank my Alta teammates as these results reflect results reflect the continued focus. It's an execution of our employees whose commitment to serving our customers and strengthening our business has positioned Alta to capitalize on the opportunities ahead. My remarks today will focus on three areas. First, I will review our third quarter financial performance. Discuss the key drivers behind our results. Second, I'll discuss capital efficiency, cash flow and balance sheet, which remain important priorities as we continue to optimize and drive overall returns on capital. Lastly, I'll provide our perspective on outlook for the balance of the year and how we see the business. position as we enter 2027. As always, I'll be referencing slides throughout our earnings presentation throughout today's call. I'd encourage investors to review our earnings presentation as well as our 10Q, both of which are available on our investor relations. website at altg.com. With that, let me begin with our financial performance. Starting with the quarter, consolidated revenue was $417.4 million and adjusted EBITDA was $44.9 million.

An increase of 7.7% from last year despite revenue declining 1.2%. Adjusted EBITDA margin expanded approximately 90 basis points to 10.8% while operating expenses declined approximately $3 million. The important takeaway here. Is that these results were achieved on a meaningful smaller capital base. Inventory and net rental fleet have declined by approximately $45 million since year end. And year-to-date cash flow after investing activities improved approximately $73 million. Which is last year. We have also delivered the balance sheet by $17 million since year-end. We are demonstrating that ALTA can generate more earnings and cash from less invested capital. That remains the central focus of our optimization. of initiatives. From an operating perspective, consolidated equipment and service margins improved during the quarter. New and used equipment gross margins increased 60 basis points to 15.6%. Service gross margins. Increased 250 basis points to 61.5%. And rental revenue gross margins increased 200 basis points on higher utilization. These improvements reflect better pricing discipline, service productivity, and a more efficient rental fleet. I will keep the segment review focused on two areas that are most important to the current outlook. The commercial inflection and material handling and the combination of growth and improved capital efficiency in construction. Turning to material handling, the third quarter was $151.6 million.

of revenue and adjusted EBITDA was 15.4 million. The principal constraint on the quarter was lower new equipment deliveries rather than a deterioration in demand as commercial indicators have moved meaningfully in a positive direction. As Ryan mentioned, the issue for 2000. 26 has increasingly become throughput in timing. Improved order activity has not yet fully converted into equipment deliveries and revenue based on current delivery schedules and throughput. We now expect some deliveries that we previously anticipated in the second half of this year. to move into the first quarter of 2027. Beyond equipment activity, the segment continued to make progress on profitability and efficiency. Material handling gross margin increased 160 basis points to 35% service gross margin. Improved through on 230 basis points, rental gross margin increased 310 basis points, and operating expenses declined to $1.6 million. These improvements should position the segment to benefit as backlog conversion accelerates. On to construction. This segment provides for a good example of what we are trying to accomplish with our optimization efforts. Third quarter revenue increased 5% and adjusted EBITDA increased 11.2% year over year, reflective of cash operating leverage. In the business, the larger point is that we have been able to grow the business while taking capital out of it. Construction average assets declined $76.5 million or 8.4% while trailing 12 month adjusted EBITDA remained essentially.

Unchanged at approximately $100 million. As a result, trailing 12 month adjusted EBITDA return on asset returns on average assets has improved approximately 100 basis points to 11.9%. How is this happening? By maintaining. Rental revenue on a smaller and more highly utilized fleet, improving service and rental margins and reducing interest expense through lower average inventory and rental fleet balances. As we look toward 2027, the construction demand environment. is positive. Infrastructure activity continues to be supportive in all of our markets as state DOT budgets remain elevated in our largest geographies, which we believe provides a solid commercial backdrop for construction as we enter next year. Turning briefly to cash flow and the balance sheet. where optimization actions are producing tangible results first through the first nine months net net cash provided by operating activities was $58.8 million compared with cash use of approximately $1 million in the. prior period prior year period cash flows after investing activities total $53 million, a significant $73 million improvement year over year. Inventory declined to 400. $48 million from $473 million a year end, while gross book value of the rental fleet was also $58 million below prior year. At September 30, total liquidity was approximately $250 million. Net debt declined approximately $20 million in the quarter, and interest expense was $2.5 million lower than the prior year quarter.

Our near-term capital allocation priority remains debt reduction and balance sheet strength. We will continue to focus on working capital. discipline, fleet utilization, targeted asset dispositions, expense productivity, and discipline investment in the core business. Turning to our 2026 outlook, we have revised our full year adjusted. EBITDA guidance to $165 million to $170 million and our free cash flow before rent to sell decision and guidance to $95 million to $105 million. The primary driver of the adjusted EBITDA revision is the timing. of material handling new equipment deliveries. Based on current throughput and delivery schedules, we expect a portion of the backlog previously contemplated to convert in early 2027 rather than in 26. Importantly, material handling bookings and backlog remain supportive. Therefore, view the change primarily as a timing shift rather than a change in underlying customer demand. Our construction assumptions remain largely intact and we continue to see stable demand across our core markets, particularly those benefiting from interest. Infrastructure related municipal and data center activity. We also expect product support and rental performance to benefit from technician productivity, pricing initiatives, improved utilization and fleet management. Let me finish with a few comments about how we see the business position entered to entering 2027. These comments should not be interpreted as formal 2027 guidance. But overall, we are increasingly encouraged by the setup across both of our major segments. First, the material handling.

We enter the coming year with substantially better commercial momentum than we entered 2026, as we believe the increase in bookings reflects customers beginning to address pent-up replacement needs following an extended period of fleet replacement deferrals. Truck market industry bookings have also improved, reinforcing our view that the material handling market is moving toward more normalized activity. We also believe that organic sales initiatives launched in 2026 in major markets like Toronto and Chicago video share gains in 2027. Second, we remain bullish on construction equipment. Our key markets continue to benefit from elevated infrastructure spending and state DOT budgets while construction equipment deliveries in our territories have improved year to date. Importantly, we are participating in that demand with a significantly leaner rental fleet and an asset base than a year ago. Third, the business entering 2027 is structurally leaner than it was entering 2026. We have taken approximately $45 million out of inventory and net rental fleet since year-end, reduced operating expenses, lowered borrowings and interest expense, and continue to improve service productivity and fleet utilization. So, in total... We believe the combination of improved material of the improved material handling commercial backdrop, a durable construction demand environment, and benefits of the optimization actions already taken across the business positions.

ALTG to enter 2027 from a significantly stronger operating capital position when compared to last year. In closing, the third quarter provided another proof point that our strategy is working. We generated higher adjusted EBITDA and operating income on lower revenue and a smaller capital base while producing materially stronger cash flow. At the same time, material handling bookings and backlog have improved significantly. Construction equipment continues to perform well in support of end markets and optimization action actions. taken are creating a more efficient platform combined. We believe these factors position all to enter 2027 from a position of strength.

Thank you for your time and continue continued interest in all the equipment group. I'll now turn the call back over to the operator.

Your first question comes from the line of Mike Shlisky with DA.

I'm Mike Davidson. Your line is open. Please go ahead.

This question comes from the line of Stephen Hansen with Raymond James. Your line is currently unmuting. Please hold. Your line is open. Please go ahead.

This concludes today's call.