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

Good afternoon, and thank you for attending today's Alta Equipment Group's Second 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 second 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 Anthony Colucci, our Chief Financial Officer. For today's call, management will first provide a review of our second quarter 2026 financial results and 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 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 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 second quarter 2026 results. My comments will focus on our markets, booking and delivery trends, and progress on our strategic initiatives. Tony will then cover the financials, capital structure, and our updated guidance. The central takeaway is that the momentum we discussed in Q1 became more visible in the second quarter. Revenue improved by approximately $65 million from the first quarter, with sequential growth across all 3 segments. Order activity is improving, deliveries are recovering, dealer inventory pressures are receding, and our operating initiatives are gaining traction. We believe improving industry indicators and stronger activity in our own markets represent a positive inflection point for Alta. Macro backdrop is becoming more supportive. Industrial spending remains elevated. Federal infrastructure funding continues to flow into state and local project pipelines, and transportation budgets in our largest construction equipment markets remain strong. The U.S. manufacturing PMI stayed in expansion territory through the quarter and strengthened further in July, a constructive leading signal for lift truck demand. Non-residential demand from energy infrastructure and on-shoring continues to build, and Volvo recently raised its 2026 North American market forecast by 5%. Tariff-related disruption has stabilized, benefiting master distribution and overall pricing. Material handling remains the clearest leading indicator of improving demand. As shown on Slide 7, industry bookings in our areas of responsibility increased 12.3% in the first half versus a year ago, and second quarter bookings held near the strong first quarter pace, up 4.9% from the prior year quarter. This is not a 1-month spike. The improvement has been sustained across the first half, a trend Hyster-Yale also noted on their earnings call this week. Our recovery is broad-based across regions and verticals, including food and beverage, manufacturing, building materials, energy, defense, distribution, and logistics. Those bookings are building backlog, and backlog is what gives us confidence in the second half. Our material handling backlog now stands at approximately $143 million, its highest level since 2023. In this business, bookings convert to backlog and backlog converts to revenue over the following quarters. So today's order book provides meaningful visibility into second half invoicing. And as Slide 8 shows, our current booking pace points to a meaningful recovery in 2026, with volumes moving toward long-term regional averages. New structural drivers support the trend. First, fleet age. Many operators deferred replacement over the last 2 years, and as 4- and 5-year-old fleets become more costly to maintain, quoting activity increases, driving both equipment sales and the recurring parts and service revenues that follow each unit. Second, product breadth. Our OEM partners are introducing modular, value-oriented configurations for lighter duty applications, allowing us to serve cost-conscious customers with fit-for-purpose equipment while preserving our premium offering where uptime and lifecycle support matter most. Our material handling share gains are being driven by 3 factors: stronger participation in the fast-growing warehousing segment, new products that allow us to recapture business previously lost to value-oriented brands, and PeakLogix integration capabilities, which enable us to advise customers on and execute larger and more complex projects. Construction equipment entered the quarter with a delayed seasonal start, but activity accelerated through the quarter, carrying the segment past its first quarter low point. Market deliveries in our areas of responsibility increased 20.1% in the second quarter versus the prior year, and were up 7.5% for the first half. A notable area of strength, particularly in articulated haulers, and quoting activity is benefiting from road and bridge work, municipal projects, energy infrastructure, and manufacturing investment. The competitive environment is healthier than a year ago. Dealer inventories have declined, OEM discounting has moderated, and used equipment values have improved from their 2025 lows, all supporting better equipment margins. Our rental fleet initiatives continue to progress. We are matching fleet investment to local demand, improving utilization and returns, and avoiding underproductive assets. Tony will detail the results. Product support remains one of the most important differentiators in Alta's dealership model, with 85 locations, approximately 1,100 factory-trained technicians, and more than 1,000 field service vehicles creating recurring revenue streams that pure-play rental models do not replicate. Through our customer value mapping initiative, we are aligning capacity with customers who value uptime and lifecycle support while improving rate realization and service productivity. Our strategic vision for 2028 focuses on generating more value from the platform we have built. Since our IPO, we have completed 17 acquisitions and grown from 43 to 85 locations. The next phase centers on organic growth, operating consistency, and disciplined capital allocation: gaining share in attractive markets, scaling PeakLogix and Ecoverse, improving product support productivity, increasing inventory and fleet returns, and using technology to drive efficiency and accountability. As we enter the second half, demand indicators remain constructive, led by material handling bookings and backlog. Construction equipment project activity and healthier channel conditions. We are maintaining a measured outlook, and Tony will discuss our revised guidance. The second quarter does not complete the recovery, but it provides clear evidence that one is underway and that our actions are in place. Our operating model is responding as expected. I want to thank our approximately 2,600 employees for their commitment to our customers. Their expertise is the foundation of Alta's value proposition. With that, I'll turn the call over to Tony.

Thanks, Ryan. Good evening, everyone, and thank you for your interest in Alta Equipment Group and our second quarter 2026 financial results. Before getting into the quarter, I'd like to thank our employees, customers, OEM partners, and shareholders for their continued support. We entered 2026 facing a number of challenges, including the pull-forward of buying activity that benefited late 2025, difficult winter conditions, and softer equipment markets. While Q1 was challenging, our second quarter performance and the trending KPIs suggest all of those headwinds are behind us, as the second quarter reflected a return to more normalized operating conditions and showcased the fundamental earnings power of our dealership model. My remarks today will focus on 3 areas. First, I'll report our second quarter financial performance and discuss the significant improvement we saw versus the first quarter, along with the key drivers behind our results. Second, I'll discuss capital efficiency, which remains an important priority as we continue to optimize inventory levels, rental fleet investment, and improve returns on capital. Lastly, I'll provide perspective on our outlook for the balance of the year and discuss the indicators that continue to give us confidence in our ability to deliver within our previously communicated guidance. As always, I'll be referencing slides from our earnings presentation throughout today's call. I encourage investors to review our earnings presentation as well as our 10-Q, both of which are available on our investor relations website at altg.com. With that, let me begin with our financial performance for the quarter, which corresponds with Slides 12 through 22 of the earnings presentation. For the quarter, Alta generated revenue of $475.5 million and adjusted EBITDA of $48.6 million. Nominal gross profit increased year-over-year, and total gross margins expanded approximately 70 basis points to 26.1%, while EBITDA margins increased to 10.2%. While revenue remained modestly below prior year levels, the more important takeaway is the sequential improvement versus Q1, and the results were encouraging. Revenue increased by approximately $65 million compared to the first quarter, while adjusted EBITDA increased by approximately $20.5 million, from $28.1 million in Q1 to $48.6 million in Q2. EBITDA margins expanded 340 basis points sequentially. While some of that increase reflects normal seasonality as construction and rental activity improve entering the summer months, it also reflects strengthening equipment market conditions, improved equipment margins, and solid execution across our operating businesses. One area I'd specifically highlight is equipment margin performance. Company-wide new and used equipment gross margins increased to 15.3% during the quarter, representing a meaningful improvement both year-over-year and sequentially. We believe this is an important indicator of a more balanced supply and demand dynamics across the competitive landscape. From a segment perspective, first, material handling, which we were particularly pleased with, generated $19 million of adjusted EBITDA in the quarter, an increase of approximately 13% from the prior year despite lower revenue. Strong service execution, sustained booking momentum, and improved operating efficiency all contributed to this segment's performance. Construction equipment generated $30.6 million of adjusted EBITDA, a notable $16.7 million sequential improvement. Equipment margins improved, utilization trends strengthened throughout the quarter, and the business benefited from the expected seasonal recovery following a slow start to the year. Within master distribution, Ecoverse delivered one of its strongest quarters since acquisition. Revenue increased from $20.9 million to $22.8 million year-over-year, while adjusted EBITDA increased from $1.1 million to $2.8 million. Importantly, much of the tariff-related margin pressure that negatively impacted the business over the last year has now subsided. Revised OEM pricing arrangements and a more stable tariff environment both contributed to materially improved profitability. As a result, Ecoverse returned to the economic profile that underpinned our original acquisition thesis. Taken together, these results support what we discussed last quarter, namely that many of the factors impacting first quarter performance were temporary in nature and that the underlying business remains fundamentally healthy. Moving on to the second portion of my prepared remarks, I'd like to spend a few moments discussing capital efficiency. One of the most encouraging developments during the quarter continues to be the progress we've made on improving capital efficiency across the organization. I direct investors to Slide 16 of the earnings presentation, which highlights the tangible results of our inventory optimization and fleet rationalization initiatives. In material handling, average assets declined by approximately $52 million or 11%, while the business maintained relatively consistent earnings performance. As a result, trailing 12-month adjusted EBITDA as a percentage of average assets improved 120 basis points from 14.8% to 16%. In the construction segment, average assets declined by approximately $77 million year-over-year, or 8%, while profitability remained resilient despite operating in a market that's still below historic levels. That resulted in a 60 basis point increase in return on assets from 10.8% to 11.4%. We believe this demonstrates that Alta is becoming a more capital-efficient organization, generating comparable earnings while deploying less capital and ultimately improving returns. Briefly, on the balance sheet for the quarter, as of June 30, total liquidity remains strong at approximately $225 million, and net leverage remains stable at roughly 4.7x. Importantly, our capital structure continues to provide flexibility as we have no meaningful debt maturities until 2029, a largely fixed-rate debt profile, and ample liquidity to support the business going forward. Moving on to the final portion of my prepared remarks, I'd like to discuss our outlook for the remainder of 2026. We continue to believe that the assumptions underlying our previously communicated guidance remain intact. As shown on Slide 19, we are narrowing our adjusted EBITDA guidance range from $167.5 million to $177.5 million, reducing the upper end of the range by $5 million, while reaffirming our free cash flow before rent-to-sell decisioning range of $100 million to $110 million for the year. Importantly, the adjustment to the upper bound is not being driven by a change in our view of underlying demand, as bookings trends remain supportive and backlog levels have materially increased year-over-year. Rather, the revised range reflects increased visibility into the timing of equipment deliveries and the conversion of the backlog into revenue during the second half of the year. Overall, there are several pillars supporting our confidence in the back half of '26 when compared to '25. First, material handling fundamentals continuing to improve. As Ryan mentioned, backlog has increased substantially year-over-year, providing for improved confidence into second half equipment deliveries. Second, construction equipment demand is growing across our core markets. Customer activity remains healthy and infrastructure-related project activity continues to support equipment utilization and demand. Third, equipment margins continue to trend favorably. The margin improvements we've discussed today are consistent with reduced competitive discounting, healthier used equipment market dynamics, and more balanced dealer inventories. Fourth, Ecoverse's tariff-related challenges appear to be behind us. The business returned to a more normal profitability level during the quarter, and we believe those improvements are sustainable moving forward. Lastly, the organization continues to execute on productivity and operational efficiency initiatives across multiple departments. Our product support organizations remain focused on tech utilization, labor efficiency, pricing discipline, and customer profitability. While these initiatives may not always maximize revenue growth, they do improve overall dealership profitability and support stronger long-term returns. Taken together, supportive demand indicators, growing backlog, improving equipment margins, and continued operating discipline support our confidence in the business in the second half of 2026. In closing, the second quarter represented a step forward. The business benefited from both the expected seasonal ramp and improving conditions across our end markets. Perhaps most importantly, we demonstrated that Alta can generate stable or improving profitability metrics on a significantly smaller asset base, which will translate into better returns on capital over the long run. Thank you for your time and continued interest in Alta Equipment Group. I'll now turn the call back over to the operator and we'll be happy to take your questions.

[Operator Instructions] Your first question comes from the line of Michael Shlisky with D.A. Davidson. Your line is now open. Please go ahead.

Yes, hi, good afternoon. I wanted to go back to the comment you made earlier about some of the material handling modular products. I really appreciate that this is a growing area, but is there an offsetting service revenue headwind when you sell more modular compared to some of the original models?

Mike, I'll take that. No, we don't perceive it as a headwind. If anything, it's a positive because there'd be more commonality across the product lineup and that would potentially enhance parts turns.

Okay. And then turning to construction, I do appreciate that Volvo increased their outlook. Other large OEMs may increase their outlook a bit more than perhaps Volvo did. And I'd just be curious, in Florida and your main markets, where it's been strong all along, I think. Do you feel like your share has been hanging in there in the first half and anything that could be changing here in the second half as far as construction market share?

I'll take that one. You know, I think we've got the one slide in the deck that shows what our markets did from a delivery perspective in Q2 relative to '25. And I think those markets were up something like 7%. And so we definitely saw that. Now, they were down a little bit in Q1. But long and the short of it is, you know, the number that Ryan mentioned and what Volvo's focused on, I believe, is North America. The one that we're focused on, obviously, is the one just for our APRs. They seem to be in alignment with one another, maybe ours being up a little bit in Q2. In terms of share, I would just, you know, we don't call out market share specifically publicly, but, you know, I would think of us as just holding share in the current marketplace and over the first half.

Okay. And then maybe just lastly on the rental fleet sizing, again, with some of the upticks we're seeing in large projects, infrastructure, and other areas, are you thinking about potentially upsizing your fleet just a little bit to match that demand? Or do you think what you've got now is pretty appropriate for the envelope of projects that your customers are facing?

Mike, this is Tony again. The way that we think about the rental fleet is, laser-focused on hitting our utilization KPIs. And at the moment we're still not there. And so, to the extent we see demand kind of staying where it is, specifically in the construction fleet, this would all of this commentary would be specific to our construction fleet. We intend to continue to pare it back a bit by year-end. The other thing that I would point out to you is that some of the data centers and projects that you are referencing are more akin to vertical construction, which would mean aerial equipment, which the larger rental houses compete in and we do not. It's a much smaller piece of our portfolio in terms of the rental business. And that's all there on Slide 17. And so we're certainly participating from a land clearing perspective. We know of jobs that our customers are on where they need dump trucks and excavators, but those projects are, you know, a little bit shorter relative to call it the vertical construction of the building. The short answer is no, we don't see, you know, investing in rental fleet in the short run here.

Okay, fair enough. Thanks so much. I'll pass it along.

Your next question comes from the line of Steven Ramsey with Thompson Research Group. Your line is now open. Please go ahead.

Good evening, everyone. I wanted to start with the color you shared around the marketplace being more balanced from a supply-demand standpoint and leading to reduced discounting. Would you say that the market is in a healthy and optimal spot at this point, or it could keep trending in a healthier way, potentially through the back half of the year?

Hey, Steven, this is Tony. Before I answer your question, I just want to point out I misspoke on the question Mike had. Equipment deliveries in our construction markets were up 20% as you mentioned, as suggested on Slide 7. I said 7%, which is the year-to-date number. Anyway, yes, every point to more normal supply-demand dynamics, which, you know, what we have believed all along would help support more normal margins in terms of, you know, discounting that we have to do to kind of hold share specifically in the construction segment. I think there's still a little bit more room to run. We have, as we've suggested, really tried to optimize inventories. And by doing so, we've actually had to take some skinnier deals to offload the balance sheet a little bit. So we think we still got some tailwinds in our own numbers, you know, through the back half here from an equipment margin perspective, but I think from a macro environment, we've found that balance. What I'd say pricing-wise, I think pricing still has a little bit of room to run as well. Some of the larger players in the construction space that you're well aware of, you know, I think are showing price realization year-over-year of 5% in the second quarter in terms of, you know, what the OEMs are charging their dealers. Their costs have gone up, tariffs have been impacted, you know, it's been a while, but we're finally seeing, you know, less discounting coming out of some of the bigger houses. So I would expect that to continue and prices to continue to improve just overall, but much more balanced than we've been, you know, over the last 2 years.

Okay, that's great to hear. And then one thing I wanted to clarify in the guidance that the part of the caution around deliveries. Can you talk a bit more about where that caution or conservatism is coming from, if it's a certain product set or certain customer group?

No, so it would simply be on the, you know, some of this is the, as Ryan mentioned, the material handling backlog is getting to like record levels from a nominal dollar basis. We're still not there from a, from a, just a unit perspective. So it's really just timing with Hyster-Yale, you know, with their production capabilities and the ability to deliver and whether or not some of the demand sneaks into 2027, Stephen, versus 2026. It's not a specific customer base. It's not really a product line per se, but it would be more on the material handling side, particularly Hyster-Yale. And it's not that we are saying that there is risk that we know of, we're just being mindful that, you know, the level of volume coming through could leak into 2027.

Okay, that's helpful. Thank you.

Your next question comes from the line of Liam Burke with B. Riley Securities. Your line is now open. Please go ahead.

Good evening, Ryan. Good evening, Tony.

Hey, Liam.

Tony, you were talking in your prepared comments about reducing the higher end of the guidance, basically because you have better visibility. I'm looking at the 2 major businesses. Materials handling with the order flow gives you a pretty good sense as to what the second half is. You talked about orders slipping into 2027. On the construction side, what are you seeing that gives you more visibility on the second half activity?

Yes, I think it's just general momentum, Liam. As investors and some of the analysts are aware, the material handling purchase and that cycle is about 6 months from when we get a booking, place an order with Hyster-Yale all the way through our ability to invoice, just as a rule of thumb, and it could be less or it could be more. So we have great confidence that we're going to perform. We will outperform the back half of '25 here in '26 because of that. And again, the timing issue is really what – we're very bullish on demand. It's a timing issue that impacted the top end of the guide. On the construction side, as you mentioned, it's more momentum. Q2 '26 were 20% above Q2 '25 in our marketplace. And we still see a lot of quoting activity. DOT budgets are now in and are effectively holding pretty flat against what were peak levels seen in 2025. So there's lots of work to be done here in the back half. Our rental fleet and the construction side is out with no sign of, you know, things are still going out on jobs versus coming back. And so all of those things give us confidence in the back half of the year on the construction side, as well as some cost takeout things that we were able to kind of execute toward the end of Q2 that we expect to see in the second half as well.

Well, it's just a follow-on the construction cost reduction. You had a step-up in gross margins. On new and used equipment sales, do you expect that momentum to continue in the second half as volumes improve?

In a word, we don't expect it to retreat and we would probably expect a little bit more juice on gross margins in the second half.