Aebi Schmidt Holding (NASDAQ:AEBI) Q2 2026 Earnings Call

0:00 Good day, and thank you for standing by. Welcome to the Aebi Schmidt Group Second Quarter twenty twenty six Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer

0:17 session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Simone Grancini, Investor Relations Director. Please go ahead. Thank you, Sharon. Good morning, and welcome to the Aebi Schmidt Second Quarter twenty twenty six Earnings Call. Joining me on the call today are Biren Prudhof, Chairman and Group CEO, who will provide the highlights of the second quarter and outlook and concluding remarks Stefan Schiwerda, CEO of North America and Henning Schroeder, CEO of Europe and Rest of World, who will detail the performance in the respective segments and Marco Bortman, Group CFO, who will provide a financial overview.

1:11 Today's comments include forward looking statements subject to the Safe Harbor language contained in this morning's press release and in Aebi Schmidt's filings with the SEC. And as a reminder, all twenty twenty five comparative figures referenced in today's material, like all figures prior to the 07/01/2025 acquisition, are presented on a combined basis for Aebi Schmidt and the acquired Shift Group.

1:38 Accordingly, all year over year comparisons are based on combined 2025 financial information of both companies rather than standalone historical results. And with that, I hand the call over to Baren. Good morning, everyone. Our second quarter twenty twenty six results are another substantial step forward with significantly improved profitability. As shown on slide five, order intake increased by 16%, order backlog grew 20%, and net sales rose by 9% compared with the second quarter of twenty twenty five. Most importantly, we delivered a substantial improvement in profitability.

2:25 Adjusted EBITDA grew by 22% and net income increased by $18,000,000 year over year. In other words, profitability increased over proportionally compared to sales, reflecting production ramps ups and other operational efficiency. The accelerated realization of acquisition synergies and strict cost control. On slide six, I would like to briefly summarize some of our key achievements. First of all, we have now passed the first anniversary of the Shift acquisition, and we are very proud of what we have accomplished over those last twelve months. In connection with the anniversary, we released our updated group strategy 2030, setting out a clear roadmap towards our ambition of becoming the global leader in specialty vehicles.

3:26 On the top line, we continued to build momentum across all major business lines in the second quarter, including securing important orders. In North America, we secured a landmark $96,000,000 walk in land frame contract, achieved a record quarter at Royal with our service bodies and continued to benefit from strong momentum in airport and municipal. In Europe, we secured a major German motorway contract, expanded our cross selling success with leading airport customers, and successfully launched the new Aebi TeraTrop in our agricultural business.

4:14 Turning to slide seven. One year after the acquisition of the Schiff Group, I'm very happy with our progress. Comparing the twelve months before and after the acquisition, order intake has increased by 26%, adjusted EBITDA has grown by 22%, and our EBITDA margin has improved by approximately 120 basis points. We have successfully integrated our operations, expanded our American footprint, simplified our brand architecture, and increased our synergy target to more than $40,000,000 on an annual run rate. At the same time, we continued to invest in innovation to strengthen our competitive position across all business lines.

5:08 This progress reinforces our confidence in the long term value creation potential for the combined company. Slide eight highlights our continued innovation across the group. We recently introduced multiple new products and technologies, including the Clingo five fifty contact sweeper, our next generation TeraTruck, expanded electric vehicle offerings, and importantly, new airport equipment solutions. At the same time, in partnership with VETIMOVE, we continue to develop autonomous airport operation solutions for our customers. Together, these initiatives strengthen our market leadership and support our organic growth.

5:59 And now, I turn the call over to Stefan. Thank you, Barnd, and good morning, everyone. We are on slide 10.

6:07 North America delivered a strong quarter characterized by three elements: the top line execution, backlog conversion and over proportional profitability improvement. In airport and chassis, order momentum remained robust. This was supported by major project awards. We also continued to expansion of the Atlas Care Service Network through our partnership with Lost Travel Stops. Within Goods Transport, we secured a significant seven year 96,000,000 contact with a strategic US customer. This customer has been a partner for more than two decades. For the first time, the agreement includes cargo vans in addition to walk in vans. We view this expansion as a clear sign of trust and the validation of the broader capabilities of the combined portfolio.

6:58 Our commercial business continues to benefit from healthy backlog levels. Royal had a record quarter. Here, service body production increased by more than 20% compared to historical averages. In municipal, we secured multiple Swenson awards. In addition, we successfully completed the Juliet production ramp up with customer deliveries progressing as planned. Overall, demand remains healthy and our execution continues to improve across all major product categories. Turning to slide 11. Order intake remains strong and you can see the backlog increased around 27% year over year. Sales increased 11% year over year. This was driven primarily by successful walk in van backlog conversion. In addition, we continued to see strong airport and improved municipal output.

7:56 Adjusted EBITDA increased by approximately 22%, substantially outperforming sales growth. This reflects improved operating efficiency, completed ramp ups and strong contributions from both airport and also Royal. Overall, we are pleased with the quarter and remain confident in the growth outlook for North America. And with that being said, I hand the call over to my colleague, Henning Schroeder. Henning? Thank you, Stefan, and good morning. Europe and Rest of World delivered another strong quarter, driven by exceptional order intake momentum and continued profitability improvement. Our result reflects the strength of our market position and commercial execution. In airport, a major U. K. Airport group selected Aebi Schmidt as its preferred supplier for winter maintenance and airfield sweeping equipment.

8:47 In addition, we successfully cross sold Ladoc vehicles into the airport segment. This underlines the potential to penetrate new customer segments, expand the addressable market and unlock additional growth opportunities. Within municipal, we secured a significant $11,000,000 German motorway contract, strengthening our position with one of Europe's key clients. At the same time, we continue to benefit from increasing demand for electrified municipal vehicles. In agriculture, the launch of the new Aebi Terra truck generated strong customer interest and highlighted our continued innovation leadership. Across the region, we continue to see healthy demand levels and strong customer engagement. Turning to slide 14.

9:35 Order intake increased approximately 20% compared with last year, supported by strong demand across Southern And Central Europe as well as several significant contract wins. Net sales increased by approximately 7%, reflecting continued operational discipline and strong production performance. Adjusted EBITDA increased by 25% for the quarter and marked another step forward in our profitability improvement journey. The key drivers remain higher gross margins, strong aftermarket performance and disciplined cost management. I'm proud of the progress our teams continue to deliver. That concludes my comments, and I'll now turn the call over to Marco. Thank you, Henning, and good morning, everyone.

10:21 Turning to Slide 16. Order intake increased 16% compared with the second quarter of twenty twenty five and reached $516,000,000 This performance was supported by growth in both our segments, particularly in airport and Chelsea, municipal and the continued recovery of walk in vans. Order backlog increased nearly 20% year over year to approximately 1,300,000,000 and provides good visibility for the remainder of 2026 and beyond. Moving to Slide 17. Group net sales reached $496,000,000 representing an impressive organic growth of 9.4% compared with the second quarter of twenty twenty five.

11:06 North America was the main driver with sales up 11% versus last year with Orkin Vans as a major driver alongside growth, strong growth nearly throughout. Europe and rest of world delivered a strong 7% organic growth through continued sales execution, further expanding its already strong market share. Overall, the second quarter demonstrates our ability to convert our substantial backlog into profitable revenue growth. And looking at profitability on Slide 18.

11:38 Adjusted EBITDA in the second quarter reached $42,000,000 representing growth of 22% year over year. Group adjusted EBITDA margin increased to 8.5%, reflecting an improvement of around 90 basis points. Now given the ongoing geopolitical uncertainties and continued discussions on trade tariffs, which are triggering supply chain disruptions and material cost inflation, we continued to be very cautious in our spending. This tight cost management allowed us to mitigate temporary pressure on our gross margin and supported our realized adjusted EBITDA in this quarter. Looking ahead, we also expect our recent sales price increases to improve gross margins, which were executed swiftly, but are realized with some delay due to the substantial order backlog we carry.

12:29 Looking at our reporting segments, North America benefited from improving operating efficiency, complete ramp ups and stronger backlog conversion. Europe and rest of world continued its profitability trajectory on its strategic path to expand realized margins. This demonstrates the earnings potential of our platform as net sales continue to grow. Finally, having a look at our balance sheet on slide 19. Net working capital improved year over year to $449,000,000 despite continued strong sales growth, reflecting ongoing efficiency improvements and disciplined working capital management. Net debt stood relatively flat at $450,000,000 at quarter end, down $5,000,000 from March, with an average of 2.7 times, down more than half a turn compared to the end of June twenty twenty five.

13:24 With our profitability and working capital improvements, we are well on track towards our leverage target of two times by year end 2026. However, temporary investments in securing our supply chain and protecting our margins, including avoiding outsized material cost increases, will slightly impact us through year end and into the first quarter twenty twenty seven. Accordingly, we are slightly updating our leverage target for year end twenty twenty six from previously two times or slightly below to two times or slightly above at year end twenty twenty six. These temporary investments allow us to continue to support our strong and profitable growth while retaining our path to deleverage the balance sheet consistent with our capital allocation strategy.

14:11 That concludes my comments and I hand it back to Warrant for the closing remarks. Thank you, Marco. Turning to slide '21, We're pleased with our second quarter's performance and the continued progress across all areas of our business. Order momentum remains strong, further supporting an already strong order backlog. Net sales continued to increase with an impressive organic growth. Adjusted EBITA is growing significantly faster than revenue, demonstrating the benefits of operational improvements,

14:48 realized synergies and disciplined execution. Based on this performance, we confirm our full year twenty twenty six guidance for net sales and adjusted EBITDA.

15:01 We remain confident in our ability to deliver profitable growth while advancing our long term ambition of becoming a $3,000,000,000 revenue company with a mid teen adjusted EBITDA margin. At the same time, our working capital management continues to improve, supporting cash flow and deleveraging with more than a half a turn reduction in leverage year over year. We expect at least another half a turn improvement by the end of twenty twenty six.

15:37 That being said, our guidance assumes that geopolitical turmoil, tariff discussions, and inflation continues to normalize. As Marco mentioned, we face temporary pressure on our gross margins due to unexpected supply chain challenges and material cost pressure.

15:58 But with our resilient business model and cautious approach, we are able to compensate for these impacts with strict cost management. Additionally, executed price increases will mostly come through by year end and early twenty twenty seven. Now, beyond the second quarter updates, let me also take a moment to summarize why we believe Aebi Schmidt is uniquely positioned for long term value creation as shown on page 22.

16:32 Our investment case rests on four key pillars. First, we are a global leader in specialty vehicles. We have built long standing customer relationships across our two home markets, supported by a portfolio of leading brands and a continuous focus on strengthening our product offering. Second, we see a compelling growth opportunity today. We have a backlog of almost $1,300,000,000 giving us strong visibility. At the same time, we continue to benefit from exposure to attractive end markets, the expansion of our after sales business, and additional opportunities to grow through M and A.

17:19 Third, we have multiple levers to drive profitability. We expect to further optimize our manufacturing footprint and improve operational efficiency across the group.

17:32 These initiatives support sustainable margin expansion over time. Finally, we have a resilient business model, our local for local operating model, geographically diversified platform, and strong balance sheet helps us to navigate challenging market environments. These strengths support our 2,030 ambitions to delivering over $3,000,000,000 in annual sales through organic growth, a market recovery and disciplined M and A, while increasing our adjusted EBITDA margin to above 13% through synergies, pricing and mix, and continued operational improvements.

18:20 That concludes our presentation. I now turn it over to our operator to open up the line for questions. Operator? Thank you. Thank you. We will now go to our first question. And our first question today comes from the line of Michael Schlitzky from DA Davidson. Please go ahead.

18:59 Yes. Hello. Good morning, and good afternoon as the case may be. The large order that you mentioned in the quarter, did you say it was a seven year order or a $96,000,000 order, maybe that was?

19:13 Was that all in the backlog as of the end of the quarter? Is that entirely for shipment in 2026?

19:20 And how common is a $90,000,000 plus order? Is that something that would happen every quarter or this is just a very, very unusual one time thing? Hey, Mike, this is Marco. Just quickly repeating the question. We had a bit of an interruption in the line. So the question is the $96,000,000 framework order, whether that's on backlog by the end of the quarter, how much of that is realized in 2026 and whether it's a normal size order or not, if I got that correctly. Think that's

19:49 please. Michael, this is Stefan. Good morning. So this is, yes, this is a seven year order, 96,000,000. We will see the first revenue realization in 2027. Okay? What is a little bit unusual is that it is not from the big parcel delivery companies. So, we are broadening our portfolio here. So, we are basically in all the segments, we see improved order entry from other segments as well. And on top of that, this is more than just walk in vans. So there were cargo vans added. So we are broadening the portfolio here when we are offering to the customers.

20:39 So, Mike, and to add one point here, you asked also if that is booked into our backlog, which is not the case. So, we have here a very cautious model. Normally, don't book any frame contracts in our backlog. We just book it once we have received the PO. Thanks, Yeah. It's a general rule in our company. Got it. That's a very important detail. I really appreciate

21:05 that. And then maybe my my follow-up will also be on the walk in van chassis area. I'm sure you've heard this. There was an announcement last week with about Ford transitioning a good portion of that of their walk in van chassis business. It'll still be a Ford powertrain, but most of the design, sales, assembly will be handled by by, Blue Bird going forward. Can you maybe share on this call, what are your impressions of that deal? Can you tell me what, if anything, might change at Aebi Schmidt

21:35 in respect to how you outfit in the Step Van market? And from what you've heard about their transition plan throughout 2027 into 2028, do you look to see any temporary disruption on your Step Van business as they change over?

21:50 So, first of all, thank you very much for this question. So, Shotsie supply remains a critical topic for our industry and for us, and we see the announced move to the four chassis production bluebird as positive. It stabilizes chassis supply and removes risk of a bigger supply gap linked to necessary EPA 27 certification. So, we have been in close contact with Blue Bird, and we deepen our relationship, and we see that as a support also going forward. What we have seen so far that some of our clients moved from the Ford chassis to the FCC chassis.

22:39 So we have to aggressively watch the situation how that will develop, because they have quite an aggressive plan

22:49 to launch that new Shalsi in 2028. But overall, we see that as a positive development also that we still have then two providers in the short C market. So that is it from our perspective. And as you know, we have quite a good momentum in the walking man business. And as said, I we see big movements here towards the f triple t f triple t chassis. Great. Thanks for that color. I'll pass it along. Thank you. Your next question today comes from the line of Ben Summers from BTIG. Please go ahead. Hey, good morning, good afternoon, and thank you for taking my questions. So I wanted to ask a little bit on the 2,030 strategic target that you guys gave. It seems like there's some M and A baked in there.

23:44 Just curious kind of what you're seeing in that market. And just if you could talk a little bit about what's baked into that assumption.

23:51 Okay, so thanks a lot for this question. So first of all, it's clearly our goal to first deleverage a company as we have also outlined in our presentation. And then we see a few areas where we can further grow our company through an M and A, first of all in Europe. And so there we are still being a bit winter dependent. So there we see opportunities more as we call it into the summer business. Secondly,

24:28 the commercial business is still very much in transformation and consolidation. There we see some opportunities. And the third point is, you know, we still believe that we should have a similar business model in The US, and there we see some opportunities also in the sweeper area.

24:53 Super helpful. Then just kind of wanted to ask a little bit about production or manufacturing capacity. I know we mentioned the new upfit center in Iowa Chicago that now fully operational and we've had some strong backlog growth here. So just kind of how do you think about manufacturing capacity moving forward? And is there any specific markets that maybe you're targeting moving forward in North America?

25:20 Ben, this is Stefan. So the Juliet's Outfit Center is operational and did ramp up very successfully. So we are on track with our customer deliveries. The one in Iowa you were referring to, we started the commercial business, the commercial upfitting there that is operational, municipal will follow. So we start to utilize our office centers more and more for commercial and municipal on the combined base. Despite the geographical

25:54 white spots, and we elaborated that in previous calls, We are working on, we are pretty well set with our operational footprint, but I want to say that there might be future and there is future potential for more rationalization and cost reductions when it comes to the footprint. Does that answer your question?

26:17 Yep, super helpful. Thank you guys for taking my questions. Thanks. Thank you. Your next question today comes from the line of Matt Koranda from ROTH Capital. Please go ahead. Hey guys, thanks. Maybe just could you first unpack some of the temporary impacts that you're investing in, I guess, the supply chain that are driving the slight shift in the leverage target at the end of the year? Sure. This is Marcus speaking, Matt. Well, look, I mean, we have seen that supply chain has been a bit distorted, not in the sense that you would see, let's say, like with pandemic times where things are not available. So that's not the case. We have seen that there's a high risk, there's alongside the high risk also quite a material cost inflation pressure, which was to some degree also a little bit unexpected, right? So because we talk about previously steel, outlook ins, how we have essentially

27:22 also surcharge in certain areas to cover that. But there are suppliers of suppliers to now come through with some price increases. You see that also in the gross margin reflected. And to secure that position there, we have slightly increased our safety stocks. We have some elements where we buy a little bit in bigger batches than we would usually do just to get better discounts and things like that. And so that's a bit of a combination of measures that's just making sure that this pressure is countered and mitigated. And it will have a lead to some temporary investment, as mentioned, for the next three quarter ish. So basically until early twenty twenty seven is what we can see so far. And despite progressing very nicely with the working capital efficiency, mean, I I should point out, right, if you look at working capital ratio to net sales, a year ago, we were at 25.0% in that ratio and that perspective.

28:18 Now we are at 23.0%. So we made two full percentage points in progress in just a year. The midterm target I should add as well, which have given out in the equity story here is to get to 20 ish percent within another two, two point five years. And so we feel we're well on track to that, but this is a temporary hiccup that we're going to take just to make sure that profitability stays where we need it to be. Okay, very helpful. Thanks, Marco. And then for my follow-up, just looking at the long term outlook and the margin target in 2030, it looks like about 400 basis points of EBITDA margin expansion basically over the next four years if we're using the midpoint of your guidance this year.

29:07 How should we think about the step up through 2030? Is that a linear sort of step up in progression that you envision? Or is there something a little bit lumpier that we should be taking into account, maybe synergies realized earlier the period or anything else that we should be thinking about as we look at the track toward the 2030 margin target? Yes, I mean, very good question. And look, the thing is, in single measures, there are partially some step ups, yes, but overall, because it's such a combination of measures, right? It's the operational footprint, it's the extension of the after sales market, it is the continuation of the final synergies to come in. And I should add on synergies, as we spoke about also today, we have accelerated that further to some degree, we're now nearly done. We expect to be at 37,000,000 by year end 2026 with roughly five to come still in 2027.

30:02 And the gist of it all, if you put it all together is that no, there's no big step up through that next couple of quarters and years, because the combination of the measures basically means that it's pretty much linearly going to develop until that 13 plus percent that we are giving as a midterm guidance by 2030. Okay, understood. Thanks guys. Thank you. Your next question today comes from the line of Dave Storbs from Stonegate. Please go ahead. Morning and afternoon. Appreciate you taking my questions. Marco, I wanted to hold on that last energy comment for a second there. Saw that you did increase that target to over $40,000,000 Could you maybe just help us understand where that's coming from, what that should look like on the ground, maybe any timing around that increase?

30:59 Yes, sure. I mean, we spoke about it before, right? So the initial target was 25,000,000 to $30,000,000 We rather quickly were able to increase that in 2025. That was mostly driven from additional OpEx. So we essentially have additional potential identified in the organization, but also just with the base OpEx spending that was executed fairly quickly. Again, that's also part of what helps us now to mitigate a little bit that gross margin pressure we see. And as just mentioned, right, we now expect to see $37,000,000 realized by year end. The piece that's still to come that's now ramping up in the third quarter is the XP Service Body Pro. That's the service body that we now produce in house. That was a key consideration of our merger.

31:45 And then we also heard examples as well today in the call from Stefan. We see that the cross selling is now also coming in, right? So that's the piece we expected last. The revenue synergies, the cross selling synergies that takes its time, getting those new customers where we are now a nationwide player. But it is coming in exactly as expected and that's been the part that we expect to see really not just with the momentum and orders coming, but really with revenue and profitability in 2027 as the last piece of it. That's then the roughly 5,000,000 or a big part of the $5,000,000 for the 2027 final upside out of that shift synergy merger synergies. Understood. Very helpful. Maybe switching over to the guidance. I think it was pretty well laid out what could put you on the lower end of the guidance stream, the geopolitical uncertainty, tariffs, inflationary pressures. Just thinking about what you can control in house, where do you see the greatest leverage points to maybe put you on the higher end of that guidance going into the last two quarters of the year?

32:47 Thanks very much for the question. So, you know, I mean, the tariffs at the end of the day, cannot control, but, you know, with our resilient business model, which is based on a local for local, model, I mean, we're not heavily impacted. So we are just indirectly impacted, you know, and our competitors as well. So there, we have some challenges because of our big backlog, and that leads then also a bit to a lower gross margin at the moment. And we are more impacted to be very honest by the iron ore because energy prices went up and that impacted some of our material costs. At the same time, we started to increase our prices. And as I mentioned in my presentation, that will kick in by the end of twenty twenty six and then also beginning 2027.

33:43 So, we will see definitely then also an improvement on the gross margin longer term. Appreciate the color. Thank you. Thank you. This concludes the Q and A for today, and I will now hand the call back to Simone Grancini for closing remarks. Thank you, Sharon. I thank everyone for joining today's call and your interest in the Aebi Schmidt Group. As always, please reach out to investor. Relationsebi Schmidt dot com if you have any follow-up questions. And with that, Sharon, please disconnect the call. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.