Earnings Call Transcript - ALTG Q1 2026

Operator, Operator

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.

Jason Dammeyer, Vice President of Accounting and Reporting

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.

Ryan Greenawalt, Chairman and CEO

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 shaped the quarter, walk through what we are seeing across our three 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 two 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 two 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 EcoVerse 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, EcoVerse 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 in 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.

Anthony Colucci, Chief Financial Officer

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 three 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 $410.5 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 three times 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 support 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 the 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 centers 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 at each end of the range given Q1 performance; 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 EcoVerse tariff-related margin compression is now largely behind us as renewed pricing agreements with OEMs and tariff relief takes hold. All told, these two 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 in 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, Operator

Operator instructions: Your first question comes from the line of Liam Burke with B. Riley.

Liam Burke, Analyst, B. Riley

In Material Handling, you highlighted bookings being as strong as they've been in almost three years. You talked about the automotive sector as 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?

Anthony Colucci, Chief Financial Officer

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, with more activity in that realm. So it was broad-based. It was each region and not necessarily, certainly not just isolated to automotive.

Liam Burke, Analyst, B. Riley

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?

Anthony Colucci, Chief Financial Officer

Yes. Liam, over time, Q1 in the construction business, specifically in the North, is always difficult to 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 and customers are busy. We had a delayed start to the construction season, and so some of the deliveries that typically might have gone out in March because of weather didn't make their way out until April or even just getting started now on projects. So we agree with you that certainly, we expect Q1 to be a low point for the construction business like it always is. But I think that inflection could be even stronger given what we had to deal with in the winter and the delay of getting started here.

Operator, Operator

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

Steven Hansen, Analyst, 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 a positive indication. Any additional detail on what you're seeing from the competitive environment and inventories on the ground? How are you seeing that margin improvement play out and which verticals in particular?

Anthony Colucci, Chief Financial Officer

Yes. So I think, Steve, 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. From some of the major OEM names in the construction segment that we follow, certainly dealer channels have rightsized. In the meantime, OEMs are seeing pricing continuing to go up — PPI on wholesale construction equipment and machinery in general was up about 5% in the first quarter — and tariffs are still impactful. What we have seen on the top line from OEMs, Caterpillar and John Deere in particular, has been a lot of discounting to clear the dealer channel. 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. When we think of gross margin, we think about it more in the construction context versus material handling. But it is a combination of less supply in the market, which is good for used equipment as well, so we're seeing better margins on used equipment as values come back, as well as a reduction in discounting from some of the major players.

Steven Hansen, Analyst, Raymond James

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

Anthony Colucci, Chief Financial Officer

Thanks, Steve. This is part of what my commentary addressed: having a rental fleet that's underperforming obviously impacts leverage. Sometimes if you get something on rent at a low rate, it can be leverage dilutive. We're focused on finding the right balance of rental fleet, especially in our northern regions where we're seasonal. Carrying underutilized equipment through the winter can be difficult. We're ahead of plan: we had $30 million of rental disposals in Q1, and the team did a great job. So we're ahead of plan in terms of what we thought we would be able to do through Q1. At current rental revenue levels, we probably still have another $30 million or so to go, and we hope to get there by year-end. We're going to match utilization targets and hope to get there by year-end, Steve.

Operator, Operator

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

Ted Jackson, Analyst, Northland Securities

A couple of questions. First, on the Material Handling side of things, 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 quite robust. You're one of the larger distributors. 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.

Anthony Colucci, Chief Financial Officer

Part of our bullishness on the guidance 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. There is a bit of delay between their production, booking, shipment to the dealer and then us prepping and delivering, so it could be another month or two of equipment on the ground before we get things delivered. But 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 revert to how hard it inflected the other way over the last couple of years where we saw shipments go down about 20% on a volume basis. I think we can have that same level of reversion in the second half here. Things need to continue; we had strong bookings in April, which was consistent with March. So we're feeling bullish that the second half is going to be good for Material Handling.

Ted Jackson, Analyst, Northland Securities

Well, it sounds like you should be feeling pretty bullish about 2027 too.

Anthony Colucci, Chief Financial Officer

Yes. As Ryan mentioned and as Liam noted, it's been prolonged — almost three years — and the bookings in March were as high as they were in June of 2023. In June 2023 that was a good time for the Material Handling segment. So we will take March and April bookings here for as long as the customers will have us.

Ted Jackson, Analyst, Northland Securities

On the seasonality front, there's a lot of change with regards to the ability to depreciate equipment. You talked about how a large portion of 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 Q1 when you were exiting 2025. Looking at the last five years, average sequential decline has been significant. Do you see that this change with regards to depreciation and expensing is going to change the seasonality of the equipment business where you would have perhaps more robust fourth quarters than historically and weaker first quarters for the same reason?

Anthony Colucci, Chief Financial Officer

Ted, I think one of the big factors here was that the rule was new for 2025 and a lot of buyers accelerated purchases to take advantage of it. I don't expect the seasonality to be as violent going forward. We'll always have year-end buyers taking advantage of tax depreciation, but my view is that 2025 was somewhat of an anomaly in terms of the magnitude of the pull-forward. My history tells me this year was a little different than normal, and I would be surprised to see that exact level of volatility going forward.

Ted Jackson, Analyst, Northland Securities

On the rental fleet, you're ending rental fleet at about $525 million. At what point do you find that your fleet is rightsized? Is it $500 million, $450 million? Is there a way for us to think about that and a timeline of where you think you're going to get there?

Anthony Colucci, Chief Financial Officer

Ted, the plan for this year was to be sub-$500 million by year-end; that was the original plan. Based on what we know about rental revenues in the plan and given Q1 performance, that's still intact, and we expect to be there by the end of the year. We're focused on utilization targets versus nominal levels of fleet. It's more about the numerator and the denominator than hitting a single fleet-dollar target. So, in short, the original plan was sub-$500 million and we expect to be there by year-end, and given current performance, we could drop even further below $500 million, but the key is matching utilization targets and competing for business to drive revenue.

Ted Jackson, Analyst, Northland Securities

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

Anthony Colucci, Chief Financial Officer

We want to be in the high 60s from a dollar-weighted time utilization perspective — physical utilization of fleet on rent over a calendar year divided by total fleet. That typically means our rental revenue divided by average acquisition cost trades in the mid- to high-30s, which we would call dollar utilization or financial utilization. We're not there yet, but that's the target.

Operator, Operator

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