Terex Corp (TEX) Q4 2025 Earnings Call Transcript

Greetings and welcome to the TRX Fourth Quarter 2025 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. We do ask you to limit yourself to one question and one follow-up. If you would like to ask a question, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Derek Everett, Vice President, Investor Relations.

Good morning and welcome to the Tarek's fourth quarter 2025 earnings conference call. A copy of the press release and presentation slides are posted on our Investor Relations website at investors.tareks.com. In addition, the replay and slide presentation will be available on our website. We are joined today by Simon Meester, President and Chief Executive Officer, and Jennifer Cohn, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by a Q&A. Please turn to Slide 2 of the presentation, which reflects our safe harbor statement. Today's conference call contains forward-looking statements which are subject to the risks that could cause actual results to be materially different from those expressed or implied. These risks are described in greater detail in the earnings materials and in our reports file with the SEC. On this call, we will be discussing non-GAAP financial information, including adjusted figures that we believe are useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. Please turn to slide three. We'll hand it over to Simon Meester.

Thanks, Derek, and good morning. I would like to welcome everyone to our earnings call and appreciate your interest in Terex. Last week, we concluded our merger with RevGroup, the defining milestone in Terex's transformation. With this combination, we've created a leading specialty equipment manufacturer with premium brands across multiple industries, with a strong manufacturing footprint, a leading technology play, and clear, tangible synergies across the portfolio. What began with our 2024 acquisition of ESG, which delivered value immediately, is now being amplified by bringing Terex and REV together, creating greater skill and an even more resilient new company. REV generated approximately $2.5 billion of revenue and $230 million of adjusted EBITDA in its recently completed fiscal year, with the majority coming from essential low cyclical end markets. Beyond strengthening the predictability of our growing earnings and free cash flow, the merger also reduces our overall capital intensity, giving us greater flexibility to create additional shareholder value. I want to thank both the Terex and REF teams for their tireless efforts to close this transaction ahead of schedule. It's only been a few days since closing, but the teams are already working hand-in-hand to execute our integration and synergy plans. We completed the ESG integration in Q3 of 2025 and captured synergies ahead of expectations. We're using the same integration playbook for the merger with REV. The integration will be straightforward. REV's businesses are joining Terex as a standalone operating segment with no organizational changes outside our corporate functions. Our new specialty vehicle segment will include emergency vehicles and will continue to be led by Mike Wernick and recreational vehicles which will continue to be led by Gary Gunter. Both Mike and Gary bring deep breath experience assuring continuity while driving further improvements. We expect to deliver roughly half of the 75 million dollars run rate synergies within the next 12 months and the full amount by 2028 most early savings will come from eliminating duplicate corporate costs but the synergy potential goes much deeper over the last 16 months we have reshaped the terex portfolio creating what i believe is the most intrinsically synergistic resilient and competitive portfolio in our history we now have significant scale in specialty vehicles that share similar operational and go-to-market characteristics. This creates not only near-term efficiencies, but also meaningful opportunities for operational improvement and long-term growth across tariffs. With regards to the strategic review of the aerials business, which we announced during our last call, we have been receiving strong inbound interest from a number of interested parties. We're being deliberate in our evaluation of the interest and the best approach to maximize shareholder value. Turning to slide four, combining with red significantly shifts our end-market exposure. We now serve a large, diverse, addressable market with stable, attractive growth profiles. Customers across these verticals value lifecycle services, creating sizable opportunities to expand our aftermarket and digital offerings. emergency vehicles benefit from stable and growing municipal budgets tied to maintaining required response times among the growing population in waste and recycling growth is fueled by population and recycling trends coupled with ongoing fleet replacement customers also accelerate upgrades to unlock the value of new vehicle innovations and digital solutions where we are the clear industry leader. Utilities are poised for strong growth from 2026 onward as demand on the U.S. electrical grid increases, particularly from data center expansion. Industry forecasts call for 8 to 15 percent annual capex growth through 2030. Altogether, we now have multiple channels into nearly every municipality in the United States, a billion dollars per year of capital equipment, a tremendous long-term opportunity. In construction, we continue to see robust infrastructure activities supported by government funding. The pipeline of mega projects continues to expand, providing a tailwind through at least 2030. We're seeing momentum building in Europe, and strong growth continues in the Middle East and India, where MP already has a solid foundation. Let's move to a summary of our financial results on slide 5 before handing it over to Jen to go into more detail. I'm proud of our team for delivering on our 2025 expectations, navigating numerous challenges throughout the year. Their performance and the strength of our portfolio enabled us to deliver earnings per share of $4.93, consistent with our outlook, EBITDA of $635 million or 11.7%, free cash flow of 325 million dollars and a cash conversion of 147 percent all in line with our expectations looking to 2026 we see positive momentum across most of our segments to varying degrees environmental solutions bookings grew 16 year-over-year in q4 led by utilities 10P achieved its highest margins of the year in Q4 as efficiency and tariff mitigation initiatives took hold and bookings accelerated, particularly in aggregates and material handling. Aerials secured nearly a billion dollars of new orders in Q4, up 46 percent from the prior year, and specialty vehicles recorded strong bookings the last three months with a roughly two-year backflow coverage coupled with strong momentum on margin expansion this positions erics for a strong 2026 and with that i will turn it over to jen thank you simon and good morning everyone let's look at our q4 results and slide space our fourth quarter financial performance was largely in line with our expectations environmental solutions continue to grow and deliver consistently strong

margins. Materials processing achieved its highest operating margin of the year, and our sales grew year-over-year in the quarter following school quarters of decline. Total net sales of $1.3 billion grew 6% year-over-year. Excluding ESG, our legacy sales grew by 5%. Q4 operating margin was 9.3%, at 150 basis points versus the prior year due to improved performance in all three sectors. Interest and other expenses of $43 million was $4 million higher than Q4 last year, and the fourth quarter effective tax rate was 8.1% driven by favorable one-time tax attributes. EPS for the quarter was $1.12, or $0.35 higher than last year. EBITDA was $141 million, or 10.6% of sales, 140 basis points better than last year. We generated $172 million of free cash flow in Q4, which was $43 million greater than last year due to higher operating income and improved working capital performance. Let's turn to slide 7 for our full-year results. Net still viewed 6% to $5.4 billion as a full-year contribution from ESG acquisitions, more than offset declines in areas and MPs. Lighter PISOs declined 11%. Operating margin of 10.4% was 90 basis points lower than 2024 due to lower volumes in areas and MPs and higher tariff costs, which mainly impacted areas. This was partially offset by improved margins in Paris utilities and the accretive additions of ESG. Interests and other expenses of $172 million increased by $89 million due to financing costs associated with acquiring ESG. A full-year effective tax rate of 17.2% was consistent with last year, as faceable one-time tax attributes from the Queen's Investiture offset higher U.S. bond income. Earnings per share of $4.93 was consistent with the outlook we provided for the entire year. We improved our full-year free cash flow by 71% to $325 million, representing a conversion rate of 147%. Despite volume and power-paid wins throughout the year, our teams continue to execute working capital improvement plans and deliver it on our full-year free cash flow expectations. ESG increments our cash flow more than offset the interest expense associated with the financing. We continue to improve our operating cash flow and working capital efficiency, giving us more options to return value to shareholders. Please turn to slide 8 to review our segment results, starting with environmental solutions. Our ES segments finished 2025 with another excellent quarter, generating 428 million of sales, representing 14.1% year-over-year growth on a pro-format basis. The strong growth was driven by improved throughput and delivery of utility and refuse charges. For the full year, sales increased 12.7% on a pro forma basis to $1.7 billion. Q4 operating margins of 18.5% were 90 basis points better than the prior year driven by improved performance in utilities, while ESG margins were consistent with the prior year. On a full-year basis, the spectrum achieved 18.8% operating margin, 220 basis points better than the pro-forma 2024 results, driven by improvements in both businesses. I was very pleased with the ES spectrum performance in 2025, particularly the high degree of collaboration between the ESG and utilities teams, executing synergies and operational improvements that that will benefit Tarex going forward. Turning to slide nine, MP4 quoted sales of 428 million were 2.5% lower than last year. Excluding the diverse between businesses, MP sales increased by 2.8% in Q4 on a life basis. Growth in aggregate was the primary driver as sales grew in every global region with the strongest growth coming from Europe. On a full-year basis, those of $1.7 billion were 11.6% lower than 2024, mainly due to channel adjustments we experienced in the first half of the year. NP operating margins continued to improve, reaching 13.7% in the quarter, as efficiency improvements and pricing actions ramped up in the quarter. The positive margin trajectory and increased bookings set NP well, gating into 2026. Please turn to slide 10. ARIES closed at 2025 on a positive note with year-over-year sales growth of 6.9%, including growth in North America and EMEA. ARIES Q4 operating margins of 2.6% was consistent with our expectations. 200 basis points better than prior year. Tarifate wins, including the expanded 232 tariff that was implemented in August, could not be fully mitigated in the period, as ongoing supply chains and cost reduction actions will continue in 2026. Please turn to slide 11. Q4 bulkings of $1.9 billion grew 32% compared to last year on a pro forma basis, with positive trends across our segment. In environmental solutions, we continue to see positive momentum in bookings, which grew 16% year-over-year, up 13% on a trailing 12-month basis, led by strong demand for utilities vehicles. A healthy backlog of $1.1 billion provides strong forward visibility for the segment and heating into 2026. NT bookings increased 24% year-over-year, or 32% when you exclude the domestic clean systems. The growth was led by aggregate and material handling, more than offsetting some moderation in concrete. NT ended 2025 with 71 million more backlogs than the prior year, or 100 million higher when you adjust out the domestic clean systems from 2024. Finally, our risk brokings of $971 million was up 46% competitive for our year, driven by replacement demand from our national test risk. While growth was strongest in North America, we also saw growth in Kenya and Asia Pacific, providing good visibility into 2026. Now turn to slide 12 for our 2026 outlook. We are operating in a complex environment with many macroeconomic variables and geopolitical uncertainties, and results could change negatively or positively. The outlook we are providing today reflects our current portfolio and does not account for any cost to achieve the synergies, purchase accounting adjustments, nor other non-recurring items. Following the close of REV transaction last week, our 2026 outlook reflects the newly combined company, including 11 months of REV, with positive momentum from strong Q4 bookings and backlog in every segment. We expect 2026 sales to grow approximately 5% on a pro-forma basis to 7.5 to 8.1 billion. We further expect pro-forma EBITDA to grow by approximately 100 million, or 12% year-over-year, to between 930 million and 1 billion, or 12.4% EBITDA margin at the meet point. Our EBITDA outlook includes approximately 28 million of synergies for 2026 in line with our goal to achieve $75 million of run rate synergies within two years. We anticipate interest and other expenses to be approximately $190 million, consistent with pro-forma 2025, based on average debt outstanding of about $2.7 billion. The effective tax rate is expected to be higher at 21%, driven by higher U.S. odds income. As expected, the merger has a modest 3% value test effect on EPS in 2026 due to higher number of shares outstanding post-merger. We expect 2026 EPS between $4.50 and $5 with a share count of 111 million shares as compared to a legacy tariff's range of $4.80 to $5.20. For modeling purposes, approximately 15% of a full-year EPS is expected in the first quarter, as it will only include two months of specialty vehicles earnings and seasonally lower volume in legacy tariff. We expect 2026 cash conversion of between 80% and 90% of net income, including transaction costs and cost to achieve synergy. Our net leverage is expected to improve over the course of the year. Looking at our segment, we expect environmental solutions to grow meet single digits in 2026, led by utilities, where we continue to see strong demand for bucket trucks and bigger directs used in the electric power market. We are currently anticipating roughly flat sales on ESG with upset potential in the second half as we get more clarity on fleet requirements and EPA emission regulations for a second half pre-buy. We continue to see growth in our market leading digital solutions in the waste sector and expanding into utilities and concrete. We like small opportunities to expand this technology into emergency vehicles during integration. ES achieved strong profitability in 2025, and we anticipate similar full-year margins in 2026, as synergy executions and productivity offsets the unfavorable mix from higher utilities goods. Turning to MP, we expect the segment to inflex back to full-year growth in the high single-digit range in 2026 on a pro-forma basis, excluding claims. Sweet utilizations and aging equipment resulted in strong bulkings in aggregate, handling, and environmental. We also expect markets to improve in 2026 to higher volume, productivity, and pricing action. Our new specialty vehicle segment enters 2026 with roughly two years of backlog. We expect sales growth of high single digits from a comparable pro forma prior year total of $2.2 billion, excluding the harvested lunch and meatless RV businesses. We also expect meaningful margin improvement in ASPE compared to the prior year period EBITDA margins of approximately 12.5% on a pro-forma basis due to higher throughput, price, and ongoing operational improvement. Finally, in Arios, we anticipate 2026 sales and margins to be similar to 2025. We have good visibility heading into 2026 with 906 million backlog following Trump Q4 bookings. Overall, I'm very excited about our opportunity to grow and continue to improve the financial performance of our new company in 2026. Turning to slide 13. In 2025, we maintain our commitment to invest in our businesses to fuel organic growth, with over $118 million in capital expenditures targeted at automation, innovation, throughput, and efficiency improvements, among other growth accelerants. As expected, we returned $98 million to shareholders through dividends and share buybacks last year. We purposefully structured the merger to maintain a strong balance sheet and flexible capital structure to enable organic investments and lower net leverage. That said, we have not assumed any significant debt repayments as they do not mature until 2029. Please turn to slide 14 and I'll turn it back to Simon.

Thanks, Jen. 2025 was a consequential year in the long history of Terex. We successfully completed the integration of ESG, navigated multiple macro and market headwinds, and ultimately delivered on our original 2025 guidance. We also announced and have now completed our merger with REV. With this merger, we have created a leading specialty equipment manufacturer with a highly complementary and synergistic portfolio, serving a diverse set of attractive, resilient, and growing end markets. Our focus has already shifted to executing the REV integration, capturing at least $75 million of synergies and delivering on the commitments we've made across each of our segments. I'm excited about the road ahead, and I know our team is energized as we continue to build the new Terex together. And with that, I would like to open it up for questions. Operator?

At this time, I would like to remind everyone in order to ask a question, press star, then number one on your telephone keypad. Your first question comes from the line of Tim Thine with Raymond James.

Please go ahead great thank you good morning uh the first question the uh mp segment and uh you highlighted strength in in aggregates and material handling within the order comments which is uh if sustained would uh or should should be good in terms of product mix i'm curious on on the pricing side um and kind of your actually what your visibility in terms of what you have in the backlog with respect to, you know, crushing and screening being an important piece there. Some of your larger international competitors are facing some sizable tariff headwinds in North America. So maybe you can just talk about what you're seeing and your expectations just around, you know, that pricing tailwind that you highlighted in the fourth quarter, how that's kind of influencing your outlook for 26.

Hey, Tim. Good morning. This is Jen. So the pricing, as you know, we do not disclose them specifically on the segment basis, but you can see that we have a progressive step up in our margin profile in Q4 versus Q3 for MP, and a large portion of that is driven by price going through the P&L. We expect that with a strong backlog that we ended in December, that to flow to and it progressively step up again and throughout the year for 2026 by quarter.

Okay, good. And Jen, I apologize if I missed it, but with Ariel specifically, that kind of the interplay with tariffs and how you're expecting, you know, price costs to play out just more broadly for Ariel's in 26. I'm guessing it's more of a second half story, but maybe you can just comment on that. And again, apologies if I missed that.

So the errors in the prepared remarks, we say that we're expecting kind of flat revenue and it was a kind of flat margin profile. We expect that in 2026 that we have more hate wins in the errors given that the tariffs is going to be 12 months of impact versus about approximately six months of impact in 2025. That translates rounding on a number standpoint, about $60 million more, and we're offsetting that to productivity and price for a net impact of flat throughout the year. In first half day, we expect that the price cost neutrality to be more skewed towards the second half of the year, but at the end of the year, we're going to be flat, holding our margins with a flat top line. a little less favorable in the first half a little bit more favorable in the second half got it thank you thanks your next question comes from the line of jerry rebeck with wells fargo please go ahead yes hi good morning everyone hey good morning simon hi simon i wonder if you just uh talk about uh the rev uh integration so uh saw the divestiture the the business has

been operating really well in terms of driving higher efficiency rates. Can you just talk about the plan for the business from here relative to what we heard from the rep team maybe six to nine months ago and any update on order cadence and expectations for bookings as well? It sounds like there's more opportunity from a manufacturing standpoint, but I'm wondering if you just expand on that, please.

Yeah, no, thanks for the question. So it's been it's been nine days now since we we closed so we're very excited we yeah obviously it's mostly a throughput story because again going into 2026 our specialty vehicle segment legacy rev if you will now still operates with about a two-year backlog and they they did report relatively strong bookings again in their last fiscal quarter. So it's mostly just to make sure that we keep burning that backlog down as much as we can. So it's going to be all about throughput. Now there's obviously price in that backlog. So it's going to be a combination of price and volume that's going to drive the margin improvement in 2026. But it's mostly just making sure we keep that operational momentum. And that's why we were so eager on making sure that we keep the organization intact and that we can just purely focus on making sure we keep that momentum going into 2026.

Super. And separately, in ESG, I was pleasantly surprised with the bookings, it sounds like, within the how part of the portfolio are more resilient than what I would have thought three months ago, given what the waste companies have been talking about.

Truck plants can you just expand on what you're saying is that the impact of the epa 27 certainty or just if you wouldn't mind uh just double clicking on the really good performance within hile yeah obviously i i would say this segment the environmental solution segment uh recorded outstanding performance in 2025 and a lot of that was driven by uh by hile by esg but also we saw synergies kicking in with utilities so we saw the utilities business stepping up as well but you know esg was leading the charge if you will in terms of top line and now in 2026 we see that kind of flipping so utilities is now accelerating a little bit more than esg we're we're expecting esg to be kind of flattish from a top line perspective and most of the growth coming from utilities. But yeah, we feel that that segment has a lot of momentum. We don't see that slowing down anytime soon. So we're very pleased with how ES is performing.

Thank you.

Your next question comes from the line of Angel Castillo with Morgan Stanley. Please go ahead.

Good morning, and thanks for taking my question. Just wanted to unpack a little bit more on the aerial side too. You had a very strong quarter for bookings there, and you talked about replacement demand from the rental customers. Can you just talk a little bit more what you're hearing from the customer base broadly in this space? And I think one of your competitors talked about a little bit of pull forward potentially into the fourth quarter. Did you see any of that, or how are you seeing in particular maybe orders in January and February kind of, you know, following that stronger fourth quarter and continuing that?

Yeah, if you look at last year, we had strong booked bill in both Q4 and Q1. I think average both quarters was about 150. This year, Q4 coming in over 200 percent. We expect Q1 to be somewhat north of 100 percent, but it's probably fair to assume that both quarter will average again about 150 book to build so that kind of sets our guidance uh being flat because we expect q1 to be a little softer than uh q1 of last year still north of 100 but overall yeah going into the year with five six months of um of coverage is obviously gives us a good forward good forward visibility but the reality is most of the demand is still just coming from mega projects coming from the nationals. Europe is sticking up a little bit. Not that material. But we haven't baked any major recovery with the independents into our guide for 2026. We expect that to happen more in 2026.

That's very helpful. Thank you. And then, could we just unpack a little bit more just on the commentaries around ES? I think if you could talk about the backlog there as well. It sounds like utilities are seeing a nice uplift. So just the shape of that into next year. And then if you could, I guess, Jen, if you could just unpack the margin dynamic a little It sounds like utilities should be a positive for margins, a nice tailwind there. And you expect, I think, if I heard correctly, ESG flattish, but it sounds like there's some factors maybe weighing on that margin and keeping the full segment more flattish for the full year. So if you could just unpack the puts and takes and maybe talk about it on a quarterly basis, that'd be helpful.

Good morning. So I'll take the margin question, and then I'll let Simon take the back of our question. So you're right. For the margin, when we said in the prepared remarks that the margin is flattish, I'm referring to a percentage-wise, and value-wise is still increasing. So the higher top-line growth coming from utilities will drive an unfavorable mate. However, it's been offset by the synergies flowing through in the ES reportable section, and also driven by the productivity that they have been working to. In 2025, we communicated that the utilities division within the ES segment has demonstrated progressive growth in the margin profile. We expect that to continue into 2026 as the team actually relay out the Walker Sharp factory and also looking at standardization.

Yeah, and then on the backlog, so, yeah, ESG did an outstanding job in 2025, leading the industry, quite frankly, in terms of throughput and reducing lead times. And so, going into 2026, we see lead times now kind of have normalized in ESG. So, we're back to kind of pre-COVID levels, backlog coverage, so three, four months forward visibility. We didn't put any EPA pre-buys into our outlook for ESG, and that's why we're kind of holding them flat. And utilities is actually, the backlog continues to increase, hence the reason we're expanding our capacity in that particular segment, which is already ramping up as we speak.

So we're expecting to add about 20 to 30 percent capacity in utilities just to keep up with the rising demand. helpful thank you your next question comes from the line of jamie cook with truest securities please go ahead hi good morning uh i guess two questions first simon on the specialty business or rev group it sounds like the backdrop for 2026 is good you know with the extended visibility backlog two years out i'm just wondering if there's you know obviously it's a new it's a new acquisition so to what degree is there conservatism in your forecast for specialty and if there was what would that come from? Is it just getting more, burning through more backlog? So just sort of your assumptions around there, where there would be upside. And then my second question, just on Ariel's understanding, you can't say that much, but it seems like the backdrop for selling that business is probably better versus when you initially announced it with a view that Ariel markets have clearly bottomed, potentially positive upside surprise. So anything you can tell us, is that asset more interesting to people just because it sounds like we should be getting some cyclical tailwinds? Thank you.

Yeah, thanks for the question. So, on specialty vehicles, yeah, there's obviously a lot going on. The team is working, you know, flat out to make sure that we can actually start bringing the backlog down a little bit. So, where we see any upside, I mean, the team actually performed really strongly year over year, 2025 to 2024. We just want to make sure that we maintain that operational momentum. So I don't know if there's any particular upside I can call out. I'm very comfortable with the guide that we have laid out. And, you know, it comes down to execution. On aerials, yeah, I mean, we've said this in October. We believe it's a well-known asset. We believe it's well-documented how that business performs through the cycle. It's a very strong brand, you know, celebrating 60-year anniversary this year at ARA, which we're looking forward to. um i can obviously not um uh disclose too much because it's an active uh uh process but yeah we were um very pleased with the the inbound interest that we received and uh we're going to be very deliberate in in evaluating the interest and and decide on the best approach for our shareholders going forward and it's jamie if i could just add in the new reportable segment of as the um the incremental margin on the higher volume is going to be in that range of 30% at the gauge,

with the hires in Q2 and Q3 and tapering down to Q4 due to seasonally lower revenue due to the weather. So I think while we have baked in a very strong margin profile that's supporting our $100 million of EBITDA margin extensions in the midpoint of our range.

Thank you very much.

Your next question comes from the line of David Gresso with Evercore ISI. Please go ahead.

First on the dilution, a little bit less than I think the street was thinking. And I've noticed the share counts seem to be a little bit lower when you said 111 for the year. Is there, maybe I missed it, is there some share repo in that number? Just trying to get the math from, and I was just doing the basic conversion of the roughly 49.3 million shares that Rev Group had. Even the interest expense, a little bit lower than I would have thought. So, I'm just trying to understand exactly the dilution being only about 25 cents.

Hey, David. Good morning. So, I think the two-part of your question, the first one in terms of 111 million of share count, that's because we only acquired – that's a weighted average number, and because we only issued them in February. So that equates to 111 million, but full-year is at 115 million. I think that's maybe where you're looking at. Second question in terms of the dilution, yes, in fact, during the merger, we have alluded to the fact that it's going to be a meet single digit of EPS dilution, given that the share count, the higher share count cannot be fully offset by the 11 months of RAP earnings. So that transmits to be about 3% just for share count alone, and then 2% based on a higher tax rate. So that's where we are.

Oh, that's helpful. Yeah, I read the slide on 12 as the share count 111 was for the full year not not just for the quarter okay that's yeah that's weighted average for the full year correct the one the one sorry the 111 or the 115 just to be clear the 115 i'm sorry 111 is the weighted average for the full year okay um the proceeds from an aerial sale i'm just curious now that you're you know a little bit further in the process you own rev group the merger is done and you've obviously been able to move forward with some of the divestiture of a piece of the RV business. Given where the state of the portfolio is, we can debate the right multiple you can get, maybe for aerials. But when you think of the proceeds for that sale, whatever it may be, can you give us a little more clarity how you're thinking about that now?

Yeah, so right now on day nine of our clothes, the immediate priority is to strengthen the balance sheet. to preserve the flexibility, given that we find that this merger is through both shares and cash. It's right now still too early to tell, depending, you know, when we actually find a strategic option for aerials and where we're trading in terms of the share price, but we will have several options, including, you know, a return value to the shareholders through the share buyback. We could do an early debt pay down to strengthen our balance sheet, reduce interest, and further improve our leverage. Or we reinvest in our business, especially in utilities and specialty vehicles that are supported by the circular tailwind. But at this point, I think it's still too early.

Yeah, we really like the optionality that is ahead of us here. But our immediate focus, as you will appreciate, is on integrating REV, focusing on execution, focusing on delivering on our earnings and the cash conversion and then we really like the optionality that's at the end of the road here.

I appreciate it. Thank you.

Thanks David. Thank you. Your next question comes from the line of Meg Dobre with Baird. Please go ahead.

Yes, thank you for taking the question. Good morning. Sticking with specialty vehicles here, I guess a couple questions. First, First, how are you thinking about the recreation component of this business longer term? You're obviously in portfolio adjustment mode, which is why I'm asking. And when we're kind of thinking about the moving pieces to margin here, if I heard you correctly and better in your guidance, about 12.5% operating margin, how do you view the longer-term potential here if we're thinking two to three years out?

Yeah, thanks, Nate. I'll take the first one, and Jen, maybe you can weigh in on the second question. So on the RV business, yeah, first of all, the announcement that was sent out yesterday in Midwest, that process was already ongoing before we closed the merger. so don't read too much into that that we are in portfolio adjustment mode i would actually say we are in integration mode we are much more focused on what's right in front of us and that is making sure that we integrate the two companies that we build our synergy pipeline that we focus on execution of the four segments that we now own and that's really our most immediate focus and And now, going into 2027 or beyond, I can't say we won't continue to make some adjustments to our portfolio, but what's right in front of us is integrating REV and executing. Do you want to take the margin?

And, Meg, I think your question on the EBITDA for 12.5%, you're referencing to the new reportable SB segment and that is without meet with and lunch and that was last year on a pro forma basis 11 months as you know you're very familiar with RAF they have publicly disclosed a 2027 target at the enterprise level ranging for that 280 basis point margin improvement from 2025 to 2027 And at this point, we see that they're at the top end of the range and heading towards that direction. So I think for modeling purpose, you could model that out over the next two years. But they are in line with what they have communicated in their last December 2024 investor day, but at the top end of the range.

That's helpful. Thank you. Lastly, you gave us some context on tariffs, which is good. But I'm wondering more broadly from a price cost standpoint, how are you thinking about 2026 and what's embedded in here? Steel has gone up quite a bit of late, and maybe you can comment on any hedges or the cadence of price costs as the year progresses.

Right. So in terms of steel, we do not import raw steel, and 70% of what we use is an HRC. You're right, mate, that the still price has increased as expected, as vendors try to start from the U.S. We will continue to monitor that closely and execute our hedging contracts. So right now we have our Q1s and Q2s of our HRC still consumption hedge at a favorable rate of 10% to 15% lower than the forward price. and any of the imported still on fabricated parts is really part of our $130 million of carriers that would begin to our guide of this $450 to $5.00. And that includes records.

Thank you.

Your next question comes from the line of Avi Drosowitz with UBS. Please go ahead.

Hey, good morning. Thanks for taking the question. So in terms of the capacity increases within environmental solutions, how much are you expanding capacity? When are you expecting those to come online? How's that split between two businesses in the segment? Just any kind of color you can give there.

Yeah, we're expanding capacity in our utilities business, not in ESG per se. We're ramping up our facility in Waukesha, Wisconsin, and we're adding about 20 to 30 percent capacity over the next two years. And some of that, roughly half of that will, maybe slightly less than half of that, will come online in 2026. And sorry, I forgot, what was the second part of your question?

Yeah, it was really how, you know, how is it split? and what is the overall capacity increase that you're thinking of?

Yeah, so utilities is the smaller segment within environmental solutions, and we're adding about 20% to 30% over the next two years in utilities. And the reason we feel that that's a justified investment is because I mentioned in my prepared remarks that we expect capex to grow 8 to 15 percent for the next five years in utilities just by the nature of upgrading the grid and um and obviously um uh we we sell and make products that will help upgrade the grid so we we expect um that that market will be quite bullish for us for the next uh three to five years makes sense um and then i guess in the second uh i think you had said last year that you were looking at about 25 million dollars of synergies uh from environmental

solutions uh by the end of 2020 so just kind of curious where you are on that progress and uh if that 25 million dollar plus number is still how you're thinking about it for the exit rate for this year?

Yes. Hi, good morning. Yes, we actually exited our first year of integration above that $25 million of run rate synergies. That's the reason why that even with the high utilities growth in 2026 that cost an unfavorable mix in terms of margin, we're still able to hold the margin percentage due to the synergies dropping to into 2026 within the environmental solution segments all right got it great thank you you're welcome your next question comes from the line of kyle menges with citigroup please go ahead great thanks for taking the question and congrats on closing the rev g deal um i did want to just double click on the esg guidance a little bit i mean talking about flat guide and i was thinking maybe that would imply

that the oe sales portion of that could be down a little bit this year so i'm curious just what should give investors confidence that this might just be a blip here in 2026 versus maybe the first year of a softening of this rep use recycling cycle yeah just just so uh we're we're um we're aligned here we're we're guiding mid-single-digit growth for the environmental solutions as a whole and then esg within that environmental solution we're we're guiding uh flat for 2026 excluding potential pre-buys in the second half 2026 that would be upside to the guide so yeah we don't we see that um that end market as fairly non-cyclical uh we don't see uh any kind of we actually see uh continued growth going into 2030. the only reason uh we uh we see esg within environmental solutions, kind of slowing down the growth rate a little bit is just because we're caught up on lead times. We're now back to largely being a book to build business, which is where we were before COVID. So we don't take that as a leading indicator that the business might be peaking. It's quite the contrary. We think that that business has a lot of upside and for more reasons than just GDP growth. There's also fleet modernization going on. There's all sorts of new technology going into that space. So we see multiple angles for growth.

And then just a couple questions on aerials. Sounds like you're planning some pricing for 26. Just would be good to hear how those negotiations have gone as you're entering 26 with the customers. And then just a quick one, just anything to call out in your mix in 26 versus 25 as far as nationals versus independents. Thank you.

Yeah, so for 2026, we continue to see most demand coming from replacement in North America and in Europe and mostly from the mega projects. We did not bake in any kind of meaningful recovery in local private construction spend in 2026. We see that more happening in 2027. Fleet utilization is up year over year. Our national customers are in the next couple of years because of the mega projects alone. But the real uplift for this segment will come when local and private construction comes back up. And we see that happening in 2027 and not in 2026. So that's why the guide is kind of a little bit of moving sideways here because of the private construction spend not picking up until 2027.

Your next question comes from the line of Steve Barger with KeyBank Capital Markets. Please go ahead.

Thanks. Good morning. Morning. Simon, on slide four in the emergency vehicle section, there's a note that says there's a mandated replacement cycle. What category of vehicles is that, and what percentage of the fleet turns over annually because of mandates?

That's a good catch. I think that it is every ten years. I think you're talking refuse. um it says emergency vehicles emergency vehicles let me just look that up we're on slide four in the footnotes uh in the let me get back there it's yeah emergency vehicles so the the left most box the second bullet large installed base with a consistent and mandated replacement cycle oh oh i'm sorry i got you now i thought i was looking in the footnotes you're talking on the slide okay got it yeah yeah yeah so so um uh obviously uh fleet needs to stay fresh and um there is a mandated replacement cycle there's not a real number tied to it per se but um yeah within emergency vehicles um municipalities uh you know want to keep their their fleet uh with the maximum uptime possible and that's why they have specific kind of goals and targets around their replacement cycle. Okay and I know it's really early in owning Rev but you are maintaining leadership there so my question is just given the size of the backlog and where lead times in the industry are do you see a path to accelerating production which can result in a higher growth rate maybe not this year but as you look into 27 and 28 yeah i mean the the industry is obviously investing in in in adding capacity and optimizing throughput as it should because backlogs need to come down i mean they're at two years plus and bookings continue to be strong and so just to make sure that we as an industry that we keep working on bringing our backlogs down um you know we're we're investing in capacity and so and so are we there's uh there's uh you know our our main location in florida um and our location in south dakota we're investing in capacity expansions and um and capacity upgrades and so um we think that the kind of the sustain is about a year and um but it it might take another two years or so before we get to that kind of backlog level but yeah bringing down the backlog is what the focus is right now and that will lead yeah right so is it possible that business could grow in double digits assuming orders hold up and the backlog coverage is there while you try and bring those lead times down and again not this year necessarily but at some point yeah for now we are already ahead of you know specialty people this segment is already ahead of their investor day kind of commitment and so kind of we we don't want to count ourselves too rich here we're guiding high single digits and we think that that's probably a more realistic outlook and that's what we're guiding today understood thanks yeah thank you there are no further questions at this time i don't know turn the call back over to simon meester for closing remarks thank you operator if you have any additional questions please follow up with jen or derek and with that thank you for your interest in terryx operator please disconnect the call.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.