Q3 2025 Aebi Schmidt Holding AG Earnings Call
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Speaker #1: I would now like to turn the conference over to your first speaker today, J. Goldbaum, General Counsel. Please go
Speaker #1: ahead.
Speaker #2: two, with our safe harbor All right. Thank you, Sharon. We'll start on slide statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied.
Speaker #2: Primary risks that management believes could materially affect our results are identified in our forums S4 and 10Q, followed by the SEC. We will be discussing non-GAAP information and performance measures, which we believe are useful and evaluating the company's operating performance.
Speaker #2: Reconciliations for these non-GAAP measures can be found in the conference call materials. Please also note that historic financials presented herein for the purposes of comparing our third quarter 2025 performance are presented on a combined basis and do not reflect any pro forma adjustments or adjustments for costs related to integration activities, cost savings, or synergies that have occurred or may have been achieved if the acquisition of the former ship group had occurred on January 1, 2024.
Speaker #2: Turning to slide three, I'd like to introduce the speakers for today's earnings call and the agenda for our presentation. Barron Fruithoff, Group CEO, will provide the third quarter highlights, outlook, and concluding remarks.
Speaker #2: Stefan Schwerda, CEO of North America, will detail the performance and developments in North America. And Marco Portman, Group CFO, will provide a financial overview.
Speaker #2: With that, I'll hand the call over to
Speaker #2: Barron.
Speaker #3: Thank you, and good
Speaker #3: quarter. Our first quarter after our takeover of the ship earnings call for the third group on July you to Aebi Schmidt Group's 1st. We have made considerable progress in integrating the two businesses leveraging the expertise and knowledge of our employees of both of the combined morning, everyone.
Speaker #3: business. And we see very tangible improvements. We have created a new, stronger I would like to welcome group with significant step-up in profitability. Looking at our highlights on slide five, despite a continued challenging economic environment with many uncertainties, we show an ongoing very strong order momentum with our third quarter intake up 33% year over year.
Speaker #3: This growth is supported by the sales excellence we have implemented at the Stefan will speak about this in more legacy shift business, detail. We achieved 471 million sales at 3% increase year over year driven by significant organic growth in Europe.
Speaker #3: Sales are flat due to soft North American sales in walk-in vans and truck bodies at our legacy shift operation. To address the soft demand, we have countermeasures.
Speaker #3: Reorganize the business and already see a recovery in the walk-in van implemented substantial Driven by this order momentum, we expect a significant orders in the third quarter.
Speaker #3: increase in our four-quarter sales. Our profitability improved significantly with an adjusted EBITDA of 42.2 million at 25% increase year over year. Driven by North America, with a double-digit adjusted EBITDA margin of 2.2 of 10.2%.
Speaker #3: Europe and the rest of the world is also recovering fast. Making substantial progress compared to the recent quarters. We continue to carry an elevated working capital to support our strong growth.
Speaker #3: We have dedicated actions in implementation that will improve our working capital efficiency by year-end. Contributing to the fourth quarter. expected strong positive cash flow in highlight of our operation is our new super center in Chicago, which went live in early October, providing excellent customer service as a one-stop shop, broadening our service portfolio.
Speaker #3: And with our second earnings release post-acquisition, we can provide our second increase of expected synergies that have a look at slide six. Prior to the acquisition, we identified synergies of 25 to 30 million.
Speaker #3: With our Q2 earnings release, we increased this target by 10 million to 35 to 40 million. Today, will reach the upper end of the we can confidently say that we increased target of 40 that we can deliver those million.
Speaker #3: accelerated timeline versus our initial target. We expect half of the mid-2026 and the full realization synergies by by mid-2027. In addition, we have implemented operational cost savings to support our profitability until the sustainable realization of the synergies materializes.
Speaker #3: positive impacts on our third quarter results with a significantly improved EBITDA margin. Let's have a closer look at Europe and the rest We're also confident of the world on slide And we see first seven.
Speaker #3: Airport and municipal both continue to show very strong order momentum and organic growth with improved margins. Our investments in the next generation sweepers including electrified sweepers and our updated product offering in agriculture are expected to provide further momentum in 2026.
Speaker #3: Despite the summer holidays in Europe, we achieved sales of 135 million and increase of 2.9% from the second quarter. Europe and the rest of the world's profitability significantly recovered with an adjusted EBITDA of 7.9 million, 50% above the second quarter.
Speaker #3: I now hand it over to Stefan for North America.
Speaker #1: Thank you, Barron, and good morning, everybody. Thanks for giving me the opportunity to speak to you today. Let's talk about our market environment on slide nine.
Speaker #1: Currently, we see a very good market momentum. Our airport business is going very strong. We have a solid backlog moving into 2026, and we are working on adding capacity to bring lead times further down.
Speaker #1: This should enable us to capture additional opportunities. In goods transport, we see improvements in order entry for walk-in vans. This will give us a good tailwind until year-end and into next year.
Speaker #1: We also believe that we are currently able to gain market share. On the commercial truck side, we see strong performance in the fleet sector.
Speaker #1: Dealer inventories are still elevated, but also here we see good developments for Aebi Schmidt. And finally, on the municipal side, we see very strong coding activity and order entry.
Speaker #1: This provides a very good backlog for 2026. And in addition, we are expanding our geographical footprint to support additional market share growth. Let's go to slide 10.
Speaker #1: As you can see, backlog, order entry, and sales have improved quarter over quarter. And on the profitability side, we are on the right track with delivering a double-digit EBITDA margin this quarter.
Speaker #1: And for additional context, the 10.2% EBITDA margin in Q3 this year is 290 basis points higher than in Q3 2024. Finally, on slide 11, you can see the strong development in the order entry of the former shift as we certainly see some market recovery on the walk-in van side.
Speaker #1: But in addition to that, everybody in North America is now working with the same sales tools. This allows us to fully capitalize new opportunities, which emerged across all segments.
Speaker #1: So we are going into 2026 with a very healthy backlog and with a traditionally strong production setup from the legacy shift side. We have a good level of confidence to also succeed in 2026.
Speaker #1: Thanks, everybody, for listening. And with that being said, I'll hand it over to Marco.
Speaker #2: Thanks very much, Stefan. And good morning, everyone. We continue on slide 13 with a more detailed look of our third quarter results. As already mentioned by my colleagues, further growing our backlog.
Speaker #2: Our order intake increased 33% year over year and 17% versus the second quarter, with significant growth both in Europe and the rest of the world and North America.
Speaker #2: Driven by airport and municipal and the recovery in walk-in vans. Our order backlog increased another 6% since June 2025 to 1.13 billion. Which will translate into sales within the next 15 we see a substantial order momentum, months, supporting our 2026 outlook with expected significant organic growth.
Speaker #2: Moving on to slide 14. Our third quarter sales reached 471 million, 3% increase year over year, and notably a 4% increase versus the second quarter, despite the usual summer breaks in Europe.
Speaker #2: However, I also have to point out a disappointing fact. The sales of the acquired shift business. shortfall of 200 million We see a versus their announced 969 million sales for full year 2025.
Speaker #2: While the strong order momentum in, while the strong order momentum will allow us to improve significantly going forward, it will take its time to recover to previously planned sales levels.
Speaker #2: Despite this weakness, in the month of September alone, we achieved sales of over $180 million, with an expected continuation at that level, ending the year with substantial sales growth in the fourth quarter, which is the seasonally strongest quarter.
Speaker #2: Looking at our profitability on slide 15, you can see that we translated that 3% increase in sales year over year into a 25% increase in adjusted EBITDA.
Speaker #2: Delivering 42.2 million versus 33.7 million the year prior. North America achieved a double-digit adjusted EBITDA margin of 10.2% in the third quarter, substantially overperforming prior performance.
Speaker #2: And again, this profitability uplift was achieved despite lagging sales at legacy shift. Europe and the rest of the world delivered 7.9 million adjusted EBITDA, a significant improvement from prior quarters, but only a first stepping stone with an adjusted EBITDA margin of 5.8% for the third quarter.
Speaker #2: This was achieved despite the third quarter typically being the weakest in Europe. For the group, this is a substantial 160 basis point improvement year over year, with the entire group, not just our North American segment, achieving a double-digit margin in the month of September.
Speaker #2: Moving on to slide 16 to take a look at our balance sheet. Our networking capital million, at the end of September. An improvement of 36 million versus stood at 451 prior year.
Speaker #2: Our expected significant sales growth requires us to carry an ongoing high working capital. However, we are implementing actions to improve our working capital efficiency and expect a significant contribution by year-end, with additional structural actions materializing in 2026.
Speaker #2: Our target is to largely compensate the growth-induced working capital needs with efficiency gains. Our net debt amounted to 469 million, increasing 22 million since the end of June, just prior to the closing of the acquisition of the former shift group.
Speaker #2: This increase is driven by the material transaction-related expenses and the expenses related to the shift business. Our leverage is consequently elevated for the time being, but we expect a first restructuring and integration of the acquired improvement driven also by a strong positive cash flow in the fourth quarter, to be lower leverage of 3.0 by year-end year-end 2026.
Speaker #2: As we mentioned in our last earnings 2025 and below 2.0 by call, deleveraging remains a key pillar of our strategy, as we continue an opportunistic approach for strategic tuck-in acquisitions and are watching the market closely.
Speaker #2: With that, I'll hand it back to Barend for the outlook and conclusion.
Speaker #1: Thank you, Marco. Let me summarize on slide 18. Aebi Schmidt Group's strategic vision is to establish itself as a premier leader in market. Targeting revenues of 3 billion and achieving a the specialty vehicle meetings-adjusted EBITDA margin.
Speaker #1: With our third quarter results, we have already taken big steps in that direction. Our integration is progressing exceptionally well, allowing us to confirm the upper end of the increased synergy target of 40 million.
Speaker #1: Our order momentum is very strong, particularly against a challenging market with an order backlog that supports ambitious growth targets. Our profitability has taken a big step upwards with 160 basis points margin improvement year over year.
Speaker #1: Our net debt will significantly improve supported by an expected strong positive cash flow in our commitment to substantially deleveraging by year-end the fourth quarter, and 2026.
Speaker #1: We confirm our market guidance for full year 2025. We expect sales at the midpoint of our guidance range of 1.85 billion to 2 billion, and we expect an adjusted EBITDA at the upper half of our guidance range to 165 of 145 million.
Speaker #1: We are very proud of our teams and what we have delivered in such a short time. We will continue to execute the integration delivering our synergies and grow our market shares.
Speaker #1: That concludes our presentation. I will now turn it over to our operator to open up the line for questions. Operator.
Speaker #2: Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced.
Speaker #2: Please limit yourself to one question and one follow-up only. To withdraw your question, please press star one and one again. We will now go to our first question.
Speaker #2: And your first question today comes from the line of Ben Summers from BTIG. Please go
Speaker #2: ahead. Hey, good morning, and thank you for taking my
Speaker #3: question. So it's nice to hear that you noted that you're starting to see a pickup in the walk of van business. Just kind of curious, you know, what you think is driving this pickup and I guess what your near-term outlook is
Speaker #3: here. Hey Ben,
Speaker #4: good morning. This is Stefan. So, we believe that there is a recovery going on in the market, you know, the demand was fairly low over the last years, and with talking to customers, there is a general increase here in the sentiment and basically the demand is picking up from here.
Speaker #4: and, that is what we believe is just a market recovery or what do you mean just? It is a market recovery in the walk-in van business.
Speaker #4: How far this takes, how long it goes, I cannot tell you, but at the moment, there's a very healthy and good order
Speaker #4: entry. Awesome.
Speaker #3: Thank you. Then just a little bit on the M&A opportunities that you guys mentioned. curious, you know, what you guys are seeing in the market there and then just kind of, you know, any potential timeline on when you think, you know, we can maybe start to see us really pursuing this kind of opportunistic strategy of these tuck-in acquisitions.
Speaker #4: good question. Thanks a lot, Ben. So, we're constantly being approached from kind of smaller, let's call it competitors also in, in, in, in Canada.
Speaker #4: more on the snow and ice side at the moment, but honestly, we just looked at it, so at the moment we are really focusing on, on the integration, making sure that we can further improve our profitability, and, making sure that we also have, our new organization on the
Speaker #4: control. Awesome.
Speaker #3: Thank you, everyone, for taking my questions, and thanks for the support.
Speaker #3: update. Thank
Speaker #2: you. Your next question comes from the line of Michael Schlitsky from DA Davidson. Please go ahead.
Speaker #5: Good morning, and thank you. you had some discussion on sales excellence initiatives at the Schiff Group business. Let me provide a little more color of, what we've done there and you have more to implement there.
Speaker #5: Have the results really been shown in the recent walk-in van orders, or is it being shown across, you know, Royal Dermac, across all businesses?
Speaker #4: Thanks, Mike, for the question. So we have done a few things. So we, first of all, we aligned the organization; secondly, we already, have now one common IT platform.
Speaker #4: So we, migrated all to, Salesforce, by 1st of November. so that everyone works with, with the same IT platform, and that is already a big step forward, I think, and that will help, especially to steer also, the sales and to measure our people in a, in a different way.
Speaker #4: And then we have also implemented some concrete measures, and, I would like to, give the word to, to Stefan to answer this a bit more in
Speaker #4: detail. So,
Speaker #6: Mike, this is Stefan. Thanks for the question. So it's not only on the walk-in van side. I think it is across the entire organization.
Speaker #6: Since November 1st, we are all on Salesforce.com. So every salesperson is required to put in call reports. We get the KPIs, the common set of KPIs across the entire organization, out of Salesforce with a weekly performance management.
Speaker #6: So basically, what we discussed earlier, we, we executed on that, and we are in, in, in operational mode here. On top of that, we did many, executive, meetings with customers, the bar and Jacob, myself.
Speaker #6: We were out, with customers talking to them, and we require from our people in every unit clear strategies for a strategic client management. So this is now spreading all over the organization.
Speaker #6: and we see good results here. So we will continue this path. we are at the beginning of the integration. When it comes to Salesforce, and all the performance data, and I firmly believe that we will gain a lot of traction from
Speaker #6: here. Outstanding.
Speaker #5: thanks. and as my follow-up, looking to 2026, I think, Marco, you suggested or said that you're looking for kind of growth next year. I know you've got the backlog certainly to back up a lot of that, a lot of that statement.
Speaker #5: any thoughts here whether it's gonna be more vocational growth, whether it's gonna be more, final mile? Any comments you can make about airport? Just some bit more of a, of a breakdown as to where you feel best and where you feel like you have to do a little extra work for
Speaker #5: 2026. Yeah.
Speaker #4: it's gonna be a combination of, you know, growth in, in a variety of our markets. I mean, as you know, we do have a very strong backlog, particularly in airport and municipal.
Speaker #4: And that concerns also both segments, but that's the case in Europe as well as in the U.S. That, of course, will be, you know, let's say the starting point for continued growth.
Speaker #4: and that is also what we really see already in, in our books. we're also quite confident that we have further opportunities, in our segments, in Europe, and expect to beat, you know, the, the, the basic GDP growth by quite a bit.
Speaker #4: so we have quite some ambitions for, for Europe 2026. And in, in the US, it is, yes, as, as we talked about in the Stefan also mentioned, we do see, you know, some very good momentum at the moment in walk-in vans.
Speaker #4: we'll have to see how that, continues, how long that continues, of course, it's, it's still a bit of a question mark. But at the moment, what we can see, and, what we're booking, we're very confident about that.
Speaker #4: But it's maybe a little bit more difficult, remains truck bodies. That's a bit more of a question mark. so we'll have to see how we can develop there in, in '26.
Speaker #5: Thank you.
Speaker #2: Thank you. Your next question comes from the line of Matt Caranda from Roth Capital Partners. Please go ahead.
Speaker #7: Hi, guys. This is Joseph on for Matt. Just wanna see if you guys can unpack here the margin improvement drivers, both at, your United States segment as well as Europe.
Speaker #7: Anything you can, give us there for details?
Speaker #4: Sure. Marco here. I mean, look, in the U.S., it is really what we can see now with that significant margin improvement that we, you know, are the new combined company.
Speaker #4: And so we see the margin improvement, on a gross margin level where we can push for, you know, better pricing policy from our side.
Speaker #4: And then especially - and that's the big one here in the third quarter - on the cost side, which is in parts the, the accelerated realization of synergies, but also just a lot of good cost management, operational cost management, because we have seen, of course, you know, the combined overhead, and that provides ample opportunities here to really, you know, push for that increase.
Speaker #4: And that's what uplifted us in North America very significantly and also very immediately. in Europe, it's really, you know, a recovery, I would say, a first step as we commented on in terms of recovery, to where we wanna be.
Speaker #4: not yet, of course, you know, at the margin level that, is, is acceptable long term, but we have made a significant step forward with the recovery in our after-sales business, in our margin that we generate there, and with a better pricing as well.
Speaker #4: So that is really supporting Europe. And if you see a further growth there as we expect, as we commented on, in 2026, we will have a, a nice scaling up there on the, the generated profitability, at the end of the day.
Speaker #4: So, as we said, we feel in a, in a we are in a comfortable place at the moment. the market, of course, has some, some uncertainties, but for us, what we can see in, in all the momentum and in our internal activities, more well on track with
Speaker #4: what we expected. May I add one
Speaker #5: point, Matt? you know, we have also two things on our radar screen, and that's what will be the, future f-footprint of our operations. that is something for sure we need to look at.
Speaker #5: And then the second point, we also think that we have, some potential on, on the COC side, which we, already, have, digged into. but that takes a bit of time.
Speaker #5: So after the first and that will be also part then, of our upcoming budget cleanup, now we need to do a bit more our, our strategic work,
Speaker #5: discussion. Got it.
Speaker #7: Thanks for the detail there, Bernd. and then as we look at the synergies, you're coming off well ahead of, like, the pre-acquisition of range that you guys gave back in December.
Speaker #7: You know, in your presentation, and as we look into ship order intake growth growing 100% sequentially, can you remind us of just other levers as we kind of move toward this goal of the $40 million in synergies?
Speaker #4: So our synergies, I mean, let me, let me reiterate what, what we're looking at here, right? So you know, pre-merchant, we were talking about 25 to 30 million.
Speaker #4: apologies. And the large part of that was already, cost-related. So basically, we, we identified what we said is roughly 5 million revenue synergies, about 5 million in procurement synergies, with some vertical integration that we have between the two businesses.
Speaker #4: and then the rest was cost synergies. So the big part was always cost synergies. What we now can see in what uplifts us at the moment, with our second increase here, to now saying we will reach the full 40 million, of the increased target that we have given last quarter, that is predominantly coming as well from additional cost synergies.
Speaker #4: So really on the, on the overhead cost, the overhead spend, that's where we rather immediately have identified further opportunities. as far as just alluded, in terms of the procurement, synergies, we're talking here the, the, the internal, you know, replacement of bodies.
Speaker #4: That will also, likely, you know, achieve that, that 5 million plus that we were talking about initially. But it takes a bit of time.
Speaker #4: We are working on that, progressing very well. But it is a topic that will only kick in in the second half year of 2026.
Speaker #4: And then on top, we have the revenue synergies, which, of course, are the ones that take the longest to fully implement. We do have good feedback.
Speaker #4: We do have good identification of, you know, customers where we can sell more products from our product range now. so that is going on, very nicely.
Speaker #4: But to really have that fully materialized, that’s then what you can expect to see, not just in the second half of 2026, but also what drags us into 2027.
Speaker #4: In terms of the majority, of course, of synergies, they are and will remain to be cost-related. And that's also why we're confident in realizing them also a little bit on an accelerated timeframe versus what we initially talked
Speaker #4: about. Got it.
Speaker #7: Thank you for taking my questions. I'll go ahead and leave it
Speaker #7: there. Thanks very much,
Speaker #4: Joseph. Thank
Speaker #1: you. This concludes the Q&A for today, and I will now hand back to Jake Auburn for closing remarks.
Speaker #5: Thank you, Sharon. and I would like to thank everyone for joining today's call and your interest in the Aebi Schmidt Group. As always, please feel free to reach out to investor.relations@abischmidt.com if you have any follow-up questions.
Speaker #5: With that, Sharon, please disconnect the call.