Aebi Schmidt Group 3Q 2026 Earnings Call - AEBI SCHMIDT HOLDING AG

Good morning and welcome to Abbey Smith's third quarter 2026 earnings call. Joining me on the call today are Baran Trujtov, Chairman and Group CEO, who will provide the highlights of the third quarter on outlook and the concluding remarks, Stefan Schwerder, CEO of North America, and Henning Schroeder, CEO of Europe and rest of the world, who will detail the performance in their respective segments, and Marco Portman, Group CFO, who will provide a financial overview. Today's comments include forward-looking statements subject to the Safe Harbor language contained in the press release and in Abbie Schmidt's filing with the SEC. And as a reminder, all figures prior to the July 1st, 2025 acquisition are presented on a combined basis for Abbie Schmid and the acquired shift group. And with that, I hand over the call to Barrand. Good morning, everyone. Before we begin, as today is Veterans Day in the United States, I would like to take a moment to recognize and thank all veterans across our U.S. workforce and beyond for their service. And with that, let me turn to our business. Our third quarter result shows solid growth, higher profitability, and substantial strategic progress in our quarter that was not without challenges, which we will detail as we dive into the numbers. Despite these challenges, as shown on slide five, our order momentum remains strong, net sales and adjusted EBITDA improved by 5%, and net income has increased by 10 million year over year. Looking at our year-to-date performance for the first nine months, we clearly see the strength of the shift of the group after the shift acquisition with substantial improvement order intake and backlog, translated into double-digit adjusted EBITDA growth. Looking at the highlights of our third quarter on slide 6 in more detail. Commercially, we delivered strong order intake of 528 million and continued to grow our record-high backlog, which stands at $1.3 billion. This helps us to overcome the softness in selected end markets. In North America, we continued to build momentum across multiple businesses with several multi-million dollar contract awards. We also continue to capture a high wallet share in the growing and recovering walking man market. and have become the market leader in this space with a backlog well into 2027. In Europe and the rest of the world, we secured several notable wins and see very healthy demand for our recently introduced product updates. Ultimately, we grew net sales organically by almost 5% despite challenges in our supply chain with OEM chassis and engine constraints, and supply disruptions in Europe. My colleagues will provide details in their respective sections. In terms of profitability, we continued to manage and optimize our costs, compensating for the high inflationary pressure visible in our temporary lower gross profit margin. Ultimately, we improved our adjusted EBITDA by 5%, maintaining a stable adjusted EBITA margin and further strengthen our balance sheet through disciplined working capital management on continued deleveraging. Now turning to slide 7 to have a broader look at the remarkable transformation of Abby Schmidt since the acquisition of the former shift group in July 2025. As you can see, we have substantially optimized and consolidated our manufacturing network to improve absorption and operational efficiency. We have also better aligned manufacturing and supply chain operations to reduce transportation costs and improve our resilience. And we consolidated warehousing activities in Charlotte to drive future efficiency and accelerate our after sales growth. Beyond footprint optimization, we have expanded our office center network to broaden our reach and to be closer to our customers. Additionally, we have accelerated the synergy realization and remain on track to achieve 37 million by year end with an additional 5 million for next year. Overall, these actions are laying the foundation for a stronger, more efficient, more scalable business. Turning to slide eight. While our focus remains on delivering strong near-term results, we are equally committed to building the foundation for sustained success in 2027 and towards our 2030 midterm targets. We continue to strengthen our competitive position, Growing our market share, like in the walk-in van space, we enlarged our total addressable market with new products for regional and general aviation airports. And we have recently strengthened our leadership team with three business unit presidents to accelerate growth in North America. We also created a new chief global production excellence role to improve operational performance and appointed a new Chief Supply Chain Officer to strengthen the supply chain in challenging environments. Finally, we have announced on Monday the planned acquisition of OJ Watson, a municipal and commercial upfitter with around 28 million net sales per year. Our first acquisition after shift gives us direct presence in the Rocky Mountains, closing a wide spot. We expect the transaction to close before year-end 2026 and to be accretive to EPS in the first year after closing. Together, these initiatives allow us to drive sustainable performance improvements well beyond 2026. And with that being said, I turn the call over to Stefan for the North America update. Thank you, Bart, and good morning, everyone. We are on slide 10. North America continued to deliver strong progress during the third quarter. In airport, we secured a $9 million contract with major Canadian airports, and we had first successful deliveries to a leading U.S. airport, creating opportunities for future growth. In goods transport, we have become the market leader in walk-in van outfits. According to our estimates, we've achieved a majority of wallet share with most strategic customers year-to-date. In our commercial truck operations, we continued to expand customer relationships, including a $15 million multi-year project for Monroe Commercial. Finally, in municipal, we secured a $4 million road marking truck order from a major state transportation department. It's just one example of continued healthy demand in the customer segment. Overall, customer engagement remains strong. Our competitive position continues to improve across our businesses. Turning to slide 11. let me highlight an example of value creation cost shift acquisition the transformation of our walk-in van business what was an underperforming operation at the time of the acquisition is now a high-performing plant that has allowed us to become the number one upfitter and i'm especially proud to say that this is first and foremost an internally driven success story we have significantly strengthened our sales approach capturing key strategic customers This includes winning back high-value accounts with direct involvement from senior management. The market is also recovering after several years of post-COVID normalization and is growing. We currently estimate the market at $500 to $600 million, with additional tailwinds to further growth. Importantly, this has not only been a sales success story, it's above all an operational turnaround. Over the last 15 months, first-past yield improved by 64% points, units requiring rework dropped by almost 90%, output per day increased by 77%, while direct labor headcount was reduced by 9%. This all is comparing June 2026 versus one year prior at the closing of the acquisition. And we have further improved our operations since, for example, surpassing the shown first-pass yield of 74% in the last months. This showcase demonstrates the expertise and effectiveness of our team. Turning to slide 12. North America delivered a strong quarter, overcoming headwinds from selected soft markets, supply chain capacity constraints, and cost inflation. Auto intake was impacted by reduced OEM chassis allocations for commercial trucks, elevated fuel prices, and OEM inventory reductions ahead of new model launches. Nevertheless, backlog remains above $1 billion, providing strong visibility into 2027. Net sales increased nearly 8%, driven by internal improvements in municipal, increasing capacity and turning the existing backlog into revenue. As mentioned, continued strength in walk-in van operations contributed as well. Adjusted EBITDA increased significantly by more than 8% to $37.2 million. Profitability improved despite higher material costs and weaker aftermarket activity, especially in the utility master business. Overall, we continue to make progress while positioning the business for long-term growth. And with that being said, I have to call over to my colleague Henning Schroeder. Thank you, Stefan, and good morning, everyone. Europe and the rest of the world have proven to be a resilient business amidst geopolitical uncertainty, supply chain disruptions, and ongoing high inflationary pressure. As we see on slide 14, we continue to win the relevant deals across all our business lines. In airport, we began with deliveries to Paris Airport ADP only two quarters after securing the award, demonstrating the strength of our operational execution. we also delivered a cross-brand solution for a leading northern european airport combining technologies from north america and europe into an integrated customer solution in municipal we secure preferred supplier status for 100 side loader waste collection bodies with a leading spanish waste management provider within agriculture customer response to the new abitera truck has exceeded expectations with more than 100 orders received since launch These achievements demonstrate the strength of our portfolio and the depth of our customer relationships. Turning to slide 50. Europe has consistently been a strong driver of profitability for the group, supported by our leading market positions, strong aftermarket business, and disciplined execution. Our core European markets delivered an outstanding performance during the first nine months of 2026. Compared to the same period last year, order intake increased by 13%. This translated likewise into 13% organic net sales growth versus the first nine months of 2025. At the same time, aftermarket net sales increased by 11% compared to the prior year period, underlining both the broad installed base and the extensive aftersales network across Europe, with a share of our aftersale revenue reaching nearly 25% year-to-date. And as I outlined a minute ago, our future growth is supported by the successful launch of new products like the TerraTruck, the Klingo, and its electric version. With additional product launches planned in 2027, we are confident that we can continue building on this momentum in our core European markets. Moving to slide 16. Having just detailed the strong growth in our co-European market, we also need to acknowledge the weaker demand from china and the middle east impacting overall performance in china lower public investment stricter local content requirements and delayed tender activity continue to affect market demand in order to address these challenges we strengthen our market position by expanding our localized product range and offerings through our established joint venture in china in the middle East the continued geopolitical conflicts have begun to affect order demands, limiting growth opportunities. And unfortunately, we also faced the insolvency of two smaller but important suppliers in Europe in the third quarter, temporarily leading to a disrupted supply chain in what was otherwise a strong operational performance. Ultimately, net sales declined 3.6% in third quarter compared to the prior year, with year-to-date growth coming in at a very respectable 5.4 percent looking at our profitability adjusted ebda was further impacted by inflation pressure on material cost as well as significantly higher freight costs and as such we see a similar pattern as in net sales with an adjusted ebitda decrease in the third quarter while upholding a substantial improvement year to date looking ahead our priority is to restore growth in the rest of the world particularly in china We are well positioned to deliver tailored local solution and capture growth opportunities as market conditions improve. That concludes my comments, and I now turn the call over to Marco. Thank you, Henning, and good morning, everyone. Turning to slide 18 to look into more details of our consolidated third quarter financials. Order intake increased by 2% year-over-year to $528 million. The growth was driven by North America and within North America by the continued recovery of walk-in van demand. Our municipal business continues to show good demand in both segments, likewise to our airport business, except for the mentioned weakness in the rest of the world. We ended our third quarter with an order backlog of 1.3 billion, 16% higher than the prior year, driven by that walk-and-van demand in North America. Moving to slide 19, looking at net sales. Net sales grew by 4.6% year-over-year to 493 million, driven by North America, with almost 8% organic growth versus a slightly weaker Europe and rest of the world, as outlined by Henning. The achieved 5% growth demonstrates the resilience of our business despite several supply chain-related challenges. During the quarter, we continued to deal with supplier insolvencies in Europe, OEM chassis supply constraints in the U.S., and temporary production disruptions. While these factors impacted volumes during the quarter, our teams addressed these issues, and we have seen the underlying potential of our facilities after the executed improvements during the last couple of months. Turning to slide 20 for a more detailed view on our gross profit margin development. In Q3 2026, our gross margin stood at 19.2%, 80 base points down from prior year and approximately 130 base points below our own target level for the quarter. This reflects the combination of external headwinds, including ongoing geopolitical uncertainty, adverse macroeconomic conditions, and especially the pronounced and continued material cost inflation. In this situation, our first priority is protecting our current profitability. We accelerated and amplified cost measures, maintained strict discipline to mitigate the margin impact, and have managed to fully compensate for the weaker gross margin on the trusted EBITDA level. Our second priority is restoring gross margins over the coming quarters. We have already implemented substantial pricing actions covering the realized and expected material cost increases. However, it takes time until these prices are fully realized due to the long backlog in multiple businesses. We also advanced operational initiatives, including further footprint optimization. And it is encouraging to see that the gap is already closing with the year-on-year decline narrowing from 100 basis points in the second quarter to 80 basis points into Q3, indicating that the actions taken are beginning to deliver results. While the external environment remains challenging, we are confident that the size of action will ultimately drive further improvements to our performance. And this temporary margin pressure does not impact our business model or longer-term outlook. We reaffirm our 2030 target with an adjusted EBITDA of at least 13%. Now, turning to slide 21 to look at adjusted EBTA. As just explained, we are fully compensating for the temporary lower gross margin with our decisive actions and operational improvements. Ultimately, adjusted EBITDA for the third quarter increased 4.9% year-over-year to 44.2 million, representing an unchanged margin of 9.0% and the growth of our profitability in line with our sales development. Finally, turning to slide 22. capital stood at $465 million at the end of the quarter and remained broadly stable on a like-for-like basis, that is without the targeted, also temporary investments in inventory to alleviate the material cost pressure. Real-term growth in working capital was 3%, compared with net sales growth of nearly 5%, demonstrating continued underlying efficiency improvements. Net debt declined to 446 million, reducing leverage to 2.66 times and representing a reduction of more than half a turn compared to prior year. Further deleveraging is expected until year-end on the back of an expected strong operating cash flow in the fourth quarter, reflecting our yearly seasonal pattern with a strong year-and-run from September to mid-December. and we ultimately expect leverage below 2.5 times by year-end 2026. With that, we will have to leverage by at least three quarters of a turn in the span of 18 months from the shift acquisition to year- end 2026 This strengthens our financial position and supports our long-term capital allocation priority, including headroom for further acquisitions. That concludes my comments and I hand it back to Borland for the closing remarks. Thank you, Marco. me conclude with a few key messages on slide 24. first we are strengthening our position in most of our markets we are winning strategic customer awards expanding partnerships and see more and more cross-sale opportunities this shows that our sales approach works and our product solutions are highly appreciated second despite a challenging environment we are able to deliver good organic growth of almost five percent and we have the backlog for future growth third as long as we are facing temporary pressure on our gross margin we will continue our strict cost management to compensate for that impact the respective necessary sales price increases are fully executed will materialize in the coming quarters and we expect to see the recovery of our gross margin accordingly and of course our priority is to accelerate measures to improve production efficiency execute on on sales pricing and delivering the expected margin recovery as we demonstrated with the turnaround of the walk-in van business we're a strong operator with a proven ability to execute and deliver results. Some of these actions will take time to fully come through, but they will further strengthen the quality, the resilience, and earnings power of our business. Given these market headwinds and disruptions, we are slightly updating our guidance for full year 2026. We expect net sales between 1.95 and 2 billion, adjusted EBITDA between 170 and 180 million, and leverage below 2.5 times. We remain confident in our long-term targets, in the actions we are taking, and in our ability to create sustainable shareholder value. That concludes our presentation. I now turn it over to our operator to open up the line for questions. Operator. Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. Please limit yourself to one question and one follow-up only. To withdraw your question, please press star1 and 1 again. We will now go to our first question. One moment, please. And our first question today comes from the line of Michael Schlitzke from DA Davidson. Please go ahead. Yes, hi. Thanks for taking my questions this morning. Maybe I can start with asking about some of the happenings over in Europe. You mentioned that several European suppliers faced insolvency during the quarter. I'm curious whether you have found new suppliers by this point and whether everything is that kind of back to normal up and running with somebody else or still a little more work to do there yes thank you for uh asking the question yes uh this has been addressed and relocated and we are back to a normal operations by now great appreciate that. Thank you, Henning. I also want to ask separately about the trajectory of the walk-in van business in 2027. You're going to be seeing, I think, Ford winding down at least some of their capacity throughout perhaps all of it, and then you'll see eventually the new supplier ramp that up again. I guess first, was that part of the chassis supply issue that you mentioned, that they've already maybe started to scale down production a bit? And I'm also just kind of curious how you and the customers are going to work through 2027 if one supplier is winding down on the chassis and one's winding up. Just how that might work. Are they pre-buying? Are you pre- Buying? Or have you just talked with them about production and delivery schedules? Mike, this is Stefan. Thanks for this question. Two points to that. Point number one, when we talk about the shortage on the chassis supply, this more towards the commercial side when we talk about pickup trucks and car manufacturers. On the walk-in van side specifically, we We believe and we confirmed that the supply through 2027 is secured with the existing allocations, and the supply will last until the second supplier will ramp up. Well, there you go. So, Mike, just let me add one point. You know, there is also a bit of a challenge with the OEM. They launched their 2027, shall see a bit later, and that affected then also our sales. So, we expect recovery then beginning 2027. And honestly, we also were able to win some nice fleet deals, which then will also kick in in 2027. Great. Thanks so much. I guess I'll pass it along. I'll hop back in queue. Thank you. Your next question today comes from the line of Matt Claranda from Roth Capital. Please go ahead. Hey guys, good morning. Thanks for taking the questions. Maybe just starting out with the revised guidance for 26, just wanted to get a better feel for the cut at the midpoint if we're thinking about the $75 million revenue cut and the $10 million EBITDA cut. how much, I guess, should we attribute to North America and the supply chain issues around commercial truck body and chassis versus the EU and some of the supplier issues that you highlighted in the prepared remarks? Yeah, Matt, this is Marco speaking. Yeah, so on the revenue guidance update, essentially, there's a good chunk coming now out of the third quarter. I mean, you have seen right versus our own expectations uh coming from these supply chain disruptions and that is indeed uh quite sizable in europe uh with also some impacts as you mentioned for disruptions in the us too um that is the bigger share of what you see in that revision that is the main driver at the end of the day okay got it um and then maybe just one on on the recent acquisition that you announced, OJ Watson, any historical context on sort of the revenue growth profile there? I know you guys mentioned sort of a pinpoint revenue number for, I guess, the most recent fiscal year. Could you confirm, I suppose, the timeframe of that revenue that you provided from the most recently fiscal year? And then what's the margin profile of that business look like and and maybe just tying it all up sort of talk about the strategic importance of sort of the the business there in terms of how it fits with your your existing outfit business that you already have okay first of all thanks a lot for this question so and the revenue as i mentioned in my speech it's 28 million so that will also fully kick in then in 20 um uh 27 this is first of all then you know what's the strategic logic behind the whole transaction and we always had a partnership with oj watson so we know them and we know their business and we always had a white spot in in that specific area and there is a third reason why we made this acquisition you know denver is they run close to 100 with our equipment and you know that helps also to support them in terms of service and after sales so uh strategically that makes a lot of sense and the marching profile the other question you had is similar as we have at the whole uh abby schmidt group in in north america okay yeah that's very helpful baron thank you and then maybe just historical kind of revenue profile in terms of growth and how to think about sort of the the way that you you bend the growth curve on a go forth basis with them as part of ab yeah i mean historically they have grown decently over the years more importantly for us looking forward we expect them to grow at the same level and above with high uh high growth profile compared to the other north american business so as you know we guide midterm for a six percent growth year-over-year uh generally speaking and they will be slightly above that okay helpful guys thank you thank you thank you your next question comes from the line of dave storms from stonegate please go ahead Good morning, and thank you for taking my questions. Just with some of the improvements that you've made in the walk-in vans, you know, I think it was slide 11, the highlight of this, how are you thinking about your capacity and maybe additional capacity unlock if you can replicate this at other existing facilities, and then maybe if you could parse that into your ability to keep up with the backlog and new orders North America so good morning this is Stefan thanks for the question here so talking about this maybe two or three points here on the walk-in van municipal and airport side we are close to capacity here at the moment we are a little bit low on the capacity side with commercial and on truck buddies who shifts are possible but we are facing people constraints but we're looking very positively into 2027 that we can balance the output and the demand here that the market requires. Understood. Really appreciate that. I also wanted to circle back to some of those mentioned prayer remarks. In Paris, you're able to start delivering. In the Paris airport, you'reable to start deliver in about two quarters there. How applicable is that to maybe some of the North American contracts you've found recently in Canada or elsewhere? Yeah, Dave, I mean, we highlighted this as a great success in terms of the Paris airports that we delivered rather quickly after taking the order, because that's not necessarily the usual approach in airport, right? The airport typically is nine months plus between order placement and first deliveries. And especially with our long backlog, that is something we can add for, you know, the benefit of the customer with quicker turnaround and obviously priced accordingly from our side then as well. That is, however, a good example of the European operational strength. It doesn't directly want to apply to the U.S., but obviously we are bringing in, generally speaking, a lot of the expertise in the U。S. as well from our European colleagues, basically, you now, reflecting the same improvement methodology in how we do our production. And you also mentioned the Canadian market, you know, given this, you know, tariff discussion and so on, we are also able to deliver some products from Europe towards Canada. And there we already have some tenders on our table because they want to avoid having this tariff cost. So there we have, honestly, with our setup, we have a very flexible model in place, you know? Understood. Thank you for taking my questions, and good luck in the next quarter. Thank you. Your next question today comes from the line of Greg Lewis from BTIT. Please go ahead. Yeah, hi. Thanks, and afternoon, and thanks for taking my question. You know, I was kind of curious, you know, as you kind of alluded to the margin ramp and some of the cost potential gains that you could get. I mean, I guess what I'm trying to wonder is obviously there, you know, post the election, there's talk of tariffs being lifted in the U.S. You know, like if we think about when that starts to happen, like how many how long should that take to really start to show up in the numbers? Is that a is that a one quarter? Is That a two quarters? is that how long should we think about that benefit starting to flow through in the margins? So just first from an overall picture, you know, you mentioned again the tariffs. The tariffs is not a big issue for us. It's more the energy prices which affects us. You know, some of the steel prices went up close to 100 percent. And as you can imagine, in the municipal space, you have a high portion of steel, and that really affects our gross margin. And as mentioned in the presentation, we expect a recovery between 90 up to 160 basis points. And so we already started to increase prices, but given our backlog, that takes a bit of time. And that's why we also had a strong focus on executing the synergies and strong cost control. And probably a bit more details towards the margin from Marco. Yeah, I mean, just to add, right, you said it. The tariffs themselves are not a huge topic, and that will not generate, in that sense, a notable uplift. but we would be very happy if that topic resolves, because, of course, the distortions are also impacting us, at least indirectly as well. So, no one likes that situation, and especially the volatility in that area. But generally speaking, everything that we talk about here from a supply chain perspective, be that commodities, energy prices, or tariffs, you can think about that There's about two to three quarters delay until you see it in the numbers. Okay. And then realizing that, you know, we're going to integrate O.J. Watson clearly there, you know, the business pretty well. You know, you did mention this was the first, you know, acquisition since we kind of absorbed shift. You know. Was this kind of a one-off or is this something where as we look out over the next 12 to 18 months, this could be first of what we think could be, you know, or another way. Are there opportunities to continue rolling up the upfitting market across North America? And I think, Bernard, you mentioned there was kind of a white space or hole in that Rocky Mountain region. I mean, it does look like there should be other opportunities for more of that type of M&A. Is that fair as we look out over the next 12 to 18 months? Absolutely. And just to put this a bit in a broader context, you know, so as you mentioned in our 2030 strategy, so we need to add roughly 400 million of revenues by acquisition. And we always mentioned that we also want to do some talking deals as we have done with this OJ Watson deal. And there we have some more on our radar screen and as you as you have seen these are most of the times deals where you have a family behind and it's a succession topic and there is always a question to build trust you know then becoming part of a listed company that is always of a jump as you can imagine and that is one of our core competence doing these deals you can just also compare with the deal we have done in europe two years ago that's the lotto that's probably one of the best deal we have done ever that was also succession totally and there there is more to come okay super helpful thank you very much thank you your next question is a follow-up from michael schlitzky from da davidson please go ahead oh hey thanks for taking my thought question here um i want to go back to slide seven you outlined a couple of things that have happened since uh the shift deal back in 2025. the very last thing that you mentioned that happened here that uh on the slide you didn't mention in your comments you just wrote it here you expanded you expanded your extended production capacities in both the municipal and blue arc line in charlotte a little bit surprised to hear that about blue arc we have to discuss that in a couple of quarters um are you really expanding production and what's behind that and just give us the update on on how blue arca is kind of going here yeah mike uh i'll take this one this is marco speaking so um well spotted actually um and yes so blue arc let me put it this way blue arc is definitely not dead uh in that case we have in fact had follow-on demand for it we are producing blue arcs as we speak that's what what we refer you to with that line in Charlotte. But of course, that doesn't mean that we have picked up Bluehawk as a program. So we're not investing in a big next generation overhaul or anything like that. We are producing Bluehawks vehicles in our established lines, indeed, where we have expended capacities with a slightly adjusted version from the original shift solution that is cheaper and as we can see by some demand that is recognized in the market with with some with some pickups so we we will see if that turns into substantial upside for the now for the time being those are smallish numbers or small numbers indeed uh with uh yeah first uh first couple of let's say trials at the end of the day and then you had another question mike with regards to the municipal production you know as you know we have a very high backlog and we try to use our locations and that's why we we call it some pop-up production which we have implemented for example in charlotte and there will come another up another one in in auckland um during the course of next year and to to speed up and to reduce the backlog you know that's that's the reason behind and honestly that already works pretty well um so that's that's there's a reason behind outstanding i appreciate you taking that follow-up thank you of course thank you this concludes the Q&A for today and I will now hand back to Simone Grancini for closing remarks thank you Sharon I thank everyone for joining today's call and your interest in the Abishmit group as always please reach out to investor.relations at abishmit.com if you have any follow-up questions