Terex Corporation Q4 FY2025 earnings call

Thanks, Derek, and good morning. I would like to welcome everyone to our earnings call and appreciate your interest in Terex Corporation. Last week, we concluded our merger with REV Group, the defining milestone in Terex Corporation'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. We'll begin with our 2024 acquisition of ESG, which delivered value immediately. It is now being amplified by bringing Terex Corporation and REV together, creating greater scale 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 Corporation and REV 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 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 businesses are joining Terex Corporation 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 Vernick, and recreational vehicles, which will continue to be led by Gary Gunther. Both Mike and Gary bring deep REV experience, assuring continuity while driving further improvements. We expect to deliver roughly half of the $75 million run rate synergies within the next twelve 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 sixteen months, we have reshaped the Terex Corporation 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 Terex Corporation. 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 REV significantly shifts our end market exposure. We now serve a large diverse addressable market with stable, attractive growth profiles. Customers across these verticals value life cycle 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 replacements. 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 US electrical grid increases, particularly from data center expansion. Industry forecasts call for 8% to 15% annual CapEx growth through 2030. Altogether, we now have multiple channels into nearly every Minnesota municipality in the United States, which collectively spends $100 billion per year on capital equipment, a tremendous long-term opportunity. In construction, we continue to see robust infrastructure activity 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 five, 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, and a cash conversion of 147%, 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. MP 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. Aerial secured nearly a billion dollars of new orders in Q4, up 46% from the prior year, and specialty vehicles recorded strong bookings the last three months with a roughly two-year backlog coverage coupled with strong momentum on margin expansion. This positions Terex Corporation for a strong 2026. And with that, I will turn it over to Jen.

Environmental solutions: Q4 sales $428M, +14.1% year over year on a pro forma basis; 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, and the full-year operating margin was 18.8%, 220 basis points better than the pro forma 2024 result. MP: Fourth quarter sales of $428 million were 2.5% lower than last year, excluding the divested clean businesses, MP sales increased by 2.8% in Q4 on a like-for-like basis. On a full year basis, sales of $1.7 billion were 11.6% lower than 2024, but operating margins improved, reaching 13.7% in the quarter. Aerials: Closed 2025 with year over year sales growth of 6.9%, including growth in North America and EMEA. Average Q4 operating margins of 2.6% was consistent with expectations, 200 basis points better than prior.

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 nonrecurring items. Following the close of REV transaction last week, our 2026 outlook reflects the newly combined company, including eleven 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 midpoint. 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 US dollar income. As expected, the merger has a modest 3% dilutive 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 Terex Corporation range of $4.80 to $5.20. For modeling purposes, approximately 15% of our full year EPS is expected in the first quarter, as it will only include two months of specialty vehicles earnings and seasonally lower volume and legacy Terex Corporation. We expect 2026 cash conversion of between 80-90% 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 mid-single digits in 2026, led by utilities, where we continue to see strong demand for bucket trucks and digger derricks used in the electric power market. We are currently anticipating roughly flat sales on ESG, with upside potential in the second half as we get more clarity on fleet requirements for a second half prebuy and EPA emission regulations. We continue to see growth in our market-leading digital solutions in the waste sector and expanding into utilities and concrete. We would explore 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 execution and productivity offset the unfavorable mix from higher utility scope. Turning to MP. We expect the segment to inflect back to full-year growth in the high single-digit range in 2026 on a pro forma basis, excluding clean. Fleet utilizations and aging equipment resulted in strong bookings in aggregate, handling, and environment. We also expect margins to improve in 2026 due to higher volume, productivity, and pricing action. Our new specialty vehicle segment entered 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 divested Lund and Midwest RV businesses. We also expect meaningful margin improvement in SV compared to the prior year period EBITDA margin of approximately 12.5% on a pro forma basis due to higher throughput, price, and ongoing operational improvements. Finally, in Aerials, we anticipate 2026 sales and margins to be similar to 2025. We have good visibility heading into 2026, with $906 million backlog following strong Q4 booking.

Q: XXX, A: XXXQ: On the MP segment, inquiring about pricing and visibility, A: Pricing has a progressive step up in Q4 for MP, with a strong backlog ended in December and expecting step up throughout 2026 by quarter.

Q: Regarding Aerials' interplay with tariffs and price cost in 2026, A: More headwinds in 2026 due to 12 months of tariff impact vs ~6 months in 2025, offset by productivity and price, resulting in flat top line with first half less favorable and second half more favorable.

Q: About the REV integration, A: It's mostly a throughput story, focusing on keeping operational momentum, with a combination of price and volume driving margin improvement in 2026.

Q: On ESG bookings and Heil performance, A: ESG had outstanding performance in 2025 driven by Heil, utilities also stepping up, ESG backlog normalized, and utilities backlog increasing.

Q: Concerning Aerial bookings and customer base, A: Q4 book to bill over 200%, Q1 expected north of 100%, average both quarters ~150%, demand from mega projects, nationals, and Europe picking up.

Q: On ES margin dynamic, A: Higher top line from utilities drives unfavorable mix, offset by synergies and productivity.

Q: Regarding specialty vehicles REV integration and margin, A: Specialty vehicle segment legacy REV has ~two-year backlog, focusing on burning backlog down, with margin improvement from price and volume.

Q: On Aerials sale proceeds and use, A: Too early to tell, with options including share buyback, debt pay down, or reinvestment.

Q: On RV business and SV margin, A: Focus on integrating, with REV's RV business having an ongoing process before merger, and SV segment EBITDA margin midpoint in line with targets.

Q: On tariffs and price cost in 2026, A: Monitoring steel price, having hedging contracts for Q1 and Q2 HRC consumption, with import steel parts part of tariff consideration.

Q: On ESG capacity increase and synergies, A: Expanding capacity in utilities business, adding ~20-30% capacity over next two years, and ESG exited 2025 above $25M run rate synergies.

Q: On ESG guidance and refuse cycle, A: ESG expected flat in 2026 excluding potential prebuys in second half, with end market noncyclical and fleet modernization and technology driving growth.

Q: On Aerials pricing and mix, A: 2026 demand from replacement in North America, Europe, and mega projects, with local private construction spend expected to pick up in 2027.

Q: About emergency vehicle replacement cycle and REV growth, A: Emergency vehicles have a mandated replacement cycle, with the industry investing in capacity and Terex investing in capacity expansions to bring backlogs down, guiding high single-digit growth in 2026.