Terex (TEX) Q4 2025 Earnings Call Transcript

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Date

Feb. 11, 2026, at 8:30 a.m. ET

Call participants

• President and Chief Executive Officer — Simon Meester
• Senior Vice President and Chief Financial Officer — Jennifer Kong-Picarello

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Takeaways

• REV Group Merger Completion -- Terex (NYSE:TEX) completed its merger with REV Group (NYSE: REVG), establishing a new specialty vehicle segment. Management stated, "we've created a leading specialty equipment manufacturer with premium brands across multiple industries."
• Synergy target and timeline -- Management projects $75 million annual run-rate synergies from the REV merger, with approximately half to be realized in the first twelve months and the remainder by 2028. Initial savings will come from eliminating duplicate corporate costs.
• 2025 financial results -- Earnings per share were $4.93. EBITDA reached $635 million with an 11.7% margin. Free cash flow totaled $325 million with a 147% cash conversion rate. All metrics aligned with prior full-year guidance.
• Fiscal Q4 2025 performance -- Net sales rose 6% year over year to $1.3 billion. Operating margin improved by 150 basis points to 9.3%. EBITDA was $141 million or 10.6% of sales. Free cash flow was $172 million, up $43 million from last year.
• Legacy sales decline -- Legacy Terex sales declined 11% for the full year, due to lower volumes in Aerials and MP segments, offset by ESG contributions.
• Interest and expense increases -- Interest and other expenses grew $89 million to $172 million for the year, primarily from ESG acquisition financing costs.
• Effective tax rate -- The 2025 effective tax rate was 17.2%. 2026 is projected at 21% due to higher U.S. dollar income.
• Environmental solutions (ES) segment -- ES sales for Q4 were $428 million (14.1% year-over-year growth on a pro forma basis). Full-year sales reached $1.7 billion with a 12.7% annual increase on a pro forma basis. Q4 operating margin was 18.5%, up 90 basis points versus prior year on a pro forma basis.
• Materials processing (MP) segment -- MP Q4 sales declined 2.5% year over year to $428 million. On a like-for-like basis excluding divested clean businesses, Q4 sales increased 2.8%. Q4 operating margin improved to 13.7%.
• Aerial work platforms (Aerials) segment -- Q4 bookings reached $971 million, up 46% from last year. Operating margin for Q4 was 2.6%, 200 basis points higher than prior year. Tariff headwinds persisted, with management stating the impact will be greater in 2026.
• Bookings and backlog -- Q4 pro forma bookings were $1.9 billion, up 32% from prior year. ES bookings rose 16%, MP bookings up 24% (32% excluding divested businesses). Aerials segment backlog stood at $906 million entering 2026.
• 2026 revenue and EBITDA outlook -- Pro forma sales are expected to grow 5% to $7.5 billion-$8.1 billion. EBITDA is projected at $930 million-$1 billion (12.4% margin at midpoint). Interest/expense guidance is $190 million based on $2.7 billion in average debt.
• EPS guidance and dilution -- 2026 guidance is $4.50-$5.00 per share with a weighted average share count of 111 million. This includes a "modest 3% dilutive effect" due to the merger, compared to legacy EPS guidance of $4.80-$5.20.
• Segment growth projections for 2026 -- Environmental solutions is forecast to grow mid-single digits led by utilities. ESG is guided to flat sales. MP expected to return to high-single-digit growth. Specialty vehicles (SV) to grow high single digits from a $2.2 billion pro forma base with a projected 12.5% EBITDA margin.
• Capital allocation -- Over $118 million was invested in capital expenditures in 2025, targeting automation, innovation, and efficiency. $98 million returned to shareholders through dividends and buybacks. No near-term debt repayment assumed as maturities extend to 2029.
• ESG synergy capture -- Management stated, "We actually exited our first year of integrations above that $25 million of run rate synergies" for the ESG acquisition.
• Utilities capacity expansion -- Utilities manufacturing capacity is being increased by 20%-30% over two years, with approximately half coming online in 2026, driven by anticipated U.S. grid upgrade demand.
• Aerials strategic review and interest -- Management reported "strong inbound interest from a number of interested parties" for the Aerials business and will be "deliberate in our evaluation" to optimize shareholder value.
• Tariff headwinds and pricing -- The 2026 outlook incorporates $130 million in tariffs, including an additional $60 million impact for Aerials, offset by productivity and pricing actions which are "more skewed towards the second half of the year."

Summary

The merger with REV Group transforms Terex's portfolio, advancing scale and operational resilience by integrating specialty vehicles as a new standalone segment. Management forecasts $75 million in synergies from the REV combination, with at least $28 million expected to be realized in 2026, and plans no significant organizational changes beyond corporate functions. Backlog coverage and strong Q4 bookings across ES, MP, and Aerials segments provide management confidence in meeting 2026 outlooks across revenue, EBITDA, and margin targets. Legacy businesses provided lower year-over-year sales, but synergy realization from ESG and REV is supporting margin expansion and cash generation. Capital allocation plans prioritize balance sheet strength, operational investments, and shareholder returns, while upcoming tariff increases are being managed through pricing and productivity initiatives.

• REV segment operational focus is on clearing a two-year backlog through throughput gains. Management emphasized, "it's gonna be all about throughput," while expecting price within existing backlog to aid margin improvement.
• Management estimates environmental solutions will maintain margin percentage in 2026, with utilities growth producing an "unfavorable mix" in margin terms, offset by synergy realization and productivity enhancements.
• Utilities business is expanding facility capacity in Waukesha, Wisconsin, driven by greater anticipated CapEx for U.S. grid upgrades. Management expects utilities market CapEx to grow 8%-15% for the next five years.
• The 2026 effective tax rate is guided higher to 21%, attributed to increased U.S. dollar income, and cash conversion guidance is set between 80%-90% of net income including merger-related costs.
• Proceeds from a potential Aerials sale will be evaluated based on market conditions. Options include share buybacks, debt repayment, or reinvestment in utilities and specialty vehicles, but "it's too still too early" for a final decision.
• Steel price risk is partially mitigated by hedging, with Q1 and Q2 HRC consumption locked in "At a favorable rate of 10 to 15% lower than the forward price."
• Aerials order demand is concentrated in replacement cycles for mega projects and national rental customers. Management does not anticipate a recovery in "local private construction spend" until 2027 and did not factor this into 2026 guidance.
• ESG within environmental solutions is guided to flat growth in 2026, as normalized lead times and transition back to "book to bill business" replace the previous backlog-driven growth period. No pre-buy upside is assumed in current guidance.
• REV share dilution is explained by the timing of the share issuance, with CFO Jennifer Kong-Picarello clarifying, "eleven is the weighted average for the full year."

Industry glossary

• ESG: Environmental Solutions Group; acquired business within Terex's environmental solutions segment, focused on refuse, recycling, and related specialty vehicles.
• SV: Specialty vehicles; newly established, standalone Terex operating segment post-REV merger, including emergency and recreational vehicles.
• HRC: Hot-rolled coil; a specific grade of steel commonly hedged for price protection in industrial manufacturing contracts.

Full Conference Call Transcript

Simon Meester: 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.

Simon Meester: 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.

Jennifer Kong-Picarello: Thank you, Simon, and good morning, everyone. Let's look at our Q4 results on slide six. Our fourth quarter financial performance was largely in line with our expectations. Environmental solutions continue to grow and deliver consistently strong margins. Operating margin of the year, Materials processing achieved its highest and our sales grew year over year in the quarter following four 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%, up 150 basis points versus the prior year due to improved performance in all three segments. 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 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 seven for our full year results. Net sales grew 6% to $5.4 billion at the full year contribution from ESG acquisition more than offset declines in Aerials and MP, and legacy sales declined 11%.

Operating margin of 10.4% was 90 basis points lower than 2024 due to lower volumes in Aerials and MP, and higher tariff costs which mainly impacted Aerials. This was partially offset by improved margins and tariff utility, and the accretive additions of ESG. Interest and other expenses of $172 million increased by $89 million due to financing costs associated with acquiring ESG. Our full year effective tax rate of 17.2% was consistent with last year, as favorable one-time tax attributes from the previous divestiture offset higher US dollar 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 tariff headwinds throughout the year, our teams continue to execute working capital improvement plans and delivered on a full year free cash flow expectation. ESG incremental 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 eight to review our segment results. Starting with environmental solutions. Our ES segment finished 2025 with another excellent quarter, generating $428 million of sales, representing 14.1% year over year growth on a pro forma basis.

The strong growth was driven by improved throughput and delivery of utility and refuse trucks. 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 segment achieved 18.8% operating margin, 220 basis points better than the pro forma 2024 result, driven by improvements in both businesses.

I was very pleased with the ES segment performance in 2025, particularly the high degree of collaboration with the ESG and utility teams, executing synergies, and operational improvements that will benefit Terex Corporation going forward. Turning to Slide nine. 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. 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, sales of $1.7 billion were 11.6% lower than 2024, mainly due to channel adjustments we experienced in the first half of the year.

As the operating margins continue 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 MP well heading into 2026. Please turn to slide 10. Aerials closed at 2025 on a positive note 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 our expectations, 200 basis points better than prior. Tariff headwinds, including the expanded 232 tariffs, that was implemented in August, could not be fully mitigated in the period. As ongoing supply chain and cost reduction will continue in 2026. Please turn to Slide 11.

Q4 bookings of $1.9 billion grew 32% compared to last year on a pro forma basis, with positive trends across our segments. In environmental solutions, we continue to see positive momentum in bookings, which grew 16% year over year, up 13% on a trailing twelve-month basis, led by strong demand for utilities vehicles. A healthy backlog of $1.1 billion provides strong forward visibility for the segment heading into 2026. MP bookings increased 24% year over year or 32% when you exclude the divested clean businesses. The growth was flat by aggregate, and material handling, more than offsetting some moderation in concrete.

MP ended 2025 with $71 million more backlog than the prior year, $100 million higher when you adjust out the divested clean businesses from 2024. Finally, Aerials bookings of $971 million was up 46% compared to prior year, driven by replacement demand from our national test branch. While growth was strongest in North America, we also saw growth in EMEA 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 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. Overall, I'm very excited about our opportunity to grow and continue the financial performance of our new company in 2026. Turning to Slide 13. In 2025, we maintained 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 purposely 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 since in debt repayments as they do not mature until 2029. Please turn to slide 14, and I'll turn it back to Simon.

Simon Meester: Thanks, Jen. 2025 was a consequential year in the long history of Terex Corporation. 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 Corporation together. And with that, I would like to open it up for questions.

Operator: At this time, I would like Your first question comes from the line of Tim Thein with Raymond James. Please go ahead.

Timothy W. Thein: Great. Thank you. Good morning. First question on the MP segment. And you highlighted strength in aggregates in material handling within the order comments, which is it's sustained, would or should be good in terms of product mix. I'm curious on the pricing side. And kind of 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 kind of what you're seeing 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?

Jennifer Kong-Picarello: Hey, Tim. Good morning. This is Jen. So the pricing, we you know, we do not disclose them specifically on the segment basis. But you could 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 the strong backlog that we ended in December, that's slow to and it progressively step up again and throughout the year for 2026 by quarter.

Timothy W. Thein: Okay. Good. And, Jen, I apologize if I missed it. But within with the Aerials specifically, the kind of the interplay with tariffs and how you're expecting price cost to play out? Just more broadly for Aerials in '26? Guessing it's more of a second half story, but maybe you can just, comment on that. And, again, apologies if I missed that. Thank you.

Jennifer Kong-Picarello: Right. So the Aerials in the prepared remarks, we say that we're expecting kind of flat revenue and also kind of flat margin profile. We expect that in 2026 that we have more headwinds in Aerials given that the tariff is gonna be twelve months of impact versus about approximately six months of impact in 2025. That translates rounding on a 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. And first half of the year, we expect that's the price cost neutrality to be more skewed towards the second half of the year. At the end of year, we're gonna be flat.

Holding our margins.

Timothy W. Thein: With a flat top line. A little less favorable in the first half, a little bit more favorable in the half. Got it. Thank you.

Jennifer Kong-Picarello: Thanks, Tim.

Operator: Your next question comes from the line of Jerry Revich with Wells Fargo. Please go ahead.

Jerry Revich: Yes. Hi. Good morning, everyone.

Simon Meester: Hey. Good morning.

Jerry Revich: Hi. Simon, I wonder if you could just talk about the REV integration. So I saw the divestiture, 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 REV 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 could just expand on that, please.

Simon Meester: Yeah. No. Thanks for the question. So it's been it's been nine days, now since 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, that still operates with about a two-year backlog. And 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 gonna be all about throughput. Now there's obviously price in that backlog, so it's gonna be a combination of price and volume that's gonna drive the margin improvement in 2026.

But it's mostly just making sure we keep that operational momentum. That's why we were so eager on making sure that we you know, keep the that we keep the organization intact that we can just purely focus on making sure we keep that momentum going into 2026.

Jerry Revich: Super. And separately, in ESG, I was pleasantly surprised with the bookings, it sounds like, within the high part of the portfolio or more resilient than what I have thought three months ago given what the waste companies have been talking about. Truck plans, can you just expand on what you're seeing? Is that the impact of the EPA '27 certainty? Or if you wouldn't mind just double clicking on the Yeah. Really good performance within Heil.

Simon Meester: Yeah. Obviously, I would say the segment, the environmental solutions segment, recorded outstanding performance in 2025, and a lot of that was driven by Heil, 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 is leading the charge, if you will, in terms of top line. And now in 2026, we see the kind of flipping. So utilities is now accelerating a little bit more than ESG. We're we're we're expecting ESG to be kind of flattish from a top line perspective. And most of the growth coming from coming from utilities.

But, yeah, we're we're we feel that segment has a has a lot of momentum. We don't see that slowing down any anytime soon. So we're very pleased with how ES is performing.

Jerry Revich: Thank you.

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

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

Simon Meester: Yeah. If you look at our if you look at last year, we had strong book to bill in both Q4 and Q1. I think average both quarters was about a 150. This year, Q4 coming in over 200%, we expect Q1 to be somewhat north of a 100%, but it's probably fair to assume that both quarters will average again at about 150% book to bill. So that kinda sets our guidance of being flat because we expect Q1 to be a little softer than 1100%. But overall, yeah, going into the year with five, six months 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 picking up a little bit. Not that material. But we haven't baked any major recovery with the independents in into our into our guide for 2026. We expect that to happen. More in 2027.

Angel Castillo: 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 back 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 unpack the margin dynamic a little bit. 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 just unpack the puts and takes and maybe talk about it on a quarterly basis, that would be helpful.

Jennifer Kong-Picarello: Good morning. So I'll take the margin question, and then I'll let Simon take the backlog questions. 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, it still increased. So the higher top line growth coming from utilities will drive an unfavorable mix. However, it's being offset by the synergies going through in the ES reportable segment. Also driven by the productivity that they have been working to. In 2025, we communicated that a utility 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 Waukesha factory and also, looking at, standardization.

Simon Meester: Yeah. And then on the 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 kinda have normalized in ESG. So we have we're back to kinda pre-COVID levels backlog coverage. So three, four months forward visibility. We didn't put any EPA pre-buys into our outlook for ES and that's why we're kinda holding them flat and utilities is actually the backlog continues to increase, hence the reason we're expanding our capacity in the particular segment which is already ramping up as we speak.

So we're we're expanding expecting to add about 20 to 30% capacity in utilities just to keep up with the rising demand.

Angel Castillo: Very helpful. Thank you.

Operator: Your next question comes from the line of Jamie Cook with Truist Securities. Please go ahead.

Jamie Cook: Hi, good morning. I guess two questions. First, Simon, on the specialty business or REV Group, it sounds like the backdrop for 2026 is good with the extended visibility backlog two years out. I'm just wondering if there's obviously, it's a new acquisition. So to what degree is there conservatism in your forecast for specialty? And if there was, would that come from? Is it just getting more, burning through more backlog? You know? So just sort of your assumptions, you know, around there where there would be upside.

And then my second question, just on Aerials, 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 aerial markets have clearly bottomed potentially. You know, positive upside surprise. So anything you can tell us, is that asset more to people just because it sounds like we should be getting some cyclical tailwinds? Thank you.

Simon Meester: 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 I where we see any upside, I mean, the team actually performed really strongly year over year 2025, 2024. We just wanna 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 that we have laid out. And, you know, we it's now 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 it's well documented how that how that business performs through the cycle. It's a very strong brand, you know, celebrating sixth year anniversary this year at ARA, which we're looking forward to. I can obviously not disclose too much because it's an active process, but yeah, we were we were very pleased with the inbound interest that we received. And we're gonna be very deliberate in evaluating the interest. And decide on the best approach for our shareholders going forward.

Jamie Cook: And it's Jamie. If I could just add in the our new reportable segment of SV the incremental margin on the higher volume is gonna be in that range of 30% at the gauge. With the highest 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 expansion in the midpoint of our range.

Jamie Cook: Thank you very much.

Operator: Thank you. Your next question comes from the line of David Raso with Evercore ISI. Please go ahead.

David Michael Raso: Hi. Thank you. First on the dilution, a little bit less than, I think, The Street was thinking. And I took a notice the share count seemed to be a little bit lower when you said a 111 for the year. Is there maybe I missed it. Was there some share repo in that number? Just trying to get the math from now just doing the basic conversion of the of the, you know, roughly 49.3 million shares that REV Group had. Even the interest expense, little bit little bit lower than I would have thought. So I'm just trying to understand exactly the dilution being only about 25¢.

Jennifer Kong-Picarello: Hey, David. Good morning. So the I think the two part of your question first one in terms of the 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 a 111 million, but full year is a 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, I was we have alluded to the fact that it's gonna be a mid-single digit of EPS dilution given that the share count the higher share count cannot be fully offset by the eleven months of REV earnings.

That translates to the to be about 3%. Just for share count loans. And then 2% based on a tie higher tax rate that's where we are.

David Michael Raso: Oh, that's helpful. Yeah. I read the slide on 12 as share count 111 was for the full year. Not just for the quarter. Okay. That

Jennifer Kong-Picarello: That's weighted average for the full year. Correct.

David Michael Raso: The one the sorry. The one eleven or the one fifteen, just to be clear?

Jennifer Kong-Picarello: The one fifteen I'm sorry. One eleven is the weighted average for the full year.

David Michael Raso: Okay. The proceeds from an aerial sale just curious now that you're know, a little bit further in the process, You own REV Group, the merger is done. 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, you know, debate the right multiple you could 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?

Jennifer Kong-Picarello: Yeah. So know, right now, on day one on day nine of our close, the immediate priority is to strengthen the balance sheet to preserve the flexibility. Given that we funded this merger to you 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 at when where we're trading in terms of the share price. But we will have several options, 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 is going supported by the circular tailwind. But at this point, I think it's too still too early. We really like

Simon Meester: 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 at the end of the road here.

David Michael Raso: I appreciate it. Thank you.

Simon Meester: Thanks, David. Thank you.

Operator: Your next question comes from the line of Mig Dobre with Baird. Please go ahead.

Mig Dobre: Yes. Thank you for taking the question. Good morning. Sticking with specialty vehicles here, I guess a couple questions. 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 kinda thinking about the moving pieces to margin here, if I heard you correctly, and better in your guidance, about 12-12.5% operating margin.

Simon Meester: How do you view the longer term potential here if we're thinking two to three years out?

Simon Meester: Yeah. Thanks, Mig. I'll 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, yes, on Midwest that process was already was already ongoing. Before we closed the merger. So don't don't read too much into that we are in 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 now going into 2027 or beyond, I can't say we won't be continuing to make some adjustments to our portfolio, but what's right in front of us is integrating REV and executing. Do you wanna take the more two questions?

Jennifer Kong-Picarello: And, Mig, I think your question on the EBITDA for 12.5%, you're referencing to the new reportable SV sec and that is without Midwest and Lance, and that was last year on a pro forma basis, eleven months. As you know, you're very familiar with REV. We 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 do you know, 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.

Mig Dobre: That's helpful. Thank you. Lastly, you gave us some context on tariffs, which is good. 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 cost as the year progresses?

Jennifer Kong-Picarello: Right. So the terms of steel, you know, we do not import raw steel. And 70% of what we use as an HRC you're right, Mig that you know, the steel price has increased as expected. As vendors try to sell from The US. We will continue to monitor that closely and execute our hedging contracts. So right now, we have our Q1 and Q2 of our HRC consum still consumption hedge. At a favorable rate of 10 to 15% lower than the forward price. And any of the imported steel fabricated parts is really part of our $130 million of tariffs that we dig into our guide. Of this $4.50 to $5, and that includes REV.

Simon Meester: Thank you.

Jennifer Kong-Picarello: You're welcome.

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

Avi Drosowitz: Hey, good morning. Thanks for taking question. So in terms of the capacity increases within environmental solutions, how much are you expanding capacity are you expecting those to come online? How's that split between yeah.

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

Avi Drosowitz: Yeah. It was really how, you know, how is this split? And you know, what is the overall capacity increase that you're thinking of?

Simon Meester: Yeah. So it's it's utility says 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's a justified investment because I mentioned in my prepared remarks that we expect CapEx to grow 8% to 15% for the next five years in utilities just by the nature of upgrading the grid. And, obviously, we sell and make products that will help upgrade the grid. So we expect that market will be quite bullish for us for the next three to five years.

Avi Drosowitz: That makes sense. And then I guess in the sec you had said last year that you were looking at about $25 million of synergies from environmental solutions. By the 2020 So just kinda curious where you are on that progress and if that $25 million plus number is still how you're thinking about for the exit rate for this year.

Jennifer Kong-Picarello: Yes. Hi. Good morning. Yes. We actually exited our first year of integrations above that $25 million of run rate synergies. That's the reason why that even with the high utilities growth in 2026 that caused 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 segment.

Avi Drosowitz: Alright.

Simon Meester: Got it. Great. Thank you.

Jennifer Kong-Picarello: You're welcome. Thanks.

Operator: Your next question comes from the line of Kyle Menges with Citigroup. Please go ahead.

Kyle David Menges: And congrats on closing the REV Group deal. I did wanna 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 refuse recycling cycle. Yeah. Just so we're we're we're aligned here.

We're we're guiding mid-single digit growth for the environmental solutions as a whole, and then ESG is within that environmental solution we're we're guiding flat for 2026, excluding potential prebuys in the second half twenty six. That would be upside to the guide. So, yeah, we don't we see that end market as fairly noncyclical. We don't see any kind of we actually see continued growth going into 2030, The only reason we see ESG within environmental solutions kinda 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 bill business, which is where we were before COVID, So we don't take that as a leading indicator that business might be peaking. It's quite the contrary. We think that business has a lot of upside. And for more reasons than just GDP growth. There's also fleet modernization going on. There is all sorts of new technology going into that space. So we see multiple angles for growth in that segment. Great. And then just a couple of questions on Aerials. Sounds like you're planning some pricing for '26. Just would be good to hear how the those negotiations have gone, and is 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?

Simon Meester: 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 do not 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 quite bullish for the next couple of years because of the mayor projects alone, but the real uplift for the 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. Thank you.

Operator: Thank you. Your next question comes from the line of Steve Barger with KeyBanc Capital Markets. Please go ahead.

Steve Barger: Thanks. Good morning.

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

Simon Meester: I that's a good catch. I think that is that every ten years, think you're talking refuse.

Steve Barger: Just emergency vehicles.

Simon Meester: Emergency vehicles. Let me just look that up where on slide four in the footnotes.

Steve Barger: In the let me get back there. It's yeah, emergency vehicle. So the leftmost box the second bullet large installed base with a consistent and mandated replacement cycle?

Simon Meester: Oh, I'm sorry. I got you now. I thought I was looking in the footnotes. You're talking on slide. Okay. Got it. Yeah. Yeah. Yeah. So, obviously, needs to stay fresh and there is a mandated replacement cycle. There's not a real number tied to it, per se, but, yeah, within emergency vehicles, municipalities, you know, wanna keep their fleet with the maximum uptime possible, and that's why they have specific kinda goals and targets around their replacement cycle. That's what that means.

Steve Barger: Okay. And I know it's really early in owning REV, but you are maintaining 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,

Simon Meester: Yeah. I mean, the industry is obviously investing 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, industry, that we keep working on bringing our backlogs down, you know, we're we're in investing in capacity, and so and so are we. There's a there's a you know, our main location in Florida, and our location in South Dakota, we're investing in capacity expansions and capacity upgrades. And so we think that the kind of the sustainable target for backlog coverage is about a year.

And but 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 to a more clear growth.

Steve Barger: 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,

Simon Meester: Yeah. For now, we are already ahead of you know, specialty people. The segment is already ahead of their Investor Day kinda commitment. And so can we don't wanna count ourselves too rich here. We're guiding high single digits, and we think that's probably a more realistic outlook, and that's what we're guiding today.

Steve Barger: Understood. Thanks.

Simon Meester: Yeah. Thank you.

Operator: There are no further questions at this time. I will now turn the call back over to Simon Meester for closing remarks.

Simon Meester: 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 Terex Corporation. Operator, please disconnect the call.

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

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