Alta Equipment Group - Q4 2025

Transcript

Operator (participant)

Good afternoon. Thank you for attending today's Alta Equipment Group Fourth Quarter and Full Year 2025 earnings conference call. My name is Reagan. I'll be your moderator for today's call. I'll now turn the call over to Jason Dammeyer, Vice President of Accounting and Reporting with Alta Equipment Group. Please proceed.

Jason Dammeyer (VP of Accounting and Reporting)

Thank you, Reagan. Good afternoon, everyone, and thank you for joining us today. A press release detailing Alta's fourth quarter and full year 2025 financial results was issued this afternoon and is posted on our website, along with a presentation designed to assist you in understanding the company's results. On the call with me today are Ryan Greenawalt, our Chairman and CEO, and Tony Colucci, our Chief Financial Officer. For today's call, management will first provide a review of our fourth quarter and full year 2025 financial results. We will begin with some prepared remarks before we open the call for your questions. Please proceed to slide 2.

Before we get started, I'd like to remind everyone that this conference call may contain certain forward-looking statements, including statements about future financial results, our business strategy and financial outlook, achievements of the company, and other non-historical statements as described in our press release. These forward-looking statements are subject to both known and unknown risks, uncertainties and assumptions, including those related to Alta's growth, market opportunities, and general economic and business conditions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call.

Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our reports filed with the SEC, including our press release that was issued today. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's press release and can be found on our website at investors.altaequipment.com. I will now turn the call over to Ryan.

Ryan Greenawalt (Chairman and CEO)

Thank you, Jason, and good afternoon, everyone. We appreciate you joining us to review Alta Equipment Group's fourth quarter and full year 2025 results. I'll begin with an overview of our performance, highlight trends across our business segments, and outline how we're positioning Alta for long-term value creation as we look toward 2026 and beyond. We finished the year on a solid note. After operating through nearly 2 years of elevated inventories, tariff-driven cost pressures, and broader macro uncertainty, we are entering 2026 with a noticeably healthier backdrop. Fourth quarter demand for new and used equipment rebounded meaningfully. Lower interest rates, tax clarity following the One Big Beautiful Bill, and improving customer sentiment all contributed to a more constructive environment heading into the new year.

As expected, we experienced seasonal declines in product support and rental, and the early onset of winter in several of our northern markets amplified that pullback. Even with that impact, while quarterly performance came in short of expectations, we delivered a record quarter for equipment sales. Inventories are starting to normalize. Competitive discounting is moderating, and customers are returning to more typical fleet replenishment cycles across both construction and material handling segments. Importantly, the broader economic data aligns with what we are seeing in order activity. Construction employment posted one of its strongest gains in more than two years, and manufacturing employment turned positive for the first time since early 2023. The tone in the market has improved, and we are beginning to see that translate into real demand. Turning to our construction segment, we exited 2025 with real momentum.

Our strategy remains intentionally anchored to customers tied to long-term, fully funded infrastructure programs. That discipline continues to provide visibility and stability, particularly as we enter 2026. Florida stands out as a key growth driver, with a significant pipeline of transportation projects set to begin in the coming quarters. Across our broader footprint, quoting activity is already running ahead of where we started 2025, an encouraging leading indicator. Dealer inventories are normalizing. Competitive intensity is easing, and we are beginning to see early restocking behavior. Importantly, demand for high-value specialty equipment remains strong. A great example of our differentiated value proposition with Volvo. Our Michigan team sold the first two Volvo EC950F ultra high-reach machines globally. These units are purpose-built for heavy demolition, one of the toughest, most demanding end markets.

That win speaks to Alta's technical expertise, our deep customer relationships, and the strength of the Volvo partnership in complex applications where performance, safety, and uptime are mission-critical. Deliveries are scheduled for the second quarter. OEM pricing support has improved, helping to offset last year's tariff impacts. OEMs are projecting a stable 2026 market overall, we believe Alta is positioned towards the upper end of that range, supported by our infrastructure-weighted customer base, geographic exposure, and our ability to execute in specialized high-spec applications. Turning to material handling, the trend entering 2026 is similarly encouraging. Quote activity has improved meaningfully from late year lows. Bookings strengthened to start the year. Our share position improved and backlog is up year-over-year. It's still early, the direction is clearly positive and consistent with what we're hearing from customers across our regions.

Importantly, given the natural sales cycle and material handling from quote to order to delivery, any meaningful volume acceleration will be second half-weighted. What we are seeing today in quotes and backlog gives us confidence in that setup. Customers are reengaging in fleet planning as replacement cycles begin to normalize. That's particularly evident in several of our core verticals: food and beverage distribution, pharmaceuticals, and logistics, where activity levels remain steady and capital conversations are becoming more constructive. With improved OEM pricing support and a stabilizing manufacturing environment, we expect demand to build as the year progresses, positioning 2026 as a year of sequential strengthening with momentum carrying into the back half. Master distribution delivered double-digit revenue growth in 2025 as we expanded our presence across structurally attractive environmental processing markets, including biofuels, waste, and recycling. While tariffs impacted. Sorry.

While tariff impacts and supply chain timing created meaningful margin pressure throughout the year, underlying demand remains fully intact. Throughout 2025, we demonstrated resilience, sustaining quality EBITDA, generating cash flow, and sharpening our focus on the core. We operated with discipline, we protected margin, and we allocated capital intentionally. Our M&A strategy remains active but selective. Over the past two years, we have refined our acquisition criteria with greater rigor around cultural alignment, return thresholds, OEM fit, and post-close integration capability. Going forward, we will pursue opportunities that clearly meet those standards, consolidating high-quality independent dealers, strengthening strategic OEM relationships, and selectively expanding complementary capabilities where we see durable returns. Equally important, the divestiture of non-core assets reflects our commitment to focus and capital redeployment towards higher return opportunities. If you turn to slide 10, our 2028 and beyond framework, the ambition is clear.

Over $200 million of high-quality EBITDA, approximately $1.4 billion in equipment sales, mid to high single-digit annual growth and product support, a disciplined leverage target of approximately 3.5 times. That is the profile we are building toward. To achieve this, we are executing against five strategic priorities. Sales transformation. We are aligning the right products, the right people, and the right customers, ensuring we go to market with best-in-class offerings that command leadership positions. Leadership upgrades across material handling PeakLogix and targeted construction geographies are already strengthening execution. Market volume normalization. As equipment markets stabilize closer to pre-COVID addressable levels, we are positioned to capture share gains in our strongest regions through coverage density, OEM alignment, and customer intimacy. Third, scaling growth platforms. PeakLogix and Ecoverse represent scalable growth platforms.

Both have credible paths to becoming $100 million-plus businesses over time, supported by structural industry tailwinds. Technology-led efficiencies. Our ERP transformation is foundational. It positions Alta for AI enablement, automation, improved data visibility, and structural cost efficiency. We expect meaningful operating leverage while enhancing the customer experience. Lastly, a destination for skilled trades. Nearly half of our workforce is in the skilled trades. Investing in the best, recruiting, developing and retraining top technical talent remains a core competitive advantage and a key driver of customer loyalty. In closing, we enter 2026 with improving market conditions, normalized inventories, expanding product support opportunities, and a focused discipline strategic plan. The organization is aligned. We are operating with greater clarity, and we believe the industry is turning the corner.

Before turning it over to Tony, I want to thank our more than 2,800 employees for their commitment and resilience, our OEM partners for their continued support, and our shareholders for their confidence in Alta's long-term direction. Your dedication continues to define who we are and how we win, fulfilling our purpose of delivering trust that makes a difference. With that, I'll hand it over to Tony Colucci to walk through the financials in more detail.

Anthony Colucci (CFO)

Thanks, Ryan. Good evening, everyone, and thank you for joining us to review Alta Equipment Group's fourth quarter and full year 2025 financial results. Before getting into the details, I want to thank my teammates across Alta for their hard work and dedication throughout 2025. Operating through a challenging environment requires focus, resilience, and commitment, and I appreciate the efforts the team made to support our customers and the business throughout the year. My remarks today will focus on three areas. First, I'll start with fourth quarter performance, where you'll see the combined impact of strong equipment sales, disciplined fleet reductions, and meaningful deleveraging. Second, I'll discuss full year 2025 results and the financial themes that shaped the year. Finally, I'll walk through our EBITDA bridge from 2025 results to our 2026 guidance and the assumptions that underpin it.

Before I get to my talking points, it should be noted that I will be referencing slides from our investor presentation throughout the call today. I'd encourage everyone on today's call to review our presentation and our 10-Q, 10-K, which is available on our investor relations website at altg.com. Starting with the fourth quarter and as depicted on slides 12 through 15. Alta generated approximately $509 million of revenue in Q4, an increase of $11 million year-over-year. This was driven primarily by higher equipment sales.

New and used equipment sales totaled approximately $301 million for the quarter, up $13.8 million versus Q4 2024, and up a notable $90 million sequentially from Q3 2025, reflecting improved capital investment conditions throughout our customer base. Importantly, this strong level of equipment sales activity translated directly into strong operating cash flows and balance sheet improvement. Combined with our ongoing rental fleet reductions, the company was able to meaningfully delever in the quarter, with net debt reduced by approximately $25 million sequentially. Turning to product support. Parts and service revenue remained stable year-over-year and totaled $127.4 million for the quarter, despite an early onset of winter in 2025, which made our seasonal downturn more acute than expected.

In a quarter with naturally less field workdays, product support margins expanded by 330 basis points, reaching 46.1% in the quarter, driven by pricing discipline and technician productivity. Rental revenue declined $4.7 million in the quarter, or nearly 10% year-over-year, which was mostly anticipated and directly tied to our continued reduction of the rental fleet. As shown on slide 22, we reduced total rental fleet gross book value by approximately $38 million during the year. These actions supported both improved returns on capital and additional cash generation used to reduce leverage. Adjusted EBITDA for the quarter was $40.6 million, essentially flat year-over-year. While headline EBITDA was stable, the quality of earnings improved, with a higher contribution from product support and lower reliance on rental equipment sales. More on that momentarily.

Looking briefly at the segments on slides 13 through 15, material handling generated $15.4 million of adjusted EBITDA, a reduction of $2.9 million versus last year, mainly attributed to lower revenues. Construction delivered $26.4 million of adjusted EBITDA, up modestly year-over-year as SG&A reductions and revenue mix improvements offset pressure on equipment margin. Master distribution returned to positive EBITDA in the quarter, mainly reflective of improved volumes and gross margins year-over-year. Now, moving on to the full year view of 2025. For the year, and as presented on slide 16, Alta generated $1.84 billion of revenue and $164.4 million of adjusted EBITDA, down modestly from 2024.

To drill in briefly, the year is best understood through three financial themes. First, equipment markets remained pressured throughout much of the year, particularly in our material handling segment. Additionally, new and used equipment gross margins continued to decline off of 2023 highs to 14.1%, down approximately 100 basis points year-over-year, reflecting tariff-related impacts, competitive discounting, and continued oversupply in both of our major segments. Second, we took deliberate actions to reduce capital intensity and reduced our fixed cost base. Rental activity declined primarily by design as we prioritized returns on capital and cash flow over episodic and asset-heavy rental revenues. In terms of the reduction in SG&A, the over $20 million decrease primarily reflects deliberate structural actions we took across the organization, including tighter headcount management, simplification of our operation, and more disciplined spend controls.

Importantly, most of these initiatives are not temporary deferrals. They represent a sustainably lower cost base that will improve incremental margins as volumes recover. Third, and most importantly, earnings quality improved primarily in our construction business. As detailed on slide 21, the construction segment adjusted EBITDA declined modestly year-over-year. However, product support EBITDA within the segment increased more than $13 million, while gains on rental equipment sales declined by approximately $11 million. This shift reflects a higher contribution from recurring service-driven earnings and a leaner cost structure, resulting in more durable and predictable EBITDA. This shift, alongside the aforementioned reductions in SG&A, improved the underlying operating profile of the segment and has positioned the construction business for stronger operating leverage as markets normalize. Now, turning now to cash flow and the balance sheet, and as presented on slides 23 and 24.

In 2025, despite lower EBITDA, Alta generated approximately $105 million of free cash flow before rent to sell decisioning and $103.1 million after rent to sell decision. As a result, as shown on slide 24, we exited the year with approximately $249 million of total liquidity, reduced net debt by approximately $25 million sequentially in the quarter, and ended the year at 4.9x net leverage. Deleveraging remains a clear priority as we move through 2026, and based on our plan, we have a path to be below 4.5x by the end of the year. With 2025 results as context, let me turn to our outlook and the bridge to 2026 adjusted EBITDA.

As shown on slide 28, we begin with 2025 adjusted EBITDA of $164.4 million and bridge to the midpoint of our 2026 guidance of $180 million. Overall, this bridge reflects disciplined execution and a normalization of activity toward long-term historical levels, not a return to peak conditions. We expect new and used equipment volumes to recover modestly as industry activity reverts closer to long-term averages across both material handling and construction. We expect this recovery to be second half-weighted, specifically in the material handling segment.

Alongside that, equipment margins are expected to improve modestly, driven by a healthier mix, better alignment between inventory demand, and less competitive pricing pressures in the marketplace. Product support is another meaningful contributor as we intend to get back on a growth path in this business line in 2026. As general activity ramps and fleets replaced in prior years continue to age, we expect ongoing compounding in parts and service revenue, supported by stable utilization, technician productivity, and pricing discipline. We also expect modest improvement in rental utilization, even if on a long, smaller rental fleet, consistent with our focus on returns on capital versus fleet growth.

In 2026, we expect master distribution to contribute to the 2026 EBITDA lift as well, reflecting improved volumes and margins as trade and tariff-related conditions stabilize and 2025 OEM price renegotiations take hold. Offsetting these positives, we expect lower contribution from rental equipment sales consistent with our continued defleeting strategy and longer hold periods to maximize return. The bridge includes catch-all adjustments for cost increases, reflecting higher variable costs associated with increased activity levels, normal inflationary pressures, and ongoing investments to support the business. Taken together, no single item drives the bridge. Rather, it reflects a cumulative impact of multiple incremental improvements across the business, layered onto a more normalized demand environment and a structurally lower cost base.

In closing, while 2025 was another challenging operating year for the business, our customers, and our partners, Alta exits the year leaner and better positioned to take advantage of the future as we continue to refocus on our core dealership capabilities and drive earnings quality and returns on capital. Thank you for your time and attention. I'll now turn it back to the operator for Q&A.

Operator (participant)

Thank you so much. We'll now begin our Q&A session. If you'd like to ask a question, you may do so by pressing star one on your telephone keypad. If you'd like to remove your question, please press star two. Once again, to ask a question, please press star one. A reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. Our first question is from the line of Laura Maher of B. Riley Securities. Your line is open.

Laura Maher (Equity Research Associate)

Hi, Ryan and Tony. Thanks for taking the question. My first question is on reshoring. Is any of that translating into real equipment demand today, or should we think of that as more of a 2027 and beyond story?

Ryan Greenawalt (Chairman and CEO)

This is Ryan. I'll take that. I think that that's a longer range demand driver. We're seeing that the benefits of it, especially in the north where we've got an advanced manufacturing economy, but it's too early to be utilizing our equipment. These are sort of projects that are earmarked, but not really active yet.

Anthony Colucci (CFO)

I would agree with that. I think what Ryan's commentary was on, you know, new manufacturing builds versus just general activity ramping in existing manufacturing facilities. We would expect some of that to, you know, potentially impact 2026 here.

Laura Maher (Equity Research Associate)

Great. Thanks. On the construction front, do you anticipate any more federal funding coming through?

Anthony Colucci (CFO)

You know, it's like anything at the federal level, hard to handicap. I believe the latest CHIPS Act, Infrastructure Act, has, you know, we're probably in the fifth or sixth inning of that money being deployed. We made mention in Ryan's quote today, talked about $14.6 billion of let jobs here recently that are going to hit the ground. There's plenty left in the federal kind of quiver, if you will, to kind of catalyze the DOT spending or sorry, infrastructure spending for the next couple of years. As you know, Laura, we always tend to stick closer to our state DOT budgets, and those just continue to ramp and stay at peak levels.

Florida, we're seeing a lot of activity. Michigan had a new roads bill last year. Yeah, we feel good that this regardless of what happens here, maybe, to continue federal spending beyond, you know, the what's been approved, we've got several years left at least.

Laura Maher (Equity Research Associate)

Thanks.

Anthony Colucci (CFO)

Thanks, Laura.

Operator (participant)

Thank you. Our next question comes from the line of Robert Murphy of Raymond James. Your line is open.

Robert Murphy (Senior Equity Research Associate)

Hey, team. Thanks for the time. Just a quick question here on the 2026 guidance. I was hoping you can walk through some of the scenarios and factors that would kind of drive results to land in both the high and low end of that range. Kind of derivatively off of that, how much of the year-over-year improvement from 25 to 26 do you see as kind of being broader macro versus kind of Alta-specific initiatives? Thanks very much.

Anthony Colucci (CFO)

I'll take that one, Robert. I think you're referring to slide 28. You know, we, the first part of your question on, you know, what can make it go one way or the other, you know, the industry at the, you know, on the construction side in terms of volumes is got I think a pretty sober growth number, somewhere between flat and 5% if you pay attention to, you know, a lot of the prognosticators and larger OEMs that are out there. If that goes higher, I think we could end up on the high side.

Material handling, which has been in such a doldrum here, you know, recently, we made note in one of our slides of, I think the, our market slipped under 30,000 units of ITA, which is a long time low for our markets. To the extent that reverts more heavily and more quickly, you could see the high side of the guide. I think rental utilization, getting back to 35% financial utilization more quickly than we anticipate, could also do it. That's just general activity. You know, the big driver I think would be the manufacturing base. We didn't grow in parts and service and material handling last year.

I think to the extent, the Midwest comes back, with activity levels that could meaningfully, you know, have us beat. Any of those things go the other way, and you could see the downside to the equation. I think to your question on what we control, what can't we control, you know, we've taken costs out of the business. That's going to be just ongoing in terms of initiatives. We're always looking to get lighter from a fixed cost base. I think on price and quantity, you know, in the product support departments, at some level, we can control that with our recruiting efforts to meet demand with supply in terms of technicians.

Just making sure that we're staying with the market for the service that we provide our customers relative to pricing. Beyond that, you know, we're always sort of beholden in the equipment sales line to the marketplace. As you can see in the first two bars here, or columns on the bridge, there's less that we can control. We feel good that we're with quoting activity, what we've been through the last two years, that we will see some sort of reversion here. I would weight it, you know, 65, 35 to the things that are a little bit more outside of our control. That said, as Ryan mentioned, we've got some sales transformation initiatives going on.

We intend to drive share, over the long run with some of those initiatives. To the extent those take hold sooner rather than later, you know, that's something that's also in our control.

Robert Murphy (Senior Equity Research Associate)

Okay, great. Really appreciate the color there. Just shifting to margins quickly on the construction side. New equipment margins look like they were down year-over-year and sequentially. It sounds like there's some positive indicators there as well on the supply side. I was just wondering if you could provide a bit more color kind of on that environment, kind of where we're at in the cycle there, and if you've seen any incremental improvements, you know, even as 2026 is kind of, we're in whatever, late February now. If there's been indications of improvement kind of as the year's been building here.

Anthony Colucci (CFO)

Yeah. You know, this has been an ongoing theme now for 2 years, the continued kind of compression on equipment margins. I do think we believe that the industry as we sit here is still a little bit oversupplied. You really have to get granular by geography and by product category. We do think there'll be some relief. As you know, it comes down to aggression from our own OEMs as well, to kind of keep things competitively priced for us. If you kind of pay attention to the marketplace and what publicly has been said by some of our large competitors, we would expect less $ discounting dollars to be put into the marketplace in 2026 relative to 2024 and 2025.

Which means, you know, hopefully a less competitive environment for our products. We do think that's a little bit back-end weighted relative to the year. I guess that's how I would answer that one, Robert.

Robert Murphy (Senior Equity Research Associate)

Okay, great. Really appreciate it. Then just one more before I turn the line here. Just on capital allocation, how do you guys kinda think about, you know, debt pay down? I know you have the leverage targets here for both 2026 and 2028. How do you kind of balance that with prospective M&A buybacks and dividend reinstatement potentially as well? Any color there would be appreciated.

Anthony Colucci (CFO)

Sure, Robert. I think that. You know, we cut the dividend, the common dividend in Q2 of last year, as we saw kind of the challenges in the business, the leverage moving higher than we wanna be. Until the leverage kind of snaps back to, you know, a more normal level or we feel better about, you know, conditions on the ground, which we do today. Until that kind of turns into results on the P&L and on the balance sheet, I would expect us to be status quo with using excess cash flow to continue to de-lever. You know, Ryan has made mention of, you know, the sticking a little bit cleaner and closer to our defined criteria on M&A, so smaller strike zone that way.

A long way of saying we don't expect to, you know, bring the dividend back in the short run. We do have a 10b5-1 plan in place, for share buybacks, which I would say is immaterial relative to just the cash flows of the business. For now, the priority is, you know, taking care of, the balance sheet, on an organic basis with our cash flows.

Robert Murphy (Senior Equity Research Associate)

Okay. Appreciate it. I'll turn the line here. Thank you very much.

Operator (participant)

Thank you. Our next question comes from the line of Steven Ramsey of Thompson Research Group. Your line is open.

Steven Ramsey (Senior Equity Analyst)

Good evening. wanted to start with you've had 6 quarters of year-over-year EBITDA declines, though Q4 was virtually flat. A good trajectory there. Do you feel that EBITDA can show year-over-year growth in all 4 quarters of FY 2026, or is it something that builds as we progress through the year?

Anthony Colucci (CFO)

You know, Steven, it's a really good question, and I do think we're expecting more of a build throughout the year. How that plays out relative to kind of beating quarter-over-quarter, I would, Q1 is always difficult for us. For those on the call that live in the North, they know that even this week, we got hit with, you know, a day or so where in the Northeast, for instance, just hard to get technicians on the road. We've had a little bit of a difficult start here just on product support side of the business, so. There's reason to be hopeful in Q1.

That's a long way of saying I think it will be more back-end weighted, the EBITDA beats. So long as we can kind of, you know, get out of Q1 here, we have a better look at what construction activity looks like specifically. We'll have a better barometer. All told, we're expecting, you know, more of the beat to come in the back half of the year. Part of that is, as we build backlog in material handling, some of the commentary Ryan made about bookings being pretty decent here in the first in January, February, and those then, you know, those bookings then converting to revenue in the back half.

Steven Ramsey (Senior Equity Analyst)

Okay. That's helpful color and makes sense. Wanted to hear a bit more on the competitive intensity that's easing up in the construction equipment side of things, and you did not mention that in material handling. Maybe it's just different drivers for each segment in the year. The gross margin cadence for construction equipment specifically, is that a competitive intensity-driven factor primarily, or are there other factors that can support gross margins for construction equipment sales?

Anthony Colucci (CFO)

Just to make sure I have it, things that go beyond competitive pricing pressures that drive margin?

Steven Ramsey (Senior Equity Analyst)

That's right.

Anthony Colucci (CFO)

Good question.

Steven Ramsey (Senior Equity Analyst)

How much is the. That's right. Yep.

Anthony Colucci (CFO)

Yeah. I.Look, I think that for sure is number one. This is a mature marketplace where you've got, you know, household names competing for market share every day. What it comes down to is the value proposition to the customer, whether you can keep them up and running, and that's something that's near and dear to Alta and the 1,200 mechanics or 1,300 mechanics that we have on the ground every day. You know, you can Yeah, you can drive more margin by treating the customers right and having them be willing to pay for keeping their equipment up and running.

beyond that, I would say, you know, it's a mature marketplace, pricing matters, and the competitive dynamics with the OEMs are always at the forefront.

Ryan Greenawalt (Chairman and CEO)

Steve, this is Ryan.

Steven Ramsey (Senior Equity Analyst)

Okay.

Ryan Greenawalt (Chairman and CEO)

The one thing I would add is that the more commoditized the product category, the more it's based on supply and demand and not other factors. Tonight we featured, you know, we had a high-profile sale of some, you know, high-end Volvo excavators that are purpose-built for tough applications. That would be something you could point to, that you can hold higher margin, where you have a product that really differentiates itself with the competitive landscape.

Steven Ramsey (Senior Equity Analyst)

Okay. That's helpful color. Last one from me. Interesting to hear the long-term or the multi-year targets on PeakLogix and Ecoverse and reaching $100 million of sales for each unit in 2028. Can you ballpark the current size and margin profiles of those two units and what the margin profile would be if they achieve those 2028 revenue targets?

Anthony Colucci (CFO)

Sure, Steve. You can see Ecoverse just in our master distribution segment. It's a one for one. Ecoverse did $67 million this past year. I would say, you know, can push well past that. Anyway, that one is a one for one with our master distribution segment. Peak is probably half of that $100 million today, give or take. We know that it has the capacity to do more. We've made investments, continue to make investments in talent in that business. For those that aren't aware, PeakLogix is warehouse systems integration group. Think automated warehouses. We own a software called PickPro that we're investing in. Emerging technologies in the warehouse and distribution space.

There are several comps out there, multiple comps out there in the universe that are $several hundred million businesses or $several billion businesses. We've got to take our share of that marketplace. The margin profile, you can see, Steve, it with Ecoverse in our master distribution segment, obviously been impacted here more recently with tariffs, but I would expect that to scale similar to the profile that it had scaled at previously. With PeakLogix, you know, their gross margins are somewhere 30%-ish, maybe north of that. You know, EBITDA margins in the mid-teens would be the goal, high teens even. To give you perspective.

Steven Ramsey (Senior Equity Analyst)

That's helpful, everyone. Thank you.

Operator (participant)

Thank you. Once again, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from the line of Ted Jackson of Northland Securities. Your line is open.

Ted Jackson (Managing Director and Senior Research Analyst)

Thanks very much. I was concerned that maybe my hand did not get raised. congrats on the quarter. I think the outlook that you provided is very constructive.

Anthony Colucci (CFO)

Thanks, Ted.

Ted Jackson (Managing Director and Senior Research Analyst)

my first question, which you actually touched on, I had wanted to touch base with regards to weather. You know, you had an impact in the fourth quarter. The weather's been, you know, pretty, you know, for some of your core regions has not been that great in the first quarter either. I mean, how should we think about first quarter, you know, in terms of performance? This is gonna be more of a services parts impact, or does it have a big impact on your equipment sales too? Maybe just a little.

Maybe if you could just kind of talk a little bit through the first quarter and how we should think about it, given that, you know, I mean, it's some of the worst weather we've seen in, you know, quite a bit of time.

Anthony Colucci (CFO)

Yeah. you know, Ted, I wouldn't expect it to impact on a year-over-year basis, Q1. Wouldn't expect much of an impact in the equipment sales department, for sure. Obviously, we have Florida, which we always, you know is a big contributor to our construction business. Equipment sales, I would say, less impacted. Parts and service probably most acutely, as we, you know, try to get technicians on the road, where you may lose a little bit of time. Rental would be, you know, kind of somewhere in the middle of the acute impact on parts and service versus equipment. That being said, rental and the material handling business probably not impacted because, you know, it's majority of it's out indoor.

In construction, we have our seasonal low anyway, for the rental business. Again, I think maybe a little bit of impact there in the rental side in construction. Anyway, long-winded way of saying parts and service would be where we would sit.

Ted Jackson (Managing Director and Senior Research Analyst)

Jumping over to tariffs. You know, you have OEMs that have had, you know, more than their fair share in terms of share of exposure. Obviously, you have yourself. I know it's really early with regards to the Supreme Court decision, but, you know, I mean, is that the kind of thing where you have you had any discussions with, say, like a Volvo, you know, just 'cause it's kind of a big one, about, you know, what the thought process is with this latest turn of events and what it might mean for their businesses and what it might mean for their pricing and such as we, you know, kind of move forward? You know, obviously, you know, the same thing holds true with Ecoverse and, you know, your own business there.

I have a couple more behind that.

Ryan Greenawalt (Chairman and CEO)

Ted, I'll take that one. This is Ryan. That's hard to answer, but what I would say is that it's consistent across our OEMs that we're seeing the decision as a positive, that overall we believe this will create more certainty on the tariff policy. Despite the volatility near term with some temporary tariffs, it's more of defining what is not possible going forward than what is. We kind of knew what the rules of engagement were. It feels like we're back to the old rules. That's probably a good thing for just calming the market. Our OEMs aren't overreacting. You know, we're not anticipating a big rebate, so to speak. This has been kind of absorbed by the OEMs and by the dealers.

We didn't price push a lot of pricing into the market. Don't expect a lot of volatility, you know, trying to clean up a mess in that regard either. We take it as a positive. It's gonna be, you know, a couple more months of some uncertainty, but we think overall it's creating more, more clarity.

Ted Jackson (Managing Director and Senior Research Analyst)

I mean, I don't know about, you know, you know, Volvo per se, but I mean, I know from listening to, you know, like talking to, like CNH and a few others that, you know, they've instituted, they haven't fully compensated for all the tariffs, but, you know, they've taken, you know, 3% to, you know, call it 5% price increases in front of it. With that kind of in mind, you know, will there be a price adjustment down, or is this the kind of thing where. You know what I'm saying?

Ryan Greenawalt (Chairman and CEO)

I'm just gonna answer no.

Ted Jackson (Managing Director and Senior Research Analyst)

Will any of that kind of flow its way to you?

Ryan Greenawalt (Chairman and CEO)

Answer, prices never go down. Yeah.

Ted Jackson (Managing Director and Senior Research Analyst)

I know.

Ryan Greenawalt (Chairman and CEO)

I think that likely it sets a new high water mark, and we sort of, you know, manage with discounting and supply and demand dynamics. Unlikely that we would see big price decreases going forward.

Ted Jackson (Managing Director and Senior Research Analyst)

Just shifting over. I got two more questions. Going over to material handling. You know, you're seeing a pickup in order activity. I know from listening to Hyster-Yale and, you know, what they're trying to do, that they have slowed production to build backlog. When I listen to you talk about material handling and, you know, an improving market and a stronger back half, how much of that is being driven by the actual turn and strengthening in terms of actually bookings orders? How much of that is because the turn, you know, the fulfillment timeline has been extended because of the actions of Hyster-Yale?

Ryan Greenawalt (Chairman and CEO)

I'm gonna say it's the prior, Ted. It has little to do with fulfillment.

Ted Jackson (Managing Director and Senior Research Analyst)

I sorry. I hear you said.

Ryan Greenawalt (Chairman and CEO)

Yeah, it's bookings because, you know, we've got real. Especially on the lift truck side, we've got transparency into what's been booked, and there's that obvious lag time to when it is delivered. We're seeing booking activity up year-over-year, and we see that as a leading indicator of a strengthening market.

Ted Jackson (Managing Director and Senior Research Analyst)

Are there any particular verticals where you're seeing that strengthening happen? You know, anything that's kinda, you know what I'm saying, that, you know, is kinda really distinct to [Alta-play] in and of itself, or is it very generic, you know?

Ryan Greenawalt (Chairman and CEO)

You know, Ted, I don't wanna speak to the industry volumes because we're sort of, you know, our end markets are dependent on the geographies we serve. Where we're focused is making sure that we protect and defend our share of the rider forklifts, our traditional bread and butter, where we've seen some pressure over the last couple of years, and that was where we're excited to see kind of a snapback on our share. Again, it's early, and we don't report that on a quarterly basis. We're bullish in that regard, that we see some of our shares snapping back where it needs to.

Ted Jackson (Managing Director and Senior Research Analyst)

Ryan, you sound superstitious. I don't wanna jinx you. My last question. The dialing down of kinda the rent-to-sell business and, you know, the, the, you know, the, you know, you know the efforts to improve, you know, your capital utilization. Can you just kinda talk about what's the end game for that? I mean, are we there now, or is there more to go? Maybe kinda talk through where you see the finish line.

Ryan Greenawalt (Chairman and CEO)

Yeah, Ted. We're not quite there yet. You know, we made mention of trying to get to, based on our plan, sub 4.5 on our leverage by the end of the year. That's predicated on hitting the $180 million of EBITDA as well as offloading some fleet. That's part of kind of this rationalization program. That number is something like $40 million still that we would like to get out of the fleet. We expect to do that over the, you know, the next 12 months during the fiscal year, get through the majority of that. We still are not hitting the KPIs we need to in the rental business.

We'll continue to pare back the size of the fleet, not just in rent-to-sell categories, but also in the material handling business if we don't see appropriate utilization. I would say we're 70% through kind of what we would have deemed as excess, you know, a year or so ago.

Ted Jackson (Managing Director and Senior Research Analyst)

Okay. That's it for me. Thank you very much for the time.

Ryan Greenawalt (Chairman and CEO)

Thanks, Ted.

Operator (participant)

Thank you all for your questions. That will conclude today's Q&A session and call. On behalf of the company, thank you for joining and participating. Enjoy the rest of your day.