Alamo Group Inc. (ALG) Q1 2026 Earnings Report, Transcript and Summary

Good day and welcome to the Alamo Group, Inc. First Quarter 2026 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ed Rizzuti, Executive Vice President of Corporate Development and Investor Relations. Please go ahead.

Thank you. By now, you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one, please contact us at (212) 827-3746 and we will send you a release and make sure you're on the company's distribution list. There will be a replay of the call, which will begin 1 hour after the call and run for 1 week. The replay can be accessed by dialing 1 (855) 669-9658 with the pass code 1646754. Additionally, the call is being webcast on the company's website at www.alamo-group.com and a replay will be available for 60 days. On the line with me today are Robert Hureau, President and Chief Executive Officer; and Agnes Kamps, Executive Vice President and Chief Financial Officer. Management will make some opening remarks and then we will open up the line for your questions. During the call today, management may reference certain non-GAAP numbers in their remarks. Reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachment to our earnings release. Before turning the call over to Robert, I would like to make a few comments about forward-looking statements. We will be making forward-looking statements today that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. Among those factors which could cause actual results to differ materially are the following: adverse economic conditions, which could lead to a reduction in overall market demand, supply chain disruptions, labor constraints, competition, weather, seasonality, currency-related issues, geopolitical events and other risk factors listed from time to time in the company's SEC reports. The company does not undertake any obligation to update the information contained herein, which speaks only as of this date. I would now like to introduce Robert Hureau. Robert, please go ahead.

Thank you, Ed. I'd like to thank everyone for joining our first quarter earnings conference call. We appreciate your continued interest in the Alamo Group. Overall, we're pleased with the first quarter financial results. We made good progress with many of our key initiatives. In particular, the Vegetation Management division reported solid improvement in terms of both sales and profitability. I'll turn the call over to Agnes to review our financial results in detail. When she's finished, I'll come back and discuss the performance of each of our divisions and make some remarks regarding our long-term strategic priorities. Agnes?

Thank you, Robert. Good morning, everyone. Net sales for the first quarter of 2026 were $417.1 million, an increase of 6.7% compared to the first quarter of 2025. Gross profit for the first quarter of 2026 was $104.8 million compared to $102.8 million for the first quarter of 2025. Gross margin for the first quarter of 2026 was 25.1%, down 118 basis points compared to the first quarter of 2025. The year-over-year decline was primarily driven by Vegetation Management division reflecting lower net sales in our municipal mowing business and certain manufacturing facilities, which are continuing to ramp up in terms of efficient throughput. Importantly, Vegetation Management margins improved meaningfully on a sequential basis as we exited the quarter reflecting operational progress in both facilities. While there's still work to be done, we are encouraged by the traction we are seeing and expect continued improvement as the year progresses. Selling, general and administrative expense or SG&A expense for the first quarter was $57.8 million, up 6.3% from the first quarter of 2025. SG&A expense in the first quarter of 2026 included approximately $3.5 million related to acquisition and integration costs, restructuring costs and the addition of Petersen and Ring-O-Matic acquisitions. SG&A expense, as a percentage of net sales in the first quarter of 2026, was 13.8% compared to 13.9% in the first quarter of 2025. Net interest expense for the first quarter of 2026 was $3.1 million compared to $2 million in the first quarter of 2025, higher year-over-year as a result of Petersen acquisition. The effective income tax rate was 25.3%, in line with our current and longer-term expectations. During the first quarter of 2026, we recognized $2.5 million of acquisition, integration and restructuring expenses. These costs included $0.6 million primarily related to acquisition and integration of Petersen Industries and $1.9 million in restructuring expenses. Approximately $1.6 million of this cost was recorded in SG&A and $0.9 million in cost of sales. All of these amounts are treated as adjustments for certain non-GAAP measures as shown in the press release. Adjusted EBITDA for the first quarter of 2026 was $59.3 million or 14.2% of net sales compared to $58.3 million or 14.9% of net sales in the first quarter of 2025. On a sequential basis, adjusted EBITDA improved significantly from the fourth quarter of 2025 when it totaled $44.8 million or 12% of net sales. Adjusted earnings per share on a fully diluted basis for the first quarter of 2026 were $2.56 compared to $2.70 for the first quarter of 2025 and compared to $1.70 for the fourth quarter of 2025. Now I'll share some comments regarding the results of each of the divisions. Net sales in the Industrial Equipment division for the first quarter of 2026 were $241.7 million, an increase of 6.5% compared to net sales of $227.1 million in the first quarter of 2025. Excluding acquisitions, net sales declined $2.4 million or 1% compared to the first quarter of 2025 largely due to timing of orders in our snow group. Adjusted EBITDA in the Industrial Equipment division for the first quarter of 2026 was $39.7 million or 16.4% of net sales compared to $37.4 million or 16.5% of net sales for the first quarter of 2025. We are pleased with the continued strong performance in this division and particularly with the successful integration of Petersen acquisition. Net sales in Vegetation Management division for the first quarter of 2026 were $175.4 million, an increase of 7% compared to net sales of $163.9 million in the first quarter of 2025. The increase is a result of operational improvement in our facilities and modest support from the agricultural end market offsetting weakness in municipal mowing. Adjusted EBITDA in the Vegetation Management division for the first quarter in 2026 was $19.6 million or 11.2% of net sales compared to $20.8 million or 12.7% of net sales for the first quarter of 2025. Moving on to the balance sheet and cash flow. Cash provided by operating activities for the first quarter of 2026 was negative $23.5 million due to strong sequential growth especially in the Vegetation Management division where the net sales increased by $36.7 million or 26.4% in the first quarter of 2026 compared to the fourth quarter of 2025. The operating cash flow on the last 12-month basis was $139.8 million or 138.2% of net income. Cash used in investing activities for the first quarter of 2026 was $169.8 million and reflects cash used for the acquisition of Petersen Industries in January 2026 and $4.5 million used for capital expenditures. We funded Petersen acquisition with $120 million draw on our revolver and approximately $50 million cash on hand. We're excited about the acquisition of Petersen given its leadership position, attractive margins and commercial synergies. As of March 31, 2026, our gross debt was $290.5 million and we had $195.2 million in cash on the balance sheet resulting in net leverage ratio of less than 1x. Total liquidity remains very strong, positioning the company well to continue pursuing disciplined M&A opportunities. To conclude, I would like to emphasize our commitment to delivering long-term value to our shareholders. We are pleased that our Board has approved a quarterly dividend of $0.34 per share. As we move forward, we remain focused on driving growth and optimization of our operations. Thank you. I'll turn it back over to Robert.

Thank you, Agnes. Let me start by providing more color on the operating performance for each of our divisions. First, the Industrial Equipment division. As Agnes mentioned, net sales in the Industrial Equipment division increased by about 7% during the quarter. The increase in net sales during the quarter was driven primarily by our acquisitions, including the Petersen acquisition, which closed earlier in this first quarter and Ring-O-Matic acquisition, which closed during the middle of 2025. Net sales in our excavator and vacuum business performed well during the quarter. Net sales in our sweeper and safety business, excluding the effects of the Petersen acquisition, were flattish. And net sales in our snow business declined compared to the prior year. The decline in net sales in the snow business, as we've discussed, was due to the change in our sales strategy and our placing more emphasis on the quality of its earnings. We believe this strategy is and will continue to prove successful. As for profitability, the adjusted EBITDA margins in the Industrial Equipment division in the quarter were good at around 16%. This was roughly level to the adjusted EBITDA margins in the same quarter in the prior year and reflects positive pricing, procurement savings and the inclusion of the Petersen business given its above-average margin profile partially offset by material inflation, including tariffs and various investments we're making in the division to support long-term growth. As for the Petersen business, although it's still early, we're very pleased with the initial financial results, the integration activities, the leadership team and the progress related to both the commercial and operational synergies. We'll keep you posted on the performance of this acquisition as it continues to evolve. The book-to-bill in the Industrial Equipment division for the first quarter of 2026 was around 1x. Net orders for the Industrial Equipment division during the first quarter of 2026 were down 11% compared to the prior year. Net orders in the snow business were robust, up double digit year-over-year again this quarter. This strength reflects the continued end market demand and the strength of our brands, commercial organization and our customer partners. Net orders in the excavation and vacuum business were down. Within the excavation and vacuum business, we're seeing strong order growth in the European markets, which bodes well for our expanded manufacturing facility in France, with softer activity in the U.S. Net orders in our sweeper and safety business, excluding the newly acquired Petersen business, were down but reflect an unusually large multiyear order in the first quarter of 2025 making comparability challenging. Lead times in all the businesses within the Industrial Equipment division are in a good competitive position. Today, our Industrial Equipment division represents 58% of our total net sales. As a reminder, the products in the Industrial Equipment division serve end markets, including public works, utilities, infrastructure and construction. These are very attractive long-cycle markets. As I mentioned during our last call, net sales in this division and its end markets have been very robust, growing in the high teens over the past few years and were fueled in part by various government-driven investments in infrastructure. Looking forward, we expect the rate of growth in several of these end markets to slow in 2026 as the near-term effect of those prior external investments and the overall rate of construction spending slows before normalizing and then returning to steady long-term growth. Now the Vegetation Management division. Net sales in the Vegetation Management division increased 7% compared to the first quarter of 2025. This is the first year-over-year increase in quarterly net sales in the Vegetation Management division in 9 quarters. This is a very positive development and it is another data point indicating certain end markets might be settling. The 7% increase in net sales was due to several factors including the ramping of our production activities in certain key manufacturing facilities, the improvement in underlying demand in certain end markets and favorable pricing partially offset by continued weakness in other end markets. Net sales in our North American ag business were positive reflecting a slightly more constructive end market and ramping manufacturing activity. Net sales in our tree care business were also positive. Performance in the North American portion of this business reflect improved manufacturing efficiencies not necessarily a recovery in the end markets. On the other hand, performance in the European markets reflect improving end market demand and overall strong commercial and operational performance by that team. Net sales in our municipal mowing business were down in the first quarter of 2026 reflecting continued cautiousness we're experiencing with dealers and the related state DOT offices that use our products as they navigate their fiscal budgets. As for profitability, the adjusted EBITDA margins in the Vegetation Management division in the first quarter of 2026 were about 11%. This is up significantly from the second half of 2025 and just shy of the margins in the first quarter of 2025. This is a positive development. The adjusted EBITDA margins of 11% compared to the first quarter of 2025 reflect volume leverage and favorable pricing offset by material inflation including tariffs and various investments we're making to support long-term growth. While there's much more work to be done, we're pleased with the margin progression during the quarter. The book-to-bill in the Vegetation Management division for the first quarter of 2026 was 1x. Net orders for the total division during the first quarter of 2026 were up 5% compared to the prior year. Net orders in the North American and European ag businesses were strong. Net orders in tree care were soft reflecting the state of those end markets including the U.S. housing market, which remains weak. And net orders in municipal mowing were down for the reasons I previously highlighted. Today, our Vegetation Management division represents 42% of our total net sales. As a reminder, the products in the Vegetation Management division serve end markets, including tree care and recycling, agriculture, public works and landscape maintenance. As I mentioned on our last call, net sales in this division and its end markets have declined over the past few years rolling over a period of significant growth that occurred between 2021 and 2023. Looking forward, we expect the rate of decline in the end markets to slow. While we're pleased with the improvement in net sales in the Vegetation Management division during the quarter, we would not necessarily expect the end markets to support this level of year-over-year growth over the balance of the year. I'd now like to share some comments regarding the broad framework of our long-term strategy. As mentioned before, there are 4 pillars of the strategy, which will focus into both resources: first, people and culture; second, commercial excellence; third, operational excellence; and fourth, capital deployment. Within each of these strategic pillars, there exists a series of prioritized initiatives on which our teams are working. We made good progress on all initiatives during the quarter. Today, I'd like to provide an update on our product innovation activities. Over the past 2 calls, we highlighted a few exciting new products. As a reminder, these included: first, our new non-CDL vacuum truck that can be purpose-built as a hydro excavator or a sewer combo cleaner providing greater appeal in the urban and rental applications due to its compact size and the operator not needing to hold a commercial driver's license. This product was engineered for efficient manufacturing and economical international shipping. Interestingly, this product is already sold out in 2026. And second, our next-generation hybrid sweepers that run on diesel, CNG or electric chassis globally and use a proprietary electric sweeping architecture delivering superior efficiency, safety and performance. We have a smaller NiteHawk hybrid air sweeper that's already in commercial production and generating significant customer interest. And we have a larger Schwarze hybrid mechanical sweeper that is smashing performance standards in testing in advance of a commercial launch in the second half of 2026. Operators love these products. Today, I'd like to highlight our new Wide Wing System introduced by our snow business. This innovative snow plow operates an extendable side wing system attached to a tri-drive chassis offering a clearing capacity up to 27 feet, which is roughly 80% greater than standard large plows. This dramatically improved productivity, lowered total cost of ownership and increased operational flexibility is a game changer for state DOTs and road maintenance contractors. In addition, its technology is patent protected in both the United States and Canada demonstrating once again our first-mover advantage. This product is quickly becoming the industry standard in the heavy-duty category and will eventually obsolete the traditional tow plow approach to snow removal. We highlight this and the other products today not necessarily to support or help you forecast what sales might be in coming quarters, but simply to provide color around and share a vision regarding how Alamo Group and all our wonderful brands will revolutionize the vocational truck and land maintenance segments through our engineering expertise, adaptive technologies and entrepreneurial culture over the next 3 to 5 years. Much more to come in future calls. In summary, I'd like to express our thanks and appreciation to all our employees who work tirelessly to produce, sell and develop the very best brands of vocational trucks and mowing and tree care products in the industry. I'd also like to thank our customers and our investors for their trust and support. This concludes our prepared remarks. Operator, please open the lines for questions.

[Operator Instructions] Our first question comes from Chris Moore of CJS Securities.

Maybe we can start on the Industrial side. So Industrial organic growth declined 1% in Q1. You said book-to-bill was about 1. I guess the question is what are the puts and takes to doing that 5% organic growth for Industrial in '26?

Yes. I think maybe we can start with net sales expectations and then move into end markets and orders. Overall, Chris, I think as we said in the past when we take a look at the industrial business and we look out over the course of the year, we think the year is likely to be excluding acquisitions kind of a flattish year, anywhere between flattish to up very low single digits and then acquisitions on top of that. The basis in part for that is as we reflect over the last several years as we mentioned a number of times, really extraordinary growth over the past few years; 17%, 18%, 19% year-over-year growth for nearly 8 quarters in a row. We simply think it's going to be really difficult to keep that pace. Although we think the markets are constructive and healthy, that order pattern is going to slow in 2026 and that's going to result in roughly flattish net sales over the course of the year and then of course adding acquisitions on to that. We think the end markets are really constructive long term. This is a place we're going to continue to invest particularly around M&A. We like the end markets. It's just that this year is going to be a little bit of a transition year coming off the robust highs of the prior 2 years, if you will.

Got it. Very helpful. And maybe just 1 on Vegetation. So it sounds like some of the challenges in the plant consolidation, you could see significant improvement as the quarter ended. Just trying to get a feel for how we should be thinking about Vegetation operating margins for the balance of '26.

Yes. So the first comment would be or the first response to that would be that we made really good progress during the quarter. We're not where we want to be. The margin profile and the sales performance in the quarter were roughly in line with expectation. We've done well. We've got more work to do to get those margins where we want. But generally speaking, we were fairly pleased with those overall results. With respect to the Vegetation business and as we think about it long term, kind of conversely to what I said about the Industrial division, the Vegetation business has been declining for the last few years having come off those really highs of '21 and '22. We think that rate of decline is going to slow over the course of 2026. That's likely to put us in a place where over the course of 2026, Vegetation end markets are flattish, maybe still down a little bit; but definitely sequentially improving, if you will. Versus where we were a few months ago when we last talked, I would say we're a bit more cautious on Vegetation despite the good quarter, despite the 7% year-over-year growth. And for that, we point to some of the third-party data that's out there certainly with respect to inflation. We know fertilizer cost is rising. Those input costs at farmers and ag are rising. Freight is rising. We've seen retail tractor sales in that 40 to 100 horsepower range decline for the last few months. So while we still think 2026 is a stabilizing year, I would say that we're a bit more cautious today than we were a few months as we look out. Nonetheless, pleased with good performance during the quarter and expect continued margin progression as we move forward over the course of 2026.

Very helpful. I was going to ask you about inflation and interest rates on Vegetation. You answered it already so I will leave it there. I really appreciate it.

Our next question comes from Mike Shlisky of D.A. Davidson.

I want to start off on the snow business. I think your comments, Agnes, were about delayed orders and you've been kind of rolling out a single-family of brand strategy, if you will, or that's what it seems like in the marketplace as Alamo snow in general as opposed to Tenco and Henke separately. Are the delayed orders due to the changeover in strategy or are there budget release or something else? I guess I'm kind of wondering if your comments, Agnes, and your comments, Robert, are related to each other.

Well, we'll step back and we'll cover a couple of pieces here on snow just to make sure we're aligned on some of the things we've said. The first comment again is just to remind everybody that the year-over-year sales decline in the snow group, if you will, is really a function of us not chasing every last single dollar of sales. In the past we would do so even if that meant outsourcing the upfitting then drives a much lower margin profile and so we've deliberately stopped that. We're being a bit more selective on the orders we take, if you will. The order pattern is good, it's strong, it's growing, it's healthy. Importantly, our lead times are in a good competitive spot. We actually think we're in a much better position in terms of lead times relative to our competitors and so that kind of gives us confidence that this strategy is still the right strategy. And so what you're going to see as a result is top line pressure year-over-year not a tremendous amount, but you're going to see top line pressure, but we'll at the same time see improved profitability over the course of the year. Again, the robust order pattern really speaks to the health of the brand, the innovation, the commercial team, the end market demand. Again the lead times are better positioned we feel than our competition and so we're not concerned about the growing backlog in that business. Does that help, Mike?

Yes. I guess I also just wondering about operationally your sales strategy has changed it seems and how that was going?

Yes, it's working well. I mean I think we're not going to share the level of granularity here in the call. But when you look at the profitability of that business, it's definitively moving in the right direction and we're pretty pleased with that.

Mike, maybe if I could add just the reference that I had made about timing of orders. I mentioned that revenue was down due to timing of orders, but that just means when those orders are placed and revenue recognized. The order intake is actually very strong in our snow business.

Got it. Outstanding. Just also want to move on to Vegetation quickly as well. Was there -- in the first quarter, I think you mentioned you were getting production ramped up. If I'm wrong, correct me there. But just give us a sense as to the overall dealership inventory levels in that business. Did you increase throughput to meet inventory demand or end user demand in the quarter?

Yes. I would say that overall, speaking broadly, the inventory in the dealer channel is in a reasonably good spot. In the ag business, it's fairly low. In the tree care space, it's reasonable. In municipal mowing, it's low and in the European markets, it's in a reasonable position. So we feel good about that. We have in the U.S. ag business strong orders. We've had strong orders now for several quarters and that's continuing. The ramping of production in both the U.S. ag business and the tree care business really reflect the ramping of the manufacturing efficiencies which, as you know, we struggled with during the third and fourth quarter, therefore delivering orders that were in backlog, if you will. But at the same time, continuing to refill that backlog with robust order patterns. So the comments we made in the prepared remarks, I would say the end markets are still very -- moving in a very positive manner for U.S. ag and Europe ag, but the sales were driven in part by delivering on those orders that we had from prior quarters. Something similar with the tree care space although I would say that there really isn't a recovery yet in the end markets in the tree care space. We drove positive sales performance in tree care because the team there -- the new team there really drove that the manufacturing productivity improvement and throughput during the quarter and we're pleased with that. That will be very helpful as we continue over the balance of the year.

The next question comes from Mig Dobre of Baird.

It's Joe Grabowski on for Mig this morning. So I wanted to start off asking about Petersen. You've owned it for about 90 days and you talked a little bit about it in your prepared remarks. But maybe just flesh out any early impressions you have and how the integration is proceeding and maybe any updated thoughts on the commercial and operational synergies you see.

Yes. Overall, really pleased and impressed with the team at Petersen. I think as you may know as we may have mentioned as the founders exited the business, we put in a leader from our group; somebody who's very strong, very familiar with that business. The integration of that leader and the team has been really positive, smooth. The culture is strong. We've been working on the back end of the business, the systems, things of that nature. That has all gone well. Initial impressions now having owned it for a few months as we look at the commercial opportunities and the operational opportunities, I would say 2 thumbs up. We know where there are commercial opportunities meaning dealers particularly on the West Coast of the United States where we have presence, but Petersen doesn't where we think there's an opportunity to roll those products out. As we said, we're making investments certainly on the commercial side to drive those sales to capture that share. So we're really enthusiastic about that. And we also see and have validated the operational synergies, particularly around chassis and what we can do there, leveraging the broader Alamo purchasing power, if you will. So overall, really pleased, no hiccups, should be a good year for us.

All right. That sounds great. And then my last question, you mentioned tariff impacts a couple of times. Obviously tariff levels and calculations have been moving around a lot lately. Any change in your outlook for the impact from tariffs maybe versus where we were last quarter?

No, not really. A few things maybe just to highlight for folks. On a year-over-year basis of course no tariffs in Q1 of 2025. They're in there in our operating results in Q1 of 2026. So on a year-over-year basis, that would have been a margin headwind. We've also said that in the aggregate on a 12-month basis, tariffs should generally be running somewhere slightly short of 1% of sales, if you will, something in that zip code. We've done the math and we've looked at what the impact of the IEA tariffs rolling off and the new ones coming in. We think generally we're in about the same spot. But by business unit, depending on where the country of manufacturing is, we might see some differences now with the new rules by business unit and between divisions generally. But overall, the overarching theme is we're still in about that same spot at 0.8% or 0.9%, something like that as a percentage of sales.

[Operator Instructions] Our next question comes from Greg Burns of Sidoti & Company.

So I just wanted to kind of little better understand the positive revenue and order trends you've seen in recent quarters around ag versus your more cautious outlook maybe given some of the macro data points you're seeing. Are you seeing it anywhere in your -- that caution, are you seeing it anywhere in your business yet or is it just looking at the market and assuming maybe there could be a little bit more caution amongst dealers and end customers given what you're seeing in the future?

Yes. I would say there wasn't a lot of impact in the first quarter that we experienced in our financial results. I would say that we're starting to see higher levels of freight costs from the rise in fuel costs, et cetera. We are looking at a number of third-party data that would suggest things might be a little bit more negative than where we were 2, 3 months ago prior to the war. The other internal data point would be as we speak with customers, those conversations would validate that a slightly more cautious tone at this point is warranted. Now that said, we still see really robust year-over-year order growth in the North American ag business and in the European ag business. Just the tone is changing slow here over the course of the last 30 days or thereabouts and so really just cautious. That's all.

Okay. When we look at your longer-term consolidated margin targets that you laid out a couple of quarters ago, obviously volume will benefit there and the integration of some of the more recent acquisitions. But can you maybe outline some of the other maybe internal initiatives that you're putting in place to bridge the gap from where you are now in terms of maybe EBITDA margins versus what those -- where your kind of medium-range goals are?

Yes, definitely. So let me back up and remind everyone of what some of those goals were and how we intend to get there and then, Greg, just point us in the direction where you want to drill down deeper. So we have said that long term through the cycle, we have a number of financial objectives and targets. That is 10% plus growth in terms of sales, 15% adjusted operating margins, 18% plus adjusted EBITDA margins and free cash flow as a percentage of net income of 100%. Today, I would say as we think about where we are and the initiatives that we have over the next several years, those financial targets are still intact. We still have a high degree of confidence of getting there. It does importantly require a recovery in the Vegetation end markets. As we've said, we're starting to see that. Things are moving in the right direction. First quarter was a very positive sign of that. We've also outlined those 4 strategic pillars: culture and engagement, commercial, operational and capital deployment. Within commercial and operational, there are 3 things that we think will help drive 300 basis points or thereabouts improvement in the operating and adjusted EBITDA margins, if you will. And for simplicity's sake, you can say equal weight between the 3. Procurement savings, we've launched a company-wide project. That is well under -- Phase 1 is well underway. In fact the work that's being done not only is it validating what we think is out there, but there appears to be some upside. So the procurement initiative is a big and important one. Secondly, we expect continued investment in our manufacturing, our lean team, our continuous improvement team to drive manufacturing efficiencies, some robotics and automation added on where we need, upgrading technologies within the plants and continued manufacturing footprint optimization. We think long term there's another 100 basis points there. And then the third one that falls within the commercial pillar is around parts and sales. We ran in 2025 somewhere in the neighborhood of 16% of sales. We believe we are underweight. We know we're down on a year from prior years. We think there's good opportunity there. A simple 200 basis point to 300 basis point improvement of that overall mix should drive 100 basis points of margin improvement. That project is just getting started. We're making the investments. We're working with the business units to get that going. That's a longer-term project. But all 3 of those we think are the foundation for driving margin improvement over the next several years. One caution I would put there is on the procurement side. Given the level of inventory, we don't really expect to see much improvement until the latter part of 2026. We need to burn through that inventory, which the business units are doing. So those are some of the drivers that get us to those 15% and 18%. The gap, if you will, if you're doing the math quickly and based on what I said; the gap really is the recovery in the Vegetation business. We ran 11% adjusted EBITDA margins in the quarter. We need to get that 200 basis points or 300 basis points up more, which we think will come as that Vegetation division and its end markets settle and begin to grow again. We think it's very achievable. We're very encouraged with the progress that we're making so far. And perhaps the last thing I would say, all of that is underpinned by creating a wonderful place for the nearly 4,000 employees here at Alamo Group to work and that speaks to the culture and engagement pillar that I alluded to. That was a long-winded answer, sorry about that. But hopefully, it provides the color you're looking for.

Perfect. That's exactly what I was hoping for. Thank you for that and good luck.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you. Again we appreciate your support and interest in the Alamo Group and look forward to speaking with you on our next call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.