Alliance Laundry Holdings Inc. (ALH) Q3 2026 Earnings Report, Transcript and Summary

Hello, and welcome, everyone, joining today's Alliance Laundry Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this call is being recorded, and we are standing by. It is now my pleasure to turn the meeting over to Tom Gelston, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Along with today's call, you can find our earnings press release and presentation on our Investor Relations website at ir.alliancelaundry.com. A replay will also be available on our website following the call. As a reminder, today's earnings release, presentation and statements made during this call include forward-looking statements under the federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include factors set forth in the earnings release and in our filings with the SEC, including the Risk Factors section of our 10-K filing and subsequent 10-Q filings. We assume no obligation to update or revise any forward-looking statements, except as required by law. Additionally, during today's call, we will discuss certain non-GAAP financial measures outlined in our earnings presentation. We believe these measures are important indicators of our operations as they exclude items that may not be indicative of ongoing business performance. Reconciliations to the most directly comparable GAAP measure can be found in our earnings release and presentation appendix. With that, I'd like to now turn the call over to Mike Schoeb, our Chief Executive Officer. Mike?

Thanks, Tom, and thank you all for joining our earnings call. Our third quarter results reflect our deep commitment to customers and the strength, resilience and nondiscretionary nature of our business. We continue to invest in expanding our connected equipment platform, deepening our distributor partnerships and supporting the businesses, operators and people who count on our products every day. North America delivered another strong quarter led by commercial and home and on-premise laundry. Cost pressure persisted, led by steel and freight, but tariff refund and the pricing actions we took late last year helped to offset it. Internationally, we grew profitability despite varied results across regions. Latin America was solid. Asia Pacific was lower on project timing and the rest of our markets were steady, including the Middle East, though at slightly lower levels. Dean will walk you through both segments in more detail in a few minutes. And I'll highlight again that this performance was achieved in a varied and uncertain macro environment. In a new cycle focused on inflation and interest rates, it's worth remembering that every day truly is laundry day. Our demand is essential and replacement driven, so our business is positioned to perform in any environment. Commercial laundry is a vibrant, growing and essential part of modern life. Our diversified geographies and end markets serving nondiscretionary needs where laundry is not optional, hospitals and elder care, hospitality, industrial, emergency responders, laundromats and many other verticals have performed across all economic cycles, giving us a level of growth, consistency and downside protection that is hard to find. This quarter, revenue grew and profitability expanded despite an inflationary environment. Digital continues to gain traction and our strategy hasn't changed. The more connected our equipment, the more value we deliver, better uptime, smarter servicing, lower cost and higher revenue. And the end consumer experience gets better, which strengthens our customer relationships and affinity for our brands. We also continue to strengthen our balance sheet through debt paydown and executed on an accretive share repurchase of $75 million in the quarter. Taken together, the strength we demonstrated this quarter, pricing discipline, our local-for-local manufacturing and a strengthened balance sheet are what we expect to carry us through the balance of 2026 and into 2027. Before I hand the call over to Dean to cover the third quarter in more detail, I want to share how I feel coming out of this quarter. I have confidence in our business, our outlook and our industry. That comes from what I've seen and heard firsthand from taking part in 2 well-attended energetic commercial laundry trade shows in Milan, Italy and Shanghai, China to numerous in-person meetings with customers and distributors around the world to the encouraging forward view that our equipment financing business and its investor pipeline give us. And with that, I'll turn it over to Dean to take you through the details of our third quarter performance and updated guidance.

Thanks, Mike. Starting on Slide 4, I'll walk through our third quarter financial results. Third quarter net revenue grew 5% versus the prior year to $461 million. Volume and mix accounted for half of the increase with pricing contributing the balance. Gross profit grew 12% to $182 million, representing a gross margin of 39.4%, up approximately 240 basis points from the prior year. Volume and mix provided a meaningful benefit in the quarter, helping to offset ongoing inflationary pressures alongside pricing actions already in place as well as a $5 million tariff refund received in the quarter. Excluding this refund, gross margin increased by 130 basis points. Our local-for-local manufacturing footprint continues to provide a structural advantage through competitive labor costs, shorter freight routes, access to local supply base and insulation from tariffs. Adjusted EBITDA grew 14% to $127 million with a margin of 27.5%, up 217 basis points. This expansion was driven by volume leverage, operational excellence and supply chain efficiency, which allowed us to continue to invest at scale relative to our competition in people to support international sales growth and digital and engineering to develop new products and enhance existing ones. The tariff refund received in the quarter also helped absorb higher current year inflationary costs. Excluding that item, adjusted EBITDA grew approximately 10% versus the prior year quarter. Adjusted net income was up 57% year-over-year to $76 million, and adjusted earnings per share was up 36% to $0.38. This result reflects both strong operating performance and the benefit of lower interest expense, down roughly $20 million from the prior year quarter. On a GAAP basis, net income was $65 million, up 98%. Moving to the cash flow and the balance sheet. Operating cash flow was $84 million in the quarter, up from $66 million in the prior year quarter, reflecting strong earnings conversion and continued working capital efficiency. We paid down $45 million of debt in the quarter, bringing our year-to-date paydown to $160 million, and we also repurchased $75 million of our common stock. As of September 30, total debt was $1.21 billion and net debt was $1.07 billion, resulting in net leverage of 2.25x, down from approximately 2.4x in the second quarter and down more than 0.5 turn from prior year end. Removing the effect of the share repurchase, we would have been levered at approximately 2.1x at the end of the third quarter and ahead of our expectations for deleveraging year-to-date. Drilling into the segments on Slide 5. North America delivered a strong quarter with revenue up 8% to $356 million. Adjusted EBITDA was $115 million, up 21% and adjusted EBITDA margin was 32.4%, an increase of more than 300 basis points versus the prior year. Growth was led by Commercial In-Home and On-Premise Laundry, both driven by higher volume and mix. Commercial In-Home results reflect the continuing trend of consumers choosing the reliability, longevity and durability that our commercial product delivers. And On-Premise Laundry had a strong quarter, reflecting our commercial focus and its steady replacement-driven demand. In Vended, which includes laundromat and multi-housing customers, results reflected the timing of new store projects, including longer lead times for permitting and construction, while customers continue the trend of retooling with larger capacity machines. Significant cost pressures persisted during the quarter, led by steel and freight, but pricing actions taken late last year and the tariff refund helped offset that inflation. And even without the refund, North America adjusted EBITDA grew 15%. International revenue decreased 1% to $105 million due to foreign currency translation, while adjusted EBITDA increased to $27 million, resulting in a margin of 25.3% versus 24% in the prior year quarter. The International segment grew profitably despite varied top line performance across regions. Europe was steady with continued support from the ongoing replacement and upgrade cycle plus [ Vended ] growth across its end markets. Latin America showed solid growth as expected, while Asia Pacific results reflect the timing of projects following strength in prior quarters with year-to-date APAC revenue up versus the prior year. And our Middle East and Africa region improved in the quarter, supported by the hospitality market and growth in areas not directly affected by the conflict in the Middle East. Adjusted EBITDA and margin expansion in International reflected favorable product and end market mix and positive price versus cost, net of inflation and tariffs. Our local-for-local manufacturing strategy continues to help mitigate the impact of currency on profitability. Underlying financial trends in international have been beyond -- have been positive beyond a single quarter. Regional and product mix will continue to make international results variable from quarter-to-quarter given the smaller base and swings in regional strength. We continue to invest in people and products in both emerging and more mature markets to support future international growth with the largest investment in headcount focused on new markets where we believe we can replicate the long-term growth we have historically achieved in countries like Thailand and Brazil. Now we'll turn to our updated full year guidance on Slide 6. The strength of our year-to-date performance and our visibility into the balance of 2026 give us the confidence to raise our full year adjusted EBITDA guidance today. We're maintaining our full year revenue growth guidance of 6% to 7%. We are raising our adjusted EBITDA growth guidance to approximately 10%, which is the high end of our prior range of 8% to 10% as we realize the benefit of volume and mix as well as pricing alongside continued cost-down initiatives and the tariff refunds, which have helped to offset input cost inflation. We expect the fourth quarter to continue to see inflationary pressures, including steel that will impact profitability relative to both the prior year and recent quarters ahead of the early 2027 price increases we've already communicated. We anticipate net leverage of approximately 2.1x at the end of the year versus our prior guidance as a result of the $75 million share repurchase completed in the third quarter. Of course, this is based on our current expectations of business operations and capital expenditures and does not take into account the potential impact of other capital deployment opportunities. A few additional assumptions in our full year outlook. We expect 2026 interest expense to total approximately $75 million, and we now expect our full year diluted share count for 2026 to be approximately 203 million shares. Our CapEx and effective tax rate guidance are unchanged. Now I'll turn the call back over to Mike.

Thanks, Dean. And with that, I want to close with our consistent 4 key messages. First, commercial laundry is a vibrant, growing and essential industry. Second, we hold a leading market position as the only scaled pure-play operator, 2x the size of the #2 competitor. Third, we have an experienced, hungry and proven team that has long delivered results through every economic cycle. And that gives us the confidence in our full year outlook, including raising the midpoint of our adjusted EBITDA guidance. And finally, there are systemic tailwinds of magnitude that we believe will continue to power this company for the next several years. So I'll close by thanking our employees, distribution partners, customers, suppliers and shareholders for your continued support. We appreciate it and look forward to continuing to create long-term value for all of Alliance's stakeholders. Before we open the line for questions, I'll be joined this morning by Dean and Tom. And with that, operator, let's open the line for questions.

[Operator Instructions] We'll go first to Andrew Obin with Bank of America.

Maybe the question is, and you sort of -- you alluded to it, but how should we think about continued inflationary pressures, freight, fuel cost impact in third quarter and fourth quarter outlook. You sort of alluded to it. You would still have had over 100 bps of margin expansion, excluding the tariff benefit. So clearly, we're executing well. But just trying to understand how fast inflation has been hitting the P&L and how fast has it been relative to your expectations?

Maybe this is probably an answer to Dean and I both answer. But from my perspective, look, we've got a long history here, Andrew, and a lot of learning, which is you have to get way ahead any inflationary impact. I think you've seen us do that over the years. I don't think it's any different in terms of how we see it. So pricing actions for 2027 have been communicated. They have been, generally speaking, well accepted. And as I have said oftentimes, it is a great promotional activity when you announce price increases. So it's embedded. There could be timing occasionally, but I think, generally speaking, we're on track, and we feel pretty good about it. Dean, anything further?

I would just add that as we look at the steel markets and we look at our availability of steel supply, there's quite high demand today. And so our ability to get our supply under current contract is an issue a little bit, and we may have to buy at spot rate in some cases in Q4, which creates a little bit of a headwind compared to our agreed prices under the contract. So that's also in our minds as we look at Q4 and think about our outlook for the rest of the year.

And maybe my follow-up, your competitors are dealing with the same cost inflation pressure, but they really don't have the benefit of local-for-local manufacturing. What are you seeing in the market? How is your competition responding?

Yes. So what we see, Andrew, is finally, as we said, we thought it would come in the back half of 2026. So we do see that pricing generally across the board as they are dealing with the tariffs. And that's been very helpful in our North America market. And I think the industry has been generally rational for the 20 years that I've been here. So people do, over time, offset any of those cost increases, and that's what helps it be an attractive place to play and particularly to be in a leadership position.

Do you think there is good market momentum into '27 on pricing in North America from that perspective?

I think they will, yes.

Our next question comes from Susan Maklari with Goldman Sachs.

My first question is on the strength that you've seen in the Commercial In-Home segment. Can you talk about a little more about the demand trends that are coming through there and your ability to continue to outperform given the macro and the state of the consumer in the last couple of months?

Yes. Look, I think, Susan, consumers more than anything are just looking for value. And as I've said on past calls, it's the same thing our professional operators look for. They want that low total cost of ownership. Our product is highly differentiated. It is a commercial grade product. That demand is not slowing. We do not see that anywhere. And again, it's a combination of a unique product that is highly differentiated as well as a highly differentiated go-to-market strategy where our proposition for those retailers is a profitable product for them to sell. It is a product that stays sold. It helps them build their brand, and we do not see any slowdown in that at all.

Okay. That's encouraging. And then turning back to the margin. In addition to price, can you talk about productivity and efficiencies that you can also realize within there, maybe not only in North America but in international as well? And how we should think about just generally the path for margins in this kind of an environment?

Yes. So Dean, you can maybe answer a little more detail on the margin side. But Susan, I think, again, we have always managed the business to ensure our financial profile and those margins are attractive. And I think we've got a pretty good record of doing that. I think the efficiency gains are pretty striking. We see lots of opportunity in terms of additional tooling. Our factories around the world are using AI and other things. And we are getting fairly significant, and I always look back and I think the total headcount in our North American Ripon facility is down about 200 heads or so, and that's on incremental additional volume. So they are getting it. They are working with those teams, and we see continued opportunity. So in addition to that, right, there is slow, steady, careful, methodical cost down as we sort of shake the trees with our suppliers and look at optimizing design, again, always careful to make sure that it has equal or better longevity, durability and all the things that our professional operators demand, frankly. So I think it's a very robust opportunity. And I think that's one of the most exciting things about this company is we're doing some good things, but there's a lot more that we continue to execute on, and it feels pretty good.

The only thing I would add to Mike's comment is that just to emphasize the productivity opportunities that still lie in our CapEx investments of automation, et cetera, that as we look at those investments for returns, productivity in terms of -- is #1 and safety and all those things go along with it. It's a multitude of things that we look at for determining prioritization of CapEx. So there's opportunity there. There's also opportunity in the leveraging of our volumes that you saw, that you see continuing throughout the year with mid-40% incremental margins on additional volume on the gross margin line and then leveraging SG&A. We think we have the opportunity to leverage our infrastructure costs and SG&A to grow margins even further as the top line grows.

Our next question comes from Amit Mehrotra with UBS.

This is Zach Walljasper on for Amit. Just 2 quick questions for me. On the growth side, can we just dig a little deeper into On-Premise? I don't think it gets too much color on these calls. And then my other question is also growth related, but just to get a little update on how the growth opportunities in Southeast Asia are progressing.

Yes. So On-Premise, remember, that's our highly diverse, very specialized part of the market where it is really about total cost of ownership in an extraordinary way, right? These are mission-critical applications and there are literally hundreds and hundreds of small sub verticals. It is -- with that being said, it has a high percentage into hospitality. For those of you who are traveling, as I do, the rates that these hotels are getting are pretty extraordinary. They are healthy. Occupancy rates are high. They will not take risk on their laundry equipment because, as you know and as you might imagine, without clean linens, they don't have a room to sell. It is really, really important, and that applies across all of those verticals. So it's healthy. It is heavy, heavy replacement driven. And we're seeing a lot of growth that is happening there. Part of it, as I have said candidly on other calls, is a refocusing for us to really get at that On-Premise opportunity. We have incredible brands. We've got a great team on the ground and a very, very strong product for our distribution partners to sell in the market. So steady. We've seen that throughout the year and again, a rebalancing. The second part of your question on Southeast Asia, we talk very much about our VIP countries, so Vietnam, Indonesia, the Philippines. Again, I would say that the markets, for most of our international and particularly on the emerging side, they can be lumpy at times, but that overall demand is very strong. There is a lot of opportunity. Those teams are continuing to open hundreds of stores a month. And again, these stores and principally, that growth is coming from laundromat in that market. Again, it's a new market. It's emerging, it's nascent. And we've been at this for well over a decade. So that flywheel is active, is continuing to grow, and we feel pretty good about it. Notwithstanding, again, occasionally, you get this lumpiness, and that's just part of the emerging market backdrop, okay?

Our next question comes from Tomo Sano with JPMorgan.

Maybe just on Vended, which was actually affected by permitting and construction delays for new store projects. Is this primarily a timing issue? Or are you seeing any changes in customer investment appetite or underlying store demand into 2027?

Yes. So Tomo, what we see right now is demand is still at record highs. We see that principally through our financing facility where we will sponsor these stores. That is up in the 20% kind of plus range. So I would say it's timing is permitting. And a lot of this is just locations, right, where the underlying demand is unchanged. So lots of people looking to get in, a lot of replacement. I'll remind everyone that this is a replacement-driven market. Some of the product innovation that we have launched that is active in the field is very compelling. So I would characterize it as timing. We don't see anything at this time. There can be some weakness in certain parts of the market, particularly with the ICE raids. That has had some impact, but it tends to go away once those raids are over. But overall, no change, and this is very consistent in terms of the underlying demand being unchanged.

And just a follow-up on digitalization and initiatives. You said connected equipment can improve uptime and service and the customer experiences. Could you give us more color about your sense of the capturing adoptions and the modernizations of offerings such as Scan-Pay-Wash and Laundry IQ and so on?

Yes. So Scan-Pay-Wash in the quarter, I think it was several hundred thousand transactions, right? So that is continuing to grow. It's that frictionless transaction that end users want. As I've said, they want to get in and they want to get out of these laundromats as fast as they can on that side, and that allows them to do that. So continuing to go there. And again, the product mix, particularly towards the digital with these touchscreen products that, again, based on our data, right, increases revenue in sort of the mid-teens versus the nondigital products. So it's pretty compelling. So it is all part of the -- I think, the attraction, the returns that investors are looking for, because they understand what their end customers want. And oftentimes, that is increasing, right, the -- what we call cycle modifier, as you know, Tomo, as you saw at the trade show. People want value at the end. They want speed. They want convenience. And I think that digital product gives them all of that for the end user, also for the investor who's looking for connectivity because it is very difficult, very expensive to scale without connected machines. And I think that's the underlying thing that we see and have been seeing for a period of time is you have people looking for multiple stores in that space, not a single one. And obviously, for common laundry rooms with our customers who have tens of thousands or in some cases, hundreds of thousands of units, that connectivity is really critical to give them visibility and to give them insights into their product.

We'll move next to Ketan Mamtora with BMO Capital Markets.

Maybe just coming back to price cost. Can you give us some sense on how you are thinking about price cost for 2027? You talked about price increases in place. If you can just quantify that for us, obviously, assuming just costs stay where they are right now.

Yes. I'm not sure we want to talk 2027 unless you feel differently. I would say that, look, it's no different than how we approach every year. As I said, getting ahead of those inflationary impacts, communicating very effectively to our distribution partners and knowing that the industry is generally, as I said, rational. I think everybody is faced with the same inflation, and you'll see us probably do the same thing we have always done. But Dean, I don't know if there's any further color you want to give on that.

In addition to that, just to confirm and to repeat, the fourth quarter will be a quarter where we see the higher inflationary costs continuing without the benefits of tariff refund. We've received all of the tariff refunds we've applied for and our owed through the third quarter. So there's a little bit of a lag there. But as we said in the remarks earlier that we have communicated our price increases to our customers for early 2027. So we're ready. We've evaluated the cost versus price that Mike was talking about. And consistent with prior years, we're trying to get ahead of it with that early 2027 price increase announcement.

Understood. Okay. No, that's helpful. And then just switching to the international side. Can you just talk about kind of where you are seeing sort of just relatively speaking, more challenging demand versus the areas where you are seeing an improvement in demand?

Yes. So I would say Europe continues to be strong. Again, you can have some volatility quarter-by-quarter. Our direct offices, particularly in Spain, France, Italy, performing very well. We've had a lot of growth coming also from the Vended side. As you know, we have a licensed store program with one of our Speed Queen brands. That is continuing to drive incremental growth. So steady, consistent, incredible team. Asia can be a little lumpy as our other emerging markets, as I talked about. Latin America, I think, is on an upswing. And I think we'll see -- as a matter of fact, September was one of the strongest months we've seen from them in a while. Middle East, Africa, as I had said on the call, sometimes a matter of fact, always with crisis, there is opportunity. Sometimes you have to look for it a little bit harder. But I will say that the growth that they expect to come and what we're seeing away from the Middle East and those regions and countries impacted by the conflict has forced them, and I say that in a good way, to find other opportunities, which they have. That's in India, that's in Egypt, countries like Morocco, Ghana, where they have had great success with laundromats. And so I think across the board, there's nothing that would be unusual about this year than any other year.

We'll go next to Brandon Knutson with Morgan Stanley.

Just one for me. The $75 million of purchases was a positive in our view, in the quarter. Should we look at that as a one-off and the focus still shifting to kind of debt paydown to get to the levels you want? Or is this going to be a regular use of capital we can expect going forward?

Yes, Brandon. . .

I would say -- yes, maybe I can start, Mike, and you can fill in. But I would say that we made that share buyback in conjunction with our sponsors' follow-on offering to sell down a portion of their ownership interest. So you can expect that to be a continued opportunity for us going forward, although timing is uncertain and not under our control. I would say that deleveraging is still a #1 priority to get down to that 2.1x by the end of the year, and we'll very quickly get below 2x, as you can imagine, based on historical trends and performance into the 1x range in 2027. So we'll have the fortunate opportunity to evaluate multiple levers around capital allocation to include continuing investment in the business. Deleveraging is an opportunity, but share buybacks could be an option as well in 2027 or late 2026 as things progress. But the good news is we have a lot of options. There is no plan out there that's been approved by our Board, for example, for share repurchases on the open market. So that's really not in the cards at this point, but continuing going forward with multiple opportunities around buybacks in connection with follow-on offerings, potentially continued deleveraging and investment in the business. So our strong free cash flow profile allows us to do multiple things at the same time.

At this time, there are no further questions in queue. I will now turn the meeting back to Mike Schoeb for closing remarks.

Yes. Thank you very much, operator, and thank you all for joining the call. We really appreciate, again, your continued engagement. Thank you for the questions, and I have no further comments. Thanks again.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.