Alta Equipment Group Inc. (ALTG) Q3 2026 Earnings Report, Transcript and Summary

Good morning, and thank you for attending today's Alta Equipment Group's Third Quarter 2026 Earnings Conference Call. My name is Leah, and I will be your moderator for today's call. I will now turn the call over to Jason Dammeyer, Vice President of Accounting and Reporting. Please proceed.

Thank you, Leah. Good morning, everyone, and thank you for joining us today. A press release detailing Alta's third quarter 2026 financial results was issued yesterday and is posted on our website, along with the 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 third quarter 2026 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 yesterday. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in yesterday's press release and can be found on our website at investors.altaequipment.com. I will now turn the call over to Ryan.

Thank you, Jason, and good morning, everyone. I appreciate you joining us to review Alta Equipment Group's third quarter 2026 results. My comments will focus on the broader market environment, equipment demand trends and progress on our operating initiatives. Tony will then cover the financial results, capital structure and updated guidance. The central takeaway from the quarter is that we're seeing improvement in both the operating performance and financial profile of our business. Despite slightly lower revenue, we generated higher adjusted EBITDA and improved margins in several key areas. We're also making progress on capital efficiency and strengthening our balance sheet. Combined with improving equipment demand, we believe these initiatives position Alta for stronger earnings and cash flow in 2027. Starting with the broader market environment, we continue to see a constructive backdrop across both of our primary end markets. Industrial investment remains supported by domestic manufacturing, reshoring, energy infrastructure and logistics and distribution facilities. Federal infrastructure funding and elevated state transportation budgets continue to support a substantial pipeline of construction projects. We're also seeing growing activity associated with data centers and related power infrastructure. While economic uncertainty continues to influence customer capital spending decisions, the underlying drivers of equipment demand remain favorable. Importantly, we're seeing these trends reflected in the recent results and outlook of our major OEM partners. Turning first to construction equipment, market deliveries in our territories are up approximately 5% year-to-date despite moderating growth in the third quarter. Demand remains supported by infrastructure, municipal spending, energy and industrial investment. These trends are consistent with Volvo Construction Equipment's recent commentary. Volvo reported strong North American order growth during the third quarter and continues to anticipate market growth in 2027. We're also seeing a healthier competitive environment than a year ago with dealer inventories moderating, more rational pricing and stabilized used equipment values. Together, these conditions are supporting improved equipment margins and profitability, we believe Construction Equipment is well positioned as we enter next year. Turning to Material Handling, we're seeing increasingly clear signs of a cyclical recovery. Industry bookings in our territories increased approximately 67% in the third quarter, bringing year-to-date growth to 27%. These trends are consistent with Hyster-Yale's recent commentary that customers are beginning to replace aging fleets after an extended period of deferred capital spending. We're also benefiting from a broader product portfolio that allows us to compete across more applications and price points, particularly in warehousing and distribution. Our PeakLogix capabilities provide another avenue to participate in larger, more complex customer projects. While customer delivery schedules and equipment availability have delayed the conversion of some orders into revenue, underlying demand remains encouraging. We're entering 2027 with a stronger backlog and greater visibility into future equipment deliveries, positioning Material Handling to be an important contributor to our earnings recovery. Beyond the improving demand environment, we're making meaningful progress on initiatives designed to improve Alta's operating efficiency, capital productivity and cash generation. One of the clearest examples is our rental business. Over the past several quarters, we're focused on matching fleet investment more closely to customer demand and eliminating underutilized assets. Despite the smaller fleet, rental revenue increased sequentially during the third quarter, while gross margins improved in both Construction Equipment and Material Handling. This is exactly the type of improvement we're working toward. We're reducing capital tied up in the business while improving the productivity of the assets we retain. Our continued focus on utilization, fleet mix and capital discipline creates an opportunity for stronger cash generation and returns as demand improves. We're also making progress improving the underlying profitability of our operating platform. Since becoming public, we've grown from 43 to 85 locations, building a substantial business with strong OEM relationships and extensive product support capabilities. Our priority now is generating greater productivity from that investment. We're focused on technician productivity, service pricing and realization, parts and service absorption and more consistent execution across our branches. We're also reducing operating expenses and improving how we deploy inventory, equipment and personnel throughout the organization. We're seeing tangible early results from these initiatives even before experiencing the full benefit of recovering equipment sales volumes. Looking ahead, we believe 2027 presents an opportunity for these internal improvements to coincide with a more favorable demand environment. Material Handling is entering next year with significantly stronger bookings and backlog. Construction Equipment continues to benefit from durable investment trends and our rental business is generating better productivity from a smaller fleet. The opportunity is to grow revenue across a more efficient operating structure with less incremental capital required to support that growth. Combined with our recurring product support business, this should improve the quality and durability of earnings through the cycle. Our longer-term strategy remains focused on growing market share, expanding product support, scaling complementary businesses like PeakLogix and Ecoverse and strengthening our balance sheet. In closing, we've spent the last several years building Alta's platform. We're now focused on generating more earnings and cash flow from the packed capital we've already invested. The opportunity ahead isn't simply to recover the earnings we've lost during the downturn. It's to emerge as a stronger business capable of generating better returns and more durable cash flow through the cycle. That's why we're increasingly constructive about Alta's prospects in 2027 and beyond. I want to thank our approximately 2,600 employees for their continued commitment to our customers and to improving the business. And with that, I'll turn the call over to Tony.

Thanks, Ryan. Good morning, everyone, and thank you for your interest in Alta Equipment Group and our third quarter 2026 financial results. Our third quarter results reflect continued progress against the operating and capital priorities we established entering 2026. Before getting into the quarter, I want to thank my Alta teammates as these results reflect the continued focus and execution of our employees whose commitment to serving our customers and strengthening our business has positioned Alta to capitalize on the opportunities ahead. My remarks today will focus on 3 areas. First, I will review our third quarter financial performance and discuss the key drivers behind our results. Second, I'll discuss capital efficiency, cash flow and balance sheet, which remain important priorities as we continue to optimize and drive overall returns on capital. Lastly, I'll provide our perspective on outlook for the balance of the year and how we see the business positioned as we enter 2027. As always, I'll be referencing slides throughout our earnings presentation throughout today's call. I'd encourage investors to review our earnings presentation as well as our 10-Q, both of which are available on our Investor Relations website at [Technical Difficulty]. With that, let me begin with our financial performance. Starting with the quarter, consolidated revenue was $417.4 million and adjusted EBITDA was $44.9 million, an increase of 7.7% from last year despite revenue declining 1.2%. Adjusted EBITDA margin expanded approximately 90 basis points to 10.8%, while operating expenses declined approximately $3 million. The important takeaway here is that these results were achieved on a meaningful smaller capital base. Inventory and net rental fleet have declined by approximately $45 million since year-end and year-to-date cash flow after investing activities improved approximately $73 million versus last year. We have also delevered the balance sheet by $17 million since year-end. We are demonstrating that Alta can generate more earnings and cash from less invested capital that remains the -- and that remains the central focus of our optimization initiatives. From an operating perspective, consolidated equipment and service margins improved during the quarter. New and used equipment gross margins increased 60 basis points to 15.6%; service gross margins increased 250 basis points to 61.5%; and rental revenue gross margins increased 200 basis points on higher utilization. These improvements reflect better pricing discipline, service productivity and a more efficient rental fleet. I will keep the segment review focused on 2 areas that are most important to the current outlook, the commercial inflection in Material Handling and the combination of growth and improved capital efficiency in Construction. Turning to Material Handling, the third quarter was $151.6 million of revenue and adjusted EBITDA was $15.4 million. The principal constraint on the quarter was lower new equipment deliveries rather than a deterioration in demand as commercial indicators have moved meaningfully in a positive direction, as Ryan mentioned. The issue for 2026 has increasingly become throughput and timing. Improved order activity has not yet fully converted into equipment deliveries and revenue. Based on current delivery schedules and throughput, we now expect some deliveries that we previously anticipated in the second half of this year to move into the first quarter of 2027. Beyond equipment activity, the segment continued to make progress on profitability and efficiency. Material Handling gross margin increased 160 basis points to 35%. Service gross margin improved 230 basis points. Rental gross margin increased 310 basis points and operating expenses declined $1.6 million. These improvements should position the segment to benefit as backlog conversion accelerates. On to Construction Equipment, this segment provides for a good example of what we are trying to accomplish with our optimization efforts. Third quarter revenue increased 5% and adjusted EBITDA increased 11.2% year-over-year, reflective of cash operating leverage in the business. The larger point is that we have been able to grow the business, while taking capital out of it. Construction average assets declined $76.5 million or 8.4%, while trailing 12-month adjusted EBITDA remained essentially unchanged at approximately $100 million. As a result, trailing 12-month adjusted EBITDA return on asset -- return on average assets has improved approximately 100 basis points to 11.9%. How is this happening? By maintaining rental revenue on a smaller and more highly utilized fleet, improving service and rental margins and reducing interest expense through lower average inventory and rental fleet balances. As we look toward 2027, the construction demand environment is positive. Infrastructure activity continues to be supportive in all of our markets as state DOT budgets remain elevated in our largest geographies, which we believe provides a solid commercial backdrop for construction as we enter next year. Turning briefly to cash flow and the balance sheet, where optimization actions are producing tangible results. First through -- through the first 9 months, net cash provided by operating activities was $58.8 million compared with cash used of approximately $1 million in the prior period -- prior year period. Cash flows after investing activities totaled $53 million, a significant $73 million improvement year-over-year. Inventory declined to $448 million from $473 million at year-end, while gross book value of the rental fleet was also $58 million below prior year. At September 30, total liquidity was approximately $250 million. Net debt declined approximately $20 million in the quarter, and interest expense was $2.5 million lower than the prior year quarter. Our near-term capital allocation priority remains debt reduction and balance sheet strength. We will continue to focus on working capital discipline, fleet utilization, targeted asset dispositions, expense productivity and disciplined investment in the core business. Turning to our 2026 outlook, we have revised our full year adjusted EBITDA guidance to $165 million to $170 million and our free cash flow before rent-to-sell decisioning guidance to $95 million to $105 million. The primary driver of the adjusted EBITDA revision is the timing of material handling new equipment deliveries. Based on current throughput and delivery schedules, we expect a portion of the backlog previously contemplated to convert in early 2027 rather than in '26. Importantly, Material Handling bookings and backlog remain supportive. We, therefore, view the change primarily as a timing shift rather than a change in underlying customer demand. Our construction assumptions remain largely intact, and we continue to see stable demand across our core markets, particularly those benefiting from infrastructure-related municipal and data center activity. We also expect product support and rental performance to benefit from technician productivity, pricing initiatives, improved utilization and fleet management. Let me finish with a few comments about how we see the business positioned enter -- entering 2027. These comments should not be interpreted as formal 2027 guidance. But overall, we are increasingly encouraged by the setup across both of our major segments. First, in Material Handling, we enter the coming year with substantially better commercial momentum than we entered 2026 as we believe the increase in bookings reflects customers beginning to address pent-up replacement needs following an extended period of fleet replacement deferrals. Broader lift truck market industry bookings have also improved, reinforcing our view that the Material Handling market is moving toward more normalized activity. We also believe that organic sales initiatives launched in 2026 in major markets like Toronto and Chicago could yield share gains in 2027. Second, we remain bullish on Construction Equipment. Our key markets continue to benefit from elevated infrastructure spending and state DOT budgets, while Construction Equipment deliveries in our territories have improved year-to-date. Importantly, we are participating in that demand with a significantly leaner rental fleet and asset base than a year ago. Third, the business entering 2027 is structurally leaner than it was entering '26. We have taken approximately $45 million out of inventory and net rental fleet since year-end, reduced operating expenses, lowered borrowings and interest expense and continue to improve service productivity and fleet utilization. So in total, we believe the combination of the improved material handling commercial backdrop, a durable construction demand environment and benefits of the optimization actions already taken across the business positions Alta to enter 2027 from a significantly stronger operating capital position when compared to last year. In closing, the third quarter provided another proof point that our strategy is working. We generated higher adjusted EBITDA and operating income on lower revenue and a smaller capital base, while producing materially stronger cash flow. At the same time, Material Handling bookings and backlog have improved significantly. Construction Equipment continues to perform well in support of end markets and optimization actions taken are creating a more efficient platform. Combined, we believe these factors position Alta enter 2027 from a position of strength. Thank you for your time and continued interest in Alta Equipment Group. I'll now turn the call back over to the operator, and we're happy to take questions.

[Operator Instructions] Your first question comes from the line of Mike Shlisky with D.A. Davidson.

It's been -- it's been a few quarters of improvement -- so it's been a few quarters of improvement in orders, and it sounds like the 2027 outlook for your end markets seem broadly positive. And I know you've changed your rental fleet makeup just for some of the less returning items and less profitable items and you've made some of the changes there. But do you have any thoughts about in such a robust environment in '27, expanding your core rental fleet size and taking on some more assets?

Mike, this is Tony. There are certain areas of the business, specifically, I would say, in Material Handling, where we'll be changing the mix of the rental fleet and then maybe just modestly growing where we want to drive share. I mentioned Toronto and Chicago specifically. Those are warehousing and logistics hubs, where we want to focus and invest in. And so that would be the first thing that would come to mind. I don't think this means anything, I would say, material in terms of investment, but we do want to invest in those markets and Material Handling. And then in the construction space, I would point to Florida specifically as an area that we continue to see a lot of activity in more recently around kind of infrastructure associated with data centers. And so that could be an area. But we'd be working around the edges in terms of net growth of the rental fleet. We still want to be mindful of the size of the rental fleet and again, be more capital efficient than we have previously. But anyway, those are 2 areas, where we may decide to take on a little bit more fleet, but it would be modest.

And I want to turn to some of the comments you made on Material Handling and some of the 4Q business that may be going into the first part of 2027. I guess the concern I have or question I have here is what's behind some of that? Is it just the OEM is having some logistical issues or other kinds of minor problems saying things to you? Or is it high freight costs, et cetera? I guess I'm concerned about there could be some shortages in 2027 in general in that business. if the industry is as robust as you say and going in 4Q '26 and they're already behind schedule. So I want to get some comfort around there's not a lot more on this around the corner once we set the calendar on January 1st.

Mike, I wouldn't classify it as everybody is behind schedule. I think when you look at some of the inflection here, it's been pretty robust. And so it's just a matter of working through the backlog. Customers sometimes have a say on delivery schedules. And keep in mind, these are large fleets that customers want to take. They don't want to take 50% of the order at a time. They want it to be completed and take it all at one time. So I wouldn't characterize this as somebody dropping the ball or being behind schedule or having any sort of issues. This is simply working through the production schedule at Hyster-Yale, getting deliveries, being able to do our prep and delivery on the ground and working things through the process here. And so I think it's more a reflection of the abrupt inflection in bookings and orders that's driving a bit of the delay relative to what we expected. We've always said, either way, it's an order for Alta. It's a sale to a customer for Alta, whether it hits in '26 or '27. And if we're taking share, good for us because that means more parts and service down the road. And so that's what's happening. It's -- we haven't seen any cancellations of any sort of notable significance. And so this is simply working the process.

Your next question comes from the line of Liam Burke with B. Riley.

Ryan, can we go a little more detail about the rental fleet on construction. You have a smaller rental fleet and you're still able to generate growth, organic growth and the margins were up significantly. Is this a trend -- I'm understanding quarter-to-quarter, there is variability on both growth and margins. But is this a sustainable trend that you can have with the rental fleet on the construction side?

Liam, that is our intent is for this to be a sustainable pivot in how we approach rental with a little bit more discipline, focus on metrics around utilization and investing money where the growth is. So to Tony's previous point, we may add fleet where we see demand supporting it, but we're not going to speculate on fleet to try to grow share or get units out in the field. We're going to basically underwrite the rental business based on underlying demand in the regions.

Great. And on Materials Handling, you talked about market share.

Liam, I would just add -- Liam, I would just add, our intention is to not only hold kind of the utilization metrics that you see from us, but actually continue to drive them even higher. And so we still think that there's room to go here on driving even further. And if you look at our history, we actually have been higher on some of the metal rental metrics. And so -- but we definitely have seen an inflection, where the KPIs are all trending upwards here, and we expect that to continue.

Great. And then on Materials Handling, you talked about market share gains. Is this in the traditional product line? Or I know Hyster-Yale has come out with a value brand that you're also introducing.

Liam, we'd be speaking broadly about market share gains, but I can't point to the value brand is like a big part of our -- those gains. It's -- but we're speaking broadly.

I think, Liam, just to sub bullet to that is we -- I mentioned Toronto and Chicago. That's going to be, again, warehouse and logistics sort of vertical markets where a lot of the electric forklifts and warehouse products that Hyster-Yale has developed here or reinvented more recently, we do intend to take share in those product categories as we go forward.

Your next question comes from the line of Steven Ramsey with Thompson Research Group.

I wanted to start with an overall assessment of the dealer channel, the inventory levels given the demand backdrop heading into the busy season. And as we kind of look into '27, do you feel like the dealer channel overall, not just you, but in your geographies is in a healthy place.

Steven, I think we're just about there in terms of equilibrium. I would say if we've got anything left, it's 90% -- we're 90% of the way there. We might be 10% as an industry elevated relative to where we were at when there was a glut of inventory, call it, 18, 24 months ago. So I think things have stabilized here. That -- where we are seeing sort of competitive investment is in some of the rental categories, where we're being mindful of where we invest and where we compete. But for the most part, I would say distribution -- I'm sorry, inventory levels in the construction space have normalized, and we feel pretty good about our inventory levels. We -- as I mentioned, we feel like we still got a little bit of room to go in terms of optimization, but we've made a lot of progress, and we feel a lot better about where we're at today, certainly than we did last year at this time.

That's great to hear. And I wanted to make sure I'm understanding the Material Handling bookings and backlog both being very strong. Do you feel that there is any pull forward that is happening that would dampen activity later in 2027? Or do you feel this replacement cycle has some sustained strength possibility beyond the near term?

Yes. Steven, good question. I would point investors to a slide in our deck here. It's slide -- bear with me. Slide 8 of our deck. And if you look at the bottom half of the slide, it shows regional lift truck volumes and normalized replacement cycle for our territories is something like 42,000, 43,000 trucks, and we still haven't got to that level. And so despite 67% year-over-year bookings, we're still kind of behind pace relative to replacement. So we would have a long way -- we still have a long way to go before your comment there, in my mind, would be true that there's pull forward that would jeopardize 2027. if you just look at what replacement demand has been historically.

Your next question comes from the line of Ted Jackson with Northland Securities.

And guys, I also want to thank you for the change in the cadence of how you do your call. I love the fact that you put your results out last night and have the call this morning.

I'm not sure we -- to get used to that, Ted, but we appreciate it.

Come on. I want to get used to it. It's so much better.

We're doing a formal survey on that before we make this permanent.

Okay. Well, you've already got my vote. On the Material Handling, I want to dig into that one a little bit. I mean, so Hyster-Yale, they had some -- they had -- on the revenue line in the third quarter, things were a little light for them. And a big part of it aside from some customer delays was just some product that was built that just couldn't ship because it was stuck on boats. And they had a pretty substantial ramp expected in the fourth quarter in the Americas. And I guess my first question is with regards to what you saw there in the third quarter, is it fair to expect to see a pretty substantial pickup on your Material Handling equipment revenue in the fourth quarter just simply because of those delayed such -- delayed product coming in? Or is it really more of a '27 phenomenon?

Ted, it's really hard for us to be able to say whether something is going to -- which side of the line of the new year, something is going to deliver on. I would just remind everybody and yourself that when Hyster-Yale delivers, they're typically delivering to the dealer and then there's prep and delivery time where there's the physical aspect of finalizing specs for customers at our dealerships. Typically, that takes 30 to 45 days. It can accelerate from there. But their deliveries in Q4, to the extent they're later in Q4 are likely to be deliveries and revenue for us in Q1. So it's really hard for us to kind of put a number to it. What we can say is broadly we expect better Q4, right, in 2026 here than we do -- than we did in '25. And then as we move into '27, hopefully, a more robust Q1 here versus what we saw in '26. And so we think we've reached an inflection point, where we start to lap comps here. It's just a matter of how -- by how much.

Okay. That's why I asked. Sticking with Material Handling equipment sales. Thinking about 2027 and again, referencing back to Hyster-Yale, I mean they have been growing backlog and bookings now for over a year. And the expectations out of that company for 2027 for growth in Americas revenue is substantial. And if you look back at kind of prior cycles that they've had, I mean, you've seen growth numbers in excess of 20%. And honestly, you guys have seen that yourself. I'm not saying that, that's something I would pencil in my model, but is that -- if this thing plays out the way that it looks like it might, would we see that kind of potential for that kind of revenue growth for Alta in '26 and then carrying -- in '27 and carrying into '28 perhaps?

Ted, we'll leave '28 alone for now, but I think that is a realistic probability in '27, given history and what we know about the industry and how it can ebb and flow, a 20% move to the top side coming off of what will probably be the bottom here in '26, depending on how the fourth quarter shakes out is doable. It's not out of the realm of possibility.

Okay. Shifting over to construction. The third quarter equipment line was obviously a little light relative to our expectations. I think you referenced that yourself. Was that really just -- is there a timing issue? What kind of drove that? How would we think about that with regards to -- is there any chance that some of that was just delayed stuff that would find its way in the fourth quarter? I think we all understand that the outlook for '27 seems okay, but just kind of maybe some color into what happened in the third quarter and what maybe that means for the near term in terms of equipment sales.

Ted, just to point out, we were up year-over-year in the third quarter by something to the tune of $10 million. And so we were relatively pleased with the quarter in construction. There wouldn't have been any sort of timing issues. There is this aspect of some large snow deals that sometimes can drop in late Q3 or early Q4. And so that can play with a little bit. But I wouldn't say there's any delays or anything happened there. It's fairly normal course. And as Ryan mentioned, the industry is up about 5% this year. I think that's 5% to 10% is where some of the larger OEMs that have reported already are expecting the North American market to come out at. And that's kind of where we expect our numbers to shake out as well, sort of holding share in a bigger marketplace here. So in our mind, it was a bit of a rinse and repeat quarter for construction versus any sort of disappointment.

Yes. Maybe it's just against my model. Sticking with construction. Yesterday, CNH announced the steps it's taking to divest itself of its construction business. And I guess my -- it's a little early, but what would you think that might do with regards to the market and how you participate? I mean it seems to me -- I mean, you have a CNH presence, but it's not your primary plate. But it just seems to me that with that kind of uncertainty that if I was a dealer, I might want to maybe kind of pulling the horns a little bit given the kind of uncertainty with a transaction such as that and perhaps that creates an opportunity for you? I mean is -- would you think about that as a concept? Have you thought about kind of what this means for the construction side of your business, if it means anything at all?

Yes. This is Ryan. It's a great question. It's probably too early for us to read the tea leaves on how this might create some opportunity that it could potentially create some horse trading of territories or APRs or dealers reconsidering their product portfolio. And that type of volatility is certainly something that could create some opportunities for consolidation. But too early for us to really understand what it's going to do in terms of the product portfolio or the strategy from the OEM. We're sort of waiting to hear exactly what the plan is. We understand that early on, it's going to be essentially a joint venture that the existing dealer networks are going to remain intact. So over time, there's going to be probably be some movement, but too early to kind of give you our strategy on that piece today.

I would just add, Ted, just to frame it for investors, it's probably 5% or less of Alta's total revenues that we're talking about here. So relatively immaterial. The other thing I would add is I don't think it was a secret that at Case, and they did this because they want to focus on agricultural equipment. And so having the asset with an OEM that's serious about construction globally, we think can only be beneficial long term, so.

I have a couple of more questions today, so I just want to make sure I don't hog everything. So I'm going to step out. If there's no more, I'd like to step back in.

Your last question comes from the line of Steven Hansen with Raymond James.

I just wanted to follow up on one of the earlier questions regarding the health of the dealer channel inventories, et cetera. How do you feel about this sort of manifesting into better margin trajectory here going forward into '27 from a construction standpoint?

Steve, we continue to drive forward. I think we were up 60 basis points again sequentially on the new and used construction equipment line. Some of this too is, as I mentioned, we're -- we've been mindful of the balance sheet. And so what that means is maybe taking some skinnier deals just to offload assets. So we continue to drive margin in the face of some of this disposition. I think there's a little bit more room to go. I don't know that it's -- I think we're working around the edges here a little bit, 50 basis points, 100 basis points from here. But I do think there's a little bit room to go for Alta as things continue to normalize for us organically and as the market kind of finalizes its stabilization and gets to equilibrium.

Okay. That's helpful. And then just on the product support side, parts and service and how equipped are you there from a tech standpoint? Do you need to hire more? Are you actively recruiting today? Are you good with your existing base? Just trying to get a sense for your ability to flex that part of the business up as the installed base grows here?

I'll take that. That's more of a regional, even branch level decision for us today. So there are branches that are understaffed that have open [ recs ] looking for technicians and there are branches, where we've been reducing headcount to make sure that we are meeting our productivity objectives because the work isn't there. So the forecast for next year will be organic growth. It will be to add headcount of technicians, but that won't be true across the board of every region or every branch.

I think to add to that, Steve, we feel like we have found kind of a good stable base here. And we've constantly got just turnover and retirements and things like that, that we've -- we do a great job. Our recruiting team does a great job of helping replenish. Ryan is right, though, probably '27, we want to get back to a little bit more headcount there and drive service.

For our final question, we have Ted Jackson with Northland Securities.

So I wanted to jump back over into the rental business because the progress you've made there has just been substantial. If you look back, you were about $610 million of rental fleet in the first quarter of '24, down to basically $100 million from there. And you've essentially been able to keep your revenue from it flat. So your utilization rates have been coming up to levels that haven't been seen for quite a bit of time. Are you done there? I mean, at this point, would we think about your fleet kind of stabilizing around that $500 million mark and the focus is really on just driving higher rates -- or as you think about it now that you've gotten to this level and you have the business and kind of, let's say, where you want it to be and you understand it better, are you going to flip around and try to grow it?

Ted, I would appreciate you pointing that out. There's been a lot of effort to kind of right size there. What I would say is we ended the quarter at $509 million of gross book value of rental fleet. Based on where we know we're at today utilization-wise, and I think I mentioned this previously, we will find our KPIs here in terms of utilization, and we're not quite there yet. And so we have said we want to be [ sub-$500 million ] by year-end. I think we're well on that path. And then we'll revisit at year-end. And as I mentioned on the -- to somebody on the previous question about reinvesting, we'll make those calls kind of as we go through planning here, which we're doing right now and potentially add in places like Toronto, Chicago for strategic purposes. But we don't think we've found the bottom yet. I think we've got a little bit of ways to go, and then we'll make decisions on where to invest from there.

Okay. And then on your service and parts revenue, I mean, it's kind of -- it's the best margin business. And I mean, it's growing, but I just feel like it seems like it's been a little lagging relative to at least my expectations. And I'm kind of curious, am I right with that? And kind of if so, kind of what's pushing it? And what could you kind of knock it up in terms of the trajectory?

Ted, we -- it gets to the previous question on headcount. We have specifically in our Construction segment and then secondarily, Material Handling that laser-focused on technician profitability and utilization. And I would point you toward the gross margins and point people toward just nominal gross margin dollars versus top line in product support. And if you look, I think we were up 250 basis points in the quarter on gross margin and service. That's us getting the same amount of work done, relatively speaking, with less people. And so as we work through optimizing the business, that's what we've been focused on is not necessarily top line growth, but getting as efficient as possible in our shops. And so a lot of that is strategic, I would say. As we mentioned, we hope to get back to growing headcount again and growing the top line here as we head into '27 and then beyond. But for now, '26 is going to be a flattish type year, and we're part of our optimization efforts.

And then my final question, just kind of jumping over on to the OpEx side. You guys have just run lean and mean. I mean your OpEx is basically flat and the control has been, it's not down actually, and the controls there have been phenomenal. And I'm kind of curious maybe a little color on how you've been able to do that and how you think about those expenses as we kind of move through.

I think, Ted, it's a function of some very tangible sort of reorganizations in certain geographies after a lot of M&A, where we are down administrative headcount. Some of this gets to what I was describing on the service side in terms of technician headcount. And so when you don't have as many techs, you don't have as many vehicles, which hit the OpEx line in terms of service vehicles and fuel and employee benefits, et cetera. When you're running leaner in the rental department, things tend to -- you sort of lose pounds from an incremental dollar perspective. And so all those things are happening. And what I would say is we actually would have expected a little bit more. We've made note of our health care spend where we're self-insured. We've had -- we're over budget, I would say, and over 2025's performance, to the tune of several million dollars where we think we actually could have done better on the OpEx line and some of these efforts would have been even more meaningful. But it is what it is, but that's what's going on in the OpEx line.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.