Greetings, and welcome to the Terex First Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. And it is now my pleasure to introduce your host, Derek Everitt, Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to the Terex first quarter 2025 earnings conference call. A copy of the press release and presentation slides are posted on our Investor Relations website at investors.terex.com. In addition, the replay and slide presentation will be available on our website. We are joined today by Simon Meester, President and Chief Executive Officer; and Jennifer Kong, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by a Q&A. Please turn to Slide 2 of the presentation, which reflects our safe harbor statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. These risks are described in greater detail in the earnings materials and in our reports filed with the SEC. On this call, we will be discussing non-GAAP financial information, including adjusted figures that we believe are useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. Please turn to Slide 3, and I'll turn it over to Simon Meester.

Thanks, Derek, and good morning. I would like to welcome everyone to our earnings call and appreciate your interest in Terex. A fundamental part of our journey to becoming a world-class operating company is achieving world-class safety performance. I want to thank our global team members for their ongoing commitment to safety and our Terex values. As we grow and transform our company, our values will continue to include: keeping each other safe, treating each other with respect and dignity and being stewards of our environment and our community. Turning to Slide 4. Our overall Q1 financial performance exceeded our initial outlook. We delivered earnings per share of $0.83 on sales of $1.2 billion and return on invested capital of 15%. Aerials and MP operating margins were impacted by production cuts in the past 2 quarters that exceeded the decline in sales for that period. Those actions were necessary to manage inventory and rebalance supply with demand. The impact is largely behind us, and we expect to see margins improve in Q2. Environmental Solutions, which includes ESG and Terex Utilities, accounted for 1/3 of our global sales in the quarter and earned 19.4% operating margin, strong execution by our ES team. Looking ahead in the current environment, it's difficult to predict where we're going to land in terms of tariffs. The good news is that we have been proactive in terms of forward placing inventory in our -- like everyone else, working around the clock to mitigate what is currently right in front of us. We are maintaining our full year EPS outlook of $4.70 to $5.10, including the assumed impact of the recently announced tariffs fully realizing that things can change fast. For our full year sales outlook, we continue to expect low year-over-year sales in Aerials and MP…

Thank you, Simon, and good morning, everyone. Let's look at our Q1 financial results on Slide 9. Total net sales of $1.2 billion were 4.9% lower than prior year or negative 3.6% at constant exchange rates. Excluding ESG, our organic sales declined by 25% year-over-year in line with our expectations, driven by continued channel adjustments, coupled with timing of our backlog conversion. Our book-to-bill was 124%, demonstrating a second consecutive quarter of book-to-bill above 100%, and our backlog remains strong at $2.6 billion, up 13% sequentially. ES delivered a strong quarter, representing 1/3 of Terex sales, confirming Simon's point that we are becoming a more resilient and less cyclical company. Our operating margin was 9.1%, 350 basis points lower than prior year. This was slightly better than anticipated due to strong performance in ES. I do want to mention that while our segment operating margin was lower than prior year, it was 130 basis points sequential improvement versus Q4 '24 on similar volume. Excluding ESG, our organic operating margin declined by 760 basis points. Approximately 75% of the organic margin decline has driven by volume with the remaining 25% margin decline driven by unfavorable absorption, partially offset by $20 million of SG&A reduction and cost productivity. Interest and other expenses were $41 million, $26 million higher than last year due to interest on ESG acquisition financing. The first quarter effective tax rate was 21%, slightly higher than prior year. EPS for the quarter was $0.83 and EBITDA was $128 million. It is important to note that in type of factory under absorption associated with the production rate takedown in Aerials and MP was approximately $0.31 per share in Q1. Free cash flow improved compared to Q1 last year, due to better working capital performance, despite lower earnings. Please turn to…

Thanks, Jen. I will now turn to Slide 16. Terex is well positioned to navigate the current dynamic environment and deliver long-term value to our shareholders. We have a strong, more synergistic portfolio of industry-leading businesses across the diverse landscape of industrial segments with attractive end markets. We will improve our through-cycle financial performance as we integrate ESG and realize synergies across the company. As always, I want to close by thanking our team members around the world. We have embarked on an exciting path forward, building and growing a new tariffs. And with that, I would like to open it up for questions. Operator?

[Operator Instructions] Your first question comes from the line of Jerry Revich with Goldman Sachs.

I was really impressed by the ES margin improvement in the quarter. I'm wondering if you could just expand on the comments you made, Jennifer, on the margin outlook. In coming quarters, it looks like you were right at about 17% margins for most of last year. If that's the cadence for this year, it looks like operating profit for the business would be up over 30%. So I just want to make sure, I understand the moving pieces within that, and the drivers of the really strong margin performance in the first quarter.

Sure, I can [indiscernible], Jerry. So a strong Q1 ES performance was driven by 3 factors. That's, of course, the 6% of sequential increase in sales from Q4 to Q1 on a pro forma basis. And second, we did, like what Simon mentioned, we had a record Q1 in terms of throughput. So that actually drove very favorable factory absorption in ESG. And also, we also had some integration synergies realizing in Q1. As we go into the remaining of the 3 quarters, we see that moderating back to the normalized rate, mainly because we are -- we don't see that the -- there were some expenses that we will be incurring to ramp up the production and to support some of our one-off expansion as well.

Yes. We had a couple of one-off items in the first quarter that we don't think will repeat in the next 3 quarters.

So we did have a really good quarter.

Well done. And then just to shift gears, Simon, appreciate the comments you made about maintaining price cost neutrality. Can you just talk about how you're handling orders that you folks are booking today? Is there a surcharge mechanism in place? And I saw the guidance comments spoke about assumption around where tariffs move going forward. Can you just expand on those assumptions and if tariffs are worse? How is -- what's priced in backlog going to play out to maintain price cost neutrality?

Yes. Thanks for the question. Obviously, we're in a very dynamic environment and things change all the time, and it's difficult with what will happen in the next couple of months. And we laid out some assumptions that we are operating by, but obviously, we are in full mitigation mode. Actually, we have been in full mitigation mode for quite some time because as early as late last year, beginning of this year, we started pulling forward material. So we have a little bit of -- we bought ourselves a little bit of time there in material and finished goods. We also started to pull back on discretionary spend and now the priority is fully on mitigating the net -- the tariff impact through our supply chain and exploring alternatives. We're kind of pausing on the longer-term actions just to see things stabilize first. But then obviously, to your point, pricing is one of the leaders as well. And we have taken some surcharges in certain areas already, but the price/cost dynamics are very different by business, by segment, even by vertical because you need to put it in the context, obviously, of how much we can mitigate by business, by segment, what our competitive position is or market conditions and so on and so forth. But overall, our strategy is to maintain that price cost neutrality and where price is one of our levers -- levers to pull. But the priority for now is to mitigate through supply chain.

Your next question comes from the line of Jamie Cook with Truist Securities.

Congratulations on a nice start to the year. Just want to understand, I guess, Jennifer, the puts and takes of the guidance. Obviously, we beat the first quarter. But I think you said you're going to have a $0.40 headwind related to tariffs. So if you can just walk us through? And I guess maybe ES is a little better, but just the puts and takes of how we're maintaining the guide given the different dynamics there? And then I guess my second question [indiscernible] what we know about tariffs today and where you're manufacturing your products because it's not -- looks like a lot of your products are manufactured in the U.S., which is [indiscernible] just wondering, if there's a there's a market share or competitive advantage for tariffs in certain product lines or segments? And if so, could you just highlight where that could be? Just wondering if there's a market share or outperformance story here?

Jamie, you broke up at the beginning of your second question. Can you repeat just over to what you [indiscernible].

Yes, sorry. The second question just based on what's going on with tariffs and you're saying you manufacture 75% of your products in America or Made in America. I'm just wondering if there are certain product lines where you have a competitive advantage because of your manufacturing footprint? And if so, where that would be so that you could potentially gain market share?

Thank you.

Jamie, so I'll take the first question. I'll let Simon answer the second question. So our Q1, we bid our original outlook by about $0.30, and that's largely like you see, driven by ES, and we expect that to flow through the year. And that will offset partially the $0.40 tariffs that we've baked into our outlook. And then we also offset that by our share count that will actually drive our EPS are higher and also some of our operational efficiencies. I think you can see we continue to reduce our SG&A itself. So that actually walks back out how we actually maintain our guide at this point in time.

Yes. And with regards to your question on market share and product lines. Yes, we like our overall position, Jamie. If I break it down by segment, starting with Environmental Solutions, I mean, it's all made in the United States and sold in the United States. So obviously, we like our position there. In Aerials, 95%, if you include USMCA, build in North America for North America. So we like our position there. And in Materials Processing, I don't see any major difference between us or our competitors in terms of where we're sourcing from maybe in the margin a little bit. But overall, I don't see the global footprint to be -- I actually think we're at an advantage more so than at a disadvantage overall, but it would be hard for me to call out a specific product line. We would certainly be at an advantage versus obviously some of our Asian competitors.

Your next question comes from the line of David Raso with Evercore ISI.

Two questions. One on the Aerial margin progression 1Q to 2Q, and then the full year thoughts around Material Processing. For Aerials, can you give us some help on how you're viewing your revenue growth sequentially? I'm just trying to get a sense of what the sequential incremental margin is implied to go from the 3% operating margin in the first quarter to 10%.

Yes. So obviously, we were very pleased with our book-to-bill in the first quarter. So we're set up to make a nice jump going to Q2. It would be our normal seasonal jump up, David. And so overall, our full year sales outlook is still to be down low double digits, but with a nice ramp-up in Q2. I don't think we have actually articulated specifically what the number is, but it's the normal seasonal jump up. And that volume will obviously help us to get back to that double-digit operating margin in Aerials that we spoke about on the -- in the prepared remarks. And then on MP, yes, MP has a 3 months backlog coverage, we were pleased with our Q1 bookings in MP. But obviously, that's a slightly lower backlog coverage than in Aerials. In Aerials, we have more than 7 months forward visibility. So with MP, the current sales outlook assumes kind of a sequential ramp up as we progress through the year. It's not going to be kind of the reshaped versus 2024, but more like a U shape, if you will. But technically, what our outlook is implying is that Q1 would be a bottom for MP. Now that's all within the context of what's going to play out with tariffs in the remainder of the year and what's that going to do to confidence, but inventories are roughly where they need to be. Our fleets being used in MP, in Aerials. So -- and some of that fleet starts to age now in MP. So we're looking at a potential compounded replacement effect there as well. But the current assumption is a very gradual ramp-up on the -- by quarter in the MP sales outlook.

I wanted to ask an MP question. I'm so sorry. I wanted to follow-up on the 1Q to 2Q margin comment for Aerials. When you say the normal ramp, obviously, utilities pulled out, right? So I can go back and restate obviously, some of the years. But are we saying about a 20% to 25% sequential on revenue roughly. When you say normal, how do you define normal in the new Aerial segment with utility guide, just so I am clear?

Yes. I'll let chime Jen chime in on the margins. But if you think about what we said in the opening remarks is that half of our Q1 revenue was booked in March, and you just draw that forward. So that's kind of the ramp-up for Q2.

Right. David, so in terms of like walking from Q1 to Q2 on the double-digit margins. We mentioned earlier that in Q1, we had about 550 basis points of impact on margin due to the deliberate production cuts that we took. So if you add that, that will not repeat again in Q2. And then on top of that, the step-up in volume that will get us to the double-digit.

Okay. And the idea of maybe some landed product. I'm trying to get a sense of the tariff impact on 2Q. Is it fairly light on Aerials, particularly given -- I know the manufacturing base is really helpful, but the idea -- you sort of seem to get ahead of the curve a bit on steel and a variety of things. I'm just trying to get a sense of the things that can make that easier. And as you said, under absorption is reduced. You have some volume sequential. And then on price cost, it seems like, if I remember correctly, you got a bit ahead on some of the cost issues, too. Just to gain more comfort because obviously that's a big driver of the sequential EPS 1Q to 2Q.

Right. Yes. I mean it's a great question. When it comes to the net tariff impact, we spoke about $0.40 in the prepared remarks. That is mostly going to be on raw material imported from China, and it's mostly impacting Aerials, and it's mostly in Q3, although some of it will hit Q2 and some of it will hit Q4. It's important to know what our assumptions are on the $0.40. And as said, we are -- we're not assuming a dramatic change in any of the other tariffs other than the de-escalation of the China tariffs. So we baked in some sort of conservative continuation on the tariffs of the Rest of the World, but we do expect a deescalation of the China tariffs to kick in, in the next month or 2. That's what that $0.40 is based on. And then obviously, that USMCA qualified goods continue to remain tariff-free. That's baked into that $0.40. But to answer your question directly, we do think we have line of sight to get back to double digits in Aerials in Q2. We might just get there in Q3, maybe high single digits in Aerials for Q3 and then back to normal decrementals in Q4. That's kind of the walk for Aerial margins for now.

I appreciate it. That I was thinking the [indiscernible] you have enough costs landed for 2Q, you get some volume ramp, the tariff issue is what more of a back half story for Aerials, but maybe that gives you a little bit of time to try to push price where you can and mitigate in other ways. Okay, I got it. I really appreciate it.

Your next question comes from the line of Mig Dobre with Baird.

I appreciate all the good color on what's baked into this $0.40. But one thing that I guess I did not hear you talk about is any tariff on the U.K. Now I don't know if I have my extra here, but that reciprocal tariffs at 10%. I guess it's there. And I'm wondering how that impacts MP and what's baked in at this point?

Yes. I mean, it's a fair question. As I mentioned earlier, our focus is to, first and foremost, offset this through our supply chain and explore alternatives. When -- so that's the lion's share of the $0.40 is just basically raw material on China. So then there are obviously also some finished goods tariffs that we're dealing with. And we're trying to absorb as much as we can to -- it's basically not burden our customers or our competitive position. But yes, surcharges and pricing is one of the levers that we'll pull if we have to, if we can't find the mitigation.

So just to be clear, are you raising the price on MP and this is basically the offset? Or is this impact just not factored into the $0.40 at this time?

I wasn't giving a specific comment on what we're actually doing because we just want to highlight the difference in price cost dynamics by business. So I'm not comfortable in actually going into specific detail of what we do for each business make.

Very well. And then my last question is on ES. Really good margin performance here. I guess going back to the way this business, I recall performing under previous ownership some years back, the margin profile here is quite a bit better than what used to be here historically. Now that you're the owner of this asset and your kind of looking into what has happened from a cost perspective and a margin perspective, how sustainable do you think current margins are beyond maybe 2025? Is there something unique in the price cost dynamic or anything else that investors need to be aware of as they think maybe 2 to 3 years out?

So yes, like what you saw -- what we disclosed in the pro forma, so you did see a big improvement in ES margins throughout the years. What -- and we also mentioned that the synergies, just now Simon mentioned $25 million, largely, that's analyzed for 2026, so that you would see that to -- end to our profitability increasing. However, right now, the Q1 is our record throughput. We would definitely need to make some investment to keep on continuing up and catching up with the demand. Our backlog is really strong in ES with about 8 months and we're good set up for a good start for the year. But we'll expect that the synergies to come through in 2026 that will further improve the margin profile as well.

Your next question comes from the line of Tami Zakaria with JPMorgan.

And very good results. So I wanted to follow-up on that $0.40 comment. Is that assuming China tariffs stay at the 145% or what rate is assumed for China to get to that $0.40? Because I think in the presentation, you mentioned you expect some easing of tariffs. So I just wanted to clarify.

Yes. Thanks for the question, Tami. Yes, what is included in the $0.40 assumption is that there will be some level of easing on particularly the China tariffs to the tune of roughly 50% of where it is today. So we don't expect it to go all the way to 0, but there would be a significant deescalation happening in the next month or 2.

Understood. That's very helpful. And then my second question is on MP or broadly for Europe. I think there was a stimulus plan package that was passed for Germany. How big is Germany for you? And any thoughts on which end markets could benefit from a package like that? And how that relates to your portfolio, especially MP that might benefit in the coming quarters or even years?

Yes. Great question. We were at the bauma trade show a couple of weeks ago, and I was talking to customers and talking to dealers and partners, it was the first time that we really started to hear some positive news coming out of Germany, to be very honest. And yes, that will definitely a favorable impact, which, by the way, is not baked into our sales outlook for now because we think it will mostly start to kick in for us in 2026. But it would directly benefit our Material Handling business, which is very Germany dependent. It would impact -- favorably impact aerials and would favorably impact MP's aggregate business. So -- and the German economy, as you know, very well, obviously, being very important as part of the greater EU economy. So that was an encouraging a bit of news that came out. So we're excited about that.

Your next question comes from the line of Tim Thein with Raymond James.

Great. I'll just pack two questions together. The first is on the ES performance in the quarter, I'm curious if there were any purchase price adjustments that were included in the quarter? And then the second question just is on operating costs and the -- separate from the tariff discussion. Just curious how you are, I believe, hedged from a steel perspective, for the year. Obviously, that's just in North America. But maybe just a discussion regarding general operating costs, just in light of some of the fluctuations in commodity markets, how you're thinking about the balance of the year?

Yes. There was no -- I'll take the first, and then I'll ask Jen to take the steel hedge question. Yes, there was no specific pricing action for the first quarter other than what was part of the normal annual negotiations that drove that overperformance in Q1 for ES. It was predominantly just execution. Execution drove the overdrive and there were a couple of one-off orders that we were able to fill in the first quarter that gave us the upside. It wasn't driven by any surcharge or anything. Jen, do you want to take the steel hedgood evening question.

I'm sorry, I wasn't clear on that. I meant if there was an accounting adjustment like a purchase price adjustment related to the merge accounting.

Yes. I pass that on to Jen as well.

Yes, we have about $10 million of purchase price adjustments in ES, just a typical based on the acquisition accounting. And so with regard to your second question on the steel, we do not have any material impact from steel inflation because, first of all, we do not import any more steel and then about 70% of what we use as HRC. And we also have 50% of that hedge at a very favorable rate. So the imported steel in prefabricated parts are already part of our $0.40 and the others are not material.

Your next question comes from the line of Kyle Menges with Citigroup.

It sounds like you guys are now expecting the ESG synergies to come in a little bit more than that $25 million target. So would just love to hear what's giving you confidence in that and just where so far synergies are looking to be a little bit better than expected?

Yes. Thank you for picking up on that. That is correct. We -- and we just go by our pipeline of projects, which is it's going really well. So we're just very, very pleased with what ESG is already doing in terms of -- within its own segment within Environmental Solutions and the synergies that it brings with the Terex Utility business, but also what it brings with other parts of tariffs, it's really unlocking the full tariffs portfolio, and we see synergies as everywhere we look. And we have adjusted our pipeline for probability, for execution, for risk. So it's not that we are counting ourselves rich here. And so we're confident with our line of sight to exceed that $25 million run rate by the end of 2026. So -- yes, it's going really well.

And then just a second question on the Monterrey facility. Just how are you thinking about production shifts from the U.S. to Monterrey, assuming that you've kind of paused that for now? And then just how are you thinking about looking at alternative sources into that Monterrey facility just in the supply chain? And sorry if I misheard, but I thought you guys had said that only 20% of the products from the Monterrey facility or USMCA compliant? I'm sorry, if I misheard that, but just if you could comment on that as well.

No, we said that 20% if you include the USMCA source that would fall under the USMCA would get us to 90% of what we sell in North America comes out of North America. The -- so yes, the Monterrey facility. So obviously, in the current environment. We're not going to take any drastic long-term action until we see things stabilize first. So we have been kind of pacing ourselves a little bit on our product moves, we're very happy with our Monterrey facility because it's a world-class state-of-the-art facility, and it's a very competitive facility. So that's another tool that we have in the toolbox to leverage and gives us optionality that once we see things stabilize that we can leverage that will be more than what we do today. But yes, at the moment, we're taking a breather to see where things are going to pan out over the next couple of months.

Your next question comes from the line of Angel Castillo with Morgan Stanley.

I was hoping we could -- you could put a little bit of finer point on the ES segment and just the margin moderation that you expect in 2Q. And as we think about the progression of maybe tariffs as we get maybe towards the back half of the year, if you could just fold that in, along with maybe greater success on the synergies as well as maybe sizing the one-offs that you mentioned would be helpful?

So yes, when I say that it's moderating in Q2 and throughout the rest of the year, like what I mentioned, there are some one-off good guys that we took in Q1. We had a record output in Q1 that actually drove up the factory adoption really favorably. And we do not think that, that would sustain itself until the end of the year. Second, in terms of when I say one-off, there are also one-off expenses that we'll be incurring for the next 9 months that will actually to drive up the and support the volume growth that we will -- to support the backlog conversion as well. And then when I mentioned the synergies, we did see a piece of the synergies coming through in Q1, but not mature enough. Like what Simon mentioned, we expect the annualized $25 million of synergies to come through in 2026.

Got it. That's helpful. And then maybe just on -- I wanted to go back to MP. I think this was the first quarter where you saw backlog growth since maybe kind of 2022. And I know that, that's been normalizing. But just curious if there's anything specific maybe even related to what you were talking about with Germany or more broadly, any step change in that business that gives you maybe confidence that we found the bottom and maybe you can even grow from here? Or just how should we read that improvement in the backlog and what you're hearing from customers?

Yes. I wouldn't say that it's coming from Germany. It's -- so we are at a 3 months backlog, which is our kind of normal season -- from a historic standpoint, our normal backlog coverage and say, our dealer inventories have been largely adjusted. This has been historically a book-to-bill business. So in that regard, it's a pretty normal pattern. And Q1 bookings did come in favorably year-over-year. So we were pleased with that because, quite frankly, the fleet in North America, and that's what driving probably most of the upside is -- the fleet utilization is still healthy, fleet is starting to age. And there is work, there is pull-through from mega projects, from infrastructure projects. The smaller projects are still kind of sluggish, so to say. But what we are seeing is mostly that North America is ready for that replacement demand. Now having said that, we also obviously are cautious that the tariff talk doesn't become some sort of self-fulfilling prophecy and will start to eat into confidence. So we'll have to see how that's going to pan out in the next couple of months. But the current outlook assumes that there will be a gradual slow recovery in MP and mostly driven by North America and driven by replacement demand.

So just to be clear, that assumption is embedded in the 2025 cadence?

Correct.

And that concludes our question-and-answer session. And I will now turn the conference back over to Simon Meester for closing comments.

Thank you, operator. If you have any additional questions, please follow-up with Jen and Derek. Thank you for your interest in Terex. And with that, operator, please disconnect the call.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.