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

Good morning, and welcome to the Terex Second 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 detail in the earnings material 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. I want to start by thanking our global team for their continued focus on our customers and our operational performance while navigating through a very dynamic environment. Some of our businesses have more tailwinds or headwinds than others, but our overall performance in the second quarter was in line with expectations. We delivered earnings per share of $1.49 on sales of $1.5 billion with an operating margin of 11%. In addition, we achieved $78 million in free cash flow, a significant increase compared to this time last year, representing a cash conversion of 108%. The power of our evolving portfolio was evident in the quarter as strong performance in Environmental Solutions offset industry-wide headwinds in Aerials. Materials Processing executed well, delivering strong sequential growth and margin improvement. Looking ahead, we are maintaining our full year EPS outlook of $4.70 to $5.10. We expect stronger ES performance in the second half compared to our previous outlook as both ESG and Terex Utilities are well positioned with healthy backlog, operational momentum and synergies ramping up ahead of schedule. We are assuming independent rental customers will remain cautious with their CapEx deployment, impacting the sales mix and margin outlook for Aerials. While we continue to expect MP to improve margins in the second half compared with the first half of 2025. With respect to tariffs, we fully understand that things change quickly, and it is difficult to predict where final rates will eventually end up. Our outlook assumes that tariffs broadly remain at current rates and reasonable deals are made with key countries. To that point, let's move to Slide 4 to discuss that in a bit more detail. As we communicated…

Thank you, Simon, and good morning, everyone. Let's look at our Q2 financial results on Slide 7. Our overall performance in the quarter was in line with our expectations despite tight monetary policies, changing trade policies and geopolitical tensions. This is a testament to the strength of the Terex portfolio, but headwinds faced by Aerials were offset by ongoing strong performance in Environmental Solutions, supported by MP delivering on the planned sequential improvement. Total net sales of $1.5 billion grew 8% year-over-year or 7% at constant exchange rates. Excluding ESG, our legacy sales declined by 12% or 13% excluding the impact of FX, consistent with our expectations. Our operating margin was 11%, down 310 basis points year-over-year, consistent with our planned sequential improvement of 190 basis points. Stronger ES margins offset lower-than-expected margins in Aerials. Excluding ESG, legacy operating margin declined by 560 basis points, driven by volume, tariff and mix, partially offset by SG&A reductions. Interest and other expenses were $44 million, $29 million higher than last year due to interest on ESG acquisition financing. The second quarter effective tax rate was 18.3%, about 170 basis points better than planned due to net favorable discrete items resulting from utilization of certain non-U.S. tax attributes. EPS for the quarter was $1.49, which includes a $0.03 benefit from the favorable tax rate. EBITDA was $182 million or 12.2% of sales. We generated $78 million of free cash flow in Q2, which was $35 million better than last year despite lower earnings due to better working capital performance. ESG generated cash well above the interest expense associated with the acquisition financing. We continue to execute our capital allocation strategy, returning value to shareholders while investing for longer-term organic growth. Please turn to Slide 8 to review our segment results, starting with Aerials.…

Thanks, Jen. I will now turn to Slide 13. 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 a diverse landscape of industrial segments with attractive end markets. We will continue to 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 will continue our exciting path forward, building and growing a new Terex. And with that, I would like to open it up for questions. Operator?

[Operator Instructions] Your first question comes from the line of Stephen Volkmann with Jefferies.

It feels like ES margins, especially are the gift that sort of keeps giving. So I wanted to delve into that a little bit. It seems like they've been coming in ahead of your expectations as well as ours. So I'm curious what's driving that? I think you mentioned some mix in there as well. So is there much difference between utility and refuse? And just kind of a little more color on what's driving that.

Yes, so we're very happy with the ES Q2 OP performance and another strong quarter. It's driven by 3 factors and that 19%. First, we continue to see strong throughput in ESG driving the operational efficiencies and favorable factory adoption, similar to what we saw in Q1. We expect that to continue into second half of the year. Second, for the very first time, we see that there is better execution in utilities driving operational efficiencies, which we are also expecting to see that in the second half of the year. Now the discrete item that happened in Q2 is related to the favorable customer and product mix in utilities, which we do not expect to recur in the second half of the year.

Okay. Any color? I think you said maybe moderates in the second half, but kind of what does that mean in your mind?

So moderating probably like 1% and lower, just the second half of the year.

Yes. The favorable mix in Q2 is not expected to come back in Q3 and Q4.

Correct.

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

And I guess my -- where I would like to start is with your updated EBITDA guidance, maybe a little bit of color in terms of what drove the $20 million adjustment. And I heard you talk about tariffs and mitigation maybe into the fourth quarter. Maybe you can help us understand exactly what your plans around mitigation would be. Presumably, that's not all pricing related. There might be something else that we should be aware of in there as well.

I'll take the first question on the EBITDA, and I'll hand it over to Simon to talk a little bit about the tariff mitigation. So our $20 million lower EBITDA is driven by a couple of puts and takes. The very first one, of course, with a stronger outlook in ES driving more margin, but it's largely offset by the unfavorable mix that we see in Aerials in Q2 and also we expect for the rest of the year and then coupled with the higher tariffs.

Yes. And when it comes to mitigation and tariffs, so our story is we are really dependent on trade deals with basically 4 markets, the U.K., the EU, China and Mexico. So 2 of those -- or 3 of those 4 are pretty much locked in, and we've all read the headlines on China. So we'll see what comes out of that. But we're getting more and more firm on what our tariff outlook is going to be going forward. And then in terms of mitigation, so yes, we're still in that $0.40, $0.50 ballpark, if you will, and holding our outlook. But yes, we started the year by pulling in some supply, just pulling it forward because we knew that there was risk of tariffs coming. And so we pulled material forward. We pulled some FGI forward. And then ever since, we -- like you would expect, we've been working very hard with our suppliers to absorb as much as they could and obviously also looking at alternative supply solutions options, including reengineering or in-sourcing, making it ourselves and other cost-out actions. And then obviously, we also have price in our toolbox that is one of the tools that we're using, but the preferred option is to just work it out with our supply chain.

Okay. Then my follow-up is on AWP. I guess -- I'm curious how you think about margins within the context of what you just said here for the second half of the year. It sounds to me that we should be thinking margins down relative to what you've been able to put up in Q2. And I'm also curious as to how comfortable are you with this implied top line guidance for the back half? Because if I do the math right, it seems to imply something like down mid-single digits and yet backlog continues to erode at least in theory, you should have quite a bit of pressure on production in the back half of the year. So I know it's kind of a lot in this question, but I appreciate that.

Thanks for the question. I'll take the backlog part, and then I'll let Jen start with the margin outlook.

Right. And so on the margin outlook, look, the -- we clearly, for Aerials is going through some challenging times. I do want to reemphasize that despite all the, I would call it, the very -- the channel adjustments that we made and now the Trump tariff in Q2 is still a step up versus the Q1 of a 500 basis point of sequential margin improvement. For the rest of the year, what we're expecting is that the Q3 OP will be a mid-single digit, a step down versus Q2, largely driven by the Trump tariff. Second, the lower sequential volume in Q3 versus Q2. And then the third is the unfavorable customer mix that we see in Q2 to proceed for the rest of the year.

Yes. And then on the backlog coverage, so we ended the second quarter with a little over 4 months of backlog coverage in Aerials. We're now approaching August. So we have pretty good forward visibility of what the rest of the year looks like. We are firmly back to normal seasonality with higher book-to-bill -- in our traditional higher book-to-bill in Q4 and Q1 and fueled by higher sales in Q2 and Q3. The nationals strong, obviously, as you know, Mig, because of their exposure to large projects. Book-to-bill on independents did not quite come in as strong as we expected in Q2. Fleet still healthy, a healthy project pipeline. Main driver is replacement demand. We do see some recovery happening in Europe, which gives us confidence and other pockets of like Africa, Middle East are strong. So with what we're currently seeing in the backlog, we feel pretty confident about that Aerials outlook for the remainder of the year.

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

The ES backlog coverage is big, and we appreciate that. But back to MP and Aerial, I just want to make sure now that we're sort of back into the normal coverage, I mean, Aerial is a little higher than historical norms. But as you said, right, these conversations for '26, can you give us a sense of the customers, their sense of timing, when they're willing to engage in conversations? I'm just curious, obviously, people have spoken about uncertainty ad nauseam for months now. But given some of the trade agreements, the passage of the legislation on bonus depreciation and thinking about next year broadly, can you give us a sense of those conversations right now? Is it a level of uncertainty? Or are they pushing the timing of engaging in orders back or maybe not? I'm just curious the tone on '26 given we're back to normal coverage. And that can include MP as well as Aerial.

Yes. I would say larger customers stick to their cadence. And so we typically start those negotiations in this quarter in Q3 and will typically end in Q4, sometimes spills over in Q1. Normal cadence there, normal discussions. As I mentioned, fleet utilization quite where we would expect it to be. Smaller customers a little bit more hesitant and especially when you get into MP, which tends to be a book-to-bill business anyway, those are kind of just ongoing discussions, if you will. And there's definitely still some caution. And so far, I've been talking about North America. In Europe, we do see the narrative changing. It gets a little bit more upbeat, started actually at bauma earlier in the year. And we see more and more kind of momentum building. I wouldn't call it quite a V-shaped type of recovery that we're anticipating. But definitely, we do see Europe slowly kind of coming around in both Aerials and in MP.

The conversations or anything about replacement demand levels versus this year? Any sense of timing or maybe pushing back even a little bit more on -- even with tariffs pushing back on price? Just some early vibe of how they're discussing it versus historical norms. And then, can you real quick comment about EPS in the second half, is it sort of $1.25 and $1.35, like the comment of fourth quarter a little higher? Is that roughly the right way to think about that comment, $1.25, $1.35 fourth?

Yes. Thanks, David. I'll talk about replacement demand. So yes, the normal discussions on replacement demand in Aerials. In MP, we actually see some signs of fleets aging a little bit in certain subsegments within MP. And so what we are working on actually is trying to avoid we get back into that same pattern where all of a sudden, everything starts -- needs to be replaced and then we get into a supply issue again. So we're having those discussions right now to make sure that the fleet doesn't age too much on the MP side. And that's mostly -- that's especially in handling, but also in aggregates. But in Aerials, very normal kind of replacement discussions going on.

David, so yes, for Q4, we're expecting that our Q4 EPS to be slightly higher than Q3. I'll call it, in that 10%, 20% higher than Q3 just because of the timing of our mitigation actions, and our cost recovery actions as well.

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

This is [indiscernible] on for Tami. So I want to get some incremental updates on MP. I believe margins are expected to sequentially rise over the remaining balance of the year, getting absorption under control. You've got some customer mix, positive business mix in crushing and screening. I just want to confirm this is still on track and any other incremental updates on MP and sort of what you're hearing on the ground in Europe or any green shoots would be great.

Yes. So we definitely see some gradual sequential improvement in MP, and it's expected to continue into the second half. Obviously, there is still caution in the pipeline, if you will, trying to gauge what tariffs is going to do to demand, what rates are going to do to demand. But definitely, what we are assuming is a continuous gradual sequential improvement. As I mentioned earlier, we do see healthy fleet utilization in MP across the board in both North America and the EU. So the fleet is working. And this is the kind of machinery that you can't sweat too long because it's being heavily used. We do see rental conversions extending. That's why I mentioned that fleet is aging a little bit beyond historical norms because there's still a little caution in converting. But yes, we are back to basically normal coverage. And with what we're seeing in terms of booking cadence is we're confident in that kind of sequential gradual improvement in our outlook. I'll let -- you want to weigh in on margins.

Great. So the margin is exactly what Simon mentioned, skewed towards the Q4 due to the higher factory absorptions and also some favorable geographical mix.

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

I was hoping if you could elaborate just on changes to the assumed tariff impact. It looks like last quarter, you had assumed $0.40 impact for the year, now assuming $0.50. So it would be helpful maybe if you could unpack what you were assuming last quarter, what you're assuming now for, I guess, tariff rates and mitigation efforts.

Perfect. So if I could just walk from last outlook of the $0.40 to current outlook of the $0.50, it's largely driven by 3 factors. First, in our $0.50, we have included the EU reciprocal tariff increasing from 10% to 13%. And as what Simon mentioned earlier, that deal has been signed. Second, it also includes secondary tariff impact higher than what we have originally expected in April. And third, it also includes the 232 steel tariff doubling from 25% to 50%. When we add all of those 3 factors together, that offsets the lower China reciprocal tariffs that we have assumed back in April.

Great. That's helpful. And it would be helpful to hear just that you expand on trends you're seeing in really in North America material processing. Yes, I guess, what you're seeing in aggregates and material handling. And I mean, any early discussions with customers that have pointed to maybe more of a willingness for customers to come to the table to look at a new machine with bonus depreciation going back up to 100%?

Yes. We see in North America, still a little bit of caution, especially in smaller projects, but there's a lot of tailwind from the mega projects, and we expect that to continue for several years. We definitely expect that to continue to be a good guide for us. But then another thing that we see ramping up very clearly is transmission and distribution jobs, which is -- and we believe we're still at the beginning of the growth cycle there. So we see a lot of upside in utilities, which will obviously help our outlook for ES. But overall, it's a little bit of a -- yes, strong in manufacturing, construction, strong in data centers, strong in infrastructure. We see transmission and distribution coming online, and we see a lot of upside there. And then obviously, a lot of strength in waste and recycling. Aggregates is still a little bit on the fence. We do see the fleet being used and replacements being pushed out. And that's a little bit of a function of interest rates and just overall confidence and sentiment in the market. And then the last one I would call out is probably concrete. We see our concrete mixers continue to get good bookings. They get a lot of pull from infrastructure jobs and construction jobs. We had a high booking year in concrete mixers last year, and they're holding up that booking profile for this year. So that's kind of the mix as we see it in North America.

Got it. And then I guess just any early indication that bonus depreciation is driving customers to come back to the table to order a new machine?

Yes. I mean the way we look at it is, obviously, it puts cash in the pockets of our customers, and that's always a good thing. And so for us, it's not a question of if it will eventually lead to incremental investments, it's more when. So we think that most companies are just trying to figure out what the cash benefits are going to be, what the tariff headwinds are going to be. But at some point, we assume that, that will lead to incremental investments. The key question is when -- I don't personally expect a lot of upside from it in the second half, but it could definitely be in play for 2026.

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

You mentioned on the independents that you expect them to remain cautious. So just kind of tying in with a lot of the discussion that we've been having, I guess, how would you characterize the risk into the second half if OBBBA, I guess, doesn't necessarily kick in until maybe '26 in terms of demand? What's kind of the risk here that things actually maybe worsen a little bit or that customers on the independent side choose to kind of postpone purchases to more next year given we're kind of this far into the construction season already?

Well, we are back in our normal seasonality. So that's obviously one factor. The other one is, yes, so we do see a continuation of strong demand coming from larger jobs, especially infrastructure, manufacturing, data centers. Data centers continues to be very strong, and we see upside in manufacturing construction as well. And then on top of that, as I mentioned earlier, we clearly see some early signs of transmission and distribution jobs starting to come online pretty soon. On the flip side, it's just the smaller local private projects. And yes, we did see an uptick in inquiries and starts, and we'll have to see if that translates in spend. That's the big question. And it might be tied to what's going to happen with interest rates, but it's mostly a confidence factor and that we need to see if that confidence factor is going to kick in or not.

Understood. And 2 quick ones on MP, if I could. Just on the One Big Beautiful Bill or some of these changes, any desire or kind of changes in incentives to actually move some of this production in MP perhaps to North America, given some of the changes? And then given your comments around kind of the customers' ongoing cautiousness in terms of rent being conversion to buying, just curious, I guess, is there anything -- is the choice to kind of continue to rent and not convert as quickly? Is that simply just interest rate or macro kind of demand uncertainty near term? Or is this a bigger question of kind of customers' preference here of owning the equipment?

No. I would say on your second question, it's mostly interest rate-driven and overall sentiment. Just a little uncertainty on kind of what's going to happen in the second half, and that's causing a little bit of that delay in conversion, definitely not a change in profile as we see it. And if you think about mobile crusher, our mobile crushing business, we -- the reason we like that business is because that's where the market is going. It's a much more flexible product. It's a product that you can have a travel with the job, and it just gives customers a lot of flexibility. And typically, they will want to own those assets instead of rent. So we don't see the profile changing per se. It's mostly just a confidence factor. And then on your first point, yes, there's also a cash benefit for us, which we have included in our $300 million to $350 million outlook. We are constantly assessing our footprint. We have been making some changes, but we want to see the current dynamics stabilize a little bit over the next 6 months before we get a little bit more firm on what we're going to do with footprint and where and when.

Your next question comes from the line of Michael Feniger with Bank of America.

When we're talking about tariffs, you mentioned Section 232 with steel. Is that impacting the cost profile in the second half? Or does that start to filter more into 2026? I'm just trying to understand because I think you guys do some hedging on the steel side for that. And just my follow-up question just on the ESG side, good performance. Just -- are you seeing any changes in the ordering and purchasing plans from your customers with maybe trying to get in front of tariffs or if tariffs are impacting any of their kind of quarterly or yearly cadence in terms of how they're kind of doing their fleet buying?

Yes. Thanks for the questions. I'll ask Jen to weigh in on 232, and then I'll take the bookings question.

Right. So I just want to mention on the steel -- on your question on steel, we do not have material impact from a steel inflation perspective because we do not import raw steel and 70% of what we use is HRC and approximately half of -- our second half of the year consumption is really hatched, like you said, is at very favorable rates. And our second half of the year future price as it stands right now that we can see is only at the moment 1% to 2% inflation versus current rates -- spot rates. So it's immaterial. And the imported steel as part of our parts import is really part of our $0.50 guide.

Yes. And on the ES bookings, yes, we see strong demand for both ESG and utility products on top of the 8 months backlog coverage that we have. But bookings came in line with this time last year, especially when you take the shorter lead times into account. Historically, Q2 is the softer booking quarter for this segment. In a normal year, most negotiations will complete in Q4 and some in Q1. And so we were expecting and are expecting to -- for the backlog to continue to come down and return to more normal levels as lead times continue to improve. But overall demand profile, very strong for both ESG and utilities. With the current coverage and what our customers are saying, we have good line of sight to the second half of 2025 and their first take on '26. Customers are very deliberate on their cadence around fleet replacement, fleet management, but also fleet upgrades. And what we like is that we just continue to see ESG performing really, really well because of their competitive fleet times, but also because their overall competitive value prop, the technology that they bring to this space is really making a difference. And what we like about this business is that that's where the market is moving as well. So we're moving towards where the puck is moving, and that really sets us up for the long term for really a nice run here. And then the last point I want to make within this segment, we also see utilities growing, taking share, the IOUs and public power companies are upgrading their fleet to maximize uptime. And we see significant upside coming from transmission and distribution jobs going forward. So overall, very bullish on that segment.

Your next question comes from the line of Stephen Berger with KeyBanc Capital Markets.

If I heard correctly, ESG margin will be about 100 basis points lower in the back half, which get full year high 18% range. Understanding that mix can move around quarter-to-quarter, is that how we should think about normalized run rate for the time being? Or do you think that, that picks up as we go into next year just from synergies and operational efficiencies?

Steve, yes, you're right, about second half of the year, about, I would call it, 1%, 100 basis points lower than first half of the year. But we continue to expect that the operational efficiency, higher throughput with a fixed cost structure in both ESG and utilities that happened in Q1 favorable to us to continue for the rest of the year. And of course, the customer mix and product mix, sometimes it does change over the last second half of the year, but currently, that's not in our outlook. You talked a little bit about the synergies. Yes. So currently, just now Simon talked about that we're running ahead in terms of our synergies, annualized more than $25 million. That hasn't really dropped through entirely in this year, and that will be realized next year, and you would see that in the OP.

Got it. Okay. And then, Simon, just a quick one. You talked about 3rd Eye and digital revenue streams. I think you said there's other digital revenue streams you envision in the future. Can you talk a little bit more about that?

Yes. As I mentioned in our opening remarks, so we are now bolting 3rd Eye technology onto our concrete mixers and our utility trucks. And there's a lot more coming. But whatever helps operator safety, whatever helps vehicle productivity, vehicle efficiency, health monitoring, there's just a lot of use cases that we're exploring with 3rd Eye, and it's a real gem in the portfolio. And it really does intrinsic -- add intrinsic value to our customers. So we're very, very pleased with the momentum that we have in 3rd Eye, and we see more use cases coming.

So yes, you said there's a lot more coming. Is that mean you're expanding the 3rd Eye product specifically? Or there's a lot more digital revenue streams outside of 3rd Eye that you think are on the drawing board?

I would say both. So we see our 3rd Eye offering expanding, and we see the use cases expanding for 3rd Eye.

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

I just had a question, if I heard correctly, the higher expected EPS in the fourth quarter than the third, I believe, Jen, you cited MP margins. I'm just curious if you could maybe -- if I heard that correct, maybe expand on that. Is that product mix you have in the backlog that you see shipping? Is it -- well, anyway, I think it's somewhat counter to seasonal trends and the fact that, that's called out as a driver. I just wanted to clarify that in terms of what's supporting that.

Tim, so yes, our Q4 EPS is going to be higher than our Q3, I'll call it, 10% to 20% higher, and that's driven by 3 things. First is, like I mentioned earlier, the tariff mitigation actions is going to flow through more in Q4 versus in Q3. Second is the timing of our tariff cost impact is largely in Q3 and less in Q4. And then finally, yes, I did mention about the MP, the sequential improvement in the margin profile driven by better factory absorption and also favorable geography mix.

Got it. Okay. And then just a small one, but the reduction in the tax rate from 20% to 17.5%, I don't know as we think about it if the -- with ES being U.S. accounting -- ES driving more U.S. profitability, is that a run rate to think about for '26 or not? Just curious.

Yes. So of course, we're not guiding '26 at this point in time. But our 17.5% full year revised outlook here are driven by discrete items. And looking forward, we expect our ETR to normalize, of course, in that ballpark of 19% range as we fully utilize our global tax attributes. I think while ES margin is coming higher, we also are doing very active tax planning, so.

There are no further questions. I would now like to turn the call back over to Simon Meester for closing remarks.

Thank you, operator. So if you have any additional questions, please follow up with either Jen or Derek. And with that, thank you for your interest in Terex. Operator, please disconnect the call.

Ladies and gentlemen, that concludes today's conference. You may now disconnect your lines.