Alliance Laundry Holdings Inc. (ALH) Q2 2026 Earnings Report, Transcript and Summary

Good morning and welcome to Alliance Laundry's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] With that, it is my pleasure to turn the program over to Tom Gelston, Vice President of Investor Relations. Tom, please go ahead.

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

Thanks, Tom, and thank you for joining our earnings call. Our second quarter results reinforce the message we have carried since becoming a public company that a resilient, replacement-driven, essential industry, a market-leading position and disciplined operational excellence combined to deliver strong, sustainable outcomes through any environment. In the second quarter, revenue grew 7% year-over-year with adjusted EBITDA growth of 12% and adjusted net income up 54%. This performance was broad-based and it reflects the diversification that defines our business across products, end markets and geography. The strength of our first half, combined with our growing visibility into the balance of the year, gives us the confidence to raise our guidance today, and Dean will take you through that detail shortly. I'd like to highlight again that this performance was achieved in a macro environment that's still volatile in many parts of the world. But remember, every day really is laundry day. Commercial laundry is a vibrant, growing and essential part of modern life. Our diversified geographies and end markets serving nondiscretionary needs, hospitals and elder care, hospitality, industrial, emergency responders and many other verticals have performed across all economic cycles, giving us a level of growth, consistency and downside protection that is hard to find. This quarter was no different. Revenue met our expectations with strong adjusted EBITDA and net income conversion. Digital innovation also continues to see strong adoption and our strategy here is unchanged. The more connected our equipment is, the more value we can deliver through better uptime, smarter servicing, lower cost and higher revenue. And ultimately, a better end user or end consumer experience that further strengthens our customer relationships. Turning to the regions. North America delivered another strong broad-based quarter with growth across every vertical and pricing that helped offset inflation and tariff impacts. Internationally, we saw strength in Asia Pacific, especially in Vended markets and Europe was steady. As we noted previously, the Middle East, Africa region represents less than 2% of our global revenue, so the direct impact of the ongoing conflict is small. And while we are seeing some knock-on effects in other regions, mainly due to higher energy costs, we expect normal growth dynamics to return when the conflict subsides. We're also continuing to strengthen our balance sheet repaying $50 million of debt in the quarter, bringing year-to-date paydown to $115 million and over $800 million over the past 12 months, which has resulted in a reduction in net leverage from 4.6x to 2.4x. So taken together, the strength we demonstrated this quarter, broad-based demand, pricing discipline, our local-for-local manufacturing footprint and a strengthened balance sheet are what we expect to carry us through the balance of 2026. And so before Dean walks you through the financials, I want to share a recent event that brings a key aspect of our long-term growth story to life. In late June, I attended our annual event in Bangkok, where we bring current and prospective laundromat operators together with our distribution partners. Southeast Asia has long been a strategic growth engine for us and laundromats are leading the way. The demand for new stores continues to impress me in a market that largely barely existed a decade ago and one we're proud to have helped create. This demand is structural, not cyclical, urbanization, a growing middle class and the shift toward modern out-of-home laundry is durable, essential demand, the kind that has carried this company through every economic cycle. And here, our advantages are unmistakable, our technology, our distribution network, our highly trained team and unmatched product reliability. Operators choose Alliance because of our connected durable equipment delivers a lower total cost of ownership and a better experience for their customers. There's a second tailwind building underneath the growth. This equipment runs hard all day, every day and high throughput stores and that intensity of use sets up a durable replacement cycle in the years ahead. So even as new stores drive the top line today, the installed base we're building now becomes a recurring source of demand tomorrow. The event generated hundreds of qualified leads across Thailand with the opportunity extending across the region. And Thailand isn't the exception. It's the template. We see the same early innings dynamics taking shape in market after market, structural tailwinds, a growing installed base and emerging market runway all pointing to a business built to compound for years to come. And on that note, I'll hand it over to Dean to provide details of our second quarter performance and increased guidance.

Thanks, Mike. Starting on Slide 5, I'll walk through our financial results, including our strengthening balance sheet. Second quarter net revenue grew 7% versus the prior year. Pricing contributed slightly more than half of the increase with the balance coming mainly from volume. Gross profit grew 9%, representing a gross margin of 39.8%, up approximately 90 basis points from the prior year. Regarding the cost environment, pricing actions already in place helped to offset our tariff exposure and other current inflationary pressures. Our domestic manufacturing footprint continues to provide a meaningful structural advantage relative to our peers. Adjusted EBITDA grew 12% versus the prior year with a margin of 28.1%, up 135 basis points. This expansion came from volume leverage, operational excellence and supply chain efficiency and also includes continued investment in people, digital, engineering and commercial capabilities at scale versus the competition. In addition, during the quarter, we received tariff refunds and a business interruption insurance claim totaling approximately $3.8 million. Excluding these 2 items, adjusted EBITDA grew 9% versus the prior year quarter and EBITDA margin expanded 60 basis points. Adjusted net income was up 55% year-over-year and adjusted earnings per share was up 32% to $0.41. This result reflects both strong operating performance and the meaningful benefit of significantly lower interest expense, down roughly $22 million from the prior year quarter. Moving to cash and the balance sheet. Operating cash flow was $66 million in the quarter, reflecting strong conversion and continued working capital discipline. We paid down $50 million of debt in the quarter, bringing our year-to-date paydown to $115 million. Net leverage at the end of the quarter was 2.4x adjusted EBITDA, down 0.2 turns in the quarter and down 0.4 turns from year-end. Stepping back, the progress over the past year is striking. Since June 30, 2025, we have paid down $825 million against our term loan, funded by strong organic cash generation and IPO proceeds, cutting our net leverage nearly in half over the last 12 months from 4.6x to 2.4x, with one full turn of that deleveraging due to organic cash flow generation and EBITDA expansion. In addition, we are quite pleased that both Moody's and S&P have upgraded our corporate and senior debt ratings, recognizing our ability to both grow and delever at the same time. This action also has the benefit of lowering our borrowing costs on our term loan by 25 basis points going forward. Drilling into the segments on Slide 6. North America delivered a strong quarter with revenue up 9%, adjusted EBITDA up 17% and adjusted EBITDA margin of 31.6%. Adjusted EBITDA growth was over 12% if you exclude the impact from the insurance recovery and tariff refund mentioned previously. Growth was broad-based across our end markets, with mix providing a modest positive impact in the quarter. Internationally, revenue was approximately flat with adjusted EBITDA of $34 million and a margin of 28.9%. Asia Pacific saw strong growth, particularly in fast-developing Vended markets and Europe was steady across all end markets with operators actively investing in new stores, fleet upgrades and energy efficiency. This flat result masked genuinely strong underlying momentum. As we noted, our Middle East and Africa region, which makes up less than 2% of global revenue, saw a temporary pause in demand tied to the ongoing regional conflict as well as higher energy costs, which also weighed on certain other international markets in the quarter. The year-over-year international EBITDA and margin comparison reflects regional mix within the segment as well as our ongoing investments in people and products to support future growth. International EBITDA and profitability will be lumpier quarter-to-quarter in North America, given the smaller base and the swings in regional strength and mix. We look at progress over time and the trajectory is toward improved profitability and continued parity with our North America margins. Now we will turn to our updated full year guidance on Slide 7. The strength of our first half performance and our growing visibility into the balance of 2026 give us the confidence to raise our full year guidance today. We are maintaining our full year revenue growth guidance of 6% to 7%, with volume and price expected to contribute equally. We are raising our adjusted EBITDA growth guidance to a range of 8% to 10%. We expect revenue to be fairly consistent between quarters across the second half, with margin expansion weighted more toward the fourth quarter given our geographical mix expectations and normal seasonal patterns. We now anticipate net leverage of 2.0x at the end of the year, down from the prior forecast of the low 2x range. Of course, this is based on our current expectations of business operations and capital expenditures and does not take into account the potential impact of other capital deployment opportunities. A few additional adjustments to our full year outlook. We now expect 2026 interest expense to total approximately $80 million. We anticipate a lower effective tax rate of 23%. Our CapEx and share count guidance are unchanged. Now I'll turn the call back over to Mike.

Thanks, Dean. And with that, I want to close with our 4 consistent messages. First, commercial laundry is a vibrant, growing and essential industry. Second, we hold a leading market position as the only scaled pure-play operator, 2x the size of our #2 competitor. Third, we have an experienced, hungry and proven team that has long delivered results through every economic cycle and that gives us the confidence to raise our outlook for the full year. And finally, there are systemic tailwinds of magnitude that we believe will continue to power this company for the next several years. So I'll close by thanking our employees, our distribution partners, our customers and our shareholders for your continued support. We really appreciate it and look forward to continuing to create long-term value for Alliance's stakeholders. Before we open the line for questions, I do want to note that Dean is unable to participate in the Q&A portion of today's call due to a personal matter. I'll be handling questions this morning alongside Tom and Bob Calver, our outgoing Head of IR and Future International COO. So with that, operator, let's open the line for questions.

[Operator Instructions] Our first question will come from Amit Mehrotra with UBS.

Appreciate the question. Maybe I can just start by asking about the Middle East conflict and sort of the direct and indirect impacts there. Be curious how much you think that impacted the international business, both on revenue and earnings? And maybe just give us a sense of kind of -- I know it's going to be lumpy prospectively, but as we think about third and fourth quarter, what are sort of the continuing impacts?

Yes. Amit, this is Mike. I would say, remember, it's 2% of revenue. So the region itself de minimis in terms of impact. What you have there is -- honestly, it's more transit, so vessels being delayed, things of that nature. And the good news is it includes Africa also, which has been an area that candidly, we have not -- we've done okay in select countries, but there's a lot of opportunity if you think about the demographics of that part of the world, right, large family sizes and other things. And so we've got a lot of opportunity. In many ways, like any crisis, it's a gift, if you look at it the right way. And that gift is forcing that team to refocus on the African market, which, again, is pretty stunning in terms of the long-term potential opportunity. And then as I said in the opening remarks, it's more about the knock-on effects where understandably, some people are pausing a little bit on the international side. Energy costs are a little bit higher. The regions that matter there, obviously, are Asia and Europe, in particular. The thing that we see, as you know, Asia put in a great quarter. We're still very confident about that. I think in Europe, a little slower, but we've seen this before. And usually, what happens is people are a little hesitant, they pause and then all of a sudden, it sort of comes back because people realize laundry is every day, and they got to get to work and the business comes back. So it's not -- I would say we're probably seeing that same phenomenon where to use your words, a little lumpy, a little bumpy. But long term, they are -- and we believe we'll be fine.

Okay. That's helpful. And just maybe as a follow-up, obviously, the North American margins were just spectacular. And what I found interesting is you only attributed mix to sort of a modest benefit in the quarter. We have North America margins sort of approaching 32% here. I think that's sort of an all-time high tied to maybe something you did back in 2023. But what is the -- is there a ceiling here? Because the incremental margins are so far in excess of the absolute margin and your growth is good. It implies that you can continue on this expansion trajectory, but I just want to make sure I'm thinking about it correctly.

Yes. Look, I would sort of caution on that side. But I mean, as you know, we've got some internal targets that we won't talk about. We think we continue to grow. That is our plan on the margin side. But I would say sort of slow, steady upward trajectory, nothing radically different, but confident in our ability to, again, be cost down to offset any tariffs and inflation to just get better every day through our operational excellence, right? And then on the new product side, a lot of the design criteria that our engineering team is very, very capable of doing, particularly given, as we've talked about in some of the past calls, the expansion of our laboratory testing facilities. And also, we have added additional folks to our engineering team and the technicians and other guys that are involved in that. So again, being a little long-winded here, but I think up to the right and continual progress.

Our next question will come from Susan Maklari with Goldman Sachs.

My first question is on the strength, the mix shift that you saw in Vended. Can you talk a little more about what's driving that? And how you're overcoming some of those underlying perhaps headwinds given the macro and some of the other constraints you mentioned last quarter relative to the initiatives that you're putting through and the innovations that you're launching?

Yes. So the mix we've talked about, Susan, in the past, and I think it's pretty consistent, and that is in those -- the retail locations, right, it's all about revenue per square foot. The larger capacity product simply just drives better returns, right? The footprint is smaller, the ability to charge more is higher. So revenue per square foot is significantly higher. And again, you see people doing that. The other thing is the end consumer, most people don't like doing laundry. They particularly don't like doing laundry in public many times. So what they really want to do is they want to get in and they want to get out and they want to get on with their life and go play baseball with the kids or do whatever their free time allows them to do. So it's really, really strong that way. And then it is the trifecta in terms of the third part which is for us, right, the engineering content is higher in larger capacity product. There is less of a competitive set on that side. And those things allow us to make a little more margin for it. So it's really a win across the board for the consumer, for the store owner and for us as a manufacturer.

Okay. That's helpful. And then maybe shifting to the margin and the cost side. Can you talk a bit about price cost and what you're seeing there, especially just given the move in steel and how you're thinking about the potential for any further pricing as we look to the back half of the year?

Yes. So steel, we're locked through the first quarter of '27. We are watching it. It does look like [ 427 ], the inflationary environment is a little more hot than we would like. But we're early days. Again, we're watching everything. We're seeing lots of different things in terms of freight and other things that are sort of moving around. I think my message would be, hey, as we have done traditionally, we will get ahead of any of those cost increases and offset that with price. And again, some of the cost down and other efforts that we have to continue to be really attractive in terms of our margin profile. But right now, again, just a little -- looks like it will be a little hot, but too early to tell.

Our next question will come from Mike Halloran with Baird.

So can we start on just some of the channel in North America? Maybe talk a little bit more depth on the Commercial-in-Home, what you're seeing on that side? Any broader macro headwinds impacting that demographic or that buying group? Any change in trajectory? Any kind of loose thoughts?

Yes. I mean having just returned actually night before last from a buying group show, I can tell you the demand is extraordinary. The preference for the Speed Queen brand is extraordinary and it is all signs green. There is no slowdown and they're really asking for us to deliver more product that's probably the biggest opportunity is to really scale that up a little bit more.

And you're going to be sub 2x leverage exiting the year here. Maybe just give a little context to what your capital allocation or deployment plan looks like beyond that. Does a dividend come into the cards? How are you thinking about the M&A market? Buyback seems maybe a little premature given the float. But maybe just add some context around the plan after you get down to 2 turns.

Yes. Mike, it's Bob Calver. Yes, really no change from what Dean has talked about the last 3 quarters. Primary use is to get that leverage down and we're, as you know, tracking really strongly against that. Investing in the business, be that CapEx or M&A remains the next best use of capital. We've talked about it before. There's limited M&A out there that we see and you've seen that over the last few years. We've -- we think, fairly successfully done those distributor roll-ups in the U.S., and that may continue, but they're fairly small dollar items. And then you're absolutely right, cash generation is really, really strong and we do need to start thinking about what we do with it at that point. I think it's a little bit premature right now to be talking about that in any detail. But I think long term, that combination of dividends, buybacks is kind of where you land logically, but we don't have a firm plan to share with anyone at this point.

Our next question will come from Kyle Menges with Citigroup.

I just wanted to understand maybe a little bit more what's embedded in the second half expectations for international markets. I mean it seems like in the second quarter, Middle East and Africa was down quite a bit year-over-year and Europe flat. So just trying to understand, are you basically assuming more of the same in the second half? And just any color you can provide on how you're thinking about some of these international markets in the second half and what's embedded in the guide?

Yes. I mean what I would say, Kyle, is we still feel pretty good about it. It is and can be lumpy at times. What we see is Europe continuing to perform. Nothing really systemic there in any way. And as I said on multiple calls, an incredible team, really, really strong manufacturing base where we can be very, very competitive from a cost side. Our competitive set there, very capable. But as you know, we've continued to grow. We think we have a lot of tailwinds still, particularly on the Vended side that, that is continuing to grow. It's a new market. And that region has always been strong on the on-prem. So very diverse, lots of opportunities, still feel good about it. Asia Pacific, we should be okay. I don't expect anything negative. Again, lots of opportunity to grow. Certainly, challenges in the region for sure. Probably a little more energy conscious in that part of the world. Latin America, again, we feel like these emerging markets, it's sometimes lumpy, but long term, strong. For us, that region is really about what's happening in Mexico and Brazil. That drives the majority of the business. And Middle East, Africa, as I said, and actually, as an example, they had a pretty good start to Q3. But it is going to be dependent on what the team can do there. And I would say it's more like we talked about vessels that get delayed, transport, that kind of thing. Saudi and the UAE are down. So it's really up to that team to find other opportunities for growth, is very capable. And I would expect that to be down for sure. I don't see recovery there for the year. But as I stated, it's about 2% of revenue. So we'd love to have it up. But if there's a region that's going to be down, that's the one that would have my vote.

Got it. That's helpful, Mike. And then just a quick follow-up on the potential for some M&A. I mean it sounds like small dollars. Just curious how the M&A pipeline is looking now that you'll be at about 2x leverage exiting this year, if it's mostly small dollars or anything bigger in the pipeline?

Yes. Kyle, I think we've talked about it before. There's a limited amount that we need. We've got everything that we think we need to continue growing at historic rates well into the future. If anything did come up that was attractive in terms of filling product gaps, distribution gaps, those kind of things, we'd absolutely consider it. But we certainly don't believe that we need it. So yes, it's always a lever that's there, but I think we're very happy with what we've got and what the future looks for us like M&A.

Our next question will come from Tomo Sano with JPMorgan.

If you could talk about the international business, especially the primary drivers for margin pressures, geographic mix and cost and investment ramp and staffing and pricing. If you give us more color and what happened in 2Q? And how should we think about the back half?

Yes. So there's some dynamics going on, but let's start with the manufacturing base that we have, right? So in Europe or the Czech Republic, it is highly, highly cost competitive. We feel really good, both about that location, our sourcing team and the product design. So the international markets, I think, in general, what you see there is more large chassis, which is produced in each of those regions or certainly in Europe. And in the case of Asia, just to touch on that a little bit from the cost side, right? And that Thai factory, it is state-of-the-art. It is our newest factory. It is highly efficient. And again, it is sourcing all materials locally. So very competitive with local manufacturers. And outside of Australia and New Zealand, not a lot of product coming from outside of the region, right? So it is primarily high margin. We use this term large chassis, as you know, product, where, again, you've got more engineering content, a lesser competitive set and we think opportunity to go. So sometimes you'll have some mix shifts where there'll be a country or 2 that all of a sudden takes a large order of lower-margin product that it would be the small chassis product. Again, highly differentiated, but not an equal margin versus the large chassis product. And over time, what those regions use small chassis to sort of seed the market, particularly on the Vended side because it's a lower capital cost, if you want to start up a store, as an example, we just stay on that for a minute. And then they get comfortable and then they realize, hey, this is a really good business, it is every day. And then their next door, what they will do traditionally, they will upgrade then to a larger chassis product, which has longer life, got faster cycle times and offers a better return on investment. But they will dip their toes and we use that to allow them to dip, get comfortable and then that second and third and fourth store, hopefully, if all goes well, right, you do not see them using small chassis in those subsequent stores. Does that answer your question?

Yes. And a follow-up on Bob, congratulations on the leadership transition and this is a question for Mike and Bob. Under Bob's leadership, what will concretely change to improve speed and execution? And where will decision-making be different versus today in international business?

Tomo, thank you for the congratulations. I'm going to defer this one to Mike because I think this sounds like an objective conversation.

Yes. Tomo, trust me, we have those ongoing dialogues. I'm looking at him right now, and everything is going to change. No, but we feel really good. As you know, he's very capable. He's been in the business for a long period of time. One of the good things, Tomo, is we've had Tom join us, the transition and Tom's experience and tenure and professionalism, honestly, has allowed Bob to get a running start on the transition. So I can say, for example, we've been in almost every region of the world over the last 2 months and meeting customers, they know him already. He knows the sales team. And I think he is bringing in good perspective. You always win when you bring somebody in new. They look at things differently. They uncover opportunities, they challenge. And I feel really good about the trajectory, the opportunity and I think Bob's leadership and knowledge. So he's not starting from 0. He's an experienced guy who's been around for a long time. And as you know, the numbers matter. And so actually, his background on the finance and Investor Relations side is super helpful to help drive that into his regional teams and I feel really good.

Our next question will come from Andrew Obin with Bank of America.

This is David Ridley-Lane on for Andrew. Just a question here. A competitor has instituted surcharges in response to, as you said, a little bit higher inflationary environment. What has Alliance done historically? And what is your plans on pricing second half and thoughts on -- maybe early thoughts on 2027?

Yes. So David, I say, look, we've done all of the above a little bit. It's a hyperinflationary. We have used surcharges for shorter periods of time, sort of waited, watched. If I go back a year or so ago, it was on the freight side. And then as that look to be a consistent cost increase, we did roll out a price increase. So you'll see us do that. At the moment, we're watching. We feel we can offset the majority of that with a lot of other different actions that we're taking here. But the one thing you should know about us is we have consistently sort of gotten ahead of any price increase to make sure our margin profile remains attractive. So we're not quite there yet. We're watching it. As I said, I think '27 will be a little bit hotter than normal, nothing like what we've seen in the past, but it's likely to be a little bit hotter. But again, you'll see us announce, get ahead of it. We don't chase it because you can't -- you can never catch it. This is my experience anyway. So that's how I frame it.

And then just a follow-up on -- there's been a number of tariff changes. I know you're primarily local for local. Does the Section 301 tariffs kind of that 10% or 12.5% have any benefit to you in the second half neutral? Any thoughts on that?

Yes. David, I'll just take that one. I think you should consider the second half very similar to the first half. We don't see any changes and it's fairly neutral for us right now.

Our last question will come from Ketan Mamtora with BMO Capital Markets.

This is Patrick Beairsto on for Ketan. I wanted to ask about the demand trends in Europe, both by sort of end market and region. And how did you see those trends sort of evolve through Q2?

Yes. I'm sorry, I missed the first part of the question. Can you repeat that?

Yes. I just wanted to ask on the demand trends in Europe on an end market and region basis and then how you saw those trends sort of evolve through Q2?

Yes. So I don't think there's any material change. Again, the Vended piece continues to grow. Again, you've got a lot of new storefronts that are going in. No real change there. The incremental growth of that part of the business has been quite strong. And then again, it is a more On-premise heavy as a percent of revenue. There are a lot of opportunities in terms of same phenomenon you see here where Europeans are staying more often. They're staying in the region. So a lot of the bed and breakfast and you do have a different sort of hospitality market there where you've got a lot of smaller properties versus what you have here of 300, 400-room hotels. You don't see that there. You've got a lot of 50, 60 room locations that have On-premise laundry. So a lot of opportunity there and others, I would say, tailwinds that are favorable. The Eastern Europe is a little more hard hit with the energy costs. You don't see -- I mean, there's concern across the region, right? As everybody knows, sustainability is really, really critical in that part of the world. We've got the right product suite that allows them to get much, much higher efficiency and lower cost. But I would say the East is a little bit more stressed than Western Europe and particularly where we are strong in France, Spain and Italy, which has a high population base, we have a direct business there that, that is performing very, very well and has long been outperforming and growing faster than some of our independent distributor countries.

Got it. That's helpful. And then on the -- on the tariff refund side, are you expecting anything for the remainder of the year?

Patrick, yes, it's Bob again. Look, we're not going to share anything specific. There was the benefit we got in Q2. The reality is that there's probably still something out there, but it's still subject to confirmation. So just to be clear on guidance, it's not included in our kind of full year guidance. Nothing over and above what we've seen in the second quarter is in there. So if there is any, it will be additional benefit.

Thank you. This brings us to the end of the Q&A portion and also the conclusion of Alliance Laundry's second quarter 2026 earnings conference call. You may now disconnect your lines and have a wonderful day.