Image source: The Motley Fool.
DATE
Wed, Nov. 11, 2026
CALL PARTICIPANTS
- Investor Relations Director - Simone Grancini
- Chairman and Group CEO - Barend Fruithof
- CEO, North America - Steffen Schewerda
- CEO, Europe and Rest of World - Henning Schroeder
- Group CFO - Marco Portmann
TAKEAWAYS
- Net Sales -- $493 million, representing 4.6% growth year over year driven by North American organic expansion.
- Adjusted EBITDA -- $44.2 million, increasing 4.9% year over year as cost management offset material price inflation.
- Net Income -- increased by $10 million year over year due to operational improvements following the integration of the Shyft Group.
- Order Backlog -- $1.3 billion, a 16% increase compared to the prior year driven by high demand for Walk-In Van upfits.
- Order Intake -- $528 million for the third quarter, reflecting a 2% increase year over year.
- Gross Profit Margin -- 19.2%, a decrease of 80 basis points year over year reflecting geopolitical uncertainty and material cost inflation.
- North America Revenue -- increased 8% organically through improved capacity and the fulfillment of municipal backlog.
- North America Adjusted EBITDA -- $37.2 million, growing 8% during the quarter despite headwinds from material costs and lower aftermarket activity.
- Europe and Rest of World Net Sales -- declined 3.6% in the third quarter due to supplier insolvencies and weakened demand in China and the Middle East.
- European Core Market Performance -- reported 13% organic net sales growth for the first nine months of 2026.
- Walk-In Van Market -- estimated to be between $500 million to $600 million with further growth potential from recovering strategic fleet customers.
- Acquisition Synergies -- on track to achieve $37 million by year-end 2026 with an additional $5 million targeted for 2027.
- M&A Activity -- announced the planned acquisition of O.J. Watson for approximately $28 million in annual net sales to expand direct presence in the Rocky Mountains.
- Net Debt -- $446 million, resulting in a leverage ratio of 2.66x, a reduction of more than half a turn year over year.
- Full-Year Sales Guidance -- updated to between $1.95 billion to $2 billion, reflecting third quarter supply chain disruptions.
- Full-Year Adjusted EBITDA Guidance -- projected between $170 million to $180 million for fiscal 2026.
- Year-End Leverage Target -- expected to be below 2.5x following strong seasonal operating cash flow in the fourth quarter.
- Aftersales Revenue -- reached nearly 25% of year-to-date revenue in Europe, growing 11% year over year.
- First Pass Yield -- improved by 64 percentage points in the Walk-In Van business compared to one year prior.
- Operational Output -- increased 77% per day in Walk-In Van operations while direct labor headcount was reduced by 9%.
Need a quote from a Motley Fool analyst? Email pr@fool.com
RISKS
- Barend Fruithof noted that "some of the steel prices went up close to 100%," which pressured the company's gross margins during the quarter.
- Henning Schroeder stated that "geopolitical conflicts have begun to affect order demand" in the Middle East, limiting growth opportunities in that region.
- Marco Portmann reported that the company faced "supplier insolvencies in Europe, OEM chassis supply constraints in the U.S. and temporary production disruptions," which impacted total volumes.
SUMMARY
Aebi Schmidt Holding AG (NASDAQ:AEBI) reported third quarter revenue growth of 4.6% as part of a multiyear transformation following the acquisition of the former Shyft Group. Management stated that strong order momentum in North America offset supply chain disruptions and supplier insolvencies in Europe. The company is focusing on operational efficiency and manufacturing consolidation to counteract material cost inflation and energy price volatility. Forward guidance was updated to reflect these external market headwinds while maintaining long-term profitability targets for 2030.
- CEO Fruithof stated, "we also continue to capture a high wallet share in the growing and recovering Walk-In Van market and have become the market leader in this space with a backlog well into 2027."
- In the Walk-In Van segment, Steffen Schewerda noted that "units requiring rework dropped by almost 90%" as a result of an operational turnaround.
- Management reported delivering solutions to Paris Airport ADP only two quarters after the contract award, demonstrating improved operational execution in the airport segment.
- The company appointed a new Chief Global Production Excellence role and a Chief Supply Chain Officer to enhance operational performance in challenging supply environments.
- Regarding the O.J. Watson acquisition, Fruithof noted it is "expected the transaction to close before year-end 2026 and to be accretive to EPS in the first year after closing."
- The company continues to produce Blue Arc vehicles on established lines to meet follow-on demand using a lower-cost solution compared to original designs.
INDUSTRY GLOSSARY
- Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, adjusted for non-recurring items to reflect core operational performance.
- Backlog: The total value of signed customer orders that have not yet been fulfilled or recognized as revenue.
- Chassis: The structural frame of a vehicle that supports the engine and body, often sourced from third-party manufacturers.
- First Pass Yield: The percentage of units that complete the manufacturing process without requiring any rework or correction.
- OEM: Original Equipment Manufacturer; companies that manufacture the base vehicle components like engines and chassis.
- Upfit: The process of adding specialized equipment, such as snow plows or delivery bodies, to a base vehicle chassis.
- Walk-In Van: A delivery vehicle designed with a high ceiling to allow the operator to stand and move easily between the cabin and cargo area.
Full Conference Call Transcript
Operator: Good day, and thank you for standing by. Welcome to the Aebi Schmidt Group Third Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Simone Grancini, Investor Relations Director. Please go ahead.
Simone Grancini: Thank you, Sharon. Good morning, and welcome to Aebi Schmidt Third Quarter 2026 Earnings Call. Joining me on the call today are Barend Fruithof, Chairman and Group CEO, who will provide the highlights of the third quarter and outlook and the concluding remarks. Steffen Schewerda, CEO, North America; and Henning Schroeder, CEO, Europe and Rest of World, who will detail the performance in their respective segments; and Marco Portmann, Group CFO, who will provide a financial overview. Today's comments include forward-looking statements subject to the safe harbor language contained in the press release and in Aebi Schmidt's filing with the SEC.
And as a reminder, all figures prior to the July 1, 2025, acquisition are presented on a combined basis for Aebi Schmidt and the acquired Shyft Group. And with that, I hand over the call to Barend.
Barend Fruithof: Good morning, everyone. Before we begin, as today is Veterans Day in the United States, I would like to take a moment to recognize and thank all veterans across our U.S. workforce and beyond for their service. And with that, let me turn to our business. Our third quarter results show solid growth, higher profitability and substantial strategic progress in our quarter that was not without challenges, which we will detail as we dive into the numbers. Despite these challenges, as shown on Slide 5, our order momentum remains strong. Net sales and adjusted EBITDA improved by 5% and net income has increased by $10 million year-over-year.
Looking at our year-to-date performance for the first 9 months, we clearly see the strength of the Shyft of the group after the Shyft acquisition with substantial improvement order intake and backlog, translated into double-digit adjusted EBITDA growth. Looking at the highlights of our third quarter on Slide 6 in more detail. Commercially, we delivered strong order intake of $528 million and continued to grow our record high backlog, which stands at $1.3 billion. This helps us to overcome the softness in selected end markets. In North America, we continued to build momentum across multiple businesses with several multimillion dollar contract awards.
We also continue to capture a high wallet share in the growing and recovering Walk-In Van market and have become the market leader in this space with a backlog well into 2027. In Europe and Rest of the World, we secured several notable wins and see very healthy demand for our recently introduced product updates. Ultimately, we grew net sales organically by almost 5% despite challenges in our supply chain with OEM chassis and engine constraints and supply disruptions in Europe. My colleagues will provide details in their respective sections. In terms of profitability, we continued to manage and optimize our costs, compensating for the high inflationary pressure visible in our temporary lower gross profit margin.
Ultimately, we improved our adjusted EBITDA by 5%, maintaining a stable adjusted EBITDA margin and further strengthened our balance sheet through disciplined working capital management and continued deleveraging. Now turning to Slide 7 to have a broader look at the remarkable transformation of Aebi Schmidt since the acquisition of the former Shyft Group in July 2025. As you can see, we have substantially optimized and consolidated our manufacturing network to improve absorption and operational efficiency. We have also better aligned manufacturing and supply chain operations to reduce transportation costs and improve our resilience. And we consolidated warehousing activities in Charlotte to drive future efficiency and accelerate our aftersales growth.
Beyond footprint optimization, we have expanded our upfit center network to broaden our reach and to be closer to our customers. Additionally, we have accelerated the synergy realization and remain on track to achieve $37 million by year-end with an additional $5 million for next year. Overall, these actions are laying the foundation for a stronger, more efficient, more scalable business. Turning to Slide 8. While our focus remains on delivering strong near-term results, we are equally committed to building the foundation for sustained success in 2027 and towards our 2030 midterm targets. We continue to strengthen our competitive position, growing our market share like in the Walk-In Van space.
We enlarged our total addressable market with new products for regional and general aviation airports. And we have recently strengthened our leadership team with 3 business unit presidents to accelerate growth in North America. We also created a new Chief Global Production Excellence role to improve operational performance and appointed a new Chief Supply Chain Officer to strengthen the supply chain in challenging environment. Finally, we have announced on Monday the planned acquisition of O.J. Watson, a municipal and commercial upfitter with around $28 million net sales per year. Our first acquisition after Shyft gives us direct presence in the Rocky Mountains, closing a white spot.
We expect the transaction to close before year-end 2026 and to be accretive to EPS in the first year after closing. Together, these initiatives allow us to drive sustainable performance improvements well beyond 2026. And with that being said, I turn the call over to Steffen for the North America update.
Steffen Schewerda: Thank you, Barend, and good morning, everyone. We are on Slide 10. North America continued to deliver strong progress during the third quarter. In airports, we secured a $9 million contract with major Canadian airports, and we had first successful deliveries to a leading U.S. airport, creating opportunities for future growth. In goods transport, we have become the market leader in Walk-In Van upfits. According to our estimates, we have achieved the majority of wallet share with most strategic customers year-to-date. In our commercial truck operations, we continued to expand customer relationships, including a $15 million multiyear project for Monroe Commercial.
Finally, in municipal, we secured a $4 million road marking truck order from a major state transportation department is just one example of continued healthy demand in the customer segment. Overall, customer engagement remains strong. Our competitive position continues to improve across our businesses. Turning to Slide 11. Let me highlight an example of value creation post-Shyft acquisition, the transformation of our Walk-In Van business. What was an underperforming operation at the time of the acquisition is now a high-performing plant that has allowed us to become the #1 upfitter. And I'm especially proud to say that this is, first and foremost, an internally driven success story. We have significantly strengthened our sales approach, capturing key strategic customers.
This includes winning back high-value accounts with direct involvement from senior management. The market is also recovering after several years of post-COVID normalization and is growing. We currently estimate the market at $500 million to $600 million with additional tailwinds to further growth. Importantly, this has not only been a sales success story, it's above all an operational turnaround. Over the last 15 months, first pass yield improved by 64 percentage points, units requiring rework dropped by almost 90%. Output per day increased by 77%, while direct labor head count was reduced by 9%. This all is comparing June 2026 versus 1 year prior at the closing of the acquisition.
And we have further improved our operations since, for example, surpassing the shown first pass yield of 74% in the last months. This showcase demonstrates the expertise and effectiveness of our team. Turning to Slide 12. North America delivered a strong quarter, overcoming headwinds from selected soft markets, supply chain capacity constraints and cost inflation. Order intake was impacted by reduced OEM chassis allocations for commercial trucks, elevated fuel prices and OEM inventory reductions ahead of new model launches. Nevertheless, backlog remains above $1 billion, providing strong visibility into 2027. Net sales increased nearly 8%, driven by internal improvements in municipal, increasing capacity and turning the existing backlog into revenue.
As mentioned, continued strength in Walk-In Van operations contributed as well. Adjusted EBITDA increased significantly by more than 8% to $37.2 million. Profitability improved despite higher material costs and weaker aftermarket activity, especially in the Utilimaster business. Overall, we continue to make progress while positioning the business for long-term growth. And with that being said, I hand the call over to my colleague, Henning Schroeder. Henning?
Henning Schroeder: Thank you, Steffen, and good morning, everyone. Europe and Rest of World has proven to be a resilient business amidst geopolitical uncertainty, supply chain disruptions and ongoing high inflationary pressure. As we see on Slide 14, we continue to win the relevant deals across all our business lines. In airport, we began with deliveries to Paris Airport ADP only 2 quarters after securing the award, demonstrating the strength of our operational execution. We also delivered a cross-brand solution for a leading Northern European airport combining technologies from North America and Europe into an integrated customer solution. In municipal, we secured preferred supplier status for 100 side-loader waste collection bodies with a leading Spanish waste management provider.
Within agriculture, customer response to the new Aebi Terratrac has exceeded expectations with more than 100 orders received since launch. These achievements demonstrate the strength of our portfolio and the depth of our customer relationships. Turning to Slide 15. Europe has consistently been a strong driver of profitability for the group, supported by our leading market positions, strong aftermarket business and disciplined execution. Our core European markets delivered an outstanding performance during the first 9 months of 2026. Compared to the same period last year, order intake increased by 13%. This translated likewise into 13% organic net sales growth versus the first 9 months of 2025.
At the same time, aftermarket net sales increased by 11% compared to the prior year period, underlining both the broad installed base and the extensive aftersales network across Europe with the share of our aftersales revenue reaching nearly 25% year-to-date. And as I outlined a minute ago, our future growth is supported by the successful launch of new products like the Terratrac, the Cleango and its electric version. With additional product launches planned in 2027, we are confident that we can continue building on this momentum in our core European markets. Moving to Slide 16.
Having just detailed the strong growth in our core European market, we also need to acknowledge the weaker demand from China and the Middle East impacting overall performance. In China, lower public investment, stricter local content requirements and delayed tender activity continued to affect market demand. In order to address these challenges, we strengthened our market position by expanding our localized product range and offerings through our established joint venture in China. In the Middle East, the continued geopolitical conflicts have begun to affect order demand, limiting growth opportunities.
And unfortunately, we also faced the insolvency of 2 smaller but important suppliers in Europe in the third quarter, temporarily leading to a disrupted supply chain in what was otherwise a strong operational performance. Ultimately, net sales declined 3.6% in the third quarter compared to the prior year, with year-to-date growth coming in at a very respectable 5.4%. Looking at our profitability. Adjusted EBITDA was further impacted by inflation pressure on material costs as well as significantly higher freight costs. And as such, we see a similar pattern as in net sales with an adjusted EBITDA decrease in the third quarter, while upholding a substantial improvement year-to-date.
Looking ahead, our priority is to restore growth in the rest of the world, particularly in China. We are well positioned to deliver tailored local solution and capture growth opportunities as market conditions improve. That concludes my comments, and I'll now turn the call over to Marco.
Marco Portmann: Thank you, Henning, and good morning, everyone. Turning to Slide 18 to look into more details of our consolidated third quarter financials. Order intake increased by 2% year-over-year to $528 million. The growth was driven by North America and within North America by the continued recovery of Walk-In Van demand. Our municipal business continues to show good demand in both segments, likewise to our airport business, except for the mentioned weakness in the rest of the world. We ended our third quarter with an order backlog of $1.3 billion, 16% higher than prior year, driven by that Walk-In Van demand in North America. Moving to Slide 19, looking at net sales.
Net sales grew by 4.6% year-over-year to $493 million, driven by North America with almost 8% organic growth versus a slightly weaker Europe and Rest of World as outlined by Henning. The achieved 5% growth demonstrates the resilience of our business despite several supply chain-related challenges. During the quarter, we continued to deal with supplier insolvencies in Europe, OEM chassis supply constraints in the U.S. and temporary production disruptions. While these factors impacted volumes during the quarter, our teams addressed these issues, and we have seen the underlying potential of our facilities after we executed improvements during the last couple of months. Turning to Slide 20 for a more detailed view on our gross profit margin development.
In Q3 2026, our gross margin stood at 19.2%, 80 basis points down from prior year and approximately 130 basis points below our own target level for the quarter. This reflects the combination of external headwinds, including ongoing geopolitical uncertainty, adverse macroeconomic conditions and especially the pronounced and continued material cost inflation. In this situation, our first priority is protecting our current profitability. We accelerated and amplified cost measures, maintained strict discipline to mitigate the margin impact and have managed to fully compensate for the weaker gross margin on adjusted EBITDA level. Our second priority is restoring gross margins over the coming quarters. We have already implemented substantial pricing actions covering the realized and expected material cost increases.
However, it takes time until these prices are fully realized due to the long backlog in multiple businesses. We also advanced operational initiatives, including further footprint optimization. And it is encouraging to see that the gap is already closing the year end with the year-on-year decline narrowing from 100 basis points in the second quarter to 80 basis points in Q3, indicating that the actions taken are beginning to deliver results. While the external environment remains challenging, we are confident that the decisive action will ultimately drive further improvements to our performance. And this temporary margin pressure does not impact our business model or longer-term outlook. We reaffirm our 2030 target with an adjusted EBITDA of at least 13%.
Now turning to Slide 21 to look at adjusted EBITDA. As just explained, we are fully compensating for the temporary lower gross margin with our decisive actions and operational improvements. Ultimately, adjusted EBITDA for the third quarter increased 4.9% year-over-year to $44.2 million, representing an unchanged margin of 9.0% and the growth of our profitability in line with our sales development. Finally, turning to Slide 22. Net working capital stood at $465 million at the end of the quarter and remained broadly stable on a like-for-like basis. That is without the targeted also temporary investments in inventory to alleviate the material cost pressure.
Real-term growth in working capital was 3% compared with net sales growth of nearly 5%, demonstrating continued underlying efficiency improvements. Net debt declined to $446 million, reducing leverage to 2.66x and representing a reduction of more than half a turn compared to prior year. Further deleveraging is expected until year-end on the back of an expected strong operating cash flow in the fourth quarter, reflecting our yearly seasonal pattern with a strong year-end run from September to mid-December, and we ultimately expect leverage below 2.5x by year-end 2026. With that, we will have deleveraged by at least 3/4 of a turn in a span of 18 months from the Shyft acquisition to year-end 2026.
This strengthens our financial position and supports our long-term capital allocation priority, including headroom for further acquisitions. That concludes my comments, and I hand it back to Barend for the closing remarks.
Barend Fruithof: Thank you, Marco. Let me conclude with a few key messages on Slide 24. First, we are strengthening our position in most of our markets. We are winning strategic customer awards, expanding partnerships and see more and more cross-sale opportunities. This shows that our sales approach works and our product solutions are highly appreciated. Second, despite a challenging environment, we are able to deliver good organic growth of almost 5%, and we have the backlog for future growth. Third, as long as we are facing temporary pressure on our gross margin, we will continue our strict cost management to compensate for that impact.
The respective necessary sales price increases are fully executed, will materialize in the coming quarters, and we expect to see the recovery of our gross margin accordingly. And of course, our priority is to accelerate measures to improve production efficiency, execute on sales pricing and delivering the expected margin recovery. As we demonstrated with the turnaround of the Walk-In Van business, we're a strong operator with a proven ability to execute and deliver results. Some of these actions will take time to fully come through, but they will further strengthen the quality, the resilience and earnings power of our business. Given these market headwinds and disruptions, we are slightly updating our guidance for full year 2026.
We expect net sales between $1.95 billion and $2 billion, adjusted EBITDA between $170 million and $180 million and leverage below 2.5x. We remain confident in our long-term targets, in the actions we are taking and in our ability to create sustainable shareholder value. That concludes our presentation. I now turn it over to our operator to open up the line for questions. Operator?
Operator: [Operator Instructions] Our first question today comes from the line of Michael Shlisky from D.A. Davidson.
Michael Shlisky: Maybe I can start with asking about some of the happenings over in Europe. You mentioned that several European suppliers faced insolvency during the quarter. I'm curious whether you have found new suppliers by this point and whether everything is kind of back to normal up and running with somebody else or still a little bit more work to do there?
Henning Schroeder: Yes. Thank you for asking the question. Yes, this has been addressed and relocated, and we are back to normal operations by now.
Michael Shlisky: Great. Appreciate that. And I also want to ask separately about trajectory of the Walk-In Van business in 2027, you're going to be seeing, I think, Ford winding down at least some of their capacity throughout the year, perhaps all of it. And then you'll see eventually the new supplier ramp back up again. I guess, first, was that part of the chassis supply issue that you mentioned that they've already maybe started to scale that production a bit? And I'm also just kind of curious how you and the customers are going to work through 2027 if one supplier is winding down on the chassis and one is winding up. Just how that might work? Are they prebuying?
Are you prebuying? Or have you just talked with them about production and delivery schedules?
Steffen Schewerda: Mike, this is Steffen. Thanks for this question. Two points to that. Point number one, when we talk about the shortage on the chassis supply, this is more towards the commercial side when we talk about pickup trucks and car manufacturers. On the Walk-In Van side specifically, we believe and we confirmed that the supply through 2027 is secured with the existing allocations and the supply will last until the second supplier will ramp up.
Michael Shlisky: Well, there you go.
Barend Fruithof: Mike, just let me add one point. There is also a bit of a challenge with the OEM. They launched their 2027 chassis a bit later, and that affected then also our sales. So we expect a recovery then beginning 2027. And honestly, we also were able to win some nice fleet deals, which then will also kick in, in 2027.
Operator: Our next question today comes from the line of Matt Koranda from ROTH Capital.
Matt Koranda: Maybe just starting out with the revised guidance for '26. Just wanted to get a better feel for the cut at the midpoint, if we're thinking about the $75 million revenue cut and the $10 million EBITDA cut. How much, I guess, should we attribute to North America and the supply chain issues around commercial truck body and chassis versus the EU and some of the supplier issues that you highlighted in the prepared remarks?
Marco Portmann: Yes, Matt, this is Marco speaking. Yes, so on the revenue guidance update, essentially, there is a good chunk coming now out of the third quarter. I mean, as you have seen, right, versus our own expectations coming from the supply chain disruptions, and that is indeed quite sizable in Europe with also some impact, as you mentioned, through disruptions in the U.S., too. That is the bigger share of what you see in that revision. That is the main driver at the end of the day.
Matt Koranda: Okay. Got it. And then maybe just one on the recent acquisition that you announced, O.J. Watson. Any historical context on sort of the revenue growth profile there? I know you guys mentioned sort of a pinpoint revenue number for, I guess, the most recent fiscal year. Could you confirm, I guess, the time frame of that revenue that you provided from the most recent fiscal year? And then what's the margin profile of that business look like? And maybe just tying it all up and sort of talk about the strategic importance of sort of the business there in terms of how it fits with your existing upfit business that you already have?
Barend Fruithof: Okay. First of all, thanks a lot for this question. So the revenue, as I mentioned in my speech, is $28 million. So that will also fully kick in 2027. This is first of all. Then you know what's the strategic logic behind the whole transaction. We always had a partnership with O.J. Watson. So we know them and we know their business, and we always had a white spot in that specific area. And there is a third reason why we made this acquisition Denver is they run close to 100% with our equipment, and that helps also to support them in terms of service and aftersales. So strategically, that makes a lot of sense.
And the margin profile, the other question you asked is similar as we have at the whole Aebi Schmidt Group in North America.
Matt Koranda: Got it. And then any -- yes, that's very helpful, Barend. And then maybe just historical kind of revenue profile in terms of growth and how to think about sort of the way that you've been the growth curve on a go-forward basis with them as part of Aebi?
Marco Portmann: Yes. I mean, historically, they have grown decently over the years. More importantly for us, looking forward, we expect them to grow at the same level and above with high growth profile compared to the other North American business. So as you know, we guide midterm for a 6% growth year-over-year, generally speaking, and they will be slightly above that.
Operator: Your next question comes from the line of Dave Storms from Stonegate.
David Joseph Storms: Just with some of the improvements that you've made in the Walk-In Vans, I think there was Slide 11 that highlighted this. How are you thinking about your capacity and maybe additional capacity unlock if you can replicate this at other existing facilities? And then maybe if you can parse that into your ability to keep up with the backlog and new orders in North America.
Steffen Schewerda: So this is Steffen. Thanks for the question here. So talking about this, maybe 2 or 3 points here. On the Walk-In Van municipal and airport side, we are close to capacity here at the moment. We are a little bit lower on the capacity side with commercial and truck bodies. Boost shifts are possible, but we are facing people constraints but we are looking very positively into 2027 that we can balance the output and the demand here that the market requires.
David Joseph Storms: Understood. Really appreciate that. Also wanted to circle back to something that was mentioned in the prepared remarks. In Paris, you're able to start delivering -- in Paris Airport, you're able to start delivering about 2 quarters there. How applicable is that to maybe some of the North American contracts you signed recently in Canada or elsewhere?
Marco Portmann: Yes, I mean, we highlighted this as a great success in terms of the Paris airports that we delivered rather quickly after taking the order because that's not necessarily the usual approach in airport, right? Airport typically is 9 months plus between order placement and first deliveries. And especially with our long backlog, that is something we can add for the benefit of the customer with quicker turnaround and obviously price accordingly from our side then as well. That is, however, a good example of the European operational strength doesn't directly one-to-one apply to the U.S.
But obviously, we are bringing in, generally speaking, a lot of the expertise in the U.S. as well from our European colleagues, basically reflecting the same improvement methodology in how we do our production.
Barend Fruithof: And you also mentioned the Canadian market, given this tariff discussion and so on, we are also able to deliver some products from Europe towards Canada. And there, we already have some tenders on our table because they want to avoid having the tariff costs. So there we have -- honestly, with our setup, we have a very flexible model in place.
Operator: Our next question today comes from the line of Greg Lewis from BTIG.
Gregory Lewis: I was kind of curious, as you kind of alluded to the margin ramp and some of the cost potential gains that you could get. I mean, I guess what I'm trying to wonder is, obviously, post the election, there's talk of tariffs being lifted in the U.S. Like if we think about when that starts to happen, like how long should that take to really start to show up in the numbers? Is that a 1 quarter? Is that a 2 quarter? Is that -- how long should we think about that benefit starting to flow through in the margins?
Barend Fruithof: So just first, from an overall picture, you mentioned again the tariffs. The tariff is not a big issue for us. It's more the energy prices, which affects us. Some of the steel prices went up close to 100%. And as you can imagine, in the municipal space, you have a high portion of steel and that really affects our gross margin. And as mentioned in the presentation, we expect a recovery between 90 up to 160 basis points. So we already started to increase prices. But given our backlog that takes a bit of time. That's why we also had a strong focus on executing the synergies and strong cost control.
And probably a bit more details towards the margin from Marco.
Marco Portmann: Yes. I mean just to add, right, you said it, the tariffs itself are not a huge topic, and that will not generate in that sense, a notable uplift. But we would be very happy if that topic resolves because, of course, the distortions are also impacting us at least indirectly as well. So no one likes that situation and especially the volatility in that area. But generally speaking, everything that we talk about here from a supply chain perspective, be that commodities, energy prices or tariffs, you can think about that with about 2 to 3 quarters delay until you see it in the numbers.
Gregory Lewis: Okay. And then realizing that we're going to integrate O.J. Watson clearly there, you know the business pretty well. You did mention this was the first acquisition since we kind of absorbed Shyft. It was this kind of a one-off? Or is this something where as we look out over the next 12 to 18 months, this could be first of what we think could be -- or another way, are there opportunities to continue rolling up the upfitting market across North America? And I think, Barend, you mentioned there was kind of a white space or a hole in that Rocky Mountain region.
I mean, it does look like there should be other opportunities to form more of that type of M&A. Is that fair as we look out over the next 12 to 18 months?
Barend Fruithof: Absolutely. Just to put this a bit in a broader context. So as we mentioned in our 2030 strategy, so we need to add roughly $400 million of revenues by acquisition. And we always mentioned that we also want to do some tuck-in deals as we have done with this O.J. Watson deal. And there we have some more on our radar screen. And as you have seen, these are most of the times, deals where you have a family behind and it's a succession topic. And there is always a question to build trust, then becoming part of a listed company, that is always a bit of a jump, as you can imagine.
And that is one of our core competence doing these deals. You can also compare with the deal we have done in Europe 2 years ago, that Staloto. That's probably one of the best deal we have done ever. There was also a succession topic and there is more to come.
Operator: Your next question is a follow-up from Michael Shlisky from D.A. Davidson.
Michael Shlisky: I want to go back to Slide 7. You outlined a couple of things that have happened since the Shyft deal back in 2025. The very last thing that you mentioned that happened here on the slide that you didn't mention in your comments, just wrote here, you extended production capacities in both the municipal and Blue Arc line in Charlotte. I was a little bit surprised to hear that about Blue Arc, we have to discuss that in a couple of quarters. Are you really expanding production? And what's behind that? And just give us the update on how Blue Arc is kind of going here.
Marco Portmann: Mike, I'll take this one. This is Marco speaking. So well spotted actually. And yes, so Blue Arc -- let me put it this way. Blue Arc is definitely not dead in that case. We have, in fact, had follow-on demand for it. We are producing Blue Arc as we speak. That's what we refer you to with that line in Charlotte. But of course, that doesn't mean that we have picked up Blue Arc as a program. So we're not investing in a big next-generation overhaul or anything like that. We are producing Blue Arc vehicles in our established lines, indeed, where we have expanded capacities with a slightly adjusted version from the original Shyft solution that is cheaper.
And as we can see by some demand that is recognized in the market with some pickups. So we will see if that turns into substantial upside. For now, for the time being, those are smallish numbers or small numbers indeed with, yes, first couple of, let's say, trials at the end of the day.
Barend Fruithof: And then you had another question, Mike, with regards to the municipal production. As you know, we have a very high backlog. And we try to use our locations, and that's why we call it some pop-up production, which we have implemented, for example, in Charlotte, and there will come up another one in Oakland during the course of next year to speed up to reduce the backlog. That's the reason behind. And honestly, that already works pretty well. So that's the reason behind.
Operator: This concludes the Q&A for today, and I will now hand back to Simone Grancini for closing remarks.
Simone Grancini: Thank you, Sharon. I thank everyone for joining today's call and your interest in the Aebi Schmidt Group. As always, please reach out to investor.relations@aebischmidt.com if you have any follow-up questions. And with that, Sharon, please disconnect the call.
Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.