Prepared remarks
Good morning and welcome to Alliance Laundry's Second Quarter 2026 Earnings Conference Call. 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 and 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. 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. 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. Here, our advantages are unmistakable: our technology, our distribution network, our highly trained team and unmatched product reliability. Operators choose Alliance because 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 two 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 than 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 four 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, two times the size of our number two 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 Investor Relations and future International COO. So with that, operator, let's open the line for questions.
Questions and answers
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, it's Mike. I would say remember, it's 2% of revenue, so the region itself is de minimis in terms of impact. What you have there is more transit disruption—vessels being delayed and things of that nature. The good news is the region includes Africa, which has been an area where we've done okay in select countries but there's a lot of opportunity if you think about the demographics—large family sizes and other factors. In many ways, like any crisis, it forces that team to refocus on the African market, which is compelling in terms of long-term potential. As I said in the opening remarks, it's more about the knock-on effects where some customers understandably pause a little on the international side. Energy costs are a little higher. The regions that matter there are Asia and Europe in particular. Asia put in a great quarter. We're still very confident about that. In Europe, it's a little slower, but we've seen this before: people are cautious and then activity comes back because laundry is every day and customers need service. So it's a little lumpy and bumpy, but long term 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 approaching 32% here. I think that's sort of an all-time high tied to maybe something you did back in 2023. But 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. I would caution a bit on assuming a permanent step change, but we are confident in a slow, steady upward trajectory for margins. We have internal targets we won't disclose, but our plan is to continue to improve through operational excellence and cost reductions to offset tariffs and inflation. On the product side, our engineering team has been improving product design and we've expanded our testing labs and technical headcount, which supports continued progress. So we expect improvement over time, not radical leaps, but consistent upward movement.
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?
The mix in Vended is consistent with what we've discussed previously. In retail laundromats, revenue per square foot matters and larger-capacity products drive better returns: smaller footprint, ability to charge more and therefore higher revenue per square foot. Consumers generally prefer a faster, more private experience—they want to get in and out—so larger-capacity stores perform well. For us, larger-capacity product also has higher engineering content and less competition, which supports stronger margins. So it's a win for consumers, store owners and us as the 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 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?
Steel is locked through the first quarter of 2027. We are watching it closely. It does look like the inflationary environment may be a bit hotter than we'd like, but it's early days. We're monitoring freight and other inputs that are moving around. Historically, we get ahead of cost increases and offset them with price where appropriate, and we continue to execute cost-down initiatives to preserve margin. Right now it's a watch-and-wait situation, but we're prepared to take pricing actions when necessary.
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 in 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?
I just returned from a buying group show and demand is extraordinary. Preference for the Speed Queen brand is very strong and there is no sign of slowdown. Dealers and buyers consistently ask us to deliver more product—scaling is the biggest near-term opportunity.
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.
Mike, it's Bob. There's no change from what Dean has discussed the last few quarters. The primary use of cash remains getting leverage down and we're tracking well against that. Investing in the business—CapEx or M&A—remains the next-best use of capital. We've done distributor roll-ups in the U.S. successfully, and while that may continue, those opportunities are generally small-dollar. Cash generation is strong and we will need to consider options for deploying excess cash when we get to that point. It's a bit premature to provide detailed plans, but long-term the logical combination of dividends and buybacks is where you land, though we don't have a firm plan to share now.
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?
We still feel pretty good about international overall, but it can be lumpy. Europe continues to perform without systemic issues—we have a strong manufacturing base there and a capable competitive set, and Vended is growing. Asia Pacific should be fine and remains an area of opportunity. Latin America is driven by Mexico and Brazil and can be lumpy but attractive long term. Middle East and Africa is the region likely to be down for the year; it had a decent start to Q3 but the pause tied to transit and energy cost disruption is likely to persist this year. That region is roughly 2% of revenue, so while we'd prefer it to rebound, its weakness is manageable within the overall business.
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?
We've discussed before that the available M&A opportunities we've seen are limited relative to our needs. If an attractive opportunity arose to fill product or distribution gaps, we'd consider it, but we don't believe we need M&A to continue growing at our historical rates. So it's a lever we keep available, but not a requirement.
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 on what happened in 2Q? And how should we think about the back half?
There are several dynamics. Starting with manufacturing, our Czech Republic facility is highly cost competitive and we feel good about it. Our Thai factory is state-of-the-art and efficient, sourcing materials locally for competitiveness. In many international markets you'll see more large-chassis product, which is produced regionally and often carries higher margins due to more engineering content and less competition. Sometimes a country will take a large order of lower-margin, small-chassis product to seed a market, particularly on the Vended side, because it's lower capital cost to start a store. If the stores perform, operators typically upgrade later to larger-chassis models that have longer life, faster cycles and better ROI. So mix shifts can impact quarter-to-quarter margins. Over time we expect regions to move toward higher-margin products and improved profitability as markets mature.
And a follow-up on Bob—congratulations on the leadership transition. 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'll defer to Mike on that one.
Tomo, we have ongoing dialogues about this and we feel really good. Bob is very capable and he's not starting from scratch—Tom has already helped with transition and Bob knows the sales teams and customers. Bringing new leadership often uncovers opportunities and challenges the status quo; Bob's background in finance and Investor Relations will be helpful in driving regional teams toward performance targets. Overall, I feel very positive about the trajectory under his leadership.
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 a somewhat higher inflationary environment. What has Alliance done historically? And what is your plan on pricing in the second half and any early thoughts on 2027?
We've used a mix of approaches historically. For short-term hyperinflationary moves we've applied surcharges for shorter periods and monitored the situation. For persistent cost increases—freight was an example last year—we implemented price increases. Right now we're watching and feel we can offset much of the pressure with other actions, but 2027 may be a bit hotter than normal and we will get ahead of meaningful cost increases with pricing when necessary. We don't chase inflation; we aim to be proactive and measured.
And then just a follow-up on tariffs. There have been a number of tariff changes. I know you're primarily local-for-local. Does the Section 301 tariffs—around 10% or 12.5%—have any benefit to you in the second half, neutral, or any thoughts on that?
David, consider the second half very similar to the first half. We don't see any material changes and it's fairly neutral for us at this point.
Our last question will come from Ketan Mamtora with BMO Capital Markets.
I wanted to ask about the demand trends in Europe, both by end market and region. How did you see those trends evolve through Q2?
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 evolve through Q2?
There isn't a material change. Vended continues to grow with new storefronts coming online. Europe is more on-premise heavy relative to other regions, with many smaller hospitality properties—50 or 60 rooms—so there's a lot of opportunity in bed and breakfasts and smaller hotels. Eastern Europe is a bit more stressed due to higher energy costs and sustainability pressures, but we have the right product suite to address efficiency needs. We are particularly strong in France, Spain and Italy where our direct business has been outperforming and growing faster than some distributor-led countries.
Got it. That's helpful. And then on the tariff refund side, are you expecting anything for the remainder of the year?
Patrick, we're not going to share specifics. There was a benefit in Q2. There is likely more out there but it's subject to confirmation, and our full-year guidance does not include any additional tariff refund beyond what was recognized in Q2. If there is additional recovery, it would be incremental to guidance.
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.