Aebi Schmidt Holding AG 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-Looking Statements The following discussion and analysis of the financial condition and results of operations of Aebi Schmidt should be read together with Aebi Schmidt’s unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report. Unless the context requires otherwise, references to “Aebi Schmidt” in this section of the Quarterly Report refers to Aebi Schmidt and its consolidated subsidiaries. The information presented herein is based on management’s perspective of Aebi Schmidt’s results of operations. The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside of Aebi Schmidt’s control. Aebi Schmidt’s actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in the sections entitled “ Risk Factors ” and “ Cautionary Statement Regarding Forward-Looking Statements ” in the Registration Statement. Overview Aebi Schmidt is a global leader in intelligent and innovative solutions for clean and safe infrastructure with a strong presence in over 90 countries in North America, Europe, and the rest of the world. Aebi Schmidt is a provider of a wide range of innovative technical products designed for effective maintenance of public and private infrastructure, including products in Snow and Ice Clearing, Airport Runway Clearing, Street Sweeping and Marking, Commercial Trucks and Trailers, and Agriculture. Aebi Schmidt is committed to innovation and technology, often integrating features into its products to enhance performance and continue to maintain its competitive market position amongst competitors. Based on its strategy and strong customer orientation, Aebi Schmidt is prepared to continue the growth path in the foreseeable future. Aebi Schmidt operates in two reportable segments, which consist of (i) North America, and (ii) Europe including the rest of the world (collectively referred to as “Europe and the Rest of the World”). Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results we may achieve for the entire year ending December 31, 2025. North America Aebi Schmidt’s North America Segment offers leading brands in Commercial Trucks and Trailers, Snow and Ice Clearing, and Airport Snow and Ice Clearing markets. Aebi Schmidt operates as a key player in providing innovative solutions for snow removal, street cleaning, and other essential services that enhance infrastructure and public safety. Europe and the Rest of the World Aebi Schmidt maintains a strong presence in Europe and the Rest of the World through its Street Sweeping and Marking and Environmental Maintenance, Airport Snow and Ice Clearing, and Agriculture products. Aebi Schmidt has long-lasting relationships with airports and municipalities across Europe and with international customers. Recent Developments Business Combination with Shyft On December 16, 2024, Aebi Schmidt entered into the Merger Agreement pursuant to which, on the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Shyft, with Shyft surviving the Merger as a direct, wholly owned subsidiary of Holdco and as an indirect, wholly owned subsidiary of Aebi Schmidt. Page 20 of 53 Index At the Effective Time, each share of Shyft Common Stock issued and outstanding as of immediately prior to the Effective Time (other than any shares of Shyft Common Stock that are held as of immediately prior to the Effective Time by Holdco, Aebi Schmidt, Merger Sub or any of their respective subsidiaries) will automatically be converted into the right to receive 1.040166432 fully paid and nonassessable shares of Aebi Schmidt Common Stock, on the terms and subject to the conditions set forth in the Merger Agreement. On April 4, 2025, Aebi Schmidt filed the Registration Statement, which includes the Proxy Statement/Prospectus. The Registration Statement was declared effective on May 13, 2025. The Closing of the Merger is expected to occur on July 1, 2025. Agreement. Upon the consummation of the Merger, the Combined Company will be Aebi Schmidt Holding AG, and its shares will be listed and traded on the Nasdaq under the ticker symbol “AEBI”. Aebi Schmidt Holding AG, together with its subsidiaries, is generally referred to as “Aebi Schmidt Group.” As a result of the Merger, the holders of Shyft Common Stock as of immediately prior to the Effective Time will collectively own approximately 48% of the issued and outstanding shares of Aebi Schmidt Common Stock, and the holders of Aebi Schmidt Common Stock as of immediately prior to the Effective Time will collectively own approximately 52% of the issued and outstanding shares of Aebi Schmidt Common Stock, in each case, as of immediately following the Effective Time. Peter Spuhler, an existing shareholder of Aebi Schmidt, will beneficially own approximately 35% of Aebi Schmidt Common Stock immediately following the Effective Time. The Merger will be accounted for as a business combination in accordance with U.S. GAAP, with Aebi Schmidt treated as the legal and accounting acquirer and Shyft as the legal and accounting acquiree for financial reporting purposes. Upon completion of the Transactions, the Combined Company will be a Swiss domiciled filer. The Merger is not expected to deliver additional proceeds to either party other than potential cash settlement for fractional shares. Key Performance Indicators Aebi Schmidt reviews the following key performance indicators on a regular basis in order to evaluate the financial and operating performance of its business, identify trends affecting its performance, prepare financial projections, and make strategic decisions. Aebi Schmidt’s key performance indicators are not based on any standardized industry methodology and are not necessarily calculated in the same manner or comparable to similarly titled measures presented by other companies. Similarly, Aebi Schmidt’s key metrics may differ from estimates published by third parties or from similarly titled metrics of its competitors due to differences in methodology. The numbers that Aebi Schmidt uses to calculate its key performance indicators are based on internal data. While these numbers are based on what Aebi Schmidt believes to be reasonable judgments and estimates for the applicable period of measurement, there are inherent challenges in measuring usage and engagement. Increases or decreases in Aebi Schmidt’s key performance indicators may not correspond with increases or decreases in its revenue. Aebi Schmidt regularly reviews and may adjust its processes for calculating its internal metrics to improve their accuracy. In addition to the key performance indicators summarized below, Aebi Schmidt also evaluates certain non-GAAP financial measures, (i.e. Adjusted EBITDA and Adjusted EBITDA margin) which are further summarized in the Non-GAAP Financial Measures section below. The following table presents a summary of Aebi Schmidt’s key performance indicators for the three months ended March 31, 2025, and March 31, 2024.     Three Months Ended March 31, (in thousands, except percentages)     2025     2024 Sales   $  249,186     $258,801 Net income     2,062     8,747 Net income margin     0.8%     3.4% Adjusted EBITDA (1)     21,277     26,136 Adjusted EBITDA margin (1)     8.5%     10.1% Net cash provided by (used in) operating activities     (26,561)     (5,469) (1) Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. See the section titled “Non-GAAP Financial Measures” below for the definitions of these measures and the reconciliations to the closest U.S. GAAP measure. Page 21 of 53 Index Results of Operations Results for Aebi Schmidt for the three months ended March 31, 2025, compared to results for the three months ended March 31, 2024. For the Three Months Ended March 31,     2025     2024     $ Change     % Change                 Sales     $249,186   $  258,801     $ (9,615)     -4 % Cost of products sold     195,880     200,277     (4,397)     -2 % Gross profit     $​53,306   $  58,524     $ (5,218)     -9 % Operating expenses:                 Research and development     4,627     5,717     (1,090)     -19 % Selling, general and administrative     30,724     28,718     2,006     7 % Amortization of purchased intangibles     3,574     3,516     58     2 % Other operating (income) expense     (13)     498     (511)     -103 % Total operating expenses     $38,912   $  38,449     $ 463     1 % Operating income     $14,394   $  20,075     $ ​ (5,681)     -28 % For the Three Months Ended March 31,     2025     2024     $ Change     % Change Other income (expense):                 Interest expense     (6,503)     (9,112)     2,609     -29 % Other income (expense)     (5,042)     1,755     (6,797)     -387 % Total other expense     $(11,545)   $  (7,357)     $ (4,188)     -57 % Income before income taxes     $​2,849   $  12,718     $ (9,869)     -78 % Income tax expense     787     3,971     (3,184)     -80 % Net income     2,062     8,747     (6,685)     -76 % Less: Net income (loss) attributable to non-controlling interest     (13)     2     (15)     n.m. Net income attributable to Aebi Schmidt Holding AG     $​2,075   $  8,745     $ (6,670)     -76 % n.m. – not meaningful Page 22 of 53 Index Sales Sales decreased by $9.6 million, or 4%, to $249.2 million in the three months ended March 31, 2025, from $258.8 million in the three months ended March 31, 2024. The decrease in sales was primarily driven by a decrease in gross new business sales of $15.7 million and an increase in sales deductions related to after sales of $1.0 million due to project related discounts. The decrease was partially offset by an increase of gross after sales of $1.4 million and decreases in sales deductions related to new business of $5.8 million. Cost of products sold Cost of products sold decreased by $4.4 million, or 2%, to $195.9 million in the three months ended March 31, 2025, from $200.3 million in the three months ended March 31, 2024. The decrease in cost of products sold was primarily driven by a decrease of $5.1 million in costs related to new business sales, a decrease in lease expenses of $1.1 million, and a decrease of $0.2 million in over-absorption and under-absorption costs. This was partially offset by an increase of $1.3 million in costs related to after sales, and an increase of $0.2 million in other costs. Research and development expense Research and development expense decreased by $1.1 million, or 19%, to $4.6 million in the three months ended March 31, 2025, from $5.7 million in the three months ended March 31, 2024. The decrease in research and development expense was primarily driven by an elevated level of project costs related to the development of new products in the three months ended March 31, 2024. Selling, general and administrative expense Selling, general and administrative expense increased by $2.0 million, or 7%, to $30.7 million in the three months ended March 31, 2025, from $28.7 million in the three months ended March 31, 2024. The increase in selling, general and administrative expense was primarily driven by increases in finance expenses of $0.9 million, management expenses of $0.7 million, and other general and administrative costs of $0.5 million. The increase was partially offset by a decrease in information technology costs of $0.1 million. Amortization of purchased intangibles Amortization of purchased intangibles increased by $0.1 million, or 2%, to $3.6 million in the three months ended March 31, 2025, from $3.5 million in the three months ended March 31, 2024. Other operating (income) expense Other operating expense decreased by $0.5 million, or 100%, to operating income of $0.0 million in the three months ended March 31, 2025, from other operating expense of $0.5 million in the three months ended March 31, 2024. The decrease in other operating expense was primarily driven by an increase of $0.2 million of realized foreign exchange gains, net of realized foreign exchange losses, caused by changes in foreign exchange rates between contract award and contract fulfilment and an increase of $0.3 million in other operating income net other operating expense. Interest expense Interest expense decreased by $2.6 million, or 29%, to $6.5 million in the three months ended March 31, 2025, from $9.1 million in the three months ended March 31, 2024. The decrease in interest expense was primarily driven by a decrease in debt balances of $14.9 million. Other income (expense) Other expense increased by $6.8 million, or 387%, to $5.0 million in the three months ended March 31, 2025, from other income of $1.8 million in the three months ended March 31, 2024. The increase in other expense was primarily driven by an increase in net foreign exchange losses on financial positions of $3.3 million and transaction related expenses of $4.6 million related to the Shyft Transaction. The increase in other expenses was partially offset by a $0.8 million decrease related to contingencies. Income tax expense (benefit) Income tax expense decreased by $3.2 million, or 80%, to $0.8 million in the three months ended March 31, 2025, from $4 million in the three months ended March 31, 2024. The decrease in income tax expense was primarily driven by a reduction in profit before tax from $8.7 million to $2.1 million. Page 23 of 53 Index Segment Results of Operations Aebi Schmidt operates its business as two reportable segments: (i) North America and (ii) Europe including the Rest of the World. Both segments operate separately with limited cross-selling activities. The information below includes Sales and Segment Adjusted EBITDA, consistent with information presented for financial reporting purposes in Note 11 to Aebi Schmidt’s unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report. Costs that are not allocated to segment sales and expenses are immaterial and are included within the figures shown below. For the Three Months Ended March 31, 2025 (in thousands) North America Europe and the Rest of the World Total Segment sales $ 147,291 $ 101,895 $ 249,186 Segment Adjusted EBITDA $​ 19,036 ​$ 2,241 $​ 21,277 For the Three Months Ended March 31, 2024 North America Europe and the Rest of the World Total Segment sales $ 144,967 $ 113,834 $ 258,801 Segment Adjusted EBITDA $​ 17,649 $​ 8,487 $​ 26,136 North America Sales for Aebi Schmidt’s North America segment increased by $2.3 million, or 1.6%, to $147.3 in the three months ended March 31, 2025, from $145 million in the three months ended March 31, 2024. The change was primarily driven by an increase of $2.5 million in sales to the Canadian market. Segment Adjusted EBITDA for Aebi Schmidt’s North America segment increased by $1.4 million, or 7.9%, to $19.0 million in the three months ended March 31, 2025, from $17.6 million in the three months ended March 31, 2024. The increase in Segment Adjusted EBITDA was primarily driven by higher sales volumes and improved gross margins, each contributing $0.5 million. Europe and the Rest of the World Sales for Aebi Schmidt’s Europe and the Rest of the World segment decreased by $11.9 million, or 10.5%, to $101.9 million in the three months ended March 31, 2025, from $113.8 million in the three months ended March 31, 2024. The decrease in sales was primarily driven by stronger sales of electrified products in the three months ended March 31, 2024 compared to the three months ended March 31, 2025. Adjusted EBITDA for Aebi Schmidt’s Europe and the Rest of the World segment decreased by $6.2 million, or 73.6%, to $2.2 million in the three months ended March 31, 2025, from $8.5 million in the three months ended March 31, 2024. The decrease in Adjusted EBITDA was primarily driven by the lower sales volume having a negative impact of $3.0 million and a change in the product mix having a negative impact of $3.2 million. Non-GAAP Financial Measures Aebi Schmidt utilizes non-GAAP financial measures, Adjusted EBITDA and Adjusted EBITDA margin, to complement its U.S. GAAP reporting and to assist stakeholders in evaluating and comparing its financial and operational performance over multiple periods, identifying trends affecting its business, formulating business plans, and making strategic decisions. There can be no assurance that Aebi Schmidt will not modify the presentation of its non-GAAP measures in the future, and any such modification may be material. Page 24 of 53 Index Aebi Schmidt defines Adjusted EBITDA as net income before interest, taxes, depreciation, and amortization, further adjusted for foreign exchange gains and losses on external debt, restructuring and other related expenses, transaction related expenses, changes in repurchase liabilities for Aebi Schmidt’s employee share plan, non-service cost related pension expenses, legacy legal matters, sales executive transition costs, changes in provisions for contingencies, and other non-recurring items. Aebi Schmidt defines Adjusted EBITDA margin as a ratio of Adjusted EBITDA as a percentage of sales. Management uses Adjusted EBITDA to assess Aebi Schmidt’s financial performance because it allows management and stakeholders to compare its operating performance on a consistent basis across periods by removing the effects of its capital structure (such as varying levels of interest expense and income), asset base (such as depreciation and amortization) and other items (such as non-recurring costs) that impact the comparability of financial results from period to period. In evaluating Adjusted EBITDA, you should be aware that in the future Aebi Schmidt may incur expenses that are the same as or similar to some of the adjustments in such presentation. Aebi Schmidt’s presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed as an inference that future results will be unaffected by unusual or non-recurring items. Adjusted EBITDA and Adjusted EBITDA margin have important limitations as an analytical tool, and you should not consider these measures in isolation or as a substitute for analysis of Aebi Schmidt’s operating results as reported under U.S. GAAP. Adjusted EBITDA and Adjusted EBITDA margin may be defined differently by other companies in its industry and may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. For the three months ended March 31, (in thousands, except percentages)   2025   2024 Net income $​ 2,062 $ 8,747 Adjusted for: Income tax expense 787 3,971 Interest expense 6,503 9,112 Foreign exchange (gain) / losses on external debt 982 (2,295 ) Depreciation and amortization 6,625 6,367 Restructuring and other related expenses 374 - Transaction related expenses 4,643 - Settlement of acquisition 412 - Pension related income, net (929 )  (628) Legacy legal matters - 283 Change in provision for contingencies (210 )  550 Other non-operating one-off items 28  29 Adjusted EBITDA $​ 21,277 $​ 26,136 Sales 249,186 258,801 Net Income Margin 0.8% 3.4% Adjusted EBITDA Margin 8.5% 10.1% Liquidity and Capital Resources Aebi Schmidt’s primary liquidity needs are to fund general business requirements, including working capital, capital expenditures, restructuring costs and debt service requirements. Aebi Schmidt’s principal sources of liquidity are cash flows from operating activities, the revolving credit facility and other debt issuances, and existing cash balances of $47.8 million as of March 31, 2025. Aebi Schmidt actively manages its working capital and associated cash requirements and continually seeks more effective uses of cash. As of March 31, 2025, Aebi Schmidt had $278.3 million of net working capital (i.e., current assets minus current liabilities) compared to $260.4 million of net working capital as of March 31, 2024. Page 25 of 53 Index Aebi Schmidt believes that its available liquidity will be sufficient to meet its current obligations for a period of at least 12 months from the date of the filing of this Quarterly Report, and its liquidity will be sufficient to finance its operating and capital needs, including day to day operations, capital expenditures, research and development, investments in information technology systems, dividends and potential future acquisitions. Cash Flows Aebi Schmidt’s cash flows from operating, investing and financing activities, as reflected in the Aebi Schmidt Consolidated Statements of Cash Flows appearing in Item 1 of this Form 10-Q are summarized in the following table: For the Three Months Ended March 31, (in thousands) 2025 2024   $ Change    % Change Net cash used in operating activities $ (26,561 ) $ (5,469 ) $  (21,092)   386 % Net cash used in investing activities (3,108 ) (4,052 )  944   -23 % Net cash provided by financing activities 11,442 6,959  4,483   64 % Effect of exchange rate changes on cash and cash equivalents 872 (668 )  1,540   -231 % Net decrease in cash and cash equivalents (17,355 ) (3,230 )  (14,125)   437 % Cash and cash equivalents at beginning of the period 65,173 $ 42,698 $  22,475   53 % Cash and cash equivalents at end of the period $ 47,818 39,468  8,350   21 % Net cash used in operating activities Net cash used in operating activities increased by $21.1 million, or 386%, to $26.6 million in the three months ended March 31, 2025, from $5.5 million in the three months ended March 31, 2024. The increase was primarily driven by payment of expenses, which contributed to a decrease of accounts payable by $11.9 million. There was also a $7.1 million decrease in account s receivable and contract assets in the three months ended March 31, 2025 compared to the three months ended March 31, 2024. In addition, there was an increase of $12.9 million in changes of other assets and liabilities. Partially offsetting the increase was a $4.2 million decrease due to changes in inventory for the three months ended March 31, 2025 compared to the change for the three months ended March 31, 2024 and a decrease in changes in income tax payables and receivables of $5.5 million. Net cash used in investing activities Net cash used in investing activities decreased by $0.9 million, or 24%, to $3.1 million in the three months ended March 31, 2025, from $4.1 million in the three months ended March 31, 2024. The decrease was primarily driven by a decrease in cash spent on purchases of property, plant and equipment. Net cash provided by financing activities Net cash provided by financing activities increased by $4.5 million, or 64%, to $11.4 million in the three months ended March 31, 2025, from $7.0 million in the three months ended March 31, 2024. The increase was primarily driven by an increase of $9.2 million in proceeds from long term debt. The increase is partially offset by a decrease of $4.7 million in deferred payments related to Aebi Schmidt’s historical transactions. Page 26 of 53 Index Debt         In thousands March 31, 2025 December 31, 2024 Revolving credit facility, due 2026 $ 170,875 $ 152,787 Term loan: Facility A, due 2026 21,631 20,778 Facility B, due 2026 40,000 40,000 Facility C, due 2026 120,934 119,715 Shareholder loan 53,775 51,982 Mortgage loan 10,266 10,348 Finance lease obligations 2,089 2,003 Other local credit lines 7,091 2,240 Total debt 426,661 399,853 Less current portion of long-term debt (24,224 ) (23,259 ) Total long-term debt $ 402,437 $ 376,594 Existing Credit Facilities Agreement In November 2021, Aebi Schmidt entered a syndicated loan agreement with various banks for financing acquisitions. The term loan is split into the following facilities: • Total Facility A Commitments: A senior amortizing term loan facility with a total commitment of $48.7 million. • Total Facility B Commitments: A senior amortizing term loan facility with a total commitment of $60.0 million. • Total Facility C Commitments: A senior non-amortizing term loan facility with a total commitment of $90.0 million and $30.9 million. The average interest margin of Facility A and B was 2.200% and 2.200% for the periods ended March 31, 2025 and March 31, 2024, respectively. The average interest rate margin for Facility C was 2.700% and 2.700% for the periods ended March 31, 2025 and March 31, 2024, respectively. Existing Revolving Credit Facility Commitment The aggregate of the Revolving Credit Facility Commitment under the Existing Credit Facilities Agreement is $178.5 million which is primarily used for refinancing existing debt obligations, excluding those related to Facility A. In addition, the Revolving Credit Facility supports the broader financial needs of Aebi Schmidt, including general corporate purposes and working capital requirements, as well as funding permissible acquisitions aligned with Aebi Schmidt’s strategic objectives. New Credit Facilities Agreement On March 20, 2025, the Company entered into a syndicated $600 million credit facilities agreement consisting of a multicurrency senior secured amortizing term loan facility in an aggregate amount of up to $350 million and a multicurrency senior secured revolving loan facility in an aggregate amount of up to $250 million. The proceeds of the New Credit Facilities shall be used to refinance existing interest-bearing financial indebtedness after the Transaction as well as pay costs and expenses incurred in connection with the Refinancing and the Transaction. The obligations of the lenders to consummate the debt financing under the new credit facilities agreement are subject to certain closing conditions, including the consummation of the merger. As of March 31, 2025, no debt financing has been obtained and fees incurred ($2,137) in connection with the new credit facilities agreement have been deferred until the issuance of debt. Page 27 of 53 Index Shareholder Loans At March 31, 2025, Aebi Schmidt had subordinated shareholder loans with outstanding amounts of $15.4 million and $16.2 million from PCS Holding AG, as well as $11.3 million and $10.0 million from Gebuka AG. These shareholder loans will be renewed and amended in connection with the New Credit Facilities Agreement and will survive the Closing. Other Debts In connection with the expansion of the plant in Chilton/US mortgage loans, the outstanding amount is approximately $10.3 million as of March 31, 2025. Contingent Liabilities Changes in Aebi Schmidt’s warranty liability during the periods ended March 31, 2025, and 2024 were as follows: (in thousands)   Q1 2025  Q1 2024 Balance of accrued warranty, beginning of period $  10,205  $8022 Accruals for current period sales   1,265  922 Cash settlements   (546)  (483) Changes in liability for pre-existing warranties   (8)  (4) Translation adjustment   289  (242) Balance of accrued warranty, end of period $11,205 $  8,215 Aebi Schmidt’s long-term warranty provisions amounting to $1.8 million and $0.8 million for the periods ended March 31, 2025 and 2024, respectively, are included within other non-current liabilities on its balance sheet. Contractual Obligations Aebi Schmidt is party to contractual obligations involving commitments to make payments to third parties, and such commitments require a material amount of cash. As part of its normal course of business, Aebi Schmidt enters into contracts with suppliers for purchases of certain raw materials, components, and services to facilitate adequate supply of these materials and services. These arrangements may contain fixed or minimum quantity purchase requirements. Refer to Note 7 to Aebi Schmidt’s unaudited condensed consolidated financial statements for details on its contractual obligations. Off-Balance Sheet Arrangements In the normal course of bidding for and executing certain projects, Aebi Schmidt has entered into bid/performance bonds and surety bonds (collectively “performance bonds”) with various financial institutions. Customers can draw on such performance bonds in the event that Aebi Schmidt does not fulfil its contractual obligations. The Company would then have an obligation to reimburse the financial institution for amounts paid under the performance bonds. At March 31, 2025, the total outstanding performance bonds aggregated to $14.8 million. There were no significant amounts reimbursed to financial institutions under these types of arrangements in the three months ended March 31, 2025 and March 31, 2024. Critical Accounting Policies and Estimates There have been no changes to our critical accounting policies during the three months ended March 31, 2025. Refer to the Registration Statement on Form S-4 for a summary of our policies. Page 28 of 53 Index