Q4 2023 Oshkosh Corp Earnings Call

Pat: be updated until our next quarterly earnings conference call, if at all. Our presenters today include John Pfeifer, President and Chief Executive Officer, and Mike Pack, Executive Vice President and Chief Financial Officer. Please turn to slide three, and I'll turn it over to you, John.

Quarterly earnings conference call if at all.

Presenters today include John Pfeifer, President and Chief Executive Officer, and Mike Pack Executive Vice President and Chief Financial Officer, Please turn to slide three and I'll turn it over to you John.

John C. Pfeifer: Thank you, Pat, and good morning, everyone. I'm pleased to announce a strong finish to 2023, with significant year-over-year growth in revenue and earnings in the fourth quarter, leading to a full-year adjusted earnings per share of $9.98. For the fourth quarter, we grew revenue by 12% and adjusted operating income by 54%, leading to an adjusted operating margin of 9.7% and adjusted EPS of $2.56. Demand for Oshkosh products remains robust, and we are pleased with strong order activity in the quarter, which led to a record backlog of $16.8 billion and confirmed our previous expectation that we would be largely booked for 2024 as we enter the year. I'll provide more details on demand by business in our segment update. Importantly, we believe Oshkosh is well positioned for long-term growth, supported by significant investments in market-leading technology, solid market dynamics, and key end markets.

Thank you Pat and good morning, everyone.

I am pleased to announce a strong finish to 2023 with significant year over year growth in revenue and earnings in the fourth quarter, leading to a full year adjusted earnings per share of $9.98.

For the fourth quarter, we grew revenue by 12% and adjusted operating income by 54% leading to an adjusted operating margin of nine 7% and adjusted EPS of $2 56.

Demand for Oshkosh products remains robust and we are pleased with strong order activity in the quarter, which led to a record backlog of $16 $8 billion and confirmed our previous expectation that we would largely be booked for 2024 as we enter the year.

Ill provide more details on demand by business in our segment updates.

Importantly.

We believe Oshkosh is well positioned for long term growth supported by significant investments in market, leading technology solid market dynamics and key end markets strong visibility provided by our backlogs and the ramp up of next generation delivery vehicle production.

John C. Pfeifer: Strong visibility provided by our backlogs and the ramp-up of next-generation delivery vehicle production, as well as the benefits of strategic acquisitions like Aerotech and HENOA that we completed this past year. During the quarter, we were named to the Dow Jones Sustainability World Index for the fifth straight year. Companies must be rated in the top 10% of their peer group for sustainable business practices to be considered for the index, and we were rated in the top 2% of our global industrial group by Dow Jones.

As well as the benefits of strategic acquisitions like Aerotech and Hino, we completed this past year.

During the quarter, we were named to the Dow Jones sustainability World Index for the fifth straight year companies must be rated in the top 10% of their peer group for sustainable business practices to be considered for the index and we were rated in the top 2% of our global Industrial group.

By Dow Jones.

John C. Pfeifer: This is a particularly meaningful accomplishment because it demonstrates that we're driving profitable growth in a sustainable way, which is good for our people, good for the communities in which we work and live, good for the environment, and good for our shareholders. Please turn to slide four for a review of our full year highlights. I'm pleased with our outstanding performance in 2023 as our teams persevered to overcome the impacts of supply chain constraints and inflation to deliver for our customers. We believe the actions we have taken over the past several quarters to operate successfully in a constrained environment will enable us to perform as a more resilient company well into the future. I want to take this opportunity to thank our 17,000 team members for all of their contributions that drove our strong performance.

This is a particularly meaningful accomplishment because it demonstrates that we're driving profitable growth in a sustainable way, which is good for our people good for the communities in which we work and live good for the environment and good for our shareholders.

Please turn to slide four for a review of our full year highlights.

I am pleased with our outstanding performance in 2023 is our team's persevered to overcome the impacts of supply chain constraints and inflation to deliver for our customers.

We believe the actions we have taken over the past several quarters to operate successfully in a constrained environment will enable us to perform as a more resilient company well into the future.

Want to take this opportunity to thank our 17000 team members for all of their contributions that drove our strong performance.

John C. Pfeifer: Moving to full year 2023 results, we grew revenue by 16.6% to $9.7 billion and grew adjusted operating income by 129% to $909 million, leading to adjusted earnings per share of $9.98. In addition, we announced several important new products during the year, including the revolutionary new all-electric Volterra ZSL refuse and recycling collection vehicle. We are investing in new capacity across the company to support continued growth, including Spartanburg, South Carolina, for NGDV, Murfreesboro, Tennessee, for Volterra ZSL production, and Jefferson City, Tennessee, for increased telehandler capacity. We have also expanded into the growing airport and air transportation passenger support markets with our recent acquisition of Aerotech. As a result of continued strength in our end markets, robust backlogs, strong fourth quarter performance, and our positive outlook, I am pleased to announce that we are initiating full year 2024 adjusted EPS expectations in a range of $10.25. We also raised our quarterly dividend by $0.05 per share to $0.46 per share, representing an increase of 12.2%.

Moving to full year 2023 results. We grew revenue by 16, 6% to $9 $7 billion and grew adjusted operating income by 129% to $909 million, leading to adjusted earnings per share of nine.

And 98.

In addition, we announced several important new products during the year, including the revolutionary New all electric volt, Tara Z S L refuse and recycling collection vehicle.

We are investing in new capacity across the company to support continued growth, including Spartanburg, South Carolina for N. G. D V. Murphy's borough, Tennessee for volt, Tara Zia cell production in Jefferson City, Tennessee for increased tell a handler capacity we.

We also expanded into the growing airport and air transportation passenger support markets with our recent acquisition of Aerotech.

As a result of continued strength in our end markets robust backlogs strong fourth quarter performance and our positive outlook I am pleased to announce that we are initiating full year 2024, adjusted EPS expectations to be in a range of $10.25.

We also raised our quarterly dividend by five per share to <unk> 46 per share representing an increase of 12, 2%. This is the 10th consecutive year that we have announced a double digit increase to our cash dividend our dividend growth reflects our robust cash flow generation.

John C. Pfeifer: This is the 10th consecutive year that we have announced a double-digit increase in our cash dividend. Our dividend growth reflects our robust cash flow generation, as well as the Board's confidence in the strength of our business and our ability to continue to drive profitable growth into the future. Please turn to slide five, and we'll get started on our segment next. I'm very pleased with our exceptional execution at ACCESS in 2023. The team delivered another quarter of strong performance with year-over-year revenue growth of 7.1 percent and adjusted operating margin of 14.4 percent. These strong results led to full-year revenue growth of over 25% and a 15% adjusted operating margin, representing an impressive 700 basis point improvement. Importantly, we believe there are opportunities to continue to grow the access business over time.

<unk> as well as the board's confidence in the strength of our business and our ability to continue to drive profitable growth into the future.

Please turn to slide five and we'll get started on our segment updates.

I'm very pleased with our exceptional execution at access in 2023, the team delivered another quarter of strong performance with year over year revenue growth of seven 1% and adjusted operating margin of 14, 4%.

These strong results led to a full year revenue growth of over 25% and a 15% adjusted operating margin representing an impressive 700 basis point improvement.

Importantly, we believe there are opportunities to continue to grow the access business over time.

John C. Pfeifer: Demand for aerial work platforms and telehandlers remains strong, supported by infrastructure investment, megaprojects, and industrial on-shoring projects, as well as elevated fleet agents. Our orders for the fourth quarter exceeded our expectations at $1.7 billion. This yielded a 1.5 book-to-bill ratio for the fourth quarter, leading to a 1.1 book-to-bill ratio for the second half of the year, also exceeding our expectation of 1.0.

Demand for aerial work platforms and tell a handlers remains strong supported by infrastructure investment Mega projects and industrial onshoring projects as well as elevated fleet ages.

Our orders for the fourth quarter exceeded our expectations at $1 $7 billion. This yielded a one five book to bill ratio for the fourth quarter, leading to a one one book to Bill ratio for the second half of the year also exceeding our expectation of 1.0.

John C. Pfeifer: With 2024 largely booked and supply chains and product availability normalizing, we expect order patterns to also normalize. Therefore, we expect 2025 booking activity to largely occur during the second half of 2024, which is reflective of more typical seasonality in a healthy access equipment environment. As such, we expect order activity to be lower in the first half of the year compared to 2023.

With 2024, largely booked in supply chain and product availability normalizing, we expect order patterns to also normalize. Therefore, we expect 2025 booking activity will largely occur during the second half of 2024, which is reflective of more typical seasonality.

In a healthy access equipment environment as such we expect order activity to be lower in the first half of the year compared to 2023.

John C. Pfeifer: As we've discussed in the last few calls, we are expanding telehandler capacity to support strong market dynamics and the significant opportunities we see in the North American agricultural market for our telehandlers. We expect this capacity expansion to help us better support our customers as well as drive further growth and strong financial performance. Work to repurpose our Jefferson City facility for telehandler production is progressing well.

As we've discussed in the last few calls we are expanding tell a handler capacity to support strong market dynamics and the significant opportunities we see in north in the North American agricultural market for our Tele handlers. We expect this capacity expansion to help us better support our customers as well as <unk>.

Drive further growth and strong financial performance.

Work to repurpose, our Jefferson City facility to tell a handle to tell a handler production is progressing well we expect the project to be complete in 2024 and build rates will increase as additional production lines come online.

John C. Pfeifer: We expect the project to be complete in 2024, and build rates will increase as additional production lines come online. Please turn to slide 6, and I'll review our defense segment. Our defense team delivered an exceptional quarter with an adjusted operating margin of 10.6%. The strong results were driven by JLTV orders in the quarter, which included a favorable mix of trucks and kits. Domestic JLTV production will conclude in early 2025, but we believe we will continue to have opportunities to supply JLTVs to foreign allies through the direct commercial sale process in 2025 and beyond. Oshkosh already has a great reputation among international customers who view our JLTV as the right solution to meet their protected mobility requirements. In addition to JLTV orders in the fourth quarter, we announced a contract valued at up to $342 million over a five-year period to deliver Medium Equipment Trailers, or MET. The MET is a six-axle trailer designed to be pulled by the Oshkosh Enhanced Heavy Equipment Transporter with the ability to haul payloads up to 60 tons.

Please turn to slide six and I'll review, our defense segment.

Our defense team delivered an exceptional quarter with an adjusted operating margin of 10, 6% the strong.

Results were driven by J L. T V orders in the quarter, which included a favorable mix of trucks and kits.

Domestic J LTV production will conclude in early 2025, but we believe we will continue to have opportunities to supply J ltvs to foreign allies through the direct commercial sale process in 2025 and beyond Oshkosh already has a great reputation among international customers.

<unk>, who view our J LTV is the right solution to meet their protected mobility requirements.

In addition to Jay LTV orders in the fourth quarter, we announced a contract valued at up to $342 million over a five year period to deliver medium equipment trailers or M. E. T. The T. Six axle trailer designed to be pulled.

By the Oshkosh enhanced heavy equipment transporter with the ability to haul payloads up to 60 tonnes. We are scheduled to deliver the first trailers for testing in May 2024.

John C. Pfeifer: We are scheduled to deliver the first trailers for testing in May 2024. Before I leave the defense segment, I'm happy to report that the USPS's Next Generation Delivery Vehicle Program is progressing well. We have been building test and evaluation units and remain on track to move into low-rate production in April 2024. Production is expected to ramp up throughout 2025, with plans to achieve full-rate production in 2026. Let's turn to slide seven for a discussion of the vocational segment.

Before I leave the defense segment I'm happy to report that the U S. P. S. As next generation delivery vehicle program is progressing well, we have been building test and evaluation units and remain on track to move into low rate production. In April 2024 production is expected to ramp up throughout 2002.

25 with plans to achieve full rate production in 2026.

Let's turn to slide seven for a discussion of the vocational segment.

John C. Pfeifer: Our vocational segment also delivered strong year-over-year revenue growth of 26 percent in the fourth quarter, primarily driven by the benefit of $176 million of Aerotech sales. We are particularly pleased with Vocational's full-year adjusted operating margin of 9.7%, a 230 basis point improvement over the prior year. We are starting 2024 from a position of strength, and we expect improving supply chains and strong pricing and backlog to support a solid 2024. With strong order rates and backlog, we continue to increase capacity for our municipal fire trucks to improve throughput at Pierce to support high demand. We are confident that the investments we have been making in new products and production capacity will drive strong earnings growth in the segment. The Aerotech integration is progressing well, and the team delivered a strong finish to the year. We believe that robust demand and solid execution have positioned Aerotech for meaningful growth in 2024 and beyond. Passenger air traffic has rebounded to be in the range of pre-pandemic levels, and our outlook is positive.

Our vocational segment also delivered strong year over year revenue growth in the fourth quarter of 26%, primarily driven by the benefit of $176 million of Aerotech sales were particularly pleased with vocational full year adjusted operating margin of nine 7%.

230 basis point improvement over the prior year, we are starting 2024 from a position of strength and we expect improving supply chains and strong pricing in backlog to support a solid 2024 with strong order rates and backlog we continue to increase.

Capacity for our municipal fire trucks to improve throughput it appears to support high demand. We are confident that the investments we've been making in new products and production capacity will drive strong earnings growth in this segment.

The aerotech integration is progressing well and the team delivered a strong finish to the year, we believe that robust demand and solid execution have positioned aerotech for meaningful growth in 2024 and beyond passenger air traffic has rebounded to be in the range of pre pandemic levels in our outlook is positive.

John C. Pfeifer: Our view on Aerotech is further bolstered by a strong new product pipeline and ongoing synergy opportunities. Additionally, our team continues to build on its success with international airports that are seeking to reduce their carbon footprint. During the fourth quarter, we booked key Stryker Volterra electric ARF orders with the Japan Ministry of Defense and Paris Le Bourget Airport. These revolutionary new battery-powered ARF units support lower carbon emissions in a responsible and sustainable manner while delivering superior performance.

Our view for Aerotech is further bolstered by a strong new product pipeline and ongoing synergy opportunities.

Our team continues to build on its success with international airports that are seeking to reduce their carbon footprint. During the fourth quarter, we booked key streicher of Altera electric arc orders with the Japan Ministry of Defense and Paris Labor Gay Airport. These revolutionary.

Larry New battery powered ARP units support lower carbon emissions in a responsible and sustainable manner, while delivering superior performance. When you combine these voltaire RF orders with our peers full tariff fire trucks, and Mcneil Us Volterra Z S. L refuse and recycling vehicles you can under.

John C. Pfeifer: When you combine these Volterra ARF orders with our Pierce-Volterra firetrucks and McNeillis-Volterra ZSL refuse and recycling vehicles, you can understand why we are so enthusiastic about the long-term potential for our customers to electrify their fleets. With that, I'm going to turn it over to Mike to discuss our results in more detail and our expectations for 2025. Thanks, John. Please turn to slide 8.

<unk> why we are so enthusiastic about the long term potential for our customers to electrify their fleets with that I'm going to turn it over to Mike to discuss our results in more detail and our expectations for 2024.

Thanks, John Please turn to slide eight.

Mike Pack: Consolidated sales for the fourth quarter were $2.47 billion, an increase of $263 million, or 12%, over the prior year quarter. The increase was primarily driven by the benefit of $176 million of Aerotech sales in the vocational segment, which was acquired in the third quarter of 2023, as well as improved pricing. Defense sales were also up in the quarter versus the prior year as a result of strong orders in the quarter, which drove a positive cumulative catch-up adjustment. Adjusted operating income increased $84 million over the prior year quarter to $240 million, or 9.7% of sales, a 260 basis point improvement versus the prior year.

Mike Pack: Solid sales for the fourth quarter were $2 four $7 billion, an increase of $263 million or 12% over the prior year quarter. The increase was primarily driven by the benefit of $176 million of Aerotech sales in the vocational segment, which was acquired in the third quarter of 2012.

Mike Pack: Three as well as improved pricing.

Mike Pack: Defense sales were also up in the quarter versus the prior year as a result of strong orders in the quarter, which drove a positive cumulative catch up adjustment adjusted.

Operating income increased $84 million over the prior year quarter to $240 million or nine 7% of sales a 260 basis point improvement versus the prior year.

Mike Pack: The improvement in adjusted operating income was largely driven by favorable price-cost dynamics, favorable mix, favorable cumulative catch-up adjustments at defense, and the benefit of Aerotech results, offset in part by higher incentive compensation and SG&A expenses. Adjusted operating income exceeded our most recent expectations primarily due to stronger results at defense. Defense-adjusted operating income benefited from stronger JLTB orders at a better mix, which led to more favorable cumulative catch-up adjustments. Defense also benefited from international drug commercial sales at favorable margins. Our strong adjusted operating income led to adjusted earnings per share of $2.56 in the fourth quarter versus $1.63 in the prior year. As expected, free cash flow was strong in the quarter, leading to full-year free cash flow of nearly $275 million.

Mike Pack: The improvement in adjusted operating income was largely driven by favorable price cost dynamics favorable mix favorable cumulative catch up adjustments at defense and the benefit of Aerotech results offset in part by higher incentive compensation in SG&A expenses.

Mike Pack: Adjusted operating income exceeded our most recent expectations, primarily due to stronger results at defense defense adjusted operating income benefited from stronger J LTV orders at a better mix, which led to more favorable cumulative catch up adjustments. It depends also benefited from international direct commercial sales at <unk>.

Mike Pack: Favorable margins.

Mike Pack: Our strong adjusted operating income led to adjusted earnings per share of $2.56 in the fourth quarter versus $1 63 in the prior year.

Mike Pack: As expected free cash flow was strong in the quarter, leading to full year free cash flow of nearly $275 million.

Mike Pack: Please turn to slide 9 for a review of our expectations for 2024. We expect growth to continue into 2024. Demand is strong for our products, as evidenced by our $16.8 billion backlog at December 31, 2023, and supply chain conditions have improved, which we believe supports our outlook for growth. On a consolidated basis, we're estimating 2024 sales and adjusted operating income to be in the range of $10.4 billion and $990 million, respectively. We're estimating adjusted earnings per share will be in the range of $10.25.

Mike Pack: Please turn to slide nine for a review of our expectations for 2024.

Mike Pack: We expect growth to continue into 2024 demand is strong for our products as evidenced by our $16 8 billion dollar backlog at December 31, 2023, and supply chain conditions have improved which we believe supports our outlook for growth.

Mike Pack: On a consolidated basis, we are estimating 2020 for sales and adjusted operating income to be in the range of $10 $4 billion and $990 million, respectively. We are estimating adjusted earnings per share will be in the range of $10 25.

Mike Pack: At a segment level, we are estimating access sales and adjusted operating margin to be in the range of $5.2 billion and 15%, respectively. Included in this margin expectation is an approximately $20 million increase in new product development investments versus 2023. Turning to defense, we expect sales of $2.1 billion for the year. We expect adjusted operating margin to be in the range of 2.5%, down from 4.3% in 2023. We expect NGDB's first-year production ramp-up costs combined with increased NPD investments will total approximately $35 million. We also expect an unfavorable product mix.

Mike Pack: At a segment level, we are estimating access sales and adjusted operating margin to be in the range of $5 2 billion and 15% respectively.

Mike Pack: Included in this margin expectation is an approximately $20 million increase in new product development investments versus 2023.

Mike Pack: Turning to defense, we expect sales of $2 $1 billion for the year, we expect adjusted operating margin to be in the range of two 5% down from four 3% in 2023, we expect <unk> first year production ramp up costs combined with increased NPD investments will total approximately 30.

$5 million, we also expect an unfavorable product mix.

Mike Pack: As a reminder, NGDV production is expected to ramp up throughout 2025, and we expect to operate at full rate production in 2026. As such, we expect NGDV to be a meaningful contributor to defend sales and profitability in 2025 and beyond. We expect 2024 vocational sales and adjusted operating margin to be in the range of $3.1 billion and 11%, respectively, representing solid growth in both sales and margin versus 2023. Our expectations include the full year benefit of Aerotech results, which are expected to contribute approximately $420 million of incremental sales versus 2023 at a double-digit adjusted operating margin. Our expectations also include an increase of approximately $15 million for Murfreesboro startup costs.

Mike Pack: As a reminder, <unk> production is expected to ramp up throughout 2025, and we expect to operate at full rate production in 2026 as such we expect <unk> to be a meaningful contributor to defense sales and profitability in 2025 and beyond we expect 2024 vocation.

Mike Pack: Sales and adjusted operating margin will be in the range of $3 $1 billion, and 11%, respectively, representing solid growth in both sales and margin versus 2023.

Our expectations include the full year benefit of Aerotech results, which are expected to contribute approximately $420 million of incremental sales versus 2023 at a double digit adjusted operating margin.

Mike Pack: Our expectations also include an increase of approximately $15 million for Murphy's borough startup costs.

Mike Pack: Our estimate of corporate expenses is approximately $180 million in line with 2023, with higher new product development investments expected to largely offset lower incentive compensation costs. We expect a tax rate of approximately 24.5%, an average share count of approximately 66.2 million shares, and capex of $300 million. We expect free cash flow of approximately $425 million, representing solid growth versus 2023. Looking to the first quarter, we expect adjusted EPS in the range of $2.25, which is up versus the prior year but down versus the fourth quarter as a result of lower expected results for defense. We expect access and vocational sales and adjusted operating income to both be up sequentially versus the fourth quarter. If supply chains and production throughput continue to normalize, we expect a return of more typical seasonality in our access and vocational segments, with the second and third quarters expected to be our highest quarters for sales and earnings. I'll turn it back over to John now for some closing comments.

Mike Pack: Our estimate of corporate expenses is approximately $180 million in line with 2023 with higher new product development investments expected to largely offset lower incentive compensation costs.

Mike Pack: We expect a tax rate of approximately 24, 5% and an average share count of approximately $66 2 million shares and capex of $300 million.

Mike Pack: We expect free cash flow of approximately $425 million, representing solid growth versus 2023.

Looking to the first quarter, we expect adjusted EPS in the range of $2 25.

Mike Pack: Which is up versus the prior year, but down versus the fourth quarter. As a result of lower expected results for defense, we expect access and vocational sales and adjusted operating income to both be up sequentially versus the fourth quarter as supply chains and production throughput continued to normalize we expect to return.

Mike Pack: More typical seasonality in our access and vocational segments with the second and third quarters expected to be our highest quarters for sales and earnings I'll turn it back over to John now for some closing comments.

John C. Pfeifer: We delivered strong results for both our fourth quarter and full year 2023, and our $16.8 billion backlog is a new record. Our positive outlook for 2024 is built on a strong foundation of demand, and we continue to invest in both new products and new capacity that we expect will drive continued profitable growth. We are in the process of integrating Aerotech into the company, and we are already seeing the considerable value it brings. And our USPS NGDV program is progressing well, and we will be starting low-rate production in April. This is an exciting time for Oshkosh, and we are confident that we will continue to drive growth and deliver enhanced shareholder value. Okay, Pat, let's get started with the Q&A.

John C. Pfeifer: We delivered strong results for both our fourth quarter and full year 2023, and our $16 $8 billion backlog is a new record our positive outlook for 'twenty 'twenty. Four is built on strong foundation of demand and we continue to invest in both new products and new capacity that we expect will do.

John C. Pfeifer: <unk> continued profitable growth we are in the process of integrating aerotech into the company and we are already seeing the considerable value. It brings and our U S. P. S. N. G. D V program is progressing well and we will be starting low rate production in April this is an exciting time.

John C. Pfeifer: For Oshkosh, and we are confident that we will continue to drive growth and deliver enhanced shareholder value.

Hey, Pat let's get started with Q&A. Thanks, John I'd like to remind everybody. Please limit your questions to one plus a follow up and please stay disciplined on the follow up question.

Pat: Thanks, John. I'd like to remind everybody to limit their questions to one plus a follow-up question, and please stay disciplined on the follow-up question. After that follow-up question, we ask that you get back in queue if you'd like to ask additional questions. Operator, please begin the question and answer period of this call. Thank you.

Pat: After that follow up we ask that you get back in queue, if you'd like to ask additional questions. Operator. Please begin the question and answer period of this call.

Speaker Change: Thank you.

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For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Mig Dobre with Baird. Please proceed with your question. Thank you. Good morning, everyone.

One moment, please while we poll for questions.

Speaker Change: Thank you. Our first question comes from the line of Mig <unk> with Baird. Please proceed with your question.

Mig: Alright, Thank you and good morning, everyone I figured we would start maybe with the vocational I appreciate all the detail on aerotech, but maybe you can put a finer point on <unk>.

John C. Pfeifer: I figured we would start maybe with the vocational. I appreciate all the detail on Aerotech, but maybe you can put a finer point on... think about growth, vorticals, guys. I'm sort of curious, is there anything else in the supply chain that is preventing, really accelerating the volume of fire?

Mig: Fire and refuse how you think about growth specifically for those verticals, what's embedded in the guidance and I'm sort of curious is there anything else in the supply chain. At this point that is preventing you from sort of really accelerating the ball you more production and fire yeah, let's start there.

John C. Pfeifer: Sure. First of all, just talking a bit about vocational overall and the sales growth that, based on my prepared comments, you know, ultimately the biggest driver of the volume increase north of $400 million or about $420 million of that is related to AeroTec, with the balance really being between fire and refuse. Now, the other piece to keep in mind there is that we did divest the rear discharge concrete mixer business, so that does decrease revenue by about $50 million. So, really organically, about $150 million of revenue growth.

Speaker Change: Sure first of all just talking a bit about vocational overall with the sales growth that based on my prepared comments.

Fire: Ultimately the biggest driver of the volume increase north of $400 million about $420 million of that is related to arrow talk with the balance really being between fire and refuse now the other piece to keep in mind there as we did the best the rear discharge concrete mixer business. So that does decrease revenue about $50 million.

Fire: So really organically.

Fire: About $150 million of revenue growth I would say right now that we certainly have more capacity coming on online Meg and that's that's going to help us I think we're our throughput is in improving our supply chain has improved in Appleton, which is R. R.

John C. Pfeifer: I would say right now that we certainly have more capacity coming online, Mig, and that's going to help us. I think our throughput is improving as supply chains improve, and Appleton, which is our largest peers plant, will have more capacity coming online over the course of the year with Murfreesboro, Tennessee. That will also support our electric refuse collection vehicle production.

Fire: Our our peers largest peers plant.

Fire: We'll have more capacity coming online.

Over the course of the year with what Murphy's Borough, Tennessee that will also be supporting our electric refuse collection vehicle production. So I would say right now there are some capacity constraints certainly its supply chain improves that that will help.

John C. Pfeifer: So I would say right now there are some capacity constraints. Certainly, if the supply chain improves, that will help. Yeah, just a little bit more color, Meg, on the fire and emergency business.

Speaker Change: Yeah, just a little bit more color on Meg on the fire <unk> emergency business. When you look at our backlogs, we've got really strong backlogs across our businesses, but the strongest backlog we have when you measure it in terms of how many months of backlog do we have is in the fire <unk> emergency business means backlog as years.

John C. Pfeifer: When you look at our backlogs, we've got really strong backlogs across our... But the strongest backlog we have, when you measure it in terms of how many months of backlog we have, is in the fire and emergency department. It's years. And so we're continuing to increase capacity. You asked about the supply chain. The supply chain's a lot better today than it was a year ago or a year and a half ago, but it's still not perfect. Our on-time delivery's still kind of in the low 80s, I would say, so we still have some constraints with the supply base, but it is a lot better. I think more of the issue is getting, and continuing to prudently add capacity. Like Mike mentioned, we're going to put fire trucks down in Murfreesboro because we've got the ability to do that alongside the electric refuse and recycling vehicles.

So we're continuing to increase capacity.

Speaker Change: You asked about supply chain supply chain is a lot better today than it was you know a year ago or a year and a half ago, but it's still not perfect. Our on time delivery is still kind of in the low eighties I would say so we still have some some constraint with supply base, but it is a lot better I think more and more of the issue is good.

Speaker Change: To just continuing to prudently add capacity like Mike mentioned that we're gonna put fire trucks down in Murphy's borough because we've got the ability to do that alongside the electric refuse and recycling vehicles, but both of those segments fire and emergency and.

John C. Pfeifer: But both of those segments, fire and emergency, and environmental refuse and recycling collection, are really strong segments, with strong demand. Both have a lot of desire for new electrified platforms, which we're going into production with as we speak, on both. So there's a lot of optimism long term in those businesses. If I may follow up on your comments here, sort of looking at what's embedded. Thank you for watching!

Speaker Change: Environmental refuse and recycling collection are really strong segments strong demand.

Speaker Change: Both have a lot of desire for new electrified platforms, which we're going into production with as we speak on both so theres a lot of optimism long term in those businesses.

Speaker Change: Understood.

Speaker Change: If I may follow up on your comments here.

Speaker Change: We're sort of looking at what's embedded in terms of volume four four for fire. In 2024 is there any any volume growth or is that still sort of on the come in 'twenty five 'twenty six as you're as you're adding capacity and also can you comment at all on margins here, where we are relative to either prior peak or wherever you are.

John C. Pfeifer: for FIRE, for Adding Capacity. Comment at all on margins here where we are relative to either prior... Sure, I would say that from a volume perspective, there is a step-up in volume for fire and emergency, but I would say it's more back-end loaded, and so we would expect that as we get into future years, we'll see further step-ups there. In terms of margins, I think we're quite pleased with the progress we're seeing. So, you know, underlying, you have the strong fundamental margins in the fire truck business. We've learned a lot about the pricing we're getting, and, you know, really, that price-cost dynamic is back to pretty much normal in 2024. We do have more pricing coming after that. So I would say that's strong. We're continuing to see, you know, strong margins growing in Refuse and Recycling, and Aerotech, of course, is already delivering double-digit adjusted operating margins. So guides, 11%.

To frame it thank you.

Speaker Change: Sure I would say that from a volume perspective, there is a step up in volume and in fire <unk> emergency, but I would say, it's more backend loaded.

Speaker Change: So we would expect that as we get into future years, we will see further step ups. There in terms of margins I think where we're quite pleased with the progress. We're seeing so we're you know on underlying you have a strong.

Speaker Change: <unk> margins and in the fire truck business, we've talked a lot about the pricing, we're getting in and you know really in and.

Speaker Change: That price cost dynamic is back to pretty much normal in 'twenty 'twenty four we do have more price coming coming after that.

So I would say that strong we're continuing to see.

Speaker Change: Strong margins growing and.

Speaker Change: In refuse and recycling and <unk> of course is already delivering double digit adjusted operating margin guidance of 11% we've talked about.

We've talked about the vocational training segment. We view it as a segment that could be 12% plus, so we see further runway in the future for the margin progression of this segment. Thanks, Meg.

Speaker Change: The vocational we viewed as a segment that can be 12% plus so we see further runway.

Speaker Change: In the future for the margin progression of the segment.

Speaker Change: Alright, thank you.

Speaker Change: Thanks Meg.

Jerry Revich: Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question. Yes, hi. Good morning, everyone.

Speaker Change: Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.

Jerry Revich: Yes, hi, good morning, everyone.

John C. Pfeifer: I'm wondering if you could just talk about the puts and takes around excess equipment, the margin outlook for 24, really strong performance in 23, and essentially guided to 10 basis points on some modest sales growth. But logistics costs, I believe, have been declining for you folks in that line of business. So I'm just trying to understand, is that some conservatism baked into the guide early in the year, or are there discrete headwinds that we should be keeping in mind relative to the strong performance in 23?

Jerry Revich: I'm wondering if you could just talk about the puts and takes around excess equipment margin outlook for <unk>.

Jerry Revich: 94.

Speaker Change: Really strong performance in <unk>.

Jerry Revich: Three and essentially guided to.

Jerry Revich: 10 basis points on some modest sales growth, but logistics costs I believe had been declining for you folks in that line of business. So I'm just trying to understand is that some conservatism baked in the guidance early in the year or are there discrete headwinds that we should be keeping in mind relative to the strong performance in 'twenty three.

Mike Pack: Yeah, I would say ultimately that the outlook for AXA is pretty straightforward. I think we have, you know, a couple hundred million dollars of revenue growth. And one thing to keep in mind is we're adding capacity in that segment as well with Jefferson City. So the supply chain is not normal.

Jerry Revich: I would say ultimately that the outlook for access pretty straightforward I think we have you know.

Jerry Revich: Couple hundred million dollars of revenue growth and one thing to keep in mind is we're adding capacity in that segment as well with Jefferson studies, So supply chain, it's not normal that could provide some uplift, but more importantly, we're operating closer to capacity. So the uplift in volume is until we have more capacity coming on online as is.

Mike Pack: That could provide some uplift, but more importantly, we're operating closer to capacity, so the uplift in volume is until we have more capacity coming online is somewhat limited. So we see that revenue growth from an incremental margin perspective. I would say we're seeing pretty normal incrementals read through. I would say the one adjustment is pretty much the higher NPD that I referenced in my opening comments of about $20 million. And there's a little bit of a mix.

Jerry Revich: Somewhat limited so we see that revenue growth.

Jerry Revich: From a from a incremental margin perspective, I would say we're seeing we're.

Jerry Revich: We're seeing pretty normal incrementals read through I would say the one adjustment is pretty much.

NPD that I referenced in my in my opening comments of about $20 million.

Jerry Revich: So and there is a little bit of mix I would say the mix is modestly.

John C. Pfeifer: I would say the mix is modestly less favorable, but that's not really the biggest driver. I think if you really adjust for that NPD, you're really seeing a pretty normal incremental margin reading through. And again, as that capacity comes online later in the year, we see some further volume opportunities for the future. Hey, Jerry, I'll just add to that because you mentioned input costs. You know, you're correct, there's been some relief in terms of freight costs, but when you look at the total input cost... or our businesses take access equipment in this case, Well, it's really good that inflation has come way down, when you look at the totality. We're not seeing deflates inflation.

Jerry Revich: Modestly less favorable, but that's not really the biggest driver I think if you really adjust for that NPD, you're really seeing a pretty normal incremental margin reading through and again as that capacity comes online later in the year.

We see we see some further volume opportunities for the future Hey, Jerry I'll, just just to add to that because you mentioned the input costs and you specifically mentioned right.

Jerry Revich: You're correct. There is there's been some relief in terms of freight costs, but when you look at the total input costs for our businesses take access equipment in this case as well.

Well, it's really good that inflation has come way down if you look at the totality of it we're not seeing deflation.

John C. Pfeifer: So you can pick out one input cost like freight and say yeah, well freight's come down. But when you look at the total of everything really good that inflation's come way down, but it hasn't gone into deep, Super. I appreciate the color. And then, you know, your defense sales outlook was pretty robust for 24 versus our numbers. I'm wondering, could you flesh out the anticipated ramp-up in international JLTV sales, how much that's contributing, and prospects for that to continue to 25, and maybe expand on the contribution of the USPS contract over the course of this year and into 25? Sure.

Jerry Revich: So you can pick out one input costs like freight and say, yeah, well freights come down, but when you look at the total of everything really good that inflation has come way down, but it hasn't gone into deflationary territory.

Speaker Change: Super and I appreciate the color.

Speaker Change: Then your defense sales outlook was pretty robust for 24 versus our numbers that I'm wondering.

Speaker Change: Cash out.

The anticipated ramp up in international <unk> sales, how much that's contributing and prospects for that to continue into 'twenty five.

Speaker Change: And maybe expand on the contribution of the USPS contract.

Speaker Change: Over the course of this year and into 'twenty five.

Speaker Change: Sure I think next year I think what I would say is there's a couple of moving pieces I think from a revenue standpoint, we had a little bit of volume push out of the fourth quarter.

Mike Pack: I think next year, what I would say is there's a couple moving pieces. I think from a revenue standpoint, we had a little bit of volume push out of the fourth quarter into next year. That bolsters next year a bit. And I think ultimately, with just our production rates, that's really sort of the result of where we're ending up from a revenue perspective. I would say right now, going in, international is sort of flattish. You have some Gibbs intakes.

Two to next year that bolsters your a bet and I think ultimately with web.

Speaker Change: With our just our production rates, that's really sort of the results of where we're ending up from a revenue perspective, I would say right now going in international was sort of flattish you have some gives and takes we had a large we had larger Belgium deliveries love other international deliveries this year.

Mike Pack: We had larger Belgium deliveries. We'll have other international deliveries this year. So international is probably not the biggest mover there. The postal service is a smaller portion of the revenue this year.

Speaker Change: International is probably not the biggest mover there postal service is a smaller portion of the revenue. This year. So there will be a ramp up I did mentioned in prepared remarks from a margin standpoint.

Mike Pack: So there will be a ramp-up. I did mention in prepared remarks, from a margin standpoint, really between NGDB startup costs and the slightly higher NPD, about a $35 million headwind when you think about that year-over-year. I think the very important part though is as we look at NGDV, 2025 is going to be a big ramp-up year, and in 2026, we expect to be at full rate, so that's going to become a very significant revenue contributor and margin contributor in 2025 and 2026. Super, thank you.

Speaker Change: Really between.

Speaker Change: N G D. These startup costs as well as a.

Speaker Change: A bit higher NPD about at $35 million headwind when you think about that year over year I think the very important.

Speaker Change: So as we look at N G D D.

Speaker Change: 25 is going to be a big ramp up year and 2026, we expect to be at full rates, that's going to become a very significant revenue contributor in margin contributor in 2025 and 2026.

Speaker Change: Super Thank you.

Stephen Edward Volkmann: Thanks, Jerry. Our next question comes from the line of Steve Volkmann with Jefferies. Please proceed with your question. Steve Volkmann, your line is live.

Speaker Change: Thanks Jerry.

Speaker Change: Our next question comes from the line of Steve Volkmann with Jefferies. Please proceed with your question.

Steve Volkmann your line is live.

Operator: Thank you. Our next question comes from Angel Castillo with Morgan Stanley. Please proceed with your question. Hi, good morning.

Stephen Edward Volkmann: Thank you. Our next question comes from the line of Angel Castillo with Morgan Stanley. Please proceed with your question.

Angel Castillo: Thanks for taking my question. I was wondering if we could actually unpack the order commentary a little bit more, maybe in particular, looking at the kind of one queue dynamic, I think historically, or you've talked about, you know, return to normal seasonality. If I'm not mistaken, just kind of billings in the first quarter typically pick up pretty materially versus the fourth quarter, to the tune of kind of 30%. So can you talk about the pickup that you've kind of embedded in guidance in terms of earnings growth for access equipment? That's where I'm referring to that 30%.

Angel Castillo: Hi, Good morning, Thanks for taking my question I was wondering if we could actually impact the order.

Angel Castillo: Commentary a little bit more maybe in particular looking at the kind of <unk> dynamic I think historically, you've talked about a return to normal seasonality.

Angel Castillo: If I'm not mistaken just kind of billings in the first quarter typically pick up.

Angel Castillo: Pretty materially versus the fourth quarter.

Angel Castillo: To the tune of around 30%. So can you talk about the pick up that you've kind of embedded in guidance in terms of earnings growth for access equipment.

That's what I'm, referring to that 30%. So is that generally what you expect in terms of billings.

Mike Pack: So is that generally what you expect in terms of billings for the first quarter? Can you give us more color as to how to think about volumes kind of sequentially there? I think there's Yeah, trying to unpack, I'll kind of talk about the volume first, and then we can talk about the seasonality of orders. We did say in our prepared remarks that we do expect volume to be up somewhat for access and vocational from sequentially from Q4 to Q1. But I think just with the return to more normalcy with production throughput, and supply chains getting better, I think you are going to see some more typical seasonality with our highest quarters really being from a revenue and profitability perspective, our second and third quarters, with the first quarter and the fourth quarter being a bit lower. So that's, that's fairly typical. So I would expect some, some volume stuff up there. You're probably a little, little rich at 30%. But that's what we're thinking about. And then, in terms of, I'll let John talk about just order cadence.

Angel Castillo: For the first quarter can you give us more color as to how to think about volumes kind of sequentially that.

Speaker Change: I think theyre trying to unpack I'll I'll kind of talk about the volume first and then we can talk about the seasonality of orders.

Speaker Change: I'd say in the in our prepared remarks said.

Speaker Change: That we do expect.

Speaker Change: Volume to be up somewhat for access and vocational from sequentially from Q4 to Q1, but I think just what the return with more normalcy with with production throughput supply chains getting better I think you are going to see some more typical type of seasonality with the with.

Speaker Change: Our highest quarters really being from a revenue and profitability perspective, our second and third quarters with the first quarter and the fourth quarter being being a bit lower so that's that's fairly typical so I would expect some.

Speaker Change: Some volume stuff up there, you're you're probably a little little rich at at 30%, but that that's what we're thinking about and then in terms of I'll, let John talk about just the order cadence.

John C. Pfeifer: Yeah, Yeah, So angel talking about orders so right now with our access equipment segment, whereas we're still on a very unusual time, you know, it's not normal for us to go into a year, where in early 'twenty 'twenty four and be fully booked for the whole year and that's the position that we're in.

Mike Pack: Yeah, so Angel, talking about orders. So right now, with our access equipment segment, we're still in a very unusual time. You know, it's not normal for us to go into a year.

John C. Pfeifer: So when we talk with our customers.

John C. Pfeifer: Big publicly traded customers that we have as well as all the thousands of independent customers that we serve we're really expecting to go start to go back to a normal order cadence, we're starting to see more equipment replacement in 2024, which is a good thing because equipment needs to be replaced the fleet ages.

John C. Pfeifer: We're in early 2024 and will be fully booked for the whole year. And that's the position that we're in. So when we talk with our customers, the big publicly traded customers that we have, as well as all the thousands of independent customers that we serve, we're really expecting to start to go back to a normal order cadence. We're starting to see more equipment replacement in 2024, which is a good thing because equipment needs to be replaced. The fleet age is old.

John C. Pfeifer: Old and our customers are indicating that they want to go back to kind of a normal a L. P cycle, meaning we really talk at the end of the year about what the following year's orders are going to look like so we.

John C. Pfeifer: We expect that season, you know it has not been normal seasonality in orders the past couple of years, but we do expect normal seasonality to come back into the market, which which may mean that we don't have huge orders in Q1, but will continue to see healthy orders long term because we continue to expect the market to.

John C. Pfeifer: And our customers are indicating that they want to go back to kind of a normal AOP cycle, meaning we really talk at the end of the year about what the following year's orders are gonna look like. So we expect that season, you know, it has not been normal seasonality in orders the past couple of years, but we do expect normal seasonality to come back into the market, which may mean that we don't have huge orders in Q1, but we'll continue to see healthy orders long-term because we continue to expect the market to perform beyond 2024 into 25 and 26, because of all the market dynamics that are in play. So that's what I'll say about that. That's very helpful.

John C. Pfeifer: Perform beyond 2024, and the 25 and 26 because of all the market dynamics that are in play.

Speaker Change: So that's what I'll say about that.

Speaker Change: No. That's very helpful. Thank you and then maybe switching over to the free cash flow guide pretty material step up here kind of year over year. So can you just talk about kind of the puts and takes as to what's driving that improvement and how should we think about that versus maybe your longer term targets that you had set out in past investor days for kind of 'twenty five and beyond.

Yeah, Yeah, it's a good solid step up I would say I would expect generally.

Speaker Change: Working capital some working capital decrease, particularly at at in our Defense segment, that's certainly going to be be a benefit with some of the timing of our programs and billings and collections around that.

John C. Pfeifer: And then maybe switching over to the free cash flow guide, pretty material stuff up here, kind of year over year. So can you just talk about kind of the puts and takes as to what's driving the improvement? And how should we think about that, you know, versus maybe your longer-term targets that you had set out at past Ambassador Days for kind of 2025 and beyond? Yeah, yeah, so it's a good solid step up.

Particularly as Gerald G. L. P V domestic program winds down.

Speaker Change: <unk> is still going to be at.

Speaker Change: A somewhat elevated level about $300 million, which is a bit lower than last year I would expect as we get into 2025 and as I've said on previous calls I would expect a step down and I think the other drivers.

Mike Pack: I would say, I would expect generally, working capital, some working capital decrease, particularly in our defense segment, that's certainly going to be, a benefit with some of the timing of our programs and billings and collections around that, particularly as jail, the jail TV domestic program winds down. CapEx is still going to be at a somewhat elevated level, about 300 million. Which is a bit lower than last year, I would expect as we get into 2025. As I've said on previous calls, I would expect a step down.

Speaker Change: We've had some significant investments.

Speaker Change: And just the Capex element of it in our <unk> program. So that's certainly going to be another another benefit as we look look year over year, but I think as as cash flows we continue to.

Speaker Change: Benefit from the ramp up of our our new production capacity Capex normalizes a bit more I would expect that you should see continued progression there from a cash flow perspective, as we look beyond 2024.

Angel Castillo: Very helpful. Thanks Angel.

Angel Castillo: Our next question comes from the line of Chad Dillard with Bernstein. Please proceed with your question.

Chad Dillard: Hi, good morning, everyone.

Chad Dillard: Morning morning.

Mike Pack: And, you know, I think the other drivers. We've had some significant investments beyond just the CapEx element of it in our NGDB program. So that's certainly going to be another benefit as we look year over year. But I think as cash flows continue to benefit from the ramp-up of our new production capacity, CapEx normalized a bit more. I would expect that you should see continued progression there from a cash flow perspective as we look beyond 2024. Very helpful, thank you. Thanks, Angel.

So my question was actually on access equipment. So.

Chad Dillard: Part of the price increase over the last couple of years came from surcharges due to higher input costs.

With some of those costs, maybe rolling back or kind of extinct steady like how you.

Chad Dillard: Are you having conversations about rolling that back.

Chad Dillard: Are your customers.

Chad Dillard: Chad as I talked about just earlier when you look at the totality of our input costs, we're not seeing deflation.

So you know.

Chad Dillard: That's the position that we're in right now.

Speaker Change: Got it okay.

Chad Dillard: And then just sticking with access can you just talk about the mix independents versus nationals. This year versus 23 and can you talk about what youre seeing from a regional standpoint for that segment.

Chad Dillard: Our next question comes from the line of Chad Dillard with Bernstein. Please proceed with your question. Hi, good morning, everyone.

John C. Pfeifer: Morning. So, my question is actually on access equipment. So, you know, part of the price increase over the last couple of years came from surcharges due to, you know, higher input costs. With some of those costs, maybe, you know, rolling back or kind of like staying steady, like how are you, are you having conversations about rolling that back with some of your customers? Uh, Chad, as I talked about just earlier, when you look at the totality of our input costs, we're not seeing deflation, uh, so..., you know. That's the position that we're in right now. I got it.

Sure I would say from a mixed perspective it was generally.

Chad Dillard: Generally for the first three quarters of the year, it's a little bit stronger nationals versus independents bit more balanced than that in the fourth quarter I would say if you wait together of the year.

Chad Dillard: We expect fairly similar dynamics.

Going into next year, I would say, maybe a little maybe a little bit of customer mix next year I think the bigger thing is I think there are some product shifts a little bit of a boom and tell a handler mix shift but.

Chad Dillard: Again, not the biggest the biggest piece of the dynamics going forward. So I think that's a that's really what we're seeing at this point from a mix perspective, So next year, probably our 2024, a little bit heavier weighted towards the.

Mike Pack: Okay. And then just sticking with access, can you just talk about the mix, independents versus nationals this year versus, you know, 23? And can you talk about, you know, like what you're seeing from a regional standpoint for that segment? Sure, I would say from a mixed perspective that, generally, for the first three quarters of the year, it was a little bit stronger for nationals versus independents, a bit more balanced than that in the fourth quarter. I would say if you weight together the year.

The nationals versus independents, but you know I mean, when you look at what we sell but when you look at the mix between the.

Chad Dillard: The NRC is in the in the IR sees you know, maybe a little bit, but it's pretty balanced if you look back to 'twenty three pretty balanced between the Antarctic season. They are IRR assumes we expect that relative balance to continue going forward. If you look at our business regionally around the world in 2023 for access equipment.

Mike Pack: Fair, we expect fairly similar dynamics going into next year, I would say, maybe a little, maybe a little bit of customer mix next year. But I think the bigger thing is, I think there are some product shifts, a little bit of a boom in telehandler mix shift. But again, not the biggest piece of the dynamics going forward. So I think that's, that's really what we're seeing at this point from a mix perspective. So next year, probably or 2024, a little bit heavier weighted towards the nationals versus independents, but you know, I mean, when you look at it, we say a, when you look at the mix between the NRCs and the IRCs, maybe a little bit, but it's pretty balanced. If you look back to 23, pretty balanced between the NRCs and the IRCs.

Chad Dillard: Every region of the World had really nice growth every region of the World had really nice growth in 2023, we go into 'twenty 'twenty four we expect continued long term health.

Chad Dillard: In the North American market, which is our biggest market because of all the dynamics. We talk about we look around the world. We do expect some weakness in Europe.

Chad Dillard: Probably what whatever industry you're in in Europe people are expecting a bit of weakness in 2024.

Chad Dillard: And but the other regions of the world, we're continuing to see relatively healthy market conditions.

Chad Dillard: That we're addressing so.

Speaker Change: Great. Thank you.

Speaker Change: Our next question comes from the line of Tami Zakaria with Jpmorgan. Please proceed with your question.

Tami Zakaria: Hi, good morning. Thank you. So much. So my first question is I think you mentioned you booked cyclone Voltaire at waters.

John C. Pfeifer: We expect that relative balance to continue going forward. If you look at our business regionally around the world in 2023 for access equipment, every region of the world had really nice growth.

Tami Zakaria: The Ministry of Defense in Japan, and also in airport in Paris.

Able to size the two opportunities how much in sales do you expect from these contract at run rate and could the order side Oh contract become bigger over time I'm just trying to size the opportunity for this product line in overseas market.

John C. Pfeifer: As we go into 2024, we expect continued long-term health in the North American market, which is our biggest market because of all the dynamics we talk about. If we look around the world, we do expect some weakness in Europe. I think probably whatever industry you're in in Europe, people are expecting a bit of weakness in 2024. But other regions of the world, we're continuing to see relatively healthy market conditions that we're addressing, so. Great, thank you.

Tami Zakaria: So.

Tami Zakaria: Thank the meaning of the orders that we won these are airport orders there our airport rescue firefighting vehicles. The electric vehicles that we put into the market brand new platform for US I think the meaning of it is is that we've never had orders from these countries and these places before we.

Tami Zakaria: We've never had orders from airports in France, I don't know that we've ever had order from airports in Japan.

Tami Zakaria: Our next question comes from the line of Tami Zakaria with J.P. Morgan. Please proceed with your question. Hi, good morning.

Tami Zakaria: Australia is looking at orders from us as well.

Tami Zakaria: The the new product innovations, we're putting into the market in this case and electrification are very desirable products and theyre very notable products and they're going to drive nice share gains for us. So this this airport rescue firefighting market is one of our smaller end markets that we saw.

John C. Pfeifer: Thank you so much. So my first question is, I think you mentioned you booked Stryker Volterra orders with the Ministry of Defense in Japan and also an airport in Paris. Are you able to size the two opportunities? How much in sales do you expect from these contracts at run rate, and could the order size or contract become bigger over time? I'm just trying to size the opportunity for this product line. So I think the meaning of the orders that we won, these are airport orders, there are airport rescue and firefighting vehicles, the electric vehicles that we put into the market, a brand new platform for us. I think the meaning of it is that we've never had orders from these countries and these places before. We've never had orders from airports in France, don't know that we've ever had orders from airports in Japan, Australia is looking for orders from us as well.

Tami Zakaria: Serve so it's not a gigantic market, but theyre very very profitable products and I think the bigger meaning is is that we're putting electrified products into the municipal fire market into the environmental market with refuse and recycling vehicles. We've got the N. G. D V, which is an electric vehicle for the last mile.

Tami Zakaria: And specifically the U S. United States Postal service I think it's just an indication of.

Tami Zakaria: The power of some of the new products as we get them into the market and one of the first ones that we took to market was this airport rescue firefighting vehicle and that's why we highlighted this.

Speaker Change: Got it that's very helpful and then.

Speaker Change: My second question is just.

Speaker Change: Just trying to understand.

John C. Pfeifer: The new product innovations we're putting into the market, in this case, electrification, are very desirable products, and they're very notable products, and they're going to drive nice share gains for us. So this airport rescue and firefighting market is one of our smaller end markets that we serve, so it's not a gigantic market, but they're very, very profitable products. And I think the bigger meaning is that we're putting electrified products into the municipal fire market, into the environmental market with refuse and recycling vehicles. We've got the NGDV, which is an electric vehicle for last-mile delivery and specifically the United States Postal Service.

Speaker Change: First quarter is that for the defense segment a bit better.

Youre expecting defense earnings down sequentially.

Speaker Change: Does that include any.

Speaker Change: Cumulative cost adjustments.

Speaker Change: Negative impact from that versus <unk> or is it apples to apples that without that adjustment you expect.

Speaker Change: Core earnings to be down sequentially yeah.

Yeah, what Tammy what we benefited from was a positive cumulative catch up adjustments in the fourth quarter essentially you're spreading we received more J L. P V orders for the domestic program. That's really the last order for domestic you're spreading more costs over more units and that's why you get a positive cumulative catch up catch up adjustment.

John C. Pfeifer: I think it's just an indication of the power of some of the new products as we get them into the market. And one of the first ones that we took to market was this airport rescue and firefighting vehicle, so that's why we highlighted it. Okay, that's very helpful.

Tammy: So that that does not recur. So we would not expect any meaningful cumulative catch up adjustments foundational <unk> and in the first quarter. So that's really the big difference from Q4 to Q1.

Mike Pack: And then my second question is, just trying to understand the first quarter guide for the defense segment a bit better. You're expecting defense earnings to be down sequentially. Does that include any cumulative cost adjustments, the negative impact from that versus score Q, or is it apples to apples, or without that adjustment, do you expect the core earnings to be down? Yeah, what Tami, what we benefited from was positive cumulative catch-up adjustments in the fourth quarter. Essentially, you're spreading, we received more JLTV orders for the domestic program. That's really the last order for domestic.

Tammy: Got into the core core earnings should be somewhat similar to the fourth quarter and the first quarter.

Speaker Change: Yeah, I would think that just generally are because of in.

Speaker Change: In general we would not expect because of these large orders, creating cumulative catch up adjustments I would.

Speaker Change: I don't know that defense earnings will move around quite as much from quarter to quarter. This next year.

Speaker Change: Got it okay, great. Thank you so much.

Speaker Change: Yeah.

No problem.

Speaker Change: Our next question comes from the line of Kim <unk> with Citigroup. Please proceed with your question.

Kim: Thanks, Good morning.

Kim: Going back to vocational and more specifically just on.

Kim: Aerotech can you maybe speak to what you.

You're seeing there from from.

The integration as well as if you look at it.

Mike Pack: So you're spreading more costs over more units, and that's why you get a positive cumulative catch-up adjustment. But that does not recur, so we would not expect any meaningful cumulative catch-up adjustments fundamentally in the first quarter. So that's really the big difference from Q4 to Q1.

$730 million or so in revenues as you know quite a bit above what we would have thought.

Kim: Don't know if that was a wrong expectation or what but maybe just speak to kind of just did.

Kim: Order activity and then ultimately.

Kim: Your your thoughts around you know the synergy.

Mike Pack: So the core earnings should be somewhat similar to the fourth quarter and the first quarter. Yeah, I would think that just generally because of work in general. I wouldn't expect, because of these large orders creating cumulative catch-up adjustments, I wouldn't know that defense earnings would move around quite as much from quarter to quarter this next year. Okay. Okay. Great. Thank you so much.

Speaker Change: Your expectation for 24, thank you.

Speaker Change: Yeah. So it's John I'll answer. This question, we feel even better today about aerotech them then the day that we closed on the acquisition, we love the end market, we already understood a little bit about the end market because of some of the other products, we had already been supplying into the airport marketplace.

Mike Pack: No problem. Our next question comes from the line of Kim Dean with Citigroup. Please proceed with your question. Thanks. Good morning.

Now we're a much bigger.

Player in the airport and market in terms of ground service equipment.

Speaker Change: But this is a growing market what we believe it's going to be in long term secular growth.

John C. Pfeifer: The question on going back to vocational and more specifically just on AeroTech, can you maybe speak to just what you're seeing there from just the integration as well as $730 million or so in revenues, which is quite a bit above what we would have thought. I don't know if that was a bad expectation or what, but maybe just speak to kind of just the order activity and then ultimately your thoughts around the synergy expectation for 24. Thank you. Yeah, so it's John. I'll answer this question.

Speaker Change: We see our position is really strong we see the fit between the technology that aerotech has already been working on with our technological capabilities. So you're going to see a lot of autonomous functionality continue to come into that market, which is what our customers the big Airlines and the airports want.

Youre going to see electrified product on runways more in the future than you do today in terms of lithium ion electrification, but this business has a really great people. It's got a great culture. It's a good cultural fit with us and we've we just feel really strong about it and strong about the growth.

John C. Pfeifer: We feel even better today about Aerotech than the day that we closed on the acquisition. We love the end market. We already understood a little bit about the end market because of some of the other products we had already been supplying to the airport marketplace. Now we're a much bigger player in the airport end market in terms of ground service. But this is a growing market, and we believe it's going to be in long-term secular growth. We see our position as really strong. We see the fit between the technology that Aerotech has already been working on and our technological capabilities. You're going to see a lot of autonomous functionality continue to come into that market, which is what our customers, the big airlines, and the airports want. You're going to see electrified products on runways more in the future than you do today in terms of lithium-ion electrification. But this business has really great people. It's got a great culture.

Speaker Change: <unk>.

That we can get in.

Speaker Change: The centers from a synergy perspective.

Speaker Change: The real power behind the synergies is behind the technological synergies of course since other synergies we get in terms of.

Speaker Change: Operating capability and that sort of thing, but the real powerful synergy long term is the technological synergies that are so strong with us in aerotech.

Speaker Change: Okay.

Speaker Change: Ill leave it there thank you John.

Speaker Change: Thanks, Dan a question comes from the line of Seth Weber with Wells Fargo. Please proceed with your question.

Seth Weber: Hey, guys good morning.

Seth Weber: A quick question I think what I heard in the remarks was $35 million of profit headwinds in the defense segment.

Seth Weber: For 2024 related to the new N G D V ramp and stuff like that I guess is that is that correct and how should we think about that number.

John C. Pfeifer: It's a good cultural fit with us, and we just feel really strong about it and strong about the growth opportunities that we can get. And from a synergy perspective, the real power behind the synergies is behind the technological synergies. Of course, there's other synergies we get in terms of operating capability and that sort of thing, but the real powerful synergy long-term is the technological synergies, so strong with us here. Okay, we'll leave it there. Thank you, John.

Seth Weber: As we go into 2025 as your production starts to ramp does that 35 million headwind start to come down does it go away.

I'm just trying to think through your defense margins for the next couple of years. Thanks.

Speaker Change: Yeah, Yeah that's.

Speaker Change: The quiet you quantified that correctly at $35 million that that's really our first year phenomenon. So once you are ramping up I would expect.

Speaker Change: That as we sort of flip to next year into 2025, there's going to be meaningful growth in revenue.

Seth Weber: Our next question comes from the line of Seth Weber with Wells Fargo. Please proceed with your question. Hey, you guys. Good morning.

Speaker Change: From N G. D. D. And then 2026 is going to be sort of full rate production. That's a that's a program we've talked a lot about it's going to be you know a great.

Mike Pack: Quick question. I think what I heard in the remarks was 35 million profit headwinds in the defense segment for 2024 related to the new NGDV ramp and stuff like that. Is that correct? And how should we think about that number as we go on to 2025 as your production starts to ramp? Does that 35 million headwind start to come down? Does it go away?

Speaker Change: Good solid margin program. So so that it's really just the first year phenomenon when you're you're kind of working through that that low rate production, which is going to start in April.

Speaker Change: Okay. Thanks, that's helpful. And then just on the your comment about an access I think you said 20 million of new product development.

Speaker Change: I am just trying to conceptualize like is that the new normal going forward.

Mike Pack: I'm just trying to think through the defense margins for the next couple of years. Thanks. Yeah, yeah, you quantified that correctly at $35 million. That's really a first year phenomenon.

Speaker Change: I'm, just trying to think through like our incremental margins structurally.

Speaker Change: 20%.

Versus 25 that we used to think about it historically like is this a business that you're just going to be throwing more money at.

Mike Pack: So once you're ramping up, I would expect that as we sort of flip to next year, into 2025, there's going to be meaningful growth and revenue from NGDB, and then 2026 is going to be sort of full rate production. That's a program we've talked a lot about. It's going to be a great, you know, good solid margin program. So it's really just a first year phenomenon when you're kind of working through that low rate production, which is going to start in April. Okay, thanks, Mike. That's that's helpful.

Speaker Change: Big picture any like is this going to be an annual kind of step up that we're gonna see going forward or is there something unusual here that's triggering this.

No I wouldn't normally I think that it's I think if you look at earlier last year in particular, I think we're probably more at that run rate for N. P. D. Right now earlier in the year, though there was with supply chain challenges there was a lot of focus on and.

Speaker Change: Battling through supply chain challenges and so on so you know I I would I truly I think that the way to think about access margins is the 20% to 25% incrementals. It varies a bit based on product mix heavier boom, that's going to be generally higher some other products could be.

Mike Pack: And then just on your comment about access, I think you said 20 million for new product development. I'm just trying to conceptualize like, is that the new normal going forward? And, you know, I'm just trying to think through like, incremental margins, you know, structurally, closer to 20% versus the 25 that we used to think about historically, like, is this a business that you're just going to be throwing more money at? The big picture, and like, is this going to be an annual kind of step up that we're going to see going forward? Or is there something unusual here that's triggering this? No, I wouldn't think so.

Speaker Change: Would be slightly lower so I think right now, it's it's really sort of the math equation that revenue was up about $200 million in and it just so happens with MPD being up that that ends up being about 10% of the incremental.

Speaker Change: Got it Super helpful. Thank you guys I appreciate it.

Speaker Change: Our next question comes from the line of David Raso with Evercore. Please proceed with your question.

David Michael Raso: Hi, Thank you after the first quarter guide, you're implying the rest of the year has down earnings year over year and I'm just trying to understand if you could break up the $80 million of new product development. The investments you spoke of between access location on defense, what's the cadence of that throughout the year. Just so we get a sense of how you're thinking about that.

Mike Pack: Normally, I think that it's, I think if you look at earlier last year in particular, I think we're probably more at that run rate for NPD right now. Earlier in the year, though, there was a lot of focus on, you know, battling through supply chain challenges and so on. So, you know, I would, truly, I think that the way to think about access margins is the 20 to 25 percent incremental. It varies a bit based on product mix.

David Michael Raso: The rest of the year after one to being down I also know the interest expense will be higher right.

Speaker Change: I've been a bit by our tech what is the interest expense number for the full year as well. Thank you yeah, I would say no keep in mind with interests. There's two dynamics, because we had about $800 million of cash last year. So we were earning about 5% on that early in the year. So I would look at interest as being you know that.

Mike Pack: Heavier booms, they're going to be generally higher. Some other products could be, could be slightly lower. So, I think right now, it's really sort of the math equation that revenue is up about $200 million, and it just so happens, with NPD being up, that ends up being about 10 percent of the incrementals. Got it.

Speaker Change: A 35 million dollar headwind year over year. So I think that's certainly a good question on your part there that is a driver the NPD is fairly spread over the course of the year. So that there's not a big dynamic I think if you were to look at all the quarters, what I would expect is that.

Seth Weber: Super helpful. Thank you guys. I appreciate it. Our next question comes from the line of David Raso with Evercore. Please proceed with your question. Hi, thank you.

Speaker Change: You're going to see you know that the.

Two highest quarters are going to be that the middle two quarters.

Speaker Change: I think we do certainly have startup expenses related to defense, so that that comes into play as well.

David Michael Raso: After the first quarter guide, you're implying the rest of the year has lower earnings year over year. And I'm just trying to understand if you could break up the 80 million in new product development, the investments you spoke of between access, vocational, and defense. What's the cadence of that throughout the year? Just so we get a sense of how you're thinking about the rest of the year after 1Q being down? I also know the interest expense will be higher, right? I've been driven a bit by our tech. What is the interest expense number for the full year as well?

Speaker Change: And that's sort of over the course of the year. So I don't really see a step up necessarily in NPD or those startup costs will be sort of the.

Speaker Change: Have you in the second quarter as well.

Speaker Change: So that's that's how I'm thinking about the interest expense and Mike on an absolute level, you're thinking for the full year around $100 million.

Speaker Change: That's the net interest income and net net I would say net net I would expect that that net interest expense is going to be up about 35 million versus the prior year.

Mike Pack: Yeah, I would say, now keep in mind with interest, there are two dynamics. Because we had about $800 million of cash last year, and we were earning about 5% on that early in the year. So I would look at interest as being, you know, a $35 million headwind year over year. So I think that's certainly a good question on your part there. That is a driver.

Speaker Change: Okay. So 23 was net.

Speaker Change: $53 million ish, that's like 85, the net of those two line items interest expense and interest income.

Right.

Speaker Change: That's the comparison the $35 million of those two net.

Correct.

Speaker Change: Our modeling that correctly.

Speaker Change: I think yeah, you're yeah, youre right there you're right.

Speaker Change: Okay and real quick just curious.

Speaker Change: The backlogs are impressive and how far they go out I assume you're starting to have some conversations about 25 for the access business. Just curious obviously you know folks are aware yourself and others are adding capacity.

Mike Pack: The NPD is fairly spread over the course of the year, so there's not a big dynamic. I think if you were to look at all the quarters, what I would expect is that you're going to see, you know, that the two highest quarters are going to be the middle two quarters. I think we do certainly have startup expenses related to defense, so that comes into play as well.

Any conversation impact from these capacity additions I mean, we you know we know the players in Mexico and.

What they're looking to add in and not saying historically, they've penetrated the rental companies significantly but.

Speaker Change: You know maybe they're now.

Speaker Change: Getting around the import tariffs and so forth with the base in Mexico. So just curious what are the early conversations like with that capacity potentially coming out.

Mike Pack: And that's sort of over the course of the year. So I don't really see a step up necessarily in NPD, or those startup costs will be sort of heavy in the second quarter as well. So that's how I think of it. Just to be clear, the interest expense on Mike, on an absolute level, are you thinking of it for the full year around $100 million? That's the net interest income and the whole net. Look, net-net, I would say, net-net. I would expect that net interest expense is going to be up about $35 million versus the prior year. Okay, so 23 was net. 3 million. 5, the Netherlands, that's the Correct.

Speaker Change: Well I'll answer that John David I'll answer that question.

Speaker Change: You know when we look at the capacity, where we're adding in Jefferson City, Tennessee.

Speaker Change: Does a lot for us and it does a lot for our customers and we need that capacity and we studied this very carefully and we study it carefully even with our customers and I'm going to say that first of all with regard to tell of handlers.

Speaker Change: Jay LG has not really had significant inventory of tele handlers and probably.

Speaker Change: A decade, so when we make a significant investment to expand capacity. There really is a rigorous process that we use before we make any commitments when we survey the market our customers desire to have our brands and their fleets and.

David Michael Raso: I'm going to show you a model. Yeah, you're right there. You're right. Okay, and real quick, I'm just curious about the backlogs and how far they go out. I assume you're, you know, starting to have some conversations about 25 for the actual. Just curious. Obviously, you know, folks are aware that yourself and others are adding capacity. Any conversation impact from these capacity additions? I mean, we know the players in Mexico, what they're looking at, and not saying historically they've penetrated the rental companies significantly. You know, maybe they're now getting around the import tariffs and so forth with the base in Mexico. So just curious, what were the early conversations like? Well, I'll answer this, John, David; I'll answer that question.

Speaker Change: And we will also always build in our ability to pivot. If there is a market issue that arises we don't see a market issue on the horizon at all.

Speaker Change: We understand the competitive dynamics, but we also understand our position in the market and what our customers desire is for our product in their fleets and then we talk that includes our new AG end market.

Speaker Change: But we're already serving today and we see the significant opportunity that we have with the channels that we're serving there. So we feel that we have a very prudent well thought out capacity plan for access equipment in that capacity by the way. It doesn't just help us with tele handlers that also helps us with booms.

John C. Pfeifer: You know, when we look at the capacity we're adding in Jefferson City, that does a lot for us, and it does a lot for our customers, and we need that capacity, and we study this very carefully, and we study it carefully even with our customers. I'm going to say that, first of all, with regard to telehandling, JLG has not really had a significant inventory of telehandlers for probably a decade.

Speaker Change: Where we need more capacity because it frees up boom capacity for us in other places.

Speaker Change: So this is a well thought out plan.

Speaker Change: We have to have the capacity to continue to meet the needs of the market, which we expect to continue to grow.

Speaker Change: And that's in spite of whatever the competitive dynamics that we see alongside.

Speaker Change: <unk> as we continue forward.

Speaker Change: That's helpful. I appreciate the color. Thank you.

Speaker Change: Thanks.

Speaker Change: Our next question comes from the line of Mike <unk> with D. A Davidson. Please proceed with your question.

Mike Pack: Hey, guys good morning.

Mike Pack: Because I was curious why is the USPS told you about their readiness for receiving the first N G D DS and the higher run rates in 2025, and 2026, I guess I'm asking with respect to whenever Evs are sold.

John C. Pfeifer: So when we make a significant investment to expand capacity, there really is a rigorous process that we use before we make any commitments. And we survey the market. Our customers desire to have our brands in their fleets. And we will also always build in our ability to pivot if there's a market issue that arises. We don't see a market issue on the horizon at all.

Mike Pack: They're kind of readiness on the infrastructure for charging and then more broadly.

Mike Pack: The ability.

The driver training and training.

Mike Pack: Training.

Speaker Change: I'm, just kind of curious to see it.

Speaker Change: How confident you are that when you're ready and there'll be plenty to actually take the vehicles.

John C. Pfeifer: We understand the competitive dynamics, but we also understand our position in the market and what our customers' desire is for our product in their fleets. And then we talk, which includes our new ag end market that we're already serving today. And we see the significant opportunity that we have with the channels that we're serving. So we feel that we have a very prudent, well-thought-out capacity plan for access equipment. And that capacity, by the way, doesn't just help us with telehandlers.

Speaker Change: Yeah. Great question. This is John I'll answer it we work really closely with the United States Postal service, including you know myself and the Postmaster General I mean, we're very connected when we know.

John: Where they are planning to put them versus vehicle. The first vehicles, we know what their readiness is.

John: We are planning to work very closely with the United States Postal service to onboard vehicles and as you mentioned, you know training and making sure that things go really well in the early days, we talk about our slow ramp we start production in a couple of months when we talk about our slow ramp.

John C. Pfeifer: It also helps us with the telehandlers, where we need more capacity because it frees up boom capacity for us in other places. So, this is a well-thought-out plan. We have to have the capacity to continue to meet the needs of the market, which we expect to continue to grow, and that's in spite of whatever the competitive dynamics that we see alongside us as we continue forward. That's helpful.

Part of that slow ramp is because together with the United States Postal service, we want to make sure right from the beginning we really get this right and then we start to increase production more significantly in 2025 to get to full rate production in 2026, that's that's all well thought out together with the postal service.

John C. Pfeifer: I appreciate the caller. Thank you. Thank you. Our next question comes from the line to Mike Shlisky with D.A. Davidson.

John: Service to make sure that we're putting vehicles where.

John: We're ready to put vehicles in where the postal service is ready to put vehicles.

Please proceed with your question. Hey guys, good morning.

John C. Pfeifer: I guess I was curious, what the USPS told you about their readiness for receiving the first NGDVs and the higher run rates in 2025 and 2026? I guess I'm asking with respect to whenever EVs are sold, their kind of readiness for the infrastructure for charging, and then more broadly, the ability, the driver training, and the mechanic training. I'm just kind of curious to see how confident you are that when you're ready, they'll be ready to actually take the vehicle. Yeah, great question. This is John. I'll answer it. You know, we work really closely with the United States Postal Service, including myself and the Postmaster General. I mean, we're very connected.

John: So we feel like we've got a really good solid plan and in the postal services is.

John: Are really leading the way their development of being ready to take vehicles.

John: Okay.

Speaker Change: Great and just a follow up on defense more more broadly can you comment on the bidding pipeline you've got for various contracts.

Not grown over the last 12 months do you feel like that there's actually fewer opportunities out there maybe as a sub question. There just about the engine D V are there any.

Speaker Change:

Non military vehicles that you were looking at them.

Speaker Change: Couple of years as well, whether it's private fleets are et cetera.

Speaker Change: Delivery.

Speaker Change: So when you do the first part of your question that was related to last mile delivery vehicles, I think is that right.

Speaker Change: No I was asking actually asking more broadly about the defense spending pipeline General and then they can also asking for your comments typically on any private sector.

John C. Pfeifer: We know where they are planning to put the first vehicles. We know what their readiness is. We are planning to work very closely with the United States Postal Service to onboard vehicles and, as you mentioned, training and making sure that things go really well in the early days. We talk about our slow ramp.

Speaker Change: Maybe after 2026.

Speaker Change: Yeah, Okay. So first of all in our defense business, our core defense business. We've got a really solid foundation of programs and this is this is includes our core product of tactical wheeled vehicles.

John C. Pfeifer: We start production in a couple of months, and we talk about our slow ramp. Part of that slow ramp is because, together with the United States Postal Service, we want to make sure right from the beginning that we really get this right, and then we start to increase production more significantly in 2025 to get to full rate production in 2026. That's all well thought out together with the Postal Service to make sure that we're putting vehicles where we're ready to put vehicles and where the Postal Service is ready to put vehicles. So we feel like we've got a really good, solid plan, and the Postal Service is really leading the way on their development of being ready to take vehicles. Okay, great.

Speaker Change: <unk> of over $1 billion and this is a good portfolio of businesses I'm talking about post J L. T V really but that includes J L. T V for international customers, we have been investing a lot in winning programs in the combat space, which is really important for us because that's the priority for the department of.

Speaker Change: Fence, so that it's a place where we can showcase our capability and our technology and earn good margins, while we do it so when you look at that.

Speaker Change: One the Stryker vehicle, that's considered a combat program where.

Speaker Change: We're we want a prototype award for the <unk>, which is robotic combat vehicle, that's a big program.

John C. Pfeifer: And just to follow up on defense more broadly, can you comment on the bidding pipeline you've got for various contracts? Has that grown over the last 12 months? Do you feel like there are actually fewer opportunities out there?

Speaker Change: And we've won some other smaller programs as well when you add them all up it's really a healthy book of business.

And it set at a healthy margin level. When you look at some of those combat vehicles. You know the margins are better than our core tactical wheeled vehicle program. So as we go forward you know what our core defense business without the Dod's contract for J L. T V is a little bit smaller, but it's still a really hell.

John C. Pfeifer: Maybe as a sub question there, just about the NGDV, are there any non-military vehicles that you're looking at over the next couple of years as well, whether it's private fleets or etc. for delivery? So the first part of your question, which was related to last-mile delivery vehicles, I think, is that right? No, I was actually asking more broadly about the defense bidding pipeline in general, and then I was also asking if you had comments typically on any private sector that, Yeah, okay. So, you know, first of all, in our defense business, our core defense business, we've got a really solid foundation of programs, and this includes our core product of tactical wheeled vehicles for over a billion dollars. And this is a good portfolio of businesses I'm talking about post-JLTV, really, but that includes JLTV for international customers.

Speaker Change: The book of business for Us and we expect it to continue to be so and we'll continue to divide four and we'll continue to win some combat programs, along the way, which really helped to enhance that business.

Speaker Change: Thank you.

Speaker Change: Thanks, Mike.

Speaker Change: Our next question comes from the line of Steven Fisher with UBS. Please proceed with your question.

Thanks, Good morning, I'm, just curious how much visibility to margin do you think you have at this point and exits in 2024.

Steven Fisher: What could move it I mean, if you're sold out in.

Speaker Change: Presumably you know with <unk>.

Steven Fisher: You that Youre sold out I imagine you can lock in much of your costs for the year.

Steven Fisher: So how much of those costs do you have locked in and what could still move the margins from here.

Speaker Change: I think you're spot on from a cost perspective, we are from a loss perspective, we have a pretty meaningful locks on steel in place, particularly the hot rolled coil.

John C. Pfeifer: We have been investing a lot in winning programs in the combat space, which is really important for us because that's the priority for the Department of Defense so that it's a place where we can showcase our capability and our technology and earn good margins while we do it. So when you look at that, you know, we won the striker vehicle. That's considered a combat program.

Some contracts in place on plate as well you know there is well obviously continue to watch watch inflation, which is which is a still present as John said, but that's moderated. So you know I think it really comes down to production production throughput.

Speaker Change: Supply chain those types of things things that you would expect in a typical year because.

Speaker Change: Because we have a because of the great visibility we have.

John C. Pfeifer: We won a prototype award for the RCV, which is a robotic combat vehicle. That's a big program. And we've won some other smaller programs as well. When you add them all up, it's really a healthy book of business, and it's at a healthy margin level. When you look at some of those combat vehicles, you know, the margins are better than...

So overall, we'd say that entering the year, we feel as though we are pretty pretty good visibility to our margins.

Speaker Change: Okay, Great and then you have a 12 dollar EPS midpoint target out there for 2025 granted it was introduced almost two years ago and very different conditions.

Speaker Change: I'm curious, how you're thinking about momentum in in vocational and to some extent in defense I mean, it seems like there's going to be some debates about access direction for 2025 for a while or maybe you would disagree with that.

John C. Pfeifer: So as we go forward, you know, our core defense business without the DOD's contract for JLTV is a little bit smaller, but it's still a really healthy book of business for us, and we expect it to continue to be so, and we'll continue to vie for and win some combat programs along the way, which really helps to enhance that. Thank you. Thanks, Mike. Our next question comes from the line of Stephen Fisher with UBS. Please may I receive your question. Thanks. Good morning. I'm just curious, how much visibility to margins do you think you have at this point in access in 2024? What could move it?

Speaker Change: But I guess I'm curious at the moment.

Do you think you have enough positive momentum.

Speaker Change: In your say non access businesses or even in general just to hit your 2025 targets.

Speaker Change: Well the simple answer to your question is yes, I mean, we have continued.

Speaker Change: Continued to stand by our 2025 guidance.

Speaker Change: When you look at our business and we're a bit capacity constrained in 2024, but when you look at our business and what we're going to continue to do.

Mike Pack: I mean, if you're sold out, and presumably, you know, with the view that you're sold out, I imagine you can lock in much of your costs for the year. So how much of those costs do you have locked in? And what could still move the margins?

<unk> 2024, and the health of the end markets.

Speaker Change: We would we believe that and firmly believe that access is in a great position in the markets are strong we talked to our customers. All the time about what to expect beyond 2020 for.

Mike Pack: I think you're spot-on from a cost perspective, from a lock perspective, we have pretty meaningful locks on steel in place, particularly the half-rolled coil, you know, some contracts in place on plate as well. We'll obviously continue to watch inflation, which is still present, as John said, but it's moderated. So, you know, I think it really comes down to production, production throughput, supply chain, those types of things, things that you would expect in a typical year because we have, because of the great visibility we have. So overall, we'd say that, entering the year, we feel as though we have pretty good visibility into our margin. Okay, great. And then you have a $12 EPS midpoint target out there for 2025. Granted, it was introduced almost two years ago under very different conditions.

Speaker Change: When you when you look at some of the dynamics happening, we expect that to be a really good year as well in the access equipment segment, but then you look at all the other end markets that we're serving.

Speaker Change: You look at the material ramp in postal service vehicles in 2025, we look at the continued expansion of our vocational business in 2025.

Speaker Change: We've always.

Speaker Change: I have never wavered from our 2025.

Speaker Change: A long range guidance that we've provided.

Speaker Change: Terrific. Thank you.

Speaker Change: Thanks, Steve.

Speaker Change: Our next question comes from the line of Nicole Diblasi with Deutsche Bank. Please proceed with your question.

Yeah. Good morning, guys. Thanks for squeezing me in.

Nicole DeBlase: Hi, Nicole.

Nicole DeBlase: Hi, maybe just first question on location or another really strong quarter of order growth there anything on like the underlying businesses and the drivers of that strength.

Nicole DeBlase: Yeah.

Is there anything I'm sorry, I missed your question is there.

John C. Pfeifer: I guess I'm curious how you're thinking about momentum in vocational and, to some extent, in defense. I mean, it seems like there's going to be some debates about access direction for 2025 for a while, or maybe you would disagree with that. But I guess I'm curious at the moment, do you think you have enough positive momentum in your, say, non-access businesses, or even in general, just to hit your 2025 target? Well, the simple answer to your question is yes.

Yeah, just trying to understand like if you drill down so that you drive areas of location all individuals that says where the order strength is coming from that that's kind of across the board yeah. Okay. I'm I'm, sorry, I just I, maybe just missed misinterpreted your question sure Theres a lot of really healthy dynamics long term look at the <unk>.

Fire and emergency segment.

Nicole DeBlase: The fleets in the fire and emergency segment, our aged and you couple that with really healthy municipal budgets, that's continuing to propel municipalities across North America to continue to upgrade their fleets and then when you add to that some of the new technology that we're coming out with the volt Terra electric mute.

John C. Pfeifer: I mean, we have continued to stand by our 2025 guidance. When you look at our business, we're a bit at capacity- We look at the continued expansion of our vocational business in 2025. We've always and have never wavered from the 2025 long-range guidance that we have provided.

Nicole DeBlase: Full fire truck, that's going to continue to propel the market for we believe many years into the future as Theres a lot of municipalities around the country that are really be actively wanting to electrify their product and when they electrify with our product. This is not just a sustainability initiative. This is a performance.

Nicole DeBlase: Terrific. Thank you. Thanks, Steve. Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Please proceed with your question. Yeah, good morning, guys. Thanks for squeezing me in. Hi Nicole, hi.

Nicole DeBlase: <unk>.

Nicole DeBlase: And it's a total cost of ownership improvement for municipalities and their fire fleets you look at the environmental services business with our electric refuse and recycling vehicles, even the traditional product that we have this is a healthy market, where our customers are all continuing to look at our fleet.

John C. Pfeifer: Hi, maybe just the first question on vocational training, another really strong quarter of order growth there. Anything on the underlying businesses and the drivers of that strength? Is there anything, I'm sorry, I missed your question, yeah, just trying to understand like if you drill down to the key drivers of vocational training like the individual businesses where the order strength is coming from if it's kind of across the board, okay, I'm sorry, I just, I can interpret your question. Sure.

Nicole DeBlase: Placement and upgrading to electric vehicles in the future and that's what we're preparing to allow them to do the airport markets.

Nicole DeBlase: You look at the need for more capacity every time you here the CEO of a major airline talk about we need to continue to expand capacity there not just just talking about airplanes. Every time you add an airplane to your to your fleet you've got to add ground services equipment, you look at global Airport expansion that's continued.

John C. Pfeifer: There are a lot of really healthy dynamics, long-term. Look at the fire and emergency segment. The fleets in the fire and emergency segment are aged, and you couple that with really healthy municipal budgets, that's continuing to propel municipalities across North America to continue to upgrade their fleets. And then when you add to that some of the new technology that we're coming out with, the Volterra electric municipal fire truck, that's going to continue to propel the market for, we believe, many years into the future, as there are a lot of municipalities around the And when they electrify with our product, this is not just a sustainability initiative. This is a performance improvement, and it's a total cost of ownership improvement for municipalities and their fire fleets.

Nicole DeBlase: To go on with projected to continue to go on for years into the future. That's all that all continues to bode well for our aerotech business. So.

Nicole DeBlase: The dynamics in our vocational business are really really solid.

Speaker Change: Thanks, John and definitely encouraging to hear all of that and I guess just last question is capital allocation thoughts you guys have been pretty active on the M&A front lately how's the pipeline and should we expect maybe a bit more of a shift away from M&A since you're integrating air attack. This year. Thank you.

Speaker Change: I would not say that there would be a shift away from M&A. You know, we've got an always on mentality and if you really truly an acquisitive company you have to have an always on mentality because.

John C. Pfeifer: We look at the environmental services business with our electric refuse and recycling vehicles. Even the traditional product that we have, this is a healthy market where our customers are all continuing to look at fleet replacement and upgrading to electric vehicles in the future, and that's what we're preparing to allow them to do. In the airport markets, you look at the need for more capacity. Every time you hear the CEO of a major airline talk about how they need to continue to expand capacity, they're not just talking about airplanes. Every time you add an airplane to your fleet, you've got to add ground services equipment. And when you look at global airport expansion,

Speaker Change: Good M&A is in is a is a a process of patients. So to speak you really have to know where you want to acquire and you have to be very very patient until the right opportunity comes in if you don't have an always on a constant mentality of paying attention to where do you want to be and what what Tara.

Yes.

Speaker Change: Makes sense in terms of a fit for our company then you Miss the opportunities when they arise so it's really hard to predict when that's going to happen, but it will happen again and are always on pipeline well will be in play for the for for quite a while because we have a great balance sheet and we have the opportunity to continue to add.

John C. Pfeifer: Projected to continue to go on for years into the future. That all continues to bode well for our aerotech business. The dynamics in our vocational business are really, really solid. Thanks, John. Definitely encouraging to hear all of that.

Speaker Change: Value to this company by doing that now having said that we always expect to return 25% to 35% of our free cash flow to shareholders. We continue to increase our dividend that you saw today and where it will continue to do share buybacks and we kind of way, we kind of weigh that together with <unk>.

John C. Pfeifer: And I guess my last question is capital allocation thoughts. You guys have been pretty active on the M&A front lately. How's the pipeline and should we expect maybe a bit more of a shift away from M&A since you're integrating Aerotech this year? Thank you. I would not say that there would be a shift away from M&A; we've got an always-on mentality. You know, if you're really, truly an acquisitive company, you have to have an always-on mentality because a good M&A is a process of patience, so to speak. You really have to know where you want to acquire, and you have to be very, very patient until the right opportunity comes, and if you don't have an always-on, constant mentality of paying attention to where you want to be and what targets make sense in terms of a fit for our company, then you miss the opportunities when they arise.

Speaker Change: When we have opportunities to make acquisitions. So I think that's the color that I'll add in on that.

Speaker Change: Makes total sense. Thank you.

Thank you. Our final question comes from the line of Steve Barger with Keybanc capital markets. Please proceed with your question.

Robert Stephen Barger: Thanks, John to your comment on being capacity constrained. This year can you quantify the level of incremental capacity for 25 that you expect relative to the $10 4 billion revenue guide this year.

Robert Stephen Barger: Certainly there's a step up I guess, it's kind of early to quantify it.

John: Steve, but there there's a meaningful step up if you think about the Dan Murphy's borough.

John C. Pfeifer: So it's really hard to predict when that's going to happen, but it will happen again, and our always-on pipeline will be in play for quite a while because we have a great balance sheet and we have the opportunity to continue to add value to this company by doing that. Now, having said that, we always expect to return 25 to 35 percent of our free cash flow to shareholders. We continue to increase our dividend, which you saw today, and we'll continue to do share buybacks, and we kind of weigh that together with when we have opportunities to make acquisitions. So I think that's the color that I'll add to that, makes total sense.

John: Facility for vocational, which is an 800000 square foot facility or 800000 square foot plus.

John: We're gonna have postal coming online next year, which is which is going to be a meaningful contributor that the revenue contribution is pretty small it's going to be meaningful and I think talk talking about 'twenty 'twenty five that that's going to be a meaningful contributor to profitability and of course, we've talked about access having you know there's there's a lot of capacity that that'd be it.

John: Tons available that you're not necessarily going to have year, one sales on that but we're really investing for the long term. So when we see stuff up opportunities there as well so as we look to next year. We just don't see the same level of constraints that we're facing today.

Nicole DeBlase: Thank you. Thank you. Our final question comes from the line of Steve Barger with KeyBank Capital Markets. Please proceed with your question.

John: I guess does does that suggest that organic growth you know X price could be like 10% or should we be thinking mid single digits just to help level set how people are expecting.

Robert Stephen Barger: John, in response to your comment on being capacity constrained this year, can you quantify the level of incremental capacity for 25 that you expect relative to the $10.4 billion revenue guide this year? Certainly, there's a step up. I guess it's kind of early to quantify it, Steve, but there's a meaningful step up if you think about the Murfreesboro facility for vocational training, which is, you know, an 800,000 square foot facility or 800,000 square foot plus.

John: The profitable growth commentary that you talked about in the press release.

Speaker Change: Yeah, I don't know that I'm comfortable to give you a number right now, but lets just say in 2020 five we expect it to be a material number.

Speaker Change: Got it and then.

Speaker Change: Just one quick one John going back to your comments on direct commercial sales for J L. T. V are those predictable enough that you're building some of that into your internal model for 25 and beyond or is that unpredictable, meaning some years will be zero in some years it could have a material benefit.

Mike Pack: We're going to have postal coming online next year, which is going to be a meaningful contributor, although the revenue contribution is pretty small. It's going to be meaningful. And I think, talking about 2025, that it's going to be a meaningful contributor to profitability. And of course, we've talked about access having, you know, there's a lot of capacity that becomes available that, you know, you're not necessarily going to have year-one sales on that, but we're really investing for the long term. So we see step-up opportunities there as well. So as we look to next year, we just don't see the same level of constraints that we're facing today.

John: I don't think we'll see years that'll be zero. That's for sure you know let me let me just suffice it to say that those are that's really good business for us.

John: It's typically hundreds of units per year, not thousands, which it would be for the D. O D, but when I say that I will say that it's not gonna be surprising to hear that it's continuing to grow.

John: That the international direct direct sales are continuing to grow and I think unfortunately, we all know why there's unfortunately conflict in the world and that conflict creates a desire for many countries to continue to shore up their D O D budgets.

Mike Pack: I guess, does that suggest that organic growth, you know, X price, could be like 10%, or should we be thinking mid single digits just to help level the playing field with how people are expecting, you know, the profitable growth commentary that you talked about in the press release? Yeah, I don't know that I'm comfortable to give you a number right now, but let's just say in 2025, we expect it to be material. Got it. And then just one quick one, John, going back to your comments on direct commercial sales for JLTV, are those predictable enough that you're building some of that into your internal model for 25 and beyond? Or is that unpredictable, meaning some years will be zero, and some years could have a mature result. I don't think we'll see years that will be zero.

And I think that that's why we're seeing growth in those direct sales too.

Two international customers that we have.

Speaker Change: And just one quick follow up on that how long is the approval process or is there an approval process or can you basically take an order and ship.

Speaker Change: For direct commercial sales of its largely going to be direct commercial sales that there is an approval process that it goes through.

Speaker Change: Understood, but is that a quick typically pretty quick or can there be you know.

Speaker Change: Months or quarters normally normally that's pretty straightforward you know there could be certain customers, where its a little bit more involved but normally as you know.

John C. Pfeifer: That's for sure. You know, let me just suffice it to say that that's really good business for us. Typically, hundreds of units per year, not thousands, which it would be for the DoD. But when I say that, I will say that it's not going to be surprising here that it's continuing to grow, that international direct sales are continuing to grow, and I think, unfortunately, we all know why. There is, unfortunately, conflict in the world, and that conflict creates a desire for many countries to continue to shore up their DOD budgets.

Speaker Change: Theres a process, but we understand the process, we know how it works and it's pretty straightforward thinking months not not yours.

Speaker Change: Got it okay. Thanks, so much.

Speaker Change: Thanks, Steve.

Speaker Change: Yeah.

Speaker Change: Mr. Davidson I would now like to turn the floor back over to you.

Great. Thanks, Christine and thanks for joining us today, everybody. We're pleased to be entering 'twenty 'twenty four with momentum and a strong outlook, we will be participating in several analyst conferences in February and March perhaps we'll see you there and please reach out to US. If you have any follow up questions have a great day.

John C. Pfeifer: And I think that that's why we're seeing growth in those direct sales to international customers. And just one quick follow-up on that: how long is the approval process, or is there an approval process, or can you basically take an order and ship? For direct commercial sales, it's largely going to be direct commercial sales where there is an approval process that it goes through. Understandable, but is that typically pretty quick, or can there be, you know, months or quarters?

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

John C. Pfeifer: Forward, you know, there could be certain customers where it's a little bit more involved, but normally, you know there's a process. But we understand the process. We know how it works, and it's pretty straightforward. Think months, not years. Got it. Okay. Thanks so much. Thanks, Steve. Mr. Davidson, I would now like to turn the floor back over to you.

Great. Thanks, Christine. And thanks for joining us today, everybody. We're pleased to be entering 2024 with momentum and a strong outlook. We will be participating in several analyst conferences in February and March. Perhaps we'll see you there.

Operator: And please reach out to us if you have any follow-up questions. Have a great day! Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day!