Oshkosh Corporation (Holding Company)Common Stock

Greetings and welcome to Oshkosh Corporation reports fiscal 2020 second quarter results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Pat Davidson, Senior Vice President of Investor Relations for Oshkosh Corporation. Thank you. You may begin.

Good morning and thanks for joining us. Earlier today we published our second quarter 2020 results. A copy of the release is available on our website at OshkoshCorp.com. Today's call is being webcast and is accompanied by a slide presentation which includes a reconciliation of GAAP and non-GAAP financial measures that we will use during this call and is also available on our website. The audio replay and slide presentation will be available on our website for approximately 12 months. Please refer now to slide two of that presentation. Our remarks that follow, including answers to your questions, contain statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described in our Form 8-K file with the SEC this morning and other filings we make with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. All references on this call to a quarter or a year are to our fiscal quarter or fiscal year, unless stated otherwise. Our presenters today include Wilson Jones, President and Chief Executive Officer, John Pfeiffer, Executive Vice President and Chief Operating Officer, and Mike Pack, Executive Vice President and Chief Financial Officer. On our last call, we introduced Mike as our CFO successor. He hit the ground running back in January, and today he'll be reporting on our financial results and discussing some of the actions we are taking. He's not a newcomer to Oshkosh. He's been with us for 14 years in roles of increasing responsibility and will continue to be a strong part of our leadership team going forward. So welcome to you, Mike. Please turn to slide three, everybody, and I'll turn it over to you, Wilson. Thank you, Pat.

Good morning, everyone. Before I share my general comments, I want to take a step back and remind everyone that we are truly a different Integrated Global Industrial Company. We are better positioned to navigate through a crisis like COVID-19 than ever before. We have a strong balance sheet and liquidity. We have strong backlogs in our defense and fire and emergency segments, giving us visibility well into 2021. And we have a strong people first culture driven to persevere through adversity. We responded quickly to the outbreak and have already developed a robust return to work plan that we continue to refine. With that said, we're all facing challenges brought on by the COVID-19 pandemic. Our first priority has been to keep our team members safe and to help reduce the spread of this virus. We're balancing that safety-focused approach with our responsibilities to customers as we supply them with essential products and services that operate in many critical industries. In fact, all of our products and services are considered essential. And we've received communication from the Department of Defense, requesting us to continue manufacturing defense vehicles and fire trucks. It's a tremendous responsibility, and we are proud of the important role we play in keeping our country safe. Our teams moved quickly when the virus came to light in the first part of the quarter. At that time, the business impact was isolated to China and didn't become a major issue in Europe or North America until later in the quarter. But we didn't wait. We began daily action meetings, including all key functional areas to assess risk regarding our people, our customers, our operations, our supply chains, and our communities. We've analyzed many scenarios as we strive to balance team member safety and protection while maintaining operations to serve our customers. Our office team members remain productive and are working remotely. For those team members required to be on site for production, we've implemented Center for Disease Control recommendations to promote social distancing, and to help keep our workplaces safe. We've gone beyond these stringent guidelines with staggered breaks and work schedules and increased access to disinfecting cleaning supplies and sanitizers. And our teams are investing time to extensively clean work areas to minimize the chances of infection among our 15,000 plus team members. I want to give a shout out to all Oshkosh team members for their passion and commitment, especially our manufacturing teams that are answering the call every single day. With near-term demand and supply chain challenges facing our businesses, we are squarely focused on managing our cost structure and preserving liquidity. We've instituted temporary plant shutdowns in our access equipment segment to match production and customer demand and supply chain constraints. And we've implemented salary reductions, furloughs, and other cost reduction actions across the company. We believe these cost reductions are a responsible way to manage the company during these unprecedented times. We have not made permanent staff reductions as we believe the crisis is temporary in nature. We've been through many challenges before and while COVID-19 is different, our business is well positioned to manage through this pandemic. I remain confident in our leaders, our people, and our ability to deliver healthy, detrimental margins for the year. Please turn to slide four for some highlights on the quarter. Revenues were down 9.7% to $1.8 billion leading to operating income of $134 million and adjusted earnings per share of $1.25. I'm proud of all the efforts the Oshkosh team members provided this quarter, and our people-first culture is alive and well to deliver these solid results. Late in our second quarter, we began to hear from customers in our access equipment segment that wanted to push out delivery requirements and cancel some existing orders. There were similar requests, but to a lesser extent, with our commercial segment. While COVID-19 has impacted demand in our access and commercial segments, demand was largely unaffected in both of our fire and emergency and defense segments. And these two segments have strong backlogs extending well into 2021 as we enter the back half of 2020. Again, this illustrates what makes us different from other industrials. John and Mike will talk more about these developments and the actions we are taking to drive our performance during this period. During the quarter, we did refinance our senior notes that were due in 2025, extending the maturity and lowering the interest rate, which will save us several million dollars per year. The market demand was very strong for our investment grade debt. And finally, our board has approved another quarterly dividend payment of 30 cents per share. Please turn to slide five to begin the discussion for each of our business segments. I'll start it off with defense. Our defense segment provides a solid foundation for the company, led by three strong programs of record, and the demand side of this business has been unaffected by the COVID-19 pandemic. You know the programs by their military acronyms, the JLTV, the High Tech Next Generation Light Payload Protected Tactical Wheeled Vehicle. JLTV production is still ramping up and we announced two more international customers for JLTVs in February. We also participated in the U.S. Army's Industry Day in preparation for a potential re-compete of the program in 2022. We are confident in our ability to retain this program. Under the current contract, we maintain strong visibility and expect to deliver JLTVs through 2024. Next up is the FMTV, which is the U.S. Army's medium payload tactical wheeled vehicle. Our production of the current A1P2 version is winding down, we are beginning the transition to the next generation version, the A2. We expect to produce the FMTV A2 through 2026 under the current contract. And finally, the pride of Oshkosh Defense for nearly 40 years, the FHTV. We really kicked off the modern off-road heavy payload tactical wheeled vehicle industry when the U.S. Army selected our entry in their open competition in the early 1980s. We've continued integrating new technologies and upgrading capabilities of these critical units over the past four decades. During the quarter, we received large orders for both the JLTV and FHCV programs that positively impacted our quarterly performance and increased our backlog. In fact, we now have the largest backlog for defense in the last eight years at $3.4 billion, including nearly $2 billion for 2021. Our team at Oshkosh Defense works very hard to deliver strong results, and that was the case again this quarter. While demand remains strong in our defense segment, the team still faces production challenges due to the COVID-19 related supply chain disruptions and workforce availability. They have successfully navigated through numerous supplier shutdowns by resourcing critical components, and they have addressed workforce issues with social distancing and increased cleaning frequency to enable continued production. However, it's possible these factors could cause a slowdown in the coming months. Let's turn to slide six, and I'll pass it to John to discuss our non-defense segments.

Thanks, Wilson, and good morning, everybody. Coming into the year, we expected lower access equipment sales in North America and Europe, but we did not expect the effects of the COVID-19 pandemic. The shock to the business landscape is being felt most intensively in this segment. But in spite of the COVID-19 disruption, which drove significantly lower sales as well as supply chain disruption, our access equipment team delivered another solid quarter with strong decremental margin performance. Led by our simplification drive, we have created a more nimble organization, resulting in healthy operating margins at lower sales levels. The impact of COVID-19 was first felt in China as our business was part of the government's mandated shutdown to stop the spread of the virus. The shutdown extended three weeks beyond the Chinese New Year, and with the entire country largely closed, sales in China basically stopped. The shutdown eventually ended, and I'm pleased to report that our Tianjin facility is back up and currently running at pre-COVID-19 levels. All of our team members have returned to work and demand has begun to come back rapidly. We expect a strong second half of 2020 for JLG sales in China. Our long-term outlook in China remains positive as a result of product adoption driven by safety and productivity improvements provided by these products. However, as COVID-19 began to spread globally in the back half of the quarter, and many countries and states issued shelter-in-place restrictions, many customers began to push out and even cancel some orders. Our North American customers have been reviewing their operational requirements and market metrics. They have kept us well informed of their product demand requirements. The situation is fluid, and we are adjusting based upon our frequent communications and daily review process. Further, our North American operations and supply chains are experiencing disruptions as some suppliers have temporarily ceased production. As a result of slowing customer demand, as well as production and supply chain constraints, our plants in North America instituted shutdowns from March 30th through April 13th and subsequently extended those shutdowns until April 27th. In addition, two-week shutdowns are planned monthly through July to further align production levels with customer demand. We expect Europe's demand decrease to be more pronounced than North America's as already slower construction activity is expected to decline further due to COVID-19 related government mandates. We also expect that major disruptions to first and second tier suppliers will persist as the market reacts to COVID-19 operating restrictions. I'd like to finish my comments on JLG by sharing some of the game-changing new products and future technologies displayed to our customers at ConExpo. They highlight our continued positive long-term outlook for this market and the segment. These included all-electric scissor lifts, which completely eliminate hydraulic fluids. a self-leveling 67-foot boom that provides unparalleled versatility on rough terrain job sites, as well as augmented and virtual reality tools that simplify training and job site awareness. These innovations drive significant productivity improvements for fleet operators and users of the machines. Our team at Access Equipment is experienced and highly capable. We are working closely with customers and suppliers to position the business for success when the current situation improves. Please turn to slide seven for a discussion of the fire and emergency segment. Pierce is the market leader in custom fire trucks with its broad offering of pumpers, aerials, and heavy-duty rescues. Fire trucks remain critical assets to first responders battling the COVID-19 pandemic on the front lines, and our commitment to these heroes never wavers. Pierce just completed its largest quarter of fire truck orders in the company's history, leading to a record backlog of more than $1.3 billion for the segment. New order intake may slow in future quarters because of COVID-19, but it puts us in a strong position and provides visibility well into 2021. Despite strong demand, COVID-19 is impacting the fire and emergency segment in several ways. Supply chain disruptions, workforce availability, and modified customer delivery inspections. Much like our defense business, our team in fire and emergency continues to drive strong performance but they are facing challenges that are broadly in line with all truck and automakers in North America. We did not achieve our revenue target for the second quarter due to the combined effects of COVID-19 related customer travel restrictions and a supplier quality issue that impacted our truck delivery schedule. The supplier quality issue arose when one of our raw material suppliers delivered product that was out of specification. The issue surfaced during the quarter and we quickly identified all products that required replacement materials. This necessitated changes in both our production and delivery schedules, driving labor inefficiencies and shipment delays. Conforming product has been received and we expect to catch up by the end of the year. Customer travel restrictions sparked our team to launch an innovative new virtual inspection process for firefighters to approve their fire trucks. The process was launched very recently, so the benefits were minimal in the second quarter, but we expect fire departments to utilize this approach more frequently in the coming months. Looking to the remainder of 2020, we're expecting North American vehicle manufacturers, ourselves included, to be impacted by COVID-19 supplier shortages. Please turn to slide eight, and we'll talk about our commercial segment. Like our other segments, operations and commercial have remained open since these products are considered essential. COVID-19, however, is impacting mixer product demand as construction sites in some states face temporary shutdowns and customers look to push out deliveries of our units. There are some order push outs in the RCV and IMT product lines as well. Similar to our other segments, we have supply chain challenges as many suppliers limit their production or shut down due to shelter in place requirements. We have generally been successful mitigating these challenges to date, but it is possible that a part or component shortage could limit production temporarily in the coming months. Even with those challenges, we continue on our simplification journey. We are also active with the ramp up of our new front discharge concrete mixer. the S Series 2.0, complete with connectivity and productivity technology not previously seen in the concrete placement industry. We formally launched the vehicle at ConExpo in early March. Attendees of the show were excited about the new vehicle, and we already have a solid backlog of orders. That wraps it up for our business segments. I'm going to turn it over to Mike to discuss our second quarter results and some additional comments on current business conditions and the actions we're taking.

Thanks, John. Good morning, everyone. Please turn to slide nine. We commented on our last earnings call that we expected second quarter sales to be roughly flat to the prior year with earnings modestly lower. However, the situation changed with the COVID-19 outbreak. Consolidated net sales for the quarter were $1.8 billion, down 9.7% from the prior year quarter. Lower access equipment and fire and emergency sales were the primary drivers of the lower consolidated sales, offset in part by higher defense sales. Access equipment sales were negatively impacted by pushouts in customer delivery requirements as a result of COVID-19. Prior to the emergence of COVID-19, we expected a modest decrease in access equipment sales as a result of rental company customers in North America slowing down their capital expenditures for fleet expansion after two strong years of growth. Defense sales growth in the quarter reflected the continued JLTV production ramp, partially offset by lower FHTV volumes. Fire and emergency sales were lower due to the previously mentioned supplier quality issue that impacted the shipment of units and COVID-19-related travel restrictions, impacting customers' abilities to inspect and accept completed units. These shipment delays also contributed to an unfavorable product mix. And commercial segment sales were approximately flat to the prior year quarter, reflecting an increase in refuse collection vehicle sales, offset by a decrease in concrete mixer sales, as the commercial team was ramping up production of the new S-Series 2.0 front discharge mixer in the current year quarter. Refuse collection vehicle sales were negatively impacted in the prior year quarter by a partial roof collapse at the segment's main production facility. Consolidated operating income for the second quarter was $133.6 million or 7.4% of sales compared to $175.6 million or 8.8% of sales in the prior year quarter. Access equipment operating income declined on lower sales and unfavorable manufacturing absorption as a result of the planned slowdown in production, offset in part by lower management incentive compensation expense, lower amortization expense, and favorable product mix. Defense operating income increased as a result of higher sales volumes, offset in part by adverse mix, higher warranty costs, and higher new product development investment. Fire and emergency second quarter operating income declined due to unfavorable product mix, lower sales volume, and manufacturing inefficiencies. These items were partially offset by improved pricing. Commercial segment second quarter operating income increased compared to the prior year as a result of improved manufacturing absorption as absorption was negatively impacted by the partial roof collapse in the prior year quarter offset by higher litigation and manufacturing startup costs. Adjusted EPS for the second quarter was $1.25 compared to EPS of $1.82 in the second quarter of 2019. Second quarter results benefited by $0.03 per share from share repurchases completed in the prior 12 months. As Wilson mentioned, we successfully refinanced our $250 million 5.375% senior notes due 2025 with $300 million 3.10% senior notes due 2030. We used the additional proceeds to pay down the company's senior secured term loan by $50 million. We expect the refinancing to reduce interest expense by approximately $5.5 million per year. Please turn to slide 10 for a discussion on the remainder of fiscal 2020. As a result of the evolving impact of COVID-19, including the impact on our customers, suppliers, and our team members and production facilities, we withdrew our 2020 financial expectations on March 23rd. Many of these uncertainties remain, so we are not in a position to provide updated guidance for 2020 at this time. In light of these uncertainties, we took decisive action to reduce pre-tax costs by 80 to 100 million dollars for the remainder of the year. These cost reduction actions include salary reductions, furloughs, temporary plant shutdowns, limiting travel, and reducing project costs and other discretionary spending. Our balance sheet remains strong with available liquidity of approximately 1.2 billion dollars consisting of cash of approximately $400 million and availability under our revolving line of credit of approximately $800 million. During the quarter, we paused our share repurchases and we will reevaluate them as we gain further clarity on the year. We are also reducing plan capex by approximately $40 million. We believe the third quarter will be our most challenging quarter for all segments, which will impact sales, operating income and decremental margins. Our access equipment segment faces uncertain customer demand and a risk of supplier shortages of critical components as a result of COVID-19. As discussed earlier, we have implemented temporary plant closures to help balance production and supply chain constraints with revised customer demand. Our defense and fire and emergency segments both have strong backlogs and both segments are essential so production continues. However, both segments face a risk of supply chain shortages and workforce availability, which may interrupt production and drive inefficiencies. In addition, customer travel for final inspections could remain a challenge in fire and emergency. Similar to access equipment, our commercial segment is facing more uncertainty in customer demand combined with a risk of supplier shortages and production interruptions. Our operations team members across the company are working diligently to stay safe and flexible so that we can manage production as effectively as possible during this dynamic period. Please turn to slide 11 and I'll turn it back over to Wilson now for some closing comments.

Thanks, Mike. The entire world is going through a challenging time. However, we believe Oshkosh is well positioned to weather these challenges. We have a strong balance sheet and liquidity. Our defense and fire emergency backlogs provide visibility well into 2021, and we have quickly taken the right actions to manage our cost structure. While we may face further production and supply chain disruptions in the coming months, we are resilient and will adapt and continue to leverage our different integrated global industrial model. I am reassured by the strength and resourcefulness of our team. We are better together and will take the right actions to ensure the safety of our team members as we do business the right way. We are communicating frequently and transparently as we manage the company through the current landscape and believe we can deliver solid sales and earnings performance over the long term. I'll turn it back over to Pat to get the Q&A started.

Thanks, Wilson. I'd like to remind everyone, please limit your questions to one plus a follow-up. And after the follow-up, we ask that you get back in queue if you'd like to ask an additional question. Operator, please begin the question and answer period of this call.

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation cell will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Jerry Revich with Goldman Sachs. Please do with your question.

Yes, hi. Good morning, everyone, and I'm glad you're all doing well. I'm wondering if we could talk about the really strong decremental margins performance that you folks delivered in access equipment given the deterioration of March. That really stood out. And, you know, as we think about the planned shutdowns in April, I'm wondering how would you counsel us to think about the sustainability of decremental margin performance that you folks just delivered given the more challenging environment in the business in April and hopefully a pickup activity in May and June. Can you just maybe step us through the moving pieces directionally? That'd be helpful.

Morning. As we look at it, we're certainly very pleased with the performance of access equipment in the quarter from a decremental standpoint. And it's really a testament that as we saw the situation unfold, they jumped on those cost reductions very quickly. As we look to the rest of the year, I'd really point to, particularly at Access, look at it on a full year basis. We're looking at a variety of scenarios, of course, really looking at it anywhere from a stop to be to elongate a due. We have a playbook really to manage each one of those various scenarios, and we're going to continue to watch, certainly as it unfolds. We're comfortable within a a range of reasonable scenarios that we're going to maintain sort of mid-20s decrementals in access. But again, I would really look at on a full year basis.

Okay. Thank you for the color. And then in terms of the defense segment, you mentioned WICU would be challenging across businesses. Can you just update us on contract report timing? And can you just confirm that the challenging quarter comments does apply to defense? Is that just caution around parts availability? If you wouldn't mind fleshing that point out, please.

Yeah, you're spot on. From a demand perspective, it's the demands there. Our plants are operating. It's really a function of managing through the supply chain and workforce availability.

I think the overall comment of Q3 being our challenging quarter, Jerry, is really for all four segments. not just the fence.

So, it sounds like, just in clarification, it sounds like we haven't seen any big supplier disruptions yet, but obviously, given the environment, it's appropriate to be cautious, but we haven't seen anything yet that says 3Q will be a challenging quarter for the fence. It's just prudent at this point.

Well, we've had supplier constraint issues in all segments and in defense. Again, our global procurement supply chain team has been all over this. We're managing suppliers as they're – are they in business? Are they out? Are they – even from a liquidity standpoint, how are they doing? And we've been able to resource to some other suppliers. So they're still kind of a slippery slope ahead of us as we work through this quarter. The team has done a nice job of navigating at this point, but we have had a few disruptions that we've been working around and will continue to work around.

We've had, just to give you a little bit more color, we've had literally hundreds of suppliers that have ceased production for anywhere from two to six weeks. So you can kind of understand the amount of... work we have to go through to make sure we keep our operations running when we're in that environment.

Appreciate the discussion. Thank you.

Thanks, Jerry.

Our next question comes from the JP Morgan. Please see with the question.

Hi, good morning. Good morning. Just on the defense again, are you saying that you will not be able to deliver the 4,000 to 4,500 units of JLTV that you had anticipated earlier?

No, we're not saying that, Ann. We're just saying that there's going to be some choppiness in this quarter as we continue to work with our supply chain on some shortages. You know, there's... As you can imagine, different states are under different operating procedures, so it's just going to be a little choppy as we go through the rest of the year, but our expectation is that we'll continue to navigate. We may have some slowdowns, but the team is prepared to continue to work, and there's always, in our scenarios, opportunities to catch up. The good news is we have the backlog, and the team is disciplined and executing well with that and working around these issues.

Okay, I appreciate the color. So maybe, you know, some overtime or something in the fourth quarter will help make catch-up. Is that kind of what you're thinking at this point?

Well, yeah, we'll have to see, Ann. I mean, right now we haven't had any slowdowns in defense. There's been some inefficiencies with, you know, your workplace absenteeism and some of these supplier constraints, but they're running pretty close to their initial production levels.

Okay, great. And then just to follow up on the access side, you said that shutdowns will continue every two weeks for another couple of months. Can you just expand on that? Does that mean you'll be operating two weeks per month? Or just a little bit more color around your comments there would be helpful. Thanks.

Yeah, Ann, this is John Pfeiffer. So to give you a little bit of understanding, so first of all, today, all of our access plants are running today with the exception of Medias in Romania. So essentially, we're up and running today. We're doing a very careful job of matching our production rates with demand rates. And demand rates right now are very low because there are hundreds of job sites that are down, construction sites that are down, more job sites that are down. 44 states are in shelter in place. There's just not much activity going on. And therefore, there's very low demand for our equipment going into our rental customers right now. So we're, you know, we took four weeks of production out in the month of April. We're expecting we'll take more weeks out as we go through the third quarter. We're expecting that to be the worst quarter, the toughest quarter as we start to turn the lights gradually back on in the economy. So we're just doing a very careful job of prudent production and not overproducing during this period of time.

I think just to add to that too, and you know May, June, those are the big, normally the big construction months. And so, you know, there's a lot of things we know and that we're executing well from a team standpoint, but the unknown is what's May and June going to look like. As John mentioned, more space. are starting to open up again. We heard a couple this morning that are reopening from a construction standpoint. So we'll measure that, stay close to it as we go. But May and June are going to tell us a lot about the back half of this year.

Okay. So just to be clear, and I'll turn it over, for fiscal Q3, do you have an expectation of like the percent of days available that you'll be down in access?

We talked about two weeks. Yeah, two weeks per month. Yeah. You know, it gives you an indication.

Two weeks per month for April, May, and June.

Correct.

Okay. I just want to make sure I get the number.

April was four. Yeah. And then it's two for the remaining two months.

Okay. Perfect.

So more than half and we'll be down basically of the quarter.

Perfect. That's exactly what I was looking for. Thank you. I appreciate the color.

Thanks, Ian. Thanks.

Our next question comes from the line of Stephen Vogel with Jeffries. Please, start with your question.

Hi. Good morning, guys. If I could do one final AWP question. How should we think about sort of the revenue run rate in China in that business since that seems to be sort of back up and running?

Yeah, so China is – where we saw this COVID-19 impact hit us first, so it kind of gave us an early view of what was going to happen. We were down for three weeks in China following the Chinese New Year, and everything was basically shut down in China. Hard stop, three weeks. We came back up gradually as employees could start to return to work, depending on where the restrictions in their local communities were. And we're now back at full production in China and demand has rapidly returned. So we have seen a V type of a shutdown in China. That's a very positive scenario. We would love it if we see a V in the US. However, we're not counting on a V in the US. We have a playbook of actions. And as we can predict more closely and more carefully as this unfolds, what's going to happen, we'll execute that playbook. But we think that the economy is going to start to come back to life, but it's going to be a little bit of a dimmer switch. And we don't know the rate of speed with which that dimmer switch is going to get dialed up. And so we have to be very careful as to using that playbook appropriately.

Okay, and just any order of magnitude of how big that business is for you these days?

China today, you know, single-digit percent of our revenue, but it's getting bigger every year because it's in strong growth mode. I mean, strong double-digit growth mode. So it becomes more material every year that goes by, and we feel really good about the future of that business.

We still expect in the next four to five years, if it stays on this pace, Steve, the boom market in China will be as big as what it is in Europe.

Great. Okay. Thank you, guys. Thanks, Steve.

Our next question comes from the line of Mike Schliske with Doherty & Company. Please, do you have a question?

Hey there. Good morning, guys. Good morning, Mike. So in AXS, I noticed that your telehandlers were down a bit less than AWPs. and your other which I guess might be, I don't know, J or Dan was actually almost flat for the quarter. Is the telehandling outperformance relatively due to some of their kind of usage in, you know, like logistics and delivery during the quarter? And maybe some color as to why the other stuff was actually flat during the quarter.

Certainly, there is a lot of timing aspects. If you look at the quarter, our revenue for access was down about $200 million versus our expectations, so you certainly had some movement in terms of what we had planned. I guess just generally, we don't expect to see any notable mixed shifts over the course of the year, first half to second half, really being a big driver.

Okay. Just a quick one on defense. Great to see you guys have some more countries looking to buy the JLTV and place some orders here. Have other countries since the COVID-19 issue hit, have they at all changed their quantities that they're looking at that they might order? Have they changed how often they look at their products, et cetera? Has that changed for the back half of the year or the first part of 21?

No, Mike, I would say that hasn't changed. We know there are numerous countries at various stages in the SMS process. Roughly over 10 countries have been showing interest in, again, various stages of that SMS process. But we've heard no negative responses coming out of them due to the COVID-19 crisis that they're stopping or changing their quantities going forward.

Okay, excellent. I'll pass it along. Thank you.

Thanks, Mike.

Our next question comes from .

Please do with your question. Yes, thank you. Good morning, everyone, and Mike, welcome to the calls. Thanks. Maybe, excuse me, a little clarification on the announced savings. Can you talk a little bit about the cadence, you know, Q3, Q4? I'm also curious as to how these savings get allocated at segments versus the unallocated corporate expense line item, which was down quite a bit in the quarter. Obviously, you're managing that number pretty aggressively. And then my interpretation of your discussion on these savings is that they're temporary in nature. So I guess what I'm wondering here is do we sort of see these costs come back into the P&L ramping up with volume, or is this more of a kind of a calendar year sort of rather fiscal year situation where as we go into fiscal 21, we see a more normalized expense base? So yeah, maybe we can start there.

Okay. Miguel, I'll start off with the first part of your question just in terms of the cadence. We did see some benefit already in Q2. We took action right away in March. We really see it fairly evenly spread through the back half of the year, those savings. I guess from a segment standpoint, you can imagine just it's proportionate to the level of activity and change that we're seeing from a customer demand perspective. Again, more heavily weighted towards for its access, but really hats off to the team that everyone really stepped up in a hurry. And even those segments with access, or excuse me, defense and F&E that have the bigger backlogs are participating in it. So we see that in the back half of the year, fairly even.

Yeah, Mick, I'll jump in on the – I'm sorry, you have a question on the cadence?

Back to Mike. No, I was just looking for clarification on the corporate expense line item, too, but maybe you were going to address that.

Oh, corporate as well. Similar to the other segments, we took aggressive cost action here as well at the corporate offices. So it's, again, all segments and corporate participated in an aggressive manner on it.

Yeah, and as far as temporary nature, what I would say is you know, we're still working through our view and the landscape of access going forward. I think we've said temporary. Our customers' commentary has been consistent that they think this is more temporary than long term. So you see the range of the 80 to the 100 million there. We can fluctuate in that range. We also have scenarios that they go deeper in that range and levers prepared to pull if we need to. What we're working fast and furious on is May and June. What's that going to look like and what does that mean to the rest of this year and then into 21 in regards to your question? We're anxious to get through these next couple of months. I think the next call will have much more clarity on just what is the shape of this recovery. We are starting to see some better signs. I think ARA came out yesterday with the rental market stabilizing. There's some positives with states opening up. So we're going to just micromanage this like crazy. And then as we work through May and June, I think we'll have a better view. If we need to pull some of those levers and go above the 100 million, we can still do that and have some effect in this year. So I think you know us. We plan a lot of different scenarios through the cycles. We've been through it. Over 60% of our team members in leadership roles here went through the Great Recession. And then obviously the experience we just went through in China, we learned a lot of lessons and I think that's why our record, and knock on wood here, I don't want to jinx this, but out of our 15,000 team members, we've only had five positive cases at separate locations with no residual effects of those cases and they're all healthy and actually back in the workforce today. We're using a lot of those lessons learned and navigating through this and May and June are the key. I think that's going to really reveal what this looks like the rest of this year and definitely into 21.

That's great, Carla. Thank you for that. Then my follow-up question on your inventories which have picked up and they're really the highest that I've seen them in a while. I guess what I'm wondering here is how much of this uptake is you sort of having some challenges delivering product like what we heard in fire and emergency with customers struggling to take delivery versus maybe you haven't built up some stock of parts and so on to kind of deal with some of these supply chain challenges. And related to this, as we look into fiscal year end here, where do you see or where would you hope this inventory figure to be going into 21?

From an inventory perspective, Inventory is definitely higher than we expected at the end of the quarter, and it was really due to the rapid decline of demand, particularly in access equipment, so that's where you see the biggest impact. I think I had mentioned earlier in one of my responses to a question that our revenue in access was down by about $200 million versus what our expectations were due to that rapid decline, and you really see inventory reading through at the corresponding value. We adjusted quickly, and that's really why you saw us take those days out of April, and we're managing it the next several months. And we'll continue to watch that, but our plan is really to get that back into line by the end of the year. But again, we're going to continue to watch the signals we're seeing in the marketplace, and we'll continue to manage it accordingly.

Yeah, part of this, John, part of this is that we were running pretty well coming out of February, outside of China anyway, coming out of February into March, and then the pandemic hit. And it was like somebody turned off the light switch. Everything just stopped. Basically, customers said, just push my orders out to Q3 and Q4 because I don't know what's going to happen. And so when that happens in March, the last month of a quarter, You know, you can't adjust fast enough or your inventory just naturally builds up. And as Mike said, therefore, we took production out in April.

I think just one more piece of culture. We're giving you a good narrative here this morning. But the inventory, I would say, you've probably heard us say this before, it's a good inventory. It's that inventory that's kind of in the middle of the fairway, high usage, high utilization in our rental customer companies. So we're not – overly concerned about that. It's just a matter of when the markets do get going again. And I would add too, Access is focused on maintaining that discipline pricing approach that you've seen them deliver over the last couple of years. And so if there is some issue out there where someone else is shedding inventory at low prices, we're going to maintain our discipline. And if we do carry a little bit more inventory, that's okay as long as those markets do come back as we expect they will in the, what do you say, short or medium term. But we'll know that more in May and June.

Sounds great. Thank you, guys.

Good luck.

Thanks, Meg. Thanks.

Our next question comes from the line of Seth Webber with RBC Capital. Please start with your question.

Hey, guys. Good morning. Hey, Seth. Hope you're well. Thanks. I guess maybe for Mike, just to follow up on that question, have you seen any – Any issues with collections from any of your customers? Anything getting pushed out across that? I assume not on the defense side, but across any other segments? Anything to call out there? Thanks.

Thanks for the question. No, from a collection standpoint, it's largely been businesses usually. So we had positive cash flow in the quarter. We are taking extra measures to look at really our entire customer base, looking at credit limits and so on. And we're really watching it on a daily basis, but really no unusual changes from a collection standpoint.

Thanks. And then maybe, Wilson, just back on the defense side. you know, revenue and margin was actually a lot better than what we were looking for. Was there anything that, you know, got kind of pulled forward, or is there any color as to, you know, the unusual strength there, both on the top line and the margin for the quarter that you would call out?

It basically was the orders we received, so FHTV and FMTV orders that came in in the quarter, and I think that's the the main reason.

Yeah, and then we had a full – obviously, the demand was there, so we were producing pretty solidly the entire quarter. So it's definitely in line with what we were – what our expectations were in that segment.

There was a big JLTV order as well.

Yeah. As I mentioned earlier too, Seth, defense is continue to operate on a pretty normal production schedule. They've had a few, you know, misses with supplier constraints, but for the most part, they're staying pretty well on track.

Right. So, I mean, you know, I think your guide for the year originally was around, I think, a 9% margin. So, kind of in a normal operating environment where the supply chain is good and all, I mean, is there any reason to think that, you know, the nine and a half you guys just did wouldn't be toward the new run rate then?

You know, Seth, we're trying to stay away from being too definitive on our margins because, as John mentioned, we've had hundreds of supplier issues. And, again, our team is really doing well working through all those. So it's just too early for us to know if we are going to have any slowdowns due to some supplier constraints or any kind of employee absenteeism. I'd say so far so good, but we've got to get through these next couple of months before we could really be more definitive about that.

I understand. I was just talking about more of a kind of a normalized business environment, understanding that near term is going to have some hiccups, but it seems like you're at a pretty good level here for the second quarter. JLTV is not going down. You have this big backlog. I'm just sort of looking, trying to trying to understand what the normalized northern should be for this business, but I appreciate you don't know what the near term is going to be, but that is the spirit of the question. Okay.

All right. I mean, long term, we have not changed our viewpoint, right? If we say normalized, Seth, if we say long term, you know, high single digits has been our target, and I think we've got a pretty good track record.

I think our commentary also has been we see the next couple of years of this being at least a $2 billion run rate business. Right. So... Again, long-term, when you say normalized, Seth, we really look forward to being able to talk about normalized. I hope it's sooner rather than later, but that's not a word that I think we're going to use for at least a month or two.

Understood. Okay. Good luck and take care, guys. Thank you.

Thanks, Seth. Thanks.

Okay. Our next question comes from the line of Timothy with Citigroup. Please see with your questions.

Hi. Good morning. Thank you. Just on the defense margins one more time, was the, was there a, I know you didn't call it out, but in terms of the second quarter margins, was there any impact from the FHTV order that came in towards the end of the quarter in terms of a contract or a catch-up adjustment? Did that trigger an impact, a meaningful impact in the quarter?

There was a benefit for the quarter, but if you look at it year over year, the benefits of contract awards was pretty similar year over year. Okay. All right.

And then maybe, Wilson, looking out a bit further, maybe just talk about, I mean, obviously F&E has got a good runway here from a quarter and from a backlog perspective, but as you look, again, a little bit further out, What do you think in terms of the potential impact from obviously a lot of state and local governments taking it on the chin here pretty good? What do you think and how do you see that playing out in terms of a procurement cycle and maybe contrast that versus what history would have suggested on Pierce? Thank you.

I'm going to let John jump in on this. He's been knee-deep in the fire and emergency. We've been evaluating municipal spending for both fire and refuse collection. So, John, why don't you grab Tim's question?

Yeah, so the short story is we feel really, really good about our position in fire and emergency. As we said, all-time record order intake in the quarter, and our backlog at $1.3 billion extends well into 2021. So let me do a little bit more explaining as to those. municipal tax receipts and how they might impact us. We of course know that they do impact the segment to some extent. The municipal tax receipts tend to follow recessions 18 months later or so. That said, the shock of COVID-19 and expectation of a downturn, this whole shock could cause some near-term new order intake to slow a little bit. That's possible, but I'll take you back to the reference point of pre-Great Recession. The market then was close to 5,500 units, and it fell 40% to around 4,200 to 4,600 units in the Great Recession. It never really came back to that 5,500 unit number. Even at that smaller market size, we're hitting new records in F&E. We also know that the fleet is aged, and municipalities really need their trucks, and they tend to prioritize their trucks. And with the way that our business and the incredible people and the great management team we've got in this business is performing, the position we've got, we feel good about the long-term outlook.

Got it. Thanks a lot.

Thanks, Tim.

Our next question comes from the line of David Russell with Evercore ISI. Please, see what's your question.

Hi. Good morning. Related to the access margins, when I think about the amount of shutdown days in the coming quarter, the decremental margin commentary with some implication from the savings program, it does appear that you think you'll be able to stay at least close, if not still profitable, close to breakeven for access. Am I reading that correctly? I mean, just given back in 2009, this business lost a significant amount of money. I think it'd be pretty impressive if you can avoid even one quarter losing money. I just want to make sure I'm capturing those metrics correctly.

Well, bottom line is, as we look at, we don't expect to lose money for any quarter for the entire corporation. And we don't expect to lose money in any individual business for the year. You get into the quarters, it really depends. There's a lot of uncertainty with Q3, so it's just difficult and really for the rest of the year. So we just need to see how the construction activity starts picking up before we're going to call a quarter. I think one thing that helps us today is

We're going into the back half a lot different than the Great Recession back half for us. We got $844 million in access backlog today, and that backlog is current through last Friday, April 24th. We went ahead and net of cancellations. We wanted to have a correct up-to-date backlog number for you today, and that's $844 million today. I think in the Great Recession, it was less than $100 million that we had in backlog going into that second half. That should help us a little more in the second half than what you could recall in the regular session.

Yeah, I'm just trying to think if there's the risk of we get to May, June, a lot of the rental companies don't see a reopening quickly enough, and they go, look, let's just push this out a bit, and that backlog comes down. Even if you did have a 60% revenue decline for the quarter, the way you're speaking about decrementals, you still – I mean, it's close, but you stay profitable – And there's no doubt with that kind of decline versus what we showed in 09, it'd be obviously terribly impressive if you could do it. So that's why I just wanted to, you know, set the parameters there on that. So that's helpful. And the follow-up, the conversations you are having with, you know, particularly some of the bigger rental companies, if there is, you know, some decisions still be made in the next six, eight weeks, are they going to take the machines this year? Or is it sort of a push-out situation because obviously there's some seasonality to when they want to take the iron? Are you having conversations that are already coloring your view? With this push out, what's the replacement demand for 21? I'm just curious how holistic the conversations are of things getting cut out of 20, and what does that help for 21 on replacement?

Well, this is John. I'll try to give you some color on what we are seeing. So when COVID-19 hit, we essentially saw things come to a screeching halt in terms of activity. In other words, orders started to get pushed out. All of our customers across the board said, hey, we need to push this order out. It wasn't a cancellation, it was a pushout. Now, we have had some cancellations, been more pushouts than cancellations. But we are in conversation with our customers all the time, every single day, to understand what we're seeing in the marketplace. Of course, utilization rates of the equipment has come down. We believe today that as of about mid-April, utilization rates have bottomed. Maybe they're improving a little bit. Still too early to say, but we think they may have bottomed. We also know that there's not much defleeting going on in the marketplace. So that means that our customers are really kind of still in a wait-and-see mode. And that makes a lot of sense that they're in a wait and see mode because 44 states still have shelter in place. There are hundreds of construction sites that are down and hundreds more job sites where they use our equipment that are down. And we need the economy to get moving again and the dimmer switch start to dial up before we'll really know what the demand in Q3 and Q4 is going to look like. And really, that's the essence of why we can't provide guidance at this point in time. We've got to see the economies open up.

I would just add, David, you know, relationships, JLG has great relationships with our customers. I was there for a few years, as you probably recall, and I've maintained a lot of the relationships with the leaders of some of the big-run companies and The conversation I had with one last week was aligned with what we're thinking. It seems to be temporary, and our commentary back and forth was, okay, how temporary is temporary? Is it a couple months? Is it four months? Is it six months? So I think the general thesis with our big customers or even our independent, I don't know, all of our customers is, to John's point, wait and see. What's May and June going to look like? States are starting to open up. Again, I think everybody is still leaning toward the more temporary thesis, but May and June will tell us.

And the more they view it as temporary – I'm sorry, go ahead.

I was going to say one final comment. We know the markets are going to come back. That's one thing that we do know. We feel highly confident in that. It's really a question of what rate are they going to come back at, and that's what we're trying to figure out over the next short period of time.

Okay, and that's the issue. If they think it's temporary, that backlog, we can, you know, as you said, it's a lot higher than going into the Great Recession. You know, we can embrace that backlog. If they decide to say, look, it's not really temporary, we're going to push this out to next year, that's when we lose the support of the 844 and backlog. So, again, even the numbers I was running, you still think you're going to be breakeven or even above 844. which, you know, obviously the business lost a significant amount of money in 2009. So that would be a pretty dramatic change. Okay. I really appreciate it. Thank you so much. Bye-bye.

Yeah, Dave, just a parting shot. I can tell you all of our segments, you know, Mike Pack and his team on the finance side really focused on managing those decrementals. We know how important that is. And, again, the team is responding well. And we feel like we're in a pretty good position to deliver those mid-20s from a company standpoint for the whole year.

Thank you.

Thanks.

Our next question comes from the line of Stanley Elliott with Steeple. Please, do with your question.

Hey, good morning, everyone. Nice to hear your voices. Hey, quick question on some of the fire business, I guess, in particular. If we think back, kind of post-9-11, post-financial crisis and the Obama stimulus, what degree were some of those businesses beneficiaries of some form of stimulus or grant money? And I think about that in part, there's an earlier question about municipal budgets, and just on the off chance that that's kind of the next round of stimulus, which it could be, I was curious to get your thoughts on that from a historical context.

Yeah, Stanley, if you go back to 9-11, we had what was called the Fire Act grants that allowed cities, local townships to apply for federal money for fire trucks. And it helped, I think, some parts of the market. I think the primary products that were being purchased through that Fire Act grant were more commercial in nature. Not a lot of custom products. But again, it was a boost to help the market. Coming out of the Great Recession, there really wasn't any kind of stimulus around fire departments or fire apparatus. That's why I think John mentioned earlier, we've got a pretty aged fleet out there from a fire apparatus standpoint. And with the priority of a municipality being able to fight a fire or react to an emergency, That will keep that as a priority from a replacement standpoint. The stimulus that's currently in play, there's not much for fire apparatus from a municipal side, but there is 10 billion stimulus effective for airports. And so we believe our airport rescue firefighting business could benefit by some of that just with all the airports having that type of money to upgrade their products, their services around the airport.

Perfect. That's it for me. Thank you.

Thanks, Dan.

Thanks. Our final question comes from the line of Courtney Yacovonis with Morgan Stanley. Let's see what's your question.

Great. Thanks for squeezing me in, guys. Can you just comment or just elaborate a little bit more on your comments about the JLTV potential recompete in 2022? How long are your deliveries locked in for at this point, and you know, does that have any implications for your international rights, you know, going forward? And then also, if you can just highlight any differences in the cost structure, you know, today versus when you were originally bidding for the program back in the 14-15 time period.

Okay, Courtney, thank you. You know, the JLTV program, first and foremost, is performing very well. We know our Department of Defense customers appreciate the product and appreciate really value its effectiveness and what it can do from a mission profile standpoint. The government has stated that 2022 is their plan year for re-competes to be determined if that date holds, but that's what has been stated. Obviously, our plan would be to retain it. Going forward, building the way we are, the efficiencies we gained in building the product, we know it. We've got a good supply chain around it. So again, we like our chances to continue to win it. From an international standpoint, obviously we have the opportunities in front of us today, but going forward, I don't like to say it this way, but if we were to lose on the re-compete, we still have a JLTV product that we could sell internationally. That doesn't prohibit us from selling internationally with that product, even though we might not be the winner of the program for the Department of Defense. I have to say it, though, we don't plan to lose it. We plan to retain it. From a cost structure standpoint, Courtney, again, I think we're in good shape. Supply chain, we've got a good supply chain. Really, the majority of the supply chain for defense is about a 100-mile radius around their facility, and so that certainly helps. A, from a relationship and connectivity, but then logistics help too. So cost structure going forward, I think we're going to be in shape. What you would expect on a program like this is there will be some changes. You know, we saw that on MTV. The A1 went to the A2. There were some changes that the government made to the product going forward. So that may come into play here going forward. But to be determined, and again, it's 2022, we can take orders for JLTV on the current program through JLTV, 2023 with deliveries in 2024. So we're in good shape on the program and the outlook going forward is good too. Great. Thanks, guys. Thanks, Cornelius.

We have reached the end of our question and answer session and I would like to turn the call back over to Mr. Wilson-Jones for closing remarks.

I want to thank all of you for joining us today. We appreciate your interest in the Onyx Corporation and wish all of you good health and safety. We'll sign off now. Thanks again for joining us today.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.