Oshkosh Corporation (Holding Company)Common Stock

Greetings and welcome to the Oshkosh Corporation Fiscal 2023 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Pat Davidson, Senior Vice President of Investor Relations for Oshkosh Corporation. Thank you, sir. You may begin.

Good morning, and thanks for joining us. Earlier today, we published our first quarter 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 to 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 filed 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. Our presenters today include John Pfeiffer, 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.

Thank you, Pat, and good morning, everyone. I'm pleased to report Oshkosh Corporation's strong results for the first quarter of 2023. With revenues of $2.3 billion and adjusted earnings per share of $1.59, both representing meaningful improvement over the prior year quarter. We continued the positive momentum that began in the second half of 2022 and our teams remain focused on solid execution for our customers. As a result of our strong Q1 performance, robust demand and progress on our key operational initiatives, I'm pleased to announce that we are raising our full year adjusted earnings per share expectations to be in the range of $6 compared to our previous estimate of $5.50. Mike will provide more details in his section. Our access segment led the significant year-over-year improvement by delivering operating margin of 11.3% in the quarter. Order flow across the board was robust during the quarter at just over $3 billion, driving another consolidated record backlog approaching $15 billion. We remain confident in both near-term and longer-term growth. We view construction markets as strong, particularly with the large number of mega projects around the country. In fact, metrics for the vast majority of construction categories point to continued growth for the foreseeable future. The access equipment fleet age remains elevated and new use cases continue to grow beyond construction. Our view on our end markets was bolstered by recent discussions with customers at the ConExpo show in March. We also see healthy demand across the fire truck, RCV, and delivery markets as well, bolstered by solid market dynamics and long-term growth driven by our new electric vehicle offerings. We are investing in capacity as well as exciting new products that support our plans for growth to drive long-term shareholder value. Notably, we're investing in capacity for our USPS next-generation delivery vehicles, our vocational segment for both ERCVs and Pierce fire trucks, as well as our access segment where we are transitioning 500,000 square feet to telehandler manufacturing in Jefferson City, Tennessee. We also took a number of important steps in the quarter to continue to expand our portfolio with next generation of innovative products. We completed the acquisition of Hinoa in our access segment and look forward to attractive growth opportunities with this well-run Italian manufacturer of compact crawler booms and tracked equipment. In February, we announced the launch of the first fully integrated, purpose-built, all-electric refuse collection vehicle in our new vocational segment. I'll talk more about this revolutionary new product in a few minutes. Additionally, we're pleased with the integration progress for the vocational segment, which we view as an outstanding growth platform for Oshkosh. Last quarter we announced plans to combine our fire and emergency and commercial segments to drive enhanced efficiencies, while better leveraging our scale and technology development at an accelerated pace. We also completed the divestiture of our rear discharge concrete mixer business in the quarter to further focus on our core growth areas and finally. We're honored to have been selected with the world's most ethical designation for the eighth consecutive year. Please turn to slide four and we'll get started on our segment updates with Access. The team at Access built on their strong finish to 2022 with an excellent first quarter in 2023. We benefited from better than expected shipments due to modestly improved supply chain conditions. While supply chain challenges remain, we are seeing progress with supplier on-time delivery metrics, as well as the many actions we have taken to improve throughput. Demand remains very strong for JLG aerial work platforms and telehandlers as fleet ages remain elevated. In fact, fleet ages have not improved since we reported average fleet ages in North America of over 60 months during our investor day in May of 2022. New use cases, as well as technology innovations, continue to improve demand for our products. In addition to fleet ages, we believe high equipment utilization rates and the impact of megaprojects and other construction verticals continue to point to strong demand for our market leading JLG products for the foreseeable future. Orders remained healthy at $1.2 billion in the quarter, leading to another record backlog of $4.4 billion. We believe that 2023 will be a strong year, with revenues limited by supply chain conditions. While we do not expect significant supply chain improvement in 2023, we are well positioned to deliver stronger results in the event supply chain improves faster than current expectations. Please turn to slide five, and I'll review our defense segment. As expected, defense segment revenues were down year over year in the quarter, in line with customer requirements. Continued inflation, including higher-than-expected steel cost forecasts, contributed to the low operating margin in the quarter. As discussed last quarter, we believe that Q1 will be defense's lowest quarter of the year for operating income. In February, we were disappointed to learn that we did not win the JLTV follow-on contract. The contract was won at a pricing level that would be unacceptable to Oshkosh. Of course, we are protesting the award based on the evaluation of financial, operational, and technical capabilities. In short, we believe the US Army is assuming significant risk based on their decision and we expect the Government Accountability Office to issue a judgment in mid-June. As a reminder, we expect to deliver JLTVs through the end of 2024 under the current contract. With the tactical wheeled vehicle market under pressure, we continue to focus our efforts on more fruitful product categories such as combat and delivery. We have won some outstanding contracts and are vying for others. The DOD's down select decision for the next phases of the optionally manned fighting vehicle, or OMFV program, is expected this summer. We are confident that our proposed solution delivers a high level of innovation and technical capability, which we believe places us in a strong competitive position for the program. Awards are expected to be announced for three competitors with a value for each bidder expected to be $886 million over a 54-month period. We are also competing for other attractive programs such as the Robotic Combat Vehicle or RCV. We continue to execute on our NGDV program for the United States Postal Service with plans to ramp up production in 2024. Several months ago, the USPS expressed their intention to significantly increase the percentage of battery electric or BEV NGDV units in their initial delivery order. During the quarter, we received a delivery order modification that reflects the richer mix of BEV units. This is good news for the USPS, good for communities across the country, and good for our product mix. We are excited about the growth of this business as we head towards launch. Let's turn to slide six for a discussion of the vocational segment. During our last earnings call, we announced the decision to combine our commercial and fire and emergency segments to form a new segment we call our vocational segment. We believe that the new segment provides opportunities to drive enhanced efficiencies and better leverage scale and technology development at an accelerated pace. The vocational segment also serves as a platform for both organic and inorganic growth opportunities in several important end markets. We are in the process of integrating the businesses, which will continue throughout 2023. Since our announcement three months ago, Jim Johnson and his team have evaluated opportunities and implemented numerous changes to our structure that are expected to generate $15 million in annualized cost synergy benefits. The savings are a result of both back office optimization as well as leveraging shared manufacturing in our new factory in Murfreesboro, Tennessee. We expect a modest impact in the second half of 2023 and the full $15 million run rate in 2024 as we wrap up transition services related to the divestiture of the rear discharge concrete mixer business. Cost synergies are only a part of the story, as we also expect to benefit from joint development for advanced technologies, particularly with electrification and autonomy. Additionally, we expect to benefit from channel synergies. We will continue to provide updates on our integration work and synergy opportunities in coming quarters. Demand for fire trucks remains very high, driven by aging fleets and solid municipal budgets. We are continuing to invest in automation and capacity enhancements at our fire truck facilities in Wisconsin. We believe this improved capacity will help us reduce lead times that have led to a very large backlog for custom fire trucks. We believe the actions we are taking to improve parts supply as well as our capacity expansions, including robotic painting in Appleton, will help us increase output in late 23 and into 2024. Of course, the biggest news for the segment came in February when we debuted our brand new, state-of-the-art, fully integrated electric refuse and recycling collection vehicle. Customer reaction has been outstanding for this revolutionary zero-emission vehicle. This is the first ever fully integrated vocational vehicle built for the RCV market, and it's zero-emission, fully electric. The ERCV with unmatched ergonomics supports a wide range of driver body types, drives strong productivity gains, and supports lower total cost of ownership for our customers, so you can understand why the reception has been so strong. We will be showing the unit at Waste Expo next week and displaying the cab for demonstration using VR technology at the Advanced Clean Transportation Expo also next week. Initial vehicle deliveries will start in 2024, and we will be ramping up from there over the next several years. With that, I'm going to turn it over to Mike to discuss our results in more detail and our expectations for 2023. Thanks, John.