Oshkosh Corporation (Holding Company)Common Stock

Greetings and welcome to the Oshkosh Corporation Fiscal 2023 Second 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. You may begin.

Good morning and thanks for joining us. Earlier today we published our second 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 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. 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 another quarter of strong results for Oshkosh Corporation, with significant growth in revenue, operating income, and adjusted EPS compared to last year. For the second quarter, we grew revenue by 17% and operating income by over 200%, resulting in adjusted EPS of $2.69. These results were notably higher than our expectations entering the second quarter as a result of improving supply chain conditions and the benefit of our actions over the past several quarters to improve our production resiliency in a constrained supply chain environment. We are also pleased that both the access and vocational segments delivered double-digit operating margins in the quarter. We continue to book healthy orders for our products and innovations and close the quarter with a consolidated backlog of $15 billion. Strong demand is supported by ongoing, robust non-residential construction metrics, infrastructure spending, megaprojects, and solid municipal budgets. During the quarter, we announced our plans to acquire the Aerotech business from JBT Corporation. We are pleased to tell you that the transaction closed today, and we'll talk more about Aerotech in a few moments. In mid-July, we published our 10th Annual Sustainability Report, which highlights our commitment to a sustainable future as we strive to reduce emissions as well as our carbon footprint. while making a positive impact on the lives of our team members, our communities, and most importantly, the people who use our products. As a result of our strong performance in the second quarter and our expectations for continued momentum into the second half of 2023, I am pleased to announce that we are raising our full year adjusted EPS expectations to be in a range of $8. significantly higher than our previous estimate of approximately six dollars over our longer term planning horizon we expect further growth in both sales and margins driven by numerous positive factors which include improving supply chains benefits from price cost especially in the vocational segment bringing new capacity online introducing new products and innovations ramping up production of the United States Postal Service's next generation delivery vehicles, and realizing benefits from acquisitions. Please turn to slide four and we'll get started on our segment updates. Our access team delivered breakthrough performance in the quarter as a result of improving supply chain conditions and the benefits of our many operational initiatives over the past several quarters to improve production throughput. Supplier on-time delivery exceeded 75% for the first time in more than 18 months, representing continued improvement from the first quarter. That said, we still have some ground to cover to reach our normalized level of greater than 90%. The improved production throughput combined with stronger price realization drove a 36% year-over-year revenue increase and an operating margin of nearly 16% in the quarter. Demand for access equipment remains healthy, and we expect it to continue as we have discussed over the past several quarters. Mega projects, infrastructure spending, strong non-residential construction metrics, expanding use cases, our innovative products, and aged fleets are all contributing to this demand. Orders in the quarter were $1.3 billion, representing a seasonally strong book-to-bill ratio of approximately one-to-one. with quarter end backlog of nearly $4.4 billion. Currently, we have approximately 50% of our 2024 in backlog, and we are working closely with our customers to slot units for the balance of 2024 production. Our visibility to strong demand for 2024 extends well beyond our current backlog, and we continue to expect healthy demand dynamics and access for the foreseeable future. Work has also begun on the conversion of our 500,000 square foot facility in Jefferson City, Tennessee to expand access equipment production. Over the next 12 to 18 months, we'll be investing approximately $120 million in this modern facility to expand telehandler capacity. The facility previously produced weldments and fabrications for our defense segment. This expansion And our Factory of the Future modernization activities in Shippensburg, Pennsylvania, provide us with meaningful capacity additions to meet strong demand for our equipment and support our market entry into the agricultural sector with purpose-built ag telehandlers. Please turn to slide 5, and I'll review our defense segment. As expected, defense quarterly revenues were down versus prior year, in line with customer requirements. We expect operating income improvement in the second half of the year with anticipated contract awards and a richer aftermarket mix. In June, we learned that our JLTV follow-on contract protest was denied by the Government Accountability Office. As a reminder, we're still building JLTVs and will continue to do so through the end of 2024 under the current contract. Beyond 2024, we will continue to build JLTVs for international customers, as well as JLTV specialty applications. These, of course, are smaller quantities. From 2025 onward, we will continue to deliver on many solid programs of record in the defense segment, including FMTV, FHTV, Stryker MCWS, and multiple trailer programs, as well as international contracts that extend well into the future. Long term, we expect that these programs will provide a billion dollar plus revenue base at mid to high single digit operating margin. The USPS's next generation delivery vehicle program is progressing and our Spartanburg facility is nearing completion. We are currently building and testing design certification vehicles and are on track for a production ramp up in the second half of 2024. This key program will support a return to profitable growth for defense in 2025. Let's turn to slide six for discussion of the vocational segment. I'm pleased to highlight that our vocational segment delivered year-over-year revenue growth and exceeded 10% adjusted operating income margin for the quarter. Much like our access segment, we are seeing improved supply chain metrics, But conditions have not yet returned to typical levels, so production output remains constrained. As a reminder, we have notably higher pricing in our backlog for fire trucks to be delivered in 2024 and beyond, which will enhance margins as we enter next year. We continue to execute on both product and manufacturing innovations to drive continuous improvement in refuse and service vehicles as well. Demand for Pierce fire trucks continues to outpace supply, resulting in elevated backlog, and we're working diligently to increase our capacity. We believe our facility expansions in both Appleton, Wisconsin and Murfreesboro, Tennessee will help us increase output over the next year. Customer response to our new fully integrated zero emission McNeillis Volterra ZSL electric refuse collection vehicle is very high. We expect to deliver two units for customer evaluation before the end of the year and low rate production vehicle deliveries will start in 2024. We expect to begin ramping up from there over the next several years. Moving to slide seven, the biggest news in vocational is our acquisition of JBT's Aerotech business, which closed today. We already serve the airport market with ARF vehicles and AWPs. We look forward to welcoming the great team at Aerotech into the Oshkosh family and capitalizing on opportunities for new, attractive revenue streams as we expand our participation in this market. Aerotech is a leading provider of aviation ground support products, gate equipment, and airport services with some of the most trusted brands in the industry. They serve approximately 75% of air travelers at US airports and load approximately 70% of the world's overnight express packages. In short, Aerotech's equipment is found at airports all over the world. They also operate a strong aftermarket parts and service business with recurring revenues comprising approximately 40% of total revenues on an annual basis. Our combination unites Aerotech's highly engineered product offerings with the strength of Oshkosh's portfolio and technology ecosystem. We share similar innovation priorities across several key areas, electrification, autonomy and active safety, as well as connectivity and intelligent products. Together, we believe we can leverage best practices, technology, and R&D to advance our shared objectives while capitalizing on opportunities from increased scale. We believe Aerotech is poised to benefit from numerous secular tailwinds for air transportation, which is in the early stages of an investment cycle. Global passenger traffic is expected to grow in the high single digits over the next several years, and infrastructure spending is expected to accelerate with legislation and aging infrastructure. In fact, approximately $25 billion of the government's Infrastructure Investment and Jobs Act has been authorized to fund airport growth and maintenance. With that, I'm going to turn it over to Mike to discuss our results in more detail and our updated expectations for 2023.