Terex Corporation

Welcome to T-REX Corporation third quarter 2020 results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Randy Wilson, Director of Investor Relations for T-REX Corporation.

Good morning and welcome to the Terex third quarter 2020 earnings conference call. A copy of the press release and presentation slides are posted on our investor relations website at investors.terex.com. In addition, the replay and slide presentation will be available on our website. I'm joined by John Garrison, Chairman and Chief Executive Officer, and John Duffy Sheehan, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by Q&A. Please turn to slide two of the presentation, which reflects our safe harbor statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. In addition, we'll be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. Please turn to slide three, and I'll turn it over to John Garrison.

Good morning, and thank you for joining us and for your interest in Terex. Most importantly, I hope you and your families are remaining safe and healthy. Throughout this challenging time, we are proud of all of our Terex team members who are keeping themselves and others safe, meeting the needs of our customers and helping our communities. I would like to recognize and thank our team members around the world for their continued commitment towards zero harm safety culture and Terex Way values. Safety is and will remain the top priority of the company, driven by Think Safe, Work Safe, Home Safe. Our team members remain vigilant by carefully following the COVID-19 safety protocols and continuing to keep their guard up. Our crisis response teams remain active, and our facilities continue refining their preparedness and response plans to ensure they can respond swiftly as local pandemic conditions change. I'm proud of our team members' commitment to safety, but I'm equally proud of their dedication to the Terraceway value of citizenship. Despite the challenges presented by COVID-19, our team members continue to give back to the local communities. Whether it's the AWP team members continuing to place masks and face shields, or MP team members donating PPE equipment, our team members are living our values. Our dedicated team members are delivering value for our stakeholders and shareholders. Turning to slide four, despite the challenging markets The team is meeting customer demand, tightly managing all costs, aggressively reducing networking capital, especially AWP inventories, and delivering positive free cash flow. D3 revenue, which was in line with our outlook from the beginning of the quarter, improved sequentially almost 11% as end markets continued to recover from the lows in the second quarter. AWP revenue improved sequentially by almost 8% in Q3, while MP revenues improved approximately 18%. Customer bookings in Q3 represented a dramatic improvement from Q2. Unlike the first half of the year, we did not experience any material customer booking cancellations or pushing out of orders. Sequentially, AWP bookings were up almost 100% compared to Q2, and MP bookings were up 36%. In addition to sequential strength in bookings, both segments saw improvement on a year-over-year basis. Demonstrating the strength of our Q3 bookings, TARICS backlog was consistent with backlog at the end of Q2 and down year-over-year by only 5%. Although revenue was consistent with our outlook, As a result of our laser focus on cost control and only producing in line with customer demand, profitability for the quarter outperformed our outlook from the beginning of the quarter. Importantly, our approximately 5% operating margin was achieved with both segments generating positive operating margins. Our NP segment achieved outstanding financial results, reporting a 13% operating margin while revenues were down 19 percent year-over-year. Both segments and Terex overall achieved our targeted 25 percent decremental margins, or better. We are not satisfied with AWP's operating margins. We must drive significant improvement to restore the segment to industry competitive margins, and we will continue to take the actions necessary to deliver on that improvement. Throughout 2020, we right-sized our inventory levels to the customer demand environment, especially in our aerial products business. Their inventory levels are now at a level consistent with 2016, which was the last time there was an industrial downturn. Going forward, we are now at a level where aerial products can manufacture to customer demand. Our focus on networking capital management drove $54 million of free cash flow in the third quarter, delivering positive year-to-date free cash flow. Overall, our financial performance strengthened significantly in Q3. I assure you that we will remain laser focused on consistently improving these results in 2021. Please turn to slide five. Our strategic priorities will continue to strengthen our business operations so we can succeed through all market cycles, including these uncertain times. We are taking action and we are implementing steps to improve, strengthen, and grow Terex. Through operational excellence, we are strengthening accountability with each team member doing what he or she said they would do. To win in the marketplace requires more than just knowing the score. We must understand the score and have the process discipline to drive continuous improvement in the business. On the cost side, we've been looking at every aspect of the business to ensure we can maximize our ability to be globally cost competitive. We are laser focused on maximizing revenue, aggressively taking out cost, not just manufacturing cost, but also SG&A costs. Terex targets SG&A as a percent of sales to be 12.5%, which we achieved in 2019. However, as sales have declined, our 2020 SG&A percent of sales has increased to over 14%. We are executing on an SG&A cost reduction initiative with a target of SG&A percent of sales for 2021 of 12.5%. This initiative is replacing temporary 2020 cost savings with permanent cost reductions. We are evolving into a leaner organization with fewer organizational levels. Also, as we right-size our organization, we've been reevaluating and reducing our related company-wide footprint. We recognize that to win in the marketplace, we must have globally cost-competitive company-wide footprint. We have been and will continue to take the actions necessary to achieve this objective. Turning to innovation, we are listening to customers to ensure our products and services offer the features and benefits that provide value. We will provide the right features at the right price to meet customer demand. Purposeful innovation drives improvement in return on invested capital for our customers. allowing us to support their growth. Finally, TERF is well-positioned for future growth because we have strong businesses, strong brands, and strong market positions upon which we can grow. We will continue to invest in and grow our high-performing businesses, including investing in new products and manufacturing capacity where demand calls for it. And we are a more focused organization, I am confident this will result in Terex emerging from these uncertain times as an even stronger company. With that, let me turn it over to Duffy.