Greetings, and welcome to the Oshkosh Corporation Second Quarter 2024 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. [Operator Instructions]. 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. Thank you, sir. You may begin.

Good morning, and thanks for joining us. Earlier today, we published our second quarter 2024 results. A copy of that 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 the website for approximately 12 months. Please refer now to slide 2 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 Pfeifer, President and Chief Executive Officer, and Mike Pack, Executive Vice President and Chief Financial Officer as well as the recently named President of our Vocational segment. Please turn to slide 3 and I'll turn it over to you, John.

Thank you, Pat. And good morning everyone. I'm pleased to announce another strong quarter with notable year-over-year growth in revenue and earnings. Our Innovate, Serve, Advance strategy continues to drive profitable growth and strong shareholder returns. Furthermore, we expect our investments in market-leading products and technologies that provide our customers with productivity and safety benefits will support attractive growth well into the future. This success is a testament to the passion and dedication of approximately 18,000 Oshkosh team members. For the second quarter, we grew revenue by 18% and achieved a 36% increase in adjusted operating income, leading to an adjusted operating margin of 11.5% and adjusted EPS of $3.34. Our strong results were enabled by broad-based revenue growth and outstanding execution across our businesses. During the second quarter, we began delivering next generation delivery vehicles, or NGDVs, to the United States Postal Service. This is a significant milestone for both our customer and our team. We expect that the NGDV program will be a meaningful contributor to our profitable growth for the remainder of the decade and will provide the United States Postal Service with state-of-the-art, purpose-built delivery vehicles that modernize and decarbonize their fleet. This program exemplifies our ability to collaborate with customers and leverage our innovation capabilities to deliver differentiated value and address complex challenges. Based on our strong second quarter results and solid execution, we are raising our full year outlook for adjusted EPS to be in the range of $11.75 per share. Please turn to slide 4 and we'll get started on our segment updates. Our Access team executed exceptionally well in the second quarter, delivering revenue growth of 6% and achieving an adjusted operating margin of 17.7%. These results are even more impressive when considering the significant investments we made during the quarter for new products, technologies and production capacity that we believe will contribute to our long term success. Sales growth was driven primarily by North America, where we continue to see healthy market dynamics. Orders in the quarter were lower than last year, as we expected and discussed on our last earnings call. As a reminder, we entered 2024 largely booked for new equipment for the year, so we expected lower orders in the second and third quarters relative to 2023. With improved equipment availability and a $3.3 billion backlog covering customer requirements into 2025, we expect that customers will return to more typical ordering patterns and place meaningful orders for 2025 requirements beginning in the fourth quarter of 2024, with some carryover into the first quarter of 2025. We anticipate that the access equipment market in North America will remain relatively stable in 2025, similar to 2024. This outlook is based on discussions with customers and our expectations for ongoing infrastructure investments, megaprojects, industrial onshoring and aging fleets. We remain confident that we can deliver solid performance in the segment. During the quarter, we announced plans to acquire AUSA, a leading European manufacturer of specialty equipment, including wheeled dumpers, rough terrain forklifts and telehandlers located near Barcelona. AUSA is a high performing business with products in attractive growth categories as well as channel synergies. When AUSA joins the family, we will be better positioned to serve customers across geographies and drive targeted growth. We expect that the transaction will close during the third quarter of this year. Please turn to slide 5 and I'll review our Defense segment. As I mentioned earlier, we are proud that we commenced deliveries of the United States Postal Service's next generation delivery vehicles. We look forward to a long and successful partnership with the US Postal Service as we modernize their fleet. We are currently in production in our Spartanburg, South Carolina facility. We expect to ramp up NGDV production through 2025 and exit 2025 at full rate production, leading to strong revenue expectations for 2026. As a reminder, we expect NGDV revenue in 2025 to exceed the decline of JLTV revenue from 2024 to 2025. While domestic JLTV production will wind down in early 2025, we continue to supply the DoD on many important programs, including FHTV and FMTV programs. During the second quarter, we received orders valued at $232 million for FHTVs, which are the last orders on the current contract. We expect to complete a five year contract extension for the FHTV program in early August and an FMTV contract extension in the first half of 2025. We believe these key programs, as well as a number of other programs such as Stryker MCWS and the ROGUE-Fires family of carriers provide enhanced profitability and important visibility for the business into the future. Before I leave Defense, I want to share some news regarding Pratt Miller. Today, we are announcing the move of reporting responsibility of the Pratt Miller business to our Chief Technology Officer, Jay Iyengar. Pratt Miller has outstanding capabilities to rapidly develop proof of concept technologies. We believe this change will enable us to better leverage their new product development capabilities across our entire enterprise. Let's turn to slide 6 for a discussion of the Vocational segment. Our Vocational segment achieved strong year-over-year organic revenue growth of 11% in the second quarter. Including AeroTech revenues of $192 million, we delivered revenue growth of 44%, with an impressive adjusted operating margin of 14.1%. Our backlog for Pierce fire trucks continues to grow. Meeting this demand represents a significant opportunity to drive long-term growth in the Vocational segment. In the near term, we are focused on achieving incremental throughput in our existing facilities. In the longer term, we expect to make additional investments to increase production capacity, which we expect will drive strong revenue and margin growth well into the future. We also continue to see robust demand for our McNeilus refuse and recycling trucks, as well as AeroTech equipment. Our new purpose-built zero-emission electric Volterra ZSL refuse and recycling trucks continue to generate strong interest, with pilot units performing well in early customer field testing. We are encouraged by the productivity benefits and strong operational performance that our customer is experiencing, while the trucks are operating on daily routes, including considerable fuel cost savings. This is an important part of our future as fleet operators migrate to these transformational vehicles over time. We are in the process of transitioning our refuse and recycling vehicle business from factory direct sales and service to a dealer network for non-fleet sales. Much like we've demonstrated with our Pierce fire truck business, we believe that a dealer network will provide broader and more comprehensive coverage for a wider array of customers across North America, including municipalities and small and medium-sized refuse and recycling haulers. In particular, we believe our dealer network approach will lead to a stronger life cycle business. There are several strong dealerships already operating, and we expect to have complete dealer coverage across North America by the end of the year. Before I leave the segment, I'd like to comment on AeroTech. Our outlook for both near and long-term opportunities as part of our company is strong. Order activity continues to be solid, driven by airport expansions and aged equipment replacements supported by continued growth in worldwide passenger travel and global air cargo demand. We continue to be pleased with the integration progress. In particular, we are benefiting from supply chain synergies, commercial synergies with other businesses throughout the Oshkosh family, and technology synergies in the areas of electrification, autonomy, and intelligent, connected products. With that, I'll turn it over to Mike to discuss our results in more detail and our updated expectations for 2024.

Thanks, John. Please turn to slide 7. Consolidated sales for the second quarter were $2.85 billion, an increase of $434 million or 18% over the prior-year quarter. The increase was driven primarily by increased organic volume in all three segments, the benefit of $192 million of AeroTech sales in the Vocational segment and the benefits of improved pricing. We recognized intangible asset impairments of $51.6 million during the quarter as market conditions at Pratt Miller resulted in a downward revision of anticipated cash flows. Consolidated and defense segment adjusted operating income results exclude the impacts of these non-cash impairment charges. Adjusted operating income increased $87 million over the prior-year quarter to $328 million or 11.5% of sales, a 150 basis point improvement. The improvement in adjusted operating income was largely driven by improved price cost dynamics, increased volume, and the benefit of AeroTech results, offset in part by higher engineering investments and operating costs. Adjusted operating income exceeded our most recent expectations, primarily due to improved price cost dynamics, higher volume at Defense and Vocational, and favorable customer mix at Access. Adjusted earnings per share was $3.34 in the second quarter versus $2.74 in the prior year. During the quarter, we repurchased approximately 335,000 shares of stock for a total of $39 million. Please turn to slide 8 for a review of our updated expectations for 2024. With the change in Pratt Miller's reporting relationship, the results will be combined and reported together with corporate. The following guidance reflects this change. Building on a robust first half of 2024, solid visibility with our backlogs and favorable execution, we're raising our full year adjusted earnings outlook. On a consolidated basis, we continue to estimate 2024 sales to be in the range of $10.7 billion. We're estimating adjusted operating income to be in a range of $1.14 billion, up from our prior estimate of $1.075 billion, and we're now estimating that adjusted earnings per share will be in the range of $11.75 versus our prior estimate of $11.25. At a segment level, we're estimating Access sales and adjusted operating margin to be in the range of $5.3 billion and 16.5% compared to our prior expectations of $5.4 billion and 15.5%, respectively. The reduced revenue expectation is a result of lower expected sales outside North America, while the improved margin comes from expected favorable sales mix. For Defense, we are maintaining our sales guidance of approximately $2.1 billion, reflecting an increase of $100 million from improved throughput, offset by the transfer of Pratt Miller to corporate. Our expectations for adjusted operating margin are now approximately 2.25%. We expect Vocational sales will remain in the range of $3.2 billion, and we are increasing our expectations for adjusted operating margin to be 12.75%, up from our prior expectations of 11.5%. Expected improved price cost dynamics and better manufacturing efficiencies are contributing to the improved outlook for margins. Our estimate for corporate and other is approximately $190 million, consistent with our prior expectations. Our expectation for tax rate is still 24%. Our expectation for share count is also unchanged at 65.8 million shares, and we are maintaining our target of $300 million for CapEx. We are reducing our estimate for free cash flow by $50 million to $375 million as a result of expected higher working capital at year-end. Looking to the third quarter, we expect adjusted EPS in the range of $3 per share, in line with the prior year. We expect sales to be up approximately 10% versus the prior year. This implies a slightly lower margin, which stems from expected less favorable sales mix, higher anticipated material costs, higher new product development investments, as well as planned startup costs. I'll turn it back over to John now for some closing comments.

We reported another strong quarter and raised our expectations for 2024 adjusted EPS with today's earnings announcement. Of course, many of you on this call are seeking information regarding next year. While it is still early, I'd like to share some of our thoughts on 2025. For our Access segment, strong demand drivers like megaprojects and infrastructure investments, along with discussions with key customers, lead us to expect that sales will be in the range of 2024. We remain confident that we can deliver solid performance in the segment. In our Defense segment, we are winding down sales of JLTVs to the US DoD and are ramping up NGDV production. We expect 2025 NGDV revenue will more than offset the decline of JLTV revenue from 2024 to 2025. And our Vocational segment has excellent visibility with a large backlog and strong pricing, which we believe supports continued revenue and margin growth. For these reasons, we are positive as we look to 2025. This is an exciting time for Oshkosh, and we look forward to executing our growth strategy to drive shareholder value. I'll turn it back to you, Pat, for the Q&A.

Thanks, John. I'd like to remind everyone to please limit your questions to one plus a follow-up. Please stay disciplined on your follow-up question. After the follow-up, we ask that you rejoin the queue if you have additional questions. Operator, please begin the Q&A session.

[Operator Instructions]. Our first question comes from the line of Tim Thein with Raymond James.

The first question is on the Access outlook here in the second half. I'm just hoping to get some color. It seems like, in the first half, customer mix may be a bigger benefit than anticipated, which I guess jives somewhat with some of the more cautious commentary that we've heard from some of the big public players with respect to some softening in the gen rent market. Obviously, there's product mix and geography and a lot of other things that impact that. Maybe just talk to the extent that, as we think about first half versus second half, kind of the interplay there from a customer mix standpoint and maybe quantify that benefit in the first half and what that maybe assumes in the second half, if possible.

I can start and certainly John can add anything at the end. Certainly, the mix is a little less favorable in the second half. Some of it's customer, but some of it's product. I very much view it as a timing situation. There's nothing to be read into it from a demand perspective. Based on what we produced and delivered, it ended up that the mix was somewhat favorable, both product and customer. We obviously know what our backlog is for the rest of the year. Our revenue assumptions really align with that mix. That's a bit of an impact in the second half. I think the other piece to remember is the fourth quarter is always a seasonably lower quarter because you have fewer production days. Then you have some absorption headwinds. I think that's part of it if you look at the implied first half versus second half margins. I would also say that we do have a little bit higher NPD and plant startup costs related to Jefferson City in the second half of the year. Again, I don't really view that as a demand driver, a commentary on demand. It's really just purely timing.

Let me just add to that. We take a conservative view on customer mix, which is, as Mike said, that's a little bit of it. I want to talk about the revenue and make sure it's clear. This is related to your question. You see in our guide, we took Access revenue down just a little bit. I want to be clear what that's related to. You may have heard there's pending tariffs for the European market. We believe, in the near term, there could be some impact to us because of those tariffs. We also see some conditions outside the US that caused us to take that revenue forecast down a little bit. That had nothing to do with North America and the general market environment that we see. Just making sure that's clear.

Don't let them accuse you of sandbagging the setup for Vocational as you transition over to running [indiscernible]. I guess similar questions. You mentioned the strength in the backhaul, actually grew sequentially and you call out strength in Pierce as well as the price cost dynamics. I would assume that remained a tailwind for you. Anything that we should be mindful of as we think about the margin trajectory in the back half of the year, just given what you've delivered thus far in the first half?

Yeah, I would say very similar commentary to Access that we're very excited about the future of Vocational with strong backlogs. It's a great team in place. We've talked about the strong price and backlog. So we expect to deliver very solid margins. Again, when I think of the first half versus second half, price cost continues to be a tailwind. I would say we expect with our Murfreesboro plant, we'll have a little bit higher start-up in the first half versus second half and a little bit higher NPD. And again, that fourth quarter comes into play again because you have fewer production days and some absorption impact of that, which we typically have every year. But, overall, like the margin trajectory in the business and certainly like the prospects that continue to grow the business through more capacity over time.

Our next question comes from the line of Jamie Cook with Truist.

Congratulations on a nice quarter. I guess two questions. The margins in Access has been very impressive. And I think the guide is in terms of margins is like a record for the quarter. So, John, in an environment where you're talking about potentially a stable market or let's say flattish revenues in 2025, like, to what degree is the margin improvement structural and/or do we need to start worrying about Oshkosh getting price back on the access equipment side? You're starting to hear price deterioration in other markets. I'm wondering if that's a risk for Oshkosh over the longer term. My second question just on Defense, understanding what you said, in terms of how you're thinking about revenue with NGDV ramping and JLTV going down, how are we thinking about the margin cadence for Defense going forward? Like, is 2025, while margins are improving, still very much a transition margin year? And to think about more normalized margins more so in 2026 and 2027 and just concerned on the ramp of inefficiencies on the ramp of NGDV.

I'll take the first one on Access and Michael comment on the NGDV program and the Defense business. So let me talk about Access because we've been very, very purposeful about driving resiliency and sustainability into our Access business. I think we've been doing a lot of great work. Our team's executing well right now across the board. You see that in today's margin performance. And we're always focused on driving value for our customers and also the company, of course. And we believe that this focus and this purpose around resiliency is going to lead to a lot of long-term success. So we want to be resilient no matter what the market conditions are. So if 2025 is flat, we expect to perform exceptionally well. Jamie, I'm not sure if you were there, you visited our Shippensburg facility recently, and you saw some very innovative manufacturing investments that have been going into place. That's one of many examples as to how we're driving resiliency into the business no matter what the market conditions are, our ability to adjust to market conditions. So I can't forecast long-term margins on this call. We'll do that at an Analyst Day upcoming. But we do expect to continue to deliver strong margins in this business year-over-year as the market evolves. Mike, do you want to talk about NGDV?

And Defense and NGDV, so what our expectation is, revenue is going to be relatively low for NGDV. We talked about we'll have just some startup costs this year. That revenue grows throughout next year as we ramp production and ultimately exit 2025 at full rate production. So from a margin perspective – so first of all, revenue is going to be growing significantly. We expect that will offset the decline of domestic JLTV. The margin will continue to grow too as we ramp up. And so, by the time we get to 2026, we'll be delivering that – we've talked about the attractive margins that the program has. And that's what we expect by 2026. And that will be growing over the course of next year. I think the other thing just in terms of – just in general margins with Defense, I think John mentioned in his prepared remarks, the FM or FHTV extension that we expect will be completed in the near future here. That's another one of the pieces that we've talked about that are going to help the Defense margins over time. That reflects updated pricing and there's economic price adjustments. So keep in mind that's another one of the levers that will continue to improve Defense's margins in the coming years. We'll start delivering those units under the new contract in early 2026.

Another comment on that, Jamie. Our lower Defense margins were a phenomenon as a result of fixed price contracts that we entered into prior to the inflationary period. So we expect that we'll come back to profitable growth as we get fixed sole source contracts. We just announced one for the FHTV, and there's others coming, and that's going to help us drive a much better margins in the core defense programs that we have going forward. So that'll be a big evolution over the next 18 months.

Nice quarter.

Our next question comes from the line of Kyle Menges with Citi.

I hope to dive a little bit deeper into the outlook for Access next year. The flattish year-over-year sales, pretty good. I guess what conversations with customers are giving you confidence that sales can remain flat year-over-year and how much of an impact is the ramp up of telehandler production in that equation?

When you look at the Q2 orders that we had, they were lower, as we had expected. And I want to make sure it's clear that we're talking about a change in order timing. We're not talking about a change in demand that we're experiencing right now. It's an order timing change, not a change in demand. So we talk with our customers all the time, and they continue to have a healthy outlook for their business and even for our equipment. That's probably the best data point that we look at. If you look at what is happening in the market itself, you see positive rental pricing, you see strong fleet utilization. Now you might say, well, fleet utilization has come down a little bit, but it was at historic highs when there was a lot of supply chain constraints. So if you look where it is today, it's a very, very healthy rate, and we see good prices on used equipment. Used equipment was also very constrained the last two or three years because there was no supply of used equipment. Now there's more supply. So used equipment has come down a bit, but when you look at what it is, it still is at a healthy rate. And I think if you ask our customers, they would tell you the same thing. So those are the types of things that we see right now in the market today. But we're really in unique times right now. We have aged fleets still. We have lots of mega projects and unprecedented government spending with the IIJA, the IRA, the CHIPS Act. These all continue to be meaningful drivers of demand. And with some commercial construction, of course, mostly buildings, under some pressure due to interest rates that I think that all these big projects and big trends are, at this point in time, they're able to offset some of the weakness in general construction that we're seeing. I'll give you a little bit more detail. If you look at the Dodge Momentum Index, it was up 10.4% in June, near historic highs. They cited data centers as an ongoing driving force. It's 43% ahead of 2019. That signals fairly strong construction spending in 2025. On the other hand, you look at the ABI, the Architectural Billings Index, and it's been below 50 for more than a year, almost a year-and-a-half, and that's due to impacts of interest rates on the general construction activity. But even so, a lot of firms are continuing to remain optimistic that rate cuts, which will eventually come, we'll find out a little bit more later today, will improve those conditions. When we add all that up and we review this with our customers, it gives us the outlook that we talk about today in terms of 2025. But I do want to go back to the point that I made earlier. When you look at our order rates, we're talking about a change in order timing, not a change in demand.

I was curious, just any impact from the telehandler ramp and how you're thinking about 2025, like some of the puts and takes there.

From a tellerhandler perspective, really, the ramp impact is this year, so you see the investments, and that's one of the items we called out for back half margin impact to Access. We don't see that carrying into next year.

Our next question comes from the line of Angel Castillo with Morgan Stanley.

This is Brendan on for Angel. So in your Vocational segment, you noted the strong backlog in Pierce. Just curious, we've seen revenue accelerate sequentially there for the past couple of quarters. Are you seeing material changes in demand, or is that more attributable to some of what you're doing to improve throughput at the manufacturing side of things?

Yes, I'd say overall demand still remains very strong. The last couple of years were really the highest couple of years on record for fire trucks. We still see the market at above, well above normal levels this year. So demand continues to be very robust, and that's why we called out. I think in the short term, we're highly focused right now and making incremental gains in our ability to produce more fire trucks. But in the longer term, I would expect that we'll continue to make some investments in capacity because we see more growth opportunity given the market dynamics, the backlog, and of course, this is all in a strong pricing environment as well.

You mentioned price cost a couple of times driving some of the solid results here. I was wondering if you could quantify that and then provide any color on expectations as that goes out throughout the remainder of this year.

Again, price cost in the quarter was, call it, about $0.60. It was a good driver year-over-year. One thing to remember is, a piece that is – we were still sort of lapping some of the pricing – or hadn't fully lapped some of the price increases at Access last year. And then the bigger piece of it is Vocational. They were a few quarters behind Access and the price cost benefit. So again, going forward, it's going to be – now that we're sort of lapping the Access piece of it, price cost still going to be a meaningful driver, may not be quite to the same level as we looked at Q3, and then we did note that material costs will be a little bit of an impact in Q3.

Our next question comes from the line of Mig Dobre with Baird.

It's Joe Grabowski on from Mig this morning. I guess I also wanted to ask about access equipment demand and access equipment order progression. When you talk about Q4 orders, expect to see a significant increase, I assume that means versus Q2 and Q3. But how do you think Q4 orders just directionally will compare to the prior three December quarters, each of which were very strong compared to historical orders for the segment?

Well, the short answer to your question is I think they'll compare favorably to what you've seen in the past year-over-year. That's the expectation. Remember, we've got a $3.3 billion backlog. The industry is less constrained than it was when we saw unseasonal order patterns. So that's why customers are comfortable going back to more seasonal order patterns. So we have a $3.3 billion backlog today in access equipment. That's unusually high still. It's come down from where it was a quarter ago, but it's unusually high. Some of that backlog is already for 2025. Orders that we're receiving, a lot of those are essentially for 2025. And as we get into Q4, that's the normal time – when you look at normal order patterns, when customers really plan for the following year. And we typically have a three to six month backlog in normal seasonality. So that's why we expect in Q4, we'll see significant orders for what customers are expecting in 2025.

So, Joe, I'd say this. This is Pat. I'd say we're not going to forecast Q4 orders on this call, but clearly they'll be well over a billion dollars, right? You've seen that the last couple of years. But to get too precise, that's not something we would do on this call. We do expect lower orders in Q3, right, as John said because a lot is in backlog already.

Pat, that's lower year-over-year, right? Lower year-over-year in Q3? Just want to make sure that not lower versus Q2, but lower year-over-year.

Q3 last year was – what do we have here? We've got $930 million. Right? 930 million. I think we're going to be lower than that. Confidently.

I wouldn't read too much.

Yeah.

I wouldn't read too much into what the orders are in Q3. I don't think it's a significant data point to pay attention to.

A quick follow-up. I was intrigued to see that you're now recognizing revenue for the delivery vehicle, $36 million in the second quarter. Curious if that was kind of a partial quarter, how it kind of ramped in the quarter and kind of any early learnings as you're starting to ship the vehicles?

We're at lower rate production. That's going to continue to ramp up really through the end of 2025 where we exit at full rate. The $36 million of revenue, remember, we're at overtime recognition. So I wouldn't get too wrapped up in trying to correlate that to an exact number of units because you have early units, you're going to have more costs incurred upfront. I think as we get into higher productions, you're going to have a little bit better correlation to units produced, but we'll continue to be ramping up over the course of the year. So we would expect to continue to see some revenue growth on a quarter-to-quarter basis.

Our next question comes from the line of Jerry Revich with Goldman Sachs.

John, if you could just expand on your comments earlier about the tariff implementation in Europe and your views on how that's going to impact the competitive landscape. Feels like it's hitting everybody across the board, outside of maybe one French manufacturer. But I'm wondering if you just step us through, how do you think that impacts the competitive landscape and opportunities for your business?

It is hitting everybody across the board. Essentially what the tariffs are is they're tariffs on product that's manufactured in China coming into the European Union, just to clarify that. So as far as we're concerned, we supply European markets with production from within Europe. We've got plants in Europe. We supply from the US, we supply from China, and we even supply Europe from Mexico. It depends on the category of product, really, in terms of where the supply is coming from for us. So there's going to be some impact because we do bring – we do export from our operations in China to Europe. By the way, Jerry, that's contemplated in our updated 2024 guidance, the impact. And as I talked about, it's one of the reasons that you saw a little bit of revenue change in the guidance. So Chinese-made JLG goods will be subject to some tariff. It's not perfectly finalized yet. We expect it to be finalized. So we are evaluating the strategies that we have and that we believe will help us mitigate the impact. Recently, you've seen, for example, that we've made a couple of acquisitions in Europe, one in Italy, one in Spain, that's going to close soon. When we made those acquisitions, one of several things that we considered in terms of synergies was localization of product. And so, we feel good, even better now about making those acquisitions because we believe that it gives us a little bit of optionality as to how we can make sure that we can still be very, very competitive in Europe amongst some tariffs that are coming in play. And just to put this in perspective for you, Jerry, and for everybody, our European business for Access is about 10% of total revenue. So just putting that in perspective as well. That's what I can tell you about it.

And China shipments are a portion of that as well, so that's clear. And can I ask, US Postal contract, the revenue number was higher than what you thought in the quarter, sounds like, based on the comments. There's good momentum. Can we just put a finer point on the 2025 comments? I think JLTV was set to be about a $600 million drag, 2025 versus 2024. And you mentioned that USPS would more than offset that. Can we maybe put a finer point on what your current expectations are for USPS revenue relative to that roughly $600 million JLTV drawdown?

Actually, I think that JLTV is probably going to be a bit more than that. It's about $700 million. So we do expect that NGDV will exceed that next year.

Any order of magnitude on the comments.

What was that?

Would you be willing to provide order of magnitude relative to the $700 million when you say exceed that.

I would say there's definitely a gap there. So you're thinking probably $100 million plus.

Our next question comes from the line of Chad Dillard with Bernstein.

A question for you on Access. So just following on a thread about flat demand in 2025. I was just curious how you think about the mix and what sort of margins that would potentially imply. And then if demand is flat in Access, can you still underwrite that $12 earnings target that you put out in the past?

Well, I'll give you a general comment. When we look at mix in our business, we typically plan for mix to be somewhere in line with what it normally is. So we talked about our short term 2024 guide. We've had benefits from mix to this point in the year, but when we talk about what's second half, well, we assume second half will look like it normally does historically. We do the same thing when we think about 2025 and beyond. With regard to the resilience of the business, the answer to your question is yes, we expect 2025 sales to be in line or in the range of 2024, and the business will perform well. So the answer to that is a simple yes.

You mentioned in your prepared remarks a distribution channel shift in refuse. How much revenue will that impact? Can you talk a little bit more about how that expands your market and maybe a little bit about the process of finding dealers and kind of getting to the finish line there?

It's an exciting change. And it's particularly important when you think about how the refuse market's changing with our fully electric chassis that you're going to – that being a proprietary chassis for us. But as we think about it, the move to dealers really allowed for those non-fleet customers better penetration for new sales as well as aftermarket, better aftermarket penetration. In terms of identifying dealers, a number of them we're quite familiar with. They've been longtime dealers on the Pierce side of our business. And as we've talked about, we view that's a competitive advantage. It is the best dealer network in the industry in North America. So really excited to be able to partner with those great dealers to help drive growth. In terms of exact quantification, we're not to a point yet where we're going to – we can continue to provide more color on that over time, but we do see it as a growth opportunity.

Our next question comes from the line of Steve Barger with KeyBanc.

This is Jacob Moore in for Steve today. First one for me, following up to a few questions on Vocational and the net effect from AeroTech. I heard you say that orders and demand are strong, John, and I know you gave the backlog contribution, but can you help us get an understanding of what organic orders looked like in the quarter, separating AeroTech from the equation? I'm just trying to get a sense of potential for future organic production strength like you put up today.

We don't really break our orders down in that level of granularity. But I would say just in general, AeroTech orders were strong year-over-year, so we still see strong demand dynamics there. I would say just dissecting on the refuse and recycling business, a little bit of timing from quarter to quarter based on larger fleet orders, but generally, demand dynamics very, very strong in that business. Likewise, I made some comments on fire earlier. We have clearly a very large backlog that's going out several years. Market conditions, we're still at not quite to the market size the last two years, but well elevated among more levels that we've seen over the past decade, decade and a half. So in general, we're continuing to see strong demand across all three of our big businesses there.

Let me comment on that. We acquired AeroTech because of the strong synergies with our business and because we believe that that market is in secular growth and will be for the foreseeable future. And everything we've learned in the first year of ownership indicates that to be true. So we expect healthy demand year-over-year going forward. Our ability to work collaboratively with AeroTech, as part of our family now, and applying technology where it matters with autonomous functionality, electrification is really meaningful and our ability to then go and continue to enhance our capacity, so we can deliver as that market continues to progress with strong order rates, that's a really good dynamic for us. And this is a very healthy business and we're very positive about it.

And that leads nicely into my follow-up. Can you tell us what AeroTech's historical backlog coverage of forward sales looks like? I'm just trying to get a sense of how much visibility that business has today versus historically and then how that compares to both Pierce and refuse.

I would just say, in general, that we have a year plus of visibility in the business. That's elevated versus traditional levels, but it's emblematic of the market conditions that we're in with a lot of airport growth, passenger travel growth, all the dynamics that John was just talking about. As we look to McNeilus' refuse and recycling business, typically, we have around six months to a year of visibility. That's trending to the higher end of that range right now. And Pierce, our backlog goes out a few years.

Our next question comes from the line of Tami Zakaria with J.P. Morgan.

Very nice quarter. I have two quick clarification questions on topics discussed so far. So the first question is the JLTV versus NGDV ramp down/ramp up next year, should we expect a net headwind in the first half of next year and then a net tailwind in the back half? Or should we just expect NGDV offsetting JLTV ratably throughout the year?

It's going to be a ramp up, Tami. So, it's too early to start breaking out, but you can generally expect that, as volume increases, the margin profile is going to increase. So I think the way you're thinking about it makes sense with that ramp up. But in terms of breaking it exactly between first and second half, it's too early at this point.

The other question is free cash flow. I think you lowered the guide and you said higher working capital is the reason. Can you just elaborate on that a little bit?

As we look, Tami, right now, we have a number of new product development programs going on right now that are larger and we have three different facility startups. And just as we map out to the end of the year, it looks like we're going to have a bit more working capital on the balance sheet. It's very much a temporary phenomenon. We believe that unwinds fairly quickly in 2025. So I view it as very much a short term phenomenon and we expect to be a strong, free cash flow generator well into the future.

Our final question comes from the line of Michael Feniger with Bank of America.

Just forgive me if you touched on this, the acquisition there, the Spanish equipment maker, if that closes the back half, do you have a sense of how much fleet or backlog that kind of adds?

It's not going to be significant for the acquisition because it's a business that has – in 2023, it had about $140 million of revenue. So if you think of similar type backlogs to Access, you can do some math around that. So it's not going to be a material driver of a backlog as we exit the year. But, of course, it's a great business, strong margins and we're clearly very excited about it.

John, as you said, it's kind of unique time with the cycle with some of these indicators in different directions. When you think of that flat range for 2025 versus 2024 with [indiscernible], just big picture, does the first half look very different from the second half? I know it's been kind of weird with seasonality. I guess the question is, as we see a Fed easing cycle, depending on the timing there, does it maybe become a little bit more second half weighted to get to that flat for 2025, 2024? Or do you think it's kind of fairly even or in line with seasonality? Just big picture thoughts around that.

It's too early for me to get into this kind of the quarter-over-quarter, first half, second half timing of what to expect. As I said, we're all going to find out something later today when the Fed talks about interest rates and that could impact it itself. So I don't want to go out and say how we expect first half, second half or quarter-over-quarter to evolve in 2025. We'll get to that point in another quarter or two. But I can't go there right now.

It would be too speculative, that's why.

Right.

Thank you. Mr. Davidson, I would now like to turn the floor back over to you for closing comments.

Great. Thanks. And thanks, everybody, for joining us today. I know it's a busy day. We're pleased to enter the back half of 2024 with momentum. We look forward to speaking with you at upcoming conferences or trade shows where we will be showcasing our technology. Please reach out if you have follow-up questions. Have a great day.

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