Greetings. Welcome to Oshkosh Corporation Reports Fiscal 2020 Third 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. Please note, this conference is being recorded. I will now turn the conference over to your host, Pat Davidson, Senior Vice President of Investor Relations for Oshkosh Corporation. Thank you, Mr. Davidson, you may begin.

Good morning, and thanks for joining us. Earlier today, we published our third 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 to non-GAAP financial measures that we will use during this call and it's 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 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. All references on this call to a quarter or year are to our fiscal quarter or fiscal year, unless stated otherwise. Our presenters today include Wilson Jones, Chief Executive Officer; John Pfeifer, President and Chief Operating Officer; and Mike Pack, Executive Vice President and Chief Financial Officer. Please turn to slide three and I'll turn it over to you, Wilson.

Thank you, Pat. Good morning, everyone. I want to start today by sharing how proud I am of the hard work and disciplined execution our Oshkosh team members have demonstrated, as we manage through the current pandemic-induced environment. The underlying strength we derive from our people-first culture has been a key enabler to our success, as we navigate through these challenging times. We often talk about how we are better together, and we are exhibiting that with our results this quarter. For the third quarter, we delivered sales of nearly $1.6 billion, adjusted earnings per share of $1.29, and our consolidated backlog is up nearly 6% versus the prior year, as we controlled what we can control, while responding quickly to challenges outside of our control. Given the conditions present in our markets in the U.S. and around the world, we believe this represents solid performance. The duration impact of the pandemic on the economy remains uncertain, but the resiliency of Oshkosh team members has been impressive, as we responded to a variety of challenges, including changing customer demand, new working protocols, and supply chain disruptions, among others. We believe our values and strengths as a different, integrated global industrial are even more pronounced versus our competitors in times like these. We implemented the temporary cost reductions we discussed last quarter. Those actions are evident, not only in our third quarter results, but should also benefit us as we manage through the ongoing uncertainty. Recently, we also announced some permanent cost reductions in areas of our business most significantly impacted by changes in customer demand as a result of the pandemic. John and Mike will discuss those actions and the related impacts in their sections. And before I turn it over to John, I wanted to mention that our balance sheet and liquidity both remained strong, and our Board approved another quarterly dividend payment of $0.30 per share, consistent with our dividend last quarter. Also I want to take a moment to congratulate John on his recent promotion to President. It's a testament to John's strong leadership and dedication to a people-first culture. I look forward to continuing to work with him, as we lead this great team here at Oshkosh. Please turn to slide four and John will discuss each of our segments.

Thanks, Wilson. Thanks for the comments, and good morning, everyone. Before I provide an update on each of our segments, I'd like to provide a brief update on our operations, including our people and supply chains. Across the company, we are focused on maintaining the safety of our team members and preventing the spread of the virus, with increased social distancing, both in the offices and throughout our manufacturing facilities. While this can make completing work more challenging, we have maintained strong efficiencies. I am proud of the way our team has remained disciplined in maintaining these strict protocols. We also successfully navigated through over 200 supplier shutdowns early in the quarter to continue production without any major supplier-induced line stoppages. This is a true testament to the focused efforts of our supply chain team, our integrated capabilities, and our strong supplier partners. While we've largely stabilized our operations and supply chains, elevated infection rates in parts of the U.S. extend production and supplier risks, and we will remain diligent in our actions. Additionally, we've carried out our return to work or return to the office actions for our team members. I won't go into all the details, but about half of our office workforce physically enters our facilities for work each day with appropriate social distancing and cleaning protocols in place. Essentially, we implemented changes that enable Oshkosh team members to work-from-home when they need to and work in our facilities when they need to, and they can do it seamlessly. Now I'll move to our segment updates and kick it off with Access Equipment. Our Access Equipment segment has experienced the negative impacts of the current business landscape more intensively than any other segment in our company with year-over-year revenues down more than 60% in the quarter. Despite these challenges, our team rallied quickly with aggressive steps to reduce production at the factories and to lower our costs, resulting in solid, adjusted decremental margins of just under 20% and an adjusted operating income margin of 8.4%. This performance is impressive given the significant declines in access equipment markets in North America, Europe, and other parts of the world. On our second quarter call, we discussed temporary manufacturing closures in the segment during the third quarter. And with market recovery timing still uncertain, we shutdown production for the month of July, and we will have two-week shutdowns in both August and September. Wilson mentioned that we also have taken some permanent actions to reduce our costs, particularly in this segment. We announced the closure of our Medias, Romania facility at the end of June, which will occur over the next 12 months. We remain committed to the EMEA market and will be able to serve it more efficiently from our existing global manufacturing footprint, including plants in France and the U.K., in addition to the facilities rationalization. We also reduced our office staffing in the segment with a modest workforce reduction. Our simplification framework has been an important enabler for our ability to deliver robust margins throughout the business cycle, as well as relocate production so that we can operate with improved logistics and customer service levels. While COVID-19 has impacted access equipment markets around the world, we are staying flexible and nimble in our approach to managing the business. However, given the uncertainty around the broader economic recovery, we are not in a position to provide an industry or Oshkosh-specific outlook at this time. We know that access equipment will come back, but we do not currently have a time frame. We will control what we can and make the right decisions that we believe will facilitate our success when demand returns. We are further encouraged by the age of access equipment fleets, particularly in North America, that we expect will be a positive demand driver in future quarters. Finally, just as we discussed last quarter, our facility in China is back online, and we retain our positive outlook for this market as demand is returning. Our team in China has plenty of experience in both the demand and supply sides of the market, and we remain very bullish on our prospects for long-term growth in China. Please turn to Page 5, and I'll discuss our defense segment. Our defense segment performed well in the quarter as the team continues to ramp up the JLTV program, which helps provide a solid foundation for the company with a large backlog and multiyear visibility. During the quarter, we received an order for JLTV trailers that further solidifies our leadership in tactical wheeled vehicles for the U.S. Department of Defense and our allies. We continue to work with a number of foreign governments on JLTV opportunities. And while we are not making any announcements today, we have a strong pipeline of opportunities and expect that we will be discussing additional international successes in future quarters. Our defense backlog remains solid at nearly $3.3 billion, up over 15% from the prior year which provides good visibility, especially given the current environment where the pandemic has limited visibility across many industries. During the quarter, we announced a joint venture to manufacture tactical wheeled vehicles in Saudi Arabia. We have been working with our partner, Al-Tadrea, for the past two years to finalize the agreement. This is part of our longer-term plan to be an integrated strategic partner with this key U.S. ally for defense vehicles and life cycle services. This is an important milestone for our international defense activities. Before I wrap up my comments on our defense segment, I want to congratulate both our production UAW team members in Oshkosh and our leaders in the business for agreeing to a new collective bargaining agreement which provides continuous coverage through September 2027. This is a great example of the benefits of working together and reaching solutions that provide security and peace of mind for our team members, as well as continuity for our company. Let's turn to Slide 6 for a discussion of the Fire & Emergency segment. Fire & Emergency delivered a strong quarter with a 15.7% adjusted operating income margin. Last quarter, the segment experienced some challenges with a supplier issue that impacted both our shipping schedule and our margins. This supplier issue is behind us, which paved the way for a great quarter as the team focused on operations and delivered impressive results despite lower year-over-year sales. Customer travel restrictions implemented during March eased midway through the third quarter. This was a positive development for the team, but given the recent increase in COVID-19 cases and states reinstating quarantines for travel, we may experience temporary sales headwinds in the fourth quarter. As we discussed on the last earnings call, we expected third quarter orders to be down year-over-year and sequentially and that was the case. Remember, we are coming off a quarter that was an all-time record for orders and we expected there to be a pause in orders due to the pandemic. The backlog continues to be robust, providing visibility well into 2021. Even with strong year-to-date orders, we will continue to monitor the pandemic's impact on municipal budgets which could impact spending on fire trucks in the future. Please turn to Slide 7, and we'll talk about our commercial segment. It's clear that customer demand for both concrete mixers and refuse collection vehicles has been impacted by the pandemic. As construction work was limited and often stopped at various locations across North America over the past three months, we expected concrete mixer sales and orders to slow. That has been the case. RCV demand tends to be more stable and we've seen residential trash collection remains strong and even elevated in some cases, but we've also seen nonresidential refuse collections slow during the shutdown, and this has had a negative impact on demand for RCVs in the current environment. Despite these challenges, commercial really came through with a solid margin quarter. This can be attributed to quick actions and a passionate culture that permeates throughout the business. Those of you that have followed us for the past few years know that we are committed to simplification throughout Oshkosh and we began a journey a couple of years ago in the commercial segment. As part of this journey, we are transferring concrete mixer production from our facility in Dodge Center, Minnesota to consolidate production in our other mixer facilities in North America. Thus, Dodge Center will become a focused RCV operation. This will reduce costs and better position both the mixer and the RCV businesses for success in the future as they'll benefit from focused facilities. The transition will occur over the next six months for this important step in our simplification journey. Also, we recently sold our concrete batch plant business, Con-E-Co. We regularly review all of our businesses for value and strategic fit within our company. We determined that Con-E-Co was a better fit with a different owner and closed on the transaction last week. We think this will help us more effectively focus our resources in the commercial segment. We appreciate the contributions from the team at Con-E-Co and wish them all the best as they move forward with a new parent company. Before I leave this segment, I wanted to mention the ramp-up of our new front-discharge concrete mixer, the S Series 2.0 complete with industry-leading connectivity and productivity technologies. We're pleased with customer orders and interest levels even against the backdrop of the pandemic. We believe this redesigned mixer will be a long-term driver of solid performance for the company. Watch for new megatrend technologies applied to this vehicle in the future. This wraps it up for our business segments. I'm going to turn it over to Mike to discuss our third quarter results and some additional comments on current business conditions.

Thanks, John, and good morning, everyone. Please turn to Slide 8. During our last earnings call, we commented that we expected the third quarter to be a challenging quarter, and it was. However, strong execution by our teams, combined with rapid implementation of cost-reduction actions allowed us to effectively manage the business and deliver solid adjusted consolidated decremental margins of 15.9% for the quarter on a significant decrease in year-over-year sales. Consolidated net sales for the quarter were $1.6 billion, down 33.9% from the prior year quarter. A significant decrease in access equipment sales, and to a lesser extent, decreases in fire & emergency and commercial sales were the primary drivers of the lower consolidated sales, offset in part by higher defense sales. Access equipment sales were negatively impacted by customer pushouts, some cancellations, and lower order intake rates as a result of COVID-19 and the related shelter-in-place restrictions driving low levels of job site activity throughout much of the U.S. and the world. Defense sales growth in the quarter reflected the continued JLTV production ramp and higher aftermarket parts and service sales, partially offset by lower FHTV volumes. Fire & emergency sales were lower than the prior year quarter, primarily as a result of decreased production line rates necessitated by COVID-19 related workforce availability and supply chain disruptions offset in part by a catch-up of units affected by the supplier quality issue we noted last quarter. And commercial segment sales were lower than the prior year quarter, driven by a combination of lower demand for refuse collection vehicles and concrete mixers as well as some production disruptions, both caused by COVID-19. Consolidated adjusted operating income for the third quarter was $128.8 million or 8.1% of sales compared to $257.8 million or 10.8% of sales in the prior year quarter. Access equipment adjusted operating income declined on lower sales and unfavorable manufacturing absorption as a result of the facility shutdowns during the quarter, offset in part by favorable price cost dynamics, lower incentive compensation expense, the benefit of temporary cost reductions, and more amortization expense. Defense operating income increased as a result of an unfavorable prior year cumulative catch-up adjustment, higher sales volume, and the benefit of temporary cost reductions, offset in part by higher warranty costs. Fire & emergency third quarter adjusted operating income declined due to lower sales volume and adverse sales mix, largely offset by improved pricing, lower incentive compensation expense, and the benefit of temporary cost reduction actions. Commercial segment third quarter operating income increased compared to the prior year quarter as a result of the absence of inefficiencies caused by a weather-related partial roof collapse in the prior year and favorable price cost dynamics, offset in part by lower sales volume. Adjusted earnings per share for the quarter was $1.29 compared to earnings per share of $2.72 in the third quarter of 2019. Third quarter results benefited by $0.03 per share from share repurchases completed in the prior 12 months. Please turn to slide nine for a discussion on the remainder of fiscal 2020. During the second quarter, we withdrew our financial expectations as a result of the evolving impact of COVID-19. While we have seen stabilization in our supply chain and operations, recent increases in infection rates in parts of the U.S. continue to drive potential supply chain and production risk. Further, the cadence of customer demand in our access equipment and commercial mixer businesses remains uncertain. As a result, we're not in a position to provide updated expectations for the fiscal year. Last quarter, we announced decisive actions to reduce pretax cost by $80 million to $100 million for the year in response to the uncertainties caused by COVID-19. These cost reduction actions include salary reductions, furloughs, temporary plant shutdowns, limiting travel and reducing project costs, and other discretionary spending. As a result of the outstanding focus by our teams, we now expect these temporary cost reduction measures to exceed $100 million in fiscal 2020. As John discussed, we have also announced permanent restructuring actions in our access equipment and commercial segments, which are expected to yield combined annualized cost savings of $30 million to $35 million once complete. We expect to begin realizing some benefits of these actions in 2021, with the full impact of these actions by 2022. As we shared with you on the last call, we established a playbook of options to respond to the pandemic. With recovery trending at a slower pace, permanent cost actions were prudent. Our balance sheet remains strong with available liquidity of approximately $1.1 billion, consisting of cash of approximately $300 million and availability under our revolving line of credit of approximately $800 million at the end of the quarter. Share repurchases remain paused during the quarter and we will reevaluate them as we gain further clarity on the recovery of our end markets. On the second quarter earnings call, we discussed our target of achieving mid-20% adjusted decremental margins, both on a consolidated basis and within the access equipment segment for the year. We were able to exceed those targets during the third quarter with disciplined execution and the help of our cost reduction initiatives. We expect the benefit of cost reduction activities to be lower in the fourth quarter compared to the third quarter as shelter-in-place restrictions have eased, leading to increased expenses. Nonetheless, we expect to achieve the targeted mid-20% adjusted decremental margins, both in the fourth quarter and for the full year on a consolidated basis. I'll turn it back over to Wilson now for some closing comments.

Thanks, Mike. We have a strong culture with strong leaders at Oshkosh. Our revenues and earnings were down in the quarter from last year, but given the challenges we've been facing, we're proud of our performance. We have a strong balance sheet with ample liquidity. Our defense and fire & emergency backlog provide visibility well into 2021 and we took aggressive actions early during the pandemic to lower our costs. Additionally, we announced permanent cost reductions that we discussed on today's call that we believe will position us for greater success in the future. Our team has managed production and supply chain disruptions very effectively and has kept Oshkosh on the right path during these challenging times. I am reassured by our strength and resourcefulness 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 everybody, please limit your questions to one plus a follow-up. After the follow-up, we ask that you get back in queue if you’d like to ask additional questions. Operator, please begin the question-and-answer period of this call.

Thank you. Our first question is from Jerry Revich with Goldman Sachs. Please proceed.

Yes, hi, good morning, everyone. Really nice quarter. What really stands out is getting to double-digit margins in commercial in the middle of the pandemic when I don't think, at least in my model I have you hitting double-digit margins in any quarter historically. Can you just talk about the sustainability of the performance this quarter within this segment? You mentioned some travel costs are going to come back. But are you still in a position where price costs can drive year-over-year margin expansion for this business in coming quarters and expand a bit more on the performance this quarter, please?

Sure, Jerry, I'll take that. We're certainly excited by the great results that commercial delivered this quarter. It was – certainly, they jumped on their cost actions quickly, and we got a nice tailwind from price cost. Bottom line, though, is we did benefit from some one-time items in the quarter. This business is on a nice simplification journey. We believe it's a double-digit margin business over time. We don't see us being a sustained double-digit business in the near term. So I think it was, again, a nice quarter. But I think for the sustained double-digits, it's going to be a bit of time yet, as we continue our simplification journey.

And I think just add to that, Jerry. The moves we're making that John described in his prepared remarks, where we're focusing our factories from a mixer standpoint and a focus factory from our refuse collection vehicle standpoint, that's going to help us get to those double-digit margins.

Well, and that's what's interesting, the fact that you got the double-digit margins while making these decisions. And I'm wondering if you could talk about JLG and decision around the Romania facility, is that a function of higher productivity in your other plants? Or is that a view on European demand? Can you just expand on that? And I'm wondering with all the telematics that you folks have in the field for JLG, can you talk about whether the realization improvement has continued beyond normal seasonality into July?

Yes. Jerry, this is John. So when we make moves on fixed costs, like you've seen us do in access in Romania or in commercial with the mixer business being consolidated, we're always doing that in line with our simplification journey. So we kind of know where we have simplification opportunities, and we look at execution based upon what we see in market conditions. We've been talking about Europe for a couple of quarters, at least now in terms of our concern with the market there. And our ability to be able to consolidate what we produce in Medias in other focused factories is simplification, but it's also an opportunity to take fixed costs out with a fairly weak European market. And we think Europe is always going to be an important market for us, and we'll continue to serve it really well, and we're confident we can serve it even more efficiently with the moves that we've just made. With regard to utilization rates at Access, utilization rates bottomed out in, kind of, in April and as we got to early June, we saw improvements in utilization rates. We talk to our customers all the time. They give us indications on what they're seeing. We even had some of our customers report publicly that utilization rates were improving, then we got towards the end of June and June ended very differently than the way it started with infection rates of the virus starting to go back up, and that caused a pause for a lot of markets like California, Texas, and Florida, which are big, big markets for us. And so utilization rates are still up from when they bottomed out in, let's say, the April timeframe, but they're not back to pre-pandemic levels. And I think there's a little bit of pause going on in the market because of all the reinfection rates that we're seeing.

I appreciate the discussion. Thank you.

Our next question is from Ann Duignan with JPMorgan. Please proceed.

This is Sean McMahon on for Ann. Just one clarification question. You said you're extending your temporary shutdowns through F Q4 in Access. Those are still going to be two-week shutdowns each month as F Q3 was?

So just to clarify, so July is the entire month. And then it's two-week shutdown in August and September. Same cadence as we saw last quarter.

Great. Thanks. I appreciate the clarification there. And then shifting gears a little bit, your F&E backlog looks pretty solid at the end of F Q3. Can you update a little bit on your visibility in that segment and maybe compare it to defense?

Yeah. So our backlog at F&E and defense is really strong. F&E is over $1 billion backlog. Our order rates for F&E are up nicely year-to-date. Q3 is always kind of a weak order quarter. And with the pandemic, it was a little bit weak. But year-to-date, orders are strong. Backlog is great in F&E. It goes well into 2021 and defense goes even into 2022 at over $3 billion of backlog. So those are really good anchor businesses for us as we go through very tough climate in our other two segments, Access and Commercial.

Great. Thank you. Appreciate the color. I'll pass it on.

Our next question is from Jamie Cook with Credit Suisse. Please proceed.

Hi, good morning. Nice quarter. I guess just first question. Can you just talk about the cadence of sort of sales and orders that you saw throughout the quarter, some companies are citing that June was better. And then just any trends that you're seeing that continued. What you're seeing, I guess, in July, if that trend continued? And then my second question, obviously, good job on margins and cost control. As we look to 2021, are there any costs that you're realizing that are now structural, whereas, before you thought they were just sort of like discretionary? Thanks.

Let me begin with the orders, specifically regarding the access business. Looking back at June, the last month of the quarter, it ended in a considerably different position than it started. Throughout the pandemic, as we have discussed in previous calls, we noticed delays and then a significant number of cancellations. We included cancellations from April in our previous backlog, and while we continued to see cancellations in May and June, they were not to the same degree. Given the current downturn, we are quite satisfied with our order performance for the quarter. As we entered July, we observed ongoing market uncertainty compared to early June. This uncertainty largely stems from utilization rates not yet returning to pre-pandemic levels, primarily due to rising reinfection rates in key states crucial to our business. Nonetheless, I see a positive trend with responsible leadership across our customer base in the access market. Conditions vary across different vertical segments; for instance, the oil sector is struggling significantly while other markets show different levels of activity, such as construction, influenced by state-specific reopening and facility usage. The management of fleets is being handled responsibly, and while there has been some rational defleeting, it is not widespread. We believe that when the market stabilizes, the entire sector will perform remarkably well, although the timing of this stabilization remains uncertain.

And I can take the back half of the question, just looking at our cost actions. So as we said in our prepared remarks, our temporary cost actions this year, we expect to exceed $100 million. Those costs generally come back in the future. As you look to future years. However, we did talk about the permanent actions that were announced over the past several weeks at full run rate by 2022, that's $30 million to $35 million. We'll get about half of that benefit as we look to fiscal 2021. What we can say, though, we're going to continue to manage the business. We have our playbooks. We talked a lot about on the last call. We're continuing to maintain those. And certainly, we'll continue to monitor what market activity is as we get into next year and we'll continue to be disciplined in our management approach.

Thank you. I appreciate the color.

Thank you very much and good morning, everyone. I want to stick with this last point or discussion on cost savings. And Mike, I'm wondering if you can maybe give us a little bit of detail as to how much of these temporary cost savings contributed to Q3 and obviously, what that's going to look like in Q4, given your updated figure here. And then, related to this, as I'm thinking about fiscal 2021, if nothing really changes from a volume standpoint or a demand standpoint, I'm presuming some of these temporary cost savings carried through into fiscal 2021. So if you could maybe help us kind of parse these things out, I think that would be great. Thanks.

Thanks, Mig. So from a cost action standpoint, we talked about north of $100 million. You kind of have an idea of the timing in mid Q2 that those kicked off. We do see that Q4 cost benefit is going to be somewhat less than we saw in Q3, as I mentioned in the prepared remarks, and that's really because the first half of the quarter, the level of economic business activity was at such a low level with the shelter-in-place restrictions. So we do expect the spending to be somewhat higher in our fourth quarter. Jumping to – we're not in a position to call next year. But I guess going back to my previous commentary, we're certainly managing those playbooks. And as we see that demand cadence, we're certainly going to take prudent action and manage the business responsibly.

But, Mike, I mean, look, you weren't implementing these sorts of actions back in Q1 2020 or a good portion of Q2 2020. So I guess I'm wondering, are there components to these savings that are sort of programmatic that automatically reset when you enter a new fiscal year? Or do we just have those relatively easy comps on a year-over-year basis, where we can still expect the benefit into fiscal 2021? This isn't about guidance; this is just about how you kind of structure these savings.

Yes. Certainly, some costs come back structurally. Things like incentive compensation can be a headwind. And there's certain actions that we've taken that, again, you look at things like travel and entertainment, there's so little travel that was taking place. So it's those types of things. Again, it's really going to depend on what we see for activity when you start comparing that year-over-year, and it's just – it's hard to call at this point. And I think that's what we're going to continue to manage.

Yeah. We know we have the restructuring costs in the year that will help us, Mig. But then, it's really – it's going to be a product of what market is available to us. Obviously, if the market goes down further or stays where it is, then we'll use those playbooks to manage that and look at some permanent costs if we need to. Obviously, if the market starts to tick back up, and we'll be prepared to use the playbook and take it back up. But to Mike's point, it's hard for us to call how much would read through or keep going, because we haven't called the market yet. It's just too early and too much uncertainty right now.

Understood. Then my final question, looking through your inventory build here. I guess, I'm looking for a little more color as to what was related maybe to some of the supply chain issues that you talked about earlier, versus some other moving pieces? And how should we think about inventory progression going forward-looking at the next couple of quarters? Thank you.

Certainly. Regarding inventory, it remained at a high level at the end of the quarter. In Q3, demand began to increase, but then customers slowed down as infection rates rose. In response, we adjusted our production levels in the fourth quarter to better align with customer demand and our inventory. We took several actions, with some of the inventory build due to proactive purchasing to mitigate supply chain disruptions. However, the primary influence is really the changing demand pattern. Looking ahead, the timing of when demand will rise again will play a significant role. We have adequate inventory and are not forced to liquidate any stock. It aligns well with our backlog, especially in the access segment, which is seeing a slightly increased inventory level. We will continue to manage this and may see normalization extend into next year.

So Mig, this is John. I just want to add to Mike's comments. With a cyclical business like access, we always have to balance our ability to reduce costs and generate earnings, which we've shown we can do in a steep downturn. And we think that's a really positive thing. With our ability to come back when the market comes back because we keep saying, hey, it's uncertain exactly what that timing is going to be. But we need to, and we work very carefully on positioning ourselves to come back because when it comes back, it will come back pretty quickly. And so my point is, is that, that inventory is good inventory, as Mike said, and it's partly there to help us when the market turns to be able to meet the demand in the market.

Got it. Thank you guys.

Our next question is from Tim Thein with Citigroup. Please proceed.

Thank you. And actually, just following on that issue of inventory as we think about access specifically, from an order perspective given your earlier comments about maybe some pause in the market, how are you thinking about it's kind of multiple parts here. But just thinking about year-ending backlog in access, wherever that sits and how that or how it will inform you in terms of your thoughts around '21? And I'm not asking for guidance on '21, obviously, but just thinking about what kind of cushion your comfort backlog may or may not give you, as you think about also managing or kind of toggling across the inventory levels that may end the year higher than potentially you were thinking. So maybe it's just – the question is, how it really comes down to backlog and what kind of view that provides as you look into the next year?

Hey Tim, this is Mike. I'll try to take that one, and certainly, John can add to it. We're going to keep an eye on the situation; we're not making any predictions for Q4 just yet. We'll need to monitor the order intake rates and consider all the factors we've been discussing regarding market conditions. What we can say is that as we observe the order cadence throughout the quarter and examine our inventory levels, we're paying close attention to that, literally on a daily basis. We're communicating with our customers, and we can adjust the production rate if necessary going forward. It's an ongoing conversation for us. Therefore, it's challenging to determine exactly what the dynamics will be at the end of the year, but rest assured we will continue to manage and adapt accordingly.

I want to emphasize that we have solid inventory in the right product categories, and we're fine with carrying some of it into next year since it's properly aligned with our business needs. I also want to highlight that all of our segments, including JLG, have maintained disciplined pricing. We plan to handle our inventory intelligently. As Mike mentioned, there’s no necessity for aggressive liquidation; we have a favorable outlook for this segment and the overall market, and it just comes down to timing. While our inventory is elevated, we're managing it effectively. Moving into next year, we have the flexibility to adjust production as necessary, whether that means scaling back or increasing output, which is a strong aspect of our current position. The team has done an excellent job preparing that segment.

Okay, got it. And then maybe just a high level, going back to the defense backlog. Can you maybe just update us in terms of some of your three large programs there in terms of funding levels and how we're thinking about? Obviously, you've got a little bit more visibility there, just how we're thinking about the outlook for the three big programs into FY 2021.

It would be great to have that visibility across all four segments. We’re pleased with our defense and fire & emergency business, which provides us with what we call a longer-term outlook compared to some of our shorter-term businesses. Our defense sector is in good shape, with just over $3 billion in backlog. We can carry the FHTV and heavies into 2022 and accept JLTV orders and deliveries through early 2025, while the new FMTV A2 program extends into 2026. These three tactical vehicle programs are crucial for our U.S. military and are performing well. The acquisition target for JLTV remains unchanged at 49,000 for the Army and around 15,390 for the Marine Corps, which we are pleased to see is stable. Although some timing has shifted slightly, we are confident in our current position. Furthermore, we are beginning to gain some international momentum that could be beneficial later in 2021 and into 2022, as JLTV demand may lessen slightly in 2022. We anticipate potential extensions for the FHTV, as it is a proven program, and we expect it to continue beyond 2022, though that is still to be confirmed.

Got it. Thanks for the time.

Thank you, Tim.

Our next question is from Stephen Volkman with Jefferies. Please proceed.

Hi, good morning, guys.

Hey Steve.

A couple of quick clarifications. It sounds like you're going to be shut down in access for about 50% of the fourth quarter. Is that basically the same as what you were in the third quarter?

Yeah, that's correct. Right.

Okay, great. And then, I would assume you have fantastic visibility into the fourth quarter for defense, but I know that sometimes those margins can bounce around or whatever. Anything for us to keep in mind relative to the fourth quarter in defense?

I would just say, consistent with what we've talked about in the past, it's a high single-digit business. It can vary from quarter to quarter. But I would – and again, I think I would just look at that high single digits and assume it would be in that territory.

Okay, great. And then, just one longer-term one, Wilson. I know you were kind of right in the middle of the fire around the global financial crisis. Pun intended, on the Fire & Emergency side. And I know that, that business ended up declining fairly meaningfully post the GFC. And I'm curious how you're thinking about the current state of affairs in the world relative to what we saw back there. And I know you called out in your prepared remarks that there could be some pressure there. But I'm just curious, as you look out over the next two or three years, do you think this is a similar kind of a trajectory to what we saw post GFC? Or is there some mitigating circumstance?

Yeah. I want to be careful, Steve, in calling the trajectory. But what I'd tell you is that I believe is different now versus back then. We had the residential housing crisis, right? And today, residential is not great, but it's – there's housing starts. And – so, that gives us hope that we can keep those tax receipts going in that way. I think the other thing, too, is we watch our distribution channel, and that helps us with our confidence. And just this past nine months, we've seen six of them invest in new facilities. So I think that – and then you look at the fleet age, fleet age is still elevated in Fire & Emergency. And as you know, it's kind of emotional issue in a city, if the fire truck doesn't work. And so it usually gets some priorities. So we think things are a little different today. But, again, I want to be careful because, as you know, they're always last in, last outs and we're going to learn more over the next couple of quarters with their order patterns to see if some of that's going to happen. You have to believe some cities are going to debate that, because of just what's going on, not just with COVID, but some social unrest things that are going on too. So more to come on that, but I don't – where we sit today. I think the difference is we've still got some housing, and we didn't have it back then.

Fair enough. Good point. Okay. Thank you.

Our next question is from Courtney Yakavonis with Morgan Stanley. Please proceed.

Hi. Thanks for the question, guys. Maybe can you just comment a little bit on the dynamics that you're seeing between Europe and the U.S.? It sounds like most of your more conservative comments about the exit rates in June have been related to the case counts in the U.S. Are you seeing any differences in utilization between Europe and the U.S. and then you talked about those push-outs and cancellations of orders, any discrepancies there?

I think the European market is reflecting similar conditions to what we reported last quarter. At that time, we were uncertain whether the recovery would follow a V-shape, U-shape, or L-shape in various global markets, particularly in the U.S. However, we did express confidence that China would experience a V-shaped recovery, and that has indeed been the case. We believe that the recovery in Europe will be much slower due to the macroeconomic indicators we are observing there. As a result, we continue to expect a gradual recovery in Europe, which has influenced our decisions regarding fixed cost reductions as part of our simplification efforts to better serve the European market moving forward.

I think our expectation with the North American market is going to recover quicker than Europe.

Yeah.

But again, to be determined.

I understand. I recognize that there has been significant discussion regarding the cost measures you've implemented. In relation to the more than $100 million you expect this year, could you provide any guidance on how those costs might be adjusted when you cease the temporary shutdowns or reach a particular sales recovery? This would help us better understand the margin outlook for 2021.

I’m not in a position to predict 2021 outcomes at this time. It really depends on the volume and demand signals we’re observing in the Access and Commercial markets, and we are prepared to respond as needed. We have flexibility in our options, and our actions will align with the demand we see. Some of our measures are temporary and will revert structurally next year, but we will continue to follow our strategies carefully. We will remain disciplined, and if we notice any decline in demand, we will have the opportunity to implement more permanent changes.

Okay, great. Thanks.

Thanks Courtney.

Thank you very much and good morning, everyone. I want to stick with this last point or discussion on cost savings. And Mike, I'm wondering if you can maybe give us a little bit of detail as to how much of these temporary cost savings contributed to Q3 and obviously, what that's going to look like in Q4, given your updated figure here. And then, related to this, as I'm thinking about fiscal 2021, if nothing really changes from a volume standpoint or a demand standpoint, I'm presuming some of these temporary cost savings carried through into fiscal 2021. So if you could maybe help us kind of parse these things out, I think that would be great. Thanks.

Sure, that's a fair question. We would expect that these temporary cost savings will start to roll back in as we see improved volume throughout the company. Historically, we have noted that during a recovery phase, a lot of those temporary actions can reset quickly back to the norm based on the increase in volume but will also depend on how the market behaves in 2021. We're committed to managing the overall margin structure effectively, but it's also essential to take advantage of any new opportunities as they arise. We remain cautious about projecting any specific numbers reflecting the success of these savings in future quarters given the uncertainty of market conditions. But again, we will remain flexible and vigilant as we approach 2021.

Understood. Looking forward to the next discussion. Thank you.

Thanks, everyone. We appreciate your time on the call today. We'll be happy to discuss further either in follow-ups or at the next call. Stay well, and have a great day.

This concludes today's conference call. You may disconnect your lines at this time, and thank you for your participation.