Greetings, and welcome to the Oshkosh Corporation Reports Fiscal 2020 Fourth Quarter and Full Year Results. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Pat Davidson, Senior VP 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 fourth quarter and full year 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 is also available on our website. The audio replay and slide presentation will be available on our website for approximately 12 months, so 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. All references on this call to a quarter or year are to a fiscal quarter or fiscal year, unless otherwise stated. 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 3 and I'll turn it over to you, Wilson.

Thanks, Pat. Good morning, everyone. I continue to be very proud of the hard work and disciplined execution of Oshkosh team members as we continue to work through the challenges brought on by the COVID-19 pandemic. We've talked about it before, but it bears repeating, our people-first culture has been a key driver for our strong results in the face of adversity. Proud Oshkosh team members and their commitment to our strong culture allowed us to overcome significant headwinds this past year, including uncertain customer demand, supplier delivery interruptions, workforce availability issues, and many others. A big shout-out to all 15,000 of our team members and our dedicated suppliers that have worked hard and stepped up during this difficult period to continue meeting our customers' needs. As a reminder, our fourth quarter call is always a little different from our other quarterly calls as I'll review both the quarterly highlights and the full year results before turning it over to John and Mike. For the fourth quarter, we delivered sales of nearly $1.8 billion and adjusted earnings per share of $1.30. Much like I said regarding our third quarter performance, we've controlled what we can control while responding quickly to challenges outside of our control. This is important as we were able to grow adjusted operating income in our defense, fire & emergency and commercial segments over the prior year while achieving consolidated adjusted decremental margins of 19%. In our largest segment, access equipment, we delivered 23% adjusted decremental margins during the quarter where revenues were down nearly 40%. John will go into more specifics on the segments, but the access equipment markets in North America and Europe remain soft and the timing of recovery remains uncertain. We are encouraged by utilization data that is approaching pre-pandemic levels and believe the market is stabilizing. We'll be paying close attention to rental industry metrics as well as engaging in annual purchase discussions with our customers over the next few months. Finally, we are announcing a 10% increase to our quarterly cash dividend to $0.33 per share. This is our seventh consecutive annual increase and reflects the confidence we have in our business model and the longer-term outlook. Please turn to Slide 4 for a discussion of the full year. There's no doubt that 2020 has been one of the most memorable years in recent history as the global pandemic has created disruptions of significant proportions, and I'm proud of the efforts and results that our people were able to deliver. For example, our access equipment segment overcame a nearly $1.6 billion year-over-year sales decline to deliver an impressive 8.5% full-year adjusted operating margin. Our fire & emergency segment delivered two consecutive quarters of record adjusted operating margin percentages to end the year. Our commercial segment posted a decade-plus high full-year adjusted operating income margin of 7.5%. And defense successfully executed our ramp-up of the JLTV program despite a host of headwinds brought on by the global pandemic. All of these represent significant accomplishments in the midst of the pandemic and demonstrate our strengths as a different integrated global industrial. We ended the year on a high note with solid performance in the fourth quarter. During the year, we executed a combination of company-wide temporary and permanent cost reductions. And Mike will talk about how these actions will impact our cost structure in 2021 in his section. I also want to call out some of the great work our teams have been doing regarding corporate responsibility with a focus on ESG. We don't typically talk about ESG metrics on earnings calls, but our efforts to reduce greenhouse gas emissions and energy usage, along with our team member engagement and safety performance, are among many areas that we believe help differentiate Oshkosh from other companies. We continue to earn recognition from agencies that track and evaluate company performance for these important nonfinancial measures, and we believe they further underscore our commitment to excellence, long-term value and sustainability. Before I turn it over to John, I wanted to highlight that our balance sheet and liquidity remain strong, and we believe we will have opportunities to use our balance sheet to grow shareholder value in the future. Please turn to Slide 5 and I'll pass it over to John.

Thanks, Wilson, and good morning, everybody. Wilson mentioned the pandemic, and I'd like to provide an update since several of our facilities, including our headquarters, are located in the region of Wisconsin that is currently experiencing some of the highest rates of COVID-19 spread in the nation. Across the company, we've been focused on maintaining the safety of our team members and preventing the spread of the virus, and we have a good track record in doing that. However, the recent resurgence is creating some workforce availability and supplier delivery challenges. It's as important as ever that we maintain strong safety procedures that meet or exceed CDC guidelines. Of course, this is challenging as many of us are experiencing pandemic fatigue. But like Wilson, I'm proud of our team members and our ability to stay focused and effective. Let's kick off our segment discussions with access equipment. We've been closely managing our access equipment business during a time of significant double-digit sales declines while still delivering strong adjusted decremental margins and impressive overall adjusted operating margins. In fact, we've been able to set a new benchmark for financial performance during an industry downturn. We appreciate the efforts and performance our team members have delivered during these times. Our positive fourth quarter results are significant, considering the low demand for access equipment, which has resulted primarily from lower equipment utilization, leading to lower CapEx spending by rental company customers in North America and Europe. Sales for the quarter were down nearly 40%, and we're therefore continuing to operate our facilities on reduced schedules. We've taken both temporary and permanent cost reduction actions in the business as we weather the storm. We believe this is a responsible approach. It's important to emphasize that we have continued to invest in the business as JLG is the innovation leader in the industry, and we remain confident in the long-term outlook for this business. We look forward to future product innovation releases as a result of our continuing investment. We're carefully balancing our cost reductions with the ability to ramp up when the market recovers. Through the first quarter, we'll keep production lower by operating our U.S. facilities for approximately 50% of the available production weeks. We will make decisions for the remainder of 2021 as conditions evolve and our customers share their plans. We are keeping our workforce engaged to be able to meet demand when the market returns. We are also staying in close communication with our suppliers as they are key to our ability to ramp up when the market comes back. We know that fleets in North America are aging with the aerials in the 55-month average age range according to the latest data, and we believe this elevated figure bodes well for future demand. The bottom line for North America is that we are confident in the recovery for the access equipment market, but the specific timing of the recovery remains uncertain. For the first half of the year, we expect lower year-over-year sales. We are early in our discussions with our rental company customers, and we expect to gain more clarity on the second half of the year before our next earnings call. Finally, just as we discussed last quarter, China's economy continues to recover, which we believe offers an opportunity for double-digit sales growth in the region for the foreseeable future. Please turn to Slide 6 and I'll discuss our defense segment. Our defense segment performed well in the quarter but has been dealing with workforce availability issues that I mentioned earlier as the pandemic is having a notable effect on our ability to schedule people and production. Despite these challenges, which we experienced more intensively late in the fourth quarter and continued to experience earlier this month, our operations teams have delivered solid results for our U.S. government customer and grew revenues in the year by more than 11%. Our successful ramp-up of the JLTV program throughout the year led the way and provides a strong foundation as part of our large backlog in the segment. Our team was happy to receive an expected order for 322 JLTVs from the Belgian Ministry of Defense in October. The contract with our NATO ally valued at more than EUR 115 million further demonstrates the success we are having with the world's best light protected tactical wheeled vehicle. We expect to begin shipping the vehicles in 2023, and we expect to announce more international JLTV orders in 2021. We competed against an incumbent competitor to win this order, and we believe it demonstrates the superior cost and performance characteristics of the JLTV product. I want to comment on the recently enacted Continuing Resolution, or CR. It used to be rare that the government required a CR to fund spending, but over the last 10 to 12 years, CRs have become the norm. Our programs of record remain funded under the CR, so it does not present an issue for 2021. Let's turn to Slide 7 for a discussion of the fire & emergency segment. Fire & emergency delivered an all-time record for quarterly adjusted operating income of 16.4% in the fourth quarter. Our team's performance at F&E has been nothing short of phenomenal as they have navigated through supplier issues, customer travel restrictions, and other operational challenges, many of which were brought on by COVID-19. The simplification philosophy that F&E adopted several years ago, along with state-of-the-art product innovation, provides the framework for the team to run its business at such a high level. We are exiting the year with a strong backlog, supported by a record order year of nearly $1.3 billion despite the negative impacts of COVID-19. Aged fire truck fleets, combined with the availability of new technologies, underpin our favorable long-term outlook for the F&E market. That said, tight municipal budgets may constrain demand in the near term. Fire & emergency is ready for the challenge with a market-leading lineup of high-quality, custom and commercial fire trucks and RF units. And we continue to invest in new technologies, such as our Fotokite Situational Awareness System and alternative powertrain options that you'll hear more about in future quarters. Please turn to Slide 8 and we'll talk about our commercial segment. Our commercial segment has continued to drive improvement throughout the year despite headwinds caused by the pandemic. The team delivered strong margins and higher year-over-year adjusted earnings in the fourth quarter despite lower revenues. Our commercial team posted its highest full-year adjusted operating income margin in more than a decade. This is particularly impressive, given the market impacts from COVID when construction was halted in many areas of the country and shelter-in-place restrictions temporarily reduced demand for waste collection at businesses earlier in the year. Much of our recent success stems from simplification efforts and disciplined cost management as well as the ramp-up of our new S-Series 2.0 Front Discharge Concrete Mixer, which is driving a lot of excitement and helping us win new customers. On our last call, we announced restructuring plans to transfer rear discharge concrete mixer production from Minnesota to Ontario, Canada as the team simplifies the business with a focused factory approach. I'm pleased to report that the transition is progressing according to schedule, and we anticipate a successful completion over the next several months. We believe this will put us in a prime position to drive sustained margin improvements. Before I leave this segment, I want to mention our commitment to electrification as a way to reduce greenhouse gas emissions and provide our customers with options as they plan their fleets. Early in the fourth quarter, there were numerous announcements of plans for electric RCVs in the U.S. market by some companies. We are proud to be working on electrification solutions across all of our businesses at Oshkosh. This is particularly true for RCVs as we are partnering with a chassis OEM to deliver five electric RCV units to be used in Boise, Idaho in the summer of 2021. I'd like to close with a comment about the culture and positive mindset we see from the team at commercial. They have been working very hard driving business and operational improvements, and their efforts and dedication to task are second to none and we can see it in our results. This wraps it up for our business segments. I'm going to turn it over to Mike to discuss our fourth-quarter results and some additional comments on current business conditions.

Thanks, John, and good morning, everyone. Strong execution allowed us to deliver 19% adjusted decremental margins on a consolidated basis and 23% adjusted decremental margins at access equipment in the fourth quarter. Consolidated net sales for the quarter were $1.8 billion, down 18.7% from the prior year quarter. A 39% decrease in access equipment segment sales was the primary driver of the decrease. Access equipment sales were negatively impacted by lower customer demand, primarily as a result of COVID-19. As John mentioned, our customers remain cautious with equipment purchases in light of uncertainty surrounding the pandemic and associated softness in nonresidential construction activity. Consolidated adjusted operating income for the fourth quarter was $124.1 million or 7% of sales compared to $203.1 million or 9.2% of sales in the prior year quarter. Access equipment segment adjusted operating income declined on lower sales and unfavorable manufacturing absorption as a result of planned shutdowns during the quarter, offset in part by the benefit of COVID-19-related temporary cost reduction actions. Defense segment adjusted operating income increased as a result of improved product mix and higher sales volume, partially offset by less favorable cumulative contract adjustments and higher engineering and proposal spending in the current year quarter. Fire & emergency segment operating income increased in the current year quarter as a result of improved price-cost dynamics and improved absorption, offset in part by lower sales volume. And commercial segment fourth-quarter adjusted operating income increased due to lower spending in response to the COVID-19 pandemic and favorable material costs, offset in part by adverse product mix and lower sales volume. Adjusted earnings per share for the quarter was $1.30 compared to EPS of $2.17 in the fourth quarter of 2019. Fourth-quarter results benefited by $0.02 per share from share repurchases completed in the prior 12 months. Finally, we generated strong free cash flow during the quarter to drive full-year free cash flow of $238 million. This is a solid accomplishment during a year where we saw rapid declines in customer demand, which put pressure on working capital. Please turn to Slide 10 for a discussion on 2021. The COVID-19 pandemic has continued to drive uncertainty in the cadence of customer demand in both our access equipment and commercial segments. Conversely, strong backlogs in our defense and fire & emergency segments provide good visibility well into 2021. However, as John mentioned earlier, recent spikes in COVID-19 infection rates are creating workforce availability and supply chain issues, particularly in Wisconsin, where a significant portion of the production occurs for our defense and fire & emergency segments. The situation is causing production and labor efficiency risks for these two segments and is also likely to impact final truck inspections by customers in the fire & emergency segment. Taking these factors into account, including the ongoing uncertainty of the pandemic, we're not in a position to provide quantitative expectations for 2021 at this time. We are actively engaged in discussions with our key customers in the access equipment and commercial segments to understand the requirements for 2021, but we do expect softer year-over-year demand in the first half of 2021 compared to 2020. Demand for access equipment remains uncertain for the second half of the year, but we expect to have better clarity during the first-quarter earnings call as we gain further insight into the trajectory of the pandemic and our customer requirements for 2021. At access equipment, we are implementing two-week production shutdowns per month in the United States in the first quarter of 2021 to better align production with customer requirements. In the second quarter of 2020, we implemented decisive actions which reduced our 2020 pretax cost by approximately $120 million. The reductions were evenly split between three areas: first, salary reductions and furloughs; second, incentive compensation; and third, project travel and other discretionary spending. As we previously discussed, these cost reductions were largely temporary in nature, and we expect them to return to our expense run rate in 2021. Additionally, we discussed permanent cost reduction actions during our last earnings call in the access equipment and commercial segments totaling $30 million to $35 million once complete. We expect these actions will benefit 2021 by approximately $20 million. Recently, we implemented additional permanent cost reductions totaling $15 million for 2021, which reduced corporate and segment operating expenses. So we expect to benefit from a total of $35 million of permanent cost reductions in 2021, growing to $45 million to $50 million by 2022. Return of costs that drove the temporary cost reductions in 2020 will be a headwind to margins in 2021. However, we are continuing to manage our business in a disciplined manner and will respond to the ongoing uncertainty with our playbooks. Our balance sheet remains strong with available liquidity of approximately $1.4 billion, consisting of cash of approximately $600 million and availability under our revolving line of credit of approximately $800 million. We expect a modest increase in capital expenditures to approximately $120 million in 2021. While we are not providing quantitative financial expectations today, we expect to provide them later in the year. With that, I'll turn it back over to Wilson now for some closing comments.

Thanks, Mike. We just completed the year in which we delivered nearly $5 of adjusted earnings per share in the midst of a global pandemic, and we believe we are in a great position moving into 2021 with our strong balance sheet and cash position. Our defense and fire & emergency backlogs provide visibility well into 2021, and we took aggressive actions early during the pandemic to lower our costs. Our culture at Oshkosh is strong, and we have an outstanding group of leaders and team members who have effectively managed production and supply chain disruptions and kept Oshkosh on a positive path since the pandemic began. We can't let up as the threat is still with us, but I'm reassured by the strength and resilience of our people and believe we will 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. Operator, let's begin the question-and-answer period of this call.

The first question is from Nicole DeBlase, Deutsche Bank.

So maybe just starting with a follow-up on the temporary cost, structural cost discussion. That was helpful color. But I guess how do we think about that with respect to cadence throughout the year? Because if we have a situation where revenues are down in the first half and then maybe we have the potential to turn positive in the second half? Is that so easy? Does that mean that those temporary cost actions don't really start coming back until the second half of the year? Just trying to think through that.

Nicole, this is Mike. I'll explain the situation. The total temporary costs amount to $120 million. As I mentioned earlier, two-thirds of that is related to compensation. Those costs will return. The remaining one-third is related to discretionary spending, which we anticipated would be slightly higher in the fourth quarter, and it indeed was. We could see some benefits from that discretionary spending early in the year while the pandemic impact was still present. These costs will start to come back immediately at the beginning of the year. From a timing perspective, we began experiencing some benefits of the $120 million, with about 25% realized in our second quarter and another 25% in our fourth quarter, leaving around 50% of the benefits in our third fiscal quarter. Regarding Q1, we do face some challenges. As mentioned earlier, production is shutting down for about half of the available weeks in North America, which will cause an absorption headwind compared to last year. Additionally, in last year's Q1 earnings call, we had a significant price benefit from our price-protected backlog and access, which will also be a headwind this quarter. Overall, the net headwind from the timing of our permanent and temporary reductions is around $85 million.

And this is John. Just a little bit more color on the temporary to permanent. So you might ask, well, why wouldn't we convert all the temporary to permanent cost reductions and take more permanent costs out? And the simple answer is, we believe the market is coming back, and we have to balance how much cost we take out with what we expect to happen in the foreseeable future. And we want to make sure that we're ready for that market to come back.

Okay, got it. That's really helpful color. And then for my follow-up, totally understand the lack of visibility in a lot of your businesses next year, particularly access. But defense is traditionally a business where you do have a little bit more visibility on the next year outlook. So maybe you could characterize expectations for defense in 2021, if possible?

Yes. The strong backlog in defense provides insight into future opportunities. While some of it will be deliverable in the upcoming years, particularly in 2022 and beyond, it offers a glimpse into customer requirements for the next year. This backlog can give a solid indication of the potential top line opportunity. Please go ahead.

I'm going to mention, Mike, that we have consistently referred to the run rate in defense as around $2 billion. We have been transparent about this. So yes, it is one of the aspects that provides some clarity during this time, making it easier to see that we are at a minimum $2 billion run rate.

What we're just managing through in that business is with COVID, if the cadence of that becomes a bit uncertain just with the supplier challenges and workforce availability that we're managing through.

We have a question from Mig Dobre, Robert W. Baird.

Hopefully, you're all healthy here in Wisconsin. I guess my question, I'm looking to clarify your comment on cost. Are you essentially saying that the two-thirds that is compensation-related resets back to that pre-cost-cutting run rate as early as Q1 of fiscal '21?

That's correct, Mig.

Okay. So the discretionary spend that almost by definition, you can control and maybe you can tweak as the year progresses?

Certainly, we will continue to monitor the pandemic, particularly the third area of concern. There are some aspects within that area that can be managed. However, in the fourth quarter, the benefits in that area were less than what we observed in the third quarter, which we had indicated in our previous call. We anticipated this as economic activity began to increase, leading to more spending. Importantly, in the fourth quarter, we maintained our investment in new product development, which has been a key focus for us. This is an area we definitely want to preserve as we navigate through these challenges.

Mig, you've been following us for years, and we believe we've established a new performance benchmark. However, we also recognize the need to manage the business realistically for the recovery. If that recovery doesn't happen, we have alternative strategies available. As Mike often mentions, we are cautiously optimistic, and there are many positive factors at play, such as our defense and fire & emergency backlogs. Our refuse business continues to provide a solid foundation. We're also investing further in the business by increasing our new product development in 2021. Given our strong balance sheet, we remain cautiously optimistic and believe we are well positioned for the eventual recovery.

Absolutely. And I would agree. I think your fiscal '20 performance has been excellent. I guess my follow-up question has to do with the balance sheet, just kind of looking through inventory. I'm kind of curious here. Inventory is still, I would say, pretty robust. How are you thinking about working capital and inventory specifically going forward? And what sort of progress do we need to see in access equipment specifically over the next, call it, couple of quarters?

Thank you, Mig. Yes, regarding inventory, it has increased compared to last year, and that shouldn't be interpreted as solely due to access. Access has seen a slight rise, and we're working to align production with customer needs, which will continue to evolve throughout the year. Additionally, we have made intentional choices during the pandemic to invest in safety stock to ensure our production lines remain operational. By safety stock, I mean materials that will be used soon in making our trucks to keep things running smoothly. This approach has been beneficial as we've managed through these challenges. Therefore, this aspect is a significant part of the inventory increase. Overall, we are satisfied with our current inventory situation.

Can you give us a sense, though, for any sort of expectation for fiscal '21 in terms of this line item? I'm presuming it will come down at a point in time.

Yes. Overall, we expect it to continue to decline throughout the year, particularly by the end of the year. There are timing considerations related to orders and whether they shift into the third or fourth quarters, which could affect this. However, we anticipate that inventory will continue to decrease over the course of the year.

We have a question from Ross Gilardi, Bank of America.

I was wondering if you could provide more details about the decremental margin expectations for the overall company, especially regarding access in the first half, considering the various challenges and changes in costs. Can you maintain a decremental margin of 20% to 25%, particularly as you work to reduce some of that inventory in the first half?

Sure. We aim to achieve responsible decremental margins, targeting mid-20s over the long term. However, we expect some challenges in the first quarter, especially regarding access. This is influenced by lower production absorption and the unsustainable price benefits from last year, which we previously benefitted from through our price-protected backlog. So, these factors are presenting a couple of headwinds early in the year. We anticipate that overall volume will decline as a company in the first half, which also applies to access. Our focus remains on maintaining strong decremental margins, and we will continue to work towards delivering responsible margins.

And just the conversations with some of your larger rental customers, this is one for you, Wilson. But is the tone shifting at all? I'd certainly understand that they're being very tight on CapEx and being very careful? One company took up CapEx marginally for the year, it seemed like more of a year-end adjustment. H&E is talking about a pickup in warm starts into next year. I'm just wondering if the tone is shifting at all. Or does it still feel like these guys are going to be as absolutely as frugal as possible in the next year?

This is John. I'll provide some insights on that. We regularly communicate with our customers, including both large national rental companies and independent operators, and we're currently in the early phases of our annual negotiations with them. What we're observing is a rebound in utilization, which is encouraging. Our telematics data also indicates that utilization is on the rise. Additionally, we have noticed some reduction in fleet sizes in certain segments, but overall, fleet sizes have remained stable, which is a very positive indicator. The ongoing pandemic continues to create uncertainty regarding when we might see enough positive signs of stabilization that would lead to an increase in capital expenditures. It's clear that they are closely monitoring their fleets and managing them responsibly. However, we also recognize that the average age of primarily used equipment in the U.S. is around 55 months, indicating that there is an aging fleet that will soon require replacement. We anticipate that this will drive future demand. The key question is not whether this will happen, but rather in which quarter it will occur. We believe the first couple of quarters of the year might remain somewhat weak, with more positive signs likely emerging in the latter half of the year. Unfortunately, we cannot specify exact timelines, which is why we are not offering guidance at this time.

The only additional point I'd like to make is that in the discussions I've had, many of our major customers see that the market is stabilizing, which is encouraging. However, we are keeping a close eye on the potential for a second wave of COVID-19. What seems to concern them is the age of their fleet, which is becoming outdated. I agree that it’s not a question of if they will need to replace their fleet, but when it will happen, and we believe this replacement will occur in the latter half of this fiscal year.

Next question is from Seth Weber, RBC.

This is Brendan on for Seth. I'd like to ask about access. Was there any change in kind of the competitive landscape in the quarter, given the lower demand, competitors maybe giving pricing concessions to drive market share? Or just anything sort of out of the normal for how the competitive landscape shaped up?

Thank you for the question. This is John. Regarding pricing, we have kept a favorable price/cost relationship for the year. We are very cautious and disciplined in our pricing strategy. As the market leader, we remain committed to this discipline. We have successfully maintained this discipline throughout the significant downturn. This is a positive aspect for us. Additionally, we have a strong balance sheet, as Mike mentioned. All of our inventory is current and in good condition, and we are not forced to sell. Therefore, we plan to continue managing our pricing in this manner going forward.

I think it's important to mention that we have observed some irrational pricing internationally. However, in North America, the market remains competitive, as it always has been. Any irrational behavior we've noticed is primarily on the international side.

Okay. And then you noted tight municipal budgets might constrain short term at F&E. Is there anything additional that you could give there? Any more color for what you're hearing on those budgets?

I want to provide some additional insight. Firstly, F&E has a very strong backlog, with 2020 being a record year for orders, which contributes to this strong backlog. We are optimistic about our position in this area. There's been an aging fleet in the F&E market for a while, which is a positive indicator for the market's future. Regarding municipal spending, we believe state budgets are likely facing more stress compared to municipal budgets. Property tax remains the primary driver for municipal budgets, and there haven't been significant issues with property valuations in the market. While there are some pressures from hospitality tax receipts and other areas, we are closely monitoring the situation. Long-term, we have a positive outlook for this market. However, there could be some pressure in 2022 due to aging fleets and our strong market position against potential municipal budget constraints. It's important to note that fire and emergency equipment is a priority for municipalities and is not something they typically cut when they need to reduce spending. This is the insight I can share on the topic.

The next question is from David Raso, Evercore.

Just so we can help quantify it a little bit the first half of the year being down in access. Should we think of normal sequential trends from here for the next 6 months as your customers get a better feel for how they really want to proceed for their calendar '21? If that's the case, the first half of the year, access sales are down roughly 20% to 25%. And the follow-up would be the type of conversations you're having. While there's a lot of variability, no doubt, looking out into the June and September quarters, are they at least giving you a framework that could allow the full year to feel like an up year? And again, I know it could change but the June quarter has a very easy year-over-year comp. So again, just trying to level set that first half decline and what you're hearing. Can we pull back out of that hole in the second half of the year to be up for the full year?

David, this is Mike. I'll start, and then John will discuss the ongoing outlook. Currently, we anticipate the first half of the year to show a decline, but the exact percentage is still uncertain. As Wilson mentioned earlier, we observe our markets stabilizing. We noticed some stabilization in year-over-year changes from Q3 to Q4. While we expect some stabilization, we also foresee a decline. There are various scenarios to consider, and we are committed to managing our relationship with customers closely. Now, I'll hand it over to John to discuss the situation towards the end of the year.

Yes, David, I believe what we will observe is that the quarterly year-over-year decline will continue to moderate in the near term. By near term, I mean in the next one to two quarters, it will show improvement compared to the previous quarters. Is it possible for the second half to return to full year-over-year growth? It's feasible. I wish I could offer more confidence for guidance on that, but it is certainly within the realm of possibility. We are closely monitoring the situation, and if we can reach a point in one quarter where we can provide guidance, that would be the best-case scenario because it would indicate enough supply to give a clearer outlook for the year.

Yes. I think I can add more based on my discussions. There are projects available, but we need some confidence in construction. If we look at the pent-up projects and the trends from Dodge momentum and ABI, they are showing slight improvements. We are monitoring these closely. However, what everyone seems to be doing, including you, is hoping for an infrastructure bill. Such a bill would generate a lot of comments; even if it doesn't have an immediate impact in the latter half of our year, it will instill confidence that projects will be available. This could lead to increased momentum for projects tied to infrastructure spending. Most of our major customers are in favor of this, and we also recognize that with the arrival of spring, there should be plenty of construction opportunities. The key question remains whether we will remain passive during the pandemic.

Yes. Yes. Recently, we've seen the Architectural Billing Index go from 40 to 47 so that's a nice jump. A positive jump. 47 is still not a great number so we kind of need to see where it trends from here.

And if we don't get a bill, just to make sure we level set a bit on where the replacement demand is greatest when it comes to mix because with an infrastructure bill, I think it's obviously a little bit easier to see the growth next year pretty comfortably. But let's say, we just get a middling kind of market, when you speak to the age of the fleet, do you see the greatest replacement on the bigger booms? Is it the scissors? Is it a bread and butter 60-footer? I'm just trying to get a sense of if we can assume a big top line, what kind of mix just serving replacement?

I won't go through each product line individually, but booms are definitely the product line we discuss the most regarding the positive trends in fleet age. The booms currently in use are aging, and there will be a need for replacement soon. That's our main focus.

We have a question from Courtney Yakavonis, Morgan Stanley.

A follow-up on the conversation on inventory levels in access. I think you mentioned they were up slightly year-over-year. But can you just help us kind of gauge where your access inventory levels are versus the last trough in 2016 so we can kind of get a better sense of how much more you might underproduce?

We do not specifically break down access, but our inventory levels are higher year-over-year, and we have experienced a significant decline in demand. Additionally, our international presence has increased, particularly in markets like China, which likely contributes to upward pressure on inventory. Overall, inventory is somewhat up from last year, but we are comfortable with its level and are not in a forced selling situation. The inventory consists of current items that we are selling and is of good quality. We feel confident in managing our production schedules in Q1 and have options as we move further into the year. We will continue to manage inventory and are optimistic that it will decrease over the course of the year.

And Courtney, I'd even say that the inventory that we have in access, not only is it current inventory, it's there by intent. We know that we need some inventory to meet the market as it rebounds when that happens. And that's one of the primary reasons it's there.

Got you. You mentioned that utilization trends have improved from previously being down in the high single digits. Can you provide insight into what your telematics data shows regarding current utilization and any monthly performance trends?

Yes. We evaluate our utilization year-over-year due to the seasonality of our business, allowing us to compare the current utilization with that of the previous year, adjusted for seasonality. While some end markets, like oil and gas, may differ, many of our rental customers have reported noticeable improvements in their utilization data. They are looking for this improvement to be sustained and to show ongoing stabilization, especially given that we are still navigating the pandemic. This uncertainty is prompting everyone to ensure stability before making significant capital expenditure decisions.

Got you. And then just lastly, appreciating that you mentioned defense sales tend to run that run rate of $2 billion a year. I think there were a couple of headlines that the Army was planning to buy more JLTVs than currently contracted. Can you just help us kind of make sense of how big that could be and sort of what that means for the next couple of years?

Yes. Some positive developments are occurring with JLTV. We received an order from Belgium for 322 units, valued at approximately $120 million to $130 million. This is significant as we won it from an incumbent and it’s not in the Benelux region where we have traditionally been strong. This demonstrates that, from both a cost and performance perspective, it sets a new benchmark. We believe this indicates that there will be additional orders from international countries in 2021, which we will share when they materialize. Regarding the U.S. Army, they initially contracted us for 16,901 units. There was an approval process that added over 6,200 units, bringing our contract total to 23,163 units. We anticipated this addition, so it wasn’t unexpected. It’s a solid indication that the JLTV program is strong for the U.S. Army, the Marines, and many of our global allies.

We have a question from Felix Boeschen, Raymond James.

I'm curious if you could maybe flush out demand in the international markets for your access segment a bit more. We've talked about the U.S., and I think you mentioned China was still relatively strong. But just curious if you can maybe flesh that China comment out a bit more and how you're thinking about Europe/the rest of the world just with COVID cases on the rise.

Yes. China now accounts for over 5% of our revenue and is experiencing rapid growth. It was the first market to enter the COVID-induced downturn, but also the first to recover, resulting in a healthy market in China. We anticipate it will continue to be a long-term growth market for us. In contrast, the European markets remain quite challenging and are lagging behind the U.S. market regarding utilization rates and customers' willingness to increase capital expenditures. We expect Europe to remain under pressure for several more quarters.

We have a question from Jerry Revich, Goldman Sachs.

Can we talk about fire and emergency? So in the last downturn, the peak to trough sales decline was over 30% for you folks. But I'm wondering if you could expand on the differences that you see in this cycle, talk about the market share momentum that you have in the order book. And also, can you just expand on your comments on lower capital stock, if you don't mind?

Yes, Jerry, I can provide some insight on that. The current downturn and the previous downturn you mentioned, where there was a 30% decline from peak to trough, are fundamentally different in our opinion. The prior downturn you are referencing was during the Great Recession, which was primarily driven by a collapse in real estate and property taxes. This collapse caused the market to drop from approximately 5,000 units to the low 3,000s, but it has since recovered to the low to mid-4,000s in annual market size. In contrast, the downturn related to the pandemic is not linked to real estate or macroeconomic problems; it is specifically a pandemic-related issue. We anticipate improvements with better therapies and eventually a vaccine. We believe we are in a stronger position now than ever in the history of our company. Our network of dealers is the best it has ever been, and the innovations we've integrated into our products, along with our ability to operate more efficiently, position us well for the future. There may be some pressure from municipal spending, but we are confident that we can manage through that without significant effects on our business, should it arise in 2022, for instance.

Okay. And then on the commercial segment, you folks have made really strong strides from a margin standpoint. Obviously, you're not giving guidance for '21. But I'm wondering what's your level of confidence that you can continue to expand margins year-over-year as you have some good operating momentum exiting the year post the restructurings and even with the incentive comp headwinds that you outlined for the company as a whole?

Yes. I can't provide specifics, but I want to highlight the entire company. The access team has successfully navigated a significant decline over the past few quarters. The F&E team has excelled, especially with the JLTV launch despite COVID-related workforce disruptions. The commercial team has also performed exceptionally well in their simplification efforts. They are currently establishing foundational elements as they focus on mixers in one location and RCVs in another. This area offers substantial potential for margin growth, which we anticipate will persist. Overall, we believe we are progressing positively with our commercial business.

I believe the main point regarding commercial for next year is that we can't yet determine their top lines, and that will significantly influence the margin for the year. I expect that the measures we've implemented in that business will result in solid increments or decrements, depending on the direction it takes.

We have a question from Chad Dillard at Bernstein.

Yes. I'm asking a question on Chad's behalf. So could you talk about the level of quoting activities you are seeing in fire & emergency compared to a year ago?

Well, I will just say that we had an all-time record order year in 2020, so I think that's the best indication of quoting activity that I can provide. Now orders came down a little bit in the fourth quarter. So that's...

As expected.

Great. And the follow-up is on the $85 million of headwind you were talking about, that is in addition to the sort of the temporary cost coming back, right? Or is that already...

Yes, the $85 million is an important point, so I'll quickly go over it. We experienced a $120 million benefit from temporary cost actions in 2020, which will return to our expense run rate in 2021. However, we will gain a $35 million benefit from permanent actions we have implemented, which will increase to $50 million by 2022.

We have a question from Ann Duignan, JPMorgan.

Most of my questions have been answered by now. But in your discussion of lower sales year-over-year, half 1, can you just walk us through the different segments and what you're contemplating there? I know we've spent a lot of time on access, but what about the other segments?

Ann, we're not breaking it down by segment either. Obviously, I think we have, again, with the backlog in fire & emergency and defense, to give you an idea of the opportunity for the year. The challenge we're facing right now is just with the pandemic. We are facing some workforce availability challenges here in Wisconsin in the fire & emergency and defense segments. And if you look to the fire & emergency segment, when the pandemic first started and we had the shelter-in-place restrictions, it was tougher for customers to come in to pick up fire trucks. That's an important part of that process. And we do have some level of concern that, that could be a headwind early in the year. So that's really what's holding us back from being able to provide a little bit more clarity on that because I think we could see some movement of that volume around between quarters.

Yes. It's really an operational thing. I mean, if you look at the backlogs for defense and fire & emergency, they're really, really healthy. It's a question of how much is COVID going to impact us in terms of our ability to get product out the door.

Yes, I asked the question because I was interested in the strength of the backlog compared to the comment about total sales declining in the first half. I wanted to explore this further. I understand that visibility is not great at the moment. Additionally, regarding electric vehicles in the commercial sector, you mentioned having five trucks being tested by customers. Have you lost a significant amount of market share or orders because you weren't adequately prepared with electric vehicles? It seems that someone has secured those large orders announced in the past three to six months.

So I'm glad you brought that up, a great question. We have not lost ground. We have not lost market share because of electrification. We look at ourselves as being out front on electrification. We have an enormous amount of work happening in electrification. And when you look at those Boise units, they'll be some of the first actual units on the market actually for sale in the refuse collection industry. When you talk about huge orders, you're talking about companies that are talking about orders at some point in the future, some of these companies have never made an RCV before in their history. Some of them have never even made a truck before in their history. So the question as to whether or not they can actually do it, I think, is a valid question. But we are out on the forefront in electrification.

There are no further questions at this time. I'd like to turn the floor back over to Wilson Jones for closing comments.

Well, I want to thank everyone for hanging in there with us today. I apologize for the technical difficulties. I think it was a major outage going on up in New Jersey. So again, I want to thank you for hanging there with us. I encourage you all to stay safe and healthy as we work through these challenging times. We certainly look forward to speaking with you on a virtual conference or on our next earnings call. Take care, everyone. Thank you.

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