Greetings and welcome to the Terex Corporation Second Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Randy Wilson, Director of Investor Relations for Terex Corporation. Thank you, sir. You may begin.

Good morning, and welcome to the Terex second quarter 2021 earnings conference call. A copy of the press release and presentation slides are posted on our Investor Relations website at investors.terex.com. In addition, the replay and slide presentation will be available on our website. I'm joined by John Garrison, Chairman and Chief Executive Officer; and John Duffy Sheehan, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by Q&A. Please turn to slide two of the presentation, which reflects our Safe Harbor statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. In addition, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. Please turn to slide three, and I'll turn it over to John Garrison.

Good morning, and thank you for joining us and for your interest in Terex. I will take a moment and emphasize once again, that Terex's actions are always guided by our values. We consistently act with integrity, operate with excellence, and care for our team members, customers, and communities. That is true every quarter. But it has been especially important in the past 18 months, as the world has dealt with unprecedented challenges brought on by the COVID-19 pandemic. While risks remain, many of the world's economies are moving forward. I would like to thank our team members around the world for their continued commitment towards a zero harm safety culture and Terex way values. Safety remains the top priority in the company, driven by think safe, work safe, home safe. All Terex team members contributed to our effort to continue to produce and service equipment for our customers while following the protocols and maintaining a safe working environment. I would like to offer my gratitude to our team members and distributors who have worked through so many unique circumstances over the last year. We owe our results to the incredible efforts of our operations and parts team members who kept our facilities running, while our sales and service team members, along with our distributors, have also gone above and beyond to meet the needs of our customers. Finally, we are proud to be a value-based company with process leadership in environmental, social, and governance practices. This past quarter, we spent time speaking to some of our investors regarding ESG. If you'd like to learn more about our initiatives, please see our Investor Relations website. We would welcome the opportunity to speak with you regarding our ESG program. Please turn to slide four. Now let me recap some of our results, which Duffy will describe in greater detail. We continue to deliver positive results as customer demand remains strong during the quarter. While revenues were below our expectations due to supply chain challenges limiting production output, we increased operating margins and bookings in both AWP and MP dramatically year-over-year. We significantly improved our second quarter earnings per share compared to last year. And we are increasing our earnings and free cash flow outlook for the full year 2021. AWP and MP continue to effectively manage supply chain disruptions. As a result of strong execution in both segments, second quarter 2021 operating margins improved dramatically to 11.8% for the company, with both segments delivering double-digit operating margins. This represents 170 basis points adjusted operating margin improvement and revenues 20% lower than the second quarter of 2019. Our intense focus on networking capital management and improved profitability drove $101 million of positive free cash flow in the quarter and more than $140 million of free cash flow year-to-date. During the second quarter, our team continued to respond to increased customer demand, effectively managed supply chain and logistics disruptions, tightly managed all costs, and delivered improved margins and outstanding positive free cash flow. Our financing results demonstrate that our strategic priorities are working to improve the company and deliver positive financial results for shareholders. Please turn to slide five. We delivered strong financial results as our strategic operational priorities of executing, innovating, and growing continue to make excellent progress. First, we continue to improve Terex's global cost competitiveness. We expect our SG&A as a percentage of sales to be below our target of 12.5% for the full year 2021. We are maintaining strict cost discipline while recognizing that growth in the business will necessitate investment spending. In the first quarter, we announced the plan to move our Oklahoma City Telehandler production to Monterrey, Mexico. This action is on track and will reduce the cost of manufacturing for Telehandler products for the North American market. The team is addressing continued supply chain disruptions across various supply inputs and product lines. Suppliers and logistics providers are currently working hard to ramp up and meet our production requirements, and we are committed to meeting customer demand. Our team members in both segments have worked hard to adapt and maintain production schedules. Turning to innovation, we continue to listen to our customers, ensuring our products and services have the features and benefits that provide value. We have also invested in our connective assets and digital capabilities to better serve customers. For example, our new Genie micro scissors increases on-the-job productivity. Terex's utilities recently introduced a new digger derrick for construction and maintenance of the electric grid. MP continues to develop, implement and roll out digital solutions such as connected dealer inventory, telematics, and eCommerce. Finally, we are investing in inorganic opportunities for future growth. We recently completed two actions. First, we acquired a facility in China to localize production to meet increasing demand for industry-leading mobile crushing and screening products. And we are excited about the growth prospects in China. Second, we completed a bolt-on acquisition, purchasing MDS International, which is a well-established business of heavy-duty aggregate trommels that broadens our product offerings. This is not a financially significant investment; it demonstrates our progress with inorganic growth via bolt-on acquisitions. As previously communicated, Terex is well-positioned for growth in 2021 and beyond because we have strong businesses, strong brand, and strong market positions. We continue to invest in new innovative products, digital capabilities, and manufacturing capacity. Turning to slide six. Our AWP and MP segments continue to perform well, allowing us to capture the benefits from the positive market fundamentals that we are seeing. First, in Genie. The current market dynamics point to a multi-year replacement cycle for access equipment. The average age of fleets globally is increasing, and customers need to replenish their fleets, so the replacement cycle is kicking in. We're beginning to see positive indicators for non-residential investment, as well as continued strong order activity. Before wrapping up my comments regarding Genie, I am pleased that we announced earlier this week that Simon Meester was named President of Genie. I thoroughly enjoyed working with Simon and the Genie team over the past year. Simon is the right leader for the Genie business. Turning to our utility business, demand is strong across its end markets of tree care, rental, and investor-owned utilities. In addition, we are experiencing strong growth in our utilities parts and service business. Next, materials processing. We expect global demand for crushing and screening equipment to continue to grow. Broad-based economic growth, construction activity, and aggregate consumption are the primary market drivers. We are seeing strong markets for the cement mixture, material handling, and environmental businesses. In addition, global monetary and fiscal stimulus programs have supported stronger demand in our end markets. Overall, we are seeing robust market conditions around the world for our industry-leading products and solutions. With that, let me turn over to Duffy.

Thanks John. Turning to slide seven, let's look at our second quarter results. Overall revenues of $1 billion were up 50% year-over-year with both of our operating segments' revenues up significantly. For the quarter, we recorded an operating profit of $123 million, compared to only $7 million in the second quarter of last year. We achieved an operating margin of approximately 12% through disciplined cost control and fulfilling as much customer demand as possible given the realities of the global supply chain during the quarter. The second quarter operating profit does include $4 million of benefits from the release of financing receivable reserves and the recording about that receivable related to prior years, offset by a $1 million charge for business impairment and restructuring. Improved gross margin and lower SG&A as a percent of sales allowed Terex to expand operating margin significantly year-over-year. Interest and other expenses were approximately $22 million higher than Q2 of last year, driven by $26 million of costs in connection with the refinancing of a significant portion of our capital structure, offset by $4 million in interest savings. Our second quarter 2021 global effective tax rate was approximately 17%, driven by a mix of discrete items in the quarter. Our tax rate estimate for the full year remains 19%, consistent with our previous outlook. Finally, our reported EPS of $1.02 per share includes $23 million of interest charges and other callouts that I just discussed and amounted to a $0.26 per share reduction in EPS in the quarter. Turning to slide eight in our AWP segment financial results. AWP sales of $595 million were up 44% compared to last year, driven by a dramatic improvement in all our global markets. The utilities market improves significantly as evidenced by strong customer bookings. AWP delivered double-digit operating margins in the quarter, driven by increased production and aggressively managing all costs. Second quarter bookings of $747 million were up dramatically compared to Q2, 2020. While backlog at quarter-end was $1.4 billion, close to three times the prior year. Now turning to slide nine and material processing Q2 financial results. MP had another great quarter. Sales of $441 million were up 67% compared to last year, driven by strong customer sentiment across all end markets and geographies. The MP team has been aggressively managing all elements of costs as end markets improve, resulting in an operating margin above 16%. It is a testament to the MP team's operational strength to deliver these robust operating margins. Backlog of $868 million more than tripled from last year and was up 22% sequentially. MP saw its businesses strengthen through the quarter with bookings up approximately 160% year-over-year. Customer demand in both segments is very positive. Equipment is being ordered, utilized, and serviced as end market demand continues to remain strong. Turning to slide 10. I will now review our updated financial outlook for the full year. This outlook takes into consideration the current end market demand environment, as well as the supply chain headwinds that we have discussed today. As for commercial demand, we have seen our end markets remained robust over the course of the second quarter. All other things being equal, we expect continued end market strength in both segments over the remainder of the year and an increasing level of AWP customer fleet replenishment. Our full-year revenue outlook is limited though as a result of the availability of components from our supply chain. From a quarterly perspective, we now expect revenues for the full year to be slightly higher in the second half than the first half of the year, with the third quarter being the strongest of the year. We continue to expect both our operating profits and margins to increase each quarter year-over-year in 2021. However, as a result of commodity costs increases outpacing customer price increases, the absolute amount of operating profit in the second half of 2021 is expected to be lower than the actual operating profit achieved in the first half of 2021. We continue to plan for total company incremental margins for the full year 2021, which meet or exceed our 25% target. As a result of positive first half callouts, corporate and other costs are expected to be slightly higher in the second half versus the first half of the year, including $0.26 per share of costs for refinancing of our capital structure and the other callouts in Q2. Our full-year EPS outlook is increased to $2.85 to $3.05 per share based on sales of approximately $3.9 billion. Quarterly earnings per share are expected to be generally consistent with the development of operating profits during the year. For the full year 2021, we are estimating free cash flow of approximately $200 million reflecting a strong year on positive cash generation. Full-year free cash flow includes approximately $75 million from income and bad tax refunds which are not expected to reoccur. During the first half of 2021, we received approximately $35 million of these refunds. We continue to plan for capital expenditures, net of asset disposition of approximately $90 million. The largest project including capital expenditures is from the Genie Mexico manufacturing facility. Turning to slide 11, and I'll summarize our updated 2021 EPS outlook. We expect the strong customer sentiment demonstrated in Q2 by our AWP and MP customers to continue throughout 2021. Our 2021 full-year EPS outlook reflects first, our outperformance over the first half of the year, second, the operating profit contribution on additional revenue for Q3 and Q4, and third, net cost pressures from material cost headwinds. Overall, our 2021 outlook represents a significant improvement in operating performance when compared to 2020. We will continue to aggressively manage costs while positioning our businesses for growth. Turning to slide 12, and I'll review our disciplined capital allocation strategy. Our team members remain vigilant and will continue to efficiently manage production and scrutinize every expenditure. The strong, positive free cash flow of $101 million in the quarter demonstrates the focus and discipline our team members continue to demonstrate to tightly manage networking capital. Terex has ample liquidity. We have over $1.1 billion available to us with no near-term debt maturities, so we can manage and grow the business. Our strong liquidity position and cash generation allowed us to prepay $83 million of term loans during Q2, which is in addition to the $196 million of term loans prepaid in early February. In addition, we continue to pay our quarterly dividend. We are committed to strengthening Terex's balance sheet while maintaining flexibility to execute on our organic and inorganic growth plans. And with that, John, I'll turn it back to you.

Thanks Duffy. Turning to slide 13, to wrap up our remarks. Terex team members around the world are focused on the right things: safety, health, customers, and improving productivity. End markets are strong, and the team is managing supply chain headwinds. We're driving positive free cash flow. We're continuing to invest in innovative products to meet increased customer demand. We're focused on both organic and inorganic growth. As a result of these actions, Terex is well-positioned to deliver strong 2021 results. With that, let me turn it back over to Randy.

Thanks, John. As a reminder, during the question-and-answer session, we ask you to limit your questions to one and a follow-up to ensure we answer as many questions as possible this morning. With that, I'd like to open up for questions. Operator?

Your first question comes from Mig Dobre with Baird.

Yes. Thank you. Thanks for taking the question. Good morning.

Morning Mig.

So, I guess what I'd like to start in AWP, the order intake, you've got about $1.4 billion of backlog, but obviously based on your updated guidance here sales and its back half expected to be only about $1.1 billion. You talked about the supply chain being challenging obviously and having some issues with parts availability. We heard that from one of your competitors as well. I guess I'm wondering, how much of this discrepancy backlog versus second half revenue is driven by this element as opposed to just customer deliveries being scheduled into 2022 and showing up in a backlog at this point?

Yes. Thanks Mig for the question. I would say almost all of the deliveries in the AWP group now specifically are a result of the supply chain disruptions that we're seeing in production schedules sliding as a result of the disruptions that we are seeing. Our teams stay in very close contact and we can talk more about that on the supply side and with customers. But I would say most of that is a result of the supply chain disruptions and sliding up production schedules as it pertains specifically to the Genie business.

Thank you. Okay. And then looking at slide 11, you detail $0.10 of cost pressure there. By my math, this is let's call it $8 million, $9 million of pressure. To me at least that seems like a relatively low number, given your revenue base and all the things that are happening out there. Can you give us a sense for what's behind this in terms of how you came up with this figure? And is this sort of a number that we can carry into next year? Or are there things that can mitigate this cost pressure within 2022? Thank you.

I'll start there, Mig. This is Duffy. We are certainly facing increasing pressures from inflationary material costs throughout this year. If you look back to Q1 and our updated outlook at the end of that quarter, we had anticipated around $0.55 in cost pressures at that time, primarily related to steel. However, we have seen inflationary pressures expand to include other products like resin-based items, freight, and other commodities. Our team is actively working to address these price increases from suppliers. The $0.10 per share indicated on slide 11 represents our best estimate of the amount that will need to be absorbed to maintain production in the second half of the year. Regarding your question about 2022, we discussed in Q1 that our price-cost dynamics for 2021 remains negative. We did not adjust the backlog when we raised prices in the first quarter. As we look toward 2022, our goal is to achieve price-cost neutrality, but this will depend on how material costs evolve in the latter half of 2021.

Thanks, Mig. Operator, next question.

Your next question comes from the line of Nicole Deblase with Deutsche Bank.

Yes, thanks. Good morning, guys.

Good morning, Nicole.

Can we discuss the supply chain constraints a bit more? I'm curious if these issues have led to any production stoppages, such as days when you had to send employees home, or if you've been able to continue production. Also, do you have excess equipment in a finished state waiting for a few components to arrive before it can be shipped?

Thank you, Nicole, that's a great question. The supply chain disruption we're facing is not unique to us as a global manufacturer, especially as demand has significantly increased. A year ago, we were experiencing peak demand, and currently, market demand remains strong. The global integrated supply chain has encountered disruptions due to COVID, along with challenges in logistics, including sea and air freight as well as ground transportation, which have created delivery issues for us. Our teams are tasked with determining which parts are available and then creating a schedule accordingly. In many cases, as you mentioned, we assemble a unit and put it into what we call "the hospital," then bring it back in when the necessary parts arrive. We have not had any absolute plant shutdowns, and our team has managed well. However, we have had to pause some value streams for a few days while waiting for parts. This situation has required a lot of overtime for rework, affecting our productivity. Nevertheless, the team is dedicated to meeting customer needs and overcoming these disruptions, and we expect the supply chain to improve over time. As we look ahead over the next two quarters, we continue to face daily disruptions, but our team is doing an excellent job managing the challenges. This does affect our shipping capabilities and our cost structure related to labor productivity. We're adapting globally, determining what we can build, and in some instances, we build partially and then have to bring it back into the shop to complete before shipping. The team performed well in the second quarter, and we believe things will improve moving forward, but this is the reality of operating in a world of supplier disruption and uncertainty right now.

Got it. Thanks, John. That was really helpful. And maybe just as a follow-up on the SG&A guidance, taking it down to 11.75%. I guess what is the biggest driver of that? Is that anything to do with like the temporary cost cuts not coming back as quickly or maybe just return to work happening slower? Just trying to get a sense of if we should be expecting a return to the 12.5% target as we move into 2022?

So, thanks Nicole. And I'd say, there's two factors that go into the SG&A, I'll say, movement versus our guidance at the beginning of the year. So the first is obviously, the top line revenue that is the denominator in the calculation has increased, which brings the percentage down. That said, as we went into the year, the incentive compensation was planned to add at 100% of achievement or let's call it target. And with the increase in our outlook for the year, we are recruiting incentive compensation for the team had above target levels, which increases the amount of SG&A. In fact, the absolute increase in SG&A is virtually 100% attributable to increasing the incentive compensation. And I think that's important to note because we're really treating SG&A for this year as fixed costs. And irrespective of the revenue increasing other than the incentive compensation which we would owe under the plan. The team is maintaining really strict cost discipline. Out in future periods, to your point about in the future, in future periods, I do believe that there will be investment that will be required to grow our business and to maintain the customer relationships to invest in systems. But our objective is to continue to be at 12.5% SG&A or lower. And I would expect that, if we're looking at a positive commercial environment, demand environment again in 2022, that we would be on the lower end of our target.

Thanks Nicole. Operator, next question.

Next question comes from the line of David Raso with Evercore ISI.

Hi. Thank you for taking the time. John, for you to pass the baton on to Simon at AWP, obviously in the second quarter, margins are pretty strong. You obviously had gained comped time for you, to sort of back away from that role and obviously confidence in Simon to move forward. But curious given how big the backlog is right now, extending into 2022 more than we normally would see right now? If you have to frame, how you think about, what you know from visibility, but also how you left the business in the condition it was in. If we had to think about incremental margins for AWP next year, how should we think about that?

Thanks, David. Well, first, the entire Genie team has done an incredible job. Actually across Terex, the team has done an incredible job dealing with the uncertainty and the challenges associated with the pandemic. And so, Simon is the right leader, as I said in my prepared comments, got a great team at Genie and they have got a strategy in place to drive improved operating performance in our Genie business. To expect that at the macro level, the secular trends, David, as you know, in the rental industry are positive, and we can talk about the positive nature of the replacement cycle that's forthcoming. So we think there's a strong market environment coming forward with the AWP team, Simon, and the team are implementing a strategy to continue to drive improvement so that we're globally cost-competitive as we compete in a global marketplace for the aerial business. And we're going to continue to drive margin improvement in our operations, in our sales and marketing and our product development offerings, all driving toward David, we're not going to back away from at least a 25% incremental margin improvement in the business. It's a business that can continue to drive over time, can continue to drive margin improvements so that we consistently deliver double-digit operating margins in the business. We are not there right now, as you look through the quarter, the seasonality is not going to change, but over time that's what we're focused on as a team is to drive the margin in that business consistently to the double-digit range.

And regarding the increased visibility on 2022, just trying to quantify that a bit. And of course, if you can give us any insights on the mix geographically pricing on the new equipment, the product type, I just feel the backlog is huge. I mean, normally this time of year, the backlog for AWP is anywhere from 40% to say 60% of the second half AWP revs, right now, it's at 130% of what you're guiding. So obviously that's a huge incremental visibility for the following year. So again, hoping, if you have any color you can give us on that extra visibility of what it looks like?

Thank you, David. You're correct. We are very encouraged by the strength in our business, including utilities. In North America, we are seeing strength among both our independent customers and national accounts. The product mix remains consistent, with no fundamental changes in our backlog and orders. Similarly, Western Europe is showing a strong recovery in orders, with no significant differences in customer or product mix. We are also experiencing growth in China, which has not followed the same patterns as the western markets, and we expect continued growth there as it remains a booming market for us. Regarding visibility, our backlog is strong as we move into 2022, and we are currently engaging with customers who are optimistic about utilization rates and improving values for used equipment. We are also starting discussions about pricing. As mentioned earlier, our price-cost ratio this year has not met our expectations, and we need to improve it due to rising material costs as we head into 2022. It's important to note that our backlog is valuable because we were unable to produce at 2021 pricing, while commitments and deliveries for 2022 products will be at 2022 pricing, and that process is currently in progress.

Operator, next question.

Your next question comes from one of Steve Volkmann with Jefferies.

Hey. Thanks. Can you hear me okay?

Yeah, we can hear you fine.

Okay, sorry, it must be on my end. So question on MP actually. Can you just provide a little more color on sort of specifically which of your MP product lines are kind of strongest? And where the demand was robust there? And then, I have a quick follow-up on margin.

Sure, I'll take the demand and Duffy, you can comment on the margin side as we go. But Stephen, the good news is, we're seeing strong global momentum really across our businesses, our product lines, within the MP business and really across the globe. On the core crushing and screening business, we saw significant growth in orders, our dealers, our inventory levels are low, there is high utilization on their rental fleets, and they are ordering back again across our product portfolio and aggregates. Again across the globe, we've seen strong orders. In our concrete business, which is our Terex advanced concrete trucks, there is very strong growth in that segment associated with the residential construction that we're seeing in the U.S. So that business has rebounded quite strongly. Our Materials Handling business, our Fuchs business. So one of the only positives of high steel prices is that we're seeing high scrap steel prices. A big part of that business services that market. And we've seen that globally recover in terms of orders in backlog. We're also investing in new products and capacity expansion to branch out into other segments. But again, the Fuchs business has recovered quite nicely. Our environmental business within MP, that's a newer business for us. And again, we're seeing really strong growth there. Again, Western Europe, North America, Asia Pacific, where we're seeing growth across that business. Our Pick & Carry business down in Australia and Australia really weathered the pandemic pretty well. And we're seeing strong order activity and consistent order activity through the pandemic in our Pick & Carry business. And last but not least, our RTs and tower business, especially in the European area, we saw some good recovery in strength with orders. And last but not least, despite the significant COVID challenges in India, we've seen strong orders and strong bookings in India as they come out of the depth of the pandemic. So as we look at the MP business, Stephen, we see strong growth across the product portfolio and literally across the globe. So we're pleased with what we're seeing on the demand side for the MP. You had a question about the margin?

The margin is a follow-up.

Yes, go ahead.

Yes. So obviously a very big margin in the second quarter, but then it's a step down, I guess, in the second half. Just with the right way longer term, is this a mid double-digit kind of margin, is this going forward? Or was there something special in the second quarter?

No, I think that if you look back over the last four quarters for our Materials Processing segment, they demonstrated margins in the 13% to 15% range. As you noted, the second half of the year reflects uncertainties surrounding supply chain disruptions and material costs that are bringing it slightly down below 13%. However, there are still consistent double-digit margins, and we expect that performance to continue in 2022 and beyond.

Thanks, Steve.

Thanks, Steve.

Operator, next question.

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

Yes, hi, good morning, everyone.

Good morning.

John, now that the turnaround of AWP is complete, can you discuss your strategic priorities moving forward? Specifically, how does this relate to capital deployment for M&A? Could you provide more details on the parameters you are considering and the pipeline, if that is your main focus going forward?

Yes. Thanks Jerry. Well, again, the team, we have work to be done at our Genie business and I'm confident in our Genie team to continue to execute the strategy that we have going forward. But your broader question is a really good one; as we look at our disciplined capital allocation that we've been focused on the last several years. One was to improve the cash flow capabilities of the business and we've done that. Second was to improve our balance sheet, we paid further down debt this quarter after paying down debt in the first quarter as well. So our balance sheet is in really good shape, good cash flow generation. So now we're looking at how do we grow the business via inorganic activities. We do believe that there will be opportunity in that area to deploy capital to grow. Specifically, we're looking in and around our MP businesses, Jerry, if you look at the market verticals that we compete in, there is still a pretty high degree of fragmentation in those specialized equipment and specialized markets around the MP segment. So we're building a pipeline there. We believe in the utilities area given what's needed around the world for electrification, that there is opportunities in the utility space and also on lifecycle solutions. So we are building a pipeline as we did two transactions here in the second quarter. So we're standing up the pipeline to deploy capital for inorganic growth. We think the business is positioned now for us to be able to do that, and we're actively pursuing things in those three areas that I just spoke about. I will say we're going to be very disciplined about it, but we absolutely believe there's going to be opportunities for growth via inorganic.

Okay. And separately, in the last steel inflation cycle, one steel inflation slowed, you folks essentially wound up getting pricing that made you whole on the cycle. So can you talk about the plan here? So as we think about what 2022 pricing actions will look like, will you look to fully recap the price cost headwinds from this year in your initial 2022 pricing? Or anything that's changed in the industry structure or otherwise that would prevent you from doing what you did in the last cycle?

We are being open with our customers and distributors about the input costs we are experiencing. As mentioned, we've taken some pricing actions and will continue to do so to offset the material cost increases, including steel, in our 2022 pricing, aiming for price-cost neutrality, since this year we faced some challenges in that area. Moving forward, we will address these cost increases with pricing actions, which will vary by business and region. Our strategy is to offer value-added products that deliver substantial value over time for our customers. We must pass on costs we cannot absorb, and we recognize this will lead to tough discussions. These conversations are necessary as we also engage with our suppliers, pushing back against their cost increases. Some of these costs will need to be accepted and passed on to our customers, who in turn will pass them to theirs. This is the cycle we find ourselves in, and while it won't be easy, it is essential for us to proceed in this manner.

Thanks, Jerry. Operator, next question.

Your next question comes from Steven Fisher with UBS.

Great, thanks. Hi, good afternoon. Just on the supply chain.

Good afternoon, Steven.

Hey guys. I know there is a real high degree of uncertainty here on the supply chain, but John, do you have any thoughts on when is really the kind of peak pain point for this? And when we could start to see some improvements there? I couldn't tell from your earlier comments, if you're already seeing signs that it's getting better or if it's just an expectation that at some point it will get better?

So, that's a great question. I'm chuckling, peak pain, it just depends on what day and what product or what supplier. But no, it is going to get better. I mean if the system gets back in sync, the logistics system is creating a big disruption right now and that's going to work itself out. We ended up with containers in the wrong place, ships in a wrong place, no ability to air freight; that's starting to improve, so on the logistic side, it's going to take some time to get everything back in balance. So that is going to improve. Every supplier in the chain is doing the same thing we're trying to do, which is they are highly motivated to meet our needs so that we can meet our customer needs. I've been personally engaged with CEOs in the supply chain, Tier 1 down to Tier 4; we're all working on the same thing. Our teams are working hard to mitigate the disruption, to produce what we can produce and get back to what I would call normal operations. In terms of when that exactly happens? I think we're going to be in this challenging period of time for the next couple of quarters because the other thing is, we're a manufacturer. We need 100%. One part missing, we can't ship. So even though if I improve to 99, I need that final part before I can ship and that's where we're focused on as a team. So it is going to get better. Everybody in the system is highly motivated to continue to drive the improvement, it just going to take time as this global integrated supply chain, it was like a Swiss watch, it got stopped, and now it's starting back up and we're experiencing disruptions; our suppliers are working hard. Our teams are doing incredible work to build what we can build as efficiently as we can build it, and it is going to get better. When exactly? I don't know, but I'm absolutely confident that it will get better over the next couple of quarters.

Steve, to share a few data points with you, the supply chain is improving. For instance, production at our Genie business in the second quarter of this year was more than double that of the same period last year and has shown consistent growth each quarter since Q2 of last year through Q2 of 2021. However, when we compare this production to the mid-quarters of Q2 and Q3 of 2018, we are still only at about 60% of those levels. Additionally, our backlog is greater than it was in 2018. Demand surged suddenly, and our challenge has been to ramp up production from our suppliers to meet that immediate demand.

Very helpful. And then just a follow-up in terms of the size of acquisitions, you guys have done a great job with cash flow and the balance sheet and you'll have flexibility on doing some bigger deals if you wanted to. So can you maybe just give us any color on the range of sizes of deals you consider? Or are the things available in your sites more just smaller bolt-ons?

Yes. So thanks for the question and given our improved balance sheet and our low leverage, especially as we continue to drive free cash flow and debt down, we will look at transactions and really look at our, where does our endpoint leverage end up, and we haven't changed, we're consistent in that 2.5 times net debt-EBITDA kind of through the cycle. So that would be the gauge that could give an indication of what we would be willing to or are comfortable taking on more debt for the size of this transaction. So it does give us some flexibility in terms of size. And we will, again, we're going to be very disciplined, but I feel good about our capabilities, our balance sheet capabilities, cash flow capabilities to do things larger than the two small transactions that we've done. But think about the 2.5 times net debt through EBITDA through the cycle, and that will give you a range to think about. That's how we're thinking about it.

Thanks, Steve. Operator, next question.

Your next question comes from Jamie Cook with Credit Suisse.

Hi, good morning. Most of my questions have been answered, just one. Can you just talk to within the Aerial Work Platform side just with all the material costs and pricing that we're trying to get through? Can you talk about the competitive environment and whether you're seeing everyone sort of act rationally so that or are we trying to go for potentially market share? And then, just one quick follow-up on the backlog for AWP, what is the dollar amount associated with backlog going into 2022? Thanks.

Yes. Thanks, Jamie. So the pricing dynamics in the industry, especially in the western part, North America and Europe, the pricing dynamics, I believe, are rational in that we are all experiencing material cost inflation, and we're all having those challenging conversations with customers about the need to seek pricing. The only potential exception to that Jamie, I will say the pricing dynamics inside of China are quite aggressive and sometimes there is some pricing dynamics there that frankly we just won't participate in. And so, I would say rational reasonable competition is what we're experiencing in the western part of the world, North America and Europe, Asia as well. Within the confines of China, we're seeing some pricing at times that you would have to say that's not rational. And so that's the pricing dynamics as of now. Duffy?

In terms of AWP backlog at the end of Q2, the total segment backlog was about $1.4 billion. I would say that $200 to $300 million of that represents amounts that would be for deliveries based upon the second half outlook that we provided would be deliveries in 2022, and I would say most of that represents carry over from 2021. We will certainly be seeking to increase our production throughout the second half of this year and accelerate the delivery to customers into 2021, if at all possible.

The only thing I would add on that Jamie, is that it does include our utilities business and some of the utilities business is actually called it out in 2022, but that would be at 2022 pricing that's not unnatural for the utilities business; there are some longer lead vehicles in that segment, within AWP.

Okay. Thank you.

Your next question comes the line of Ross Gilardi with Bank of America.

Hey, good morning guys. Good afternoon.

Good morning, Ross.

Thanks. You guys have done a great job of turnaround the free cash flow. I mean, it looks like your conversion this year from EBITDA that your midpoint of the guidance is going to be a little bit, a bit above 50%. Do you think that's a reasonable way to look at it going forward? Or is there another sort of conversion metric that you think might be appropriate, more appropriate?

Thank you for recognizing our free cash flow generation, Ross. Your support has been vital in our improvement in this area. Honestly, your insights have made me better. In my prepared remarks, I mentioned a free cash flow outlook of $200 million for the year. Of that, $75 million is attributable to recovering tax amounts from prior years that have been outstanding, as well as income tax refunds from losses in the U.S. last year. These two factors combined make up about $75 million of the $200 million. We are committed to maximizing our free cash flow each year, and our target over the cycle is to achieve 100% of net income. In some years, like last year, we've exceeded that target. I assure you that we are focused on generating free cash flow, which we can then use to grow the business both organically and inorganically.

Okay, thanks. That was helpful. And then can you talk a little bit more about this utilities business and the drivers there? And if you've been in the business for a while and it's done well by you. But can you give us a sense of how big it is within AWP? And just how sustainable those growth drivers are?

Utilities generate about 400 million, and we believe this business has growth potential. We made a significant investment in Watertown to enhance our capacity for expansion. The foundational aspects and trends, particularly in North America but also extending beyond, indicate that the utility sector is robust. There is a pressing need for investment in the electric grid to achieve the electrification goals we discuss, which includes both distribution to homes and transmission to clients. Significant funding is needed not only to maintain the electric grid but also to expand it. The unfortunate circumstances in California have underscored the importance of maintenance, particularly in vegetation management, prompting utilities and regulators to make necessary investments in these areas to prevent situations similar to those faced by PG&E. We feel optimistic about the long-term health of the utility business. Additionally, the investment in 5G has implications for our sector since setting up 5G towers, particularly in rural America, will likely require placement on electrical poles. This necessitates an insulated system, which is a specialty of Terex Utilities. We see opportunities for growth in this area. Moreover, we have had some successes in China, where we are localizing our production for that market. We believe the utility sector is poised for organic growth and offers potential globally, as challenges and opportunities often mirror those found in North America. We are committed to investing in our utilities business and our team is diligently working to ensure we achieve returns and have the necessary capacity for future growth. This is a sector we are passionate about, and we will continue to invest when opportunities arise. Thanks, Ross. Operator, last question.

Will be from Steve Barger with KeyBanc Capital Markets.

Hey, thanks guys for squeezing me in. With 3Q being the strongest revenue quarter, should we think that both segments will see sequential increases from 2Q? Or will regional shutdowns or anything else cause that not to happen for one segment?

Sequential increase in regional revenue, right?

Right.

Yes, yes, and the answer to that question is generally yes, probably more so in the AWP segment than the MP segment.

Got it. And, and the outlook suggest the margin steps down in both segments in the back half. Are the supply chain impacts or parts availability issues evenly distributed across the two segments or is one more effective than the other?

I would say more evenly. The Genie businesses is a faster cycle time business, higher volume. And so if we do have a disruption there, it does impact it, but across the globe in our MP business, they are experiencing disruption as well, again, doing a great job overcoming it, but a little bit slower TAT time on those. So they have the opportunity to make it up a little bit better than Genie just given the TAT time of the two assembly operations.

Got it, thanks for the time.

Absolutely, thanks, Steven. Thank you. If you have any further questions, please don't hesitate to reach out to Randy. Thank you for your interest in Terex. And I sign off with all my team members be safe and stay healthy. Thank you.

Ladies and gentlemen, thank you for participating. You may now disconnect.