Greetings and welcome to the Terex Third Quarter 2023 Results Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Paretosh Misra, Head of Investor Relations.

Good morning, and welcome to the Terex third quarter 2023 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. We are joined by John Garrison, Chairman and Chief Executive Officer; and Julie Beck, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by Q&A. Please turn to Slide 2 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 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 3, and I'll turn it over to John Garrison.

Thank you, Paretosh, and good morning. I'd like to welcome everyone to our earnings call and appreciate your interest in Terex. I would like to begin by thanking all Terex team members around the globe for their exceptional efforts in this challenging global macroeconomic environment and for their continued commitment to our Zero Harm safety culture and Terex Way values. Safety remains the top priority of the company driven by 'Think Safe, Work Safe, Home Safe.' I'm proud of the Terex team members' resilience as they continue to work tirelessly to improve our performance for our customers, dealers, and shareholders while maintaining a safe working environment. Please turn to Slide 4 to review our strong third quarter financial results. This quarter, the team delivered sales of $1.3 billion, up 15% from last year. Operating margins of 12.7%, and an expansion of 190 basis points from the prior year, and earnings per share of $1.75, up 46% on a year-over-year basis. As a result of solid execution by our team members throughout the year and a robust backlog, we are increasing our full-year earnings outlook to approximately $7.05 per share. Please turn to Slide 5. Terex products have leading positions in diverse and attractive end markets. The global focus on sustainability is driving increasing investments in infrastructure, digitization, waste recycling, and electrification. These megatrends provide additional growth opportunities for all of our businesses. Our MP aggregate business led by Powerscreen and Finlay has leading positions in global mobile crushing and screening markets that will benefit from growth in the demand for construction materials. Mobile aggregate equipment has the benefits of reducing unnecessary material handling and the ability to recycle material at the point of use. MP brands, including Ecotec, CBI, and Terex Washing systems, are at the forefront of developing innovative solutions to meet rising demand for recycling technologies. Our Utilities business offers a wide portfolio of products to support strengthening demand from electrification investments. In our Genie business, scissors, verticals, and telehandlers are essential components of any infrastructure or onshoring projects. Let's turn to Slide 6. We remain encouraged by the favorable trends in our key markets, especially in North America. The U.S. is investing in infrastructure with the three federal stimulus programs that were passed in 2021 and 2022. These investments provide a source of resilient demand visibility over the next several years. More than 35,000 projects representing an excess of $120 billion in funding have been announced or awarded. U.S. nonresidential construction spending is up 16% year-over-year. While manufacturing spending is up 63% in the last 12-month period, driven by multibillion-dollar and multiyear investments related to semiconductor manufacturing, clean energy, and EV battery projects. In addition, the biggest growth areas in construction will be publicly financed or built by manufacturers who are onshoring to reduce geopolitical risk, and these investments are less sensitive to interest rates. Our end market diversification is the strength, and we are excited about the opportunities to grow our business. Please turn to Slide 7 to review our backlog. Our Q3 backlog of $3.3 billion remains significantly above historical levels and is the second highest in recent history, providing healthy momentum going into 2024. Although backlog has declined sequentially from Q2 levels, this is a function of improved manufacturing production volumes and customer deliveries. Consolidated Q3 bookings remained solid at approximately $900 million and reflect a return to more normal ordering patterns for our dealers and customers. Importantly, we are seeing minimal customer and dealer pushouts and cancellations. The higher interest rates, inflation, and geopolitical uncertainties have had an impact on Europe, and we are seeing a softening in that market, but it's important to emphasize that demand in North America is very strong. For more than two years, our backlog levels have increased as we have been constrained in our production ability due to supply chain challenges. As we and the industry improved deliveries and lead times, our backlog will eventually return to normalized levels, which is a good thing for our customers. In addition, elevated customer fleet ages and low dealer inventory levels continue to provide encouraging signs for the demand environment. In our Genie business, the industry replacement cycle and significant global investments in infrastructure, onshoring, and electrification create a clear opportunity for future growth. In our MP segment, in addition to these favorable trends, dealer inventory levels remain low in several businesses. Overall, our customer feedback, bookings, significant backlog, and leading indicators give us confidence going into 2024. Please turn to Slide 8. The global demand for waste recycling solutions is increasing, driven by evolving regulations and consumer preferences. The MP segment is well-positioned to capitalize on these opportunities. Our EvoQuip brand recently added a shredder capable of handling multiple applications, including construction and demolition waste. Our Ecotec metal separator can efficiently extract valuable metals from a variety of waste sources. And our CBI business continues to find new market applications for equipment, such as recycling of windmill blades. This eliminates the need for landfill disposal when blades are decommissioned and replaced. I am confident the MP business will continue to provide innovative solutions to support the increasing demand for recycling technologies. Please turn to Slide 9. Our sustainability practice delivers stakeholder value. During this quarterly investor call, we feature one of the pillars of our ESG strategy. This quarter, we are highlighting environmental stewardship. Our 2023 sustainability report published earlier this week highlights products and solutions that enable our customers to operate in sustainable ways. Approximately 70% of our MP and Genie products are now offered with electric or hybrid options, while 10 of our sites are operating using 100% renewable energy. We reached our 2024 greenhouse gas targets two years early and reduced our emissions intensity by 15% from our 2019 levels. We are proud of our team members' accomplishments in helping build a more sustainable economy. Turning to Slide 10 for an update on our strategic operational priorities. We continue to make great progress on our execute, innovate, and grow strategic initiatives. Our operations teams executed well during the third quarter, maintaining their focus on improving deliveries for our customers and continuing with cost reduction and productivity improvement initiatives. On a year-to-date basis, our sales are up 23% and operating margins are up 400 basis points, demonstrating the strength of our operating model and the improvements we've made over the last several years. Supply chain performance has improved throughout the year, but we continue to experience disruptions in the system. In the third quarter, our Monterrey, Mexico team members were focused on increasing production, start-up of our in-house paint systems, and process improvements. I want to congratulate our Genie Monterrey team members for earning the prestigious LEED Gold certification, demonstrating our commitment to sustainable practices in design, construction, and operations. Our investments in new products and technologies will enable us to take advantage of the sustainability trends such as recycling, electrification, and decarbonization. We remain confident in our ability to execute our strategy to deliver long-term shareholder value. And with that, let me turn it over to Julie.

Thanks, John, and good morning, everyone. Let's take a look at our third quarter financial performance found on Slide 11. Sales of $1.3 billion were up 15% year-over-year on higher volume and improved price realization necessary to mitigate rising costs. Sales in constant currency were up 13% as foreign currency translation positively impacted sales by $25 million or approximately 2%. Gross margins increased by 150 basis points in the quarter as volume, pricing, improved manufacturing efficiencies, cost-out initiatives, and strict expense discipline helped to offset cost inflation. SG&A increased over the prior year due to inflation, incremental spend on new acquisitions, and increased marketing, engineering, and technology expenses. SG&A was 10% of sales, a decrease of 40 basis points from the prior year, with business investment offset by continued strict expense management throughout the company. Compared to last year, income from operations of $163 million increased 35%, operating margin of 12.7% was up 190 basis points, and our incremental margin was 25%. Interest and other expense of $14 million increased $1 million from the prior year as higher interest rates were partially offset by favorable mark-to-market adjustments. The third quarter global effective tax rate was 20%. Third quarter earnings per share of $1.75 increased 46%, representing a $0.55 improvement over last year. This strong performance was driven by increased volume, disciplined pricing, and continued cost management. Free cash flow for the quarter was $106 million representing a $53 million improvement over the prior year, primarily driven by increased operating profit. Hospital inventory at the end of the third quarter was $20 million, a decrease of $3 million from the second quarter and a 68% improvement from the prior year. Free cash flow conversion was 89% in the quarter. On a year-to-date basis, our sales were up 23% over the prior year. Operating margins have expanded 400 basis points at an incremental margin of 30%. Earnings per share are up 90% and free cash flow has increased by over $200 million. Let's take a look at our segment results, starting with our Materials Processing segment found on Slide 12. MP had another excellent quarter with consistently strong operational execution. Sales of $541 million increased 18% compared to the third quarter of 2022 and were driven by strong demand for our aggregates, environmental, and concrete products. On a foreign exchange neutral basis, sales were up 16%. MP operating profit increased 37% over the prior year driven by higher sales volumes, favorable product and geographic mix, improved manufacturing efficiencies, and disciplined cost management with strong operating margins of 16.9%, up 230 basis points. MP's incremental margin was 29%. MP ended the quarter with backlog of approximately $900 million. The backlog remains robust and is approximately two times historical norms. Bookings were slightly higher than historical averages for the third quarter. On Slide 13, see our Aerial Work Platforms segment's financial results. AWP had a solid quarter with sales of $751 million, up 13% compared to the prior year on higher demand, improved supply chain, and disciplined pricing actions to offset cost pressures. On a foreign exchange neutral basis, sales were up 11%. AWP's operating profit increased 47% over the prior year, and the team delivered operating margins of 12.5% in the quarter, up 290 basis points from last year with an incremental margin of 34%. The improvement was the result of higher sales volumes, favorable geographic mix, and cost reduction initiatives offsetting increasing costs and moderate start-up inefficiencies. Genie had a strong quarter, but our utilities business was negatively impacted by manufacturing inefficiencies due to supply chain issues and related unfavorable product mix. Bookings of $536 million were up 4% sequentially and at levels typical of historical Q3 bookings with a solid backlog of $2.5 billion, which is three times the historical norm. Negotiations with the national accounts continue, and we expect to return to seasonally higher bookings in Q4. Please see Slide 14 for an overview of our disciplined capital allocation strategy. Our strong balance sheet provides us with financial flexibility to invest in our future growth. Year-to-date free cash flow has increased $205 million over the prior year. We continue to invest in our business with Q3 capital expenditures of $34 million primarily related to our Monterrey facility. We increased our dividend 31% since the beginning of the year, which reflects our continued confidence in the company's strong financial position and future prospects. Year-to-date, we have returned $66 million to our shareholders and are currently purchasing shares as we believe our shares are an attractive investment. We have no debt maturities until 2026, and 85% of our debt is at a fixed rate of 5% until the end of the decade. In addition, we have paid down $118 million of debt over the last 12 months. Our net leverage remains low at 0.5 times, which is well below our 2.5 times target through the cycle. We have ample liquidity of $846 million, and we reported a return on invested capital over 29%, well above our cost of capital. The company is in an excellent position to execute our plan and grow the business. Now turning to Slide 15 and our updated full-year outlook. It is important to realize we are operating in a challenging macro environment with many variables and geopolitical uncertainties, so results could change negatively or positively. With that said, this updated outlook represents our best estimate as of today. Thanks to the strong performance of our team members and robust backlog, we are raising our 2020 outlook to approximately $7.05 per share and over 60% improvement from 2022. Our increased sales outlook of approximately $5.15 billion represents a 17% increase from the prior year and incorporates the latest dialogue with our customers and our suppliers. Our sales in the fourth quarter of the year are expected to be sequentially lower due to reduced seasonality and supply chain challenges but consistent with the prior year. We are maintaining our operating margin outlook of approximately 13%, a 350-basis point improvement from last year. We reaffirm our free cash flow outlook of $375 million for the full year, approximately $225 million higher than the prior year. Let's take a look at our updated segment outlook. Based upon MP's continued strong execution, we are increasing our sales outlook to over $2.2 billion at an operating margin of approximately 16.1%. We expect MP's fourth quarter sales to be up slightly in Q3 and margins to be sequentially lower due to a less favorable geographic and product mix. This outlook represents 15% increased sales and an 80-basis point improvement in operating margin from the prior year. The Genie team has executed well, and as a result, we are increasing our AWP sales outlook to over $2.9 billion. We expect the sequential decline in AWP's fourth quarter sales due to fewer production days. We are updating our full-year operating margin outlook to approximately 13.3% due to material supply chain issues impacting our utilities business. AWP's outlook reflects a 540-basis point improvement from the prior year and incremental margin over 40%. On behalf of my fellow Terex team members, I want to thank John for his significant contribution, leadership, and dedicated years of service to Terex, and we wish him a happy retirement. John has been instrumental in transforming our company into the Terex of today, which comprises a very strong portfolio of market-leading businesses worldwide. Under his leadership, Terex has experienced remarkable success and remains well-positioned for continued growth. And with that said, I will turn it back to you, John.

Thanks, Julie. Turning to Slide 16 to conclude my prepared remarks. Terex is well positioned for growth to deliver long-term value for our stakeholders because we have a strong portfolio of diverse market-leading businesses that operate in attractive growth markets and are well positioned for long-term profitable growth. This growth is going to be bolstered by attractive global megatrends. We deployed our operating systems across the businesses, improving our execution, allowing us to generate consistent profitability and superior return on our invested capital. We have a strong balance sheet and cash flow to support our growth plan, and we have a global, experienced, and resilient leadership team that has clearly demonstrated the ability to create value. It has been an honor to position the company for sustainable, profitable growth and to make progress towards becoming a workplace where all team members feel included with a voice in the enterprise. Leading Terex has been the highlight of my career. Without a doubt, our success and achievements have been driven by our dedicated, engaged team members who live our Terex Way values and Zero Harm safety culture each and every day. Terex is in a strong position, and now it is the time to begin the transition to the next leader. I've had the privilege of working closely with Simon for a number of years. He has proven to be a global strategic thinker with a natural ability to team and drive results. I have great confidence that he is the right leader for Terex as the company focuses on delivering long-term value for our stakeholders. And with that, let me turn it back to Paretosh.

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 would like to open it up for questions. Operator?

Our first question comes from Stanley Elliott from Stifel. Please go ahead. Your line is open.

Good morning everyone. John, for starters, congratulations on the transformation. That's been impressive to watch. First question here on the backlog, still incredibly healthy. Can you talk about the visibility that you have? I mean, I'm assuming you guys are close to fully booked for '24. Maybe what sort of visibility does that give you into '25? And then maybe any commentary on pricing or mix in those numbers.

Thank you, Stan. Our overall backlog stands at $3.3 billion, which is three times our historical norms. Total bookings for the quarter were around $900 million, slightly above our historical averages. Our book-to-bill ratio is consistent with improvements in supply chain and customer deliveries, and we expect a return to a more typical seasonal pattern for both our customers and deliveries. We continue to experience minimal order cancellations and pushouts, indicating the strength of our backlog. We have booked over $2 billion for 2024, which we believe will drive momentum into the year across the enterprise. Looking at the risk across segments, our MP segment has a backlog of about $900 million, which remains elevated compared to historical norms. Typically, our MP business has limited visibility, but we currently have significantly more. Their bookings are also slightly higher than usual. As we consider 2024, order books vary by division. For instance, our aggregate order book for Q2 2024 opened in Q4 rather than Q3. With a return to normal seasonality, we anticipate a steady flow moving forward. Dealer inventories, particularly in certain brands, are low, which needs replenishing along with some rental fleets, providing us with additional momentum. Infrastructure spending and onshoring investments in North America will support our business not only in 2024 but beyond. In our AWP segment, we have a $2.5 billion backlog, three times our historical levels, and the book-to-bill ratio there reflects improving supply chains and a return to seasonality. Bookings in this segment are also above historical averages. Q3 typically sees lower activity for the Genie business, but as we move into Q4, we are in the midst of negotiations with national accounts. Demand remains robust, as rental companies report strong utilization. Their fleets are aging and need refreshing, particularly amid significant megatrends and infrastructure projects in North America. Delays in the replacement cycle further emphasize the need for fleet updates, which we believe will provide significant momentum going forward. In summary, our bookings and backlog are strong, customer feedback is positive, and leading indicators point to continued momentum as we head into 2024.

Perfect. And kind of sticking on the MP business. When would you guess like dealer inventories might actually normalize given the infrastructure spending on the horizon? And then also, any commentary on some of the newer products and on the recycling products that you guys have been working on or tracking with customers?

Yes. So, in terms of normalizing inventory, it will vary by business. And I think our aggregates businesses would say kind of things continue on this pace middle of next year, probably our Fuchs business. We can talk about that. They do have higher levels of inventory that have been impacted by scrap metal prices. So, it does vary by business. But over the course of time, we would expect those to normalize as we move through 2024, Stan.

Our next question comes from Steve Volkmann from Jefferies. Please go ahead. Your line is open.

Good morning. Thank you, and congratulations, John. My question is about margins in AWP, and I understand there were a couple of temporary challenges this quarter. I believe we noted that the Monterrey start-up utility business was performing below normal. Can you provide an estimate of the impact that had on the AWP margin in the third quarter?

Sure. Thanks for the question, Steve. AWP had operating margins of 12.5% in the third quarter, and it was up 290 basis points from last year. The improvement was really strong execution by the Genie team. We had higher sales volumes. The supply chain is improving and disciplined pricing that offset some of the cost increases. Strong execution and successful cost-out management. We continue to see the hard work by the Genie team showing up in our financials and initiatives as well. But these positives were partially offset by the expected inefficiencies due to the Monterrey ramp-up. So that was included in our outlook, and we've talked about that on previous calls. But additionally, this quarter, we were disappointed in supplier performance in the utilities business, which caused unfavorable manufacturing inefficiencies and related unfavorable product mix. We were able to get sales out but less favorable margin sales in the quarter in the utilities business, and that had an unfavorable impact and probably about $0.12 a share in the quarter. And so overall, our Q3 incremental margin was 34%, and AWP increased our profit by almost 50%, and margins improved by 290 points because of Genie’s strong execution in the quarter.

Great. So, the $0.12 would just be the utility business?

Right. And that would be offset. We had favorable performance in the quarter by the MP business, of course, which was up by about $0.10, and the Genie business up about $0.07 as well compared to the outlook.

Okay. That's helpful. And then just a sort of follow-on there, I guess, is it feels like utility has been a bit of a focus, shall we say, for a few quarters now. What's the outlook for kind of getting that where it needs to be?

Yes, thank you. We need to be candid. We are disappointed with our performance for the quarter due to supplier-related issues. On a positive note, the supply chain is improving regarding the specific issues that caused significant inefficiencies in the third quarter, and that trend is continuing. We expect to see improvements in operational execution in the fourth quarter. The encouraging aspect is that the market conditions for that business are extremely robust, and it is largely booked through 2024 across most product categories. Therefore, market demand is strong, and we simply need to enhance our operational efficiency in deliveries, which we are committed to doing moving forward.

That business has been really hampered by supply chain issues.

Our next question comes from Seth Weber from Wells Fargo. Please go ahead. Your line is open.

Everybody. Good morning, and John, congrats and enjoyed working with you. So, I wanted to get a better understanding for the implied fourth-quarter MP margin, which is down year-over-year and it's down sequentially a bunch even though revenue looks like it's going to be up a little bit. I'm just wondering if you could give us some more details on what's going on there, whether it's a mix issue or a product region issue or what? Just any more color there on MP margin.

Thanks, Seth. MP had operating margins of 16.9% in the third quarter, up 230 basis points from last year. I mean they just continued to perform extremely well. They continue to invest in the business as well, and we made prudent investments to grow the business. But the margins benefited in the quarter from favorable regional and product mix and improved manufacturing efficiencies. And also, they had in the quarter, we received about $3 million of R&D credits. We get this annually. It came in Q3. And so that was a favorable amount received in Q3. Going forward, we expect strong MP full-year sales over $2.2 billion. We expect Q4 sales to be up slightly from the third quarter. We did increase our outlook to 16.1% as the team continues to have their excellent performance. And the margin of the 15% in the Q4 will be strong, but sequentially lower due to a less favorable geographic and product mix. As well as some higher sequential engineering expense because of the R&D credit that we received in Q3 will repeat itself. But overall, MP continues to deliver consistent and strong operating performance.

That's helpful. And then just maybe just the commentary around Europe. Can you just expand on the softness that you're seeing there? Is that across both MP and AWP? And that's the source of the cancellations that you've been seeing?

Thanks, Seth. Regarding cancellations, we have experienced minimal cancellations and delays. However, we have noticed some weakness in the European market. Surprisingly, it has held up better than expected. In our MP business specifically for Europe, overall sales have increased and backlogs remain substantial. However, customer sentiment in Europe is not as strong as in North America. Our Foods division experienced some softness tied to declining scrap metal prices. The positive aspect is that our team has worked diligently to diversify, and we are seeing sales in our environmental business with the Fuchs machine branded Ecotec. Nevertheless, Fuchs experienced some softness, particularly in Germany, where it has a robust presence. We also mentioned last quarter that we observed continued weakness in tower crane sales in Europe. On the Genie side, sales and bookings remain stable, but customer sentiment is not as strong. It’s important to note that we are seeing this softness particularly in the U.K. and Germany. We believe this weakness will likely be balanced by the strength we’re observing in North America. However, Europe faces its own challenges due to geopolitical risks and inflation, setting it apart from North America at this time. We are closely monitoring bookings in these segments, but the customer sentiment in Europe, especially in the U.K. and Germany, differs significantly from the strong sentiment we see in North America.

Our next question comes from Steven Fisher from UBS. Please go ahead. Your line is open.

Thanks, and good morning. John, best wishes. It's been a pleasure. Just to confirm the utilities impact, you reduced the AWP segment margin guidance by 50 basis points for the year. I think the $0.12 you called out would translate directly to that $0.50. I think so just to confirm, you haven't assumed any impact on native utility supply chain for Q4.

Well, we're expecting it to improve in Q4 from Q3, but we're not expecting it to return to pre-pandemic levels. We're expecting it to return to more of our normal patterns in the first and second quarter.

Okay, that's helpful. At this point, I realize it's early, but I'm interested in the signals you analyze. You mentioned backlog and visibility for next year. Overall, do these signals indicate that both of your businesses could experience growth this year? Are there specific subsegments where you feel confident that demand will increase in 2024?

Thank you, Steven. In the third quarter, our team will present a detailed overview during our fourth quarter earnings call. Currently, both our customers and we are in the midst of our planning cycle. We have a strong backlog of $2 billion, which we believe will drive momentum into 2024. We did mention some challenges, particularly softness in Europe, but the U.S. market remains robust. In my opening remarks, I highlighted the favorable conditions arising from three legislative acts that have significantly boosted nonresidential construction spending. Specifically, our rental customers in the Genie business are optimistic and experiencing growth due to the substantial physical stimulus, large project sizes, and extended project durations. These factors provide a strong tailwind, which we expect to benefit our North American businesses as we move into 2024. Feedback from customers in North America is positive, our bookings are at or close to historical levels, and our backlog is much higher than what we've seen historically. Additionally, indicators related to construction and spending, particularly in public finance and onshoring projects, will continue to progress regardless of interest rates. As I mentioned earlier, the reduced geopolitical risks enhance our control over the supply chain. This solidifies our confidence and momentum as we approach 2024. With a backlog of $2 billion, we are in a strong position historically, providing us with the momentum moving forward. Our team will share a 2024 outlook in our upcoming fourth quarter earnings call.

Our next question comes from David Raso from Evercore ISI. Please go ahead. Your line is open.

Thank you very much. John, best of luck, and congratulations to Simon. The essence of the question is about understanding the potential incremental margins in AWP for next year, particularly in relation to leveraging the backlog. The figures I’m considering regarding the impact on utilities in the segment for the third and fourth quarters suggest that excluding the utility impact, the AWP guidance wouldn't have changed much—perhaps a slight increase in revenue, but the margins seem like they would have remained around $13.8 million. I acknowledge that this was your guidance, but I believe there’s a desire for greater leverage and some upside in profitability. Could you share your thoughts on what distinguishes 2024 from 2023? What factors might affect the margins? I'm thinking about Monterrey, the mix, and the price cost. People are trying to understand, as one of your competitors demonstrated decent leverage in that segment yesterday. How should we evaluate the factors influencing incrementals in 2024 compared to 2023?

Sure. I’ll go ahead and address that. At a high level, our pricing strategy remains unchanged. We are pricing to counteract the increases in material, freight, and labor costs. We are experiencing ongoing inflationary pressures, and our team is focused on managing those. We believe there is pricing potential within our backlog for 2024. Our goal is to ensure that price and cost are neutral, focusing on controlling and reducing costs while obtaining the necessary market price to balance that. There should be no significant changes as we move from 2023 to 2024. Regarding Monterrey, as we ramp up over the next 18 months and into 2024, some inefficiencies may arise from product line changes. Our Q3 forecast aligned with our expectations, and we anticipate this trend to continue through 2024, projecting a 200 basis point margin improvement for the Genie business moving forward. In our AWP segment, we recognize the need for performance improvement in our utility segment, as we did not achieve the expected leverage this quarter and actually saw negative leverage. Our target is to reach a 25% incremental margin for that business, and we expect to see improvement from 2023 to 2024. As for our MP business, it remains steady and we’ll continue to invest there. Sometimes our incremental margins exceed the 25% target, while in other quarters they may fall below, depending on our investment focus. However, their performance in operating margins has been consistently strong. We are currently in our planning phase, where we will be emphasizing cost-reduction initiatives and driving manufacturing efficiency improvements alongside supply chain enhancements. It’s reasonable to expect that the supply chain will continue to improve, and while we’re not fully back to normal, we've observed progress in 2023. Thus, we expect some manufacturing efficiency gains as supply chain issues lessen into 2024. That's my high-level response.

I appreciate that, and I don't mean to push on your last call here. But maybe the CFO, David, you'll be listening to the call the next time I ask the question.

Yes, I will.

But Julie, to provide some context, the utility sector is currently facing challenges. However, considering the size of that business, which generates approximately $550 million to $575 million in revenue, is there potential for a recovery in that segment that could translate to a year-over-year improvement of 400 to 500 basis points? I'm aware that it hasn't been as significant of a downturn for them at this point in the year, but that’s something to consider.

We expect to see improvement in the utilities business, which will positively impact the segment. When considering the margins, we noted an impact of $0.12 a share in the quarter. They were significantly below the expected run rate in the first and second quarters, but we anticipate a recovery in the fourth quarter. There is still an opportunity for growth, and our goal is to return this business to low double-digit margins, which we believe is achievable. We will continue to work towards that target.

And Monterrey and the impact, just to think about the path to the 200 bps. What would you expect '24 versus '23 that framework? What's the add '24 versus '23?

I expect we will experience some disruption. When considering this, keep in mind that there is a disruption at the receiving location in Monterrey as well as at the sending location. However, I believe the advantage will be reflected in the 200 basis points as we move beyond 2025. The Monterrey team is on track, and we will keep working diligently to exceed our guidance. We have mentioned that the impact could range between $10 million and $15 million in 2023, and we anticipate some of this will persist into 2024.

And lastly, for me, any broad thoughts with Simon to think about where the balance sheet is. I mean I would argue Terex's balance sheet is about as strong as we've ever seen it. So just trying to think about any capital allocation commentary that you or Simon or the transition might provide investors how to think about the use of the balance sheet. Thank you.

Yes, we have a strong balance sheet with ample liquidity, totaling $846 million, and our net leverage stands at 0.5 times. As we've mentioned, our primary focus is on organic growth, particularly through investments in our facilities, such as Monterrey, which are yielding a 29% return on invested capital. We've also raised our dividend by 31% since the beginning of the year. Moving forward, we'll examine how our significant cash generation will be utilized, considering both inorganic growth opportunities and share repurchases. We have made some smaller investments and have an active pipeline that we will pursue with discipline. This year, we've repurchased $34 million in shares and have $159 million remaining under our authorization. Our goal is to offset dilution from incentive compensation and seize opportunistic prices. At the current valuations, we see our shares as a compelling investment, and we are actively repurchasing them. Our strong balance sheet provides us with the flexibility to invest in future growth.

Hi, good morning. Thank you so much for taking my question. So, on your slide, you noted about over 35,000 projects approved or awarded in infrastructure, probably more to come. And one of your competitors is increasing capacity in asset equipment. How are you thinking about growing market share if demand accelerates because of these tailwinds?

Yes, that's a great question. From a geographical perspective, especially with our Genie business, our Monterrey facility helps us remain cost competitive on a global scale. We are planning to increase capacity as we ramp up that facility moving forward. We believe we are well-positioned in terms of capacity, although we are still producing fewer units than we did in 2018. We anticipate growth in the market. Regarding market share, it has remained relatively stable this year. Our team is concentrating on developing new products, and we believe this will positively impact our position as we've seen an increase in the market performance of our newly launched products. The team is actively pursuing new product development, and we plan to offer cutting-edge products that provide the best overall cost of ownership in the industry, positioning us effectively in the Genie business going forward.

Got it. That's very helpful. A quick follow-up. Are you able to quantify the incremental capacity you expect from Monterrey? Is it like a 5% to 10%, 10%, 15%? Any numbers?

I would quantify it this way and just say today, we're still at, call it, 15% plus or minus, maybe even 20% less than we were in 2018, 2019 time frame, so on a unit volume basis.

John, congratulations on a very well-deserved retirement.

Thanks, Nicole.

Maybe just first on the backlog within AWP. Can you just talk a little bit about the mix of NRC versus IRC customers? And also, anything interesting that you've seen from a product perspective?

Nicole, I would say the mix is relatively consistent with what we've had historically. So, it ebbs and flows quarter-to-quarter with the larger customers in Q4 when you sign their annual agreements, you'll see that quarter bump up. But if you just look at the backlog, I'd say it's relatively consistent with historical norms, but it does ebb and flow quarter-to-quarter, especially when you book some of the larger national account orders.

Got it. And then just thinking about free cash flow into 4Q and then into 2024. I guess it seems like you guys still have quite a bit of opportunity from a working capital perspective. How do you think about that opportunity, particularly on the inventory side? Like can you get back to historical levels of inventory? Can you just walk through that? Thank you.

Sure. Thanks for the question, Nicole. Yes, the management team is focused on net working capital as a percentage of sales, and it's actually part of our incentive comp program. So, we're very focused on it. And we talk about inventory, in particular, a lot in our management meeting. We continue to have hospital inventory today, but we have reduced that by 68% from last year. And so, it's at about $20 million. So certainly, that's an opportunity to inventory as well as we continue to increase inventory, and we will continue to do that until the supply chain disruptions abate, but we're very focused on working capital, and we'll continue to be focused on it and generate cash.

Nicole, you may recall me mentioning before that just in time really turned out to be just late. Therefore, we are asking our suppliers to hold a bit more inventory to help eliminate the disruptions we have been experiencing. As Julie mentioned, this is part of our incentive compensation system. Return on invested capital is crucial for the company, and we are motivated to enhance the return on capital for our working capital. The only point I'd make is that we will keep a bit more inventory until we see a more stable supply from our suppliers. However, we are committed to this focus.

Our next question comes from Jerry Revich from Goldman Sachs. Please go ahead. Your line is open.

Good morning, and John, let me add my congratulations as well. When you took over in 2015, equipment was at a pretty high point in the cycle and the company was earning sub $2 per share and over $7 today. So, congratulations on the strong transformation here.

Thank you, Jerry.

Can I ask in terms of the outlook for normalizing production rates now that logistics for the industry are catching up as we think about what the production cadence looks like in 2024? It feels like we should be looking for a heavier 2Q and 3Q as a mix of total compared to what we've seen over the past couple of years as we've given deliveries to customers at first quarter, fourth quarter that have been heavier. Is that right? Can we talk about that? Obviously, for Aerials, you're guiding to sales that are flattish year-over-year in the fourth quarter based on CapEx cadence, it sounds like first quarter is going to be down year-over-year potentially to your customers and bigger shipments in 2Q and 3Q. I just want to run that by and see if that's consistent with how you're thinking about normalization.

Yes. Jerry, I think that's a reasonable assumption. As we indicated, I think the business is all as supply chain continues to improve, we're going to return to more seasonal patterns. The underlying customer demand seasonal patterns didn't change. What changed was the industry's ability to meet those patterns. So, as supply chains improve, I think as we transition into '24, we're going to see a return to more normal seasonal patterns on bookings, backlogs, deliveries, customer order patterns, when customers would like to take equipment. So, I think that's a reasonable assumption as we head into 2024, Jerry.

Super. And John, in Europe, AWP, there's been ebbs and flows based on product availability. So recently, you folks have been able to ramp up deliveries from Asia that have driven the strong growth. This year, you had mentioned demand might be a touch softer. Can you just talk about how you view as normalized levels of demand in Europe AWP considering before this year, there has been more supply constraints for that part of your footprint?

This year, supply constraints in Europe have started to ease, even before they have in North America. Our sales and bookings in Europe remained relatively stable in the third quarter. However, customer sentiment is not as positive. We are monitoring this situation closely. While there aren't as many large national accounts in Europe, we are actively engaged in discussions, similar to our efforts in North America. We believe it's important to highlight that customer sentiment in Europe is not as strong as in North America. And Jerry, let me just say on that. And really as we look and it goes to our telematics data as well, U.K. and Germany. Other markets are holding up, but U.K. and Germany, we're seeing that sentiment.

Our last question will come from Mircea Dobre from Baird. Please go ahead. Your line is open.

Thank you. I appreciate it, and congratulations to John. I have a general question and a specific follow-up. Looking back at your time here, you've accomplished a lot for the company. Is there anything you feel is still outstanding or something you wish you could have addressed that you think Simon and the team should focus on?

Thanks, Mig. As a team, we've been reflecting on our progress. From our vantage point, it's clear we've made significant strides, particularly in our portfolio of businesses and operational improvements. However, with our commitment to continuous improvement, we recognize that satisfaction isn't an option. We need to keep pushing for further advancements. I want to highlight our safety performance, which has plateaued, and I'll be urging the team to enhance that area. Additionally, our M&A activity has slowed this year, with some attempts falling through, but we aim to return to inorganic growth in this space. We're hopeful about future opportunities here and feel confident that our balance sheet and cash flow can support that, as well as share repurchases. Given the current valuations, buying back shares presents a strong return on investment for our shareholders.

Understood. My follow-up is on MP. And I'm struggling a little bit to make sense of kind of what's going on from a demand standpoint because look, if we're looking at your orders in the quarter, probably the lowest level of order intake that we've seen in several years here. And when I listened to what your European competitors like Sandvik or Epiroc were kind of saying about, say, the processing side of their businesses. They're kind of seeing softer orders and demand and infrastructure as well. So, I guess maybe an update for you as to sort of what's going on there? And do you expect demand to actually rebound in 2024? Or should we sort of prepare for this continued gradual order and backlog erosion? Thank you.

So again, backlog, I think, will trend to more normal levels as production levels increase. I think book-to-bill is going to return to more normal levels as our lead times gets to the other thing. Our lead times are still extended in certain product categories. Again, our aggregates business is strong. I mentioned the sentiment in Europe concrete has been strong in the U.S. I called out Fuchs. That's an area of potential softness. The environmental business though is strong, and it's offset that. our listing business. We mentioned lifting softness in tower cranes, but real strength in our Franna business down in Australia; they're booked out for the year. So overall, we're obviously very cognizant of what's going on, global business, global diversification and diversification within MP. I think there's going to be some puts and takes as we head into 2024. And I would say probably in the North American market, remains strong, given the customer sentiment on this side of the bond, which is much stronger than Europe right now, especially in the U.K. and Germany.

We have no further questions. I'd like to turn the call back over to John Garrison for closing remarks.

Thank you, operator. It has been a pleasure, and I appreciate all of the kind comments that the analysts had to interact with all of you in the investor community. I look forward to speaking with you over the coming months and introducing Simon as we transition responsibility over the coming months. If you have any additional questions, please don't hesitate to follow up with Julie, John or Paretosh. And again, as always, thank you for your interest in Terex. Operator, you can disconnect the call.

This concludes today's conference call. Thank you for your participation. You may now disconnect.