Jeff Leonard: And Greg before you go, I’ll add one more comment about Royal. They’re continuing to gain momentum. We’ve been able to help them already with chassis supply and I think that’s going to help them pick up the pace here in the fourth quarter.
Greg Burns: Okay. And I guess just one last one. I mean, is this a new vertical segment you’re going to look to do additional acquisitions to scale up? Or does — can Royal Truck stand on its own? Or how do you view that?
Jeff Leonard: No, it’s a very interesting segment. It’s still quite fragmented Greg, so it’s an opportunity for us to do what we do enter a new space and then kind of build out a position in it. We’ve been chasing Royal since 2016 believe it or not, so this was not opportunistic at all to bring this one into our family. We really like the space. We really like the people in this company, they’re innovators. They’re sort of the benchmark for on-highway safety to protect work crews. They’re the company that always sets the bar higher and the entrepreneur that started the company is personally known as a leader in that field. So we really like Royal and we were very pleased to finally get that acquisition across the line.
Greg Burns: Great. Thank you.
Operator: Our next question comes from Mig Dobre with Baird. Please go ahead.
Mig Dobre: Jeff, Richard, good morning. Thank you for…
Jeff Leonard: Thank you, Mig.
Richard Wehrle: Thank you, Mig.
Mig Dobre: Yeah. Thank you for taking the questions. So I’m new, I’m new to the story here. I’m still learning. I’ve got a number of questions. Hopefully, they’re not going to be too basic here. But maybe the first one on Vegetation Management. Can you talk a little bit about seasonality here in terms of how your orders are coming through? I mean, it’s encouraging to see that year-over-year that decline has stabilized, but in terms of how we’re thinking about the sequential uptick? And also, what normally happens with orders for this business in the fourth quarter?
Richard Wehrle: Yeah. Mig, this is Richard. In a normal cadence environment with this type of business, they’re a bit cyclical from a standpoint that they put up pre-season programs that start maybe late summer. And then, different products different groups and then they’ll go out for 60 days and then another one will pop up and they’ll go out through November. So what they’re trying to do is build their backlog of taking orders in, so that allows us to manufacture those products through the fourth quarter and into the first quarter, where we’re able to not just — obviously just manufacture but to make deliveries all the way through. That cadence does slow down a little bit as you move into Q2 and Q3 because a lot of farmer – hobyy farmers and ranchers are out working their properties so they don’t buy as many whole goods.
They will buy some whole goods but we get a bigger increase in parts sales during the second and the third quarter which is why our margins actually peak up a little bit in the Vegetation Management division. So that’s pretty much how it lines up for them.
Mig Dobre: And then what happens in the fourth quarter?
Richard Wehrle: Fourth quarter they’ll have pre-season programs Mig probably through until about November and then they’ll shut it down. But that builds that backlog and it allows us to manufacture so sales usually stay pretty steady through the fourth quarter from a whole goods standpoint. Parts will drop off a little bit during the fourth quarter and the first quarter.
Mig Dobre: Right. I guess what I’m trying to figure out here is what your expectations are in terms of backlog and book-to-bill exiting 2023? And related to the backlog has been coming down a bit. What do you sort of consider to be a normal level of backlog? At what point in time should we start thinking about your revenue needing to sort of closely match orders on a go-forward basis?
Jeff Leonard: Yes. That revenue and backlog are already converging in that division Mig and the reason for the big fall in backlog wasn’t the result of loss of orders that was a result of order cancellations through Q2 and Q3 so and that was particularly notable in the forestry side. It had nothing to do with ag. There had been some speculative volume going on in forestry most notably in the land clearing space. There’s sort of play this also over Q2 and Q3 and of course what we’re reporting is net bookings at the end of the day. Now forestry has started to tick back up a little bit and we made some shipments in Q3 and forestry to the supply chain that have started to resolve now in Q4. So as Richard said Q4 is normally a little bit softer for Vegetation Management because it’s not their operating season and the margins are typically a little bit higher in that segment in Q2 and Q3.
But we’re in a distorted situation at the moment because of the — first of all the results of the pandemic and the supply chain. But then followed by the inventory build or inventory bubble that built up in Q2 and to a lesser extent in Q3 particularly in the ag space. That field inventory is now coming down we’re very pleased with that so I think we’re returning to a more normal cadence. So normally you can expect in the Vegetation Management side Q4 will tick down just a little bit and the margins may tick down just a scooch because of the parts impact that Richard was talking about. The wildcard here is the big ticket items in forestry. You ship $1 million machine those are high-margin products for us out of Morbark and we’re going to pick up a few of those that we missed in Q3 this year.
Richard Wehrle: One other point too Mig on that is that just remember the backlog right now in the Vegetation Management is still about twice as big as it was pre-COVID. So it’s doing really well and it’s holding up just fine. If you look at the small ag and hobby farmers they did a bunch of COVID buying during 2021 and partially 2022 that hasn’t repeated itself just yet so.
Mig Dobre: But to be clear in terms of normalized backlog in this business would you consider one quarter’s worth of shipments to be a normalized backlog? Is it more? Is it less? What’s normal?
Jeff Leonard: Yes. In the ag piece of that division one quarter is normal. In forestry it’s more like two. So it depends on the mix in the division between the two Mig. But yes your thinking is right. It’s about a quarter normally in ag and then two quarters in forestry.
Richard Wehrle: If it gets much bigger than that Mig then you start pushing out past the deliveries more than three months to four months and that could be a problem. But actually it’s fine right now as Jeff said.
Mig Dobre: Understood. A couple of questions on Industrial too if I may. The first one is on the supply chain where it sounds like things are getting better. You didn’t talk about any impact from UAW everything that’s going on that side. Anything to comment on that end?
Jeff Leonard : Yes. I actually had a comment and then later took it out in my remarks Mig, because I didn’t think it was significant. We haven’t really seen a meaningful impact from the UAW strike or its aftermath. The supply of these Class 3 to 5 chassis was tight even before the strike and it remains tight. But some of these smaller sweeper contractors that’s really where we use these. And on the very low end of our snow removal business there still were dealer inventories available so we’ve kind of scoured the country to buy up as much of that as we can and we’ve been able to hold our own there. So I’m not really losing a lot of sleep on that particularly with the strike now having resolved to be candid.
