Chad Dillard: That’s super helpful. And the second question is just on Access. Clearly, you have a pretty strong backlog in that segment. So how far out do your build slots go? Like, what share of the backlog is getting shipped in ’24? And I know there are some supply chain constraints, but let’s just assume that the they lift. So what extent do you have appetite to add further ships to drive further production this year?
John Pfeifer: Yeah. So I’ll take that. This is John, Chad. So in the Access business, we talk about a $4.4 billion backlog. So clearly, we’re now going out into 2024 with our current level of capacity. Now our capacity is constrained by supply chain primarily. We expect to continue to make improvement as we go through the year and how we operate the supply chain, and we’re doing a lot of dual sourcing, resourcing, better use of analytics to predict problems before they happen. And that’s all manifesting itself in some of the improvement we’ve seen, and we’ll continue to do that. But when we look at a $4.4 billion backlog, plus another probably tranche of close to $1 billion of orders that have not been entered yet. And you look at the — that’s with $1.5 billion of orders we just booked in the quarter.
This is a healthy business, and there’s a lot of dynamics creating health that we see over the long term. So we’re also actively looking to expand capacity because we know we need more capacity. As we improve the supply chain, we’ll need not just more shifts, but we’ll need a little bit more capacity in our facilities, and we’ll be able to leverage the facilities that we have to add capacity so that we can deliver faster.
Chad Dillard: Thank you.
Pat Davidson: Thanks, Chad.
Operator: Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.
Jerry Revich: Yes. Hi. Good morning, everyone. John, I wonder if you could just go back to the Access Equipment outlook for a second. So essentially, up 6%, given the price increases implies volumes that are down and your customers are looking for CapEx to be up this year on a unit basis. And so I know you’re not in the business doing any market share? Is it just a function of, hey, look, it was a tough supply chain year last year, so let’s make sure we’re in a position to hit our guidance or are there other moving pieces that are specifically impacting any particular components that are still very hard for you folks in this business?
John Pfeifer: Well, I think the way that we’re looking at it is we’re trying to be realistic, Jerry. We’ve been through the past six quarters of pretty intense supply chain disruption and we’ve done a lot of work, which is starting to have some impact. But we’re also wanting to be realistic with our customers in terms of — based on what we’ve experienced over the past six quarters, being realistic on what type of improvement we can expect. We don’t expect anyone to flip a light switch and all of a sudden, everything is going to be back to perfect with the supply chain. So we’re really just trying to be realistic. Now we’re going to add capacity so that we can deliver faster. We have to do that prudently along because it doesn’t matter if we add capacity, we can’t get the supply chain improve. So we have to do that prudently along with our ability to make work with our suppliers to improve the supply chain part of it. I guess that’s the best way I can describe it.
Jerry Revich: Super. And relative to your guidance if Access volumes do surprise to the upside, if we’re able to deliver on the supply chain. Is it fair to expect 25% to 30% incremental profitability on any incremental volumes, if we are able to ramp deliveries?
Mike Pack: Generally, I would say incrementals in the low-20s. I think certainly, as we add volume, the pricing is obviously there to generate typical incrementals, but obviously, there is a drag — continues to be a drag from a manufacturing efficiency perspective. So I would say probably a little bit lower than normal. But obviously, it — as volume increases, though some of those efficiencies will subside.
Jerry Revich: All right. Super. Thanks.
Operator: Our next question comes from the line of Stephen Volkmann with Jefferies. Please proceed with your question.
Stephen Volkmann: Hi. Good morning, everybody. I want to go back to Defense, but more on the USPS side, so that contract has changed quite a bit since we first started looking at it, obviously, more volume and more mix of battery. I assume that makes a pretty significant difference in kind of the cost per unit, which obviously means you’re going to get more revenue as we go forward. Please disagree if you want to. But I’m also trying to think about, are these BEV margins sort of the same as ICE or would those also be higher? And then sorry, I’m throwing a lot at you, but does it also mean that there’s going to be higher R&D and development and startup costs than we might have otherwise assumed.
John Pfeifer: Yeah. Great question. The fact that they’re moving towards 75% BEV and I think they’ve even indicated that by €˜26, they go full BEV from ’26 onwards. That’s all positive. It’s great for the USPS. And as I said in my opening remarks, it’s good for communities across the country where we see communities wanting more electric, and it’s good for us. So as you said, the price level on a BEV is higher than on an internal combustion vehicle because the costs are higher. Now the margin dollars, the margin percents are about the same, but the margin dollars are, of course, higher as well. When you look at the investment, I wouldn’t say that the investment changes materially. It does not. But the timing could shift a little bit when you talk about the initial order started with 10% BEV, and now they’ve gone — they’re likely going to 75%, that can change a little bit of the timing.
I don’t think it’s going to be material timing change a little bit one way or the other. But this is a great program. We’ll essentially be getting into production in ’24, and we’ll be expecting to reach full production in ’25. That’s what we’ve said in past calls as well. So none of that changes. This is a good news story for everybody involved in the program.
Stephen Volkmann: Okay. Great. And just as a follow-on, do you have BEV units now that are sort of out on the road doing tests and all that? I assume you must — if it’s going to start…
John Pfeifer: We’ve got prototypes and validation units and so forth.
Stephen Volkmann: And do you get involved in charging at all or is that somebody else?
John Pfeifer: Well, we want to be a total solutions provider to our customers. It doesn’t matter if it’s the United States Postal Service, a municipal fire station, we intend to be a total solutions provider. So we’re there to support the U.S. Postal Service in any way that they want us to provide support and that’s what we’ll do. But it’s ultimately up to the U.S. Postal Service as to exactly how they want to execute the recharging part of it.
Stephen Volkmann: Thank you so much.
Pat Davidson: Thanks, Steve.
Operator: Our next question comes from the line of Jamie Cook with Credit Suisse. Please proceed with your question.
