Release Date: June 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- REV Group Inc (REVG, Financial) reported a robust $4.3 billion backlog, indicating strong future demand.
- The fire and emergency segment achieved a five-and-a-half-year high in adjusted EBITDA margin, with margins improving 320 basis points versus the prior quarter and 480 basis points versus the prior year.
- The company successfully integrated the Spartan businesses, doubling production at the Spartan chassis plant since its acquisition in 2020.
- The sale of Collins Bus provided $308 million in cash proceeds, which were returned to shareholders through share repurchases and dividends.
- The company has taken significant cost actions to manage market dynamics, particularly in the recreational vehicle segment, which is expected to improve adjusted EBITDA margins by approximately 100 basis points in the second half of the year.
Negative Points
- Consolidated net sales decreased by $64 million compared to the second quarter last year, primarily due to lower sales in the recreational vehicle segment and fewer sales of terminal trucks.
- The recreational vehicle segment continues to face depressed industry demand, with new motorized wholesale unit shipments down 22% year over year.
- Terminal truck sales were 59% lower than the previous year, contributing to a $150 million revenue headwind year-over-year.
- The company divested its direct fire and ambulance sales and customer service operation in Florida, which may impact future sales in that region.
- Adjusted EBITDA for the recreational vehicle segment decreased by 58% year-over-year, primarily due to lower unit volume, inflationary pressures, and increased discounting.
Q & A Highlights
Q: In fire and emergency, how much was pricing up in the quarter, and how much higher is pricing on what you're booking today versus what you're delivering?
A: Total sales were up 33%, and units were up 18%. The delta is evenly split between price and favorable mix. Over the last few years, we've had combined pricing increases of 40% through mid-2023, with more normalized annual increases of 3% to 4% thereafter. We're in the third to fourth inning for fire and fifth to sixth inning for ambulance in working through these price increases.
Q: Looking at the midpoint of the outlook on EBITDA margins, it seems to imply weaker margins than normal seasonality in the back half. Are there any specific drivers for this?
A: For specialty vehicles, we expect third-quarter EBITDA margins to increase 50 to 100 basis points from the second quarter to the third quarter, and another 100 bps from the third quarter to the fourth quarter. Recreation EBITDA margins should be fairly consistent at 7% to 7.5% for the full year. Sequentially, margins are expected to be up.
Q: Can you give us some thoughts on the margin potential in the recreation segment for 2025 if orders have started out soft?
A: We are not providing 2025 guidance at this time. The market is still choppy, and we need to see what happens in the back half of the year before making any projections.
Q: How successful have you been with delivering the Spartan S-180 product in 180 days every time?
A: We have a dedicated line in one of our facilities for the Spartan S-180, and we are meeting those lead times.
Q: Are you past any major supply chain issues in fire and emergency, and how much faster can you make the run rate from here?
A: We are not far off from pre-COVID levels. Fire is still six to nine months behind ambulance in terms of throughput improvement. We expect continued momentum in fire in the back half of the year. The Ocala facility is expected to have record quarters of shipments in the third and fourth quarters.
Q: Can you clarify the moving pieces in your guidance, particularly regarding revenue?
A: Recreation is guided about $90 million to $100 million lower, and terminal trucks are down an additional $50 million. The midpoint of the guide is down $50 million. The offset is the second-quarter beat in specialty vehicles and a $70 million to $80 million increase in fire and emergency in the back half of the year.
Q: What is the throughput expected to be exiting fiscal '24 based on what you know today?
A: We expect fire to catch up to ambulance, which is at 70% to 80% efficiency. We are not fully back to 85% to 90% efficiency but expect to be more aligned exiting the year, with opportunities beyond that as we exit '24.
Q: Considering the challenges in Class A and towables, what are you doing on a go-forward basis to manage the cost structure in recreation?
A: We have taken significant cost reduction actions, including reducing direct labor, indirect costs, and SG&A. We have been proactive in managing costs to align with lower backlogs, which has helped us avoid losses and position us for margin improvement as volumes return.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
