REV Group, Inc.

Greetings. Welcome to REV Group second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Drew Knopf, Vice President of Investor Relations and Corporate Development. Thank you. You may begin.

All right. Thank you, Sherry. Good morning, and thanks for joining us. Last night, we issued our second quarter fiscal 2021 results. A copy of the release is available on our website at investors.revgroup.com. Today's call is being webcast, and a slide presentation, which includes the reconciliation of non-GAAP to GAAP financial measures, is available on our website. Please refer now to slide two of that presentation. Our remarks and answers will include forward-looking statements, which are subject to risks that could cause actual results to differ from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described in our Form 8-K filed with the SEC last night and other filings that we make with the SEC. We display many obligations to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. All references on this call to a quarter or a year are a fiscal quarter or fiscal year unless otherwise stated. Joining me on the call today are President and CEO Rod Rushing as well as our CFO Mark Skanechny. Please turn now to slide three and I'll turn the call over to Rod.

Thank you, Drew, and good morning to everyone joining us on today's call. I will begin with an overview of the quarter's consolidated performance and then move to commercial, financial, and operating highlights achieved within the quarter before turning it over to Mark for detailed segment financials. We are pleased to report our best second quarter adjusted EBDA results since our IPO in 2017 and our best adjusted EBDA margin performance since our third quarter of fiscal 2018. I would add that we were able to deliver these results while faced with continuing challenges in our supply chain and labor-related constraints. Within the quarter, we successfully mitigated shortages of supplies such as microchips, chassis, subcomponents, and the availability of qualified labor in many of our businesses. Our performance reflects the commitment of our employees to serve our customers and communities while improving their productivity, enabling us to mitigate these impacts and challenges. Second quarter net sales of $644 million increased 18% over last year's quarter, as last year's quarter was impacted by reduced production stemming from the onset of the pandemic. Excluding the divestiture of the two shuttle businesses, sales increased 26% organically versus the prior year. The quarter sales were driven by increases in fire and emergency and recreation segments. Fire and emergency sales reflects our improved line rates combined with our available backlog and was in line with our expectations for the quarter. Recreation sales exceeded expectations and benefited from recent dealer signings that yielded market share gains. We also realized the combined benefit of price realization and increased line rate execution. F&E and RV performance enabled us to offset top line softness in the school bus end market and labor constraints in our municipal transit bus that affected our production. The quarter also had a strong order intake to match the sales performance with book to bill of 1.5, and we exited the second quarter with a record backlog of $2.3 billion. Our businesses have continued to improve operational disciplines that are delivering results to the bottom line. Second quarter adjusted EBITDA was $45.5 million and adjusted EBITDA margin of 7.1%. Many of our businesses were able to realize price increases while lowering discounts and allowances, mitigating inflationary pressures in our supply chain. We are beginning to see the benefit from the execution of our operational excellence pipeline, particularly within the F&E segment. We are confident that we will realize continued margin improvement within our business segments in the long term, but we continue to face and will have to manage through disruptions in our supply chain. These will present headwinds to our ability to produce and ship units in the balance of the year. Turning to slide four, we had several accomplishments within the quarter that I would like to highlight. First, we recently announced a change to our capital structure from a former term loan A and ABL to a new $550 million five-year revolver with a $100 million accordion feature. The new structure allows us to capitalize on low interest rates and is expected to save the REV Group approximately $5 million per year based on today's interest rate of 2% and our current debt level. We expect it will provide us with the necessary liquidity to pursue our financial objectives including organic and inorganic investments, while also maintaining flexibility to return cash to our shareholders. Today, we announced the reinstatement of our quarterly dividend. This decision by our board reflects their confidence in the structural and operational improvements that we have made, and the implication that these will have in the long-term financial outlook of the company. Year-to-date cash conversion has improved to 82%, and today we reiterate our guidance of over 90% free cash flow conversion on adjusted net income. We are no longer on a net debt to EBITDA leverage covenant, but we are pleased and well positioned to be exiting the second quarter this year at 2.5 times compared to nearly six times just one year ago. This outcome comes as a result of focused efforts on approving both sides of the equation over the past year. In our past calls, we have often discussed our operational agenda and our commitment to reduce complexity, improve our efficiencies, and address our cost structure, all aimed at improving our performance for our customers and expanding our margins. While we remain fully focused on the opportunities that operational excellence will yield, we have been equally focused on building commercial capabilities. This quarter was a record for fire and emergency segment and order intake. with new highs in both fire and ambulance groups on inbound order tolls. Within fire, our teams have worked hard over the past year to increase throughput, which has improved our cycle times and provided a more competitive delivery lead time. In ambulance, we have a record high backlog as municipalities and commercial contractors continue to invest dollars towards upgrading and enhancing the health and safety of their vehicle fleets. As schools plan to return to the classroom this fall, our school bus orders began to return to normal seasons, seasonal norms within the second quarter. We also similar increases in municipal transit quotes and orders, and we announced two large municipality wins within the quarter. First, we are pleased to continue our relationship with Pace Suburban Bus, which provides service to the Chicago suburbs that encompasses 284 municipalities. Pace awarded our transit bus business, ENC, a contract for 44 additional clean diesel heavy duty transit buses. Secondly, E&C won its first order with the San Francisco Municipal Transit Agency for 30 hybrid electric low floor buses for its municipal railway bus service. These buses dramatically reduced both diesel fuel consumption and CO2 emissions compared to conventional diesel. Within the specialty group, we received record orders for both terminal trucks and street sweepers as our new management team has aggressively pursued both the renewal and new customer capture awards with large national accounts. And finally, our recreation segment continues not to only participate in the healthy demand for RVs that we are seeing, but we have also seen share gains in our market share. The result is the fourth consecutive record of quarterly orders. We announced the promotion of Mike Lanciotti as president of our recreation segment. Mike is a veteran of the RV industry and has been the president and general manager of Renegade RV since 2008. During his 13 years with Renegade, Mike transformed the Renegade business and successfully led the company through the 2008 economic downturn, one of the most challenging periods and resulted in solidifying Renegade's position as the best-in-class Super C and premier Class C producer. I will add that Renegade has been one of our highest performing and most profitable businesses since acquired in 2016. We are confident that Mike will lead our business to profitable growth and build upon our recent success in serving our customers. Earlier, I touched on our ability to mitigate the supply chain disruptions within the quarter. Our procurement team has worked tirelessly and demonstrated true agility and ingenuity in multiple situations, securing components that enable our businesses to maintain production levels and to continue to serve our customers. Our Chief Supply Officer, Rob Beslowski, and his team have remained in continuous contact and actively engaged with top management of our supply chain partners to collaborate and find solutions to the issues that we are facing. Through relationships and collaborations, we were able to work a global network to source items that were unavailable through our normal channels, enabling us to keep our commitments and achieve our financial objectives. On April 15th, we hosted our first Analyst and Investor Day since 2018. This event provided a summary of our business, our markets, and our channels included a review of the changes we have made to our organization and operation over the past year. We introduced several members of our executive team, and we also introduced the REV Drive business system. The team spoke of the core tenets of value creation within the REV Drive business system. These include commercial, operational, and organizational excellence disciplines that are focused on our purpose of creating value for our stakeholders. We provided several examples of the work being done in each of these areas and specified the financial impact of these efforts. We also framed our capital allocation philosophy and emphasized that the basis is a strong balance sheet that provides optionality to pursue both organic and inorganic investments, as well as to return cash to our shareholders. Finally, we provided intermediate targets for fiscal year 2023. For those that were unable to join us, I encourage you to view the video that is posted on our YouTube page, as well as the slide deck that is posted on our investor website. The last highlight from the quarter is product innovation and the electrification within our portfolio. Our goal is to be a recognized leader in electrification of the commercial vehicle fleet. We are focused on categories where we see in-market demand that have the necessary technology and partnerships available for development and where there is a path to achieve required returns on investment. Within the quarter, we made several announcements to demonstrate our commitment to reducing carbon emissions and the electrification of our vehicles. In April, we announced that we extended our exclusive agreement with Zero RPM to integrate and distribute item mitigation systems to the AMETS market until 2024. Later in the month, we announced a co-development agreement between our leader ambulance brand and Lightning eMotors for a zero-emission, all-electric ambulance. The new ambulance will be based on the year's high-roof transit van and designed to be charged via a level two AC charging or DC fast charging. Development is progressing well with the prototype being available to customers. We expect initial commercial orders delivery to be available at the end of the calendar year. Within school bus, we are executing a backlog of orders of our electric type A buses that we received increased interest in over the quarter. Finally, we are preparing for Altoona track testing of our battery electric municipal transit bus that is expected to begin within the fiscal third quarter. We are committed to the development of electric vehicle technologies within our commercial fleets. We are building our capabilities and partnerships to enable us to lead this transition while the end markets mature and the economics become accretive. Now I will turn it over to Mark for details on our second quarter financial performance.