REV Group, Inc.

Greetings. Welcome to REV Group Incorporated third 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 Knopp, 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. Earlier today, we issued our third 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 the slide presentation, which includes the reconciliation of non-GAAP to GAAP financial measures, is also 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've described in our Form 8-K, filed with the SEC earlier today, and other filings we make with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings call, if at all. All references on this call to a quarter or a year, or a fiscal quarter or fiscal year, unless otherwise stated. Joining me on the call today are our president and CEO, Rod Rauschen, 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'd like to begin with a brief comment regarding our situation resulting from the Hurricane Ida. As you may know, our fire business is in Holden, Louisiana, which effectively was right on the path of Hurricane Ida. We are thankful that we have not had any report of injury to our employees at this time. Many of our suppliers and our own efforts have provided essentials during this difficult time as they endeavor to recover from the storm's aftermath. Vice President for our Bert McCutcheon has cooked meals for many employees, and I would simply like to thank all involved that have helped our team members. Our facility has been impacted, and Mark will speak to that momentarily. Also, we would like to thank the first responders that put themselves on the line in support of the efforts to help recover from this storm. This morning, I will provide 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 financial segments. We are pleased to report another strong quarter that nearly doubled our adjusted EBITDA performance versus last year, despite top line implications tied to increasing supply chain challenges and labor challenges. We continue to experience headwinds with staffing, workers, and absenteeism, as well as shortages in raw materials and components such as semiconductors, furniture, wiring harnesses, pumps, axles, and chassis. Throughout this fiscal year, our procurement team has engaged with our supplier partners and has generally been able to source to allow continued production. This has often led to inefficiencies, time to rework, but we have been able to achieve our throughput targets. However, as we moved through the quarter, these labor and material shortages became more difficult to offset, and we were unable to meet our production targets. As a result, approximately $65 million of revenue slipped out of the quarter as our deliveries were delayed. Third quarter net sales of $593 million increased 1.9 percent over last year's quarter. We estimate that roughly $50 million of vehicle starts were missed within the quarter due to the previously discussed challenges. which will have a full impact in the fourth quarter of our consolidated top line. This resulted in a full year revenue guidance adjustment that we announced today. I would like to be clear, though, that these are delayed deliveries due to timing of materials, components, and chassis, but they are not lost sales. Third quarter sales increase was driven by commercial and recreation segments. Commercial segment sales reflect improvement in market conditions and share gains within our specialty group. as well as increased sales in a municipal transit bus versus prior year. In the recreation segment, demand for all categories continue to be strong, with retail sales matching or exceeding wholesale shipments. Delivery inventories are still 60% to 70% below historic norms across all of our brands. And inbound orders remain robust. We have not yet experienced a notable restock of any of our RV categories, and most wholesale shipments are still selling through to retail bottlers. In fire and emergency, revenue declined year over year as well as sequentially. This segment was the most impacted by the current supply chain and labor constraints. Despite headwinds on the top line, our businesses have continued to improve operationally and delivered solid bottom line results. Third quarter adjusted EBDA was 41.6 million with an adjusted EBDA margin of 7%, increasing 330 basis points over last year. Sequentially, margins declined just 10 basis points on $50 million less revenue, demonstrating our improved operational performance. Over the past 15 months, our businesses have adapted under difficult conditions to deliver results. We continue to flex labor, adjust line rates, and production mix to accommodate available build and maximize profitability. Commercially, the teams have done an excellent job in mitigating today's inflationary environment, we have been able to achieve positive price cost and realize the price that is within our backlog. Turning to slide four, we have several accomplishments within the third quarter that I would like to highlight. First, our new order performance continues to gain momentum, and we closed the third quarter with our seventh consecutive record backlog. Each of our segments had strong order intake within the quarter, and we achieved a consolidated book-to-book ratio of 1.3 times our fiscal 2020 third quarter results. Our consolidated book to bill was 1.4 times, resulting in a total backlog of $2.7 billion. This positions us well for growth as we enter the fourth quarter and work our business planning for FY 2022. In Q1 of this fiscal year, we announced that we would be investing in developing our operational excellence capabilities. At our investor day in April, we provided an update on the early work that the team had accomplished. At that time, we reported that we had certified 300 bronze 150 green, and 35 black belt trainees, and we had a pipeline of 385 projects that were all aimed at delivering ongoing cost savings. In the five months since that, we now have 515 bronze, 155 green, and 84 black belt certifications, and our operations savings pipeline has nearly doubled to an active 738 total active projects. The team has fully integrated a suite of software tools, including Power BI and Lean DNA, that allow us to daily updates, and automated tracking reported to our OpEx results. One result of these operational excellence efforts is the improved profitability with our year-over-year increase in EBITDA and net income over the past four quarters. This improvement has increased the baseline for year-to-date cash generation. The third quarter marked another quarter of strong cash conversion and free cash flow. We've remained focused on networking capital efficiency with improved accounts receivable collection within the quarter. Our businesses are also working with their customers to expand our deposit program, which increased our advances by over $5 million compared to the second quarter. Improved cash from operations combined with our typically low level of capital requirements provided cash to reduce our net debt by $57.5 million. Over the past year, both the numerator and denominator of the net debt to EBITDA equation have improved significantly. We exited the quarter with 1.7 times leverage, well below our stated target of 2 to 2.5 times. This level of debt and earnings performance positions us with the capacity to pursue our strategic growth initiatives and return capital to our shareholders. Today, we announced that the Board of Directors has authorized a new $150 million share repurchase program. We are pleased that our financial performance has put us put the company in a position to follow last quarter's reinstatement of our annual dividend with a buyback authorization this quarter. It reflects an ongoing commitment to our capital allocation strategy of investing in our business, maintaining strong liquidity and appropriate leverage while returning cash to our shareholders. We strive for disciplined use of capital that maximizes the company's value and shareholder value. The authorization allows maximum flexibility to achieve our goals. Earlier I mentioned the strength of our current record $2.7 billion backlog. The backlog growth to date has resulted from solid year-over-year bookings from our improved commercial performance. Simplication of our brand and dealer network are delivering share gains, as well as the delayed throughput resulting from the external headwinds. We believe that there will be additional growth opportunities stemming from the combination of the recently passed Senate Bipartisan Infrastructure Bill and the recently passed House $3.5 trillion proposal. budget resolution. These two bills contain an additional $5 billion for electric vehicles and buses, $30 billion for modernizing public transportation, and $80 billion to upgrade the power grid and install EV charging infrastructure. The final version of these two bills is still yet to be determined, but when passed, we expect they will provide additional funding to municipalities to improve their municipal transportation and first responder assets. Our commercial teams have been working to identify and streamline the process of stimulus dollars reaching our customers. We view both the infrastructure bill and the buzzer resolution as providing incremental opportunity to the level of demand we are experiencing today. We have had a focused effort over the past year to advance the electrification of our platforms, with recent product announcements demonstrating our progress. Last week, we had a milestone announcement from both our fire group and our school bus business. First, we announced the fire group will introduce its first fully electric North American style fire apparatus across all the rev brands. Developed with partner Emergency One Group, the maker of the world's first EV fire truck, this new electric fire truck will deliver the longest electric pumping duration in the industry. It enables departments to drive and pump on electric power only, a key differentiator in the industry. Its range extender diesel engine is used for backup when pumping beyond three or four hours on the hydrant, or for extended operation in a blackout or natural disaster. It is built for strength, durability, and specifically for the fire service location. We announced that we are taking pre-orders through our dealers, and it will be available for delivery in 2022. Adding to our ambulance partnership, we expanded our relationship with Lightning E-Motors to include our Type A school bus business, Collins Bus, Under this multi-year agreement, we expect to deliver more than 100 all-electric buses across the U.S. and Canada over the next several years. The buses will support both level 2 AC charging and level 3 DC fast charging with integrated vehicle-to-grid capabilities. Other features will include a modern digital dash display, hill hold functionality for safety, advanced telemetrics and analytics, and a mobile app for drivers and fleet managers. The first orders for this all-electric Type A bus utilizing Lightning's EV technology are already in production with delivery to dealers and school districts expected this fall. Finally, our capacity business displayed its hydrogen fuel hybrid electric terminal truck at this year's Advanced Clean Transportation Conference in Long Beach, California. Two of these trucks are currently in operation at the Port of Long Beach and have been made available for ride and test drive. The trucks maximize uptime by providing hydrogen power backup when the electric battery requires recharging. This hybrid technology is designed for operation in intermodal port and warehousing or distribution applications. We are pleased to say that this product has received excellent feedback and recognition at the Clean Transportation Conference. It's an exciting time to be at REV when electrification, especially vehicle fleet, is just beginning in most of our markets while accelerating in others. There is a significant opportunity to be market leaders in this space and outpace our competition. We will continue to work our strategy of co-development and partnerships with technology leaders who will put us in a position to win. Today, we shared a few examples, but we expect additional news surrounding EV platforms to be forthcoming. I will now turn it over to Mark for details of our third quarter financial performance. Mark.

Thanks, Rod, and good morning, everyone. Before I begin, I'd like to recognize our team for the solid performance during a quarter with such uncertainty. Entering our fiscal third quarter, industry research forecast that we are approaching a trough of semiconductor shortages. Yet within the third quarter and entering our fiscal fourth quarter, shortages have increased and forecasts of global vehicle production continue to decline. In addition, our component suppliers continue to have challenges meeting demand as they deal with their own external headwinds. Exasperating the situation, cases of the Delta variant and quarantine workforces began to rise rapidly within our fiscal third quarter. These are external forces that we cannot control, but our teams were able to manage them effectively in the third quarter. As Rod mentioned, our top line revenue impact from these headwinds was roughly $65 million in the quarter, yet we maintained a decremental margin of 6% in operations. We expect the challenges we experienced exiting the third quarter to remain throughout our fiscal fourth quarter. We will continue to adjust operations in response to material labor availability to optimize our decremental performance. Now please turn to page five of the slide deck as I move to review of our segment level performance. Fire and emergency third quarter segment sales were 270 million, a decrease of 12% compared to the prior year. The decrease in net sales was primarily the result of fewer shipments of fire apparatus in ambulance units versus the prior year, partially offset by price realization of trucks that were in backlog. As you have likely heard through industry data, media, and earning reports, key suppliers have needed to place their customers on allocation or have chosen not to restart production at certain facilities as they manage their own supply disruptions. This has resulted in limited availability of chassis, axles, and other components critical for completions and starts. Exiting quarter, we had over 100 vehicles that did not have all of the parts required to be completed. As a result, these units remained in WIPP rather than being delivered and revenued. In addition to supply chain disruptions, labor availability was challenging in the quarter, particularly in our two largest F&E facilities in Florida due to the escalation of COVID variants. In order to maintain some measure of consistent flow through the plants, we have been proactive in limiting or altering our production schedules. For example, a lack of van-based chassis supply to our ambulance divisions resulted in a production shift to modular units that are higher content. Due to the increased content and complexity, these units require more time on the production line, which slows velocity and contributes to lower than expected sales within the quarter. F&E segment adjusted EBITDA was $15.8 million in the third quarter of 2021 compared to $12.9 million in the third quarter of 2020. Adjusted EBITDA margin of 5.8% improved 170 basis points compared to last year. The increase was primarily a result of price realization within our backlog, favorable mix of the high content ambient units mentioned earlier and lower operating costs. partially offset by supply chain disruption and labor constraints and efficiencies. The segment once again mitigated the impact of inflation in the third quarter, despite these being relatively long cycle businesses. Total F&E backlog was $1.2 billion, an increase of 18% year over year. The increase in backlog was a result of strong orders for fire apparatus and ambulance units over the past year. Fire orders increased 78% versus last year's quarter, while orders for ambulances increased 88%, setting another record for inbound ambulance unit orders. The quarter also marked the seventh consecutive record of ambulance group backlog, which has continued to grow since the onset of the pandemic in the second quarter of 2020. We expect the remainder of the fiscal year for the F&E segment will continue to be impacted by supply chain and labor market disruptions. We have worked closely with our OEM partners to communicate our demand needs and secure the chassis needed to fulfill our fourth quarter production plan within the ambulance group. As Rod mentioned, Hurricane Ida has impacted our Ferrara Fire Plant in Louisiana. There is limited damage to the facility. Our production has not resumed as of today, although we expect they could return as early as this week. We are working with our local supply base in Louisiana to determine what damage they have experienced and the impact of future component supply. As we ramp the facility back up, it may also be challenging for on-site vehicle inspections and deliveries. This is due to a lack of hotel rooms being occupied with contractors visiting to assist recovery efforts. Considering these impacts, current chassis supply and line rate adjustments, we expect segment performance to be in line with the third quarter run rate. Turning to slide six, commercial segment sales of $111 million was an increase of 21% compared to the prior year period. The increase was primarily related to increased specialty group sales and increased sales of municipal transit buses, partially offset by lower sales of school buses. Momentum in our specialty businesses continued with year-over-year sales increases of 126% and 245% for terminal trucks and street sweepers, respectively. Municipal transit bus shipments returned to a more normalized level compared to last year's reduced deliveries, which have been adjusted to accommodate the request of a large municipal transit customer due to COVID-19. Commercial segment adjusted EBITDA of $9.7 million decreased 6% versus the prior year. The decrease in EBITDA was primarily a result of an unfavorable mix of school buses and municipal transit buses. Both bus types had less content, which resulted in less EBITDA within the quarter versus the prior year period. The specialties group has done an excellent job winning new contract awards and leveraged increased sales volume within the quarter. The business has been an early adopter of a number of OpEx initiatives and has improved manufacturing profitability by over 600 basis points compared to the prior year. However, the group's adjusted EBITDA margin is still trailing the segment's consolidated rate of 8.7%. Therefore, the third quarter segment mix of sales containing greater contribution from our specialty group was margin-pollutive. We believe specialty's continued efforts and deployment of the Rev Drive business system will position them to return to double-digit margins. Commercial segment backlog at the end of the third quarter was $312 million, which reflects strong orders for terminal trucks, street sweepers, and a return to normal ordering patterns for school buses. Specialty group backlog increased 618% year-over-year and achieved its second consecutive record level. Our capacity terminal truck business has seen demands in the warehouse and distribution segment and won two large national account orders, which led to market share gains. Street sweeper demand remains strong with our rental house customers expecting these trends to continue into 2022 given the prospect of a new infrastructure bill. Within the municipal transit markets, we have had greater quoting activity from airports due to increased passenger activity. Universities have been slowest to recover, and ordering was muted, but we expect this end market to improve as students return to campus in the fall. The transit industry has been the quickest to adopt zero-emission buses, and within the quarter, we partnered with the Stark Area Regional Transit Authority to showcase our hydrogen fuel cell bus and tours of California and Canada. This Borrow a Bus program was created to raise awareness about innovative technologies and marked the first time the bus was displayed and operated in Canada, whose government has pledged to help purchase 5,000 zero-emission buses over the next five years. Our update to consolidate revenue guidance reflects our expectation that the specialty and municipal transit business performance will be similar to third quarter. However, our Collins school bus business suspended production during the month of August due to lack of chassis supply. We have updated our fourth quarter production planning to align with our OEM partners' updated delivery schedule. With this information, the top line impact due to the school bus production shutdown is expected to be in the range of $25 to $30 million versus the third quarter commercial segment revenue run rate. As I mentioned earlier, our businesses have limited the impact of lost revenue, and we expect a 15% decremental EBITDA margin. Turning to slide seven, recreation segment sales of $213 million were up 16% versus last year's quarter. Increased sales versus prior year were primarily a result of increased unit shipments of Class B, Class C, and total products, plus lower discounts and allowances across all our segment categories. Partially offsetting the increase was lower sales of Class A units related to supply chain and labor shortages, which was a headwind throughout the quarter. The industry remains challenged with material shortages of furniture, awnings, generators, and other small ticket items need to complete chip units. In some instances, our relatively small scale has been an advantage, and we've been able to find alternative sources for product. But limited availability of guests, chassis for Class A mortar homes resulting in a greater mix of diesel and overall lower line rates for that business. Recreation segment adjusted EBITDA was $24.1 million, up $12 million versus the prior year. Adjusted EBITDA margin 11.3% is a record for the segment. The increase in EBITDA was primarily the result of stronger price realization related to price increase and lower discount, volume leverage, and lower operating expenses partially offset by material inflation and increased freight surcharges. Even with the line rate challenges presented by labor and chassis shortages, our Class A business margins were nearly 600 basis points greater than the prior year. The business is making good progress against our stated goal of raising its peak to trough margin profile to levels that meet or beat industry peers. and lowering its unit break-even point. Our Class B and C businesses continue to perform above industry averages with market share gains in their respective categories and mid-teen EBITDA margins. Segment backlog of nearly $1.2 billion increased 250% versus the prior year and 23% sequentially. It is the fifth consecutive quarterly record and a result of continued strong order intake across all of our RV categories. End marketing conditions remain strong with retail sales exceeding wholesale shipments and dealer inventories that remain down an average of 60% to 70% compared to historical levels. Introduction of the 2023 model year was successfully launched across our motorized brands. We are looking forward to the wide releases at the upcoming retail show in Hershey and dealer open house in Elkhart later this month. Industry demand remains elevated and we believe we are positioned for growth above market with continued share gains, entry into new markets, and portfolio alignment to faster-growing categories. Turning to slide eight, net debt as of July 31 was $240.8 million, including $9.2 million of cash on hand versus $330 million net debt at the end of fiscal 2020. At quarter end, the company maintained ample liquidity with approximately $277 million available under the ABL revolving credit facility. We believe our leverage ratio combined with this liquidity and strong cash generation positions us well to opportunistically buy back shares and deploy capital in a value-accretive manner. We declared a quarterly cash dividend of $0.05 a share payable October 15th to shareholders' record on September 30th, And Rod discussed the announced share repurchase authorization of $150 million. Trade working capital on July 31st, 2021 was $405.5 million compared to $427 million at the end of fiscal 2020. Year-to-date net cash provided by operating activities was $100.6 million compared to $25 million in prior year period. Improvement in year-to-date cash from operating activities was primarily related to higher net income and trade working capital management, including a decrease in accounts receivable and inventory, partially offset by decreased payables. We have spent $13.9 million on capital expenditures through the third quarter and expect to spend $8 to $10 million more in the fourth quarter. This results in year-to-date free cash flow conversion of 147% and the midpoint of our updated guidance at 121%. Turning to slide 9, today we are updating full-year fiscal 2021 guidance to reflect the challenges that have impacted our top line. We now expect fourth quarter sales to be in line with the third quarter run rate, reflecting the growing impact of supply chain and labor constraints. On Monday, there were reports that third quarter light vehicle production will be worse than second quarter at up to 3.8 million vehicles. In addition, productivity declines related to COVID variants have increased, which was not anticipated when we provided guidance in June. As a result, we have lowered our full-year revenue guidance by $150 million at the midpoint to a range of $2.3 to $2.45 billion. This is approximately 4% growth year-over-year compared to the prior midpoint 11%. We have lowered the range of adjusted EBITDA guidance to $140 to $150 million from $145 to $160 million, a reduction of $7.5 million at the midpoint. We are narrowing net income guidance to a range of $54 to $64 million from $52 to $68 million previously. We also tightened the adjusted net income range to $74 to $83 million from $73 to $88 million. and free cash flow is now expected to be between 90 and 100 million, an increase of 19 million at the midpoint. With that, I'll turn it back to Rod for closing comments.

Thanks, Mark. We discussed today that there remain many challenges in the operating environment that we are managing with the resurgence of COVID and the lingering labor and supply chain impacts related to this. Yet we are also operating where in-market demand for vehicles is very strong, providing record backlog and pending fiscal stimulus that can enable and accelerate demand and the adoption of new technologies for us to capitalize on. While the pandemic has not left us, we do see that people have begun to return to schools, universities, and airports and are traveling more frequently. Demand for recreational vehicles has not relented, and the market surveys suggest that new interests and demographics have entered the lifestyle. While shortages have limited our line rates and top line, we have managed costs effectively and maintained positive price costs year to date. I am pleased with the work that our team has done, in advancing the RevDrive business system. This has been fundamental to our ability to improve results under these difficult conditions. We have much work to do, but we are excited to exit the quarter with a strong financial position that provides flexibility to pursue our strategic growth initiatives as well as return cash to our shareholders. In closing, I would like to once again thank our dedicated employees for their continued efforts in working through these challenging times and continuing to provide our customers with innovative high-quality products that truly make a difference in people's lives. Thank you for joining today's call, and operator will now take open questions. Thank you.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the queue. You may press star 2 if you would like to remove your line from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Mig Dobre with Baird.

Please proceed. Thank you, and good morning, everyone. I guess I'm just sort of looking to clarify and make sure that I heard this right. When you're contemplating the fourth quarter sales, did you mention that you expected fourth quarter sales to be – pretty close to what you've done in the third quarter? Because obviously, I mean, the range that you provided in your guidance is extremely wide. That's why I'm looking to kind of clarify this.

Yeah, that's correct, Meg. Obviously, we'll have some in line on the F&E side and maybe a little uptick in recreation, but the impact that we're having because of Collins, the $25 to $30 million with that plant being shut down, will more or less normalize the normal $20 to $30 million uptick we've seen historically from quarter to quarter.

Okay, okay, that makes sense. And then, you know, in fire and emergency, I guess, you know, I'm trying to get a better sense here for how you're kind of thinking about the run rate for this business as we start to contemplate fiscal 22 here. There's a lot of backlog that you have in a business. At what point in time do you think you're going to be able to have sort of better conversion here. What you have in the backlog right now, is that all slated for, you know, fourth quarter and fiscal 22 deliveries, or is a portion of this backlog anticipated to stretch out into fiscal 23? And then related to this, from a profitability standpoint, how is this backlog priced? You know, are you in a position where you can offset these incremental headwinds, or should we be extrapolating the fourth quarter as we think about fiscal 22?

I guess maybe, you know, obviously we're not going to comment on 22. I would say, though, in Q3 we demonstrated that we're able to offset, so we even had orders that were pre-fiscal the inflationary period and the work that we've talked previously about that our purchasing group is doing to drive savings to offset inflation. And then we have come out with price increases and specifically in F&E with price increase and then on the ambulance side with surcharges to offset those costs that have hit the market. So the sales that we see, we feel confident that we'll still have a positive price cost with how we price the product, but also the savings initiatives that Rob Vyslovsky and the procurement team has driven. So we don't see a margin degradation related to price cost in that business going forward.

And in terms of how deliveries are slated out of this backlog, is it all, you know, fiscal 22 business and some in 21, or is there a component that stretches into 23 at this point?

Right now it doesn't extend out to 23, so we're still in the 22 period. You know, obviously looking at how we reforecasted our Q4 in 21 and then X-ing into 22, you know, it's pretty close to a full year of backlog that we have in that business.

Okay. All right. Thanks for the call. I appreciate it. Sure.

From Courtney Iacovannis with Morgan Stanley, please proceed.

Hey, Courtney.

...starts that are being pushed to the right and... Sorry, we had a delay there, Courtney.

Could you restart the question? We got you mid-sentence.

Oh, just on your comment that some of the starts are being pushed to the right, just your, you know, conviction that those are not going to be canceled or moved to another provider, given some of these issues. And then also, if you can appreciate that you're not giving 2022 guidance at this point, but if you can help us think about segment level margin targets, given where you're going to fall. you know, this year, you know, obviously, you know, not necessarily going according to plan in the fourth quarter, but you can just help us think about, you know, targets for 2022 by segment for those margins.

Yeah, Courtney, this is Rod. I'll take the flow-through question and starts question. I think that, you know, the impacts we've had related to starts is really a velocity. It's completely something that the industry is experiencing. So, The starts that we missed are related to the line not moving at TAC and was not delivering the revenue, which was obviously something we talked about today. And it's related directly back to, you know, a process of being ready to build because you have the materials and having the slots open up as you move things through the line. So it's all related to velocity and the fact that the materials, as far as orders being canceled, we have not seen any of that or any suggestion of that. And honestly, with the fact that these aren't like rev production issues, moving your order somewhere else is not going to solve that. You're going to get in line somewhere else if you even want to think about that because the material shortages are an industry phenomenon, fortunately not a rev phenomenon problem. So I think that we're in a good spot there. I even made a specific comment that the delays, these are delays and not lost sales, and we feel strongly that that's the case. We're working hard to get these deliveries from our suppliers so we can get back to attack and deliver revenue, though. Mark, I don't know if you want to take the second question.

Yeah, and I would say, Courtney, on the margin profile, I would just say, you know, we're not going to provide guidance right now, but we, you know, as we look out into what we have provided for 2023, I think we're still on path or ahead of the investor day 2023 target that we had. provided and some of the challenge we have here is obviously is what kind of throughput we'll get entering into 2022 as we exit Q4 run rate here. So we're still open to that and obviously we're providing guidance in the December timeframe when we present our Q4 results. I really want to hold off given that fact that we have a lot of challenges and headwinds ahead of us here to manage through before we give a full year look for 2022 and what our expectations were. But Nothing has come off of what we had presented previously around our 2023 targets and the path to get there.

Okay, great. Thanks.

Sherry, this is Drew. We're, I think, a little bit delayed when we're passing off questions. I think Joel is in the queue. If he started, we haven't heard yet.

Oh, yeah, I didn't start yet, but I can hear you guys. Is it coming through okay?

Yeah, it goes pretty good. Okay.

Hey, I just wondered maybe more like, I don't know, structural question. Anything that you guys can do to solve this chassis issue? It seems like it's been something that's ongoing for a couple of years, and I know you have great relationships with your suppliers and all that kind of stuff. And I don't know, is there any way around this as a recurring issue?

Yeah, well, I don't know. The issue we've had is really something that kind of created from the pandemic and the semiconductors, and it's very well reported throughout the industry in terms of lead times on automotive and the cooling that some of the OEMs are having awaiting parts and finishes. And I can assure you there's not a stone unturned between us and the OEMs around trying to figure out how to solve this. We have daily and weekly calls. to understand production rates and delays and postponements. And you guys all see the announcements of delays and openings and shutdowns that they're going OEM by OEM right now. So we're caught in that cycle like everybody else that's buying from this, including if you go to any – it's a different bill, obviously. If you go to any dealer lot on a consumer side, you'll see a shortage of inventory as well. So it's a massive impact that we're working day-to-day with these OEMs to try to address – their bill to make sure that they're allocating to these critical areas of infrastructure that support our community. So we couldn't have more dialogue than we're having with them, but the quality of information relating to this being resolved is not something we're getting a real quick turnaround on. So I would say I think we've got some challenges here, like it's been reported in public, that there's issues in the industry around the ship shortage and the forward effects of that on demand.

Okay. Is there any way that you can give us a sense of how your transformation of the productivity and your operational efficiencies and all that kind of stuff is working? Or there's just too much noise right now with, you know, labor shortages and supply chain and all that to really have any sense of if all your changes are, like, what kind of impact all the changes you've been making are having on the operations?

It's hard to – this is Rod again. I mean, I It's a great question. It's hard to get the analytics to validate what it is because it's such an unstable environment right now. But we can look at the disciplines we've put in place around purchasing to drive down cost to offset inflation, the pricing disciplines we've put in place that's given us a positive price cost. We can look at what we've seen as significant upticks in absenteeism and issues related to productivity, like missing parts and having to put something in a parking lot and go do rework on it that we would not have done historically, and we're still seeing labor efficiency improvements, and you can see that through our margins. So it's hard when you've got such an unstable environment to kind of understand just how big the impact is, but the best way to look at it is despite all these inefficiencies and headwinds and the shortages of revenue we've had, we're still getting solid contribution margin. We're still getting good discipline and drop-throughs in our margin expansion, and it's real earnings because you see it converting to cash. So it's a positive operational story that we just wish we had a positive revenue story to tell with it as well. But we're battling that every day, and we're making good progress. So that's how I'd answer it. I don't know if you have any other questions on that.

No, it's good. Thank you very much. I appreciate it.

Our next question is from Jamie Cook with Credit Suisse. Please proceed.

Okay, I guess my question, you commented on sort of margin, your margin targets to 2023. You're still sort of comfortable with that. At your annals day, you also, you know, gave sort of revenue growth targets, I think, of one and a half to sort of 2% by 2023. Just wondering how you're thinking about that, given the backlog and then some of the stimulus and infrastructure bill that we could have and how that impacts margins. Could there be potential upside to margins because of that? Thank you.

Yeah, Jamie, I think as we build up 22, heading into 23, that's a discussion we're having with the backlog. And the challenge is here, as Rod mentioned, it's not the fact that we don't have backlog. We have to drive the throughput, right? So it's really a throughput discussion here in the component supply. So as we demonstrated, you know, in the second quarter when we had the inventory, we were able to, you know, drive throughput here. as we had discussed in our previous earnings call. So I think it comes down to what our visibility is to supply chain. Do we have chassis availability and our ability to accelerate that throughput? Because as Rob mentioned, I do think we have implemented several programs that have driven throughput improvements, but right now they're being offset by the amount of rework in the off-sequence building that we're doing. So I think from that perspective, you know, we'll be recasting as we look into 22 with the – The entering backlog, as someone previously said, will be very strong, so it's all around our throughput and our capabilities to have people and supply to execute against that. So I do think there's opportunity there to deliver on that, especially with the reduction that we've just announced here, exiting 21.

Okay. Thank you very much. Yep. Thank you.

We have reached the end of our question and answer session. I would like to turn the conference back over to Rod for closing comments.

Yeah, thank you. Again, I want to thank everybody for joining today. You know, obviously, you know, we probably talked it to death about the challenges that it's facing the broader industry and that we're dealing with. But I do think that the bright star is our customers continue to deliver orders to us. We're seeing great growth. We're seeing markets that are very receptive to the new offerings that we're bringing forward. And from a fundamentals basis, going back to the second-to-last question we got asked, you know, you look at the execution of the business and what all the headwinds are facing and the margin expansions and what we'll be able to accomplish in the last year, I'm pretty proud of what this team has done, and I'm confident in the direction that we're going. We just got to get some of these external challenges behind us, and that's what we're working hard with our supply base as you can imagine, but our focus is always on delivering its commitments and improving our performance, and I think we've got to begin to build a track record on that. The work's not finished, but we're very excited about continuing to drive improvement through the RevDrive business system we put in place and meeting the commitments we put in place. So, again, appreciate the call, and I look forward to talking to you guys in the one-on-one. Have a good day.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.