REV Group, Inc.

Welcome to the REV grouping, first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Drew Conner, VP, Investor Relations. Thank you. You may begin.

Good morning, and thanks for joining us. Earlier today, we issued our first quarter fiscal 2023 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 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 risk 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 conference call, if at all. All references on this call to a quarter or a year are our fiscal quarter or fiscal year, unless otherwise noted. Joining me on the call today is our CFO and Interim President and CEO, Mark Skanechny. Please turn now to slide three, and I'll turn the call over to Mark.

Thank you, Drew, and good morning to everyone joining us on today's call. This morning, I will provide an overview of our consolidated first quarter performance, as well as detailed segment financials. Before I comment on the quarterly results, I'd like to thank the board for the opportunity to serve in the role of interns, president, and CEO. Over the past several weeks, I have visited many of our locations with significant time dedicated to businesses within the fire and emergency segment. While I've done this over the past years in my role as CFO, the latest visits in my new role provide additional insight and understanding of our current production capabilities, business strengths, and the resources needed in individual operations. As we have noted in the past, our operational capabilities vary across our landscape of businesses. During my visits, I was encouraged by the local team's demonstration of lean tools and disciplines, regardless of where they are in the maturity curve and the overall commitment to a culture of lean. I have also spent time with my staff coordinating and communicating our path forward. I'd like to reiterate externally what I've told my team internally. The strategic agenda set forth in our 2021 investor day remains intact. We are committed to putting in place the systems and processes we feel will streamline operations, reduce costs, and improve efficiency, resulting in increased unit throughput across the enterprise. There has been a great deal of progress over the past several years, both at the division and individual business unit level. I will share a few examples and results of these efforts within the quarter. During our investor day, we gave examples of how product platforming can reduce quoting and manufacturing complexity and improve efficiencies by converging the design of certain products across various brands within the FIRE Group. The FIRE Group has remained committed to a platforming agenda with continued focus on common designs despite the dynamic supply chain environment we have been operating in. While we have not had time to fully converge designs and leverage our scale, the teams have worked through multi-sourcing and engineering process strategies to develop solutions for recovery. Within the quarter, it made advances on cabin body fabrication that are expected to reduce bottlenecks and assembly constraints. It also expects pump module manufacturing and design changes to provide increased efficiencies as we exit the fiscal year. Engineering teams across the enterprise continue to supplement their efficiency projects with external resources. These engagements have allowed several businesses to advance their drawing and design capabilities, as well as assist with the completion of bill of material documentation, both critical steps for increased throughput. Proper drawings and associated bills of material not only provide the foundation for detailed work instructions, they allow a more efficient use of inventory and will assist REV network in capital reduction efforts. Repeating this process across REV will provide each of our businesses an opportunity for increased line rates, material savings, labor efficiency gains, and improved profitability. As I mentioned earlier, I feel a real sense of commitment to operational excellence and the lean culture which we outlined at our investor day two years ago. At the time, we had just started the initial waves of bronze, green, and black belt training for Lean Six Sigma. We had trained 500 of our 7,000 employees and developed a pipeline of 385 projects. Today, we expect to complete the fiscal year with over half of our employees Lean certified and have grown the number of projects to over 1,500. While the projects represent various degrees of cost savings, all are representative of the bottoms-up efforts of our employees to improve daily performance. I'm proud of all the efforts and the momentum this program has demonstrated. As we moved through the first quarter, we began to experience an improved operating environment that benefited from a loosening supply chain, improved OEM chassis fill rates, and the actions of our sourcing team. I would characterize the overall component supply as improving with shortages being more infrequent than the widespread nature we experienced over the previous 18 months. In regards to chassis, during the quarter, we experienced increased receipts, which enabled several businesses within the F&E and commercial segments to plan production into the third quarter, some with increased line rate assumptions. At quarter end, we maintained a chassis balance of $103 million, a $40 million increase from the same time in the prior year. The current chassis balance is more in line with pre-COVID levels. In regards to multi-sourcing, to date we have completed over 25% of our initial targeted projects, which includes many of the key components that limited throughput over the past 18 months. However, wiring harnesses continue to challenge our transit bus business within the corridor due to a variety of complex harnesses used in its manufacturing process. Our sourcing team continues its efforts to multi-source harness supply and will pursue qualification and onboarding of new suppliers for all targeted components throughout the remainder of the year. Within the first quarter, we announced the return of the long-time ambulance manufacturing team of Mark Van Arnhem and Randy Hansen. Mark will serve as president of Rev Ambulance Group, and Randy will return as chief operating officer of the group and vice president and general manager of our AV brands. Mark has a long and successful executive history of Rev Group and within the ambulance community. Over the past 35 years, he has served as President, CEO of AEV, and Vice President Sales and Marketing of Wheel Coach. Randy returned to AEV where he served for 30 years as the General Manager and the brand became the number one ambulance brand in the U.S. I am very pleased that Mark and Randy have rejoined the team and look forward to the impact that they will have as we begin to return production to more historic levels. And finally, we continue to build our portfolio of zero-emission vehicles with the launch of the new Capacity brand hydrogen fuel cell terminal truck. This truck is expected to operate for at least one full shift before refueling, which can be done in as little as 15 minutes, the same time it takes a traditional diesel truck. It received accolades at the Technology and Maintenance Council annual meeting last week, and we expect significant interest as ports, intermodal customers, distributors, and retailers seek to reduce their carbon footprint. We are enjoying a robust bidding environment to other EV product lines, including type A school buses, municipal transit buses, and fully electric fire trucks. Within the corridor, our next generation battery electric and fuel cell transit bus, EVO, was added to a primary state contract, which will allow our EMC business to sell directly to other transit agencies nationwide without the need for bidding process. And as you can see on the slide, we are proud that the all electric vector was selected as one of the four rev fire pumpers that will be part of the firefighting fleet used at Daytona International Speedway in 2023. Now turning to our first quarter results on slide four, Consolidated net sales of $584 million increased $47 million versus the first quarter of last year. The increase was driven by higher sales within the commercial and recreation segments, partially offset by a decrease in sales in fire and emergency segments. Commercial segment sales benefited from an improved supply chain, which enabled final completion of units previously trapped in WIPs. As a result, unit completions, shipments, and segment revenue reached the highest level since the second quarter of fiscal 2020. Recreation segment sales were also higher than expected as we received an OEM fix for a previously announced luxury van recall. Receiving this software update two months ahead of expectations allowed greater than anticipated shipments of Class B and Class E units within a quarter. Partially offsetting the increase in commercial and recreation segment sales was a decline in F&E segment sales. Fewer shipments of fire apparatus were partially offset by increased shipments of higher content ambulance units. Consolidated adjusted EBITDA of $21.3 million increased $3 million versus the prior year. Increased contribution from the recreation segment was partially offset by lower contributions from the F&E and commercial segments. Fire recreation segment EBITDA was primarily the result of favorable category mix, efficiencies in certain businesses, and pricing actions. Lower contribution from the F&E segment was primarily the result of underperformance of our fire group, specifically our holding facility, partially offset by improved profitability in the ambulance group. Decreased EBITDA within the commercial segment was related to a reduced mix of municipal transit buses, as we shipped lower-priced units compared to the completion of multi-year contracts for higher-content buses in the prior year quarter. Please turn to page 5 of the slide deck as I move to a review of our first-quarter segment results. Fire and emergency first-quarter segment sales were $229 million, a decrease of 3% compared to the prior year. The decrease in net sales was primarily due to fewer shipments of fire apparatus and ambulance units partially offset by price realization and improved mix of higher content animals. Within FIRE Group, completions of shipments continue to be impacted by lower than expected line rates at our holding facility as we continue the integration of KME and Ferrara branded production. Partially offsetting lower shipments from this facility was an increase of shipments from our two largest plants. Sequential improvements in completion rates throughout the quarter resulted in fire group shipments reaching a 15-month high in the month of January. Within the ambulance group, increased fill rates and receipts of OEM chassis over the past two quarters improved visibility and production planning. Greater availability of heavy-duty chassis provided an opportunity to produce higher content units, which carry a higher selling price and margin. F&E segment adjusted EBITDA was a loss of $2 million in the first quarter of 2023 compared to adjusted EBITDA of $1.8 million in the first quarter of 2022. The decrease was primarily a result of lower volume, labor inefficiencies, and increased inflationary pressure partially offset by price realization. As I mentioned, production at the Holden facility has not supported shipment of units at the rate we anticipated. Increased labor hours per completion and fewer units produced across its fixed cost base have weighed on group profitability. We made structural and process changes at Holden as we exited Q1 and expect these changes to provide sequential margin improvement as we progress through the second quarter. In addition, as multi-sourcing efforts continue to take hold, we also expect unit sales and productivity to improve at our other fire plants within the second quarter. Ambulance group profitability improved 160 basis points sequentially and 100 basis points versus the prior year. This was primarily a result of improved labor utilization related to an improved supply chain, price realization, and a greater mix of higher content units. With the current stabilization of chassis allocation and fill rates, certain ambulance businesses have started to bring on additional labor and are planning to increase production rates. Our ability to achieve or exceed these rates rely on effective training and retention of new hires, which we have been addressing with localized programs. The level of chassis inventory within the ambulance group acting the quarter supports these production plans to the fiscal third quarter. Total F&E backlog was $2.7 billion, an increase of 62% year over year. The increase in backlog was a result of strong unit orders and pricing actions over the past 12 months, as well as lower than expected production related to supply chain constraints and labor efficiency experienced over the past year. We expect the F&E segment to return a positive EBITDA in the second quarter as supply chain pressures ease with sequential margin improvement throughout the fiscal year as we realize manufacturing efficiencies and more favorable pricing. Turning to slide six. Commercial segment sales of $129 million was an increase of 32% compared to the prior year. The increase was primarily related to higher sales of school buses, terminal trucks, and street sweepers, and price realizations, partially offset by fewer shipments of municipal transit buses. Dual sourcing and improved material availability aided the completion of school buses and terminal trucks that had been trapped in inventory. Within the municipal transit business, we continue to experience shortages of wiring harnesses, which limited unit shipments. Exiting the corridor, the transit business was waiting to receive over 2,300 past due harnesses needed to point units. This was an improvement from over 3,100 past due as we exited December, and the results of our sourcing team's efforts to reduce single and full source exposures across the enterprise. Commercial segment adjusted EBITDA of $7.3 million decreased 6% versus the prior year. The decrease in EBITDA was primarily the result of lower shipments and an unfavorable mix of municipal transit buses, partially offset by higher shipments and improved profitability within school bus and terminal truck businesses. An unfavorable mix of municipal transit buses continued to be the result of low margin units sold during the highly competitive bidding cycle during COVID. We continue to believe that improved receipts of key components will allow greater shipments of these legacy price units and that we will begin to realize more favorable pricing within the second half. Improved profitability for school buses and terminal trucks is a result of higher shipments and efficiencies gained from greater material availability and price realization, partially offset by inflationary pressures. Chassis allocation and fill rate for school buses has improved production planning Current chassis supply secures plant production through the third quarter. Commercial segment backlog was $498 million at the end of the first quarter, an increase of 8% versus the prior year. Increased backlog is primarily a result of pricing actions and increased orders for municipal transit buses, partially offset by increased throughput in the first quarter and a normalization in orders for terminal trucks. For the remainder of the year, we expect commercial segment revenue to return to a run rate similar to the second half of fiscal 2022. As we complete lower-priced municipal transit buses and begin shipping higher-content units, including battery electric and hydrogen fuel cell buses, we expect segment margins to recover from the current mid-single-digit range to high single digits exiting the year. Turning to slide seven, Recreation segment sales of $226 million were up 12 percent versus last year's quarter. Increased sales versus prior year were primarily a result of increased shipments of Class A and Class B units and pricing actions, partially offsetting the increase with lower sales of Class B units related to the van chassis recall noted earlier and fewer towable units related to supply chain constraints. Approximately $40 million of revenue related to the recall fix was realized in the first quarter versus our expectation that it would be delayed until the second quarter. As a result, we expect second quarter revenues to be approximately in line with the first quarter as we complete the shipment of recalled units and continue normal production activities across the businesses. Recreation segment adjusted EBITDA of $24.3 million was an increase of 42% versus the prior year. The increase in EBITDA was primarily a result of price realization volume leverage, and favorable category mix, partially offset by material inflation and labor inefficiencies related to rework of units in the total business. Segment backlog of $988 million decreased 23 percent versus the prior year. The decrease is primarily due to continued production against backlog and lower orders in certain categories. Class B and Class C orders have normalized pre-COVID levels and backlogs for these businesses remain at approximately 10 to 11 months of production. We did receive model year 2023 cancellations of Class A and total units. Our backlog has remained over one year for these businesses. We believe that a portion of these cancellations will be replaced with upcoming model year orders if dealers evaluate inventory levels during the spring selling season. We continue to expect the recreation segment backlog to decline throughout the year as we maintain normal production activities, and to exit the fiscal year at a more normalized level of four- to six-month production. The outlook for the recreation segment remains the same as what we described in December. Although there was a revenue and EBITDA shift between the first and second quarter, we continue to expect approximately 45 percent of full-year sales and earnings to occur the first half of the year. Turning to slide eight, Cash used in operating activity totaled $6.9 million. Tradeward and capital on January 31st was $352 million, an increase of $4.3 million compared to $348 million at the end of fiscal 22. The increase was primarily a result of increased inventories, partially offset by an increase in counts payable and customer advances. The increased inventory balance includes $20 million of additional chassis, which returned to levels more in line with the pre-COVID period, as I noted earlier. We spent $3.8 million on capital expenditures within the first quarter, resulting in a cash outflow of $10.7 million. Net debt as of January 31st was $227 million, including $23 million cash on hand. We declared a quarterly cash given of $0.05 per share, payable April 14th to shareholders of record on March 31st. At quarter end, the company maintained ample liquidity with approximately $286 million available under the ABL revolving credit facility, and our net debt to EBITDA leverage ratio was 2.1 times at the low end of our stated target range of 2 to 2.5 times. Turning to slide 9, today we are reaffirming our full-year outlook for net sales, adjusted EBITDA, adjusted net income, and free cash flow. We are updating net income to reflect legal matters and restructuring-related charges that occurred in the first quarter. As a result, the range of net income was lowered to $13 million to $32 million. The outlook for revenue remains in the range of $2.3 to $2.5 billion. Growth of 3% at the midpoint is expected primarily from the F&E and commercial segments, while the recreation segment is expected to remain flat to down low single digits versus the prior year. Adjusted EBITDA remains in the range of $110 to $130 million, with approximately 40% occurring in the first half of fiscal 2023 and 60% in the second half. Guidance for adjusted net income remains in the range of $42 to $60 million, and we continue to expect cash conversion to be 90% or greater, with free cash flow in the range of $39 to $55 million. Finally, we remain committed to our roadmap for shareholder value creation and balanced use of capital. This begins with a strong balance sheet, organic investments in our businesses, a sustainable dividend policy, and targeted share repurchases. As we continue to evaluate our portfolio of businesses, there may be opportunities for strategic M&A, including token acquisitions or divestitures. However, our immediate priority is to drive execution with the current portfolio increase our completion and shipment rates, and complete legacy price units within the backlog so that we begin to realize the new pricing tiers enacted over the past year. Thank you again for joining us on today's call. And with that, operator, we would now like to open the call up for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from the line of Mick Dobrik. Hey, good morning, guys.

It's Joe Grabowski on for MIG this morning. Hey, Joe. Hey, Joe. Hey, good morning. So, Mark, you gave a really good summary at the beginning of the call about the current initiatives that are underway, but you've been an interim CEO for about 30 days. Obviously, you're not new to the company, but I just wonder sort of at a high level how your vision for REV might differ from your predecessor.

Yeah, I think, and as we've talked before, and as I said in my prepared remarks, the vision really is intact from what we laid out in the investor day. So, you know, from my perspective, it's really, which I sprinkled out throughout the comments here, it's really about local execution and making sure that, you know, we can ramp in the, like in our ambulance facilities, but also get after the whip units in order to get the most throughput here in the short term. So, As you saw in the commercial group in Q1, as we got the loosening supply chain, we were able to accelerate the completions and get through the majority of our backlog that was caught and whipped. So that's really been my focus, and I've spent the last three weeks here in the 30 days going to different facilities, and really that's been my focus, is how do we make sure that we take advantage of the loosening supply chain, and how are we going to get the units in WIP, but also more importantly, maintain the starts that we need when we look out into the future. So it's really a balancing act of maintaining our starts for the future, but also making sure we get through these WIP units that we've highlighted over the last few quarters.

And maybe kind of keeping along that line, it sounds like, well, I mean, supply chain and labor constraints are improving in ambulance, but maybe not quite there in fire. It sounds like those issues are going to improve through the year. But maybe talk about the issues in fire, maybe some internal related, some external related issues. and kind of how those challenges kind of improve as we progress through the year.

Yeah, so as I noted in the prepared remarks, you know, we look at fire, we've said over the last few quarters here, that's probably the business unit, given the custom nature of that product that had the most units in WIP. So, you know, and we haven't been able to get out as many units as we expected, given the supply chain challenges, which I think we're, more acute than those when you're talking about sole source custom products. So, you know, first off, we've got to get the components applied. And then second, to your point, is how do we most effectively get that out? You know, when I talk about Holden, I'm very encouraged. My most recent visit, the step change that has happened there with all the changes we've made, not only replacing the leadership, the general manager that was there with someone that's full-time, but also a lot of work they've done in regards to material flow. You know, just an example, they've increased their ability to bay build certain units by 33% within a month of this time frame. So we've got a lot of momentum in that holding facility just with a 30-day change of the leadership team there. So I feel very good there. And then our other business is It really comes down to taking advantage of the supply chain and getting those units in and produced.

Got it. Okay, thanks. Thanks for that. And then my final question, I'm sure as these issues get rectified that the profitability will follow. But, you know, F&E has been kind of roughly break-even for the past five quarters. You know, how do you kind of diagnose what the issues have been there from a profitability standpoint and what the outlook is for the ramp in EBITDA margin through the year and, you know, maybe even beyond this year?

Yeah, I still think we're into, you know, what we had said before, you know, probably our exit rate will be lower than what we originally expected given our Q1 results and then some of the impact of these units – going into Q2, like we said, we will be profitable in Q2 and the ramp that we're seeing in the ambulance obviously will allow us to get to the pricing tiers quicker and it'll be more of a drag from fire just getting through the whip unit. So as those units are older, we obviously have more labor on those units and some inefficiencies. So that's really important here, getting those units out. And we look at the consolidated F&E, you know, it hasn't significantly changed from an exit rate, but the overall profile will be, like you said, it'll trend more gradually throughout the year.

got it okay thanks for taking my questions good luck thank you thank you our next question is from the line of jimmy cook with credit swiss please go ahead hi um good morning i guess two questions uh first just you know the comments you made around the portfolio you know looking at acquisitions and divestitures can you just talk to the criteria that you would use to evaluate which businesses should be core, not core, and or, you know, where you'd be interested on the acquisition side. And then my second question, could you just, on the price cost, you know, how positive do we expect price cost to be? And can you talk to sort of the pricing trends by segment? Thank you.

Yeah, I think overall, you know, I guess, Jamie, from an acquisition perspective, we said, you know, when you look at our businesses, when we're in the fire and ambulance space, you're probably talking about smaller tuck-ins, which is consistent with what we've said previously. And then within our commercial group, when you talk about the three really different businesses there, we're not talking about adding a fourth leg. So if you were to add something in that space, it'd be more tangential. But again, as I've talk to my remarks. My real focus right here in the short term is to address the, you know, our throughput and what's in our internal four walls here. So I haven't really put, other than my old CFO role, you know, we're obviously always looking for opportunities and we have certain criteria that we would meet, but again, it's not something that's top of mind right now given, you know, the improvement profile we have here in the short term.

And then it was price cost?

And then price Price cost overall, you know, we will see some on the F&E side. There will be a mix, you know, as we get through the units. And we are price cost positive in all of our businesses. You know, there is pressure within the recreation side. As you know, we took advantage of pricing last year, and we were ahead of some of the inflation curves. So we're seeing, you know, with discounting, we're still able to absorb, you know, some of the discounts will still be price cost positive there and still be margin accretive to that unit. to the overall business. And then on the commercial side, we remain price-cost positive. A lot of those have more heavy industrial... So we've been pretty proactive to make sure as we get surcharges from our supply base that we're passing those on through to the customer. So I think from an overall perspective, you'd expect us to be more price-cost positive, as we've talked about, as we exit the year. In those three businesses, in fire, emergency, and commercial, and then recreation, we're still looking at how that market's going to play out with any necessary discounting as we move forward.

Okay, thank you.

Thank you.

Thank you. Reminder to all participants, you may press star 1 to ask a question. I repeat, you may press star 1 to ask a question. Our next question is from the line of Jerry Ravitch with Goldman Sachs. Please go ahead.

Yes, hi. Good morning, everyone. Hi, and Mark, congratulations on the strong quarter here within your first 30 days. I just want to ask, you know, the really strong start to the year versus initial expectations, you know, driven by better supply chain performance. Obviously, it's super early in the year, but, you know, the guidance is on change. Would you characterize that as upside risk? To the margin outlook, if the supply chain performance continues along this track, or are there any factors maybe within F&E that are holding you back from saying that we're probably tracking towards the high end of the range at this point?

Yeah, I don't think I want to. I want to see another quarter play out here, Jerry, and, you know, we'll commit to tightening of that range and the Q2 like we normally do traditionally. Obviously, last year was anomaly, but the previous year, so we'll tighten the range. I do, as I go off these facilities, want to get a better sense on what the margin profile and actually execution is going to be on starts and and completions more importantly. So, you know, we really do have nice momentum and we were able to see that in commercial on the conversion that they did in the quarter. So I'm encouraged by that as well as the recreation, you know, continue to maintain a strong conversion in the products that continue to sell the Bs and Cs. So, you know, I really want to wait just another quarter until I get my hands around the whole portfolio here and where we're going to end up.

Fair enough. And then, you know, within the RV line of business, how do you think about the baseline level of demand? Because, you know, part of the reason, you know, we're going to have orders in the, you know, $100 million per quarter range, as you outlined, is because just the backlog is so long. What do you see as the sell-through rate or, you know, what do you see as the underlying level of demand as you're thinking about, you know, potentially what that business might look like in 24.

Yeah, like I said, I think it's been consistent what we've, and I think the strategy we've talked about back in the head of our skis here and managing to a trough, especially in our Class A business, so we've been pretty successful. There's no doubt, as other people have said too, that we're seeing, you know, some, you drop in the demand on the Class A, but that really hadn't been participating in the upturn, and our total exposure is obviously a lot lower than what you're seeing from our competitors. So we continue to be on allocation in our high-end Class C business. So, you know, that's another we still see strong demand in that market. So I would expect it's really a mix between the categories. But ultimately, we thought, you know, these are pretty frothy backlogs, and we were looking to get to a more normalized level by the end of the year. We still think that'll happen here in that, like I said in my quoted remarks. So again, demand, we'll see in the selling season here. I've been able to participate in a couple of the dealer shows, and I think traffic has generally been in line or up, but, you know, deal conversions have been more of a challenge. But we're still seeing the strength, as you see in our numbers here, in the higher margin products that we sell.

Got it. And lastly, can I ask, in fire and emergency, you know, with some changes in the team, can you just talk about any philosophical changes from a manufacturing footprint standpoint? Can you expand on that? on that point?

Yeah, I don't think from a manufacturing footprint standpoint, you know, we did announce the, you know, we do have another COE, Center of Excellence, for our TDA product, which is up in Ephrata, which was a press release that we took out. We took the opportunity to do that. So now we have a chassis COE, you know, in Charlotte, which we talked about previously, that came with SPART, and then Ephrata as well with our TDA. So when you look at our total portfolio, and our operating footprint, it's really within those individual factories now. How do we make sure that we can optimize what we have to do? And it's really in the short term, it's a balancing of how are we going to set up the lines to get through some of these WIP units and not sacrifice the starts for the units we need to continue to build, right? So it's how do you look at it from a short term with the eye of how do you increase throughput from a long-term perspective as well? So that's really... a lot of my visits are go and see how we can optimize in the current environment, not hurting our starts and our ability to generate the revenue we need in the future.

I appreciate the discussion. Thank you, Mark. Yep, thanks, Jerry.

Thank you. Our next question is from the line of John Joyner with BMO Capital Markets. Please go ahead.

Good morning. Thank you for taking my question. So within S&E, I mean, I guess it's kind of somewhat of a multi-part question, but have you seen any cancellations? And then kind of given the large and growing backlog there, I mean, I guess what are the risks that some of these bookings, you know, if you haven't seen them, then what are the risks that some of these bookings maybe start to get canceled? And then has the inability to get units out the door – Has that affected, you know, any areas of your market share or overall kind of customer satisfaction?

Yeah, no, John, it really hasn't. When you look at our, you know, so I would characterize, and we're talking about fire here, but on the fire side, you know, we do have large backlogs, but the quoting activity, And bidding activity is pretty normalized here. And when you look at when we're going into bid, we're more or less on top of, you know, the other big players in the market here. So we're not losing anything on lead times. Everyone has these extended lead times based on the current market. From a cancellation perspective, we just haven't experienced that in the past. We're dealing with, as you know, a majority of these are municipalities that have a budgetary cycle. And as we quoted in my prepared remarks, we still continue to see high levels of deposits. So municipalities have the money. They want their units, and that's really my focus. I didn't mention it in my prepared remarks, but I did have an opportunity to meet with several of our dealers within the quarter, too, not just our – facilities and you know everyone's just asking when they're going to get their units and that's really our focus here's how quickly we can get the units out and so I don't think it's impacting our market share and our bit of the bidding pretty consistent what we've seen in the past and so there's definitely nothing that would say that we're not within the market from a lead time perspective on what we're seeing okay thank you and then and maybe this is a I don't know an understatement but

There's been certainly a lot of transitions of group presidents and a lot of leadership over the past few years. So I guess how do you view the current bench, and are there any other openings that still need to get filled?

No, not currently. That's, again, you know, as we've talked about before, we have changed several of the general managers, and that's one of my focus here as I'm visiting these plants is meeting with those general managers. I think we have a very strong bench when we talk about local execution there. You know, bringing back Mark and Randy, I think that was, you know, very well received from the channel with Mark's experience. He's been in the industry even after leaving the first time. So, you know, we've gotten great remarks there from a channel perspective, and then with Randy's operational excellence and driving the CEO role. So I think from that perspective, I feel real good about what I've seen so far in my business. And obviously, I was a CFO previously, so I've been part of the interview process. So I think the bench is very strong at the local level where the execution has to happen.

Right. Okay. Thank you. Maybe just on that kind of similar topic, if I may, After implementing furloughs last year, particularly in the ambulance division, I mean, I guess where do your staffing levels stand today? I mean, are you adequately, you know, at levels that you need? Are you, you know, kind of still carrying more labor than you would need?

No, so that is, you know, from an ambulance – and that was more tied to the ambulance where we had furloughs because we didn't have chassis last year. We are in the ramp-up phase, and we've been very – Very encouraged by the recent hiring event as we start to ramp up. Remember we had said in the previous quarter we weren't going to add more labor back until we had better visibility of chassis, and we now have that with most of the plants having visibility through Q3 with the current chassis on hand. So they've been hiring at the end of the Q1, and we've been getting some very qualified candidates. So we are seeing a loosening of the labor market a little bit here. So I would say that based on our current ramp rates, we have the people necessary to deliver on the units we have. We do have built-in ramps in the back, and we're continuing to work on programs to bring on more labor effectively here.

Okay, excellent. Thank you for your time. Yes, thank you.

Thank you. Before we take the next question, a reminder to all participants that you may press star one to ask a question. Ladies and gentlemen, you may press star one to ask a question. Our next question is from the line of Mike Shibiski. This is DA Davidson. Please go ahead.

Good morning. This is David Johnson. I'm from Mike. You have strong orders. Hey there, how's it going? You mentioned strong orders of school buses and terminal trucks in commercial, but there wasn't much commentary on sweepers. I was wondering if you can comment on what you're seeing in that product line.

Yeah, the sweepers, they're in line with, I guess they call it normalized run rate. So it's nothing intentional of leaving them out. I think the intent would have been to say the specialty businesses, which include both the terminal trucks and the street sweepers.

Got it. Maybe the last question, I want to turn back to recreation. With interest rates being what they are, do you get the sense that recreation dealers are unwilling to restock even when the inventory levels are low? Do you need to see lower rates before they really stock up?

I think, and I've had these questions previously, the dealers are going to put on their lot to what's sell, and we've been very – What we've talked about before is when you look at some of the products we have, if your units are being accepted by the market, they're going to put on units that actually turn. And we look at some of our products, they have quicker turn rates than what we're seeing in a competition. So that's some of the things that we're selling the dealers on, and they see it. So they're asking for our products. Like I talked about, you know, our Class C business is still on allocations with some of our dealers. So they're asking for more of that product because it is turning. And our inventory level is still – are lower than pre-COVID, so we still have not gotten a normalized inventory level yet. So there will be an inflection point at some point here, but we haven't reached it yet.

Got it. That's it for me. I'll hop back in the queue. All right. Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Mark Skoniski for closing comments.

Yes, thank you, Operator. Once again, I'd like to thank everyone on the call for joining us this morning. I'd also like to thank our employees for their hard work in this quarter. So far, I am pleased with the momentum demonstrated at many of the businesses as we exited the first quarter, and I look forward to resuming my site visits over the next several weeks. As I said in the past, I believe there's a great deal of value to be created at REV by improving the processes we control within the four walls of our operations. And the pricing and multi-sourcing actions enacted over the past year and a half position us for even greater opportunity. So we will continue to focus on specific needs and solutions of individual businesses to accelerate the starts and completions in order to reduce our backlogs. I look forward to updating you on our progress when we report second quarter results in June. Thank you again.

Thank you for your participation.