REV Group, Inc.

Greetings. Welcome to the REV Group's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during today's conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the conference over to Drew Conop, Vice President, Investor Relations. Drew, you may now begin.

All right. Good morning, and thanks for joining us. Earlier today we issued our first quarter fiscal 2024 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 a 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 conference call, if at all. All references on the call today to a quarter or a year are to our fiscal quarter or fiscal year, unless otherwise stated. Joining me on the call today is our 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. Shortly, I'll provide an overview of our consolidated first quarter performance, as well as detailed segment financials. Before I comment on the quarterly results, I would like to review the strategic initiatives, including capital allocation activities that have been recently executed. These actions were aimed at optimizing our portfolio products, creating a more focused operating structure, and unlocking shareholder value. As we have previously announced, REV Group will be exiting bus manufacturing through the recent sale of Collins Bus and the winding down of manufacturing operations at our El Dorado National California, or E&C, transit bus business. The sale of the Collins school bus business to Forest River closed on January 26th with an all-cash deal price of $308 million, inclusive of certain preliminary working capital adjustments. The wind-down of the operations of E&C is expected to be completed before the end of fiscal 2024. We expect to generate net cash proceeds of at least $250 million from the exit of the bus manufacturing businesses. Approximately $179 million of the immediate proceeds were used to return cash to shareholders through a $3 special cash dividend that was paid on Friday, February 16th. The remainder of the proceeds were used to participate in a secondary offering that closed on February 20th by purchasing $8 million of REV Group common shares at an average price of $15 and 76 cents for approximately $126 million, reducing the total amount of shares outstanding by 13% and our largest shareholders position from 46% ownership to approximately 18%. We believe these actions demonstrate our commitment to delivering shareholder value. Since 2020, we have returned over $400 million to shareholders in the form of dividends and share repurchases while paying down debt and strengthening the balance sheet. We remain focused on generating high levels of cash from operations and are committed to a strong balance sheet that allows flexibility to pursue new growth opportunities and optionality for future returns of cash to shareholders. Finally, beginning with today's earnings release, the fire and emergency businesses have been combined with the specialty group business that manufactures capacity terminal trucks and laymore street sweepers and a new segment named specialty vehicles. The segment's first quarter results also include Collins' operating performance through its investor date of January 26, and will include EMC financial results through the wind-down period. Specialty Vehicles is being led by Mike Vernig, the former REV Fire Group president. The recreation segment has been renamed Recreational Vehicles and remains under the leadership of Mike Lanciotti. Taken collectively, we believe these strategic actions create a more focused portfolio that provides opportunities for growth, consistent cash generation, and improved margin performance while maintaining a strong balance sheet. Turning to slide four, consolidated net sales of $586 million were approximately flat compared to the first quarter of the prior year. The year-over-year revenue result was primarily due to increased net sales, including price realization within the specialty vehicle segment, offset by lower net sales from the recreational vehicle segment. The increase in net sales in the specialty vehicle segment was related to increased unit shipments and price realization within the fire and ambulance businesses and increased bus manufacturing sales, partially offset by lower sales of terminal trucks. Lower net sales in the recreational vehicle segment were primarily a result of fewer shipments of Class A, Class B, and towable units, partially offset by higher shipments of Class B units. Consolidated adjusted EBITDA of $30.5 million increased $9.2 million, or 43%, from the prior year, with increased contribution from the specialty vehicle segment, partially offset by lower contribution from the recreational vehicle segment. The increased earnings in the specialty vehicle segment were primarily due to increased contributions from the fire and ambulance businesses. Lower earnings in the recreational vehicle segment were primarily related to lower contributions from the Class A, Class B, and total businesses, partially offset by increased contributions from the Class C business. Please turn to slide five. Specialty vehicles first quarter segment sales were $417 million, an increase of 17% compared to the prior year. The increase in net sales was primarily due to increased shipments of fire apparatus and ambulance units. higher sales from the bus manufacturing businesses, and price realization, partially offset by lower sales of terminal trucks. Unit shipments of fire apparatus increased 24%, and shipments of ambulance increased 23% versus the prior year period, reflecting continued momentum of the operational improvement initiatives put in place aimed at increasing throughput. Net sales of fire apparatus and ambulance increased 36 and 38% respectively in an improved product mix and the benefit of price realization as we deliver a greater number of newer units from our backlog with pricing put in place throughout 2022 and 2023. Within the quarter, certain fire businesses accelerated shipments of aged units that were trapped in backlog, improving the overall backlog mix and future price realization opportunities. Specialty vehicle segment adjusted EBITDA was $26.2 million in the first quarter of 2024, an increase of $21 million compared to the adjusted EBITDA of $5.3 million in the first quarter of 2023. The increase was primarily due to increased contributions from the fire, ambulance, and bus businesses, partially offset by lower earnings from the terminal trucks business. The increased fire group contribution was primarily related to higher unit volume improved efficiencies and price realization, resulting in increased profitability of 550 basis points for the first quarter of last year. This was aided by the strongest first quarter results of the Spartan businesses since its acquisition in 2020. In addition, the KME brand had its best quarterly performance in 2019. The increased ambulance groups contribution was primarily due to higher unit volume, improved efficiency, and price realization, resulting in 600 basis points of margin expansion versus the prior year. Ambulance delivered the highest first quarter profitability since 2017. Adjusted EVTA contributions from the legacy commercial segment businesses was a year-over-year net improvement of $3 million, which includes improved bus performance, partially offset by lower terminal truck volumes. Segment backlog of $3.9 billion increased $692 million or 22% versus prior year. The increase reflects strong orders for fire and ambulance units over the past year, as well as the benefits of pricing actions, partially offset by the removal of the Collins bus backlog, lower demand for terminal trucks, and a reduction in transit bus backlog. Excluding the impact of the sale of Collins, segment backlog increased $867 million for prior year. Within the first quarter, the combined emergency vehicle book-to-bill consisting of fire and ambulance orders was 1.3 times, and the book-to-book ratio, which compared first quarter 2024 orders to the same period last year was 1.5 times, demonstrating continued industry strength and demand for our products. We expect specialty vehicle segment revenue and earnings to benefit from the increased number of available working days in the second quarter compared to the first. For modeling purposes, note that future segment revenue and adjusted EBITDA do not include Collins Bus, which was previously disclosed at $150 million and $25 million respectively for the remainder of fiscal 2024. In the second quarter, we expect operating improvements from the remaining businesses to offset the loss of Collins revenue and earnings, resulting in the second quarter being approximately flat versus the first quarter. We expect continued momentum to build on the second quarter's performance With most single-digit revenue improvements sequentially in the third and fourth quarters, its higher contribution from the fire and emergency businesses offset declines from the wind-down of E&C. We expect sequential incremental margins in the range of 30-40% on increased revenues throughout the back half of the year. On slide six, recreational vehicle segment sales of $169 million decreased 56.6 million or 25% year-over-year as we navigate through a soft end market environment. Within the industry, dealer inventories remain high with limited floor planning availability and reduced lot traffic. Lower segment sales versus the prior year were primarily a result of fewer shipments of Class A, Class B, and total units, an unfavorable mix of motorized units and discounting, partially offset by increased shipments of Class C units and price realizations. The segment's unit shipments declined by 39% for the prior year, driven primarily by an 80% decline in total units. Within motorized categories, consumer preferences for lower-end gas units as compared to higher-end diesel products continued to weigh on segment revenue within the quarter. Recreation segment adjusted EBITDA of $11.6 million was a decrease of $12.7 million or 52% versus the prior year. The decrease in adjusted EBITDA was primarily a result of lower unit volume, unfavorable category mix, inflationary pressures, and discounting, partially offset by price realization and cost reduction actions in the Class A and total businesses. Segment backlog of $377 million at quarter end decreased $611 million or 62% versus the prior year. The decrease is primarily due to production against backlog, cancellations, and lower orders over the trailing 12 months. Within the quarter, the book-to-bill ratio for our most profitable Class B and Class C businesses was 1.2 times and 1.1 times respectively. However, this was offset by reduced demand for Class A and total units. With seven to eight months of unit backlog in the Class B and Class C category, we expect production increased from the seasonally low first quarter, resulting in increased revenues throughout the remainder of the year. The profitability of the combined Class B and C businesses is expected to remain in the low to mid double digits while we continue to flex costs on the Class A and total businesses, resulting in full year segment adjusted EBITDA margin in line with our original guidance of high single digits. Turning to slide seven. Trade working capital on July 31, 2024 was $363 million, an increase of $45 million compared to $318 million at the end of fiscal 2023. The increase was primarily a result of lower accounts payable and customer advances, partially offset by a decrease in accounts receivable and inventory. Cash used in operating activities was $69.7 million, which includes the payment of annual management incentive compensation within the quarter, Transaction expenses related to the Collins bus sale, as well as timing of certain tax payments. We spent $10.5 million on capital expenditures, including the purchase of a service center for our Class C RV business, which we expect will allow additional unit production and manufacturing facility that previously housed the service and aftermarket parts business. Next cash on the balance sheet as of January 31st was $87.9 million. prior to the special dividend payment on February 16th and repurchase of 8 million common shares at an average price of $15.76 on February 20th. We declared a regular quarterly cash dividend of $0.05 per share payable April 12th to shareholders of record on March 28th. At quarter's end, the company maintained ample liquidity for our strategic initiatives with approximately $534 million available under our ABL revolving credit facility. Turning to slide eight, we provide a 2024 fiscal full-year outlook, which builds upon the momentum experienced within the specialty vehicle segment. Today's update to top-line guidance is a range of $2.45 to $2.55 billion, which includes a $150 million adjustment for the column bus divestiture that I previously mentioned. We expect continued throughput gains and strong incremental performance within the fire and ambulance businesses to offset headwinds from cyclical end market softness within the recreational vehicle segment and terminal trucks business. At the midpoint of $2.5 billion revenue is expected to be approximately flat to last year after adjusting for the divested revenue from the college bus sale. Adjusted EBITDA guidance is $145 to $165 million, or $155 million at the midpoint, which includes a $25 million adjustment for the college bus divestiture. Given the solid performance of the first quarter, we now expect first half consolidated adjusted EBITDA to be approximately 40% of the full year guidance. Adjusted net income is expected to be in the range of $72 to $90 million, and net income in the range of $224 to $245 million. Adjusted free cash flow is expected to be in the range of $57 to $72 million, which excludes approximately $71 million of tax and transaction costs related to divestment activities that are within cash from operations and offset by gross cash proceeds included in the investing section of the statement of cash flow. Full year Capital expenditures remain in the range of $30 to $35 million, including growth investments in our businesses, as well as ERP upgrades in certain businesses. Expected interest expense of $26 to $28 million considers the typical seasonal use of cash in the first half of the year, as well as the impact of the Collins bus sale. EMC wind down in the previously announced returns of cash to shareholders in the form of special dividend and share repurchase. Thank you again for joining us on today's call. With that, operator, we'd now like to open the call up for questions.