REV Group, Inc.

Greetings. Welcome to Rev Group Inc. Fiscal Second Quarter 2024 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 any of which 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, Investor Relations. Thank you. You may begin.

Good morning, and thanks for joining us. Earlier today, we issued our second 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 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 today and other filings that 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 year or to our fiscal quarter or fiscal year unless otherwise stated. Joining me on the call today is our President and CEO, Mark Skanechny, as well as our CFO, A.D. Campbell. 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. Today I will provide an overview of the commercial, operating, and strategic highlights achieved within the quarter, then move to the quarter's financial performance. Before I begin, I am pleased to introduce Amy Campbell as CFO and welcome her to the REV team. As you know, this role remained unfilled for many months as we searched for the right person that had the appropriate mix of financial and operational experience to lead the finance organization as well as contribute to the advancement of the operating agenda within the business. Amy is an experienced and highly effective finance executive. She had a 23-year tenure with Caterpillar, which included several divisional CFO roles, vice president of investor relations, and chief audit officer. Prior to Rev's group, she served as CFO of ASC Engineering Solutions and CFO for Brand Safeways Commercial Industrial Division. I am thrilled she's joining our leadership team and look forward to the positive impact that she will bring to Rev. Now turning to the other highlights within the quarter, We are pleased to have delivered another strong quarter of operating results and remain focused on enacting initiatives that drive throughput and efficiency improvements across our manufacturing sites. I would like to thank all the dedicated employees that have worked to build operational momentum and improve its financial performance. Within the second quarter, this was exemplified by the fire and emergency teams. With strong backlogs that extend up to two and a half years, these businesses have the visibility and opportunity to drive significant shareholder value. Throughput initiatives put in place over the past 18 months are taking hold with increased line rates and improved labor efficiencies, resulting in higher unit shipments and price realization as we work through our backlogs. The results of these efforts was a five and a half year quarterly high in adjusted EBITDA margin in the legacy fire and emergency business. margins improved 320 basis points versus the prior quarter and 480 basis points versus the prior year, demonstrating that each unit shipped today is worth more than a unit shipped previously. We exited the quarter with a robust $4.3 billion backlog. We continue to experience strong order intake for our fire apparatus and ambulance with a combined quarterly unit book-to-bill ratio of 1.1 times slightly ahead of our full year expectation of a one-to-one ratio. Price actions and a higher mix of fire apparatus resulted in a revenue book-to-bill ratio of 1.6 times within the quarter. We attribute the sustained level of demand to the quality of our products, municipal budgets backed by increased tax receipts and federal stimulus, ongoing replacement demand, and emergency infrastructure build-out related to population growth and urban sprawl. To meet the unprecedented demand and maximize return on the backlog, we remain focused on increasing production, advancing the development of centers of excellence, optimizing our manufacturing footprint, and product simplification. An example of our success is the integration of the Spartan businesses that were acquired in 2020. Over the past four years, the Spartan chassis plant has doubled its production to meet sister plants and other OEM demands. We have also expanded the Spartan S180 program, which provides a fire apparatus that can be delivered in as little as 180 days. Today we offer this program across several brands, providing more customers and dealers the opportunity to purchase a semi-custom truck delivered within short lead time. This is a competitive advantage that is supporting increased order intake for the Rev Fire brands. Within the recreational vehicle segment, Overall industry demand for motorized RVs, which accounts for more than 90% of our RV segment, remains depressed. Based on recent industry data, new motorized wholesale unit shipments calendar year-to-date through April were down 22% year-over-year. We believe that higher interest rates and negative equity trade-in values for units purchased during COVID continue to impact consumer buying decisions. However, industry retail sales of agent inventory and the destocking that has occurred over the past year indicates that the health of dealer inventories is improving heading into Model Year 25 introductions. Specific to the products and channels in which we participate, year-to-date Model Year 25 orders have been softer than we anticipated as dealers have been hesitant to place new orders given increased floor plan costs and market uncertainties. Despite the industry backdrop and reduced 25-mile-a-year orders, we exited quarter with a healthy five- and six-month backlog at current production rates with our Class B and C businesses, while our Class A and formal businesses remain at post-COVID low levels of backlog. As we enter the back half of our fiscal year, we remain confident in our ability to deliver on our existing Class B and C backlogs and maintain flexibility to manage costs across all product categories and response to markets dynamics. We continue to simplify the operational footprint of our businesses, focusing resources on core businesses. In support of this strategy, within a quarter, we exited our direct fire and ambulance sales and customer service operation in Florida with the sale of the Fire Regional Technical Center, or RTC, in Ocala. We selected an experienced partner that has represented Rev Firebrand for over a decade as the purchaser of the business and believe they will continue to capitalize on the significant opportunity presented within the Florida market. With the sale of the RTC, we have no remaining company owned dealerships within our fire business. In addition, the wind down of our E&C municipal transit bus business remains on track. I would like to acknowledge the efforts of the team at E&C as well as our suppliers and channel partners who have remained committed to completed units within our backlog on schedule. We expect to wind down substantially all manufacturing operations to be completed in the fourth fiscal quarter. Within the quarter, we returned a total of $308.5 million to shareholders in the form of share repurchases and regular and special dividends. As a reminder, the Collins Bus transaction closed at the end of the first quarter, providing cash proceeds of $308 million. a portion of which was used to pay down our ABL credit facility to zero at the end of the first quarter. In the second quarter, we returned essentially all the proceeds to shareholders. Approximately $179 million was used to pay a $3 special dividend in addition to our regularly quarterly dividend. The remainder of the proceeds from the sale of Collins was used to participate in a secondary offering of our then-largest shareholder, AIP, by purchasing $8 million of Rev Group common shares for approximately $126 million. The secondary offering reduced the shareholders' ownership interest to approximately 19%. In March, that shareholder proceeded with a subsequent underwritten secondary offering of 7.4 million shares, reducing its ownership stake to approximately 3.4%, well below the 15% threshold that allowed it to designate board members. On March 15th, the IEP designated directors stepped down from our board. We have been preparing for the potential exit of these board members over the past several quarters. While the timing was uncertain to us, we felt it was important to identify and recruit new board candidates who could add value to the company and help guide us into the next chapter of our growth. In August 2023, we welcomed Maureen O'Connell to our board, replacing a long-term AIP designated director. Then in January of this year, anticipation of the retirement of a board member at an annual shareholder meeting in February, Kathleen Steele was appointed to the board. Finally, last week, Cindy Augustine was appointed to the board. She currently serves as the Global Chief Talent Officer at McCann World Group and has extensive experience as an HR and operating executive at leading public and private companies. Rev will benefit from the wide-ranging and diverse set of experiences provided by our refreshed board, and we look forward to the contributions the board will offer as we continue to execute our strategic agenda. Turning to slide four, consolidated net sales of $617 million decreased $64 million compared to the second quarter last year. In the prior year, reported net sales included $47 million attributed to Collins Bus, which was divested in the first quarter this year. Adjusting for the sales impact to Collins, net sales decreased $17 million, or 2.7%, due to lower sales in the recreational vehicle segment that was in line with expectations, and fewer sales of terminal trucks, partially offset by increased sales in the fire and emergency businesses. As I mentioned earlier, recreational vehicle segment sales reflected soft industry demand, as well as increased discounting and a mix of lower priced units within certain businesses. Terminal truck sales were 59% lower than previous year, which was consistent with the expectation in the 2024 guidance we provided in December. Increased fire and emergency sales benefit from year-over-year unit and revenue increase at all ambulance and fire apparatus manufacturing locations. Consolidated adjusted EBITDA of $37.5 million decreased $4.4 million compared to the second quarter of last year. Included in the prior year reported adjusted EBITDA was $10.2 million attributed to Collins Bus, resulting in an increase of $5.8 million or 18.3% when addressing for this divestiture. The increase was driven by the fire, emergency, and municipal transit bus businesses, partially offset by lower earnings in the terminal trucks business and recreational vehicle segment. Fire and emergency results benefited from higher volumes, the operational improvements mentioned earlier, and increased price realization as we shipped more units that benefited from pricing actions enacted in 22 and 23. We remain encouraged by the efforts of the teams to offset costs through operational improvements, allowing businesses to maximize pricing opportunity within backlog. Please turn to slide five, and I'll turn the call over to Amy for detailed segment financials.