REV Group Inc (REVG) 2017 Q3 法說會逐字稿

Greetings, and welcome to REV Group Third Quarter 2017 Earnings.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Sandy Bugbee.

Good morning, and thanks for joining us.

Last night, we published our third quarter 2017 results.

A copy of the release is available on our website at investors.revgroup.com.

Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of non-GAAP to GAAP financial measures that we will use during this call and is also available on our website.

Please refer now to Slide 2 of that presentation.

Our remarks and answers will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed or implied by such forward-looking statements.

These risks include, among others, matters that we have described in our Form 8-K filed with the SEC last night and other filings 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 to our fiscal quarter or fiscal year unless otherwise stated.

Joining me on the call today are our President and CEO, Tim Sullivan; as well as our CFO, Dean Nolden.

I will now turn the call over to Tim.

Thank you, Sandy, and thanks to everyone on the call for your interest in REV Group.

We are pleased to report another strong quarter of EBITDA growth and expanding profit margins, and we remain well on our way to achieving our initial goal at IPO to double EBITDA and hit 10% EBITDA margins on a consolidated basis by 2019.

We are proud of our third quarter results, and we believe they validate the diversification and operating leverage in our model as we continue to achieve our group targets despite a slower quarter in our Commercial segment.

Dean will provide more detail regarding our segment results shortly, but I wanted to start with some key business updates from the quarter.

First, we announced our collaboration with Ford Motor Company to provide our dealers with a complete catalog of genuine Ford chassis parts.

This agreement enables our dealers to offer a high level of quality end-user parts and support for the more than 150,000 REV Ford chassis on the road today.

Secondly, we announced the acquisition of AutoAbility, which closed on September 6. It is a best-in-class mobility van converter that specializes in the manufacture of rear-entry wheelchair-accessible vehicles.

We are pleased to welcome AutoAbility to the REV mobility group.

The combination of the AutoAbility and our ElDorado Mobility brands now enables us to address both the consumer and commercial mobility markets with a complete product offering of mobility vehicles.

Thirdly, we announced that REV's subsidiary, ElDorado National California, was officially awarded the L.A. County Transit Bus Contract expected to be worth over $400 million.

The contract is to supply 295 40-foot CNG-powered transit buses and includes a provision for an additional 305 buses for a total of 600 buses over a 5-year period.

We received the purchase order for the first group of 295 buses on Friday, September 1.

Also, as we communicated last quarter, a key part of achieving the 10% EBITDA target is the introduction of new products.

As you will see on Slide 5, we introduced 3 new products to the marketplace during the third quarter.

Our Recreation segment introduced 2 new products this quarter.

First, we introduced the first American Coach Class B RV called the American Patriot.

This is a great addition to our American Coach product line, and we will expand not only the American Coach distribution channel for this product, but we will also help in expanding our Midwest automotive distribution channel.

Many American Coach dealers want a complete line of Class B vans.

Secondly, we introduced the Fleetwood Class C Pulse right at the end of the third quarter.

Most dealers will get their first glimpse of this product at the Elkhart Open House in a couple of weeks, but those that have seen the early prototypes have expressed a strong desire for the product.

This RV is made on the popular Mercedes-Benz chassis and has proven to be a strong and growing market segment.

Our third new product is the Collins Low-Floor Bus.

This is a great innovation to the standard accessible bus entry.

The ramp provides a much safer, faster and easy way to board accessible passengers.

Lastly, our third quarter in the Fire & Emergency and Commercial segments was slightly impacted by a Ford transit chassis recall, which halted shipment of any product in the Ford transit chassis until a fix was in place.

The parts and fix to recall has been received, and the Ford's sanction repair is being implemented.

We will ship the impacted the vehicles in the fourth quarter.

Now before I turn the call over to Dean, I'd like to close by reaffirming our full year fiscal 2017 financial guidance, which is detailed on Page 6. To refresh, we expect full year consolidated net sales to be within the range of $2.3 billion to $2.4 billion.

Secondly, our expectation for full year adjusted EBITDA will be in the range of $157 million to $162 million.

As in previous quarters, our guidance includes our acquisitions year-to-date but does not contemplate future M&A activity.

Now let me turn the call over to Dean to further discuss our segment financials.

Thanks, Tim, and good morning.

As you saw from our release last night and on Page 7 of our presentation, we reported 13% growth in net sales and 36% growth in adjusted EBITDA in the third quarter 2017 versus same period last year.

As a result, we drove 130 basis point expansion in adjusted EBITDA margin to 7.6% despite lower Commercial sales.

This also represents 90 basis points of sequential margin expansion as we are realizing the benefit of our integration of KME and continue to drive gains across all of our businesses from our procurement and production optimization efforts, among other items.

We generated 36% growth in year-over-year adjusted net income and reported adjusted earnings per share of $0.33 for the third quarter, up from $0.31 per share in the third quarter last year, with even -- even with 14 million higher current quarter average shares outstanding.

As Tim mentioned, we are very pleased with our growth in profits and expect similar gains from increased operating leverage in the fourth quarter and year ahead.

Please refer to the tables in the Appendix of our financial results slide deck and our earnings release for detailed reconciliations of net income to adjusted net income and adjusted EBITDA and reconciliation of as-reported sales and EBITDA to their related organic amount for the quarter and year-to-date.

Now please turn to Slide 8. Our F&E segment grew sales in the quarter by 20%, which was driven partly by the impact of the Ferrara acquisition in April of this year but also from strong growth in the segment's organic businesses in the quarter.

F&E sales growth in the quarter, excluding Ferrara, was 6% driven by a higher mix of high-content fire apparatus and an increase in ambulance unit sales.

For F&E, we are pleased to report that our EBITDA margin for the segment grew 240 basis points year-over-year, reflecting operational improvements in our F&E businesses, including KME, and a shipment of KME units in the quarter that were ordered after KME's acquisition last year.

We are now largely through the legacy KME backlog and are seeing strong year-over-year accretion in our segment profitability and expect that improvement to continue for the remainder of the year.

In aggregate, the F&E backlog declined 9% versus last quarter, reflecting the normal impact of strong seasonal shipments and customer order patterns.

The end markets for fire and ambulance vehicles remained strong, and backlogs are healthy.

Lastly, for F&E, the third quarter was our first full quarter with Ferrara, which we acquired in April.

Our integration process is underway, but we did not realize significant synergies in this quarter.

This business is performing as expected, and we look forward to improving profitability from its preacquisition levels over the next year.

On Slide 9, you'll see that our Commercial segment revenues declined nearly 16% in the quarter as we continue to focus on driving profitability through our various Commercial and operational initiatives.

The year-over-year sales impact this quarter was consistent with prior quarters, and they are primarily related to our shuttle bus business, but also, this quarter included the impact from our mobility van business that is ramping up after completion of its production relocation earlier in the year.

The end markets of all of our Commercial businesses remained strong, and we are very encouraged by our sequential quarterly increase in Commercial segment backlog.

Our backlog in this segment grew by 6% in the quarter, which does not include the award of the L.A. County Transit Bus Contract, of which the 295 buses Tim referred to will hit our backlog in the fourth quarter.

In addition, we remain encouraged by the results we are seeing from the rollout of our Platinum Dealer program.

Due to these and other initiatives, we expect the Commercial segment to return to year-over-year growth next quarter.

Lastly, our EBITDA margins for Commercial declined 100 basis points year-over-year to 8.3%, again, impacted by the lower revenues and the mix of other vehicle sales in this segment during the quarter.

Turning to Slide 10.

Our Recreation segment again drove impressive sales gains that produced total growth of 40% in the quarter.

On an organic basis, adjusting for the acquisitions of Renegade in December and Midwest in mid-April, revenue growth was still a robust over 9%.

We are pleased with the growth in both the Class A and Class C product categories driven by the end markets and our market share gains.

As Class A growth is less than the other motorized RV categories, with the market growth, coupled with our market share improvements, were especially beneficial given those are higher-margin coaches.

Additionally, the acquisitions of Renegade and Midwest make REV Group best positioned at the right time to take advantage of robust end market growth for Class B and Class C RVs.

For Renegade and Midwest, we also continue to realize cost savings on major components and chassis and are benefiting from Commercial synergies that are driving incremental revenues for the combined group.

These acquisitions also serve to improve the overall profitability of our Recreation segment given the inherently greater EBITDA margins they enjoy.

Lastly, but most importantly, we are very pleased with the progress in our Recreation segment profitability as adjusted EBITDA doubled over last year and margins grew nearly 200 basis points to 6.5%.

As you know, Recreation profitability improvement is a key aspect of our overall REV growth strategy, and we expect to continue this trend as we enter the fourth quarter and next year.

As among other items, we will continue to realize the financial benefits of the operational improvements we have made to lower costs in the segment.

I'd like to provide a few other REV Group detailed modeling items related to our full year fiscal 2017 financial expectation.

We expect depreciation and amortization of $34 million to $35 million for the full year, approximately 65 million to 66 million weighted average diluted shares outstanding, capital expenditures of approximately $50 million and full year interest expense of between $19 million and $20 million.

Thank you for your time, and now I will turn the call back to the operator for questions and answers.

(Operator Instructions) Our first question is from Mig Dobre with Robert W. Baird.

Maybe my first question on Recreation.

Very good margin there, much better than what we expected, and I believe better than what you're thinking initially at the time of the IPO.

So I guess, a little more detail on what went right versus your initial plan to be able to deliver this.

And the sustainability of margin is where looking at the fourth quarter and into next year and how you're thinking about the margin potential of this business and the path to reaching 10%.

Yes.

Well, it's several things, Mig.

As you can imagine, I think the biggest thing was the opening of the 3 new plants last year.

By opening them up, we've been able to create a lot more efficiencies in our flow.

We were really very, very psyched in the 1 large plant that we had to cater and the 3 new smaller plants have allowed us to move various products into those plants.

So for instance, we moved our high-end As into their own plant.

We moved our low-end As into their own plant and our Cs into their own plant.

And by specializing and moving them into better locations, we may be able to get the efficiencies.

The other thing that really kicked in nicely in the first 3 quarters this year, and it continues to ramp up, is our ability to source better.

The sourcing really is starting to pay some nice dividends in the RV business.

And last but not the least, it's no secret that we had some less-than-stellar products being shipped 2 years ago.

Those products typically have 12-month warranties on them, and those have now moved out from retail lots.

They're all effectively gone, been retailed, and the warranty periods are starting to expire.

So those 3 phenomena really created the basis for the improvement in margin.

I appreciate that.

And in terms of -- it sounds to me like a lot of what you've described are items that are sustainable in nature.

As we're looking towards fiscal '18, it seems like you're running ahead of schedule in delivering margin.

How should we be, at least high level, thinking about margin for next year?

Well, it's a process.

Those initiatives will continue to improve, we believe, our profitability performance in RV.

I think we also are positioned ourselves really well for new product introductions.

That's been slow.

We didn't really introduce the number of new products we wanted to in fiscal '16.

We will have 11 new products introduced in open house in 2 weeks, which is a record number for us.

Those have been really fully designed in a way to be more efficiently build and more profitable as well.

So yes, it's a process.

But all the building blocks are in place, and we just now have to continue to execute.

All right.

Then my follow-up, just trying to understand your guidance, your top line guidance for the are a little bit better.

If I'm looking at the low end of the guidance, the $2.3 billion, unless there's something in acquisitions that perhaps I'm not getting or not modeling right, that really implies a pretty significant ramp in organic growth in the fourth quarter.

So I'm trying to understand how we should be thinking about the sources of this step-up in organic in the fourth quarter.

Is it all driven by Commercial?

Any kind of catch-up there?

Or are there other segments we should be thinking here?

Yes, you're correct.

If you look at the acquisitions so far this year, obviously, Renegade was fairly small.

Midwest was small.

Ferrara was not small, but it really is going to be ramping that up as well.

The organic growth is really coming from all segments, with the exception of probably the Conway bus that's been fairly static.

Backlogs are really -- have built nicely in the shuttle bus segment.

But that's going to be I think relatively flat in the fourth quarter.

Everything else still is contributing.

Everything else is up, which is obviously a nice situation organically.

Our next question is from Stephen Volkmann with Jefferies.

Just a detailed item first.

The Ford chassis that you got sort of pushed into the fourth quarter, just order of magnitude on revenue there?

Yes.

I mean, you have kind of round numbers.

It wasn't huge because what we did do, Steve, is we shifted some things around.

For instance, on the ambulance side, the Ford transit chassis are tied to the ambulances.

We shifted emphasis to our modular designs, our type 1s and 3s.

Kind of the same thing on bus.

We did have some other chassis that we're able to try to move around.

But all in all, it wasn't huge.

It's kind of rule of thumb about $10 million on revenue that needed to be made up.

Some of it was; some of it wasn't.

And all that will flow out now in the fourth quarter.

Okay.

Great.

And is there any margin impact from that?

I mean, do you have to pay people over time?

Are they all sort of building the wrong stuff in the wrong order or anything like that, that could be sort of a short-term hit?

No, nothing that we can measure.

I mean, obviously, if you're moving production slots around, there are some hidden costs in that but nothing that we really measured that was meaningful in the quarter.

Okay.

Great.

And then just on RVs, Tim, where do you think we are in the various cycles?

I mean, there's been, I guess, a little concern around the As maybe that things might be slowing.

I'm just curious on your perspective based on your order books and conversations and so forth.

What does the cycle look like from here?

Yes, that's a great question.

I think we're viewing As in a little bit different light than maybe others because they have been softer, as you know.

Total bills Bs and Cs very, very strong, and that's why I was -- we're emphasizing a lot more in those areas to make sure we're grabbing the opportunities that are available to us in the marketplace.

As have been quite fairly quiet, and our belief was that people are going to gravitate up towards the As.

We still think that's going to be the case, but we're kind of viewing it a little bit differently, too.

We plan to take share in the As.

If you go back 2, 3 years, we were almost a 0 nonplayer in the A market.

And I think with a lot of the newer products that we're bringing to the marketplace now with the strength of our brands, even though the As may not rebound as quickly as far as an overall market as maybe have been anticipated, we plan to get more than our normal share.

So time will tell.

I guess, I don't really know.

If history repeats itself, people are going to move into the As.

It's been a little slow to happen.

We're going to hedge that situation by making sure we got better product into the A market to make sure that we're going to get a bigger piece of what is out there to be had.

Our next question is from Mike Baudendistel with Stifel.

Just wanted to ask you on this announcement with the Ford relationship where you can sell the Ford chassis parts to your dealers.

To your knowledge, do your competitors have a similar arrangement with Ford?

Or is it relatively unique to you?

It's unprecedented, quite frankly.

It took us 18 months to get it done.

This has never been done in the automobile industry before.

We're very, very pleased by the fact that Ford was able to allow us to do this.

Very unique, very special and very, very pleased.

I can't say how pleased I am that Ford understood what we're trying to do, which was, quite frankly, emphasizing and getting more genuine Ford parts into the channels that we're not seeing the flow of genuine Ford spare parts.

Sounds great.

Also wanted to ask you, I mean, how would you describe the RV inventory at the dealers currently?

Very low.

That's the good news.

There's -- this is the time of year where the summer buying season is coming to an end, and the dealers have run their retail lots pretty low.

In 2 weeks, I think you understand the cycles.

We have 2 really big buying cycles in the industry: open house, which is in 2 weeks, the week of September 18, I guess, it is, in Elkhart; and then the model year change, which is in April.

Those are the 2 really large buying seasons.

So retail lots are really quite empty.

The dealers will be coming in with their checkbooks in 2 weeks, and that's when the backlogs start to rebuild.

Good.

And also, just wanted to ask you, do you have any preliminary thoughts on how the hurricanes could impact your various businesses?

I mean, either selling more ambulances or inventory that's damaged in places?

Is there any preliminary thoughts there?

I know it's early.

It's early.

Actually, we've seen a little bit of activity, obviously, with the Houston situation across some of our product lines.

We have not been affected.

The good news is, I guess, from our standpoint, we have 2 service facilities in Houston and a manufacturing facility in Holden, Louisiana.

We -- none of those were affected in any meaningful way.

I don't expect anything really big to come out of that unless there's products that are damaged.

But quite frankly, the municipalities are pretty good about having contingency plans in place, so fire apparatus, ambulances.

Some of the emergency-type vehicles are moved out of harms way very quickly when hurricanes do arrive.

That's what's happening right now in Florida.

I was on the phone this morning, though, with our 2 facilities in Florida.

We have 1, as you know, in Orlando, and we have our fire apparatus E-ONE in our Ocala.

These guys are kind of experts in Florida on knowing how to deal with these situations.

So to answer your question, don't see a real big pickup.

There might be a little bit of activity.

And we also have fingers crossed that we'll be in good shape from a plant standpoint in Florida.

Our next question is from Nicole DeBlase with Deutsche Bank.

This is Saree Boroditsky, on for Nicole.

Just as we're starting to think about 2018, do you believe you can sustain this EBITDA growth for another year?

Are there any other puts and takes that we should start to think about?

Well, if you go back to our business model that we presented at the IPO, we are obviously on track and above that performance for 2017.

We are starting (inaudible) 2018.

We have a number out there that we put out there at the time of the IPO, and we expect to hit that also.

And that is a 30%-plus EBITDA growth year-over-year, '17 to '18.

It's too early to confirm guidance.

Obviously, we have acquisitions that have to play into those numbers and things like that, but we feel very good about the model that we presented at the time of the IPO.

Okay.

That's very helpful.

And then, can you comment a little bit more on the expected cadence of the shipments with the L.A. bus order?

Yes.

That will play out fairly slowly.

L.A. requires prototypes to be built first, and they evaluate those prototypes to make sure they're exactly to the specifications that they wanted.

Then they fully test it and make sure they take a very cautious view, especially with a new contract like this where you're going to have in excess of 600 buses.

This really will affect our backlog more towards the end of '18 and meaningfully, into '19 and '20.

So it's a great order.

It's a great situation getting into a big contract like L.A., but it's going to have minimal impact in our earnings in '18.

Our next question is from Jerry Revich from Goldman Sachs.

This is Ben Burud, on for Jerry.

Just wanted to start with pricing in F&E.

Could you just kind of give us some color on how that progressed in the quarter for both fire and ambulance?

And then, can you maybe kind of give us some color on the impact of the higher-content vehicles in both of those business lines?

Yes.

It's -- well, both Fire & Emergency have product mix that has to be taken in consideration.

We will continue to increase pricing based on what we believe is appropriate, whether it be cost increases, inflation and/or innovative ideas where we think we can get more margin.

So that continues, and that will always continue to go.

Really, what's happened more, I think, this year on the whole F&E area has been the product mix in fire.

We have a much larger portion of aerial shipments going on right now, and those tend to drive higher margins there.

As you know, they're twice the price of a pumper.

So when aerial start to flow through, there's a nice pickup in margin opportunity.

Percents are similar, but obviously, your pricing off of a sale price of $1.2 million plus versus $600,000.

So it's been primarily more in product mix, I think, so far this year, but we keep our pricing discipline in place.

Got it.

And when going through the presentation, I found the curious the amount of attention AutoAbility got -- gets for being an $8 million revenue company.

Can you kind of discuss your plans for that business and what kind of revenue synergies you might be able to take advantage of?

Yes.

We love companies like AutoAbility.

These are fairly small operations and have been undercapitalized and have limited channels, but it's a great product.

Chuck Fortinberry, who is running -- put that business together and running it, has just phenomenally good products.

So what -- this is the type of acquisition we love because we bring it into our portfolio.

We're able to help capitalize the business, increase its channels, provide all the things that Chuck really has been limited in doing.

So we see a Renegade-type result from AutoAbility or a Midwest Automotive where we take a great product, move it into our portfolio, enhance it with sourcing, getting the costs down, enhancing the go-to-market channels, all those types of things.

I'd love to have another 20 AutoAbilitys in the portfolio.

Our next question is from Andy Casey with Wells Fargo Securities.

The first question is the reaffirmed adjusted EBITDA guidance.

Midpoint implies Q4 of about $55 million, which is a little bit -- it's 35% of the full year midpoint.

That seems to be a little lower than the historical seasonality for Q4 to be roughly 40% of the full year.

Is the difference really between 35% and 40% rounding in your opinion?

Or is there something occurring in this Q4 that would drive modestly lower seasonal performance?

No.

This is Dean, Andy.

No, I think when we stated the Q4 expectation a couple of quarters ago, we were looking forward to the second half and the back end-loaded nature of our business.

It's really kind of a rounding effect that's happening.

We performed a little bit better in Q3, as you saw, so that comes out of Q4.

But by our implied guidance, your math is correct.

Okay, Dean.

And then, if I can dive a little deeper into a question, I believe, Steve was asking earlier.

The Commercial adjusted EBITDA margin kind of went up 80 basis points Q3 '16 versus Q2, and that was on $6 million higher revenue.

And then Q3 this year, it dropped about 90 basis points, still up year-over-year.

But I'm just wondering about the sequential seasonality of the margin that's on roughly $4 million lower sales this Q3 versus Q2 '17.

What would normal seasonality for that segment be?

And then, what factors drove the sequential decrease this year?

The one factor driving kind of the anomaly that you're pointing towards is the way in which our school bus business kind of went through the year quarter-by-quarter.

Typically, the third quarter is its strongest quarter.

This year, we had some opportunities in the second quarter, and it drove higher sales in that business in the second quarter, which is not your normal seasonality for that business.

So as a result, given that it's inherently higher EBITDA margins in that segment overall, that really caused the year-over-year comparison to be a little bit different.

Okay, Dean.

And then lastly, on the -- again, on the Commercial segment.

I think in your commentary, it sounds like the markets are firm once you get through some of the distortions that occurred in Q3, you should start to see growth.

Is that an inference that we should see growth as early as Q4?

Or is that something in the future?

You're going to see a little bit in Q4, but with the backlogs we're just building out.

It's going to be, I think, more of a Q1 phenomena and probably even into Q2 of '18.

Our next question is from Joel Tiss with BMO Capital Markets.

Just some housekeeping stuff.

The accounts receivables and the inventories went up a lot.

Is there anything behind that or just acquisitions?

Partly because of acquisitions.

Obviously, we -- if you're looking year-over-year or versus the last year end, we had the Renegade, Midwest and Ferrara businesses.

But they also went up organically.

As you can see, we have an expectation for a good fourth quarter, seasonally strong fourth quarter, so building inventory for fourth quarter sales.

And so it's a normal seasonal pattern.

But we have a good expectation for fourth quarter growth, and that's sitting in inventory at the end of the second -- third quarter.

And anything with the receivables?

Are you kind of changing some of the terms on the business?

Or you're helping the customers sort of without having a finance division, you're helping the customers to buy more product?

Or the same thing you just because you're expanding your sales so much?

I think as we make some of these acquisitions, and we've said it in the past in terms of our long-term strategy of direct versus dealer channel, we're doing more direct selling now with some of the acquisitions and some of our initiatives.

That causes some lengthening of the DSO periods.

We do have a couple of larger customers that are doing fairly a lot of business with us that have some larger balances, no collection issues, just timing.

So -- but I think the biggest item is either acquisition, in addition to kind of the shift towards more direct selling, will drive the DSO a little longer.

Okay.

And then -- and other liabilities, that's also just related to acquisitions?

The other liability category, up $32 million?

Yes, that's primarily related to acquisitions.

Okay.

And then in the future, are you guys going to talk about individual deals in terms of the amortization and how accretive each one can be and all that sort of stuff?

I know it's still your first year, but as we roll into 2018, or that's going to be something that you don't want to break out?

No.

I think we want to be as transparent as possible, Joel.

I think probably, in the larger deals where they're more meaningful, we'll break that out.

On these little ones, no, just -- yes, it's just we haven't paid that much attention to.

You know we love them, and they're really going to be big payouts for us.

But I think on the bigger deals, we owe that to you to be as transparent as we can, so you understand how we look at these things.

Our next question is from Nigel Coe with Morgan Stanley.

This is Dillon Cumming on for Nigel.

I just want to touch on price cost in the quarter.

Obviously, you guys are still able to show some robust margin improvement in the Fire & Emergency.

We're just kind of where I believe you guys have been to -- intuitively has some decent exposure to steel inflation.

So just kind of want to get your thoughts on the raw material outlook for 2018 and maybe how that could flow through to your margins.

Yes.

Steel is not -- how do I want to put it?

It's meaningful but not nearly as big as something like aluminum.

We buy just a huge amount of aluminum.

A lot of the chassis that we buy that have steel in them, for instance, we're buying almost 2,000 chassis a year from Daimler.

Those prices are kind of locked in, in our contract with them.

We work with them if there are issues.

But we pretty will have that type of our -- that cost basis of what we build locked in.

We also locked in aluminum last year for a short -- relatively short period of time for a couple of years.

So right now, no issues.

Raw material costs are contained.

And really, we see really no prospect that we will have to do anything individual there.

Got you.

That's helpful.

And maybe just a second one.

If you could kind of give us an update on the M&A backlog from here.

Kind of know you mentioned during the process, you saw a pretty healthy backlog of opportunities.

I would think Commercial, so I just wanted to see if the thinking has changed there at all and maybe where you guys are seeing the kind of greatest amount of low-hanging fruit.

No.

I'd tell you, there's -- the backlog of opportunity is huge.

I think we've made the comment before that our lists, there's over 100 potential targets; there are small, like AutoAbility; medium-sized, like Ferrara; and some big things.

And we look at them all from a timing standpoint.

Our strategy is clear.

We want to bolster our current product portfolios to make sure that we have size and girth in the markets that we operate in.

But we're not against going after a fourth leg to the stool, if that makes sense as well.

But I've just said this because this is consistent.

We have 4 to 5 acquisitions in the hopper at any one point in time, and that will be continuing as we go forward.

So this company can grow nicely as we've shown organically.

It's also going to grow meaningfully through acquisitions, too, as we progress forward.

Ladies and gentlemen, we have reached the end of the question-and-answer session.

I would like to turn the call back over to Tim Sullivan for closing remarks.

Well, thanks again everyone, for joining us today.

Obviously, we're very pleased by our third quarter results.

We're in a good shape, and that's why we reiterated and reconfirmed our guidance for the year on both revenue and EBITDA.

And as I said in this call, the model that we presented at IPO is still valid, and feel free to reference that at any point in time.

This company is in hyper-growth mode, and we plan to continue that.

We plan to perform and meet your expectations.

Thanks again for joining us.

We look forward to talking to you again at the end of our fiscal year 2017 wherein we'll be providing you with the hard and fixed guidance also for 2018.

This concludes today's conference.

You may disconnect your lines at this time, and thank you for your participation.