REV Group Inc (REVG) 2023 Q4 法說會逐字稿

Backlog revenue has also benefited from pricing actions put in place over the past few years. We believe improved execution, higher selling prices and the reliability of our $3.6 billion. F&E backlog, which is largely municipal tax base, positions us well for 2024. Fiscal 2023 demonstrated the success of pricing actions across the route portfolio as we have noted in past calls, the recreation and commercial segments were the first to enjoy pricing tailwinds within fiscal 2022 and early into fiscal 2023.

The recreation segment benefited from increased industry pricing, strong market reception of our new product introductions and a relatively low 2023 mile. Your lot inventory entering the year, which allowed this segment to manage through a challenging market as we exited 2023 in the commercial segment, limited backlog for school bus, terminal trucks, and street sweepers emerging from COVID, combined with a short production cycle allowed the businesses to realize the benefits of previously enacted price increases within 2023.

Improved efficiencies and volume leverage also contributed to strong margin performance in the Commercial and Recreation segments within the fire and emergency segment increased production rates. Their shipments from the ambulance group resulted in improved price realization to fiscal 2023. We expect higher group shipments to begin experiencing similar tailwinds in the second half of fiscal 2024.

Within the year, we invested in our work force by implementing gain-sharing program to an expanded group of businesses, making targeted scale adjustments and adding headcount to support increased production rates at many of our plants and support the success of these investments in our people, the human resources and local management teams have worked to improve recruiting and expand training programs designed to more effectively onboard workers while minimizing inefficiencies.

Managers across the enterprise have shared best practices for developing the required skills and new hires. The numbers contributed to a reduction of voluntary turnover in all segments and a 23% reduction in turnover for the REV Group in total. We will continue these trading programs in fiscal 2024 and expect them to provide additional benefits to new hires, current employees and red bottom line through increased labor efficiencies and higher production rate.

In fiscal 2023, we improved the conversion of sales to earnings versus 2022 and continued to convert adjusted net income to cash with full year, free cash conversion of 116%, the third consecutive year of conversion greater than 100%. We've demonstrated the disciplined use of capital by paying down debt in environment of rising interest rates and economic uncertainty.

The result was improved balance sheet, including $81 million of net debt reduction and increased availability and our ABL credit facility exiting the year, we have a net debt to trailing 12-month adjusted EBITDA leverage ratio of just 0.8 times, well under our targeted range of 2 to 2.5 times. Although debt reduction remains a prior primary use of cash, we continue to look at organic and inorganic opportunities, and we will review our portfolio of existing businesses to ensure that they meet our long-term financial objectives.

Now turning to slide 4, full year consolidated net sales increased $306 million or 13% versus fiscal 2022. The increase was primarily the result of increased sales in the F&E and commercial segments, partially offset by decreased sales within the recreation segment. The increase in F&E segment sales was primarily due to increased shipments of fire apparatus and ambulance, a favorable mix of ambulance units and price realization, partially offset by an unfavorable mix of fire apparatus.

An increase in commercial segment sales were primarily the result of increased production school buses, terminal trucks and street sweepers and pricing actions, partially offset by fewer shipments and an unfavorable mix of municipal transit buses. The decrease in Recreation segment sales was a result of fewer unit shipments and unfavorable mix of gas units that carry lower selling price and discounting in certain categories, partially offset by price realization.

Full year, consolidated adjusted EBITDA increased [$32 million] or 49% year over year. The increase in adjusted EBITDA was primarily the result of increased contributions from the F&E and commercial segments, partially offset by lower contribution from the recreation segment.

The increase in F&E segment EBITDA was primarily due to higher unit volume, a favorable mix of ambulance units and price realization, partially offset by an unfavorable mix of fire units, lingering inefficiencies related to the relocation of KME branded manufacturing and inflationary pressure pressures.

The increase in the commercial segment EBITDA was primarily due to increased shipments of school buses, terminal trucks and street sweepers and price realization, partially offset by an unfavorable mix of municipal transit buses and inflationary pressures. The decrease in Recreation segment EBITDA was related to fewer unit shipments and an unfavorable mix of gas units, increased discounting and inflationary pressures, partially offset by price realization.

Turning to slide 5, I'll provide fourth quarter highlights and then move on to detailed segment financials. Throughout the year, we implemented programs designed to increase throughput and improve manufacturing efficiencies across the organization.

Within the quarter, the benefits from these programs were most significantly demonstrated in the F&E segment as it delivered fourth quarter sales that were 34% higher than the prior year year over year the Fire Group increased net sales by 28% and unit shipments of fire apparatus reached 2.5 year high by increasing 21%.

Ambulance group net sales increased 46% and unit shipments increased 33% for the prior year, remaining at a level near Third Quarter -- year high. Commercially, our businesses were actively engaged with their customers, dealers and industry groups. The REV Fire Group demonstrated its commitment to the first responder community by hosting the 27th Annual fire truck training conference, the largest and most in-depth combine training and testing events in the nation.

[STTC] provided training to approximately [400] responders driver operators, technicians, equipment manufacturer dealers and service center representatives for 50 individual courses over 4 days and Tony's met with suppliers one-on-one to address specific troubleshooting issues and regulators, maintenance tips and techniques.

In September, the REM ambulance group Shellcase to highly customized Critical Care transport and the winds at the EMS world, a leading education event for emergency service providers worldwide Critical Care transport is considered the highest level of patient care for most critically injured or ill patients and showcasing the brand ambulance were designed to accommodate the extra equipment required when transporting patients in critical condition are an example of the customization capabilities of brand the ambulance brands to fulfill any requirement.

Finally, I am pleased to announce that Stephen Zamansky has joined the company as Senior Vice President, General Counsel and Secretary. Steve Zamansky served as the Senior Vice President, General Counsel and Secretary ot Cooper Tire. Prior to that, we have the same title and after Minerals Americas and served as General Counsel of Titan Energy Partners.

In addition, the legal matters, Steve Zamansky, in the executive leadership team and oversee corporate governance and ESG initiatives across REV Group companies. And I look forward to the positive contributions of Stephen experiential device rep group. He will be working with Paul Bamatter, our Interim General Counsel to transition responsibilities during the first fiscal quarter. I would like to thank Paul Bamatter for his contributions to the Company over the past several months.

Please turn to page 6 of the slide deck. As I move to a review of our fourth quarter consolidated financial results. Net sales of $693 million increased $70 million or 11% compared to the fourth quarter of prior year. The increase was driven by higher shipments of sales within the F&E and commercial segments, partially offset by lower sales in the recreation segment.

Commercial segment sales continued to benefit from higher shipments of school buses and price realization. Our unit shipments of terminal trucks, street sweepers and municipal transit buses declined sequentially. Lower recreation sales were primarily a result of lower unit shipments across all categories and unfavorable mix of lower price gas units and discounting certain categories, particularly partially offset by price realization.

Consolidated adjusted EBITDA of $54 million increased $21 million or 61% versus last year with increased contribution from the Fire & Emergency and Commercial segments, partially offset by lower contribution from the recreation segment.

Higher contribution from the F&E segment includes improved results in both the fire and ambulance groups. Commercial segment EBITDA benefited from improved profitability in the school bus and specialty businesses, partially offset by a decline in the municipal transit business.

Lower recreation contribution was primarily related to fewer shipments, unfavorable mix, inflationary pressures and increased discounting, partially offset by price realization increased year over year. Consolidated net sales converted an incremental adjusted EBITDA margin of 30%.

Moving to page 7 of the slides that we will review our fourth quarter segment segment results. Fire & Emergency fourth quarter segment sales increased $86 million compared to the prior year. Higher net sales were primarily due to increased shipments of fire apparatus and ambulance units mentioned earlier, a favorable mix of higher content ambulance units and price realization unit production, our largest fire apparatus plant reached a three-year high and fourth quarter shipments from our chassis Center of Excellence study record since its acquisition in the spring of 2020.

The UAE strike was resolved, turned the corner with little impact on ambulance group, which posted another strong quarter unit shipments resulting in a six year high quarterly net sales. F&E segment adjusted EBITDA was $26.8 million in the fourth quarter 2023 compared to adjusted EBITDA of $1.9 million in the fourth quarter of 2022.

The increase was primarily a result of higher volume, favorable ambulance mix and price realization, partially offset by an unfavorable mix of fire apparatus and inflationary pressures. After the adjusted EBIT EBITDA dollars and margin three-to-five year volumes in the quarter, our Group profitability improved 600 basis points versus the prior year and 140 basis points sequentially.

Reaching a 2.5 year high improved profitability was primarily due to higher sales volume, manufacturing efficiencies related to programs put in place throughout the year mentioned earlier, and improved price realization at several plants across the Fire Group, a greater number of production slots are utilized through improved daily management, focused on starts to drive even higher completions.

We completed a key milestone in our largest brand campus by realigning production to a more efficient use of factory space in Glendale, plant now manufactured dedicated value stream versus running in mixed production line, which created complexity and resulted in inefficiencies in the past.

And Alliance Group profitability improved 800 basis points compared to last year, resulting in a five year high in adjusted EBITDA margin and a six year high in adjusted EBITDA. Our ambulance businesses contributed with improved margin performance sequentially, which resulted in the group attaining the full year margin performance target provided during the 2021 Investor Day record company backlog of $3.6 billion increased 41% year over year, reflecting strong orders and pricing actions. For the full year unit book-to-bill ratio was 1.5 times in fiscal 2023.

Through put and unit production are expected to increase at a mid-single digit rate within fiscal year 2024, while industry demand and inbound orders are expected to begin a normalization back to historic trends in both fire and emergency. As a result, we anticipate the book to bill ratio would be closer to one times in fiscal 2024.

Increased throughput and price realization are expected to result in low double digit percentage revenue growth in fiscal 2024 were Fiscal 2023 volume leverage continued efficiency improvements and price realization are expect to result in the full year incremental margin in the 35% to 40% range on the revenue increase.

Turning to slide 8 quarter commercial segment sales of $140 million was an increase of 26% compared to prior year. The increase was primarily related to higher sales of school buses, partially offset by lower sales of terminal trucks, three sweepers and transit buses.

Fourth quarter shipments of school buses reached a three-year high, improving 16% sequentially. As of record backlog entering the quarter, unit sales of terminal trucks and street sweepers declined 9% and 30% respectively versus the prior year. As end-market demand and specialty group inbound orders continued to soften throughout the year.

Municipal transit bus production and completions remain impacted by shortages of components such as seats and wiring harnesses, which contributed to a 14% decrease in unit shipments compared to last year.

Commercial segment adjusted EBITDA of $16.5 million increased $13.2 million versus prior year. The increase in adjusted EBITDA was primarily a result of increased shipments and favorable mix of school bus units and price realization within the school bus and specialty group businesses, partially offset by fewer fewer shipments of terminal trucks street sweepers and municipal transit bus business and more and labor inefficiencies related supply chain disruptions and a competitive bidding environment in the transit bus business.

Commercial segment backlog of $427 million decreased 19% versus last year, reflecting increased production against backlog and decreased orders for terminal trucks, street sweepers and municipal transit buses. Lower demand for terminal trucks is expected to continue into the first half of fiscal 2024.

As logistics providers, retailers, distribution centers and port operators remain cautious while monitoring consumer spending and general economic trends lower demand for street sweepers and primarily related to reduced orders from equipment rental companies, which are primary customer base. We expect the combined results of the specialty group or headwinds to be a decline of approximately $100 million in commercial segment revenue in fiscal 2024.

Lower demand for the municipal transit bus business is primarily related to a transition from carbon-based vehicles to low and no emission solutions. The infrastructure upgrades required to operate a low emission fleet has resulted in municipalities, extending delivery dates for buses and the upgrade. The depots and other service equipment required to operate a converted fleet as the transition to alternative fuel solution gets stretched out.

The market for income at diesel and CNG units has become highly competitive with manufacturers competing to fill production slots. We can we plan to manage the impact of lower commercial segment revenue related to these headwinds with cost actions designed to maintain the decremental margin in the 15% range on anticipated revenue decreases.

Turning to slide 9, recreation segment sales of $215 million decreased 17% versus last year's fourth quarter. Lower sales versus the prior year were primarily the result of fewer shipments in all categories and unfavorable mix of Class A units and discounting certain categories partially offset by a favorable mix of Class C units and price realization. Quarterly shipments reached three or more days in the second fiscal quarter of 2020, which coincided with the onset of COVID.

The largest headwind in unit shipments and net sales was within our towable business, which is currently producing with approximately one month of backlog despite an overall industry retail sales decline, our motorized categories continue to outpace the industry and have gained market share in the calendar year to date period, our Class C business posted record quarterly net sales with calendar year to date retail unit sales up 6% versus classic industry decline of 3%. Class A. business retail unit sales declined 1% for the calendar year to date versus the industry decline of 12% and Class B retail unit sales were up 4% versus the industry decline of 12%.

Recreation segment adjusted EBITDA of $19 million was a decrease of $16.2 million versus the prior year. The increase in adjusted EBITDA was primarily the result of lower unit volume, inflationary pressures and discounting, partially offset by price realization and cost actions at certain businesses, resulting in a fourth quarter decremental margin of 36% on the revenue decrease, segment backlog of $385 million at year end decreased 66% versus prior year.

The decrease was primarily due to continued production against backlog and lower full year net orders across product categories versus prior year. Within the quarter our most powerful categories of Class B and Class C orders remained at a normalized level and in line with pre-COVID levels and backlog for these businesses remain in approximately 6 to 8 months of production, respectively.

We expect fiscal 2020 for full year revenue to be down mid single digits, reflecting continued mix headwinds from Class A. gas units that carry a lower average selling price, plus the increased contribution from lower content units and new product to entry-level categories.

As a result, full year 2024 for recreation segment, adjusted EBITDA margin is expected to be in the high single digits.

Turning to slide 10, trade working capital on October 31, 2023 with $318.5 million a decrease of $29.3 million compared to $347.8 million at the end of fiscal 2022. The decrease was primarily result of increased accounts payable and customer advances, partially offset by an increase in accounts receivable inventory. The increased inventory balance includes an increase of $40 million chassis and increased finished goods, $11 million related to timing of customer inspection and acceptance prior to delivery.

Partially offsetting these increases was a decrease in raw materials, parts and work-in-process, which we feel demonstrates the progress of operational initiatives aimed at improving manufacturing efficiency. Full year cash from operating activities was $126.5 million. We spent $13.1 million on capital expenditures within the fourth quarter and a total of $32.8 million for the full year, including organic CapEx investment for growth.

As I mentioned earlier, full year free cash flow of $93.7 million was a 116% conversion of adjusted net income. Net debt as of October 31st was $128.7 million, including 21.3 million of cash on hand, we declared a quarterly cash dividend of $0.05 per share payable January 12 to shareholders of record on December 26. At quarter end, the Company maintained ample liquidity for our strategic initiatives with approximately $384 million available under our ABL revolving credit facility.

Turning to slide 11, we provide a 2024 fiscal full year outlook, which builds upon the excellent rate momentum within the fire and emergency segment. We expect continued throughput gains and strong incremental performance within F&E to offset headwinds from cyclical end market softness in the specialty group and Recreation segments.

Today's top-line guidance of $2.6 billion to $2.7 billion or approximately flat revenue at the midpoint. Adjusted EBITDA guidance of $165 billion to $185 billion, an increase of 12% at the midpoint. Given the seasonally soft first quarter, we expect the first quarter to be the trough for revenue adjusted EBITDA margin with sequential improvement throughout the year.

We expect first half consolidated revenue to be approximately 45% of the full-year guidance and first half consolidated adjusted EBITDA to be approximately 35% of the full year guidance for adjusted net income is expected to be $82 million to $99 million and net income $71 million to $90 million. Free cash flow is expected to be in the range of $70 million to $85 million, reflecting a net reduction in customer advances related to increased throughput and lower intake of new deposits in the current interest rate environment as well as a year-on-year increase of cash taxes paid.

We anticipate the reduction in overall inventory to partially offset the impact of lower customer advances. Full year capital expenditures is estimated to be in the range of $30 million to $35 million, including organic growth investments in our businesses as well as the ERP upgrades and certain businesses.

Maintenance CapEx remains in the range of $15 million to $20 million per year, effective interest expense range of $26 million to $28 million, approximately flat year over year, which considers a seasonal use of cash in the first quarter that typically impact the full year average debt level as well as higher interest rates on debt and customer advances versus the prior year.

Thank you again for joining us on today's call. 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. (Operator Instructions)Thank you. Our first question comes from the line of [Mig Dobre with Baird]. Please proceed with your question.

Thank you for taking a quick. Yes, good morning. I guess my first question on are on fire and emergency. I appreciate the context on how you're framing 2024. But as I understood it, you're looking at mid-single digit unit production growth, maybe low double digit revenue growth. I guess that implies somewhere in the mid-single digit pricing year over year that you're recognizing.

So maybe can you confirm that? And I'm sort of curious as your sort of thing, looking at what's flowing out of your backlog because you have quite a large backlog that's built up. Are we to expect that pricing will then further accelerate or become a further tailwind as we think about fiscal 25 relative to 24?

Yeah. I think in my prepared remarks that you did the math correctly there, main so you're correct. That is I will confirm that the pricing that's in the mid single digits like you're talking about there mid to high single digits and specifically in the 25. When you talk about in the back half of 24, as I said in my prepared remarks, is when fire will start realizing the pricing that we have seen come through in ambulances, they've been quicker to execute their backlogs. So we would expect similar type of increases as we expect that 24 into 25.

Great. And from a capacity standpoint, when you're kind of looking at both fire and ambulance, where are you now a are you able to further increase production volume beyond fiscal 24? Or will that require incremental investment of any sort.

So I think we can we've done a lot of work, as we've talked about throughout the year and increasing our throughput in existing facilities. And again, a lot of our locations are for 10, so we have the ability to flex beyond that. So we feel good right now what we're doing from a production cadence and the ramp plans we have in 24 and then exiting obviously 24 into 25.

I see your comment on incremental margins here of 35% to 40%. It sounds like you're getting that without maybe the full tailwind from from pricing in fiscal 24, what's the right way to think about incremental margins longer-term, if you would here as we think about 25 or even?

Yes, I don't want to give anything there, but obviously, we want to continue to meet that 15% that you know the incrementals, but with the pricing still kicking in once we see the execution and 24 on our backlog that we'll be able to give a better view on the 25.

So I would just say for 24 includes also operating improvements, as we've talked about in the in our holding facility, which we've talked about last couple of quarters, right, and flushing out in the K and the units and get more of a production cadence there. So that that's where you're seeing those every incrementals as well as improvements in that facility as well.

So on that. Last question for me. The balance sheet, as you pointed out, you made you made big progress in delevering your sub one times net debt to EBITDA. And obviously, you've got going in the right direction here. And so I'm sort of curious, based on your guidance, you're expecting free cash flow to be about 30, about 40.

How do you think about deploying this cash in and fiscal 2024, do you think more towards share buybacks given where your stock is trading and valuation? Or are you active in the in pursuing any sort of M&A deal?

Yes, I would say we're not active, but we're always looking, like I said in my prepared remarks, we still have a buy a lot of value creation in our four walls. So, you know, we are entertaining looking at opportunities, but we're not active in that process.

But obviously, we'll look at as we always do what's best for the shareholders and from a overall perspective and there's share back buyback opportunity, you know, we pursue that as we've talked about previously and good luck.

[Thank you, Nick].

(Operator Instructions) Our next question comes from the line of [Mike Shlisky with DA Davidson]. Please proceed with your question.

Yes, hello. Good morning and thanks for taking my questions. And my point, my expert panel, guys, I wanted to touch first on recreation segment. Obviously, there's been some downside in that couple of quarters here, investor will be challenged, but do you think you might be able to end fiscal 2024 on a positive note, recent easier comps or just a lot of the issues that are facing this segment may eventually flush flush through by then? Or do you think it will be down for essentially the entire year next fiscal year here?

No, I think the occupancy first half of the year, which we talked about fair March, was there was still a little bit of tailwind from the industry and then the back half obviously has slowed that we've been talking about. So as you exit 24, I think we get more normalized than what we saw in 23 of the comps are more difficult in the first half of the year.

And I think we'll be really Edward Jones Act coming out of January here in our Tampa show, which is the largest RV show in the US. So we'll be able to see what the consumer and dealer appetite is coming out of Q1 here. So I think we'll have a better view exiting Q1 than we currently do in the market right now.

Okay, great. And I also wanted to follow up on some of your comments about street sweepers. It seems like elsewhere, they haven't been calling out too many challenges in its future business given, you know, infrastructure, Bill, a tailwind to just generally positive government spending trends.

I'm curious as to if you just would you tell us what you're seeing in a certain part of the country, a certain size, sweeper, et cetera, that might be one of the reasons why somebody in your severance, just not just now working right there, and I think it was more of it is the utilization.

So like we talked about, we felt a lot of rental houses. And what they've seen is a drop in utilization in the dealer that we use as well as the of the operators. So again, it's one that we continue to follow I think we are seeing increased quote activity, but we just haven't seen the improvement then from an order fulfillment perspective.

So I think that's a wait-and-see as well as we go after the season here into the winter. So I think what we're seeing here that more of a normalization of that business coming off a historic high at 23 and the fact that we will get back to where we used to be. We're building stock within the winter units and then our spring kicks off. We start to see in the US the order intake picked up.

So I think what we're seeing overall normalization and street sweeper in our truck business, where you will see a wall here in Q1 and then it'll pick up land, the show's kick off in the springtime of the following year, which is the historic pattern that though was that business previous to call it as Danny maybe just one last one for me on the Type A. school buses.

I was wondering, could you give us an update on the on the EV product, how that's been taking off and order and order intake throughout that particular area? Thank you.

Yes, yes. So I think from school, but then we're seeing at a relatively low intake, I think we're meeting their requirements and still less than 100 when you look at our total Collins business that produces also and that is those are accretive those buses, but it's not the main driver of the year on the results of our school bus business.

Okay, thanks so much.

Thanks, [Mike].

Thank you, Mr. Schoen. Actually, we have no further questions. At this time, I would like to turn the floor back over to you for closing comments.

So thank you, operator. So in closing, I would like to thank our entire team for their efforts throughout the past year, and I wish everyone on the call a safe and happy holiday season. So thank you again for joining us today.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.