Q4 2019 Earnings Call
Greetings and welcome to the Rep groups fourth quarter 2019 earnings Conference call.
This time, all participants are in listen only mode.
Brief question answer session will follow the formal presentation.
If anyone should require operator assistance during a conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it's now my pleasure to introduce your host drew could <unk> Vice President Investor Relations. Thank you you may begin.
Thanks, Doug Good morning, and thanks for joining US last night, we issued our fourth quarter 2019 results a copy of the release is available on our website at investors Todd Reppert Dot com.
Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of non gap. The GAAP financial measures that we will use during this call. It is also available on our website. Please refer now to slide two of that presentation.
Our remarks and answers will include forward looking statements within the meaning of the private securities Whatever litigation Reform Act. These forward looking statements are subject to risks that could cause actual results to be materially materially different from those expressed or implied by such forward looking statements. These risks include among others.
There's matters that we have stated in our form 8-K filed with the FCC last night and other filings we make with the FCC.
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 corridor for a year or two our fiscal quarter or fiscal year, unless unless otherwise stated.
Joining me on the call today, our president and CEO , Tim Sullivan as well as our CFO de Novo then.
Please turn now to slide three and I'll turn the call over to Tim.
Thank you drew and thanks, everyone for joining us on today's call slide three highlights the major themes of fiscal 2019 and sets the table for how we plan to execute de lever. The results required in fiscal 2020 I'll start on a lower left and proceed clockwise.
First we generated a good amount of cash this year net cash provided by operating activities was $53 million and we generated $24 million from the sale of assets, which provided significant casper balanced capital allocation.
Addition to paying over $12 million of dividends, we returned over $8 million to shareholders through stock repurchases and paid down $41 million of debt during the year.
Through Tonight, 29 teams ups and downs, we remain disciplined regarding the use of cash and plan to continue a balanced use of capital focused on debt repayment internal investments and opportunistic share repurchase or M&A activity.
The strategic review, we initiated in the second half of fiscal 2019 involved the deep dive into our core markets in businesses, a detailed look into <unk> value proposition and a new focus on where we feel we can deliver shareholder value.
This led to a decision within the quarter to sell our joint venture interest in North American motor coach distribution to our JV partner dime.
Rather coach was able to successfully restore independent sales and service Cetra motor coaches in North America. However, we mutually agreed the divestiture was a necessary step for the next phase of dimers Pant plans for the North American market.
Our company wide strategic review is ongoing but the goal has not changed we expect a viable path to 10% EBITDA margins and well look to adjust the portfolio to align with our core competencies and to maximize profitability.
We plan to provide an update on our long term targets in connection with our second quarter earnings call.
2019 was a successful Europe <unk> product innovation and our design teams at the American Ambulance Association conference in Nashville. This year, we announced several new innovative vehicles that increased crude comfort and overall functionality.
We also continue to be a leader in voice of customer design of fire apparatus, well what would the total of 13, new product releases in fiscal 2019.
In addition, our clean energy team and especially the <unk> Division achieved nearly zero emissions with the release of an LNG powered terminal truck.
And finally, several new recreational vehicles stole the show it's a tenders Elkhart open house by winning top design awards, and new dealer wins, and all right I've had a record year of innovation with 36, new products release in fiscal 2019.
Moving on fiscal 2019 was a big year for the large municipal contract awards to wrap.
Within the year, we announced several five year awards, including an award from Chicago Fire Department for the largest single contract for fire apparatus ever received at our E. One business.
And a five year award by F. D N Y from New York for ambulance units on our web Orlando business.
We also received a five year Transit bus award from the suburban bus Division of the regional Transit authority in Chicago.
And finally subsequent to closing fiscal 2019 will officially received a significant add on award from L.A. County Transit.
The awards, our major accomplishments demonstrating our partnership scale with municipalities of all sizes.
I would note that neither of the Misspoke Transit bus awards are reflected in our current commercial backlog and will be additive to backlog. When orders are received which is currently assumed to be within the first half of fiscal 2020.
We spent much of the fiscal third quarter earnings call discussing 29 teams operational issues and labor market constraints, primarily within the Japanese segment, which resulted in a downward revision to our fiscal 2019 EBITDA guidance.
Today's results within FMT were largely as expected.
Pass an expansion of our largest fire for study progress throughout the fourth quarter with a new chassis line open it up on November 4th.
The labor churn experienced earlier in the year has stabilized at this plant. It may continue to train and integrate small groups of new employees to the factory floor.
We believe the net result, so these actions within the fire division as well as shipment against a large municipal order an ambulance will provide an opportunity began recovering the EBITDA loss to operational issues within this segment during the second half of fiscal 2019.
In fiscal 2019 select recreation markets declined at a greater magnitude than expected as dealers destock in inventories dropped historic lows within a clar class a product lines.
While this resulted in lower than expected EBITDA versus our initial fiscal 2019 guidance. The team deserves recognition for taking corrective actions to limit the financial impact and navigating end markets that were not within its control.
Despite the challenges all businesses will then recreation had a successful Elkhart open house in September , which led to several industry awards and expanded distribution with new dealers in key high volume geography.
As we look to fiscal 2020, we have adjusted capacity and the cost structure to meet current demand in a market that is expected to be down mid single digits, but we do retained the ability to flex up production if needed as we build upon these recent market successes.
Across our segments. The vast majority of our supply chain lead times, a material availability have returned to normal. Nevertheless, we still experienced the occasional supply chain issue that name, but negatively impacts our ability to ship product.
I believe that this will change entirely until the trade war comes to an end. However, we believe were successfully navigating trade impacts and the net result is opportunity in fiscal 2020 to leverage the restructuring and operational changes we have made.
Now I'll turn the call over to Dean for a detailed review the financials and outlook.
You, Tim and good morning, as Tim discussed we faced several challenges within fiscal 2019.
In late 2018 for that matter that resulted in consolidating earnings that were below the potential of our portfolio of businesses.
These businesses can do much better and on the bright side much of the recovery to prior profitability levels and beyond is within our control.
In addition, I was pleased.
Thats the predictability of our forecast forecasting improved in the fourth quarter as the underlying business results were largely as expected based upon our revised guidance.
Tim mentioned, one item that became more evident as we close the year, which isn't unusual amount of catastrophic medical claim costs experienced throughout fiscal 2019.
Having the most significant impact in the first and fourth quarters.
The first quarter impact was originally deem to be a one quarter anomaly, but later our experience in the fourth quarter codified a full year trend.
The number of high dollar claims increased 55% year over year amounting to approximately $7 million of total increased cost for the full year approximately $4 million within the fourth quarter.
Without this recent medical experience within the quarter, we would have landed in the middle to upper half of our revised fiscal 2019 earnings guidance at these costs not been incurred.
Starting with slide four I will review, our consolidated fourth quarter results and segment level performance.
Consolidated net sales for the fourth quarter were 653 million down 1% compared to the fourth quarter of last year.
The decline in sales was primarily result of lower recreation segment shipments, partially offset by sales growth in the commercial and the find emergency segments.
Adjusted EBITDA in the fourth quarter of 2019 was $19.3 million compared to 39.4 million in the fourth quarter 2018.
The decrease in adjusted EBITDA during the quarter was driven by lower profitability within the funny and recreation segment mentioned earlier, partially offset offset by higher sales and profitability in the commercial segment.
Now please turn to page five of our slide deck as I move to a review of the performance of our segments.
Fire and emergency segment sales increased by 7% to $269 million for the fiscal fourth quarter inline with our revised expectations as the volume of fire an ambulance units increased from fiscal third quarter.
Within fire sales also benefited somewhat from favorable mix to more profitable units as well as the impact from past price increases that are just beginning to cycle through our long duration backlog.
The total number of ambulance units shipped within the quarter was down year over year over a favorable mix of higher price modular units increased sales year over year as we began shipping against an interim municipal order late in the quarter.
Well the order had a small impact on the fiscal fourth quarter is expected to benefit the division primarily in fiscal 2020.
If any segment adjusted EBITDA was $7.4 million in the fourth quarter of 2019 compared to 18.5 million in the fourth quarter 2018.
The decrease in adjusted EBITDA was primarily due to a reduction in gross profit margin, resulting from the previously described temporary labor inefficiencies during our ongoing effort to increase production capacity at our largest fire plant.
These expansion efforts are designed to decrease our growing fire apparatus backlog by several months from where it stands today.
Despite these near term challenges, we have worked with our distribution and municipal partners have not experienced any order cancellations today.
Backlog has grown 18% year over year, and 7% sequentially to $833 million.
We expect fiscal first quarter 2020 to be a trough in any segment EBITDA dollars, an EBITDA margins as we ramp production through the first half of fiscal 2020.
We anticipate the result to be an improved production cadence and absorption of the associated labor costs that we have incurred within the second half of fiscal 2020.
We believe our backlog will decrease throughout the second half of the year as we strive to reach a shorter backlog duration.
Reduced shipment lead times will provide greater flexibility and competitive advantage for our businesses.
As shown on slide six.
Our commercial segment quarterly sales were up 13% compared to the prior year period, driven primarily by an increase in a number of municipal transit bus units sold compared to the prior year.
Production of the La County Transit bus order has progressed as expected with a steady increase of units in quarterly sales throughout the past year.
School bus sales reflect the typical sales seasonality decreasing approximately 40% sequentially, but were flat with the year over year comparable.
Shuttle bus sales grew low single digits, while sales of terminal trucks, and sweepers and our specialty division were down year over year.
Well the outlook for sweepers has improved the softness in terminal trucks marks the first year over year decline for terminal trucks for the past seven quarters, leading to a cautious view on the end market in the next year similar to the class eight truck market.
Commercial adjusted EBITDA increased to $16.3 million from 9.6 million in the prior year quarter.
With the ink increased primarily attributable to the higher number of municipal transit bus shipments and increased profitability across many of the segments businesses.
Adjusted EBITDA margin increased 260 basis points in the quarter to 7.9%.
Red production system was first rolled out within the commercial segment during fiscal 2018, and we are seeing consistent margin performance and solid execution from these businesses.
Shuttle bus has improved several hundred basis points from slightly negative EBITDA margins to now a low single digit adjusted EBITDA margin business.
Further despite sales declines of terminal trucks mentioned earlier that business has expanded EBITDA margins within the year.
Commercial backlog at the end the fourth quarter was down 17%.
To $317 million compared to the end of fiscal 2018, primarily due to delivery of buses against our one large municipal contract.
However, current year backlog does not include buses from the five year, Chicago Pace Transit Award announced within the quarter and the add on to the Alley County Transit Award, which occurred after fiscal 2019 as Tim referenced.
These awards total over 400 buses and 240 million of incremental orders over their respective contract lives and we expect from purchase orders to be additive to backlog within the first half of fiscal 2020.
Turning to slide seven the recreation segment continued to reflect dealer destocking as wholesale shipments trailed retail sales across many categories.
Quarterly sales and the recreation segment declined 26% year over year to $174 million.
Primarily due to lower net sales attributable to our class a and to a lesser extent lower supersede towable and camper unit sales.
The only category they grew versus the prior year was the class B RV. Despite his continued chassis procurement delays.
Recreation, adjusted EBITDA decreased 66% for the quarter to $77.5 million.
This decrease was due to decreased profitability in most categories, primarily due to the lower wholesale shipments.
Partially offset by cost reduction actions taken during the year within the class a category.
Segment backlog decreased 43% to 167 million for the versus the end of fiscal 2018, but was up 29% our $37 million sequentially compared to the third quarter.
Well, we would normally expect to see an increase in backlog in the fiscal fourth quarter. We believe the accolades we received at the Elkhart open houses and other shows have driven demand for our new models and from a new dealers in high population locations perspective, where we have not been previously represented across all product categories.
Much of the incremental demand, resulting from this these shows will not convert from backlog to sales until the first half of 2020, but provide a solid base as we begin the calendar year 2020 spring shows and selling season.
Our current industry view aligns with industry experts and we anticipate the overall market to be down mid single digits.
However, however, we feel the strength of our product lineup provides opportunity to take market share in this environment.
And we will benefit from a full year of the class eight production cost reduction tailwinds initiated during 2019.
Slide eight provides a brief you have consolidated results for fiscal 2019 net sales of 2.4 billion is up 1% versus fiscal 2018, while consolidated adjusted EBITDA margin declined 200 basis points, primarily due to previously discussed operational efficiencies within it within the funny segment and larger.
Than expected market declines within recreation.
Offset by improved mix and execution within the commercial segment.
As Tim noted net cash provided by operating activities for fiscal year, 2019 was $52.5 million compared to a net cash use of $19.2 million in fiscal 2018.
The increase in cash from operating activities for fiscal year 2019, compared to the prior year with primary primarily related to improve networking capital efficiency.
This improvement is evidence of our ongoing efforts to significantly improve our working capital efficiency over the long term.
Uses of that cash involved a regular quarterly dividend totaling 12.5 million for the year artist opportunistic share repurchases totaling 8.3 million.
Debt repayment of $41 million and $21 million of capital expenditures.
Net debt at October 30, Onest 2019 was $373 million versus 409 million at the end of fiscal 2018.
With $226 million of availability under our ABL revolving credit facility.
Our net leverage ratio at the end of fiscal year 2019 was 3.7 times within the quarter, we worked with our bank partners to reach an agreement to raise our maximum leverage ratio to four times from three and a half times through the end of the third fiscal quarter of 2020, and we weren't compliance under all financial covenants under the ABL facility and term loan as of October .
31 2019.
Please turn to slide nine for review of our outlook for fiscal 2020.
We are estimating that net sales for fiscal 2020 will be in the range of 2.4 or $5 billion to $2.6 billion.
Representing a 5% year over year growth at the midpoint.
Net income is expected to be between 11 million to $31 million, an increase of $35 million at the midpoint.
We anticipate adjusted EBITDA to be in the range of $105 million to $120 million, representing a 10% increase year over year at the midpoint.
And we are planning on $20 million to $25 million and Capex with net cash from operations of $50 million to $70 million for the year.
Our forecast for interest expense is estimated to be in the range of 27 to 31 million as we expect to continue to use free cash to pay down debt.
And our effective tax rate is expected to be in a range of 26% 28%.
Absent the impacts of any potential future acquisition activities plus cash we are planning generate from non operating activities, we are targeting and it targeting an additional 30 million to $60 million of debt reduction during fiscal year 2020.
Which combined with our expected midpoint of adjusted EBITDA guidance would reduce our leverage ratio to just under three times at fiscal year end.
Slide 10 compares fiscal 2019 actual adjusted EBITDA quarterly run rate to the expected run rate at the midpoint of fiscal 2020 guidance.
It is important to note that our fiscal first quarter typically has fewer working days available due to several holiday breaks.
This naturally leads to less completions within the fiscal first quarter.
This impact is compounded by the final inspection scheduled by our customers before acceptance of deliver delivery, which are all also affected by the holidays.
Nevertheless, we're striving to smooth the run rate of our businesses EBITDA and expand and expect the second third and fourth quarters, a fiscal 2020 to start benefiting from this improvement and improvement in performance within the funny segment. After a trough in the first quarter.
With that I'll turn the call back to Tim for some closing comments. Thanks Deane.
Clearly 2019 was a difficult and disappointing year, but I am pleased with how we're positioned for 2020.
I spent this week in our largest ambulance and fire plants, both of which enjoyed healthy backlogs are planned structural changes are in place and we believe that our mandate to the levels were required to effectively execute on these backlogs consistent with our plan.
We expect both fire an ambulance will ramp as we progress during the year and that we will effectively manage the odd supply chain issues that erupt does carry over from the trade War.
All of this reinforces our confidence in our plan and our belief that our guidance for the year as achievable.
Operator, we'd now like to open up the call for questions.
Q.
You may we will now be.
Hi, Good ducking your question and answer session, if you'd like to ask your question you May Press Star one on your telephone keypad a confirmation total indicate your line is in the quick question Q you May press star to if you'd like to remove your question from the Q.
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Our first question comes from the line of Joel Tiss with BMO capital markets. Please proceed with your question.
Wow shocked usually I don't even make it to last.
As we've done.
Joel.
So I follow vision.
Yeah, I guess, what can you talk a little bit more about like the restructuring that still needs to be done for 2020 and kind of how it unfolds and what are we looking at.
There is not the restructuring is behind US we right sized our indicator operation.
We've ramped structurally and man wise or manpower wise Ocala, and we've done the same at Red Orlando. We were done that's why we're optimistic about our plan. We think that we're positioned now just to execute on on a really nice backlog across most of our business segments.
And any commentary on pricing of the new business, that's going to flow through in 2020.
The backlogs are good you know if where if we expect to get the 10% EBITDA margins that means that we have to have a healthy and quality backlog.
And we expect those two to play out as we move through 2020.
And jealous Edina you know the the downside of our some of our delays and shipments in 2019 as an upside in 2020, obviously with.
In particular fire with a long backlogs were we're just starting to see some of those previous price increases come through in the fourth quarter, but we're expecting to benefit from those.
Bigger way in 2020.
Okay and then the last one can can you give us any sort of a timeframe on when you think you can get close to or in the ballpark of those 10% EBITDA margins.
You know as we talked about we still have a couple of laggards that'd be the Decatur class days and with the pressure in the marketplace right now that's going to be a bit of a struggle as we go through 2020, it's still a focus and shuttle bus, we think will improve year over year, but we will probably not get to a 10% EBITDA margin performance and shuttle bus.
Across the other businesses were close to where they are they kind of ebb and flow, but we're very comfortable with how we're positioned on those margins and as I think Joe as Tim said, we're going to.
Come back to that to you at with our second quarter conference call with an update to our longer term financial guidance.
Okay, alright, thank you so much.
Our next question comes from the line of Andy Casey with Wells Fargo Securities. Please proceed with your question.
Good morning. Thanks.
On the Andy.
Good morning team on the 50 to 70 million operating cash flow guidance do you expect that to be.
Pretty back half loaded with Q4 paying the high point I mean that Q4.
This year wasn't.
It wasn't typically as high as it usually would be.
So I'm wondering if you returned to us.
Seasonality pre 2019.
And then with some anticipated asset sales should we expect the 30 to 60 million debt reduction.
To be spread through the year should that also be concentrated at the back half.
Yes, Hey, Andy so in the fourth quarter 2019, one other things that that kind of created the little bit different characteristic was the ramping in the timing of the shipments in our particularly our fire division. So we've got more inventory than than we might normally have at the end of fiscal year.
I would expect 2020 to be to be stronger in the fourth quarter for share from a cash flow perspective, but we're working very hard to reduce the seasonality. It may not go away in the short term, but reduce the seasonality from working capital perspective, having said that I still believe the second half of the year will be our strong.
Just a cash flow generation, but we're working to.
Improve or reduce the amount of use in the first half as well so hopefully in the plan is to be smoother, but second half will be.
We will be strong again and fourth quarter will return to.
More prior year levels as you said.
Okay. Thanks, and then.
The debt reduction cadence should that be spread through the year concentrate it back half I.
I think that being the back half the year third and fourth quarter.
Okay. Thank you very much.
Our next question comes from the line of Courtney your call.
Oh Varonis with Morgan Stanley . Please proceed with your question.
Hi, Thanks, guys.
Just wanted to follow up on the comment about dealer inventories I think you said it at the lowest level for the class a side.
Can you just comment on where you see inventories for class B and C.
And just remind us if your overall exposure among industry groups.
Yes, there are actually low across the board of the dealer network through 29 team.
Really move their inventories down.
Which is not a bad thing that just means that they're rightsizing their their retail inventory for.
What they expect the market demand to be so it's across the board I don't think any particular class has been more destock than another one.
But.
Their dealers are telling us now that they feel that they are very comfortable with their inventory levels, which means that.
The orders for 2020 should be fairly steady as we move through the year, assuming the market remains fairly flat.
Accordingly.
To remind you have the of the the the allocation the class a is the.
The is the largest portion of our recreation business still 50 Percentish.
Class B, we think will grow as a percent in 2020, because that will be the stronger category. We believe with the healthy demand plus the return of chassis availability, we expect that.
15% of the overall business.
Class C is another 20% and then towables as the rest.
Okay, great. Thanks, I think on the last call you had talked about kind of reevaluating.
Yes classes within the portfolio have you have you finished that analysis or is that something that's still in the cards.
No I think good so we've completed the analysis and we know where we stand with the A's obviously, we reposition them to be at the higher end of the class a market and.
We're actually we believe we're actually taking some share with our product right now but.
It is margin challenge, which means that we will keep an eye on it as we move forward.
Gotcha, and then you had made a comment the labor turnover is down for the us any plants that you talked about on the last call. I think you also had mentioned on last call that you're retaining some labor.
Any within ambulance. So can you just talked about is ambulance appropriately staff now that you have this order coming through or is there still some excess labor there.
Then also just labor turnover kind of across the portfolio aside from just as Anthony plants that you talked about.
Yes, if you go back to what we talked about in Q3, we were trying to ramp significantly the Ocala plant right in the middle the summertime.
Yes, which couldn't have been worse.
I think I made a comment on the call that to retain 85 people, we had a higher over 200.
We can retain them.
Temperatures outside were 100 degrees with 100% humidity and people that were starting to manufacturing jobs for the first time their lives. So this isn't for me we felt that once we got into the fall that that would stabilize and that's exactly what's happened. We believe historically, if we can get workers and in the fall winter and spring.
Usually muscle through the summer time in Florida. So.
That's a dilemma that we had to ramp it couldn't have hit us in our worst time, having said that we're manned exactly where we need to be right now to hit our guidance in our Florida plants and quite frankly across the board.
We've had unusually good stability.
I think part of that's because the other business has been steady.
Unemployment is low as you know across the board, but our turnover is at the lowest it's been since I've been here in five years, which is a good sign that people are feeling good about what they do where they are working and what we're doing as a company.
Quite frankly, we're doing a really nice job across the board on health care on safety on things like that that are creating them to be a good culture or will they want to be part of a better culture, let's put it that way and that's that's helped a lot to stabilize or workforce.
Great. Thanks, and then just lastly on the on the commercial side I think you gave us some visibility into the Chicago and La County out on but I think you talked about a commercial contracts that won't be recurring next year. In 2020 can you just talked about how large that contract was how much of an impact it might have a typical seasonality in that business.
Yes that was a new York contract. It was in New York Transit contract that we fulfill that of our Collins plant. It was about 400 units dollar wise what was your guys on our third $30 million and like that.
And that that was kind of a one off situation. It's a good contract because we broke into new York on on a transit deal, but those things that have to work through their normal product lifecycle.
And that will come back around but it's not repetitive for 2020 are probably 21 or 22 and cardiac that was that really benefited us in 2019 in the first quarter fiscal first quarter, which is.
Unusual from a seasonality perspective for that Collins business. So that's what's not recourse repeating it'll it'll affect us most in the first quarter 2020 on a year over year perspective.
Okay, great. Thank you.
Our next question comes from the line Gilbert with Robert W. Baird. Please proceed with your question.
Thank you good morning, everyone.
Just a quick clarification, maybe in recreation you talked about the market begin.
Being down call it mid single digit, but as far as.
Your view on de stocking do you expect to be able to produce next year close to retail or is there is still something to be Don I understand you're looking to gain some share, but if we're leaving share issues. Aside is it fair to say that next year you can produce in line with retail.
Yes, let me give you some stats Mig the overall market was down 16% and RV across the board on all classes last year.
Last say, though was down about 20, 728% a big big reduction.
The industry is projecting a minus 3% to 4%, which we think is a little conservative so.
There is still expected to be down a little bit, but what the destocking that was done in 19.
We're expecting kind of flat year over year for RV. So we're not we're not expecting down but we are expecting flat.
I see okay.
And Thats, where the segment as a whole.
Yes, that's the segment as a whole, but but with the destocking that was done it to the level the de stocking was dead across the various different classes.
We think we will be flat, if not a little bit up like we said with market share gains. So if the industry is down three to four we've planned flat just because we think are BS are going to be up a little bit. We think our AIDS are going to be up a little bit year over year and will be steady in our season our towables.
Well.
Okay.
And then if we're thinking about your company wide revenue guidance, 5% growth.
With RV, you're providing some clarity here, how do we get to that 5% number we're looking at the other two segments.
Yes, Mig this is Dan good morning, so as we as we ramp up enough any benefit from the larger order orders and ambulance and improve on our production and shipment cadence in fire, we expect kind of high end up high single digit.
Hi single digit growth year over year enough funny.
Again more back half loaded because of the fire portion of that business.
And we expect kind of low to mid mid single digit growth in commercial although weeks, we're going to see good continued strong results from for example of municipal transit bus business.
Yes municipal transit business, we talked about the weakness.
And lack of transparency in specialties that kind of offsets as well as that one contracting Collins, so altogether that should get you're pretty close to the midpoint of our revenue guide.
Okay. That's really helpful. Last question for me in F. Any.
It sounds to me like like 2020 is going to be kind of it's going to be a difficult year to model to put a bluntly.
There has been a low noise over the past couple of years in terms of these labor inefficiencies and you're making progress you also have a volume ramp that we have to take into account, but your sand that Q1 is going to start slower. So just kind of level set us.
Are you expecting margins to be down in Q1, and then what's sort of pace of recovery in margin do you see through the year. Thank you.
Yes, Megan this this is Dan again.
Yes, we talk about margins for F and need to be the trough in acute in Q1, so yes on a year over year basis, we expect them to be down.
You think at a higher level about funny.
Our incremental margins should be above 20% 25, maybe 30, depending on the mix of the products and how custom and what types. They are but I think for a full year, we're going to be more in the in the teens mid teens incremental margin.
With less than the first half and then back to those higher levels in the second half so hopefully that as we ramp ups hopefully that helps you.
Model it better.
No very helpful. Thank you guys.
Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.
Hi, Good morning, everyone. This is Ben brewed on for Jerry.
Morning, Ben.
Good morning, I was hoping you could maybe step us through in a little more granularity all the moving pieces enough in the operationally in the first half can you just given US an idea of how this new labour outperformed in terms of manufacturing. These obviously complex machines and give us an idea of how maybe product quality has.
Backed up.
Just just some more granularity on obviously, the restructurings behind us or the real hard work, but from an operational point of view what exactly is playing out over the next six months.
Yes. Good question I think obviously, we have a lot of new employees that we've hired.
So we can ramp.
We will not sacrifice quality, which means that we will ramp slowly we will have labor inefficiencies in Q1 that will improve in Q2 and get really good in Q3 in Q4.
Because we don't want overdo. It if we go too fast quite frankly, we sacrifice quality and we have a lot of new people on the floor right now they've all been trained.
Train them really during the fourth quarter and that's another reason why their fourth quarter was was the way we guided it and the way. It resulted lot of labor inefficiencies as we're trading the new employees, but it'll ramp through the year and that's what we're projecting but.
The people are in place there Matt were man to the levels, we need to be man and the efficiencies will improve as we move through the year.
Got it and then if I just up through the segments in terms of.
What's embedded in the guide from an EBITDA perspective by just maybe pick our R&D for RV for now excuse me.
Based on what you mentioned a question or two ago sounds like you're forecasting or embedding I should say flat revenue growth, but I'm, assuming you're guides also embedding margin contraction.
Year over year enough segment as well is not the right way to think about our EBITDA.
Yeah, there's some margin contraction I guess from some of the mix, but given the $5 million, we talked about of of restructuring.
Benefits will probably be closer to flattish from an EBITDA perspective as well.
Got it thank you very much.
There are no further questions in queue I'd like to hand, the call back to Tim Sullivan for closing remarks.
Well, thanks again, everyone for joining us today, obviously, we've gone through a really tough patch in 2019, but we feel good about our plan for 2020, we feel good our position hopefully that came across in the call today.
Obviously, the produced in the put in as we move through the year, but.
We're excited to turn the corner and or I should say, maybe the page and put 2019 behind us it was a tough year.
Looking forward to talking to you all given the in March and.
As always contact us we have any additional questions.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.