Q1 2020 Earnings Call
Greetings welcome to the Rev Group incorporated first quarter 2020 earnings conference call.
All participants are in listen only mode. A question answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
Well now turn the conference over to your host drew going up you may begin.
Good morning, Thanks for joining US last night, we issued our first quarter 2020 results a copy of the release is available on our website and investors don't read group Dot com.
Today's call is being webcast into the company by a slide presentation, which includes a reconciliation of non gap to 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 Litigation Reform Act.
These forward looking statements are subject to risks that could cause actual results to be materially different from those experience.
Thank you 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 FCC last night and other filings, we make but the FCC.
We disclaim any obligation to update these forward looking statement, which may not be updated until our next quarterly hurt our next quarterly earnings conference call if at all.
All references on this call do a quarter four year are the fiscal quarter for fiscal year, unless otherwise stated.
Joining me on the call today, our president and CEO, Tim Sullivan as well as our CFO de Novo.
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 todays call.
Slide three contains highlights for the fiscal first quarter and you may note that we're training green, but the number of positive developments that we feel will serve as a foundation for the remainder of the year.
First our outlook for the entire your continues to be consistent with our initial forecast, which provides confidence and the changes and improvements we have made yet to the internal processes organizational structure and support staff needed to deliver improved consistent reliable results.
I'd like to thank the team is for the hard work that they have done as we continue to execute on our current your initiatives and navigate through any macro disruptions such as the most recent uncertainties caused by the current a virus.
We are monitoring and adjusting to issues that have arisen or may arise within our supply chain, which to date are primarily related to electronic sourced from Asia fair tier one suppliers.
We have experience doing unlimited disruption in our material teams are in constant communication to limit any potential direct or indirect impacts from the virus. We learned from our prior challenges in 2018 that even though we don't purchase a significant amount of material directly from China or other impacted areas where some.
I have to both to second or third tier impacts on support supply as sub components, maybe sourced from these areas by our suppliers, where therefore being proactive whether its supply chain to protect the availability of Needham materials. We're not currently expecting we're forecasting any material negative impact on our.
Supply chain.
At this time, we continue to expect and look forward to building on several positive outcomes from our fiscal first quarter through the remainder of the year.
First in our fire and emergency segment were realized increased unit production, primarily at our largest fire plant and we continue to expect margin improvement to develop throughout the year.
With the additional working days available in each of the next three quarters. We believe the labor that has been hired and trained over the past quarter will become more efficient and be absorbed against the higher production rates to allowed by factory floor realignment, which includes new chassis and cab lines introduced within the past six.
Months.
As a reminder, we set out to meaningfully increased the capacity of our plant.
In Ocala, Florida, which produces our E. One brand fire truck to respond to higher backlogs and longer industry wide delivery lead times.
Through 2018. This plan had proved to be successful at about 400 to 450 units of output per year, and while productivity took a step back over the past year, we feel uptake in the next necessary steps to continue a return to their store profitability at a much higher production rate.
As expected the ambulance division began its recovery in the first quarter with significant gross margin improvement ever at our largest plan, which benefit from a focus on process improvements driven by new management, our rep production systems as well as the benefits of a stronger backlog.
Our divisional structure with an ambulance is beginning to take hold and were excited to work more closely with our customers and dealers in a manner that best Alliance and elevates our go to market strategies.
This alignment was demonstrated by two product introductions over the past six months developed in close collaboration with dealers in class customers, namely the new will coach type to ban and our new first our product line.
We plan to build upon this voice of the customer experience not only in the analysts division, but across all our businesses.
The commercial segment has once again continue to deliver consistent and improving results. Both in terms of revenue growth and profitability. While there are many successes across the commercial businesses I want to recognize both of our shuttle bus businesses, which have benefit from dealer develop and pricing product placement discipline as well as countries.
Tenuous operational process improvements.
Commercial backlog increased high single digits over the last year, reflecting strong municipal transit bus orders related to previously announced long duration contract awards and increased orders within our shuttle bus businesses and a solid school bus end market.
Well the industry I'm <unk> outlook for the recreation market is about flat for fiscal 2020, our RV businesses and received orders approximately in line with sales keeping the book to Bill close to one time in the one times in the first quarter, which is consistent with our expectations for the quarter in the full.
Here as we continue to expect industry wholesale shipments to be in line with retail sales.
The new models introduced for 2020 are proven to be very successful and we have recently began production on our new 2021 models.
Introduction and production of the new model years, taking place sooner than in prior years and our transition to new models has been much more efficient.
We believe this will benefit us benefit us earlier in the selling season and lead to greater dealer stocking initiatives ahead of the all important summer retail season, resulting in a greater share of dealer floor space. This season.
Please turn to slide four.
Last but certainly not least the acquisition of Spartan Emergency response in February Onest has solidified Rav as the number one player in the North American fire and emergency market.
This is a collection of brands that we have been interested in acquiring for a number of years and we were extremely excited when the opportunity to acquire this business became actionable.
Strategic rationale significant.
First Spartan meaningfully expands revs competitive position in North American fire apparatus across all product categories.
While there is an overlap on product offerings, such as Pumpers scenarios, the customer and geographical overlap is extremely minimal.
This morning, we announced a new five year contract award for 35, New Spartan and smell vehicles from the Detroit Fire Department.
They currently have 26 meal brand vehicles on or adding to their fleet.
I've said it before but it's worth repeating that fire apparatus tends to be an incumbent business.
Our chiefs and fire houses are typically brand loyal which creates a legacy brand that can be difficult to displays.
Spartan introduces us into some of the country's largest cities like Detroit and regional markets that we previously had had difficult time entering.
It also dramatically expands our presence in Canada and provides established access to certain Latin American markets.
On the product side arrows are some of the highest price and margin products in the fire apparatus industry.
The addition of Spartan and Smeal aerial brands puts us at approximately half the north American market share for OEM units in this category.
We also gained the unique designs the latter tower brand that uses and articulating boom, allowing for a shorter wheel base, resulting in improved maneuverability and accessing congested urban areas and narrow streets.
The latter tower brand has a significant installed base much of which was placed into service before the 2008 recession, which we believe provides a large replacement demand tailwind.
Our acquisition of Spartans Emergency business also included the Spartan chassis product line, which services regional OEM custom fire apparatus builders in the U.S. and Canada.
Spartan has a long standing and close relationship with these builders we plan to continue to supply chassis isn't provide aftermarket service and support for these customers.
Finally, Spartan has been an outsource contract manufacturer of aerials for one of our legacy fire plants.
This deal will generate immediate savings as we no longer will be charged a markup on ladder assemblies that are supplied into that contract.
The combined company will have the operating opportunity to leverage engineering, a new product development, while continuing to lead the industry and innovation.
We will leverage our large shared procurement scale dealer and customer relationships as well as weren't to eliminate cost reduced redundancies that result from our combined operations and back office support.
I have placed our COO in Washington charged to the sparred integration and he is working with assign project owners from both the rather than Spartan legacy leadership teams.
We have a diligent process in place to track the progress of both our overall integration and the realization of the synergies we have identified as part of the business case for this acquisition.
We look forward to working with the talented Spartan team as we begin the journey at the mine, our iconic brands and maximizing our combined portfolios potential.
Now I'll turn the call over to Dean for a detailed review of the first fiscal first quarter financials and the revised outlook that includes this acquisition.
Thanks, Tim and good morning, starting with slide five I will review our consolidated first quarter results and then proceed with segment level performance.
Consolidated net sales for the first quarter were $532 million up 3% compared to the first quarter of last year.
The increase in sales was the result of increased sales in a commercial and Anthony segments, partially offset by lower sales in a recreation segment.
Adjusted EBITDA in the first quarter of 2020 was $11.3 million compared to $12.3 million in the first quarter 2019, a decrease of 8% year over year.
The decrease in adjusted EBITDA during the quarter was driven by lower profitability in the funny and recreation segments, partially offset by higher profitability within the commercial segment.
Corporate expense was also a partial benefit as it declined $2 million in the quarter, reflecting the impact of targeted cost out initiatives.
Please turn to page six of our slide deck now as I move to a review of the performance of our segments.
Fire and emergency segment sales increased by 1% to $207 million for the fiscal first quarter as a total volume of fire unit shipments increased year over year at our largest fire plant.
New cab and chassis lines were opened in this plan at this plant in November of 2019, which improved the overall flow of trucks within the quarter.
The number of units produced increased over 20% at this plant year over year.
This was partially offset by the timing of deliveries at another fired plant, which shifted revenue and EBITDA out of the quarter.
In addition, the mix of units shipped in the first quarter. This year was skewed more heavily towards commercial trucks versus custom trucks, resulting in a lower average selling price.
We expect some of the timing of shipments to be recouped in the second quarter, and we expect the mix of trucks to shift more towards custom pumpers scenarios over the remainder of this year.
Ambulance unit sales were approximately flat year over year, but revenue was up due to improvement in sales mix as one of our ambulance plants began delivery of a larger municipal order.
The ambulance Division order cadence has improved as expected and our ambulance backlog is up over 25% year over year, which we believe will set us up well for the second and third quarters.
Total any backlog has grown 9% year over year to $807 million.
We believe growth in the full any segment backlog will slow in the second half of the year as we strive to reach a shorter backlog duration within our fired division.
Anthony segment, adjusted EBITDA was $1.7 million in the first quarter 2020, as compared to 8.4 million in the first quarter 2019.
The decrease in adjusted EBITDA was due to reduction in gross margin from a greater mix of commercial fire apparatus and the current year quarter.
And the impact of additional labor expenses and overhead costs put in place to facilitate our ramp up of output and our Ocala fire facility.
Partially offsetting this EBITDA impact in the Fair Division was a significant increase in profitability at our largest ambulance ambulance plant as began to realize year over year and sequential production efficiencies from an increase in production and.
And continued improvement from ongoing operational excellence initiatives.
This is consistent with our fiscal 2020 guidance as we expected the evidence division to begin its recovery in the first fit to fiscal quarter, while we expected the first quarter to be a trough in the profitability of our fire division and for our fire Division recovery to begin in the second quarter and be realized mostly in the second half of our fiscal year.
We've had several positive developments within the within fire in the quarter that gives us confidence in the second half recovery.
First we have seen several weeks of improved cab and chassis production rates and our largest plant.
At the necessary cadence to reach final assembly and deliver the number of trucks, we feel as needed to decrease our backlog duration and achieve our full year sales expectations.
We've also seen our labor productivity metrics trend more favorable within the quarter and given where we exited the quarter at the end of January we believe this productivity trend will continue through the second quarter and carry into the second half of our fiscal year.
As shown on slide seven our commercial segment quarterly sales were up 12% to $158 million compared to the prior year period.
Driven by an increase in a number of municipal transit bus units sold and increased shuttle bus sales.
This increase in transit and shuttle bus sales more than offset the expected revenue headwind related to one large commercial school bus order in the first quarter of 2019 that did not recur.
And a decrease in a number of terminal truck unit sales within our specialty division.
Commercial adjusted EBITDA increased 116% to 10.8 million from 5 million in the prior year quarter with the increased due to the mix of municipal transit Buch bus shipments.
And it continuing and sustainable increase in profitability within our shuttle bus business.
The shuttle bus business, which we announced has been under strategic review since our fiscal third quarter 2019 has experienced several hundred basis points of EBITDA margin improvement since this review began.
As we introduce new products.
Improve portfolio alignment to market demands and preferences.
Fortify our pricing discipline and continue to three to deploy Rev production systems for operational excellence.
Overall commercial segment adjusted EBITDA margin increased 320 basis points in the quarter to 6.8%, which is the highest fiscal first quarter profit margin. We have experienced in the commercial segment since going public in 2017.
Commercial backlog at the end of the first quarter increased 7% to $456 million compared to the first quarter 2019 due to firm orders received against a large municipal bus Transit Bus Award previously announced.
Increased shuttle bus orders and the return of a large national account customer into the backlog for our street sweeper business.
Backlog at the end of the first quarter also represents the high watermark for the commercial segment since going public in 2017.
Turning to slide eight the recreation segment sales were more in line with the pace of retail sales in the quarter and we believe we're nearing the end of dealer Destocking started last year.
Quarterly sales and recreation segment declined 5% year over year to $167 million.
Due to lower class eight revenue and to a lesser extent towable units sales.
Although unit sales of class a rvs are approximately the same compared to the prior year quarter, a mix shift towards entry level gas coaches within the current quarter resulted in lower dollar sales for this business year over year.
Recreation, adjusted EBITDA decreased 23% for the quarter to $7 million.
This was due to decreased profitability from lower aggregate unit volumes year over year, and previously described mix shift to lower end price points in certain categories.
Offset by over $1 million of realized cost reductions in the quarter from actions taken in fiscal 2019 related to our class a operations.
Which is individual business unit EBITDA margin increased by 140 basis points year over year.
You remember you May remember this also was a business under strategic review late last year. We're pleased with its progress related to product innovations timing of new model year introduction and recent product award wins in order intake.
Segment backlog in the recreation segment decreased 30% to $158 million versus the prior year quarter.
Due to the result of lower orders for Towables and campers, partially offset by increased orders in class, a and class b categories.
While total recreation segment backlog is down year over year is encouraging to see that orders within the fiscal first quarter 2020 are up 40% versus fiscal first quarter 2019, resulting in a book to bill that as much closer to one times this year than the prior year quarter.
We believe this reflects orders that are more in line with retail demand compared to the prior year quarter. When a dealer Destocking was just beginning.
Our current industry view aligns with the industry experts and we anticipate the overall market to be approximately flat for the year. However, we feel the strength of our product lineup provides opportunity to take market share in this environment.
Net cash used in operating activities for the first quarter of 2020 was $13 million compared to net cash use of $39 million in the prior year quarter and a use of cash of $72 million in the first quarter fiscal 2018.
This continued decrease in cash used in operating activities quarter over quarter is related to improve networking capital efficiency.
Net debt as of January 31st 2020 was $391 million versus $373 million at the end of fiscal 2019.
And the cash on our balance sheet included $55 million that was borrowed and used to purchase Spartan Ers in February onest.
In anticipation of this acquisition the Companys L revolving credit facility capacity.
I was raised to $500 million from $450 million, taking advantage of the acquired borrowing base.
In addition to facilitate the acquisition our term loan net debt to EBITDA financial maintenance covenants was raised from four times five times through the end of fiscal third quarter 2020.
The company had more than adequate liquidity at $197 million availability under our ABL revolving credit facility as of January January 30, Onest 2020.
Please turn to slide nine for a review of our outlook for full fiscal 2020, which is a reaffirmation of our organic full year guidance adjusted for the impact of the Spartan acquisition.
We continue to expect our financial performance to improve sequentially throughout the year with year over year improvement taking place in the second half.
With the addition of Spartan in our results starting at the beginning of our fiscal second quarter. We are now estimating fiscal 2020 net sales to be in the range of $2.6 billion to $2.8 billion.
Additional ABL proceeds used purchased Spartan is expected to result in additional interest cost of $1 million to $2 million for the remainder of the fiscal fiscal year, resulting in an updated range of $29 million to $33 million of total interest expense for Rev Group in fiscal 2020.
Net income is now estimated to be 9 million to $30 million and adjusted net income is expected to be 30 million to $50 million.
Full year total adjusted EBITDA for the combined companies is expected to be in the range of $107 million to $123 million.
Because certain liabilities as Spartan were retained by the seller and due to the cash flow profile of the underlying business. We also expect additional cash provided by operations to increased by approximately $15 million through the remainder of our fiscal year, resulting in a new range of 65 million to $85 million of cash.
From operations for the full fiscal year.
In addition, we're continuing to pursue monetization of noncore or non operating assets as result of and as a result expect an additional cash inflow from these financing activities of approximately 10 million investing activities are approximately $10 million for the full year.
With that ill now turn the call back to Tim for some closing comments. Thanks, Dan. This is clearly an exciting time forever group as we have had the opportunity to consolidate a major industry player into our fire division and the F. a knee segment at the SEC at the start of the second quarter.
With the addition of Spartan IAR, we've increased our exposure tax based revenue and related replacement demand and this also improves our our upon our cash flow generation capabilities and revenue visibility by adding longer cycle and more predictable backlog.
We have seen improved performance within several of our businesses, including those that have been implementing Rev production systems for over a year now and those we recently put under strategic review.
We're confident that the F. any segment operational shortcomings have troughed and we will begin gaining traction as a result of its operational excellence initiatives capacity expansion and trained workforce, we look forward to delivering against our updated guidance as the year progresses.
Operator, we'd now like to open up the call for questions.
Thank you.
At this time will be conducting your question answer session.
Back to ask your question please.
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One moment, please when we pull for questions.
Our first question is from Andy Casey from Wells Fargo.
Please proceed with your question.
Hi, Good morning, adolescence actually Patrick was standing in for Andy Thanks for taking my questions.
Good morning.
Morning related to the Spartan Yar.
Related to pardon me on a path to profitability at the company appears to be a little low.
As you guys bring them on board, how do you think about lifting to margins over time closer to the legacy any level and also appreciate that you guys mentioned that there is some product overlap between Spartan legacy yet.
Is that your intention or do you guys believed that you will reduce somewhat the products schemes overtime at some point here or.
About the intention at all here.
Yes, let me address the profitability first let me give you a couple of.
Points of interest here.
RF any business runs at about 7% SGN, a spartan runs at 11%.
Obviously, there is a synergy opportunity there.
We also believe that the Spartan pricing structure is quite different than our traditional f. any pricing structure, we think theres a synergy there.
We also believe that there's a way to use some of our run production system excellence into improving the operations.
Which will also improve the profitability of the product line.
As you correctly said the business is not very profitable matter of fact is it showed a loss in fiscal year 2019.
We think that we've got all the pieces in place that we can take this to the same level of target that we have for all of our businesses within the rough group and Thats, a 10% EBITDA business.
As far as the product lines, there is overlap theres overlap across quite frankly, all four of our products whether be one cammie Ferrara or now Spartan the key I think for all of this is the fact that in my comments I mentioned that fire is quite incumbent in other ways.
Words, if you are going into a particular municipality.
And you.
Create a following from the fire chief and the fire Department in that municipality incumbency is quite strong so if I look at Spartan.
Let me give me just an example of where we will pick up additional markets just with the Spartan brands, we talked about Detroit, Philadelphia, Saint Louis Dallas, Western Canada. Vancouver. These are all markets that have been Spartan markets that have been difficult for any of us to break into.
We plan to retain those markets with the Spartan.
Brand of products, so even though there's some overlap this is really about incumbency and providing products to the markets that that require and value the brand of the product itself.
Maybe I just.
So I had one.
Just one thing to add which was that in addition to the synergy opportunities in an income opportunities. We we do see there's also opportunities in working capital improvement for the combined organization, which can provide additional cash flow.
For the business over the next 12 to 24 months.
Got it that's super helpful. Thank you.
Moving onto a funny.
Yes, yes, yes, sentimental your statement that the margins for the segment as trough I guess, just can you help us a little bit in terms of wrapping a heads around how the cadence of the margin progression for that segment, that's kind of progress over the next three quarters of so.
Throughout the rest of the fiscal year, and I guess, what type of incremental margins as you guys baking in.
Yes.
Absorption increases.
I'll, let dean answer the absorption question, let me explain how we expect margins to improve.
And the F. any segment and let me speak specifically on fire, because thats different than our ambulance business, but.
It's all about labor inefficiency, if you look at the locale operation, we loaded 200, new individuals into that operation.
For the start of the new fiscal year November Onest.
They now gotten so to speak their sea legs, they've been trained they're in position there in cells and they've learned their jobs. So the profitability losses are primarily directly related to labor inefficiencies as we move through Q2, three and four.
We plan to ramp that efficiency back to the point, where we start to gain.
Obviously profitability within the fire segment, it's less so really an ambulance ambulance was was more about backlog in getting the product line fall again, which is now the case and we expect to really do.
A more normal year, an ambulance were far is going to be more backend loaded maybe on a Monday after the absorption yen as result of the better absorption and improved labor productivity I think we said we're going to benefit mostly in the second half of the year.
But you will see margins and funny, we expect to be closer to prior year, maybe not quite as as as as good as the prior year, but much closer to the prior year margins in the second quarter.
With year over year improvements versus prior year quarter in this in the third in the fourth quarter.
And.
Continuing to improve sequentially as well.
Thank you.
Thank you. Our next question is from Mig Dobre from Robert W. Baird <unk> Company. Please proceed with your question.
Thank you good morning, everyone.
I appreciate all the.
The color on any margins, obviously, that's a that's the big topic, so maybe sticking with that.
As you are as you're thinking about this this 10% margin goal.
For for the company, obviously, we remember if any operating at higher leverage levels than that.
How long do you think is going to is going to take to get there.
And what are what are some of the steps that you're undertaking maybe beyond the very near term here in order to ensure that the business can operate.
It was levels on a sustainable basis.
To answer that is simply that Ken Mig we think we're very close an ambulance at the ambulance business was just really one of our entities at that lost some backlog that has that backlog down our back now and they will recover very quickly. So ambulance, we don't seem to be an issue at all I think thats going to be fairly quick recovery to 10.
Fire is strictly related to now three used to be too.
Of our operations, we think Ocala will recover.
To start approaching that 10% by the end of this fiscal year and well on truly will be on it as we sit here next year at this time can me.
There are mix of products to look more complicated because they run a little bit higher percentage of commercial which is much more challenging to get the 10% because we don't make the chassis. We buy it. So I think it's probably going to take us a little bit longer at cammy to really get to that 10% level.
And then obviously, the new Guy Spartan, they're losing money.
And it's going to take is probably a couple of years really two to ramp that up I think it's it's really challenged to to go from a negative to a positive but.
It's going to take you know, obviously execute and now the synergies, but obviously it takes a while for pricing and some of the production improvements that we plan to put in place.
To really relate to the bottom line.
I think BS SGN a.
Difference, which is significant we can attack that and we plan to detect that very quickly.
Here in the next couple of weeks.
And that will be helpful.
Path towards that 10.
And we're just literally a little bit shy of the 10% right now for our so.
It's a long answer to a simple question, but by next year at this time.
We will be there I would guess and certainly too and certainly the biggest.
Of the fire side of the business with the kind of a work in process for maybe another year for Spartan and came to me as we move through 2021.
Okay. So if I get if I get this correctly then in fiscal 2002 in theory, you should be operating at that level that 10% or better level.
Is that fair.
That is absolutely fair and quite frankly, I'll bet you on the side that we get there.
Excellent.
Then maybe you can talk a little bit about demand as well I mean, obviously your.
A big player in in fired now the largest your.
I think still the largest player an ambulance.
What's going on with demand on the fireside.
And obviously you can I understand you can estimate the corona virus impact, but I'm wondering.
Based on what you know from the business or what the dealers have told you in a path.
How hospitals and obvious ambulance operators are reacting to.
Things such as.
Corona virus or really any any spikes. If you would in in demand for further services does that lead to some sort of a investment cycle or maybe Conversely does that does that prevent capex in the near term disburse. Thanks.
Yes, let me tell you have aside story and then I'll give you my opinion on what it means for US I think directly for the US market, we actually got a phone call.
Two weeks ago to see how many ambulances, we could airfreight too to China as rapidly as possible and.
We actually were able to provide a pretty good number of ambulances.
They decided that they thought they may get there too late we are producing a lot of ambulances and our JV right now and we'll who.
And basically of are not doing any rvs out of that plant to meet that demand in China, but that's not going to create a tremendous amount of profitability as we don't make a lot of profit.
On our JV, just yet in China in the us when we're in discussions with the U.S. government.
Making sure that they fully appreciate our capabilities with ambulance, which is the key thing to any type of an outbreak of meaningful levels here in the United States knock on wood, let's hope that doesn't happen from a personal size standpoint, I think that that would that would not be a good thing, but we're in discussions with our.
Everman about where we might be able to help.
Effect, if that as the case.
Okay.
Lastly.
Maybe some updated thoughts on portfolio management, you talked a little bit about the improvement in margin it's shuttle.
As well as class a RV.
Are you are you still considering.
Potentially doing something with these businesses or.
Are you essentially changing your mind margins on the right track. Thanks.
Good question.
Obviously with margins improving.
It does create a different dynamic of discussion with our board of directors, having said that I think we're we're we're committed to the fact that we have to arrive at a 10% EBITDA margin and relatively short period of time.
And we'll have those discussions ongoing but.
We don't think either one of those are potentially short term type of recovered a 10%.
Alright, thank you.
Our next question is from Jamie Cook.
Great.
Hi, Good morning, I guess, just first question back on that front of Iris. Unfortunately understanding that there's some opportunities on the fire and emergency side, but you talked about.
Potential issues with suppliers are component. So can you talk about.
You know one.
What youre doing with with tier two and tier three suppliers and event that your tier one suppliers can.
Meet demand like Derek expected you are you building eminent any inventory as a result of this in particular, if there could be upside to your fire and emergency business and are receiving any incremental or elevated freight costs associated with this and then I guess my second question outside of the Corona virus you answered questions on.
Long term.
Thoughts on margins and fire and emergency I guess recreation continues to sort of underperform. What are your updated long term targets, there and what's the right revenue level to get to that target. Thank you.
Okay, and the Corona virus.
First and foremost we've had literally for part numbers that came up short recently.
Four out of obviously thousands.
700000.
And those were easily obtainable.
The good news I think about the timing of this whole thing is people tend to overstock for Chinese new year.
Because or tends to be obviously, a pretty good fall off. So there was a lot of our distributor distributors that overstocked literally right before the current of Iris hit those those inventory levels are still pretty sound and strong and so we're seeing very very little.
Issues with the with that our materials team are also.
Advising that some of the plants that closed are already back up and running in China. So knock on wood, we think that really it's going to be a very minimal impact at least for us because we don't source much there either tier one two or three.
As far as the second the second question on RV.
Obviously, we're cautious because we're in a election year.
But we're also very encouraged by what happened in the southern we called the southern buying season.
Retail sales were up almost 30% in the month of January as the first month that we've had data on.
For RV.
And I think.
Thats, obviously much much higher than we thought it would be.
As we look to our projections for 2020.
We're seeing where we basically.
Effectively budgeted flat.
No. So we're we're conservative 19 overtime were actually very conserve 19 over 20 because of the presidential year.
I am encouraged now that that that will be a potential upside for us as we move into 2020, if if the indications that we got from the retail market in January.
Good indication.
Thank you I appreciate the color.
Our next question is from Joel Tiss from BMO capital markets. Please question.
Thanks, I'll start off with a little bit of an unfair question, but but how do you guys.
The level of confidence you haven't not acquiring another headache, we've seen a lot of plant consolidations and you've been doing a lot of work on this company for a couple of years really reengineering the whole manufacturing process. So how do you feel comfortable that the Spartan asset is not.
Going to give you another headache.
Well if anything Joe we actually probably are more confident today than we were two years ago, even three years ago.
When we had fire and emergency above 10%, we know how to get there.
We're very encouraged by what has taken here in the last 12 months to muscled through some really major expansions. The good news with Spartan, it's not about expanding quite frankly, there's probably some synergies on some contraction of some brick and mortar at Spartan but.
I think as I've mentioned, there are some pretty decent.
To refer to it as low hanging fruit, but its low hanging fruit on the synergy side.
SDN and pricing are obviously almost immediate things that we can effect and then it's really a matter of getting the operational excellence to where it needs to be which is the heavy lifting side as you know but.
Experience.
As a big deal.
And the good news is we're very experienced at it and we're happy to have this headache. This is a this is an asset we've been looking at for about three almost four years now and I met at what I've said it we were very excited what we saw this opportunity was actionable.
It really complete.
Our portfolio it was a missing link it was it was missing because of some of the cities that.
It's serves.
That we just couldn't break into and now we're into those and we're also and all these regional players of which there is over 40 out there.
That that.
Sell regionally so it really completes a portfolio nicely I'm very very confident we're going to get through and get this to a 10% EBITDA business.
And have you guys given any numbers on the synergies in the timing and all that sort of stuff you gave make a little bit of a sense by 2022 things will start to normalize.
But we haven't first okay, we haven't we Havent Joel.
We've got we've got a number I think this is only a couple of weeks old I think.
Well, we'll probably give some more color around that as we get into little bit a little bit deeper I did give you one quickie, there and you know seven versus 11% SGN a.
And pricing, but now there's there's there's meaningful synergies on this acquisition very meaningful and we didn't even really delve too deeply into the sourcing side. It's always interesting when we buy a company to find out.
They're buying things for versus us, it's not always the fact that.
We are achieving the lowest cost on our material. So it's also a nice little pickup usually.
And then to switch gears for a minute can you give us a little sense can you run through the pieces, a commercial and give us a sense how the the orders look and.
Kind of a sense of contracts on the street like what are what are our municipalities looking at in terms of bigger contracts for for some some municipal orders as we go through 2020 in 2021.
You got as you know very nice backlog at NCR Transit bus business. We are the follow on contract for La we've got the follow on.
Not a 100% to what we thought we're going to get but a follow on from from Chicago.
We actually are getting additional business off of the foothills contract that's kind of the suburbs of L.A.. We got that contract. We didn't talk much about that over the last couple of years.
So we're really in very very solid shape, assuming we don't try to increase or production rates too much.
At NC in Riverside, California, but were good through 2021 with that backlog.
Collins School bus is always solid this is the buying season.
We see no no no falloff whatsoever in municipal spending on school bus.
We think thats going to be fine.
And we're actually very encouraged by the backlogs, we've got primarily at our Solana Eldorado operations as a largest backlog we've had since I've been here.
Beyond six months, which we never have that type of the backlog it's aligned.
Less at Imlay city for our champion brand, but still a pretty decent backlog there. So on the commercial side, we think we're worried and very good shape to maintain kind of the level of performance that we've demonstrated here in the first quarter as we go through the next two core three quarters.
And we also have some some good things going on to improve upon the margins. The one I would say that that is a little worrisome and there were trying to get our hands around right now and that's our terminal try our yard truck business. It was very very strong last year, and we think that was related to the whole activity around last mile.
And it's soft it's been softer first quarter.
We don't know if there was over spending.
In the in the fiscal year 2019, but right now thats the only commercial segment Thats, a little bit off as we finished our first quarter.
And our visibility isn't really that great for the second quarter, either so we're doing a lot of work to figure out what's going on there but.
That's cool off here in the first quarter, that's the only little glitch I think that we have in the commercial side. The bulk of the business is quite strong as we move through 2020.
Okay, Great and then just one last one Dean can you give us your 2020 free cash flow estimate.
Or have you guys. So.
Yes, so we have disclose the.
This is now before excluding the acquisition, obviously, but we disclose cash from operations in the mid written midpoint of about $75 million.
We disclosed our Capex I think we're going to be at the low end of the Capex guidance, where we just didn't want to adjusted to to aggressively right now as we are digesting the needs of Spartan, making sure we adequately capitalized anything.
Invest in things that might be needed there, but they will be at the low end of the capex spend.
Interest we disclosed in taxes.
Plus other asset sales and we disclose or about 10 $10 million. So all that comes to about a free cash flow of like $30 million to $40 million.
Positive.
Okay. Thank you so much yes.
Our next question.
Okay.
Deutsche Bank. Please proceed with your question.
Hi, it's George on for Chad set a question on the RV dealer inventories. So how things are trending currently and where do you expect to fiscal 2000.
Rvs inventories remain an all time low.
I think everyone's very disciplined on keeping their retail lots probably lower than what they.
Definitely lower than what they were the last.
Seven eight years when there was the drive towards the current level of of sales.
And we're also seeing.
Kind of.
Equalization of wholesale to retail so.
People are buying.
Lesser units as they sell so if they sell 10, the by 10 Thats not necessarily how things were moving in the last seven eight years, but it's steady it's good order intakes are good.
We actually have backlog at all four of our RV locations.
Which is unusual for Decatur, our class eight days.
Have not had a meaningful backlog in four years.
We obviously reduced our production rates quite a bit last year.
But we have a we have backlog at all four locations not huge but but.
Good to work towards.
We're we're again, we basically plan flat year over year, it's an election year.
I think everyone's cautious, but I think with the retail levels that everyone saw in January I think we're cautiously optimistic now that's going to be a better than average year as move into 2020, especially with retail.
Inventories as low as they are.
Great Thats helpful. Another question on the commercial.
Kind of walk through the cadence of the margin trajectory for the remainder of the year.
Yes, so as you know the first quarter from a commercial perspective was significantly better than the prior year quarter.
As we move throughout the year, though we have tougher comparables quarter over quarter, because we started if you remember producing on the larger some larger contracts.
Hey municipal transit buses in the second quarter fiscal 2019, so as we as we go through the quarter I don't expect the beat.
On a comparable basis quarter over quarter from commercial commercial margins, but I expect that they will sequentially continue to grow as the year progresses.
And keep in mind my comments on the yard trucks, I think thats going to be a bit of a headwind for our commercial segment as we move through the year.
We were not aggressive with.
The our truck projections just for the fact that it has started to soften before we started this fiscal year.
I will be a little bit of a headwind as we move for the year as well.
Okay.
Our next question comes from Jerry Revich from Goldman Sachs. Please proceed with your question.
Yes, hi, good morning can you talk about their commercial segment margin improvement just flesh that out for us. If you don't mind, how are you folks able to achieve the operational turnaround on the shuttle bus business was that pricing operating efficiencies just the major buckets there.
Would be helpful for context.
All the above Jerry was.
It takes everything.
We we improved our pricing we like we're a little bit more discerning on the deals that we did take.
And we did really do a full court press.
Where production systems over the last 18 months in shuttle bus sort of US was the first or that we attacked and is starting to reap the benefits there too. So so both its price and operational efficiency.
Okay.
Then in Ocala can you just talk about how much Youre man hours per unit have declined just give us a little bit more context around productivity heavy turn turn the corner.
This past quarter, just a little more context if possible.
Well, the first quarter not much compared to how we ended the fourth quarter, but now as we're moving into the second quarter, it's starting to drop significantly as far as though the number of of man hours per unit.
In round numbers. If you look at just the month of February we're at about 30% reduction, which is huge but we expected that to kind of happen that way. When these guys are trained and they start to.
I understand their job and remember 200, new people in these are pretty young guys that come in there to learn their trade.
We think that this should accelerate nicely as we move through the second and third quarter.
Okay.
And lastly.
Ambulant side can you just talk about what the expected order cadence is out of private ambulance buyers I think there's some concern in the market about balance billing and I'm wondering is that impacting their plans for orders over the course point.
What's interesting about that is they're looking for a little bit different product and if you look at what we've been selling to the privates here in the last quarter.
Because they're reimbursements are down.
And because of maybe some lag in some some of their billing and receivables.
They are starting to de content the types of ambulances that they buy and we've reacted very quickly to that.
So it's not as if the volumes come down the demand is still there I think it's a type of ambulance that they want its morphing into something that's.
Thats.
No.
As a lower content than what Weve historically would have sold them in the past.
But comparable number of units that.
Yes, yes, the demands but same it's just the content they want to kind of de content. These are our challenge is really how do we how do we maintain good margins by de content in which means again, we've got to get our efficiencies up in the plants.
Okay. Thank you.
And once again, if you have a question good press star one on your telephone keypad.
Our next question is from Courtney components from Morgan Stanley. Please proceed your question.
Hi.
Good morning, everyone.
I was just wondering if you can kind of you called out some of the headwinds that you think could come into the commercial segment for the remainder of the year I think last quarter you had guided Q.
Mid to low single digit growth overall in commercial obviously this quarter was much stronger than that and I think you actually last quarter, you've been talking about the Collins bus order being pretty big headwind. So obviously a lot of sales came in at surprise for US. That's what we were estimating so just curious if you can give us what your thoughts Rhonda.
Segment for the full year, and whether any sales kind of shifted into the first quarter from from the remainder of the year.
No shifting of sales and as you correctly say I think the we budgeted accordingly, we obviously had plenty of time to know that we weren't going to repeat the New York order for Kolon. So that was already baked into our our projections and our guidance for the year.
The only headwind that was not really put into the budget or the other projections for guidance.
Is the softness and yard trucks, it's not a huge segment for us as part of commercial obviously as the smallest of our segments.
So it could have a little bit negative impact as we move through the year, but as dean reiterated and reconfirmed, we're very comfortable with our our guidance we think that.
What we have happening positive on shuttle.
And on transit.
And what should be our typical year for Collins.
Again, that's on known as the orders or be in place now, but if we have a typical calendar year.
We will easily hit guidance for the commercial segment.
Okay, great. Thanks, and then I was just wondering if you can.
Just help us to soccer eight of the.
EBITDA margin.
Cline and ask Tony you called out some from the.
Efforts to increase production at your fire plants, but you also called out mix. So how much was a result of Nick can you help us understand.
Within that segment, what the custom versus non custom mix was this quarter as a drag and then the backlog what gives you confidence that youre going to see more of this custom orders return and the remaining three quarters of the here.
Well I'll start, let dean kind of jump in on this one.
He's got the numbers, but let me give you the color on it if I can.
Mix in fire is it's not a simple answer, but let me try to keep it simple you've got you got to be categories commercial and custom commercially by the chassis custom we build the chassis and obviously there is less margin on commercial because we can't markup to chassis like we cannot chassis we manufacture.
Also have obviously the difference between Pumpers scenarios big difference, you're talking to $500000 trucks versus a million and half dollar truck than you've got your arse of which we also have a fairly significant number of arps going through those are the airport trucks. That's unusual element in our backlog right now that a roll through as we go through.
The back half of the year and into 2021.
Those sell at about 1 million too. So you got a pretty big array of cell points and if the margin percents, our comparable that's for the mix comes in with fire that really kind of hurts us a little bit when we have.
Inordinate number of Pumpers and commercial.
That we did have an dean can give you the numbers, we did have a little bit higher percentage of commercial trucks in the first quarter, but it got Italia in though that that was planned the bigger and it's hard for for people understand this but when you have a lot of people.
That your pain, and you're not getting the output in a plant the sizable calorie got 800 people out there building fire trucks, and 200 don't quite know what they're doing it.
It doesn't take you long to eat up any any dollar a margin or percentage of margin that you put on those trucks, but Dino will give you maybe a little bit more color on on the exact numbers on commercial versus custom there in the first quarter yes.
And it puts a little hard to describe along because we don't give guidance on ambulance versus fire. So as we talked about in prepared remarks ambulance did well on a year over year basis compared to.
Last year, so most of the year over year reduction in margin on that you see for fire and emergency is related to the fire Division.
And about a third of that.
As related to mix so as Tim said, there that was anticipated we know what's in backlog, we have scheduled production slots out into the.
Set nine to 12 month future and so that also gives us confidence as you know what's in the backlog in the production schedule for Q2 through Q4 in the remainder of the year in fire.
Okay, great. Thanks, and then just lastly, if you can disaggregate, what you're seeing between class, a and B and then Towables and recreation. It sounds like most of the increasing your orders is coming from increases and Andy.
And that Towables this down, but I think you know that the industry industry data looks like towables, improving pretty significantly. So just curious if you can help us understand how the total segment is is doing versus the industry. If there's anything else going on there.
No you got it right I think the BS of remains strong people like the BS and I think this really the phenomena is a lot of the millennials that continue to buy.
They really are into RBS, so its towables and be use.
In some respects sees but not to that same level.
Ironically, I think not ironically, but just I think the fact that we've got good products now, we're actually picking up a little bit of share on the A's at the age are still very soft.
But I think because of our our new products that we introduce back in the fall and the new products that we're introducing for 2021.
They are very popular and they're moving off the retail lots. So I think we got the product out in.
The market soft, but we think were our shares are improving slightly the other area that that were actually having some pretty good traction on right now our supersedes.
Super sees our are similar to the A's there on the higher end of the purchase spectrum.
But our we're a strong number one position and supersedes the marketplace and that that market continues to be good for us as well. So I guess, maybe summarize fees and towables are good they're doing fine.
And we're keeping pace for the market I think we're picking up a little both share and super season A's.
Probably above what the market is demand is showing that makes sense.
Okay, great. Thanks.
And we have reached the end of the question answer session and I will now turn the call over to Tim Sullivan for closing remarks.
Thanks, everybody for joining us we took the full our this this this time and that's great I think we're very excited about the Spartan acquisition. It really fulfills the full portfolio provides us with a missing element that.
As I said of my statements now a couple of times that we've we've desired for the last three or four years. It's it's very exciting for us as a company. We think we'll be able to execute on a very well here in the near term and get that to the profitability levels that we all expect.
As Dean confirmed we feel we feel good about fiscal 2020, we we feel more encouraged everyday by what's happened in Ocala, It's just a matter of time and time heels, what what's so what we've gone through down there. So again good quarter looking for a good year and pre.
Shapes your interest in our company and we'll talk to you again in June.
And this concludes today's conference and you may disconnect. Your line at this time. Thank you for your participation.