Q3 2020 REV Group Inc Earnings Call
Greetings and welcome to <unk> Group Inc. third quarter 2020 earnings Conference call.
This horrible all participants are in listen only mode, because that's the so called the formal presentation.
If anyone does require operator assistance started conference. Please press star zero on your telephone keypad.
Well I know this conference is being recorded.
My pleasure turned a corner over to drew caught up.
Oh, sorry, Vice President Investor Relations corporate development.
Mr cut off you may begin.
Got it thanks, Doug good morning, and thanks for joining US. This morning, we issued our third quarter fiscal 2020 results a copy of the release is available on our website at investors Daqo group Dot com.
Today's call is being webcast in a slide presentation, which includes the reconciliation of non gap GAAP financial measures is also available on our website <unk>.
Please refer now to slide two of that presentation.
Our remarks and answers will include forward looking statements, which are subject to risks that could cause actual results to differ from those expressed or implied.
Such forward looking statements. These include among others matters that we have described in our form 8-K filed with the FCC. This morning, and other filings we make with the FCC.
We disclaim any obligation to update these forward looking statement, which may not be updated until our next quarterly earnings conference call if at all.
References on this call to a quarter or two a year or two or fiscal quarter.
And our fiscal year, unless otherwise stated.
Joining me on the call today, our president and CEO, Rob machine as well as our CFO works going ask me.
Please turn now to slide three I'll turn the call overdraft.
Thank you drew and good morning, everyone and thank you for taking the time to joined our call today I'm Gonna get much my initial comments right or operating conditions over the past several months and then we'll move to an overview of our third quarter results, reflecting on our second quarter. We faced the initial went back to the Koby 19 created a lot of uncertainty across our enterprise we.
Experienced a supply chain shortages increased absenteeism, we had are up Mr demand the challenges presented by the pandemic required us to we really think rethink about how we run our operations.
We took a lot of safe guard show to protect our employees, including mass requirements spacing protocols. We had some temporary shutdowns were clean throughout the day and we applied citywide testing is necessary. It also included a suspension.
The normal production activities with our recreation segment during the month of April and May.
The day to day, I was really really difficult our employees I really want to thank you.
For their commitment to our customers our shareholders, but also for the safekeeping a one other during the difficult Todd that we journey through.
Hi, fiscal third quarter or manufacturing operations began to normalize at least in <unk> and the new cobot environment.
We saw our demand stabilize in certain segments, but there were still quite a bit on certain related to school attendance and working from home policies as well as pressures on municipal budgets and we still saw some ever been supply chain challenges. We did see great a increase in demand an RV segment and were able to wrap up or a recreation production during a job.
During the month of June we conducted our strategic business reviews with each of our business units. These these business reviews focus on our three year market product and commercial strategies. It provides us with a clear understanding of some of the challenges we're facing near term related to the pressures we've already talked about the most importantly, they gave us a three year view.
Commercial strategy for secured business that will look to continue to replenish our current healthy backlogs.
Yeah. The process the SBR process District strategic business review process is is the new prostitutes this ongoing but actually those discussions.
There was a great deal confidence with the the path to deliver growth above the end markets that we brought that we're in and this will be a source of improved profitability for the for the business.
Within the quarter. We begin we continued our journey of approving a building operational capabilities. Several of our business is how the strong history of performance and lean and another manufacturing excellence elements, while their business as we discussed in the past present, a great opportunity for improvement.
We're focused on developing our people our capabilities and processes to improve these results.
Well, there's inefficiencies that exist in our current operations that are manifest in our financial results.
There remains much opportunity inside the business great value.
We will continue to grow address these artificial sees over the next several quarters, while building, our internal better talent capabilities toward improving execution to get at this value that's inside the business.
I want to now moved to a summary of our consolidated third quarter results.
Although we are still experiencing the lingering impacts of the pandemic our results for the third quarter were generally in line with your expectation that sales of 582 million decreased 5.6% compared to our prior year, excluding recent M&A activity.
Organic sales decreased by 10% year over year, reflecting year end.
Lingering in market disruptions from the covert impacts primarily to revenue seven commercial segments, but these were offset by increased on a recreational vehicle demand.
Adjusted EBITDA by 21.4, knowing it was down 36% versus prior year adjusted EBITDA margin.
33.7% is a decrease of 170 basis points versus prior year.
Already these results do reflect sequential operational improvement in several businesses plus.
Sorry, flexing down of cost it at the businesses that were impacted by softer bad.
Much has been done since our last call to do address core issues that most challenging businesses, while taking steps to at the enterprise for building a performance culture focused on safety in the voice of customer and obviously cost management all focused on delivering improved bottom line performance.
Now I'll turn it over to Mark for the details of a third quarter financial performance.
Hey, Thanks, Rod and good morning, everyone.
Let's turn to page for the slide deck as I review our segment level performance.
Fire and emergency third quarter segment sales increased by 24% compared to last year to 307 million.
This includes approximately 75 million of sales attributable to our acquisitions Partney are that occurred earlier in the year.
Excluding Spartan organic segment sales decreased 6% as we said fewer amarin unit and to a lesser extent fire trucks from one plant due to cold continued covert 19 disruptions related to absenteeism inspections and delivery timing.
Within the fire Division, our Ocala, Florida plant.
From benefited from increased throughput due to a benefactor realignment personnel changes any focused on lean manufacturing practices. After several quarters are struggling to consistently increased throughput. We have once again experienced sequential improvement, which led to announcement of lower delivery times on new orders from this plant.
Net sales in North American ambulances were down approximately 20% year over year due to shelter at home orders the number of emergency medical service events, which reflects ambulance calls to our commercial customer base were down 4% in our fiscal second quarter, which resulted in temporary order delays from non.
Municipal customers.
The fiscal third quarter production decline was further impacted by limited availability of chassis from OE manufacturer that need production slotting more challenging.
As we exited the third quarter MMS events have increased and are down just 15% year over year and availability of chat. These has improved as a result, we expect a number of units and profitability of the ambulance division to improve sequentially as we move forward.
After needs segment adjusted EBITDA was 12.9 million in third quarter 2020, compared to 12.1 million a third quarter 2019. The increase was primarily due to Spartan we are and increased throughput at Ocala, partially offset by decrease the profitability of the ambulance division due to the sales reduction previously noted.
Spartan contributed 5 million EBIT the to the Japanese segment within the quarter, which exceeded our expectations. This was the result, the favorable mix and the quarter and greater than expected profitability as we were able to accelerate cost reduction and improved throughput sooner than originally planned.
Total company backlog was 1 billion up 34% year over year. This includes backlog acquired from Spartan and reflect strong ambulance order intake on a trailing 12 months, including a large municipal order that will be produced throughout fiscal 2021.
The decline in legacy fire truck backlog is largely the result increased throughput cala, which has lowered the backlog duration and allowed us to announce shorter delivery times for new orders, we will continue to work toward what we feel that normalized nine to 12 month backlog duration within the fire Division.
We currently expect sequential margin improvement within the attorneys segment, reflecting improvements in both the fire an ambulance divisions within fire strong third quarter performance that Spartan is not expected to repeat in the fourth quarter due to mix. However, we do expect operational improvement to drive greater EBITDA contribution from all other businesses.
Our ambulance businesses are expected improved from third quarters inefficiencies related to lingering cold it impacts, but are still subject to potential rests roundly chassis supply from our OE partners.
Turning to slide five.
Commercial segment quarterly sales of 92 million were down 55% compared to prior year period. Prior year reported commercial segment revenue includes approximately 55 million from the shuttle buses divested within the quarter. The remaining decline sales related to lower sales at all businesses within the segment.
School bus unit sales were down 33% year over year as orders for the fall semester were delayed due to school attendance uncertainty municipal transit sales also decreased versus prior years delivery timing was adjusted to accommodate customers that shifted budgets from capital investment to operating budget.
That orders were not loss, but were slightly shifted slightly to the right and we fully expect capture these sales over the next five quarters.
Specialty markets remained depressed with sales down nearly 50% versus last year at the end of third quarter. We did receive restocking orders for terminal trucks, our pricing has been competitive in this environment.
Commercial segment adjusted EBITDA of 10.3 million was down 47% versus the prior year period, which included 1 million of EBIT da related to divested charter bus businesses. The decline in EBITDA was primarily the result of lower sales, partially offset by aggressive cost out actions and all businesses.
Limited the decremental margin for the segment.
Either been some of our business does that flexing costs to match demand and the double digit margin delivered against deep revenue declines within the quarter reflect that this is the type of performance culture. The route has discussed there what we are building toward and we'll expect out of all our businesses.
Commercial segment backlog at the end of third quarter was 300 million down 24% versus the prior year quarter, which contained 87 million a shuttle bus backlog and inorganic backlog declined 3% was the result of the decrease school bus and specialty division orders offset by an increase in municipal try.
And the backlog, which we expect to build that into fiscal 2022.
The outlook for the commercial segment will be impacted by municipal budgets school attendance in both undergraduate and graduate institutions consumers' willingness to travel and capital expenditure programs on our rental company and logistics customers. We're closely monitoring state local and school district health and safety practices.
Such as this passenger spacing requirement are staggering routes have been implemented the limited number of writers and various municipalities and we are proactively working out solutions to assist public safety and adapt to our customers needs as we enter new buying cycles.
However, we currently expect all commercial end markets remained depressed within our fiscal fourth quarter, and we'll continue to flex our cost structure to reflect the ongoing level of demand.
Turning to slide six.
Recreation segment sales of 183 million were up 10% versus last year, reflecting strong wholesale shipments and retail demand for all motorized categories.
And the total business, which is located in California production of trailers and campers remain suspended during the early week for the quarter due to cold bid related work restriction.
Segment sales were also limited by industry wide supply chain disruptions, particularly class a gas Kathy furniture appliances and certain electronic items.
Recreation segment, adjusted EBITDA were 12.1 million from third quarter down 5.5% versus the prior year the decline of the but EBIT da Despite an increase in revenue was primarily a result, a decrease in sales and resulting profitability at our towable business due to lingering production shutdowns within the quarter, partially offset by an increase.
Recent sales and profitability within the class eight business late in the quarter due to higher volumes and cost out actions taken.
Segment backlog increased 153% year over year to 328 million.
The increase as a result, a strong order intake cross all RV categories over the past three months as we regain the momentum of dealer signings and product introductions that we had carried into the cobot shutdowns.
Within the quarter, we gain retail share in class eight class B and campers and remain approximately flat and plastics and trailers retail sales continue to outpace wholesale shipments and dealer inventories are down and averaged 33% year over year with many brands near historic lows, we are working through.
Our supply chain constraint that will adapt our production line rate to reflect product availability as work against record backlog.
We expect to navigate supply chain uncertainty and participate in the current recreation market rebound, while continuing to take share in certain categories.
Increased chassis availability in products and balanced expect improved profitability at our class eight business and benefit overall segment profitability in the fourth quarter.
Turning to slide seven.
Year to date net cash provided by operating activities with $25 million compared to $22 million net cash provided in prior year period.
Yes generated was related to improve networking capital efficiency, specifically related to inventory management.
We continue to optimize our use of networking capital in our businesses as we focus on a cash return on investment framework that measures overall asset intensity, including net working capital against the returns on those assets. We will also identify and liquidate unproductive assets. The operating inefficiencies. The company has experience over the past several core.
Orders has also led to the inefficiencies on the balance sheet.
Within the quarter, we exited the rental operations within our Rep finance operations and encourage the $3.7 million noncash impairment for Linzess anticipate sale of all rental vehicles. We're also continuing to pursue the sale of land another assets with expected proceeds of approximately $10 million NRC.
Bill awaiting a care that cash refund, which is now expected to be received within our fiscal fourth quarter.
On May Eightth, we divested two shuttle bus businesses generating 49 million cash at closing, which was used to pay down debt within the third quarter net debt as of July 31st with 373 million, including 17 million a cash on hand versus 377 million at the end of fiscal 2019 at.
Additional cash from operation the fail on balance sheet assets anticipate care that cash refund will primarily be used to pay down debt as work to reduce the total amount of debt and our fourth quarter.
At quarter end, the company maintain ample liquidity with $221 million available under our ABL revolving credit facility.
Well I mean networking capital perspective on July 31, 2020 was 402 million compared to 429 million at the end of second quarter. This change reflects the divesture of shuttle bus businesses as well as improved inventory management, partially offset by timing of payments within the quarter.
As you saw earlier today, we re assume full year fiscal 2020 guidance with sales and be in the range of 2.25 to 2.3 billion and adjusted EBITDA in the range of 64 to 60 billion. This guidance reflects the current visibility on supply chain availability absentee rate.
And government policy surrounding colder 19, and adjusted EBITDA outlook reconciliation as well as that income Rick Reconciliations are provided in today's press release, and then the appendix last slide deck.
I'll turn it back to Rob for closing comments thanks Mark.
In closing just it just a few closing comments before we head into question as I would like to once again, thank the dedication of our employees throughout these empresas events over the last six months, they've demonstrated ingenuity resilience and adaptability to change that impact the work conditions here, rather, but also frankly their lives together, we navigate uncertain related.
Certainly related to supply chain disruptions of demand we face the challenges of the past few quarters.
And thinking about.
The road ahead, and we certainly are excited about what we see in terms operational opportunity ahead of us Im very pleased with notable change in collaboration are all levels.
The value stream mapping that we see on our production floor to the tighter alignment between divisional corporate leadership.
Now were taken important steps towards realizing the full benefit to become an operating company, we're entering fiscal year flight 21.
Annual planning process with great enthusiasm to continue the momentum that we're building as a foundation for the excitement with much excitement.
For the work that lays ahead of us so.
Again, I can't say, how grateful and with the team for the hard work that theyve done like selling about the future and the things that we're doing and with that I'd like to handle the operator, we can take a few questions here. This morning.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask your question you May Press star one on your telephone keypad confirmation total indicate your line is then the question Q you May Press Star too if you would like to remove your question from the Q.
Core participants using speak or equipment, and maybe that's starting to pick up your handset before pressing the star Trek.
Our first question comes from the line of Courtney Jaco bonus with Morgan Stanley. Please proceed with your question.
Hi, great. Thanks, guys.
I'm wondering if you can just comment a little bit on.
The margin trajectory for commercial given that you.
Kind of see.
Sales to be depressed through the fourth quarter, but obviously given taking a lot of cost out have variable margins in the quarter. So can you just help us think about.
How to think about margins in the commercial business.
Especially given these depressed sales and then also I think you said you expect to recapture the sales over the next five quarters do you have any sense of the cadence of when that will come in will it be Barry.
Heavily backend loaded baby and not until next year. Thanks.
Hey, calling as Mark I would say from a.
From the transit side.
The shift and Thats the order that we're building against the as I noted in my comments Rue 21. So that was really just a shift out of the year end to further into I would say probably sequentially over the multiple quarters Q1, Q2, Q3, I wouldn't say, it's all back end loaded from that perspective, and then the cadence you as you asked on the.
On the bus side, that's really maintaining that margins going be key from the perspective of there we see volume coming back up but still depressed, but as far as our line rates will be looking at extended line rates. There. So we won't get though pure efficiencies that we have in Q3 that we are building up a larger backlog there so as the backlog came down.
Some of our build schedule will be stretched out and we'll maintain the workforce, but that will still drive some efficiencies, but I would not expect the margin to maintain at that percent that we had in Q3.
Okay. Thanks, that's helpful.
Then I guess, maybe just on the strength that you're seeing recreation.
You, obviously mentioned you're seeing strong order intake across all the categories, but any sense of the cadence of that did the exit rate of orders.
It is strong as it was kind of earlier in the summer.
And I think you mentioned that the production was on it for the trailers and kemper's.
Where are we on that or are there any kind of constraints on the production side.
Or how his production been ramping thanks.
Well. There's this is rob there is a bit of variability for business to business. There. The constraints, we see on the production side are still related to supply chain constraints around certain materials and then some absenteeism, that's that's somewhat localized and the businesses, but we look at the order rates Bert retail versus wholesale and.
The retail continue to outpace wholesale so we continue to see good movement of product and in terms of growth has been going into the channel and then but we're also mindful that that's a cyclical business that is subject to change based on that.
On the cold it. So we're optimistic we've got great backlogs were going to continue to convert those but we're also very got our year to the market to make sure we're understanding.
How that how the market proceeds through through as we as we hopefully solve this is called the scope to challenge the.
Yes.
Okay, great. Thank you.
Our next question comes from the line of Steven both Bird from Jefferies. Please proceed with your question.
Yes.
Steve involve buyers lives.
Yeah, I think a hedge a muted sorry can you hear me okay.
Everything here.
Sorry, So Ron I guess, a couple of things Big picture and then a quick follow up from Mark if I could.
You've been there a couple of quarters now you've obviously started to move the needle I think with respect to.
Sort of productivity initiatives et cetera, do you have enough kind of under your belt now to have a view as to what level of margins are kind of attainable over a two to three year period I don't know call. It maybe at a mid cycle level volume just kind of what can this business do now that you've kind of get your arm.
Yeah around the issues.
Well I think that.
Hello.
Business unit by business unit Theres, some variation, but our belief is that this is this portfolio of businesses should yield double digit earnings and that's what we said in the first of all I think it's just getting the operational capabilities built and the disciplines bill to deliver that it's not.
Wholly dependent on a lot of volume leverage to get you. There I think we just got to continue to work.
Cost of goods sold add or structural costs.
Obviously maintaining throughput.
And there's a path to get there. So I just I'm a big believer that this is a double digit earnings business as a portfolio and that's that's where we're going to get it so.
And that would be EBITDA earnings.
Yes.
Right. Okay, and then Mark you mentioned, a number of things that should be beneficial to cash flow in the fourth quarter.
Anyway to sort of put bookends around the the numbers there I mean, what what do you think we could.
During the fourth quarter for cash flow.
Yes, we have ins and outs like you said, so I don't want to give forward guidance.
Cash flow, but there are you know as as we pointed out we're still pursuing the land, which I think the previous management also said as well as our care The act, which we have quantified of 10 million, but as we continue to work through Steve as I mentioned the inefficiencies on our balance sheet. We have now actually put in process that we can look at our optimize position by business unit.
Our inventory and continue to work that as the inefficiencies come out, but we will be positive cash flow for the quarters were predicting but look and it probably not at this point with some of the larger items, we have that we're calling on the come through there.
Okay is working capital as source or use in the fourth quarter.
It will be it'll be a source.
Okay. Thank you.
Yes.
Our next question comes from the line of make Bill vary with Robert W. Baird. Please proceed with your question.
Thank you good morning, everyone just kind of wanted to follow up on on Steve's question there.
Yes, good a little bit different rod.
What would you say you are in terms of assembling your broader team that you wanted Rep group at this point and where are you in outlining the broader vision for the company.
I can appreciate your comment that you believe this business should should be able to do double digit EBITDA margin.
But I think it's not entirely clear as to how we're going to get there and.
The things that you're effectively going to have to do.
To this sort of build that momentum some kind of curious as to where we are in a process and maybe some of the things that you can give us the kind of help us along here.
Yes, we spent it's a great question. We spent a lot of time as a leadership team and I'll get to the first part of your question at the back in in terms of the structure of the team and were that journey that we spent a lot of team time as a team working on a right to left process of understanding of what could this business yield and then where is that opportunity trapped inside that business and in your.
Look at you look at.
Fixed caught your structural cost of your footprint you look at those elements, but a lot of this value is trapped in and I believe is purchasing upside conversion costs.
Hello, and opportunity and design cost and so building the capabilities.
To get it that internally on how you think about what kind of processing and talent do you need to go get it.
Lean activities that drive conversion cost improvement purchasing.
Cost opportunity that you can get out did I think still while we've done some good things there I still think theres much opportunity in our and our material purchase materials material spin.
And then obviously getting design cost as you think about platforming products a lot of those things are tight those things are tied to.
Building capabilities.
Inside the business and then rigor around tracking pipelines to go get it that we have built in the short term we've supplemented our team by bringing in into specific businesses to get at some of the near term opportunity just really think about lean implementation and value streaming in these plants.
In the short list of plants we.
Got it accelerated that by bringing folks and to help us while we're building the capabilities, but it's really traditional the opportunities to get the margin expansion.
Really.
Prototypical things that you would see in any way industrial manufacturing business. How do you look at your costs and we do have aspiration is to go to market, maybe a little bit above the market, but we're trying to identify the path to 10% of what we've done the work we've done like which I referred to is right to left which gets US there is really a journey across time to get these operational costs.
With respect to that respect to the talent.
When you look at the top.
Call. It 30 leaders are that the company weve in the six month. So we've been here, we changed about 40% of those people. So we've done a lot of transitional leadership I think the journey around leadership is it is never done I think you're always looking at where you're at and adding talent or upgrading talent.
I do believe we've made a lot of progress there and I think it's we're starting to see evidence that in some of that results in the business as well we were early in the process. It's not a long journey, but it's a journey where you got to you got to build these capabilities you got to tail to do that and we're we're moving it to.
A quick pace to do that were also as I mentioned before bringing in.
Folks to help supplement to accelerate the changes that we did in some of these businesses that are more Julie.
Underperforming.
In the portfolio.
Sure. Thanks, Thanks for that color I guess, if I'm looking at the fire and emergency business right.
This is at least in my mind, one of the key levers that you have in driving value inside the company. I mean, this is a business that if I look back.
Gotcha call. It three years ago was definitely earning double digit EBITDA margin and the volumes haven't really changed.
All that much over the past three years.
So we're not talking about significant volume compression yet the margins, obviously art art materially lower.
You know you talk about some of the changes in purchasing and some of the changes in design.
I, certainly understand how that will generate savings, but unless I'm missing something here, that's not really what created this margin compression and within within this business. So you know what needs to happen here, specifically for things to get better from a profitability standpoint, and I'm wondering if there are some thing.
That you can do here on a more sort of accelerated timeline in order to get.
Sort of the cost structure Rightsized and.
Efficiencies out of your operations to get margins, where they need to be thank you.
Yes, that's that's specific to your question your asset specific what.
I tried to show I Didnt shares that apparently it was that it's around leading activities with the margin compression was a lot around the topline staying flat and a lot of bodies being added to the business that didnt increase throughput.
So you got a lot of Unabsorbed costs, an additional people these businesses over the last three years that eroded margins. So the idea is as you go like with the work we're doing it the one is value stream to get the.
To get the throughput up but also they get the processes to where you need less people with the same throughput or less people with more throughput and were middle that's one of the businesses, where we are has the greatest compression of mortgages over the last three years, where we have the team on the ground right now we brought in support to work that process and what we talked about lead time reduction and and we talked.
About.
Proven the businesses Thats one of the businesses that we are seeing improvement that we will need to get to double digit to get back to restore the mortgaged where there were so there is short term things are structural costs things that we're doing.
But there is also just block and tackle how do you look at the flow of the work through the plant improve that flow and ultimately have less people.
To to get the throughput and Thats the best the process Thats not to.
It's an ongoing process, but it's something that we're already seeing benefit and the businesses that were taken action. So.
We're working very hard.
Okay. Thank you appreciate it.
Our next question comes from a large Jerry Revich with Goldman Sachs. Please proceed with your question.
Good morning, everyone.
Good morning.
I am wondering if we could just talk about the progress. We you folks have made it at Ocala Medicaid can you talk about what you've proven ability to drive higher outline production rates and in terms of.
Product simplification opportunity set in the longer term can you just talk about your approach to that element.
Cost improvement.
Activity story.
Yes, I think that.
Ill call, which is the one business we.
Yes, that's we broad folks and to look at how we separate line to devalue streams you can get her line rates up by platform. So right now part of the work that's being done is on aerials, we had an aspiration to get that winery up.
The three three week and and the process is one is getting clean around the throughput on aerials, but a lot of its around how we manage complexity in the business.
The there's the growth of building a backlog of over the past figures a lot of its both been built around.
Custom units that and getting our cost right up front understanding what the market price of these arm and get an engineering documentation right. So there's work done on the upfront around process flow to from sales engineering and from engineering to ops.
To help out the bill it's as part of the value stream, but also.
Separating that line. So we can guarantee a throughput versus a mixed use line, where you're you're you don't have the transcript. So thats a big part big part of it and then the other the other piece that I'm very encouraged about is the work that's being done on our channels to be more active and engaging with our channels a development opportunities and.
In improving our performance of our channels to help us.
Not only get better quality of orders, but also to get the error rates in the defects in orders done. So you get you can get to the build quicker with a better better design upfront. So the work that's being done there is really the full value stream from initial how we do a deal development the fields.
Hi that converge and engineering to to the manufacturing floor.
And then once you get on the manufacturing floor, how do we make sure we have line of sight across the value stream of that business ticket the throughput we need and obviously part of that value streaming is looking at your labor costs and figure out how do you how do you lean down your operation to get as good or better throughput with less labor content.
And we bought in we brought a program management expertise to supplement the workforce, we brought in lead expertise as well.
We have a weekly cadence.
Where that part of at the present the business can't always part of where we inspect the progress against committed timelines and we're on top of that.
It was one of the first plants I want to I came here I was there last week again and while we still have work to do there has been remarkable work done and getting that business streamlined to get us to spot, where we can get to the profitability that we deserve so.
That's probably all the businesses that we've got one of the ones that we've we've seen the most advancement in the at least.
The six months or five months I've been here.
And I am I correct me thinking about the longer term opportunities you're meaningful reduction in the product variability.
More.
More rigorous order management system and term Jay the level.
Customization move.
Is that the opportunity that's in front of us and if so what's the timeframe.
I think that the others. When you think about the optimization of the far business was a network you have multiple businesses that today operate largely independently of one another in terms of how the demand creation and demand execute Dave and fulfillment.
And certainly the product designs in the engineering or also separate there when you think about a longer view and you think about this over probably two to three year time horizon.
There is looking at how you product platform across your entire business that you make sure that you keep the differentiation in the identity of the brand. So the channels of an ability to sell the value. We also expect the value that creates that but you also have enough to take ultramist complexity and you also have an opportunity to look at your footprint. When you think about optimal.
As a portion of your footprint, what you do where and what are your centers of excellence might be.
So those are all part of that same kind of philosophy around how do we think about being in a far business versus being in five for our business, but also maintaining the strength of these brands because this is a brand.
Driven business when you get down to the local local markets. The last piece of that the it's obvious is deal you think about engineering platform bases and commonality. It should also presented purchasing leverage opportunity for us are approved purchasing leverage opportunity for us.
As you look at colonizing a percentage of your design as much as you can while again maintaining that end market differentiation that you got to effort brands.
So we're looking at that very obviously right now we're keenly focused on improving the performance of each business.
Through several implementation and some short term activities, but the longer view, which was part of these this strategic business reviews that we talked about is how do we think about deep taken complexity out of the far business and leveraging the strength we have.
In that business as we think about what we do well what we do things will.
To be more efficient so.
Big part of the future.
And then just those shorter term question to you know in in the last in the Great recession, you apartment demand peak to trough was down somewhere in the 30, 35% range can you just talked about how the landscape appears today, what we saw in the last cycle is that the base case for the industry in your mind.
Yes.
Yes, Theres still question that we're seeing some things push right, but in our.
Our book to Bill died.
When you think about recreating that peak to trough.
The this is my personal opinion the fundamentals around this economic situation find ourselves of the day is very very different than.
The net during that period of time, but you know, whether we're going to idle see evidence in our and our channel discussions in order rates is going to.
Necessarily say, we're going to have that kind of peak to trough again, so maybe a little bit more optimistic than that we're not going to recreate that that situation, but the underlying fundamentals. The economy. I think are different now than they were at that time, even though there are pressures on municipal budgets. There was also.
We're not seeing that materialize to the extent right now on.
Throughout if you have any comments on that or thoughts on that.
Clearly, we'll be watching your onto the first.
The pass at Q2 municipal tax receipts, we took a look at.
Saint Louis that.
Didn't show a decline yet municipal budgets and any there was a slight decline was more than made up by federal stimulus and I think maybe the conditions and appetite for.
Drill backing of those phones might be a little different this time, but certainly right now and were eye on it and we just haven't seen anything initially too.
Give us concern and yes.
Rob mentioned the backgrounds are currently various term.
I appreciate the discussion thanks.
As a reminder, ladies and gentlemen star one to ask your question. Our next question comes from the line of Andy Casey with Wells Fargo Securities. Please proceed with your question.
Hi, Thanks, and good morning.
Question on portfolio review portion of.
The goal to improve overall EBITDA margin to double digits appears out I'm trying to gauge what the topline may look like outside its market share specifically.
Yes, I was asked on the last call, but wanted to get a refreshed.
How you're viewing the class a part of recreation against.
The work that's been done to improve returns there than the cyclical wave, it's it's riding and then.
Also are you.
Looking at other meaningful parts of the overall ramps portfolio.
You know for potential removal.
Yes, yes ill make a comment all.
Offer it to do remark as well I think that.
We're always going to look at our portfolio for opportunities to understand what's what what's a good fit westcor, we talked about a path to it has to have a pad that double digit earnings.
So I think that's an element of.
That will always be in a process of understanding you know because we are display a portfolio of companies and it lends itself well to be able to examine where youre out specifics probably will get into specifics, but I think the anything I think the overall long term, but I would say is that if we were.
To divest or something it would be complement it with the thought of how do we replace that that revenue and do better on those earnings.
So our overall pipeline goals or it's not to shrink.
Always be a timing elements of Divesture acquisition. If you were to do something that it's not reasonable time everything perfectly but.
We certainly believe that.
Being in a two and after $3 billion to $5 billion range or more is where we want to be.
As we go through the journey of Divesture and acquisitions, we're going to hold the topline did improve the earnings.
Obviously mood moved too.
To where I would say as more of a core position, but we're still working on defining that core.
Right now as a team and what we think that should be.
You are more.
Good.
Okay. Thank you for that right and then.
We kind of touched on a ready, but I just wanted to ask it specifically the.
Improved.
Fire apparatus plant throughput should we view that as a signal that.
Yes, the inefficiencies that have been plaguing.
That part of the business or.
Our more or less behind the the company can.
As you've been talking about through some of the questions really gets work on.
Turn improvement as opposed to.
Trying to make up for for some issues in the past.
No I'd say, we're on a path of improvement that we're certainly not finished with the improvement there's great progress being made but I believe that will you look at on a 123 or four that process is done right neighborhoods and that process.
Really super saying cost out that efficiency and waste and.
In complexity reduction.
That's that's always going to go I think we're well on the way I think we've made big steps, but were you can look at these businesses individually and still see tremendous opportunities for approve it just takes time and talent to get and rigor and get operationally capable people to do it will work in that product just theres theres theres opportunities there.
To that still remains in front of the so.
Which speaks to I think the right kind of as we want to see in terms of large opportunity businesses. So.
We're going to get the double digit rate allow that's going to become into our far business getting their add though.
Well, we're we're working at right now to get that on the.
Like that but it's not a it's not a do it done it's a continuous process of improvement.
Talking a lot about three per throughput lean, but the larger design opportunities design cost of purchasing are still opportunities as well that we probably a lean into as much as no pun intended gotten into as much at this point just because we're focused on the throughput side of the right now.
Okay. Thank you very much.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
So again I appreciate you know I think from a.
Where we expected the quarter to be and what Weve I think we have made solid progress.
I think that.
We continue to see moment in the business, we still see a lot of work that we have in front of us, but again, we're very optimistic on the on the progress that we've we've made in what we see in front of US I do want to thank the team again, I think that we pushed hard for change and to do things differently and I can tell you I'm really pleased with the with the way the teams responded.
To those requests we have a lot of work to do but again I think this erode heads is going to quite positive. We just we just keep to fight.
And.
And get to this this situation we deal with the goal that I think that we'll see good is that it was so appreciate the questions and we look forward to talking you again next quarter.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.