Q4 2020 REV Group Inc Earnings Call
2020, <unk> fiscal fourth quarter and full year earnings conference call on.
This time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
On the lunch require operator system during the conference. Please press Star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to drew cut up Vice President of Investor Relations and corporate development. Thank you you may begin.
Thank you Terry good morning, and thanks for joining US. This morning, we issued our fourth quarter fiscal 2020 results a copy of the release is available on our website at investors Dot Rev Group Dotcom.
Today's call is being webcast on a slide presentation, which which includes a reconciliation of non-GAAP to non-GAAP financial measures is available on our website.
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 by such forward. Looking statements. These risks include among others matters that we have described in our form 8-K filed with the FCC. This morning, and other filings that we make with the FCC.
We disclaim any obligation to update these forward looking statements, which may not be updated until our next quarterly earnings call.
If at all.
References on this call that a quarter or a year or two our fiscal quarter or fiscal year, unless otherwise stated.
Joining me on the call today are president and CEO, Rod, Russia, as well as our CFO Mark skin at Hsni. Please turn now to slide three and I'll turn the call over to Rob.
Thank you drew and good morning, everyone and thank you for joining our call. This morning, I'd like to start by walking on everyone back from what I Hope was a healthy and happy holiday season. We're pleased to report improved earnings for the fourth quarter, where we achieved the high end of our guidance that we provided on our last quarterly call.
Sales of 616 million worth 6% sequentially are up 6% sequentially. Despite some lingering in market challenges related to covert nine team illustrating the benefit from diverse portfolio of businesses as well as momentum momentum that we're building operationally our fiscal fourth quarter EBITDA of $28 million group, 45% earn EBITDA.
The margin increased 150 basis points on a year on year basis, despite despite a 6% decline in our revenue.
Our business generated 31% more either be a this quarter than we did on the third quarter and we were able to convert those earnings into cash, allowing us to reduce our net debt by over $40 million within the quarter.
We fully participate in an increased demand for recreational vehicles and share market share gain on three out of five product categories.
While our fire and emergency margins approved throughout the year. The commercial segment was able to address an organic drop in sales, a 120 million and limit our full year decremental EBITDA margin.
During the last nine months, we face difficulties on perhaps from unprecedented external challenges, while delivering three quarters of sequential margin improvement.
We still have much work remaining and we continue to operate to the challenges with parts supply and absenteeism.
Tied to the Kogan matter. However, we believe we're in a position to continue to deliver year over year improvements throughout the upcoming fiscal year through operational disciplines and capabilities that we're building.
One important cornerstone there we are committed to establish your Rev is to have aligned and unify leadership team that operates on the principles of timely data driven fact based decision, making with a high sense of ownership and accountability.
We spent quite a bit of time on the last few months focused on leadership alignment and organizational structure. We've completed our review of the businesses and.
And we have implemented a redesign of our operating model.
This was a thoughtful examination of how the business operates where decisions are made and how we are structured to predictably deliver results, creating value for our customers and shareholders.
The result of lives literally the management on how we're going to run this business and we're accountability sets within the organization, while simplifying our business and optimizing our cost structure.
There are many changes that were made to this process that will provide a bit of insight on a few examples.
We made a decision to move our center led parts business back to the business units.
There was an initial hypothesis the growth will be achieved by implementing a consolidated centralized parts business stemming from some end market synergies that growth did not materialize. Our business is inherently know our customers on products that have the institutional knowledge to answer questions and deliver results to our customers more efficiently.
Further the realignment will create a 5 million dollar annual cost structural cost savings.
Combined outcome on reducing complexity for our customers the unrealized growth and what ended up being creating a duplicate cost structure on the decision to make this change.
This decision was the result of a careful examination of how to efficiently serve our customers and simplify our operations converge.
Conversely, there are a few aspects of our operating model, where we move more firmly to a centralized operation and becoming an operating company. These.
These include development development of a simple that activities related to operational excellence commercial excellence, we're scaling up capabilities and processes will yield value creation for our shareholders.
Many of these capabilities have been discussed by management previously would have liked the commitment and rigor to yield sustainable improvements to create value. We're focused on change on that and made investments in new personnel and technology is still to our operating model to build the disciplines necessary to drive sustainable on preapproved improvement our performance.
As part of our operational excellence, we are building capabilities to improve database decision, making simple cooperation that improve efficiencies on our balance sheet. This includes disciplined review and controls of corporate costs.
Manufacturing overhead labor and direct materials requires increased capabilities focused on engineering manufacturing operations supply.
Supply chain purchasing doing.
To accelerate the change process and create a best in class operations. We have made several management changes there are a couple that I would like to highlight the day.
First we'd expand the role of our commercial President Brian Prairie to include the role of senior Vice President of operations in this role Brian Brian leaves, our manufacturing execution operational excellence on supply chain Brian.
Brian as a master black belts, and six Sigma lean sensei and has extensive background on manufacturing operations and purchasing.
Making him the ideal person to build out are solid operational efforts here.
He is well positioned to take on this dual role while continuing to lead our commercial sector.
Segment.
In addition, we have hired Rob this laski on as.
As Vice President and Chief Supply Officer, Rob joins Rev Group, having recently led Honeywell Intelligrated global supply chain and was honeywell's corporate Chief procurement officer.
As CPR on Honeywell, he managed $18 billion annual spend a portfolio as well as leading 3000 procurement global procurement specialists.
Rob as a very broad industrial background from aerospace automotive.
Paint and coatings and includes logistics.
He has had executive leadership roles with XP logistics Valspar rentals group Alco.
He brings the Rev group, both the vision and the execution capabilities to build the best class Global sourcing organization were looking for and purchasing supply chain organization combined with a sense of urgency to do this at a pace Robert.
Rob has only been the position to Rev for a few weeks, but he's taken exhaustive look at our infrastructure as quickly to identify the list of opportunities I'm very pleased to have Rob joined our team I look forward to the impact.
Will have on our business performance.
Am I know I must as joining Rev. There have been challenges some that were expecting something unexpected we've implemented much changed during that time, we began to see sequential improvements in our results. We have much work remaining in the months ahead, but I'm curious about the progress to date I look forward to share more about the plans on the path forward with you during our analyst Investor day that we're planning for April.
With that I'm now going to turn over to Mark for details on our fourth quarter segment performance Mark.
Thanks, Ryan and good morning, everyone. Please.
Please turn to page four of the slide deck as I review our segment level performance.
Fire and emergency segment fourth quarter sales were 330 million, a 23% increase compared to prior year. This includes approximately 75 million of sales attributable to our acquisition aspire NIE are that occurred earlier in the year.
Excluding Spartan organic segment sales decreased 6% from the fourth quarter of last year, while organic from your sales were relatively flat, we shipped fewer ambulance units due to lingering impacts on cove it.
Although down from prior year, North American Ambulant deliveries increased 21% sequentially and order trends continue to remain strong as municipalities and federal stimulus dollars prioritize health and safety needs care that stimulus dollars remain available for ambulance units delivered through the 2021 calendar year EPS.
And continuing an important driver of demand for our from these segments.
Within the fire Division.
But increased sequentially once again that our E. One plant in Ocala, Florida unit production was up 44% year over year, demonstrating the benefits of lean programs and operating disciplines that were deployed over the second half of the year, bringing on and lean expertise allow to dual track of affecting immediate change while low.
Selling time to develop leadership training internal resources and build a pipeline of opex projects that will sustain continuous improvement.
We plan to follow this model of deploying lean assistance, where we feel there will be an immediate impact while training our internal teams at all businesses through a lean academy that is designed to deliver annual throughput and cost out targets.
After these segment adjusted EBITDA was 14.8 million in the fourth quarter 2020, compared to $7.4 million in the fourth quarter of 2019.
The increase was primarily due to the improvements anyone just mentioned and the acquisition of Spartan The R.M. Lindsay EBITDA was relatively flat with the prior year. Despite the decrease in sales due to product productivity improvements that increased margins, most notably at our largest manufacturing location in Orlando.
Spartan contributed 4 million adjusted EBIT da to the F. any segment within the quarter, which completes three quarters of integration that exceeded expectations. The.
The addition of this world class chassis manufacturing business provides a center of excellence that will be leveraged across our fire businesses and brands, creating further opportunities for manufacturing efficiencies within the segment.
Barton is now integrated Mcf, a knee segment operationally and we do not plan to call out its individual contribution in the future.
Total left from the backlog was $966 million up 16% year over year. This includes backlog acquired from Spartan and strong ambulance order intake throughout the fiscal year, including the fourth quarter Dick.
Decline in legacy fire backlog is largely the result of increased throughput at the Ocala plant and a decrease in fire industry unit orders that occurred from the onset decoded through approximately September of 2020.
Industry orders during that period declined over 25% since that time and during the final two months of our fiscal 2020, our order rates improve two levels on par with fiscal year 2019.
Fire backlog remains strong and now reflects competitive industry lead times, an ambulance backlog is at a record high which provides a solid base for sales growth and conversion to earnings within the F. any segment. We currently expect year over year, if any revenue improvement versus this year softness related to covered absenteeism and inspection day.
Delays, which occurred primarily in the second and third fiscal quarters at this time EPS, another recurrence or the virus or additional government restrictions, we feel confident that we will convert to earnings more efficiently and with improved incremental margins.
Turning to slide five.
Commercial segment fourth quarter sales were $91 million, a decrease of $56 million compared to the prior period, which included approximately 57 million from the shuttle businesses divested in early 2020.
Organic decline in sales was related to lower sales at all businesses within the segment year over year School bus sales declined 14% in the fourth quarter, which is a significant improvement to the third quarter decline of 31% and puts our fiscal second half 2020 sales ahead of reported declines in industry registrations for the same period.
Yes.
Municipal transit sales decreased 40% versus the prior year, primarily due to delivery schedule adjustment to large order to accommodate the needs of our customer that we disclosed on our fiscal third quarter. The change extended that delivery timeline through fiscal 2021, and there have been no further changes to that contract.
Specialty markets remained depressed with sales down 40% versus last year. While this event permit from third quarter decline of 50%. The sales were primarily existing stock units built to order cancellations, our delivery delays that needed significant re work to meet customer specifications.
Turning to segment.
Adjusted EBITDA for the commercial segment commercial segment adjusted EBITDA of $6.4 million was down 61% first the prior year period, which included a 1 million EBITDA related to divested shuttle bus businesses.
The decline in EBITDA was primarily results from the sales decline in all businesses as well as the inefficiencies related to the rework of stock units within the specialty division.
While the stock unit rework hitting negative contribution to performance in the quarter given the severe end market declines in this business, we took the opportunity to right size, what it become an inflated stock unit inventory within the bus division. Despite revenue declines in both school and municipal markets. These businesses were able to can they do to.
Flex production with demand and contributed high single digit EBITDA margins.
Commercial segment backlog at the end of the fourth quarter with $274 million down 14% versus the prior year quarter, which contained 86 million. The shuttle bus backlog, excluding shuttle bus and 18% organic backlog increase is the price is the result of an increase on specialty division orders within the fourth quarter.
And timing of a large municipal transit order that entered backlog in the first quarter. This year, partially offset by decreased school bus school bus orders.
The increase specialty orders were for both terminal trucks and street sweepers and this quarter marks the best order intakes since fiscal first quarter 2019.
We have been aggressively pursuing new contracts on renewals in these markets winning a large rental company contract for street sweepers and advancing in the bid process for terminal trucks at several national accounts last month, we are excited announced a partnership with Highstar Yale group to develop electric and hydrogen powered terminal trucks.
To reduce emissions and it create increase efficiency and productivity. We are targeting the end of our fiscal year to have the initial prototypes available from market testing.
With momentum and momentum in our specialty markets a longer cycle municipal transit backlog, we feel the commercial segment is in a position to grow revenue despite uncertainty or surround the site. The timing of a full time return to the classroom and impact on school bus demand as COVID-19 vaccines become more widespread there is real.
On to be optimistic that decisions reopened schools and districts will benefit our peak spring selling season from school bus given the cost out activities that we took this year across all of our commercial segment businesses, we expect increased volume and specialty and potentially school bus to convert at solid incremental margins, we anticipate the overall.
On variability of 2000, Twentys commercial segment bottom line margin performance will dissipate and 2021 absent any new government directives that may impact end markets employee attendance or delivery acceptance the near term potential for this segment remains in the high single digit EBITDA margin profile.
Turning the page to slide six.
Recreation segment sales on a 194 million were up 12% versus last year, reflecting strong wholesale shipments and retail demand for class B class C and towable units.
I'd say shipments were down mid single digits versus last year's production was limited by supply chain constraints, primarily in gas units, we feel that backlog and productive and production capacity on place to support higher shipments once the bottlenecks clear despite shipping fewer class a units.
Award winning product introductions continue to take market share, resulting in higher retail demand increased pricing and lower discounting and allowances.
Recreation segment EBIT da.
Adjusted EBITDA was $20.5 million for the quarter, an increase of $12 million on 175% versus the prior year adjusted EBITDA margin of 10.6% reflects on.
Hi reflects the higher sales mix of non class a products within the quarter as well as the impact of operating leverage and productivity improvements achieved across all categories with sequential and year over year margin gains.
Despite lower class eight unit sales profitability increased over 650 basis points versus fourth quarter, 2018, and far business that recently struggled a breakeven it was encouraging to see profitability reached levels that are not attained over the past two years.
We expect to continue this momentum by driving efficient manufacturing practices and commercial activities focused on dealer wins on market share gains that will deliver sustainable performance not only during this upturn in demand, but across all parts of the demand and stocking cycles.
Segment backlog increased 228% year over year to $540 million, which reflects strong order intake cross all RV categories over the past six months the past two quarters, where historic highs for orders by a substantial margin and our current backlog is nearly double that of any point in revs Recreation segment history. We've.
Feel this supports the current industry thinking that wholesale shipments will be up 20% or more in calendar 2021, and that our product portfolio niche market placements and iconic brands like lands us on a strong position to participate in that growth as we move forward. We expect the sales mix of products to normalize of cloud.
From a production and delivery schedules improve and therefore expect segment margins in the mid single digits force at 10% achieved in Q4.
On slide seven.
Consolidated full year net sales declined 5% year over year to $2.3 billion in a challenging year that included expansion of production activities at our recreation segment at the onset of coated and unplanned disruptions related to the pandemic at several other businesses adjusted EBITDA declined 34% compared to fiscal 2019.
To 67.5 million nearly $50 million or three quarters of that total occurred in the second half of the year as revenue throughput and margins improved sequentially through the period Rod mentioned the number of restructuring activities related to Rightsizing. The organization. This included decentralizing the parts business from the corporate center.
Her back into the independent businesses, and sunsetting less profitable brands and dealer relationships within the portfolio. The total structural cost savings executed through our fiscal year end.
Expected to deliver a total of $10 million annually.
Turning to slide eight.
Full year net cash provided by operating activities was $56 million compared to $53 million of net cash provided in the prior year period cash generated was primarily related to improvements in accounts receivable and inventory management as well as an increase in customer deposits received we will continue to work all aspects from net working capital.
Oil, including reinforcing the discipline needed to reach optimal inventory levels balancing accounts receivable on payable terms and aligning more of our businesses with a model that collects a greater amount of customer deposits net.
Working capital at a corporate 31st 2020 with $355 million compared to $373 million at the end of fiscal 2019.
Net debt as of October 30, Onest was $331 million, including 11 million cash on hand versus 377 million at the end of fiscal 2019 at fiscal year end. The company maintained ample liquidity with 283 million available under our ABL revolving credit facility remains.
You may recall that our term loan amendment effective in April of last year reverts to a net leverage ratio of 5.25 times with certain add backs related to the Spartan acquisition in the fiscal first quarter of 2021.
We are confident that we will obtain this target you may also recall that our term loan expires in April 2022, we will be working with our banking partners throughout the upcoming months to optimize our capital structure.
We do not plan to issue guidance today due to the recent recurrence a COVID-19 cases globally within our business across the country. The safety of our employees remain the top priority contact tracing testing and measures to prevent the spread on the virus come with uncertain staffing levels that impact.
Our businesses and supply chain partners. The CDC has issued and continues to update new directives that we follow under these conditions, our customers ability to travel inspect vehicles for acceptance creates uncertainty of delivery and revenue recognition timing until we can reasonably predict the potential impacts of these changes we feel it would not be prudent.
To give a range of estimates however, with the emergence of vaccines, we hope to have better clarity on when we host our virtual investor and analyst day in April that Rod referenced please save the date on April 15th when we plan to provide a deeper look at our business and operating model and provide immediate term targets. If we feel that the operating low.
Inscape has become more predictable we expect to also provide full year guidance, we will extend a formal invitation to this event soon with that I'll turn it back over to Rod.
So I guess so.
Just a few closing comments them so.
So the day.
Fiscal year 2020 has been a challenging for the Rev group on our employees in many regards we have gone through a number of internal changes as we move towards the future. We sold the business purchase intent and integrated business during the time.
In which the external volume and as you all know has been very low and often unpredictable.
I'm pleased with the progress we have achieved in a short amount of time given the amount of change we have experienced our business continue to have a relatively healthy backlogs and.
And we still believe this support revenue growth net coming here. The most employees importantly, I'm very pleased with what our employees have time on the every day. They they put themselves in a situation where they've delivered on day, one they can to deliver on our commitments to deliver to our customers under some very adverse circumstances as we look to support the first responders and.
In our country. So I'm very pleased I want to thank them publicly for what they've done and with that I think will hold over have have a Q and a with an open Mike so.
Question and answers.
Thank you if you would like to ask a question. Please press star one on your telephone keypad okay.
Hey, Paul from mentioned Gela indicate your line is from the question can you.
You May post IPO as you would like to remove your question from the Q on Q.
Total clingy speaker equipment, maybe net starting to pick up your handset group our price.
Thank you. Please ask one question and one follow up question on then re queue for additional questions.
Our first question from Jerry Revich with Goldman Sachs. Please proceed.
Yes, hi, good morning, everyone and congratulations.
Sure.
Hey, Jerry Thanks, Thank you.
What really stood out was the margin performance.
RV business that you alluded to mix, helping I am wondering if we just step through looking at the year over year.
Margin expansion, how much of that was improved productivity, how much of that which pricing mix and should we think about the mix tailwind as being sustainable from here.
Yes, Jerry on as I said in the my prepared remarks on the mix really helps us and I think we've always said that outside of the class a those are double digit performing businesses. So when you look at the mix there are mix was.
Down on class, a and we really had two things helping us on from a tailwind perspective. The fact that we had a larger mix in those more profitable business of being the class BCS and Towables and class a actually had a high concentration of diesel product within the quarter, which is more profitable than the gas products.
So even though we think all of it.
A lot of the furniture issues, we've had that we've talked about previously were on our GAAP unit lines and so even within class day, we had a margin pickup from the concentration of diesel within the quarter, which we would expect to more flatten out or reasonable normalized rate going forward and of course as.
Class a continues to develop it will get more to the 40 60 sort of split that we traditionally have seen within that group. So it really is just a matter of the amount that we sold within those other product categories plus the mix benefit and of course as you saw within RV itself the productivity improvements that they had drove.
A significant part of that 650 basis point improvement.
Our sales force.
Sure.
Go ahead, sorry. Please go ahead.
Yes, I'm, saying that sales are actually down year on year right. So they actually were able to deliver a profit this quarter versus last though that was majority of that benefit was from productivity.
Okay, and then fire and emergency nice to see the Ocala turned the corner can you talk about how the production rates.
Continued into December have you continued to ramp higher or was it 40% increase essentially get you to normalize run rate and when do we see from an accounting standpoint, so lower per unit costs flow through to the flow expect.
Well I do think we this is Rob we have made considerable progress in that location, but there's still opportunity for us to even do much better there. So we as Mark mentioned in his earlier discussion that we've gotten back to more of a standard industry lead times, we continue to work on throughput on both arrows and poppers and that plant.
And we believe there is opportunities for continued margin expansion through productivity. So while we are pleased with the path Ron and we're seeing this thing moving get be able to get look at our backlog get to what we think's a more of a standard lead time.
So we do still believe there is opportunity to improve our efficiencies in that plant and give them more and get margin expansion in that business. So thats just working from it was so.
Thank you.
Yes, thanks, Sir.
Our next question is from Jamie Cook with Credit Suisse. Please proceed.
Hi, good morning.
I guess a couple of questions. One I think you noted on the commercial side you expected to see growth year over year, just a clarification I'm, assuming that's you know normalized for the divest share. So look at sort of the 90 million quarterly run rate. When you are talking and correct that that growth.
And I guess just my second question can you just give more color on.
Obviously the outlook on that on the bus side or the school bus side is it somewhat.
You know on certain on.
You talk to customers can you just talk about how they're thinking about buying trends in the latter part of the year what would be the major drivers what would they need to see to come back in the market and just sort of you know the overall age age of the fleet. Thanks.
Well I think that this is right.
The feedback we have from from end markets are from dealer partners is that the whole thing and certainly around school openings or schools that are open staying opening that's the that's the driving factor in it and right now there's just tremendous uncertainty around that is the back half of this year is going to shape ideally obviously with the emerged as the most.
Couple vaccines, and and I think whats our real drive for a low for people to get back in school from the public I think thats. It thats pretty clear that people want to go back to school that makes promise. We've got a couple of things there I think could be tailwinds to help us get where we need to be we're going to know I think by the time, we get to get together in April.
We're going to know how that shapes out, but right now they're just too much uncertainty for us to look forward and project what that school bus market is going to look like not knowing what the impacts of Cove is going to be until so we see the the success rate on this virus and what that looks like and further.
Moving into the into the spring when are we typically see April may being when we start getting significant orders and deliveries. So that will be a time frame, we're going to know, but right now its not clear, it's just a tremendous on certain everybody's kind of awaiting.
That that time period.
So sorry, and then just a commentary on revenues for commercial mice, assuming it excludes the divestitures and look at the 90 million currently run rate and then my last question how to think about the corporate on.
Expense line, you know as as we look to 2021 any color there. Thanks.
Yes, so you're right on that commercial that exactly right, excluding the $90 million and then on the on.
The carpet of course on parts was part of the centralized so that 5 million drops right to the corporate line. So you could see that 5 million drop.
That's where that was traditionally sell on the centralized parts business.
Okay, great. Thank you.
Yes. Thank you.
Our next question is from Courtney Yeah covenants with Morgan Stanley. Please proceed.
Hi, Thanks, Good morning, guys on.
Good morning, Corey back on the comment.
Appreciate that yes.
The mix shift and.
Recreation next year I think you said you expect.
On the industry wholesale shipments that's about 20%, but I think you had said that you were expecting mid single digit margins and I think we've historically been seeing more high single digit out of that segment. So.
Just wanted to make sure I fully understood.
What what you were thinking the mix shift impact.
Could have on on 2021, given consistently for some time now.
Yes, we've traditionally seen mid single digits. So you know what we determine as mid right five to 5% to 7%. So that's probably in line with what Weve historically done, but the mix shift really is what I referred to with Jerry's question is on.
Again at 40% of our sales being in the RV, our our class eight business close as you know are depressed margins on those bring down the ones that are at double digit free.
From a run rate perspective, so it's really the fact that RV are what we call. Our B R class a was actually down from a mix so as they come more to that 40% to 50% range. They are 40% in the quarter versus 50% in the prior year. So you had a 10% drop there from a mix perspective, and so it's really that that simple.
As far as looking at the other three business that we have in that portfolio at double digit and bringing in a lower single digit.
Mix from the class a will actually depressed those 10% down to the more the.
5% to 7% range.
Okay. That's helpful and then anymore.
If you could give us just on commercial Anthony margins as we think about impact next year, obviously appreciating that its going to be dependent on your delivery schedule.
Hi, little thoughts on on the margin side.
Yes, I think we said high single digits on the.
From that whole commercial side, but obviously on the capacity if you're talking about capacity that.
That's one we're still with that backlog here. So as I said in my prepared remarks, we took the opportunity to lot of the units that we had.
Developed coming into the what our normal selling season is different.
Develop but exiting the quarter, we're very happy with some of the progress we made in our backlog is now performing so we should see the of the variability get out of there, but when you look at the total commercial segment, we would expect the high single sort of what we are expecting covenant on a quarter. If we wouldn't have had the issues that we experienced on the commercial side on liquidation.
On that we did on low stock unit. So we would expect that to get more like we guided to last time more than mid or high single digits for the commercial segment.
Got you and then I guess just lastly.
You mentioned you have concerns about deliveries scheduled for next year, but if you had to just highlight.
What are the three categories that.
Has the most.
Variability or you're most concerned about versus the ones that are on.
Or that you feel most confident in the delivery schedules for next year, just so we can get a sense of what the real risk.
Hey, Mike by categories, you mean, the business units or the product categories.
I, Yeah, I guess I just meant.
Within the business units.
You see a recreation.
It's pretty.
Pretty strong so do you feel like that's great.
Where you have the most certainty versus some of the product lines and Anthony on commercial.
I think that the it.
I'll comment on margin clean up what I say I think that when you think about the end markets that are affected by the issues I think primarily obviously end market demand in the in the school bus businesses is the issue all the businesses are subject to some level of surprise supplier issues that we're dealing with I think RV is probably the one that we've seen.
The most stock outs, which is pretty consistent across the industry.
The other element that we deal with a little bit which is a timing issue not a.
Impact probably within the fiscal year is just the inspections that have to take place and amundson far around getting a bus off the wider on sorry, a trucker Amazon a lot.
Related to completing final inspections by getting people to the site Thats a real issue that we've been dealing with in terms of.
The revenue recognition because that has to happen in order for us to convert the bus. So I think it's.
In school bus is certainly is.
Its end market demand there. So some supplier issues that are spread throughout that we've been able to overcome for the most part but they are they are they do pop up and we have to work through that.
And then the last thing would be that the businesses that are subject to inspections, which is your emergency segment is where we see that mark on if you want to add anything I think thats right I think as we've said previously one of the things that we thought would happen here recall that as people converted like people working from home, we expected that more people would adopt virtual inspections for free.
Ambulance on fire trucks, and as exiting call bid on our customers have come back to wanting to see their trucks in person and what's his reserve resurgence here were hoping that they'll go back virtual but we have shifted back to wanting to do and person inspection. So we havent seen them going back to virtual. So obviously there is some flux there.
Our if people would go back to virtual inspections, depending on what happens with the cold environment, but we are back to our traditional as Rob referred to actually see in the units before they leave the the yard so that we can revenue them and thats really the delays that I was speaking to that's really our customers coming in and inspecting the units and approving them for share.
Net.
Great. Thanks.
As a reminder, this star one on your telephone keypad. If you would like to ask this question. Our next question is from Raj Patel with Jefferies. Please proceed.
Hey, Thanks for taking the question.
Quick one on ethanol margins on what's the anticipated after need margin expansion. Once all the production inefficiencies are sorted out on what do you think the new margin profile looks like in a new normal.
Good.
From a fire perspective, obviously as Rod has reiterated multiple times were still in a multiple ending journey here. So as these referred to on the one.
We still have a lot of work to do we're seeing progression but.
Of course, we have other facilities within the portfolio to that we're going to address as I said in my prepared remarks on we're still.
Expecting to be in the double digits on at the on this journey, but we're still working through that right. So of course, we're not giving guidance here, but again, it's still in a multiple year perspective to get to that 10. So we're just.
Happy to see that progression here that we've seen throughout the quarter and obviously our forward looking well provide more guidance.
And in April I.
I think the industry. There's there's when you think about operational improvements and how you walk down on that what mark referred to as a multi manager that when you come into the release. There's there's a quick things you can do to get pop and again improvement and then it's about building capabilities and I mentioned from an operational excellence standpoint standing up the lean capabilities.
And the center led type activities that get implemented in the plants.
Around the CDAI around purchasing building engineering capabilities to getting design cost TV.
Those are the things that you guys were capability building, but the good thing is that it's a continual improvement continuing improved process, where you're going to be getting at that every day by building pipelines to go execute against so we're in the process right now cash.
On our operating model discussion of standing up those capabilities and building out those teams and doing the certifications that mark talked about through lean that are going to yield benefit to us for a very very low on time things that did did not exist now we're we're standing up those capabilities and bringing on Rob Tullier purchasing organization and get focus on that significant spend.
I think its going to yield great benefit to us too. So those will all contribute to a margin expansion story not only in emergency but across the business and so thats, but it does take work to standard up it starts with organizing and aligning and investing in those capability building and then driving it through process rigor each each each day each week each month.
That's helpful. Thank you.
Our next question is from the debris with Baird. Please proceed.
Thanks, Good morning, guys on.
Hey, good morning question on on.
A quick question on chassis.
As you're looking at your gross production planning, but based on the backlog are there any portion of your business, where you're getting a sense that you're having.
The challenges depending on losses or.
On the delivery timelines on still on that.
And im not going on I'm thinking specifically around ambulances and stuff, but recreation as well like quest.
Yes, no maybe im glad to say again.
We are we're not experiencing those in fact.
We've and we've had a pretty good supply chain from that perspective. So I was happy this quarter not to be talking about chassis shortages for once a day, even though it's on the my second one so I know you've heard that consistently so we've been very happy with that in fact.
In the RV side, especially we.
We took advantage of what the run rates were going to be and actually ordered ahead so were actually.
Sitting with plenty of chassis from that perspective in that business and then on the anvil inside we haven't had any.
She is from a a chassis perspective, we've been getting on our appropriate allocations from our OE partners.
Okay, that's helpful and.
And then maybe my follow up on.
Sort of sticking with theme on.
He thinks about steel prices and raw material.
Inflation in 2021.
What are some of the steps that you've taken and mitigate both sequence.
Obviously historically.
This has been an area, where we've seen from trouble on prior years. Thank you.
Yes, so I mean, obviously on the parts of our business, which large for our business has been a lot of backlog of there. There's always the issue you are trying to offset inflation with your efficiency efforts because youve. Your purchase price is established on on backlog based business. So we're managing that obviously, a big part of what what Rob's.
Efforts is going to be is to look at new purchases to be able to offset offset that within this fiscal year. So we can cycle through and get the margins that we need on a price cost basis, but.
So its a lot around driving efficiency to make sure that we are doing everything we can to optimize our cost structure.
To have any leakage that does come through inflation into backlog base business, we can offset through other means and mark on if you want to add anything to that or I think thats right and that's one of the things that I am working personally with Rob on make sure we understand those inflationary factors as we go through 2021 as well as our agreements with our supply base and Thats one of the things that are on.
It's getting acclimated to on where Theres actually a heightened focus in those businesses, where we don't have the longer backlogs, we obviously come out with some price increases as our competitors have so we're managing that with the supply base as well as our customers I do think one of the things.
On the things we're working on is is trying to get in front of how we think about price price is a function of inflation and to make sure. When you think about price increase or sending a price in the market that you're thinking about the build cycle on when that.
That vehicle will get built so you reflect some inflationary characteristics in your costing in the business most of our businesses have done that to some degree but that is something I think that we got to get great around because when you're working on a backlog based business and you're doing.
Selling forward projection on deliveries you got to be thinking about the inflationary times that you're in and making sure that your costing that vehicle to such that by the time, you're doing to build our you're shipping a vehicle that you anticipated any inflationary costs and your price cost.
Oh, absolutely I understand on I guess I'm just wondering based on what you know today do you believe you're going to you're going to be in a position where you can be neutral from a price cost standpoint going forward or should we tried to bake in some kind of a headwind.
Yes, I think based on the data we have now relative to price cost efficiency efforts that we've gotten the business should yield is.
At a minimum neutrality in our performance going forward and in the fiscal year.
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Thank you good luck guys.
Thanks Mick.
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As a reminder to star one on your telephone keypad. If you would like to ask a question we low price for a brief moment for a final question.
There are no more questions at this time I would like to turn the conference back over to Rod for growth ahead.
Okay great.
Thank you again for joining on I appreciate the questions and now it's.
Again, I want to take a moment as we close on a fiscal year and nine month period for myself and then think about all the changes that we made both in process and structure and people.
To thank our team for what's been a pretty whirlwind year, considering all the externals situations that all of us have dealt with on top of that new leadership coming in and expected to do the things a different way and maybe change from thinking I want to compliment our leadership team and also thank our our frontline employees and what they've done to serve our customers and also served this nation.
On getting these necessary vehicles out to our community. So again I. Appreciate your time today and look forward to seeing you on April we'll have a deeper discussion around where we're taking this business going forward have a great to have a great day have a great weekend. Thank you.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.