Q1 2021 REV Group Inc Earnings Call
Greetings and welcome to the Rev Group incorporated first quarter 'twenty 'twenty, one and earnings conference call. At this time all participants are in a listen only mode. A question and 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 I will now turn the call over to your hosts and drew can up. Please go ahead.
Thank you Stacey good morning, and thanks for joining us. This morning, we issued our first quarter fiscal 2021 results a copy of the release is available on our website at investors day Rev Group Dot Com today's call is being webcast and a slide presentation, which includes a reconciliation of non-GAAP to 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 and include among others matters that we have described in our form 8-K filed with the SEC and this morning and other filings we make with the SEC, we disclaim any.
Cash and to update these forward looking statements, which may not be updated until our next quarterly earnings call if at all and all.
All references to a quarter or year are fiscal quarter or fiscal year, unless otherwise stated.
Joining me on the call today are our president and CEO rod rushing as well as our CFO Mark <unk>. Please turn now to slide three and I'll turn the call over to Rod.
Thank you drew and good morning, everyone. Joining us on today's call I will begin with an overview of the quarter's consolidated performance and then I'll move to commercial and operating highlights achieved within the quarter before turning it over to Mark for our segment financial detail.
We're very pleased to report our best first quarter adjusted EBITDA performance since our IPO in 2017 with over 200 basis points of margin improvement versus our first quarter of last year.
These results reflect the commitment of our employees toward building a culture of continuous improvement.
And by what the changes that we've made over the last nine months.
First quarter net sales of 554 million rub, 4% versus last year quarter.
Driven by increased sales and F&I, <unk> and recreation segments, and partially offset by softness and school bus and municipal transit markets, which were impacted by COVID-19 related demand headwinds and the first quarter and throughout much of 2020. However.
However, the quoting activity has picked up over the past few months and.
And we expect school bus and markets to respond favorably as more people have access to vaccines that are now available and this will likely lead to reopening of schools next fall.
First quarter adjusted EBITDA of $23 2 million increased 105% versus the $11 3 million a year ago and it also reflects 210 basis points for the consolidated margin improvement.
The structural cost out actions and restructuring.
Over the past year as part of our operating model review and are delivering bottom line improvement. These cost actions combined with our building of operational excellence capabilities and implementing our cadence of operational reviews, I realize the opportunities to drive waste out and operate more efficiently.
Within the quarter and many of our business has improved on their throughput and operating leverage that drove revenue growth and gross margin improvements strong first quarter order intake resulted and 12% organic bookings growth versus first quarter of last year, and we exited the quarter with a healthy $2 billion backlog.
Turning to slide floor side board.
We had several milestones and accomplishments within the first quarter. The highlight the strength of our brands our commitment to innovation and our focus on serving our customers.
Across the portfolio, our brands hold market leading positions within their categories. Three of these celebrated decade long and anniversaries and I'd like to publicly recognize.
First our wheeled coach ambulances and celebrated and amazing 45 years of innovation and market leadership, having sold over 50000 vehicles to commercial bleeds and municipalities across the U S, including the fire Department and the yard and U S General Services administration.
We'll coaches tagline tufted, but trusted by the toughest.
And this year's 45 year milestone certainly back that up.
Also celebrating milestone anniversary our anniversaries are two motor homes within the Fleetwood brand portfolio the class a bound and recently hits.
Or at least its 35th anniversary edition model.
But the class and the class a discovery released its 25th anniversary edition. These motor homes had been two fleets top selling rvs and our proudly represented the legendary and Fleetwood brand during during presence for the Fleetwood brand and these models is a testament to being the best Love our RB for generations of families. We are pleased the plan we have and.
To be entering the RV lifestyle, and we look forward to another 25 years of delivering our customers the convenience of home while they are on the road.
Our sport and bar brand announce a new purpose built chassis. The designed it is designed to provide fire departments with safety comfort and the performance of our custom cab and chassis, while meeting lower budget requirements.
Typically these trucks have been you have been built using a conventional commercial chassis with a standard cab that does not always accommodate equipment and protective gear the fire personnel need and serving our communities.
This provides our customers with the opportunity to meet their requirements that only a custom cab and chassis can deliver wider commercial cab and chassis economics, and then there's a real opportunity for smart and to expand their cab and chassis market share.
Able to fleet owners will be able to more efficiently more effectively manage and efficient and efficiency of their crews and the safety of their patients with the advance and the issue of advanced vehicle Informatics introduced within our ABB AAV business and.
In January of this year.
And the benefits of the trauma Hawk telematics are allowing real time driver and fleet monitoring that includes GPU GPS location service accelerometer data collision alerts maintenance and monitoring and functional accessory information and this will enable our customers to respond more quickly and reduce their total cost of ownership by user.
<unk> predictive maintenance and extend their free fleet service life.
And the first quarter, we announced a partner agreement with Hyster, Yale and our capacity business develop electric and hydrogen automation ready terminal trucks. These trucks have and attractive profile for fleet electrification the operate and relatively close radius. They have high torque requirements and they have relatively higher carbon emissions.
The project is currently under development and we expect prototypes and the ground by the end of this calendar year, beginning full scale production within fiscal year 2022.
And recreational vehicles, we continue to experience high demand our momentum continued at the Tampa Super show. This January which marked record sales for class eight business.
This year's show, our motor home and luxury coaches reported nearly 40% growth versus last year. Despite the agenda as being down 25 per cent.
Outside of this show and in all categories, we are experiencing unprecedented presale arenas as inventory on dealer lots remains near historic lows.
Within the quarter, we introduce innovations and product enhancements to the Rev portfolio.
I would like to highlight one that I feel different offers differentiated features that they provide enhanced value to our customers.
And the onset of COVID-19 has heightened safety protocols for all employers Rev. Like all others is substantially limited the presence of personnel and our offices and manufacturing sites, we've increased testing for frequency and quarantine suspected cases to provide the necessary spacing for social distancing.
The workplace situations and our nation's first responders space is no different and that's actually probably even more challenging.
And we're proud to support those who are on the front lines every day and proud to provide and active air purification system that reduces exposure to airborne contaminants like COVID-19.
The use of this system provides a safer cabot environment for first responders that have a hard time distancing from others and do not have the option to work at home, we have been working with municipalities dealers and contractors to retrofit existing units and equip new unit deliveries with this enhanced safety feature.
Finally, we were placing focus on all areas of value creation for our shareholders. We have discussed our efforts and operational excellence, but we're equally focused on improving our commercial capabilities. This includes our product management marketing sales operations and channel performance.
We're very focused and how we can work more closely and better support our dealers.
We have announced new dealer signings and we are focused on commercial operations and performance.
These efforts coincide with the rationalization of certain brands over the past few quarters and the realignment of these brands within our dealer network.
This focus on commercial excellence combined with our improving operational performance and our organizational cadence and rigor will enable us to continue to deliver improved financial performance was consistent cash conversion to free cash flow increasing total shareholder returns.
I will now turn it over to Mark for the details and our first quarter financial performance Mark. Thanks.
Thanks, Rod and good morning, everyone. Please turn to page five of the slide deck, because I moved to review our segment level performance.
BARDA and emergency first quarter segment sales were $281 million and increase of 36% compared to the prior year. This includes approximately $62 million of sales attributable to our acquisition and the Spartan ER that was that occurred on February one of last year, making this the final year over year comparison that will include <unk>.
And organic activity, excluding Spartan organic segment sales were up 6% as legacy fire and ambulance throughput increased despite lingering COVID-19 related disruptions.
And the disruptions. We are currently experiencing are more limited and generally with any handful of geographies that have stricter quarantine policies tighter labor markets are regional outbreaks.
The mix of ambulance shipments improved within the quarter with more high content units being delivered offsetting a reduction of lower price band units within the fire Division our businesses were able to realize price increases that were within their longer duration and backlogs over the last several weeks businesses and within this segment have experienced and.
Proved customer inspection and delivery acceptance. However, the onsite visits have not yet returned to a normalized level.
<unk> segment, adjusted EBITDA was $10 2 million and in the first quarter 2021, compared to $1 7 million and the first quarter 2020. The increase was primarily the result of improved profitability and both the fire and ambulance divisions productivity improvements at our largest ambulance plant contributed greater bottom line.
Portability, which resulted in the ambulance division EBITDA margin that was 180 basis points better versus the prior year quarter.
Largest fire plants productivity also significantly improved year over year as its lean practices and pricing discipline are taking hold with margins increasing over 800 basis points versus the last year's first quarter and the new management team that arrived last year the installed a regular cadence of operational reviews.
Designs and pipeline of cost reduction projects support to support future improvements.
Total F&I backlog was 1 billion up 26% year over year. This includes backlog acquired and the Spartan ER acquisition strong amyloid and Tau ambulance order intake over the past year anywhere he turned to regular fire truck order patterns over the past several months organic fire orders increased 28 per se.
And Amazon's orders increased 5% versus the first quarter last year we.
We expect this level of backlog to support mid single digit organic growth for the segment in fiscal 2021, and the momentum and converting sales to EBIT da to continue with year over year and sequential EBITDA margin improvements throughout the year.
Turning to page six slide six commercial segment sales of $83 million were down 48 per cent compared to the prior year period. Prior year commercial segment revenue included approximately $50 million from the shuttle buses that were divested and may of last year. The remaining decline and sales are delayed to lower sales of school buses, which are <unk>.
Oil and 29% year over year, and the decline and municipal transit sales that were down 23% versus the same period last year. This decline is consistent with transportation and markets that remain soft due to lingering impacts from COVID-19, with there and our first fiscal quarter, partially offsetting the decline was an increase.
And sales of terminal trucks, and street, sweepers, which were up 60% and 80% respectively recall the specialty markets were depressed in 2020, but they have bounced back quickly and appear to be experiencing catch up demand cycle, especially division sales benefited from delivery against the large rental company order.
Street, Sweepers and increase restocking and the terminal truck market.
Commercial segment adjusted EBITDA of $7 1 million was down 34% for the prior year period, which included eight $800 of EBITDA related to divested shuttle bus businesses.
The decline and EBIT was primarily due to lower volumes and the resulting reduced productivity within the school bus and municipal transit bus businesses due to COVID-19 related and market disruption.
Partially offsetting this was an increase in production volume and profitability and a terminal truck and sweep of our businesses within our specialty division. These businesses leverage debt cost out actions taken during last year's end market decline and improved EBITDA margin 260 basis points year over year.
Commercial segment backlog at the end of the first quarter with $234 million down 49% versus the prior year quarter, which contained $77 million of shuttle bus backlog and organic backlog decline of 338% was the result of decreased school bus and municipal transit orders as well as the timing of a large munis.
Simple order then entered the backlog and the prior year quarter, partially offset by an increase and specialty business backlog, which benefited from another strong quarter of order intake.
For full year outlook for the commercial segment continues to be aligned with municipal budgets school attendance and both undergraduate and graduate institutions and a general populations willingness to travel school bus quoting activity has returned to historical norms and we are optimistic that greater availability and adoption of COVID-19 vaccine.
And we'll drive confidence to convert these quotes to orders within the quarter, we announced the delivery of the state of Connecticut First Electric School bus.
One which is one of our type a buses due to the relative size of carbon emissions for larger type B and C. Buses have been early adopters. However, already received 11 additional electrical school bus orders and quoted over 40 electric units and the first two months of 2021.
We believe this category will benefit from the overall fleet electrification trends that the industry is experiencing and expect our type a electric school bus unit sales to eventually grow at rates in line with the larger bus types municipal transit bidding activity remains soft and airport and University markets. However, we are advancing and the bid process for <unk>.
Several municipality Transit awards.
Turning to slide seven recreation segment sales of $190 million were up 14% versus last year, reflecting increased shipments of class B and C units and improved class a mix versus the prior year quarter production at our travel trailer and camper business located in California remained impacted by co.
And related absenteeism work restrictions and higher than normal temporary worker turnover production was also limited by a labor constraints at our class eight business.
And our class a business. Despite the challenges shipments remained strong as Rod mentioned earlier class a business set a record at the Tampa Super show and the past two quarters have been all time high sales for a class B and class C businesses.
Recreation segment, adjusted EBITDA was $15 million for the quarter up 116% versus the prior year. The increase in EBIT EBITDA was primarily the result of our improved productivity across all categories. Despite COVID-19 related disruptions that occurred primarily within our class a and non motorized businesses do.
Spite these challenges the segment was able to improve EBITDA margin 370 basis points for the first quarter last year and generated a solid 35% incremental margin on the sales increase.
Segment backlog increased 377% year over year to $754 million, which was another record record backlog as a result of strong order intake across all RV categories over the past three quarters and our first fiscal quarter orders were up 163% versus the prior year since the.
Emergence of Covid related shutdowns, we have gained retail share and each of our motorized product categories and travel trailers across the segment retail sales continue to be in line with wholesale shipments and dealer inventories for our brands are down and average of 50% year over year with most at or near historic lows.
First quarter net cash provided by operating activities was $1 9 million compared to use of $13 3 million and the prior year quarter cash generated was primarily related to higher net income the receipt of a cares act tax refund, partially offset by decreases from the timing of accounts payable payments.
Trade working capital on January 31 was $445 million compared to $427 million at the end of fiscal year 2020. The change was primarily a result of accounts payable management timing, partially offset by efficient accounts receivable and inventory management.
Net debt as of January 31 was $323 million, including $9 million and cash on hand versus $330 million at the end of fiscal 2020 at quarter and the company maintained ample liquidity with 230 million available under our ABL revolving credit facility. We are currently working with our banking partners for refined.
And that's both our term loan and ABL credit facility and expect the refinancing to be completed before the end of the second fiscal quarter before the facilities become current.
During the quarter, we continued our portfolio review with a focus on our core markets and geographies. As a result, we reached a definitive agreement to divest our Rev. Brazil business and classified as an asset held for sale, resulting and a noncash $3 $8 million loss on sale within the quarter, we expect.
To close this transaction and our second fiscal quarter.
Today, we are initiating full year fiscal 'twenty 'twenty, one guidance with sales expected to be and the range of two point for five to $2 6 billion or 10% growth at the midpoint adjusted EBITDA and the range of $125 million to $135 million, representing an increase of 85% to 100% versus fiscal <unk>.
And 'twenty, we expect net income and the range of $38 million to $52 million and adjusted net income from <unk> $56 million to $70 million, we targeted 90% to 100% free cash flow conversion on adjusted net income and a range of $45 million to $70 million plus any additional funds from other activities with that.
I'll turn it back to Ray for closing comments.
Yes, Thank you Mark and I, just like to start by saying first of all for again, we want to thank our employees for the work they are doing and the changes that we put in the business here.
They've responded to remarkably and we very much appreciate their efforts and what they've done.
I'd like also to ask you to please remember to save the date of April 15th.
For our virtual Investor day and.
And to reuse the registration link attached on our present presentation deck today for that and <unk>.
Link will also be posted on our Investor website page for you choose to do so and the future.
The agenda for the morning will include a brief introduction to the Rev Group, our history and the segments that make up those and also new to the story, we will give more detail on the tools, we're using to drive results across our business organization. It's been historically referred to as the Rev business system and finally, we will provide intermediate financial targets that we fully expect to achieve.
<unk> and <unk>.
Structure and process that we've put in place over the past year and continue to deploy.
We won't take your entire day, we are planning to do this and to ours with preferred prepared remarks, and we will have 45 minutes for questions.
I want to again, thank you all for joining the call today and now we'll open it up to the operator for any questions that you might have.
At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is our question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset.
And before pressing the star keys.
Our first question comes from Mig <unk> with Robert W. Baird. Please go ahead.
Thank you good morning, everyone.
Good morning, Inc.
And I appreciate all the color on each segment I guess I'd like to talk a little bit about fire and emergency.
And you noted in your slides you had pretty nice order increase and both fire and ambulance.
And I'm looking for a little more context around what do you think is a dragon and growth here.
And obviously with Covid and with some some pressure on municipal budgets. I mean, this has been and area of concern and potentially seeing weaker demand.
So maybe you can comment on fire, specifically and then also obviously really good growth and ambulance, what's what's maybe going on there.
Okay.
Well I think it's.
And.
Throughout the Covid period, we had issues. We are all kind of trying to figure out exactly what the short term midterm and long term impacts we're going to be each of these municipal markets and we saw periods of I'd say, where things were delayed a lot around people don't get together to approve things and and what not and certainly on the receiving and we've talked about and their calls.
Coming to our plants to accept and inspect vehicles, but.
Coming out of the fourth quarter.
We've continued to just continue to see demand going back to what I would say is more of a historical norm and I think I'm.
I am certain at least on the inland side the Covid funding the.
And the extension of that initial funding that came that really just came out for another year and now with the new the new building passed.
And there is some momentum I guess to offset deficit, but also provide funding access to these to these municipalities and we're still trying to understand the full nature of that obviously, but.
But I just think that.
We're working through a process here, that's kind of a first time for everyone to go through and the reality is it's probably had.
Probably returning back to more of a normal in terms of orders and.
And because we are speaking about order intake on the execution side, it's just us being able to convert maybe a little bit better than we have and the past, but on the order side.
We see good order intake and we see good bidding activity and we talked about it even for you Didnt ask about school bus.
Continue to see bidding activity and that improving as well. So I think we're optimistic about coming through this and that.
The benefit these vaccines are built are going to offer and.
Hopefully getting returning to a normal.
And in the U S share, so mark and I'll be I know you want to add to that.
No I think thats right, so, obviously, meg with our backlog and it.
It gives us some momentum here to execute on there for the remainder of the year, but obviously the pipeline is what we're looking at here and as Rod Rod said and as I said in my prepared remarks, we see RC and bid activity that has normalized and you know and the.
On the ambulance side, it's actually been heightened with the cares act as a rod referred to so we are seeing heightened activity and there and with the extension and obviously what the new.
The new announcement holds and the new Bill holds I think is only a tailwind for us from that perspective.
I see okay. That's helpful.
And if we can talk a little bit about margin here, you're you're pretty clear about expecting improvement, but I'm just sort of wondering if I'm if I'm looking at your overall guidance.
By my math, it seems to imply about 25% incremental margin on the top line growth.
Growth year.
Youre baking in as you look at fire and emergency specifically do you think this segment should have higher or lower incremental margins relative to company overall.
And I ask because just like we talked in prior quarters. There's so many moving pieces here your internal improvements.
Rental volume pricing seems to be better so some color here would be helpful.
Yes, I think you know as we move in and we've been pretty transparent right with the improvements that are needed and the fire business. Specifically, so we would expect to see those incremental margin continued to improve throughout the definitely on a year on year basis, as you and as we've highlighted especially on our I'll call It right, which we've talked about and.
Multiple times and the <unk> business and as we continue to focus on the other activities as well as the integration of Spartan as we move to look at that day and vertically integrate some of the chassis opportunity. We will see some margin expansion there from that perspective. So I think we will see year on year Incrementals as we continue throughout the year.
Year.
But do you think theyre going to be higher than the overall company in the segments is yes, yes, yes.
Got it and last question.
Going back to Collyns here, and there and the EDI platform.
And we're starting to build.
It seems to me like this product is based on the F. For 50 chassis would this have applicability for ambulances and well or is that and not something that you're contemplating.
And maybe rephrase that sorry, I may rephrase the question make sure I understand what specifically what you're asking.
Yeah. So so your your school bus product the EV product right.
That's that's based on a Ford F 150 chassis and I and I know that you're using these types of chassis and ambulances as well. So I'm wondering if at a point and time.
We should be expecting a b.
BV and billings product out of you as well.
So I would say that all of our business units.
Development, and EV space and they're all in different somewhat different places in terms of the partnerships, we're working through and how we're doing the kind of the co development.
We're working with and integrator on on on the on the capacity I am sorry, the Collins offering and when you think about the.
The requirements for a school bus versus a requirement for mill ambulance on loading.
And there are quite a bit different so.
You'd have to have a different process to go through for an analyst day, we do have work going on there with <unk> and.
And our led business development work on the electric side that we're working on and and we also have some work and our and our in our other <unk>.
And whats businesses, that's more around <unk>.
I don't mitigation and those types of things so all of our businesses have the transferability from one to the other there will be lessons learned but there are these early stages of electrification and development. Some of these are more of a grassroots how do you make it work for the application because the use cases are very very different and these vehicles from one for one.
Segment to the other.
But there are learnings and I'm sure that will that will transfer so that's.
And that's kind of how to think about it is that you got to think about the and use and the design designed for that purpose you might be working with the same integrator, but it would be a different set of requirements.
Sure that makes sense. Thanks for taking my question.
Yes.
Next question comes from Stephen Volkmann with Jefferies. Please go ahead.
Hi, Good morning, guys, maybe just to build off of <unk> question, there or are you willing to give us some kind of a range as what you think as any.
Segment margins could exit the year at just so we can get a sense of how you think this builds.
Well I would say.
Maybe.
Probably not from that perspective, I guess, what were army, obviously will be up year on year, but specifically, where we're going to exit the exit rate.
It's still a lot of work we have to do here from a.
Net.
Margin accretion and we're confident that we're gonna be and the 25%, 30% incremental margin there, but you can probably model off of model off of that but we will exit obviously higher than our 2020. So if you model that and that growth and those incrementals off of the revenue base. I think you would get to you know obviously closer to the.
The mid single digits is what we said.
Paired remarks, Sophie sorry to earmark around there.
And mid single digits for for there versus the three and a half that we exited last year.
Right, Okay and longer term.
You know as you start to see the benefits of all the stuff you guys are doing.
Is there a margin target that it kind of makes sense can this be a double digit margin business over the next two or three years or something.
Sure.
Our goal our stated goal to get there and you know as you as we continue to progress through the portfolio and look at these brands and the operational cadence that we're building here we definitely.
See that as a as a double digit opportunity and we've proven that we can do that and the past. So that continues to be our goal here to reach that.
And that business.
And then maybe one more just switching to RV.
Actually margin performance are quite good there, but it feels like you are saying that's where the biggest.
Kind of COVID-19 related issues were and please correct me if I'm misreading that but.
It feels like you know once those COVID-19 issues kind of pass through the chain.
There should be some pretty significant near term.
Net margin.
Yes, yes, definitely from that and from that perspective and us.
Specifically, we didn't highlight it here, but we did get hit pretty dramatically just like our bus business that guide here in California, Our Lance business, which is our <unk> business, which I quoted here was significantly impacted.
And the quarter, so that is a well performing double digit business that was down from the perspective of being able to produce so they have the backlog all of our businesses have the appropriate backlogged.
Build off of so that is one as well as our class a decatur, which as indicator has been hit significantly with with.
The Covid I would say more than even elkhart, where some of our competitors are and where we're positioned as well. So we're also ramping up that facility. So as the line rates improve the ability to get people.
New hires not to mention the people that are apps and T. Because of COVID-19, we've been hit relatively hard so we expect to see.
And productivity improvements at our class a as well as our Lance going forward and our B's and C's business have operated very very well and I think you've heard RV business from a supply chain perspective been hit pretty hard industry wide, but we've done a nice job managing the supply the supply disruptions within that business.
Great and do you think the supply disruptions fade as the year progresses and I'll pass it on thanks.
It's hard to say and RV.
We've done a nice job on materials management group, where it probably.
Been able to contain within the quarter, but the challenges every month as you build these and you have furniture charges at the end of the line and you're waiting to build those out towards the end of the month. So we don't have the full completions as we would historically within that.
<unk> group on a week to week basis, but the team's done a nice job, making sure we get completions by the end of the month and ended the quarter. So we're managing within that supply chain within that cycle, but the expectation would be that these would improve as we go along here.
Thank you.
Yes.
Next question, Jerry Revich with Goldman Sachs. Please go ahead.
Yes, hi, good morning, everyone nice quarter.
Thank you.
I'm wondering who you're talking about.
Electric vehicle opportunity for you folks can you just touch on.
And if you folks have higher profitability per unit because of higher content on electric buses and potentially other electric products when they come down. The line can you just calibrate us on.
And how to think about profit per unit.
We ramp up production over the next couple of years.
Yes first off as you can imagine when you are.
A lot of these these products are still I would talk in terms of and market demand. There is a couple of exceptions that vast majority of <unk> and all I can a prototype development you are still developing and these youre not at scale and production. So when you think about margin as you say contribution margin per day versus contribution margin. When you are at scale and theres going to be a lot of maturity maturing go out over time.
As you streamline the processes because youre actually.
The labor content and the amount of development and the product is different today. So our margins are I would say at par or par plus.
Today, I think with the <unk>.
A few products that we have.
Produced.
And then as we get demand as we talked about and Collins will continue to improve efficiencies and streamline that the designs and so I think that there's opportunity there to do better but these are mature and markets. So when you think about the impacts of EV long term its really substituting technology youre.
Youre, not really shaping and markets so.
And as is the how do you how is the technology and mature and and the and the cost structure of these things and the change over time, and it's going to drive our ability to capture additional margin I think we're optimistic on that from a technology standpoint, but we're early I would say and cycle here to understand what the end game is going to be like.
On margins as we get competitive platforms from a chassis standpoint.
And to buy against and versus working with people to co develop that's going to that dynamic will change the industry I think a lot and the pace at which that happens is going to play out by segment, but.
For that transit is going to move different and commercial bus to move different at school bus and ambulance. All of these are going to move at a different pace and so as you see those mature and.
And the competitors get lined out that.
And that will we will be able to tell a better margin story going forward, but we're early.
Early and cycle there I think.
My perspective on margin.
No I agree I agree.
And and.
And that obviously.
Singly complex competitive structure across a broad range of traditional players plus potential new players can you talk about.
And we're on the initial set of orders that have come out to the street. So far if you will.
Your order share has been for EV products versus.
And what it.
And on unconventional and other words, how would you characterize.
And.
And the competitive landscape.
And for EV base.
School buses and transit buses for versus what you had been used to see.
And I side.
Yes, I mean, I don't know that anyone could accurately reflect where theyre at and their market share against on a competitive standpoint, and when you think and you'd have to have that conversation as you suggested by segment.
<unk> made the comment that the Thai based school buses is lagging behind and C and b because of the <unk>.
Just.
It's a gas boss and so.
The diesel and the consumption is greater and the P&C. So that the market is less mature there. So the net amount of units being in the class type of or different or lower but I think relative to what we're seeing and incoming orders that mark mentioned and as the pipeline that we bid that I and.
Like our position relative to our peers and that space transit buses a bit different it's probably a little bit ahead, and we are share probably there on that one is a little bit lower is lower but and the other ones are such fledgling do you think about archrock and ambulance and.
And RV and.
Theres really not really a conversation to have there because there is no real end market right now and <unk>.
And people.
Building and shipping electric vehicles and those other segments.
And I think and the terminal truck as we've highlighted I think that gives us a great opportunity and with a great partner, there and saw and who has battery technology that they have as well. So I think we have we've partnered up with a great.
Partner, there and Heister, Oxford, Yale So we're looking.
And I think we are looking very good from a terminal truck perspective.
Okay.
And then and fire and emergency really strong performance this quarter.
From production and margin standpoint.
And we apply just normal seasonality to your production schedule and that would imply organic growth should be and the low teens for for the full year, which is somebody pointed out earlier is a pleasant surprise relative to munis.
Municipal budgets, but at least on pay per field constrained and I am wondering if you could just expand on the earlier discussion.
And the strength that youre seeing from both a and order standpoint, and production standpoint relative to particular products that you're in or geographies that you're in or do you think that's a market wide phenomenon and.
What are you hearing in terms of debt.
Actual drivers of the big spending increase for fire trucks and ambulances when.
Obviously budgets are coming back and 21, but they certainly have a top 20.
Yes, I think that first of all I'd say.
The.
And intake activity has been very good we mentioned that so that's good for quoting activity is very good and if you try to think about what would change that momentum or that you would think about that.
First carriage that got extended to the extent that has an impact municipalities are somewhat opening up I think the larger municipalities I would say it probably been a little more affected.
By Covid, just because they are the.
And the nature of Alcoa, which affected us all right population densities and larger cities that have had more to deal with there and it's obviously impacted the municipalities. I think this is the second wave of funding, which we're still through this bill got passed we're still.
Working to understand the implications of that but it's hard to argue that that wont be also beneficial to forward demand because one there is money set aside specifically related to the funding things that we'd like this that would help us and also the relief that.
The states and municipalities are going to have around budget deficits is also going.
And going to help them get after some things infrastructure things and capital.
Which is that they want it and you'll get to as well so I'm.
And <unk>.
We've got momentum both from an intake and from and quoting.
And everything I see suggests that there is.
And there is more support for that momentum continuing and maybe even building, but we just we just got it and we're obviously watching it carefully because we're.
And we're still in a time, where we want to get optimistic and we want to believe we do know we are optimistic about our ability to execute on what we have we continue to be very positive on that but there is some element of looking at the market to say hey, we just.
And we want to get through this and what these vaccinations to take hold and we wanted to see the immunity step up we wanted to see communities returned to normal and we think thats good for for not only us but everybody.
And <unk>.
That's kind of I would characterize zone you guys guys Mark you guys and go ahead.
Well.
Okay.
I appreciate the discussion thanks.
Thank you.
Question, Courtney Novartis with Morgan Stanley. Please go ahead.
Great. Thanks for the question.
Wonder if you can comment a little bit on the Brazil day pass.
Future, Inc. That was entirely within fire and emergency, but can you just remind us how big was that and if it's in any other segments and and how the margins were relative to the baseline business and then I think you also had some international operations and China just curious if there's any claims.
And for that.
Yes, I would say.
Brazil is relatively small so I would say and wouldn't have a material impact overall, because obviously the challenges that we've had in Brazil and that economy. So it's not going to have a material impact cornea, it's more around exiting that.
Get rid of the the focus right. It's it was just a distraction and more than it was a core focus of ours, so getting out of that market. It was more of and up fitter. So it was just taking.
Fully built chassis and our chassis, but units and updating them for and Linzo, our police and all putting sirens and things like that and so you could argue it wasn't really and our core competency from that perspective is more of a lower end up fitter operation, but I would say and what's not going to have a material impact to that segment.
Okay, Great and then perhaps and that kind of DB.
Yes, we continue to look at that.
Our China JV is performing while it does have an RV element to it. So China is also performing well from an RV perspective, so we do have.
And that JV is making money as you probably know, Brazil, historically has lost money for over for the company and so.
We still have to look at bad areas and opportunity for us, whereas South America, we didn't see that from a portfolio and its ability to get to double digit earnings.
Okay, great. Thanks, and then I think you guys suggested and mid single digit margin for Anthony I think last quarter. You had suggested that recreation margins would step down and I. Appreciate some of the comments on supply chain issues and mitigating there, but you did.
You were on that call I think perhaps seven per cent and recreation and for the first quarter I think you'd also talked about classic mix being an impact but do you have any updated thoughts on your recreation margin targets for the year and then and.
Same question and commercial where I think you were targeting high single digit.
Yes, I think the commercial will hold like we've talked about the high single to high single digits and then.
And we can absolutely tuck on separate calls by recreation and we're still we're probably seeing the upside to that mid mid single there. So we can walk through that but.
Probably and the hired us the six to eight I would say that again, there are supply chain issues there but.
As I.
Referred to and the quarter, we probably would've done even a little better with it wasn't for the Lance disruptions because that is a well performing business and that was significantly down and the quarter. So we see momentum and a class a and it really comes down to class a performance and be able to bring on new people to increase our line rates and make sure that weekend and build.
Against our backlog and so it really comes down debt, which is what we talked about last quarter. So as we see momentum and class a will feel more confident than the accretion of our margin going forward.
Okay, great. Thanks.
Once again, if you would like to ask a question. Please press star one on your telephone keypad. Our next question comes from Joel <unk> with BMO. Please go ahead.
Hey, guys How's it going.
Good morning, good morning.
And just want to beat the dead horse on the margins. If we go to like 23, or 'twenty, four and we kind of get Covid and production disruptions and all these other things kind of normalized.
And maybe it is just too early and it's not something you want to talk about but.
You would think that 25% incremental margin is still going to be.
Where we end up like other there'll be other puts and takes or you think that there's there are some pretty good upside to that you know as we normalize way out maybe its 23 or 24.
Yeah, So Joe maybe I'll just ask if you could hold your patience for April 15th because that'll be obviously with us coming out with the near term guidance here that we won't be providing mid term guidance for.
Our goals and the.
<unk> Investor day on the 15th so rather than take are underway. Since we provided guidance today and where you know drew is that happiness and provide our midterm guidance are our aspirations are coming up here in April 15th. So we will provide those then.
And that's okay.
Maybe another jumping the gun question too then can you talk a little bit about other portfolio changes that you guys are thinking about making and and also your your debt to EBITDA and starting to come down to pretty attractive levels.
Are there things that you might want to add again, as we normalize and 'twenty two or 'twenty three.
Yes, I think if you go back to the original premise or thesis here that there.
As we get our operational act and order and I think we're breaking great progress there and.
And get the debt numbers, you just talked about where we want them to be they are still up.
Consolidation opportunity and the spaces, we're at Adjacencies that we can explore.
Now there were operationally capable to go acquire things and operate and get those things to convert I think that'll be something we'll look at and theirs and as all companies you have a pipeline or do you think that is by by tangents and here's and the segment you are in and then there's other things that are more broad and more.
For transformational that we would always be looking at as well but.
As we talked about from the very first earnings call as we're focused keenly on operations.
Now, making progress we're starting to think around commercials and use of capital opportunities and where youre going in and I think thats.
We'll get the debt and the right spot.
Both inside the spaces were and the dangers opportunity and there is opportunities more broadly as well.
Knowledges and whatnot that will always be open to do so.
I'd, probably leave it at there, but I think that thats something that well.
And so looking at and we will talk a bit about that I think on Investor day, as well and April 15th we will give some views on our capital allocation and Youre right Joel as we continue to produce this income where and again as we said, it's all about producing income and driving it down the cash rate and our cash conversion. So that's our focus here as we exit.
The 21, and we'll provide some of that guidance on capital allocation strategy and the call and the Investor day.
Okay, Great and then just last one on Bluetooth together and can you talk a little bit about pricing power and maybe price cost and and also is the Spartan backlog, a little bit more profitable than the segment average or a little bit lapse or any help there would be would be great. Thank you.
Yes, the smart and backlog were still working through.
Still working through and obviously with the integration and then you get a little challenges there with obviously being a chassis supplier right and providing intercompany through our own brands as well as to Oems. So we're still working through that and the visibility to the backlog and then from a cost price. That's one focus as Rob talks about on our commercial discipline and making sure.
That we know what our costs are and how we're realizing price. So we continue to improve our.
And our visibility, but again, it's with the some of the systems. We have in place to where you were still working through fully understanding with a backlog business add that you know on average train fire is nine to 12 months at very important obviously that make sure that we're quoting things with anticipated inflationary factors as well as cost downs and.
Make sure we don't give those away through through the whole customer and supply chain or value chain right. So we're still working through that systematically but it's definitely on our radar that we were able to deliver.
Positive cost price equation.
Okay, Great I appreciate your time thank you.
Alright, Thank you I would like to turn the floor over to rod rushing for closing comments.
Okay.
So in closing I would just say that one I think we're very pleased with.
Yes were making and again I'm very thankful the team for.
Change, we put on them and the and the way they've embraced it and we have a lot of work for you, but I think the momentum is building.
The questions today, and and I would assume please note again April 15th we look forward to that conversation as well, which will be a little bit more forward forward discussion around what we think the opportunity is so with that we'll end the call and again. Thank you for joining your day.
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