Q2 2021 REV Group Inc Earnings Call

Greetings welcome to Rev Group second quarter 'twenty 'twenty, 1 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 conference over to true cut up Vice President of Investor Relations and corporate development. Thank you you may begin.

Alright, Thank you Sherry.

And thanks for joining US last night, we issued our second 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 2 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 SEC last night and other filings we make with the SEC.

We disclaim any obligation to update these forward looking statements, which may not be updated until our next quarterly earnings conference call if at all.

All references on this call to a quarter or year are fiscal quarter or fiscal year, unless otherwise stated.

Joining me on the call today are president and CEO rod rushing as well as our CFO marks can actually.

Let's turn now to slide 3 and I'll turn the call over to Rod.

Thank you drew and good morning to everyone joining us on today's call I will begin with an overview of the quarter's consolidated performance and then move to commercial financial and operating highlights achieved within the quarter before turning it over to Mark for a detailed segment financials.

We are pleased to report our best second quarter adjusted EBITDA results since our IPO in 2017 on our best adjusted EBITDA margin performance since our third quarter.

For fiscal 2018.

I would add that we were able to deliver these results while faced with continuing challenges in our supply chain and labor related constraints within the quarter, we successfully mitigated shortages of supplies such as micro chips chassis sub components.

And the availability of qualified labor in many of our businesses.

Our performance reflects the commitment of our employees to serve our customers and communities, while improving their productivity enabled us to mitigate these impacts and challenges.

Second quarter net sales of $644 million increased 18% over last year's quarter as last year's quarter was impacted by reduced production stemming from the onset of the pandemic.

Excluding the divestiture of the 2 shuttle businesses sales increased 26% organically versus the prior year.

The quarter sales were driven by increases in foreign emergency and recreation segments.

Foreign emergency sales reflects our improved line rates combined with the available backlog. It was in line with our expectations for the quarter.

Recreation sales exceeded expectations and benefited from recent signings that yielded market share gains.

We also realized the combined benefit of price realization and increased line rate execution.

<unk> and RV performance enable us to offset top line softness in the school bus end market and labor constraints in our municipal transit bus and affected our production.

The quarter also had a strong order intake to match the sales performance with book to Bill of 1.5 and we exited the second quarter with a record backlog of $2.3 billion.

Our businesses have continued to improve operational disciplines that are delivering results for the bottom line.

Second quarter adjusted EBIT da was 44, $45.5 million and adjusted EBITDA margin of 7.1%.

Many of our businesses were able to realize price increases, while lowering discounts and allowances mitigating inflationary pressures in our supply chain.

We're beginning to see the benefits from the execution of our operational excellence pipeline, particularly within the <unk> segment.

We are confident confident that we will realize continued margin improvement within our business segments in the long term, but we continue to face and we'll have to manage through disruptions in our supply chain.

These will present headwinds to our ability to produce and ship units and the balance of the year.

Turning to slide 4 we had several costs will just accomplishments within the quarter I would like to highlight for.

First we recently announced a change to our capital structure from a former term loan and ABL to a new $550 million 5 year revolver with a $100 million accordion feature.

The new structure allows us to capitalize on low interest rates and is expected to save the Rev group approximately $5 million per year based on today's net interest rate of 2% and our current debt level.

We expect it will drive us with the necessary liquidity to pursue our financial objectives, including organic and inorganic investments, while also maintaining flexibility to return cash to our shareholders.

Today, we announced the reinstatement of our quarterly dividend. This decision by our board reflects their confidence in the structural and operational improvements that we've made.

And the implication of these will have in our long term financial outlook of the company.

Year to day cash conversion has improved to 82% and today, we really reiterate our guidance of over 90% free cash flow conversion on adjusted net income.

We are no longer on a net debt to EBITDA leverage covenant, but we are pleased and are well positioned to be exiting the second quarter. This year and 2.5 times compared to nearly 6 times, just 1 year ago.

This result, this outcome comes and the result of a focused average on improving both sides of the equation over the past year.

In our past calls we have often discussed our operational agenda and our commitment to reduce complexity improve our efficiencies and address our cost structure all aimed at improving our performance for our customers and expanding our margins.

While we remain fully focused on the opportunities for operational excellence will yield we have been equally focused on building commercial capabilities.

This quarter was a record for fire and emergency segment and order intake.

With new highs in both bar enables groups on inbound inbound order tolls.

Within fire our teams have worked hard over the past year to increase throughput, which has improved our cycle times and provided more competitive delivery lead time.

At analyst, we have a record high backlog as municipalities and commercial contractors continue to invest dollars towards upgrading and enhancing the health and safety of their vehicle fleets.

Schools plan to return to the classroom. This fall our school bus orders began to return to normal seasons seasonal norms within the second quarter.

We also similar increases.

Municipal transit quotes and orders.

And we announced 2 large municipality wins within the quarter first we are pleased to continue our relationship with paste suburban bus, which provide service to the Chicago suburbs that encompasses 280 for municipalities.

Pace Award our transit bus business and see a contract for 44 additional clean diesel heavy duty heavy duty transit buses.

Secondly, E&C when its first order with the San Francisco Municipal Transit agency for 30 hybrid electric low for buses for you. It's municipal railway bus service. These buses dramatically reduced both diesel fuel consumption and cotr missions compared to conventional diesel.

Within the specialty group, we received record orders for both terminal trucks and Street sweepers as our new management team has aggressively pursued both the renew and new customer capture awards with with large national accounts.

And finally, our recreation segment continues not to only participate in the healthy demand for Rovs that we are seeing but we've also seen share gains in our market share.

The result is the fourth consecutive record quarterly orders.

We announced the promotion of Mike Lance the Audi as President of our Recreation segment, Mike is a veteran of the RV industry and has been the president and general manager of Renegade RV. Since 2008 during his 13 years with renegade Mike transformed the renegade business and successfully led the company through the 2008 economic downturn 1 of the most.

Challenging periods and resulted in solidifying renegades position as the best in class Super C at Premier Class C producer.

I will add that renegade has been 1 of our highest performing and most profitable businesses. Since acquired in 2016, we are confident that Mike will lead our business to profitable growth and build upon our recent success in serving our customers.

Earlier I touched on our.

<unk> ability to mitigate the supply chain disruptions within the quarter. Our procurement team has worked tirelessly and demonstrated through the agility and ingenuity in multiple situations.

Securing components that enable our businesses to maintain production levels and to continue to serve our customers.

Our chief supply officer, Rob This lawsky and his team have remained in continuous contact and actively engaged with top management of our supply chain partners to collaborate and find solutions to the issues that we're facing.

The relationships and collaborations we were able to work our global network to source items that were unavailable through our normal channels, enabling us to keep our commitments and achieve our financial objectives.

On April 15th we hosted our first analyst and Investor Day. Since 2018. This event provided a summary of our business our markets and our channels included a review of the changes we have major organization and operation over the past year.

We introduced several members of our executive team and we also introduced the Rev drive business system.

Jim spoke of the core tenets of value creation within the Rev. Rec drive business system. These include commercial operational and organizational excellence disciplines that are focused on our purpose of creating value for our stakeholders. We provided several examples of the work being done in each of these areas and specified the financial impact of these efforts we also framed.

Our capital allocation philosophy, and emphasize that the basis is a strong balance sheet that provides optionality to pursue both organic and inorganic investments as well as to return cash to our shareholders.

The last highlight from the quarter as product innovation and the electrification within our portfolio.

Our goal is to be a recognized leader in electrification of commercial vehicle fleet. We are focused on categories, where we see end market demand they have the necessary technology and partnerships available for development and where there is a path to achieve required returns on investment.

Within the quarter, we made several announcements that demonstrate our commitment to reducing carbon emissions.

And the electrification of our vehicles.

In April we announced that we extended our exclusive agreement with zero R. P M to.

To integrate and distribute other litigation systems.

So the average market until 2020 for later in the month, we announced a co development agreement between our leader ambulance brand Enlightening E Motors for zero emission all electric ambulance the new ambulance will be based on leaders high roof transit van designed to be charged V..8 a level 2 AC charging our D C for.

Fast charging.

Development is progressing well with the prototype being available to customers. We expect initial commercial orders delivery to be available at the end of the calendar year.

Within the school bus we are executing on our backlog of orders of our electric type E buses.

We have received that we received increased interest and over the quarter. Finally, we are preparing for Altoona track testing of our battery electric municipal transit bus.

That is expected to begin within the fiscal third quarter. We are committed to the development of electric vehicle technologies within our commercial fleets, we're building our capabilities and partnerships to enable us to lead this transition while the end markets mature and the economics become accretive.

Now I will turn it over to Mark for details on our second quarter financial performance.

Thanks, Rod and good morning, everyone.

I'd like to begin by addressing some common challenges that have surfaced that maybe.

Against the fade almost universally companies have seen increased demand following a relatively long period of reduced output competition for raw materials has contributed to an inflationary environment with high prices for commodity such as metals lumber and form that.

Did costs go up but the availability of any of our required components went down for instance, recreation markets have seen shortages are small ticket items, such as <unk> furniture generators that can limit the completion of our shippable unit.

Shortages of semiconductors have slowed or stopped production of chassis and smaller components such as diesel exhaust fuel tanks. Fortunately our financial results demonstrate that within the second quarter RASM was largely able to mitigate the short term impacts of both inflation and park charges.

Since arriving I've been speaking about inefficiencies on the balance sheet, particularly in inventory within the quarter as we executed our plan to reduce and improve the quality of inventory and time for that both the top and bottom line first by locating our substituting stock parts for others that were in short supply, we're able to produce ship in <unk>.

Revenue our vehicles second both stock price often had been purchased prior to the onset of inflation, providing a margin benefit due to the lower cost basis as we continue to improve our quality of inventory in that from the second half realizing incremental benefits have become more challenging in this environment supplier to put manufacturer.

Or is that allocation, making alternative sourcing and necessity our supply chain team has done an excellent job of locating required parts, finding alternative and mitigating supplier price increases over the past several months. However, entering our third quarter. The environment has remained challenging with increased inflationary pressures and redo.

Availability and supply for component parts and chassis.

Now please turn to page 5 of the slide deck as I move to review of our segment level performance.

Fire and emergency second quarter segment sales were $308 million, an increase of 6% compared to the prior year. The increase in net sales was primarily the result of increased shipments of fire apparatus and price realization of trucks in the fire group backlog, partially offset by lower shipments of ambulance units versus the.

Prior year, while travel restrictions limited inspection delivery of fire trucks in last year's quarter, which creates a tough comparison throughput has improved our 2 largest businesses, resulting in year over year sales improvement.

Firstly last year's quarter included a significant increase in demand for immediate delivery ambulances. During the first wave of COVID-19 cases, and we shipped a large number of stock units. We've had sustained an elevated demand over the past 12 months. However, last year's Spike was primarily within our fiscal second quarter and caused.

The difficult year over year comparison for the ambulance group.

For the segment adjusted EBITDA was $21.7 million in the second quarter 2021, compared to $10.2 million in the second quarter of 2020.

Increase was primarily a result of higher sales volumes price realization within our backlog and productivity improvements, including direct labor efficiencies and lower SG&A costs, partially offset by supply chain disruption and labor constraints in certain geographies.

Right. These challenges our largest fire plant productivity continues to show impressive year over year margin improvement with second quarter performance 700 basis points greater than last year. We're also seeing better margin performance at our other fire plants, but are working to elevate the consistency and sustainability of improvement to match our largest.

Plant operation.

There's a similar story within the Amazon as a group our largest plant has demonstrated significant year over year bottom line improvement for the past 3 quarters, helping to lift the group's bottom line to a 2 and a half year high in EBITDA margin.

Total F&I backlog was $1.1 billion down 1% year over year the day.

Increase in backlog as a result of increased throughput and decreased orders of fire apparatus, primarily due to COVID-19 related market softness softness in the summer 2020, partially offset by strong orders for ambulance over the past year. The decrease of fire backlog is a positive result, which demonstrates production inefficiencies are.

Taking hold line rates are increasing and fire backlog is now to a level that is more competitive from the industry lead time perspective.

We believe $1.1 billion of that for me backlog and our current visibility and supply chain rules will result in high single digit revenue growth versus last year in the second half of fiscal 'twenty 'twenty, 1 given the timing of price realization and inventory utilization that helped partially offset inflation in the second quarter and.

Supply chain shortages or supply potential chassis shortages in the second half we expect the second quarter to be the segment's margin peak for fiscal 'twenty 'twenty..1. However, we do expect continued execution of opex projects and throughput improvement to delivery deliver healthy year over year incremental margin of 20 per.

For more.

Turning to slide 6.

Commercial segment sales of $98 million were down 31% compared to prior year period.

Higher year commercial segment revenue included approximately 44 million from the shuttle buses that were divested in early may of last year, excluding divested shuttle bus businesses sales were relatively flat low.

Our sales of school buses due to market softness and a decline in municipal transit sales related to the timing of a large municipal order that was impacted by labor charges led to reduction in throughput in the quarter.

Partially offset by increased sales of terminal trucks and street sweepers, which were up a combined 124% versus the prior year. These 2 specialty group businesses have benefited from greater capital budgets within their respective end market customers market share gains and increased penetration of key national accounts.

Commercial segment EBITDA adjusted EBITDA of $8.3 million was up 4% versus the prior year. The increase in EBITDA was primarily a result of increased production volumes and resulting profitability in the terminal truck and sweeper businesses, partially offset by lower volumes and the resulting decrease in productivity within the school bus.

And municipal transit bus businesses.

Commercial segment backlog at the end of second quarter was $303 million, which reflect strong order intake within the quarter, including improved orders for school buses and 2 large municipal transit orders that Rod mentioned earlier.

Also our specialty group had record order intake with <unk>, which was up 81% sequentially and 290% year over year.

The outlook for the second half for the commercial segment will be influenced by outside factors such as ability to procure chassis for our type a school buses availability of labor and improvements within the supply chain given the segment's recent order strength and we expect top line growth to be in the high single to low double digit range versus <unk>.

Last year, we also expect to see continued momentum and contribution from our specialty group, which was currently dilutive to the segment margin, resulting in second half margins are anticipated to be similar to the second quarter.

Turning to slide 7 recreation segment sales of $238 million were up 109% versus last year's quarter, which was impacted by travel restrictions limited dealer foot traffic and the suspension of normal production activities Inc.

<unk> sales versus the prior year were primarily a result of increased unit shipments across all of our categories and lower discounts and allowances.

Despite the supply chain and labor shortages the quarter was a record for unit shipments and revenue at both our class B and class C businesses and class and towboat performed at 2 year, and 1 and a half year unit sale highs respectively.

Our recreation segment, adjusted EBITDA was $25.1 million up $26 million birthday loss from the prior year. The increase in EBITDA was primarily the result of increased sales volume stronger price realization related to price increases and lower discounting lower operating expense and productivity improvements across all.

Businesses, despite the disruptions mentioned earlier.

Adjusted EBITDA margin match fourth quarter, 2000, twenty's rate of 2.6% or 10, 6%. However, this quarter was more balanced with greater contribution from our class a business, which has improved 210 basis points over the past 2 quarters. We are encouraged by the progress and committed to raising the low.

Peak and trough performance of this business in an effort to reduce the overall cyclicality out of this segment.

Segment backlog increased 818 million year over year to $941 million, which was the fourth consecutive quarterly record and a result of strong order intake across all RV categories over the past year. During that time, we have gained retail share in each of our motorized product categories and held share in the total business.

In regards to total this business has historically been in niche markets in terms of price size and geography with the promotion of Mike Lang for Ids segment, President, we expect to expand the addressable market of this business by leveraging our portfolio manufacturing footprint and channel relationships and market.

Conditions remained strong with retail sales exceeding wholesale shipments and dealer inventories that are down an average of 60% year over year with most debt at or near historic lows for our brands.

Turning to slide 8.

As Rob mentioned within the quarter, we completed the refinancing of our capital structure with a nearly 5 year Covenant light ABL net debt as of April 30 was $298 million, including $8 million of cash on hand versus 331 million net debt at the end of fiscal 2020 at quarter end the company maintained ample.

Liquidity with $223 million available under the ABL revolving credit facility.

Trade working capital in April 30th 2021, with $449 million compared to $427 million at the end of fiscal 2020 year to date net cash provided by operating activities was $37.1 million compared to 22 million in the prior year period.

Cash generated was primarily related to higher net income partially offset by an increase in accounts receivable that was consistent with a year over year increase in sales.

Year to date free cash conversion was 82% and we have reiterated our full year target of adjusted net income to cash conversion to be greater than 90%.

Given the improvements in our financial profile and outlook over the past several quarters. The board has reinstated our cash dividend to pre pandemic levels, we intend to maintain a strong balance sheet that are consistent with our stated capital allocation philosophy and believe the new ABL and dividend payment allow the flexibility in cash returned to match.

My total shareholder returns.

Turning to slide 9.

Today, we are updating full year 2021 guidance and raising our bottom line expectation. We continue to expect sales to be in the range of 2 for 5 to $2.6 billion or 10% year over year growth at the midpoint, we raise our adjusted EBIT guidance to $145 million to $160 million from 125 to 130.

$5 million for an increase of $22.5 million at the midpoint.

We are raising net income guidance to a range of 52 to 68 million from $38 million to $52 million previously.

Adjusted net income moves to a range of 73 to 88 million from $56 million to $70 million and free cash flow is now expected to be between 65 and $88 million an increase of $19 million at the midpoint with that I'll turn it back to Rob for closing comments. Thanks.

Thanks Mark.

We are pleased with the progress we have made in the last year and the evidence of this progress is demonstrated through a strong start to the year. This reflects the efforts of our leadership team, but most importantly, the work of our talented employees in our manufacturing facilities. We have continued to impress throughout a very very difficult year and I cannot begin to tell you how much we appreciate and respect their efforts.

Not simply because net without their efforts we had.

Got it made the progress that we've achieved and the results that we presented today, but more importantly, because they play such an important role as essential workers, providing our first responders with vehicles to serve those most in need as well as the many other purposes that our products provide the decisions of our nation.

Finally, I would like to take the opportunity to invite all active duty first responders to our third annual Rev Group Grand Prix in Elkhart Lake, Wisconsin from June 17th of June 20th. This is the third year. We've teamed up with road America to pay tribute to our first responders by offering free entry to the NTT. Indeed, Indeed Indy car series event.

As a manufacturer of fire and emergency vehicles. Rev Group has always recognized and respected the commit commitment of our first responders to the safety and welfare of others before their own. This past year first responders have been relentlessly working on the front lines. So now more than ever we are delighted with the Rev Group Grand Prix.

<unk> provides us a platform to honor and share our appreciation for the dedicated people who place top priority on serving our communities. Each day. Thank you again for joining our call today and operator, we would now like to open up the call for questions. Thank.

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Our first question is from Jamie Cook with Credit Suisse. Please proceed.

Hi. This is Jeff you said that telco on for Jamie are for.

Question is on the orders that they were strong across segments, but are you seeing customers wanting to place orders early for 2022 because of concerns on the supply chain and if so which segments are you seeing them and how would you approach pricing on those orders.

And my follow up is on Rvs.

It demand environment is.

And very strong and you have been gaining market share, but do you have any plans to expand capacity as we look forward.

And then on the margin front, if you could provide an updated expectation for the for years that would be great. Thank you.

So let's kind of break the question down if you wouldn't mind could you repeat the first the first question.

For each question.

Yeah, so low for the orders.

We're just wondering if you're seeing customers wanting to place orders early for 2022 because of concerns on the supply chain.

I don't think we have we've seen.

Much messaging, though orders coming in early because of the supply chain I think there might perhaps be some of that and RV just related to getting in line for for the.

Extraordinary demand that we're seeing there has been obviously always you see orders move around when you announced price increases to the channel. So there's been some of that but thats kind of quarter to quarter more than.

Current 2 year period, so I don't I think probably in RV, there's people ordering to get in line for to reserve positions to replenish our backlog of inventories, but I don't think we're seeing a broad movements related specifically to supply chain issues that were that were experiencing.

And your second question. Please.

Yes.

So it gives us a strong demand environment are you do you have any plans like expand capacity as we look forward and also like what you expect for margins for the for year.

Yes, I'll speak to the.

Catastrophe, we are evaluating all of our facilities and less about kind of the the view of his story demand because we've really been focused on for.

For peak and trough for these business to make sure we're focused on improving the margin performance for da Vinci reality of a slowdown that will come at some point that we don't foresee now that we're working hard to evaluate breakeven and optimize our margins to have a good peak to trough performance.

So part of that with what we've done here is we know where we actually picked up some share and we expect our situation to improve as the market slows relative to other declines we've seen historically.

And so we are evaluating business by business, where what that might imply 2 capacity requirements not only to meet some of the demand we're seeing now but more how it reflects for 2 share position changes as the market maybe contracts.

Bonser quarters, Ed that we don't see now I'll be honest, we don't see that now we continue to see incredible demand and.

Jim historically low inventory levels, but we are.

Keenly focused on making sure that we're operating in a way that keeps us focused on the eventual downturn as we optimize our margins.

What the mix of class 8 picking up in the second half, we still expect to be in the high single digits.

And while second half and then for the full year, so a little bit of drop from Q2, but ultimately in the high single digits, which is consistent with our previous guidance there as well so we feel pretty good about that but as you know class 8 is dilutive to the profile of the other business flow as.

The volume pick up there and we're able to get more throughput there it'll be dilutive in Q3 and Q4, but ultimately it will be in that high single digits for the year.

And I believe you had 1 final question as well.

Oh no. This is all kind of alright. Thank you. So much. Thank you. Thank you.

Our next question is from Mig <unk> with Robert W. Baird. Please proceed.

Yes. Good morning, everyone. I also have several questions, but I think I'm going to break my not upfront so to follow up on this class a discussion here can you maybe remind us what the margin differential is relative to segment average and I'm sort of curious how you think about the margin potential of this business going forward.

Finally, starting to see some momentum in the class a market.

How are you planning for at this business over the next call. It 12 to 24 months.

Yeah, I would say Mig as you always say you know.

I look at the industry its always at mid single digits right, though we'd always said its 5865 to 7.6 to 8.

Whereas as you know our other businesses or some of our best performing which are double digit double digit margin business and so when we're talking about dilution when talking about executing at the industry norm, which we believe is a 6 to 8 type number 5 to 7 overview on that thread the needle there on that business, but we continue to see.

Accretion there as we've talked about over the last few quarters going from a loss over the last couple of years here to actually performing well and executing absolutely getting benefit from not only.

Operational improvements were making there, but also leverage on the volume that we're seeing.

Okay.

And then maybe if we kind of look at your in your guidance.

You've increased your EBITDA midpoint by <unk>, 12, and a half million.

And I'm, just sort of trying to understand how how the quarter itself and what <unk> seen in a quarter.

It has kind of shape your view of the year here I recognize that you're not providing quarterly guidance, but.

You know.

Obviously, you've had good performance relative to what we were forecasting and where consensus was trying to understand how the quarter played out relative to your expectations and if essentially this guidance raises.

Primarily a factor of the quarter itself or if there are other moving pieces as we think about the back half of the year again relative to your initial expectations.

We need to be aware of.

Yes, I think just to clarify the 22 and a half feet from midpoint, because we're up at $1.52, and a half versus 130 slow when you look at that.

It is a tough from I guess, your consensus 31 or $32 million, but you know our expectations again with the throughput will very encouraging as Rob referred to in the recreation.

So we're able to get a lot more units our expectations, especially in the in.

And the BS and CS are they continue to operate at capacity and do things there from that perspective, we did see some improvement in our California operation, which we had.

Or has it been coming into the quarter given the labor constraints that we're seeing those pickups or they're starting to operate at more of a normative level entering Q3, but our largest challenge we look at the full quarter here for all available or chassis, which we pointed out which that business is heavily reliant on getting chassis, especially in that not as much.

And class a but in our vs and fees, making sure that we have the chassis availability there so maintaining that throughput will be a challenge in Q3 and Q4, but we obviously looked at from a on a day to day basis from that perspective. So when you think about our full year low.

Reflection of the yeah go onto your consensus numbers, which were essentially on our expectations for 130 previously.

That 22 million was a reflection of the beat there and then also from upside in Q3 and Q4 for what we originally expected.

Okay.

And then maybe.

Last question for me is when we're kind of looking at your fiscal 'twenty 3 targets in the light of the updated guidance here for fiscal 'twenty 1.

I'm I'm curious if.

Do you think at this point, we should adjust our expectations a little bit for them.

The achievement of those fiscal 'twenty 3 targets I mean at least to me. It seems like we could be seeing 23 done in 'twenty 2.

Can you maybe comment on that end.

At what point in the year should we be expecting some maybe adjustments or tweaks to that to that 23 target guidance. Thank you.

So I think moving from that perspective, you know obviously the 180 with the midpoint of the range that we're talking about I think in Investor day, we laid out.

I think we had from.

Feedback there you know that effectively to get to the 180, we were having to do things that are within our 4 walls, but we do have additional upside to the extent that we grow.

A higher than market and then we all for perform more on the longer tailed projects like a V and platform that we pulled out. So at this point you know exiting the year I still think were intact to deliver.

Near the bottom end of those ranges with the extension.

Origin expansion that we've already talked about the 30 or 40 basis points that we would expect to see over the next couple of years would get us more to the mid to top end of that range. So we're still feeling comfortable there, but obviously as we move through this year and then into next year, we'll be looking at those targets for right now we feel comfortable that you know what that range at the midpoint.

That was reflected there in a range that gave you some opportunity to go above we feel comfortable of that sorry about where we should stay right now.

Okay. Thank you.

Yeah.

Our next question is from Jerry Revich with Goldman Sachs. Please proceed.

Yes, hi, good morning, everyone and congratulations on the strong performance.

Thanks for asking.

Can we just.

Revisit the discussion we had at the analyst day about your approach to the supply chain under the prior management team during a period of chassis shortages or significant cost overruns.

Really significant shortages.

Flowing through the factories and obviously you folks are managing much better in this shortage environment can.

Can you just frame for us the benefit of this quarter in the books.

Compare and contrast, the different approach for the procurement because obviously the.

Results in a pretty similar environment are pretty meaningfully different here.

Yeah.

I can't.

We say this right.

I can't speak in great detail in terms of how it was managed in the past the issues that were faced for the past I think the issues. We're facing now are very public with related to chassis from through the chip shortage in and the shutdown.

The Oems other chassis side so.

So we're managing through that with close contact with those Oems our benefiting from some inventory positions that we've had.

To keep our plants are operational and keep us on track to where.

Where we're going up against our guidance, but I will say this operationally you know we we obviously made some pretty significant changes within our supply chain purchasing organization has enabled us to I think elevate the kinds of discussions in a forward thinking that we have between our organization and those suppliers not just chassis, but broadly then.

Many suppliers that we have to keep keep our lines running right now as everyone knows across the industries and specific to chassis theres, a pretty extraordinary situations happening they were happened to mange through the maturity of the teams that we put together in the last 6 months to get in front of that.

Have conversations to make sure that 1 the allocations that we have we're gonna be fulfilled but also that we get a line of sight on plant startups and then when we get early access to demand I think that our supply I think our our team the maturity that they've had is it's pretty extraordinary actually where we're actually spending equal amount of time on the.

<unk> of those chassis pools to make sure that that we optimize what we have that we don't have chassis that we don't have demand for I think we're being much tire.

In the months and quarters and months ahead of us around how do we think about what we want to get allocation for and the disciplines that we built around making sure that we optimize those inventory levels. So we have the right choices at the right time, and we don't have too many set in the pool market probably comment on that more specifically, but it's more of.

Ah for are we thinking probably a cross business unit across the across segment thinking about what our needs are related to these commercial chassis and then forward engagement from our team much more proactively with their supply chain partners to make sure that we're managing that so we don't have issues, where we can't produce produce product it becomes a bit.

Area for us and hitting our targets and right now like I said I think we're in a good spot against what we've given guidance for today for not only for the balance of this year to go deliver against those targets based on the conversations we're having with our our suppliers, but on that end, but again it is a very challenging time.

Everyone's facing in the industry around chassis supply of March getting anything you'd add to that Jerry I would just add you know as I mentioned at Investor day, as we talked.

At this point, we have now around inventory management, and how we're tracking inventory, which includes chassis and all the components the manufacturing floor or visibility to what inventory they have on hand, and when they can start a job and what's there and ER.

My prepared remarks, our quality is a lot better but also our manufacturing planning as Rob referred to we have a lot more visibility to when we can start a job what inventory we have on hand, and then likewise the ops team is working with engineering to understand to the extent we have a part that is missing is there a substitute that we can go to the customer.

And actually discuss substituting parts. So they can revenue the product and deliver it to them right because our customers are dealing with the same thing. They want the product is as well. So you know as I said in my prepared remarks, we have a dual benefit here I'm sorry from the actions, we kicked off last year, where or which are unrelated to the shortages, but just making sure we have a good.

Quality of inventory and as Rob said on the chassis pool, we're looking for not only getting more chassis, but do we have the right chassis and allocating appropriately and addressing that with our customer base. So we feel pretty good assets, all the way through and not only supply chain, but operations all the way to engineering.

Okay. Thank you and then on price cost based on the quality qualitative comments it sounds like price cost was a year over year tailwind when in the quarter can you just confirm and maybe quantify that for US and can you talk about what does your guidance anticipate for the year over year price cost.

In the back half of the year.

Yeah, I would say we were able we were able to mostly offset and we were able to offset inflation through savings as well as the price realization that we've talked about that before obviously the recreation group is definitely taking price I think they are across the industry.

We're getting ahead of inflation with price increases.

Longer backlog businesses, where we've been able to offset the inflation through purchasing initiatives that Rob and his team have kicked off so we feel pretty good there.

Talk about inflationary pressures are probably talking in the neighborhood of 5 million that we see in the in the outward quarters out as are ahead of us that we have to address our bigger challenge is not the inflation, but just making sure we have the product set and the components. So we can actually revenue.

Products.

If you look at the back half, we probably have about 600 and $625 million of sales that are dependent on getting chassis to.

To deliver so you know that that's probably a bigger challenge than it is on the inflationary front and our ability to offset that.

So to the extent, we have components that we feel pretty good like Rob said, delivering our guidance and now entering the answering that mid range that we provided.

Okay.

There is optimism about the chip shortage potentially alleviating heading into year end.

You folks look at the supply chain challenges that you're managing in the back half for the year, what's the relative complexity compared to the quarter. We just went through.

How do you see that dynamic.

This dynamic playing out.

Yes, it's a lot more it's a lot more complex entering the quarter because as we mentioned we had we are fortunately had quite a bit the chassis is entering the quarter and we're still able a batch build in a lot of our locations as we've talked about previously and then as we exited the quarter it became harder to actually batch builds so it was more of a take.

The mix that you actually had within your ear back what I would say backlog of <unk>.

Sales, but also your backlog of chassis or the traffic that we had available to us. So it became more of here's the units. We have that we can produce side versus at the beginning of quarter. It was more of you know we have 10 orders for this chassis. So let's all produce those.

Those units all at once here through a line we've got the efficiencies there, but our visibility now is more of we need to replenish that chassis pool, such that we can get to that efficiency level in the back half, but I agree with you Jerry we're seeing promising signs here. So it's more of a short of a near term challenge as we manage the mix of our chassis supply and then where it.

Hoping just like everyone is at the announcements that have been made by the OE hold in that where you're starting to see those chassis to come back on line and we do have the appropriate allocations from them.

Make 1 comment we've worked obviously as I mentioned earlier very closely with the Oems around the chassis is and.

As long as these the Oems.

Watch an approximate their day 2 of ramp and we're going to we're going to be positioned for the balance of for fiscal year, and we're working closely with him and have no indication that that won't happen.

So we're we feel pretty solid about where we are but we just it's something we have to manage every single day and we're doing that.

I appreciate the discussion thank you.

Thank you Sir.

As a reminder, this star 1 on your telephone keypad, if he would like to ask a question. Our next question is from Joel <unk> with BMO capital markets. Please proceed.

Hey, guys How's it going.

Good day.

Can you talk a little bit about sort of the industry inventories and the recommendation industry interest to give us a sense of where we are how much needs to be rebuilt.

Yes, our view of the inventories I think when you look at a probably an average inventory level across the blended average inventory across all segments. There are about 60% of other normal inventory level right now, which on a forward basis might mean to replenish those back to a historical average you're looking at 6 to 9 months.

The demand fulfillment I think that's those are approximates because you've got again at the detailed segment by segment.

On a slowdown I think youre looking at it for a considerable lead time to replenish inventories to what might be considered historical average.

That's all day.

Can you give us any sense of how you're thinking about from March of your backlog is it is it highly dependent on sort of all these fires are fighting and better productivity in the factories and chips and chassis and everything or is there a little better certainty I mean, you don't have to share with us the answer but just sort of.

Internally you feel a little more confident about what's in the backlog in terms of pricing and margins.

Yes, I think I'd want to think about price and I think that's kind of a question about price cost in your backlog and how it's going to flow through.

Before the.

He actually Covid, we were putting a lot of effort focusing on the health of our backlog relative to how we price price and cost into that backlog. So theres a lot of effort around optimizing our cost position that standing up a centralized purchasing organization to go after opportunities even in an inflationary environment, we see opportunity because it maybe.

Things that we didn't do in the past, but also as we've talked about we have aggressively pursued price adjustment to our businesses going forward, but also in some cases surcharges and prices for for backlog based businesses. So we're not getting into looking at 'twenty, 2 yet, but certainly looking at the balance of year, where they were in a good position there too.

To deliver against the guidance, we provided and I think the actions we're taking both on a cost basis enterprise basis to make sure. We're in a position where we have positive price cost we're gonna be been a good shape. There. Its work every day and obviously when inflationary issues are going up faster you've got to be on your toes to take care of that but our team is fully allow.

To manage that and understand the implications for not doing it where we're <unk>.

Certainly on top of that.

And then my second question is if you know where we're talking a lot about sort of.

Your execution and operational excellence fighting some other fires that are out there.

Yeah.

Different franchises that you that you guys are kind of inherited can we just take a minute and go through some of the.

Those franchises and where you feel like you.

You are the leader like it seems like fire and ambulance Youre kind of clearly the leader, but some of the other areas, maybe a little a little harder for us on the outside to decipher your competitive positioning that thank you and then I'm done.

Yes. Thank you so there's for.

For the businesses that this much complexity in different end markets. There's it's really a business unit by business unit discussion.

I think generally with some exceptions, where in a top 3 position.

Most every single product segment product category that we have there are a few exceptions within RV and that really gets into as sub segments. If you will we have businesses that are leaders in the other businesses that they're at 1 point, we're a leader that we're focused on getting getting those back to leadership positions.

Transit is probably a business, where you could look at that and say that from a share position, where non leader, but I looked at that and as I looked at the actions that we're taking is an incredible opportunity for growth for us because of our business performance. There is just so strong.

From how we execute the operating deliver in our customer satisfaction levels. So in that business, where we're maybe subscale relative to competitors.

Subscale relative on share.

High performing business for us that does a very good job of executing and I think that speaks.

It speaks to a growth opportunity for us so.

It's a very detailed question, but foreign emergency we're clearly in a leadership position.

And then.

<unk>, it's segment by segment and then commercial.

We have some variation in our type a school bus is a leader in that industry, and our sweeper business and free wheels, a leader for where we're not a leader.

It breaks down very differently, depending on which business you're talking about but I would say this we are really focused on execution operations.

And our line these businesses around the commonality, we wouldn't go scale and get leverage to improve but we're also really focused on commercial because I think that.

We can build a commercial excellence capability here that we have a great opportunity to grow these businesses above market growth.

Both organically and Inorganically to drive growth that will be from our Investor day presentation accretive to the AR for.

For the outlook that we gave so.

We're pretty we're pretty a.

Pretty excited about what's ahead of us there.

That's great. Thank you so much.

Okay.

And we do have a follow up question from Maine to operate with Robert W. Baird. Please proceed.

Hi, yes, thanks for taking a follow up I just wanted a little clarification on the fire business you talked about strong order growth.

But I'm wondering if we're if we're looking sort of on an apples to apples basis kind of adjusting for.

The acquisition that you made there and we're kind of comparing demand to say pre COVID-19 levels can you give us a sense for where order intake.

Demand seems to be and I'm kind of curious you know the expectation here was that given the COVID-19 disruption, we could be seeing the fire market maybe.

A little more disrupted as we as we think into even into 2022, how has your view of demand in this market change over the past call. It 3 months 3 to 6 months.

Well I would say this maybe it's a good question I don't have the data in front of me to kind of have a comparative analysis to carve out performance pre acquisition I could talk but I can't talk specifically to what we're seeing in the market and how we feel our competitive position is relative to market demand I mean, our our order intake the pass.

5.6 months has been at record levels, even if you pull out some of the businesses other than acquired the businesses. The orders have been really really strong and and and.

The forward demand that we see the work we're doing with our channel partners weakness, we see that continuing we are going to go through a period of time here, where orders maybe seasonally trough a bit.

Over the next month or 2 but.

We think about market activity and market share and our position we feel very good about the position of each of our brands and more importantly, our ability to execute our improved ability to execute over the past 12 months and improving lead times and.

And our delivery against that backlog. So while we continued to build backlog and reduce lead times, it's a great situation, because we're converting much better but I think that.

No. There there was some softness perhaps in a share position going back over the last last year, probably pre entering that.

Fiscal quarter this year, but the last 6 to 7 months, we have seen.

Really positive momentum from an order rate basis, and I think it's a market, but also I think it's a share take back that to get us back where we need to be and I think it's mostly attributed to the commercial excellence work, we're doing more proactive with our dealer base, but also honestly, what we've done to improve our performance for our customer.

In terms of operations so.

That's that's that's where we're at but I think we see we see nothing that would suggest that the fire market is softening.

We think it's really pretty healthy here going forward based on what we're seeing in our pipelines and in conversations with the.

With the market.

I appreciate the color. Thank you.

We have reached end of our question and answer session I would like to turn the conference back over to Ryan for closing statements.

Yes. So thank you everyone for joining and also thank you for the very thoughtful questions. Obviously.

In closing and recap where.

We're very pleased with the progress we've made over the last year when you think about.

Coming through a very difficult challenging time other transformation in a turnaround in the context of.

A global pandemic and be able to.

Put the put the results on the <unk>.

For that we put on it in terms of maintaining revenues and margin expansion and again I really would ask a lot of this team to think differently and to do things differently and our employees has just done a great job responding our employees our manufacturing facilities have continued to work hard and do what we've asked them to do things differently and we couldn't.

Speaker.

More be more appreciative of what they've done so with that we're going to close where hard work on the next quarter and we really appreciate your attendance and your thoughtful questions today. Thank you.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

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