Q3 2021 REV Group Inc Earnings Call
Yeah.
Okay.
Greetings welcome to Rev Group incorporated third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
That 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 drew could up Vice President of Investor Relations and corporate development. Thank you you may begin.
Alright, Thank you Sherry good morning, and thanks for joining US earlier today, we issued our third quarter fiscal 2021 results a copy of the release is available on our website at investors <unk> Rev Group Dot com.
Today's call is being webcast and the slide presentation, which includes a reconciliation of non-GAAP to GAAP financial measures is also available on our website.
These refer analysis slide two of that presentation.
Our remarks and answers will include forward looking statements, which are subject to risks that could cause actual results to differ from those expressed or implied by such forward looking statements.
These risks include among others matters that we've described in our form 8-K filed with the SEC earlier today 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 call if at 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, Brad rushing as well as our CFO Mark <unk>.
Please turn now to slide three and I'll turn the call over to Ron.
Thank you drew and good morning to everyone joining us on today's call I'd like to begin with a brief comment regarding our situation, resulting from the hurricane Ida.
As you May know, our Ferrara fire business isn't hold on Louisiana.
It's effectively was right on the path of Hurricane item. We're thankful that we have not had any reported injury to our employees at this time.
Many of our suppliers and our own efforts provided essentials. During this difficult time as they endeavor to recover from the storm's aftermath.
Vice President of <unk>.
Bert Mccutcheon.
For many employees and I would simply like to thank all involved that have helped our team members are our facility has been impacted and mark will speak to that momentarily.
Also we would like to thank the first responders the puts themselves online on the line.
In support of the efforts I think we have recovered from the storm.
This morning, I will provide 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 detailed financial segments.
We are pleased to report another strong quarter and nearly doubled our adjusted EBITDA performance versus last year, despite topline implications tied to increasing supply chain challenges and labor challenges.
We continued to experience headwinds with staffing workers and absenteeism as well as shorter shortages in raw materials and components, such as semiconductors furniture wiring harnesses pumps actuals on chassis.
Throughout this fiscal year, our procurement team is engaged with our supplier partners and has generally been able to source to allow continued production.
This is often lead to inefficiencies China reward that we have been able to achieve our throughput targets. However, as we move through the quarter. These labor material shortages became more difficult to offset and we were unable to meet our production targets as a result, approximately $65 million of revenue slipped out of the quarter as our deliveries were delayed.
Third quarter net sales of $593 million increased one 9% over last year's quarter, we estimate that roughly $50 million of vehicle starts were masked within the quarter due to the previously discussed challenges.
Which will have a full impact through impact in the fourth quarter of our consolidated top line.
This resulted in a full year revenue guidance adjustment that we announced today I would like to be clear, though that these are delayed deliveries.
Due to the timing of materials components and chassis, but they are not lost sales.
Third quarter sales increase was driven by our commercial and recreation segments commercial segment sales reflect improvement in market conditions and share gains within our specialty group as well as increased sales in our municipal transit bus versus prior year.
In our recreation segment demand for all categories continues to be strong with retail sales matching or exceeding wholesale shipments.
The delivery inventory delivery inventories are still 60% to 70%.
Historic norms across all of our brands.
And then in inbound orders remained robust.
We have not yet experienced a notable restock of any of our RV categories and most wholesale shipments are still selling through to retail buyers.
Fire and emergency revenue declined year over year as well as sequentially.
This segment was the most impacted by the current supply chain and labor constraints.
<unk> headwinds on the top line our businesses have continued to improve operationally and delivered solid bottom line results third quarter. Adjusted EBITDA was $47.0 million with an adjusted EBITDA margin of 7%, increasing 330 basis points over last year.
Sequentially margins declined just 10 basis points on $50 million less revenue demonstrating our improved operational performance.
Over the past 15 months, our businesses have adapted under difficult conditions to deliver results. We continue to flex labor adjust line rates and production mix to accommodate available build and maximize profitability.
Commercially the teams have done an excellent job in mitigating today's inflationary environment, we've been able to achieve positive price cost and realize the price that is within our backlog.
Turning to slide four we have several accomplishments within the third quarter that I would like to highlight first our new order performance continues to gain momentum and we closed the third quarter with our seventh consecutive record backlog.
Each of our segments had strong order intake within the quarter and we achieved a consolidated book to book ratio of one three times, our fiscal 2023rd quarter results.
Our consolidated book to Bill was one four times, resulting in a total backlog of $9.0 billion. This positions us well for growth as we enter the fourth quarter and work our business planning for FY 2022.
In Q1 of this fiscal year, we announced that we will be investing in developing our operational excellence capabilities at our Investor Day in April we provided an update on the work. The early work that the team had accomplished at that time, we reported that we had certified 300 brands 150, Green and 35 Black belt trainees and we had a <unk>.
<unk> 385 projects they were all aimed at delivering ongoing cost savings.
And the five months since that we now have 515 brands 155, Green and 84 Black belt certifications and our operational savings pop line has nearly doubled to an active 738 total active projects.
Team is fully integrated suite of software tools, including power be Eileen DNA to allow us to daily updates and automated tracking reported through our Opex results.
One result of these operational excellence efforts is the improved profitability with our year over year increase in EBITDA and net income over the past four quarters. This improvement has increased.
The baseline for our year to date cash generation.
Third quarter marked another quarter of strong cash conversion and free cash flow. We remain focused on net working capital efficiency with improved accounts receivable collection within the quarter.
Our business also our businesses are also working on a customer with their customers to expand our deposit program, which increased our advances by over $5 million compared to the second quarter.
Improved cash from operations combined with a typically low level of capital requirements provided cash to reduce our net debt by $62.0 million over the past year, both the numerator and denominator.
Net debt to EBITDA equation has improved significantly we exited the quarter was one seven times leverage well below our stated target of two to two five times.
This level of debt and earnings performance positions us with the capacity to pursue our strategic growth initiatives and return capital to our shareholders.
Today, we announced that the board of directors has authorized a new $150 million share repurchase program.
We are pleased with our financial performance has put us put the company in a position to bottle last quarter's reinstatement of our annual dividend with a buyback authorization this quarter.
Reflecting our ongoing commitment to our capital allocation strategy of investing in our business maintain strong liquidity and appropriate leverage while returning cash to our shareholders. We strive for disciplined use of capital that maximizes the company's value and shareholder value. The authorization allows maximum flexibility to achieve our goals.
Earlier, I mentioned, the strength of our current record $9.0 billion backlog.
The backlog growth to date has resulted from solid year over year bookings growth from our improved commercial performance simplification of our brand and dealer network are delivering share gains as well as the delayed throughput, resulting from the external headwinds.
We believe that there will be additional growth opportunity stemming from the combination of the recently passed Senate bipartisan infrastructure Bill and the recently passed Hart House, three five trillion dollars Budd.
The budget resolution. These two bills contain an additional $5 billion for electric vehicles and buses $30 billion for modern modernizing public transportation and.
An $80 billion to upgrade the power grid and installed EV charging infrastructure. The final version of these two bills as yet still yet to be determined but when passed we expect they will provide additional funding to municipalities to improve their municipal transportation and first responder assets.
Our commercial teams have been working to identify and streamline the process of stimulus dollars, reaching our customers. We view, both the infrastructure Bill and the budget resolution.
As providing incremental opportunity to the level of demand we are experiencing today.
We haven't had a focused effort over the past year to advance the electrification of our platforms with recent product announcements announcements demonstrating our progress.
Last week, we had a milestone announcements from both our fire group and our school bus business first we announced the fire group will introduce its fully its first fully electric North American style fire apparatus across all the brands.
Developed with partner Emergency one group the maker of the world's first <unk> fire trucks. This new electric fire truck will deliver the longest electric pumping duration in the industry. It enables departments to drive and pump on electric power only.
Key differentiator in the industry.
This range Extender diesel engine is used for backup when pumping beyond three or four hours on the hydrant offer extended operation in a blackout or natural disaster.
He has built the strength durability and specifically for the fire service location, we announced that we are taking preorders through our doors and it will be available for delivery in 2022.
Adding to our ambulance partnership we expanded our relationship with Lightning E. Motors to include our type a school bus business Collins bus under this multi year agreement, we expect to deliver more than 100, all electric buses across the U S and Canada over the next several years.
The buses will support both AC level, two AC charging and level III DC fast charging with integrated vehicle to grid capabilities.
Other features will include a modern digital dash display Hill.
<unk> whole functionality for safety advanced Telemetric, and analytic analytics, and a mobile app or drivers and fleet managers.
The first orders for this all electric type a buzz utilizing whitening E beam technology are already in production with delivery to dealers and school districts is expected this fall.
Finally, our capacity business displayed as hydrogen fuel hybrid electric terminal truck at this year's advanced Clean Transportation conference in long Beach, California.
Two of these drugs are currently in operation at the Port of long Beach and they have made and then they made available right and test drive.
The trucks maximize uptime by providing hydrogen power backup when the electric battery requires recharging. This hybrid technologies designed for operation the intermodal port and warehousing or distribution applications. We are pleased to say that this product has received excellent feedback in recognition at the clean Air Clean Transportation Conference.
This is an exciting time to be at revenue in electrification, especially vehicle fleet is just beginning and most of our markets, while accelerating and others. There's a significant opportunity to be market leaders in this space and outpace our competition. We will continue to work our strategy of co development and partnerships with technology leaders, who will put us in a position.
To win today, we shared a few examples but we expect additional news surrounding EV platforms to be forthcoming.
I will now turn it over to Mark for details of our third quarter financial performance Mark.
Thanks, Rob and good morning, everyone.
Before I begin I'd like to recognize our team for their solid performance during a quarter with such uncertainty entering our fiscal third quarter industry research forecasts that we are approaching a trough.
Unlike conductor shortages, yet within the third quarter and entering our fiscal fourth quarter shortages have increased and forecast of global vehicle production continued to decline.
In addition, our component suppliers continue to have challenges meeting demand as they deal with their own external headwinds exasperating. The situation cases, other delta variance and quarantine Workforces began to rise rapidly within our fiscal third quarter. These are external forces that we cannot control, but our teams were able to manage them effectively.
In the third quarter as Rod mentioned, our top line revenue impact from these headwinds was roughly $65 million in the quarter, Yes, we maintain a decremental margin of 6% and operations.
We expect the challenges we experienced exiting the third quarter to remain throughout our fiscal fourth quarter. We will continue to adjust operations in response to material labor availability to optimize our decremental performance.
Now please turn to page five of the slide deck, because I'd move to review of our segment level performance.
Fire and emergency third quarter segment sales were $270 million, a decrease of 12% compared to the prior year. The decrease in net sales was primarily the result of fewer shipments of fire apparatus and ambulance units versus the prior year, partially offset by price realization of trucks that were in backlog as you have.
Likely heard through industry data media and earning reports key suppliers have needed to place their customers on allocation are chosen not to restart production at certain facilities as they manage their own supply disruptions.
As a result in limited availability of chassis axles and other components is critical for completions and starts.
Excluding quarter, we had over 100 vehicles. They did not have all of the pirates required to be completed as a result. These units remained in web rather than being delivered in revenue. In addition to supply chain disruptions labor availability was challenging in the quarter, particularly in our two largest <unk> facilities in Florida due to the <unk>.
Escalation of Covid variance in order to maintain some measure of consistent flow through the plants, we have been proactive in limiting or altering our production schedules for example, or lack of van based chassis supply to our ambulance division resulted in a production shift to modular units that are higher content.
Due to the increased content and complexity. These units require more time on the production line with slowed velocity and contributed to lower than expected sales within the quarter.
<unk> segment, adjusted EBITDA was $23.0 million in third quarter 2021, compared to $21.0 million in third quarter 2020, adjusted EBITDA margin of five 8% improved 170 basis points compared to last year. The increase was primarily a result of price realization within our backlog.
Favorable mix of the high content ambulance units mentioned earlier and lower operating costs.
We offset by supply chain disruption and labor constraint inefficiencies. This segment once again mitigate the impacts of inflation in the third quarter. Despite these being relatively long cycle businesses.
Total F&I backlog was $3.0 billion, an increase of 18% year over year. The increase in backlog was the result of strong orders for fire apparatus and ambulance units over the past year fire orders increased 78% versus last year's quarter, while orders for ambulance has increased 88% setting another record for <unk>.
By an ambulance unit orders the quarter also marked the seventh consecutive record of ambulance group backlog, which has continued to grow since the onset of the pandemic in the second quarter of 2020.
We expect the remainder of the fiscal year for the F&I segment will continue to be impacted by five chain and labor market disruptions. We have worked closely with our OEM partners to communicate our demand needs and secure the chassis is needed to fulfill our fourth quarter production plan within the ambulance group as Rod mentioned Hurricane Aida has impacted our firm.
Our fire plant in Louisiana, There is limited damage to the facility. Our production is not resumed as of today, although we expect they could return as early as this week, we are working with our local supply base in Louisiana determined what damage they have experience and the impact of future component supply as we ramp that facility back up.
May also be challenging for onsite vehicle inspections and deliveries. This is due to a lack of hotel rooms being occupied with contractors visiting to assist recovery efforts.
These impacts current chassis supply in line rate adjustments, we expect segment performance to be in line with third quarter run rate.
Turning to slide six.
Commercial segment sales of $111 million was an increase of 21% compared to the prior year period. The increase was primarily related to increased specialty group sales and increased sales of municipal transit buses, partially offset by lower sales of school buses momentum in our specialty businesses continued with year over year sales increase.
<unk> of 126% and 245% for terminal trucks and street sweepers, respectively.
So a transit bus shipments returned to a more normalized level compared to last year's reduced deliveries, which have been adjusted to accommodate the request of the large municipal transit customer due to COVID-19.
Commercial segment adjusted EBITDA of $16.0 million decreased 6% versus the prior year. The decrease in EBITDA was primarily a result of an unfavorable mix of school buses and municipal transit buses bulk types had less content, which resulted in less EBITDA within the quarter, whereas the prior year period the specialties grew.
<unk> has done an excellent job, winning new contract awards and leverage increased sales volumes in the quarter. The business has been an early adopter of a number of opex initiatives and has improved manufacturing profitability by over 600 basis points compared to the prior year. However, the group's adjusted EBIT margin is still trailing the segment the <unk>.
Holiday rate of eight 7% therefore, the third quarter segment make the sales containing greater contribution from our specialty group is margin dilutive. We believe specialties continued efforts in deployment of the Rev Drive business system will position them to return to double digit margins.
Commercial segment backlog at the end of the third quarter was 312 million, which reflect strong orders for terminal truck Street sweepers and a return to normal ordering patterns for school buses.
<unk> group backlog increased 618% year over year and achieved its second consecutive record level.
Our capacity terminal truck business sustained demand from the warehouse and distribution segment and when two large national account orders, which led to market share gains Street sweeper demand remained strong with our rental house customers expecting these trends to continue into 2022, given the prospect of a new infrastructure Bill.
Within the municipal transit markets, we have had greater quoting activity from airports due to increased passenger activity universities have been slowest to recover and ordering was muted, but we expect this end market to improve as students return to campus in the fall. The transit industry has been the quickest to adopt zero emission buses and within the quarter.
We partner with the Stark area Regional Transit authority to showcase our hydrogen fuel cell Boston towards California, and Canada.
Barbara Bus program was created to raise awareness about innovative technologies and Mark. The first time. The vessel was displayed in operating in Canada, whose government has pledged to help purchased 5000 zero emission buses over the next five years.
Our update to consolidated revenue guidance reflects our expectation that the specialty and municipal transit business performance will be similar to third quarter. However, our Collins school bus business suspended production during the month of August due to lack of chassis supply we have updated our fourth quarter production planning to align with our OEM partners.
Data delivery schedule with <unk>.
This information the topline impact due to the school bus production shutdown is expected to be in the range of $25 million to $30 million versus the third quarter commercial segment revenue run rate as I mentioned earlier, our businesses have limited the impact of lost revenue and we expect a 15% decremental EBIT margin.
Turning to slide seven.
Recreation segment sales of $213 million were up 16% versus last year's quarter increased sales versus the prior year were primarily a result of increased unit shipments of class B class C and total products plus lower discounts and allowances across all our segment categories.
Offsetting the increase was lower sales of class a units related to supply chain and labor shortages, which was a headwind.
Route.
<unk> the industry remains challenged with material shortages of furniture awning generators and other small ticket items needed to complete and ship units in subsys. In some instances are relatively small scale has been an advantage and we've been able to find alternative sources for product preliminary availability of guest chassis for classic.
Motor homes, resulting in a greater mix of diesel and overall line like lower line rates for that business.
Recreation segment, adjusted EBITDA was $25.0 million up $12 million versus the prior year adjusted EBITDA margin of 11, 3% is a record for the segment. The increase in EBITDA was primarily the result of stronger price realization related to price increases and lower discounts volume leverage and lower.
<unk> expenses, partially offset by material inflation increased freight surcharges.
Even with the line rate challenges presented by labor and chassis shortages our class eight businesses.
Our class eight business margins were nearly 600 basis points greater than the prior year. The business is making good progress against our stated goal of raising its peak to trough margin profile to level that meet or beat industry peers.
And lowering its unit breakeven point, our class B and C businesses continued to perform above industry averages with market share gains in their respective categories and mid teen EBITDA margins SEC.
Backlog of nearly $3.0 billion increased 250% from the prior year and 23% sequentially is the fifth consecutive quarterly record and a result of continued strong order intake across all of our RV categories and market conditions remained strong with retail sales exceeding wholesale shipments and dealer inventories.
That remained down an average of 60% to 70% compared to historical levels introduction in 2023 miles of the year was successfully launched across our motorized brands and we're looking forward to the wide releases at the upcoming retail showing Hershey and dealer open house in Elkhart later this month.
Industry demand remains elevated and we believe we are positioned for growth above market with continued share gains entry into new markets and portfolio alignment to faster growing categories.
Turning to slide eight.
Net debt of 31 as of July 31 was 248.
8 million.
<unk> $11.0 million of cash on hand versus 330 million net debt at the end of fiscal 2020 at quarter end. The company maintained ample liquidity with approximately $277 million available under the ABL revolving credit facility. We believe our leverage ratio combined with this liquidity and strong cash generation positions us well.
Well to Opportunistically buyback shares and deploy capital in a value accretive manner, we declared a quarterly cash dividend of five cents a share payable October 15th to shareholders of record on September 30th and Rob discussed the announced share repurchase authorization of $150 million.
Trade working capital on July 31, 2021 was $410.0 million compared to 427 million at the end of fiscal 2020 year to date net cash provided by operating activities was $106.0 million compared to 25 million the prior year period and permit and year to date cash from operating activities was.
<unk> related to higher net income and trade working capital management, including a decrease in accounts payable or accounts receivable and inventory, partially offset by decreased payables. We have spent $22.0 million on capital expenditures through the third quarter and expect to spend $8 million to $10 million more in the fourth quarter. This resulted in year to date free.
Cash flow conversion of 147% and the midpoint of our updated guidance at 121%.
Turning to slide nine.
Today, we are updating full year.
Fiscal 2021 guidance to reflect the challenges that have impacted our top line. We now expect fourth quarter sales to be in line with the third quarter run rate, reflecting the growing impact of supply chain and labor constraints.
Monday, They report their third quarter light vehicle production will be worse than second quarter and up to $11.0 million vehicles. In addition productivity declines related to Covid variance have increase which was not anticipated. When we provided guidance in June as a result, we have lowered our full year revenue guidance by $150 million at the midpoint to a range of two.
Three to $47.0 billion. This is approximately 4% growth year over year compared to the prior midpoint of 11% we have lowered the range of adjusted EBITDA guidance to 140 to 150 million from $46.0 million to $160 million a reduction of $12.0 million at the midpoint we are narrowing.
Net income guidance to a range of 54 to 64 million from $52 million to $68 million. Previously we also tightened the adjusted net income range to $74 million to $83 million from $73 million to $88 million and free cash flow is now expected to be between $190 million, an increase of $19 million at the midpoint with them.
I'll turn it back to Rob for closing comments thanks Mark.
We discussed today that there remain many challenges in the operating environment that we are managing with the resurgence of Covid and the lingering labor and supply change impacts related to this we are also operating where end market demand for vehicles is very strong providing record backlog and pending fiscal stimulus that enable and accelerate demand and the adoption of new technologies.
For us to capitalize on.
While the pandemic has not left as we do see that people will begin to return to schools universities and airports and are traveling more frequently demand for recreational vehicles is not relented and the market survey suggests that new entrants in demographics have entered the lifestyle.
While shortages or limit our line rates in top line, we have managed cost effectively and maintain positive price cost year to date I am pleased with the work that our team has done in advancing the Rev Drive business system. This has been fundamental to our ability to improve results under these difficult conditions.
We have much work to do but we're excited to exit the quarter with a strong financial position provides flexibility to pursue our strategic growth initiatives as well as return cash to our shareholders.
In closing I would like to once again, thank our dedicated employees for their continued efforts in working through these challenging times and continue to provide our customers and continuing to provide our customers with innovative high quality products that truly make a difference in people's lives. Thank you for joining today's call and operator, we will take now take all the questions. Thank you.
Thank you.
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Our first question is from Mike Dahl.
With Baird. Please proceed.
Thank you and good morning, everyone.
I guess.
I'm, just sort of looking to clarify make sure that I heard this right.
When when you're contemplating the fourth quarter's sales are you.
Did you mentioned that you expected fourth quarter sales to be.
Pretty close to what you've done in the third quarter, because obviously I mean the range that you provided in your guidance is extremely wide. That's why I'm looking at kind of clarify that.
That's correct Mig with you know obviously, we'll have some in line on the <unk> side, and maybe a little uptick in recreation, but the impact that we're having cousin Collins of $25 million to $30 million with that plant being shut down will more or less normalized the normal $20 million to $30 million uptick we've seen historically from quarter to quarter.
Okay, Okay that.
That makes sense.
And then.
In fire and emergency.
Yes.
I'm trying I'm trying to get a better sense here for how youre kind of thinking about that.
The run rate for this business as we start to.
Contemplate fiscal 'twenty two here.
There's a lot of backlog that you have in a business at what point in time do you think youre going to be able to have sort of better conversion here.
What you have in the backlog right now is that all slated for.
Fourth quarter and fiscal 'twenty, two deliveries or is a portion of this backlog.
Anticipated to stretch out into fiscal 'twenty three.
And then.
Related to this from a profitability standpoint.
This backlog price are you in.
In a position where you can offset.
These incremental headwinds or should we be extrapolating the fourth quarter as we think about fiscal 'twenty two.
Yes, I guess, maybe you know obviously, we're not going to comment on the 22.
I would say, though in Q3, we demonstrated that.
We're able to offset so we even had orders that were pre the inflationary period and the work that we've talked previously about that part of our purchasing group is doing to drive savings to offset inflation and then we have come out with price increases and specifically in F&B, what price increase and then on the ambulance side with surcharges to offset.
Those costs that will become.
We have hit the market. So the sales that we see we felt confident that we will still have a positive price cost.
And with what we how we price the product, but also the <unk>.
Savings initiatives add Rob this loss gain our procurement team has driven so we don't see a margin degradation related price cost in that business going forward.
And in terms of how deliveries are.
This backlog.
Is it all.
Fiscal 'twenty two business and some in 'twenty, one or is there a component stretches into 'twenty three at this point.
Right now it doesn't extend out to 'twenty three so we're still in the 'twenty two period, obviously, you're looking at how we re forecasted our Q4 in 'twenty, one and then asking into 'twenty two.
It's pretty close to a full year of backlog that we have in that business.
Okay.
Alright, thanks for the color I appreciate it.
Yes.
Courtney.
With Morgan Stanley. Please proceed.
Accordingly.
Starts that are being pushed to the right.
It did delay their quota can you could you restart the question, we got to meet them.
Oh, just on your comment that some of the starts are being pushed to the right. Just your conviction that those are not going to be cancelled or you know moved to another provider given some of these issues and then also if you can.
And you're not giving two.
2020 guidance at this point, but if you can help us think about segment level margin targets, given where you're going to fall. This.
This year.
Obviously.
I'm not necessarily going according to plan in the fourth quarter, which you can just help us think about.
Targets for 2022.
Segment margins.
Accordingly, this is rod I'll take the.
Flow through question in storage question I think that the.
The impacts we've had related to storage. This is really a velocity is.
Completely something that the industry is experiencing so the starts that we miss it related to the line not moving attack and was not delivering the revenue, which was obviously something we talked about today and its related directly back to <unk>.
Process of being ready to build because you have the materials and having the slots open up as you move things through the lines. So it's all related to the velocity and the fact that.
Materials as far as orders being canceled we have not seen any of that or any suggestion of that.
And honestly with the fact that.
These arent like.
Rev production issues or moving your order somewhere else is not going to solve that youre going to get in line somewhere else. If you were to do.
You want to think about that because the material shortages or an industry phenomenon.
Fortunately not a revenue problem. So I think that we're in a good spot there I even had made a specific comment that.
The delays these are delays and not lost sales and we feel strongly that that's the case, where we're working hard to get these deliveries from our suppliers. So we can get back to attack Intuit revenue, though mark and I will take the second question I would say pardon me on the margin profile I would just say you know, we're not going to provide guidance right now, but as we look out into.
What we have provided for 2023 I think we're still on path are ahead of the Investor Day 2023 target that we had provided in some of the challenge. We have here is obviously is what kind of throughput we will get entering into 2022 as we exit Q4.
Run rate here. So we're still open to that and obviously, we're providing guidance in the December timeframe. When we will present, our Q4 results I really want to hold off given that fact that we have a lot of challenges and headwinds ahead of us here to manage through before we gave a full year look.
Our 2022, and what our expectations were but nothing has come off or what what we have presented previously around our 2023 targets and the path to get there.
Okay, great. Thanks.
Sherri This is drew.
I think a little bit delayed when we're passing up questions I think it goes in the Q.
If he started I haven't we haven't heard yet.
Oh, yes, I didn't start yet, but I can hear you guys is it coming through okay.
Yes.
Hi, I, just wonder if maybe more like a I don't know structural question.
The thing that you guys can do to solve this chassis issue. It seems like its been something thats ongoing for a couple of years and I know you have great relationships with your suppliers and all that kind of stuff.
And I don't know is there any way around this as a recurring issue.
Yes.
I don't know the issue. We've had is really something that kind of created from the pandemic in the semiconductors.
And it's very well reported.
Throughout the industry in terms of lead times on automotive and the pooling that some of the OEM as we're having are waiting parts and finishes and I can assure you. We are there is there is not a stone unturned with up between us and the OEM is around trying to figure out how to solve this we have daily and weekly calls.
Understand production rates and delays and postponements and you guys all see the announcements of delays in openings and shutdowns.
That theyre going OEM by OEM right now so we're caught in that cycle like everybody else is buying from us, including if you go to any.
It's a different build obviously if you go to any any dealer lot on a consumer side youll see a shortage of inventory as well. So it's a massive impact that we're working day to day with with these Oems to try to address.
They are build to make sure that they're allocating to these.
These critical areas of infrastructure that support our community. So we haven't.
We couldnt have more dialogue that we're having with them but.
The quality of information relating to this being resolved as is not something we're getting.
A real quick turnaround on so it's going to I would say I think we've got some challenges here that like it's been reported and public there was issues in the industry around you shipped shortage in the forward effects of that on demand.
Okay is there any way that you can give us a sense of how your.
How your transformation of the productivity in your operational efficiencies in all of that kind of stuff is is working or is there just too much noise right now with labor shortages in supply chain and all of that to really have any sense of if if all your changes like what kind of impact on the changes you've been making are having on the operations.
It's hard to this is Rob again.
It's a great question, it's hard to give the analytics to validate what it is because it's such an unstable environment right now.
We can look at the disciplines, we put in place around purchasing to drive down cost to offset inflation the pricing disciplines. We put in place that's given us a profit positive price cost. We can look at what we've seen is significant upticks in absenteeism and issues related to productivity like missing parts and happened to.
Put something in a parking lot and go do rework on it that we would not have done historically and we're still seeing labor efficiency improvements and you can see that through our margin. So it's hard to when you've got such an unstable environment to kind of understand just how big the impact is but the best way to look at it is despite all of these inefficiencies and headwinds in the shortages of revenue we've had.
We're still getting solid contribution margin, we're still getting.
Good discipline to drop throughs in our margin expansion and it's real earnings because you see it converting to cash.
So it's a positive operational story that.
We just wish we had a positive revenue story to tell with it as well, but we were battling that everyday and we're making good progress so.
That's how I'd answer that in a few of them.
The other question is on that.
No. That's good thank you very much I appreciate it.
Yeah.
Our next question is from Jamie Cook with Credit Suisse. Please proceed.
Okay I guess my question.
Commented on sort of margin your margin targets for 2023, you're still sort of comfortable with that.
At your Analyst Day, you also know gate.
Revenue growth targets, I think of one and a half to sort of 2% by 2023, just wondering how youre thinking about that given the backlog and then some of the stimulus and infrastructure Bill that we could have and that how that impacts margins could there be potential upside to margins because of that thank you.
Yeah, Jamie I think as we build out 22 heading into 'twenty three that's a discussion we're having with the backlog and the challenges here as Rod mentioned, it's not the fact that we don't have backlog that we have to drive the throughput right. So it's really a throughput discussion here in our component supply. So as we've demonstrated in the second quarter. When we had the inventory we were able to.
Drive throughput as we had discussed in our previous earnings calls, but I think it comes down to what our visibility is the supply chain do we have chassis availability and our ability to accelerate that throughput because as Rob mentioned I do think we have implemented several programs that are driven throughput improvements, but right now there.
Offset by the amount of rework and the opposite glimpse building that we're doing so I think from that perspective, we will be recasting as we look into 'twenty two with the <unk>.
The entering backlog its own previously said will be very strong. So it's all around our throughput and our capabilities to have people in supply to execute against that but I do think there's opportunity there to deliver on that especially with the reduction that we've just announced here exiting 'twenty one.
Thank you very much.
Yep. Thank you.
We have reached the end of our question and answer session I would like to turn the conference back over to Raj for closing happens.
Thank you and again I want to thank everybody for joining today obviously.
We probably talked it to death about the challenges facing the broader industry and we're dealing with but I do think that the bright star is where our customers continued to deliver orders to us were seeing great growth. We're seeing markets that are very receptive to the new offerings that we're bringing forward and from a fundamentals basis going back.
The second last question, we got as you look at the execution of the business.
With all the headwinds you're facing in the margin expansions and what we've been able to be able to accomplish in the last year.
I'm pretty proud of what this team has done and I'm confident in the direction that we're going.
We just got to get some of these external challenges behind us and that's what we're working hard with our supply base as you can imagine, but our focus is always on delivering its commitments and improving our performance and I think we've got to begin to build up a track record on that work is not finished but we're very excited about continuing to drive improvement through the through the Rev Drive business.
System that we put in place and being the commence we put in place. So again I appreciate the call and I look forward to talking to you guys in the one on ones have a good day.
Thank you. This concludes today's conference you may disconnect your lines at this time and thank you for your participation.