Q3 2022 REV Group Inc Earnings Call
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Greetings and welcome to the Rev Group Inc. 3rd Quarter 2022 Earnings Conference Call.
At this time, all participants are in 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. As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Drew Kredup, Vice President, Investor Relations and Corporate Development. Thank you. You may begin. All right. Thank you, Doug. Good morning and thanks for joining us. Earlier today, we issued our third quarter fiscal 2022 results. A copy of the release is available on our website at investors.revgroup.com. Today's call is being webcast and the slide presentation, which includes the reconciliation of non-GAAP to GAAP financial measures, is available on our website.
Please refer now to slide two of that presentation. Our remarks and answers will include forward-looking statements, which are subject to risks that could cause actual results to differ from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we've described in our Form 8K filed with the FCC earlier today and other filings we make with the FCC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all.
All references on this call to a quarter or year are our 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 Mark Skoniecny. Please turn now to slide 3 and I'll turn the call over to Rob.
Thank you, Drew, and good morning to everyone joining us on today's call. Today I'll provide an overview of the quarter's consolidated performance and then move to commercial operating and financial highlights achieved within the quarter before turning it over to Mark for a detailed segment of financials.
First, I'd like to provide a few comments on what we are experiencing in the supply chain and labor markets. Like other industrial companies, we have been managing through an inconsistent and challenged supply chain over the past year.
While we have seen improvements, these improvements have proven to be temporary and material shortages have subsequently re-emerged in plaquing our flow and throughput.
We have listed the components that have had the most frequent impact on production. Wiring harnesses, HVAC, axles, radiators, and electronics have consistently been short and supplied and remain disruptive to both our starts and completions.
We continue our efforts to secure volume commitments.
and are running processes to qualify and dual source alternative suppliers.
but a consistent, predictable flow of materials has not yet returned.
Delivery of OEM chassis have improved in recent months.
From 1 OEM, we received an average of 70 chassis per week towards the end of the third quarter. This was up from just 10 per week in the second quarter. The improvement in deliveries was primarily the result of an inventory lot clearing process.
These chassis receipts were not aligned to our production plan, to our scheduled component delivery.
are to our staffing levels, which created a secondary challenge in managing our production.
Receipts of chassis that match our planned productions have not yet improved. This combined with the potential OEM chassis model year delays creates a lack of certainty and stability in the predictability of future chassis deliveries.
Our current view of supply chain recovery remains consistent with what we provided on our second quarter call. We do not expect to see broad-based improvement until calendar year 2023. As a result, we have maintained our current mine rates that are supported by our chassis supply, our parts availability, and our current staffing levels.
Now turning to third quarter results. Consolidated net sales of $595 million increased $2 million versus the third quarter of last year.
The increase was driven by higher sales within the recreation segment, partially offset by decrease in sales at the foreign emergency segment.
Recreation segment sales continue to reflect strong demand for our RVs across categories as well as favorable mix within the businesses.
Over 80% of our year-to-date recreation sales and 90% of our EBDAs are within the motorized categories. Our businesses continue to benefit from favorable trends and low dealer inventory.
Our Midwest brand serves the Class B Sprinter luxury van market, which grew at 16% over the failing period 12 months ending June 30.
In the same period, our Renegade Class C diesel business gained 1.4 points of market.
share, outpacing the market by 12 percentage points.
The combined unit output of these two plants improved 29% versus the third quarter of last year.
demonstrating RevDrive's ability to impact our business and deliver bottom-up results.
Partially offsetting the increase in recreation sales was a decline in their fire and emergency segment sales.
The chassis and supply chain challenges we broadly have had the greatest impact in our fire and emergency segment. Fire apparatus is specified to a component level and is highly engineered requiring a great deal of planning and execution to deliver with continuous flow.
The supply chain serving this industry is the least mature, most localized, and has been more greatly impacted.
This directly affects our production throughput.
We have expanded the placement of our purchasing resources and our black belts at our suppliers' locations to assist in improving their throughput.
Engineering has been another area that has constrained our throughput. We have supplemented our engineering resources with outsourced offshore engineering to mitigate these issues.
There has been significant progress and success in the last two quarters coming from this effort.
Additionally, our internal team of lean black belts are aligned and focused on improving our flow. We've tapped our sub-assembly specials from Centers of Excellence to deploy best practices across our plants.
On a parallel basis, we continue to work the platforming efforts in our fire division to eliminate unnecessary complexity while maintaining the identity and differentiation of our brands.
We've expanded the S180 Quick Delivery Pumper Program. This will allow us to utilize open production slots at sister plants while providing an alternative for fire departments that require or desire a faster delivery.
Within a quarter, we had a transition of leadership in our fire division that resulted in my taking on a greater role in the de-activity of these businesses.
I traveled extensively at the close of the passport visiting our plants, meeting with our management, our engineers, purchasing the materials handlers, and our production workers. I will continue to focus my daily efforts on improving our fire business while balancing my broader leadership responsibilities until such time that the division president has in vain.
Consolidated EBDA of $29.5 million was down $12.1 million from prior year. The decline was primarily the result of lower EBDA contribution from our fire and emergency and commercial segments partially offset by an increase in recreation segments.
Sequentially consolidated EBDA improved by $6 million at a 31% incremental margin.
We expect this bottom line improvement to continue in the fourth quarter.
Please return to slide four for highlights of the third quarter.
We continue to experience strong in-market demand. Book the bill for the fire and emergency segment was 2.6 times in the quarter with strengthened orders in both our fire apparatus and aimless units.
Demand remains robust for terminal trucks that are needed to support the country's logistics infrastructure.
We continue to see strong demand for Class B and Class C RVs, which are our highest margin categories.
Consolidated Backload of $3.9 billion is the 11th consecutive record and an increase of 46% versus the prior year.
Interest in our electric fire apparatus has been increasing since we launched the Vector, first all-electric North American-style fire apparatus at this year's FDIC show.
Over the past several months, this interest has converted into firm orders for three additional units. In July , our E-1 business announced an order for the Vector Rescue Decon apparatus for the City of Arrange, Quebec.
In August , our Spartan business announced an order for two vector pumper trucks.
We have sold a total of four units in various configurations from two brands, demonstrating Vector's customization and flexibility.
to suit fire department needs.
Yesterday we were pleased to announce that our E&C municipal transit business has released next generation battery electric and fuel cell electric buses that are branded Access EDO.
This is the first major platforming and design for manufacturing announcements since we detailed the RevDrive during our 2021 investor date.
Past generations of ENC fuel cell allergic and battery electric buses were built on completely different platforms.
The Access EVO leverages a common structural platform, a common propulsion system, and technologies with over 90% commonality.
Not only do we expect lower manufacturing costs, but it provides a simpler solution of aftermarket support, employee training, and maintenance for our customers that operate a mixed fleet.
The new designs will allow E&C the flexibility to offer multiple access variations with different power platforms at variant lengths of range from 32 to 40 feet.
Next generation access EDO battery electric will have more advanced technology options that we expect will allow longer range than the current generation. The battery system and energy storage for this bus is supplied by Proterra, a manufacturer of industry leading battery packs for zero emissions electric vehicles.
The next generation access EVO fuel cell electric bus will be built on EMC's electric bus.
Legacy Hydrogen Fuel Cell Electric Bus.
NC was the first bus manufacturer to complete.
the 12-year, 500,000-mile FTA Altoona test for hydrogen fuel cell-powered bus in 2018.
BAE is providing their new Gen 3 electric powertrain which is designed to extend the range of the bus to 400 miles.
Currently the highest range in the industry.
We expect significant interest as the FDA announced $1.7 billion of grants for low and no emission buses on August 16.
These are the first awards related to the bipartisan infrastructure, which provides a total of $5.5 billion over five years to help state and local government authorities.
by or lease zero emission or low emission transit buses.
ENC's home state of California received a total of $236 million of grants, including Los Angeles receiving $104 million.
The technology and flexibility of these next generation buses opens the door to increased markets here as we transition to electric transportation.
I will now turn it over to Mark for details on our third quarter financial performance. Mark. Thank you.
Thanks, Rod, and good morning, everyone. Please turn to page 5 of the slide deck as I move to review of our segment level performance.
Prior to the emergency third quarter segment sales were $230 million, a decrease of $40 compared to the prior year's quarter.
The decrease in net sales was primarily the result of fewer shipment to fighter apparatus and ambulance units related to supply chain disruption and labor constraints partially offset by price realization.
Unit shipments of fire apparatus declined 19% versus last year's third quarter and 8% versus this year's second quarter. The decrease is primarily related to shortages of wiring harnesses, axles and radiators as well as labor constraints in certain businesses.
Shortages of key components have slowed unit completions, resulting in an increase in work-in-process versus the exit to fiscal 2021.
As we mentioned in our last quarterly call, entering the third quarter, we lack chassis to run a normal production schedule and executed furloughs within the Ambulance Vision.
These furloughs were extended past the original 30 days as visibility into chassis deliveries remained uncertain.
As Rob mentioned, chassis delivery did improve late in the quarter, but the units we received did not meet our demand plan and therefore our production schedules had to be altered to match the mix of chassis received.
In addition to the chassis supply variability, the rate of component part stock-outs increased versus the second quarter and were comparable to rates experienced in the second half of 2021. That result is that ambulance unit volume decreased 11% versus the prior year.
Any decision to add labor and ramp production will need to be preceded by a lasting stability about chassis and component supply which we have not yet experienced.
F&E segment adjusted EBITDA was 1 million in the third quarter of 2022 compared to 15.8 million in the third quarter of 2021. The decrease was primarily a result of lower volumes and inefficiencies related to supply chain disruptions and inflationary pressures partially offset by price realization.
Unadjusted third quarter results include 2.3 million of restructuring charges associated with the transition of KME production.
As of July 31st, this restructuring activity was substantially complete.
Total F&E backlog was a record at $2.2 billion, an increase of 76% year-over-year. The increase in backlog was the result of strong orders for both fire apparatus and ambulance units, pricing actions, and lower throughput. We continue to expect conversion of these orders to sales to remain challenging in the near term. The midpoint of updated guidance anticipates fourth quarter F&E segment revenue to be approximately flat with our third quarter run rate.
which is $45 to $50 million lower than the prior year. We do expect sequential improvement and operating efficiencies resulting in a 15% year-over-year decremental margin on lower segment sales.
Turning to slide six.
Commercial segment sales were $111 million, a small decline versus the prior year. The decrease was primarily related to lower shipments of school buses and municipal transit buses, partially offset by increased shipments of terminal trucks, street sweepers, and price realization. The increase was mainly related to lower shipments of school buses and municipal transit buses,
Lower school bus shipments were primarily due to supply chain disruptions and labor constraints.
Municipal transit bus shipments declined 43% versus last year, larger the result of shortages of key components and increased absenteeism related to COVID variants.
Within specialty group, production of terminal trucks and street sweepers increased 26% quarter over quarter. This is the fourth consecutive quarter of improved unit velocity resulting from rev, drive, improvement initiatives designed to increase throughput. Combined production at this plant increased 61% versus the priority of quarter.
Commercial segment adjusted EBITDA of $6.8 million decreased $2.9 million versus the prior year.
The decrease in EBITDA was primarily the result of lower shipments and mix in the transit bus business, inefficiencies related to supply chain disruptions and inflationary pressures, partially offset by increased shipments of terminal trucks, street sweepers, and priceux elevation.
Lower municipal transit bus mix is primarily due to the completion of a large municipal order that carried higher content and production of buses sold in a highly competitive bidding environment during the trough and demand during COVID.
Increased inflationary pressures have inflated the anticipated build cost and lowered the margin opportunity of these units.
We continue to work with our customers to achieve price adjustments to reduce the margin impact of cost increases for these units. Our current bids reflect increased pricing to mitigate inflationary pressures and we are optimistic that our backlog will benefit from increased EV penetration over the next several quarters.
Commercial segment backlog at the end third quarter was 531 million, an increase of 70%
versus the third quarter last year. The increase in backlog results a strong order to school buses, terminal trucks, and street sweepers partially offset by the timing of orders from municipal transit buses.
The midpoint of updated guidance anticipates production of transit buses currently within backlog to continue to weigh on segment profitability, offset by sales and profit momentum in our specialty business.
School bus production is expected to continue at the current line rate due to chassis uncertainty related to OEM model year changes.
Turning to slide seven.
Recreation segment sales of $254 million increased 20% versus last year's quarter. Increased sales were primarily a result of increased Class B and Class C unit shipments and price realization, partially offset by fewer shipments of Class A campers and tow towable products.
Higher shipments of Class B and Class C units were primarily related to increased unit velocity related to rev-drive improvement initiatives designed to increase throughput. Lower shipments of Class A units were primarily related to supply chain constraints, rework, and F&T-ism. costumes were performed in a
COVID-related absenteeism and similar supply chain constraints also result in lower shipments of campers and towboat units out of our California plants.
Recreation segment adjusted to EBITDA was 29.8 million, up 6 million versus the prior year. Segment margin of 11.7% increased 40 basis points versus the prior year with improved margins in all motorized categories.
The increase in adjusted E to CA was primarily a result of increased shipments of higher margin Class B units, favorable mix of Class A and Class C units, and price realization. Partially offset by inflationary pressures and inefficiencies related to supply chain disruption and labor constraints.
The sentiment backlog of $1.2 billion increased 7% versus the prior year.
Orders continue to be strong in our higher margin Class B and Class C categories, and dealer inventory for all categories remains low. We did experience some order cancellations within the quarter for our Class A products, which impacted our reported backlog and implied segment orders. However, backlog for each of our categories remains greater than one year of production.
At midpoint of updated guidance, we expect 4th quarter net sales, product mix, and adjusted EBITDA within the recreation segment to continue at the 3rd quarter run rate.
Turning to slide 8.
Net debt as of July 31st was $235 million, including $14.8 million of cash on hand versus $237 million net debt at the end of our fiscal second quarter. The decrease in net debt was the result of free cash flow generation within the quarter of $24.7 million partially offset by share repurchases of $24.1 million.
Within the quarter we purchased 2.1 million shares and an average price of $11.16.
We have now purchased a total of 6 million shares for nearly 74 million under the current $150 million authorization.
We also declared a quarterly cash dividend of five cents per share payable October 14th to shareholders record on September 30th.
Year-to-date cash return shareholders told $79.4 million.
We plan to remain disciplined and opportunistic with all capital allocation priorities, including shareholder returns of capital.
At quarter end, the company maintained ample liquidity with approximately $287 million available under the EBL revolving credit facility.
Trade working capital on July 31 was $353.4 million, compared to $368.2 million at the end of fiscal 2021. The decrease was primarily the result of increased customer advances and accounts payable, partially offset by increased inventory and accounts receivable.
Year-over-year third-party chassis inventory, including both on the balance sheet and within OEM pools, increased $23 million.
Year-to-date cash provided by operating activities was $59.5 million compared to $100.6 million cash provided in the prior year period. The decrease was primarily due to lower net income and a lower trade work and capital inflow, primarily due to the increase in inventory levels I previously discussed. We spent a total of $7.4 million in capital expenditures within the quarter.
Today, we update full year guidance to reflect the continuation of supply chain challenges previously discussed. We now expect sales in a range of $2.25 billion to $2.35 billion, a decrease of $25 million at the midpoint. Adjusted EBITDA is expected to be in a range of $100 to $110 million, a decrease of $5 million at the midpoint. We expect net income in the range of $14 to $25 million.
adjusted net income in the range of $44 to $54 million. Every cash flow remains in the range of $58 to $70 million.
With that operator, we'd like to now open the call up for questions.
Thank you ladies and gentlemen. At this time we will be conducting a question and answer session.
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Our first question comes from the line of Mike Sliske with DA Davidson. Please proceed with your question.
Hello and good morning. Can you hear me okay?
Good morning, Mike.
Let's just quickly start on recreation. Could you maybe talk a little bit about the order case throughout the quarter? Some of the broader macro indicators that indicate the broader market in recreation had to be raised over the last few months. Just curious whether the orders for a lot of your products have also taken that same turn or has things been pretty steady throughout the entire quarter?
Yeah, as I said in prepared remarks, the order rate was steady, but we did have the cancellation that sort of impacts our... When you look at overall what the order intake was, so as I said, our Class A business we had, and it was really concentrated on one retailer that actually cancels significant part of their orders or put those on hold within our order book.
But we saw consistent flow within our motorized units and then we did see a slowdown as you referred to in the totals, our campers and totals, which again are only about 10% of our exposure. So we don't have the exposure that some of our competitors do. As you know, we're more like 90-10, this is our 80-20, 90-10 on the EBITDA, like a rod quoted within our mix, so we're a lot more heavily motorized.
And then Rod, you said you started to take a little bit of a greater role in the fire and emergency business, at least temporarily. You said you did have some...
You took a more personal up close and personal look at that division over the last few months. I'm curious if you could provide more detail as to what you may have found that you didn't know before over the last month or two about that business.
Yeah, I think that I was...
pretty much aware of what was going on before, but now as you mentioned, I've stepped in maybe quite a bit deeper than I was. I think strategically our direction is pretty solid. We talked about the longer term things in our investor data that we wanted to accomplish in terms of simplification and getting at some of the complexity a while and looking at operational excellence centers where we could maybe take the duplicative efforts that we have in our plans and figure out better ways within our network to execute. So all that kind of what I would call mid or longer term.
Thinking is still on course. Shorter term, you know, as I mentioned in my comments and Mark also reinforced the material challenges we faced have really hit us most most most difficulty in our fire and emergency business, in fire in particular.
So operationally, we just need to step up the intensity and continue to drive improvement despite a pretty difficult environment to drive change. Our people are focused keenly on getting materials available so we can complete bills. And when you're trying to transform businesses through those same resources, it has impacted our ability to execute the transformational operational change. We're making progress operationally, but it's very muted because of our flow and our inefficiency. And we're seeing it.
tied back to the material shortages that we have. So I mean the issues are just pretty clear. We've got to maintain real focus on improving operations as we see the supply chains improve. We expect that we'll see those improvements come through and continue on our path, on a longer path around the design changes and network changes that we talked about during our investor day. California Institute of Technology
Okay.
If I can just close it up with a quick model question.
I guess I'm curious, why reduce CapEx this quarter for the full year? Have you changed any of your investment plans or should we be shifting $5 million into next year's CapEx just because of timing or what have you?
Yeah, it's more it's more timing as we started completing supply chain challenges hit us as well as lead times You know so lead times for some of the equipment that we're looking to purchase that got pushed out as well So it's more of a timing than anything like that from that perspective We're still investing in our businesses and in our any equipment that's required to increase our driver throughput
Okay, great. I appreciate it. Thanks for your time, guys.
Thank you.
Our next question comes from the line of Meg Dobry with Robert W. Baird. Please proceed with your question.
Thanks for taking the question.
I'd like to start with fire and emergency as well. And look, based on the way you talked about the fourth quarter, it looks like you're going to be dealing something like $950 million of revenue this year.
You've got better than $2 billion of backlog. So obviously deliveries here are stretched quite a ways into the future. So I guess my question is first, what is the impact of COVID-19 on the economy?
How are your discussions with customers progressing as far as your ability to actually convert and deliver these units? Are they comfortable with the idea that you might be delivering into fiscal 25 here? And the second question is, how do you manage your own price-cost dynamic? Because with this level of backlog and with all the disruptions that we've seen here, I'm sort of curious if you have any mechanisms that are embedded.
within your contract to allow for some degree of flexibility given all the uncertainty that you're experiencing.
Thanks, Eric. This is Rod. I guess from the first standpoint, we're very transparent with our customers as we pursue work with them around delivery time. The only way you can do this is be completely transparent. We found, because we have multiple facilities serving, we have different lead, we have variation in lead time by brand. But we found that when we have communications and when we go to market in these competitive bid environments, that our lead times remain very competitive.
to our competitive peer set. And I think, you know, in the last quarter, I'm going back on the notes here that I made a quote. I think we were on a vote-to-bill basis. Now, a lot of this goes back to our bill being depressed, but we were still, I think it was 2 1-1-2 times vote-to-bill. So we're still seeing pretty solid demand despite the fact that, because of all the inflation and pressure we've seen, we have had to take price considerably in the last year. And that goes to your second question.
I mean, most of the contracts that we work on are municipal contracts. We're on other people's paper through a dealer network. Many of those contracts do offer escalation clauses that we take full advantage of. When they don't, we've had conversations with, through our dealers and through, with municipalities about equitable adjustment to price. It's a contract by contract thing, but we continue to see on a price cost basis.
In the short term, we continue to be pretty balanced on that to positive, and we look at this on a forward basis going forward, you know, and trying to speculate the range of anticipated inflation. And we still feel we're in a pretty decent position because of the prices we've been able to take. Different timing of backlog, different tranches of price levels could be challenged depending on when they flow relative to inflation. But overall, broad in the backlog, we can get back to a normalized inflationary period here.
soon we feel pretty good about where we're at being able to deliver on price cost on a go-forward basis. But it's something we're aggressively looking at on the Backload to Price standpoint where we have the opportunity to talk to our customers and also we continue to monitor on a forward price basis what we need to do with forward pricing to make sure that we're protecting our margins. Susan October Building,
I appreciate that. I guess as we are starting to contemplate fiscal 23 here, I am curious what your level of visibility or comfort is at this point that indeed in calendar 23 there is some improvement in your supply chain. You mentioned that in your prepared remarks, but I am curious as to what gives you any level of confidence that that is the case. And then as it pertains to this segment specifically, I am curious what is your level of comfort in your supply chain.
The backlog that will get converted in calendar 23, in fiscal 23, is that in a position to be at least neutral on a price cost basis? Should we expect some margin normalization as we look at fiscal 23, or is that more of a fiscal 24 and beyond phenomenon?
So I'll answer the first part of the question. I do think that...
The supply chain issues, you know, when you look at where we're at this year looking into the market versus last year, we don't have a crystal ball here, but we do look at things that what the Fed's doing that will probably aid us in slowing the economy and that should normalize demand a bit more and put less pressure on the supply chain. So I do think at some point that that realization will come true and when that happens we should see a movement in our supply chain to be able to...
to be more consistent with where it was prior to maybe the third quarter of 21 or adding the third quarter of 21. So we don't have hard cuts. We obviously talk to our suppliers. We're doing a ton of activities to try to help them. We think everybody's going to emerge from this better than they were going into it just because of how we've had to improve our performance to continue the line rates of where we're at today. But there is a bit of speculative piece of thinking about some of the activities going on with interest rates, what they might do, what they might drive some of their SNPs, ignition rates, things of the same kind that we values have in common with their team members. The different archeologists that serve our behavior and experience sedcher
to broader demand. Us building out of a backlog, our demand's pretty set, obviously, but some of the markets that are more hand-to-mouth will benefit us, I think, on our supply chain. So, there might be a little bit of an opportunistic belief there, but I do think that the supply chain will normalize as quickly as it eroded and will benefit from that, as already went. And exactly that happened at the timing. You know, I still believe that it's probably a back half of next year, but I would bet it's a 23 based on the interest.
base expanding as well as we progress through 23. But when you get to product validation and whatnot, some of the resourcing we've talked about before around radiators and wire harnesses, those are in motion here. It's just a matter of getting the supplier qualified, PPAPed and approved, and then we will have an expanded supply base as well entering into 23. So we feel good about our resourcing activities. And then from price cost, obviously, we've highlighted some things on the transit bus business. But as Rod said, as we move through this backlog, we are price cost positive right now.
to what we're currently experiencing.
Understood. If I may squeeze in the final one. Demand in this segment has been incredibly good. Some of your peers have reported pretty similar order trends. I'm just curious as to what you're ascribing of what we've seen here. Is it fair to think that there's a bit of a budget flush that is happening with some of your customers?
I'm also wondering if you have any sense that there's the potential for sort of double ordering, you know, placing orders with several OEMs and sort of trying to wait and see who can deliver first. Do you think that there's any risk of potential order cancellations as the supply chain starts to loosen up either next year or beyond? Thank you.
Yeah, so I don't think that, I mean, I think first off with what's driving the market, I think that you're coming into the COVID, there's no question whether it was much demand was pent up or how much demand was delayed.
that once we kind of exited the think of the fact that tax receipts did not get muted during the COVID period, that actually tax, municipal tax receipts went up, that combined with healthy levels of subsidies from the federal government on top of that, that the local municipalities probably had money to spend. I think that's part of it, and I think that what you might call a surge might have been contributed by the fact that there was a period of time in order to really get...
in 2020, so that probably delayed those orders come through and then get tied back to regular cycle, plus, you know, budgets being pretty healthy for a creative time. Those are the things that are most likely driving plus.
Maybe some non-cyclical things around the E.V. side. Some of that stuff is still somewhat immature. The volumes are really, really low, but I also think that that's the next wave because there's lots of money laying out there now available in some of these markets to fund electrification as well. The second question you had was about cancellation. Regarding cancellations and double orders, in my experience in municipal contracts, I don't think municipalities are going to be able to do that.
are in a position to double order. I've never seen that before. We certainly, when we procure these things, we're working so close to the municipalities in terms of finishing out the designs that they'd have to be doing a good effort there in the F&E side. And I just don't think that that's...
possible for them to be doing that. So I don't think that's true. Obviously, more hit on, we've had some small cancellations in our Class A on RV. You know, some of that's seasonal. Some of it happens on a regular basis. Some of it's related to a downturn. But again, our mix...
in RV and the fact that we didn't significantly ramp up our volumes and our production rates until last year in our Class B.
We're not in a position where the ramping down is probably something that is concerned in order cancellation. There's always the possibility that we're getting no hints of that becoming something we're going to deal with. Everybody wants their vehicles. On the F&E side, many times there's cash advances and deposits on these things as well.
support the Order of Sam as well.
the order saying as well.
It did. I appreciate it. Thank you.
Thanks, Mike.
As a reminder, ladies and gentlemen, it is star one to ask a question.
Our next question comes from the line of John Joyner with BMO Capital Markets. Please proceed with your question.
Good morning and thank you for taking my questions.
So, uh, so we're...
Good morning. So regarding the, and this is mainly on F&E again, but regarding the labor situation, so you touched on the previously furloughed employees at your ambulance factories.
then you also talked a bit about engineers but just looking at say your job openings right now there are still several ones that need filling particularly at your Holden you know fire apparatus fire apparatus plan so are you seeing things loosen up a bit in terms of hiring and and I guess how would you describe your overall efficiencies today at Holden since the KME production was added
I mean, in general, our efficiencies that hold and actually...
network-wide firing more broadly are well below last year. And part of that goes, even though we have furloughed and exited reduced workforce because of not being able to ramp in the back half, we're still carrying more labor than we need because everything's getting touched multiple times as it goes down the line. So we have more efficiencies this year than we had last year at this time, for sure. The Holden, specific to Holden...
It's arguably more impacted largely because bringing two plants together brings challenges of its own. We talked about opening these calls, the relocation was the products were not documented and we knew that was going to present challenges that combined.
with the material issues you had. It put us behind schedule there without question. But we've got an awful lot of focus there from resources, not only in the hold and staffing that plan from a leadership standpoint, but also from a direct labor standpoint. We're also focused on that from an enterprise standpoint with our black belts and myself. You know, I'm going down there twice a month now to participate and support that team.
in their transition. So it's been a challenge for sure. I believe the economics of looking at those two businesses separately versus combined still leads you quickly to the conclusion that once we get through this transition and those branches of planning and get the plant moving and materials right and our designs documented, we'll be in a much better position than we were coming into it. It's still the right business decision. It's just been delayed because of our own execution and the challenges we've had with the supply chain.
Okay, that makes sense. Thank you very much. Maybe just one more and pivoting to recreation. If you look at.
RVIA, which recently forecast that it expects industry RV shipments will be down 16% in calendar 23. And I realize this is obviously not your outlook, but.
How would you expect your business to perform against this type of backdrop? Given the amount of heavy lifting that you've done on restructuring side, across your businesses, but within the recreation segment, what levers are available to pull in a potentially softening environment?
Yeah, so recreation, like all our bids are hardly variable, so from the variable side, we're able to flex... This video contains deduction and kinds of SovFew and dodged most socialism charts but I lied, and we should have cigened we are left with you our e
With that said, we still have over a year's backlog in all categories and we consistently have said, especially in our class A, that we have been operating at top volumes in that business. So we've managed that business for the long term and we didn't get ahead of ourselves from a cost perspective and adding costs into those operations. So we feel very good that... And if you look, you really need to break out the tollables when you're looking at, talk about sometimes it can make you want to self, you know, focus on that on a national level. Anyway, I'll leave you with the gives I'm going to leave you with the sole GameON alone.
RBI aid data because as we say, our California plant is really our trailer and camper business. And that's, we're mostly motorized in the Bs and Cs, which have held up very well to Bs, especially in this period. In the As, which never saw an upturn during this COVID, we've been managing that business well and to profitability. So I think that's really, to your point is, we're able to flex that down and the flexing that has happened there is probably less than others that have.
in the industrial manufacturing space.
Despite the supply chain labor and inflationary pressures, you know, I and the leadership team remain really confident and positive on what's ahead of our business in the REV group overall. We have seen impacts to our throughput throughout this period, but we've been able to improve our engineering capabilities of production planning, materials management, and we continue to invest in our people to solve our manufacturing readiness and our problem-solving capabilities. We've been able to maintain positive price costs for our partners across the world'm Latin America. Correspondent, you have a beetle and grew up in that zone here in Washington. So you're really passionate about positivity and HowIEU is a 2012 through close to 2000 new- demise top user
pressures, you know, I and the leadership team remain really confident and positive on what's ahead of our business in the REV group overall. We have seen impacts to our throughput throughout this period, but we've been able to improve our engineering capabilities, our production planning, materials management, and we continue to invest in our people to solve our manufacturing readiness and our problem-solving capabilities. We've been able to maintain a positive price cost in this inflationary period.
As we emerge from the supply chain challenges, we believe we are in a solid position to achieve our long term goals.
Our team has worked tirelessly for our customers and certainly myself and our leadership team greatly appreciate everything they've done in support of that and also embracing the changes that we've put forward. With that, I'd like to thank everyone for joining our call today and we look forward to speaking with you again in December . Thank you for joining. Have a great day. Good bye.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.