Q2 2023 REV Group Inc. Earnings Call
Speaker 1: and therefore we also expect to gain additional manufacturing efficiencies from this plant as production ramps. Our type of school bus business, Collins, is also participating in increased demand for battery electric transportation solutions. Within the quarter, it's bidding pipeline for EV buses through hundreds of units and has active orders for 60 EV buses. In addition to providing a solution that converts traditional gas engines to electric, we recently announced the first type A bus and electric powertrain provided directly by a major OEM. In collaboration with Ford, Collins began taking orders on the new E-Transit T350 low floor single rear wheel cutaway in May. Within a specialty group, we had two EV debuts from our capacity terminal truck business. The first was the launch of its new zero emission hydrogen fuel cell electric terminal truck at the Technology and Maintenance Council in February .
Speaker 1: It's long duration operating time, heavy load capacity, and quick refueling cycle have been well received. In regular season, all of our engines are running at this time with a minimum of 5 yards per second.
Speaker 1: In May, capacity also debuted its new zero-emission lithium ion-powered terminal truck in the Advanced Clean Transportation Expo. The EV terminal truck is powered by a Hysteria electric powertrain and available with an option of a 130-kilowatt or a 260-kilowatt lithium ion battery.
Speaker 1: The truck is expected to operate for the length of a normal shift before recharging is needed while delivering consistent power and maximizing uptime. The battery can be recharged in as short as one hour.
Speaker 1: Across the REV-ED portfolio, bidding is active for both electric and fuel cell products, and end users remain uncertain about the infrastructure, load requirements, and use case for each technology. With these launches, we now offer both fuel cell and battery electric solutions for terminal truck and transit buses.
Speaker 1: providing our customers maximum flexibility.
Speaker 1: I am pleased that today we will be discussing results that include the momentum of increased starts and completions across the F&E segment, including both the ambulance and fire groups. As you know, we face key component shortages across many of our businesses throughout fiscal 2022. Thank you for listening!
Speaker 1: Due to the complexity, customization, and large number of skews required in fire apparatus, the fire group was particularly impacted by shortages.
Speaker 1: Over the past year and a half, the sourcing teams have worked to qualify an increasing number of alternative sources, which limited the number of key component shortages within the quarter to isolate events.
Speaker 1: Material handling across our fire plants is improving with greater alignment between production planning, procurement, and a presentation of materials assigned to specific vehicles.
Speaker 1: To further mitigate potential shortages and keep the line moving, the fire businesses have enhanced dedicated response teams with pickers assigned to retrieve parts missing from production cells. Communication across functions is improving with management activities focused on daily accountability. For more information, visit www.fema.gov
Speaker 1: To help ensure that this accountability continues, I made a change of leadership and organizational structure in the fire group. Within the corner, Mike Vernick assumed the role of President of REV FIRE group overseeing all brands. Mike has been the Vice President of Global Sales and Marketing at REV since 2018.
Speaker 1: Under his tenure, our backlog for fire apparatus has tripled, growing by over $1 billion. Mike has deep relationships with our dealers and direct customers across all REP fire brands, sharing functionality and distinction of our product offerings and their capabilities.
Speaker 1: and has a unique perspective on the importance of our parts and service business having owned a service center in the past. It has been integral in our voice of customer feedback and led various programs to eliminate product complexity while enhancing and standardizing our portfolio. Prior to joining Rev...
Speaker 1: He served as vice president of sales at Spartan Emergency Response, and he has prior management and ownership experience in other fire and specialty vehicle businesses. I was with Mike at the recent FDIC International Show, a leading firefighter conference, and the response to Mike's promotion was overwhelmingly positive.
Speaker 1: In addition to this change, I have added Andy Thompson to the team as RevFire Group Chief Operating Officer. This is a new position dedicated to managing manufacturing operations across all Fire brands. Andy joined Rev in 2021 as VP of Operations across the enterprise.
Speaker 1: bringing his extensive experience in manufacturing operations, supply chain, and lean Six Sigma. Most recently, he was deployed as interim VP GM of the Holman Fire Facility, where he helped increase plant efficiencies and throughput by implementing many of the actions that I mentioned earlier, resulting in a two-year high in formerly shipments at the Holman facility.
Speaker 1: Under his leadership, the plant has leveraged all production slots and reduced or eliminated gaps, re-emined the assembly lines to reduce bottleneck constraints, launched several projects aimed at reducing production hours per value stream, and set the intermediate agenda for improved possibility. constants.
Speaker 1: I look forward to working with Mike and Andy to drive continued improvement and overall fire performance.
Speaker 1: Within the ambulance group, formerly shipments reach a two-year high and net fails reach a three-year high as the Division benefited from an improved supply chain and key plants maintain higher direct labor headcount levels.
Speaker 1: On the last earnings call we noted that with increased chest supply our ability to achieve or exceed the year's production plan relied on the ability to effectively hire, train, and retain new workers. Within the quarter we were successful increasing the group headcount and lowering year-over-year turnover at each of the ambulance plans.
Speaker 1: I am confident that the group will experience improved productivity as new workers are onboarded and begin cross training.
Speaker 1: Finally, we experienced the anticipated normalization of recreation segment backlog within the corridor. The industry backdrop remains challenged with retail sales in the fiscal quarter reporting to be down in the low 20% range year over year. Many dealers have worked to reduce 2022 model year inventory and are expected to maintain a disciplined approach toward overall growth in the future.
Speaker 1: cancellations within the Class 8 business which maintained the 6 month backlog.
Speaker 1: We continue to expect a portion of these orders will be replaced with 2024 model year orders.
Speaker 1: Within the Class B and Class C categories, Backlogger remains in the 9-month range. These results are in line with the full year outlook provided in December and the first quarter update provided in March.
Speaker 1: Now turning to our second quarter results on slide 4.
Speaker 1: Consolidated net sales of $681 million increased 105 million, or 18%, versus the second quarter last year. The increase was driven by higher shipments and sales across all segments.
Speaker 1: Fire and emergency segment sales reflect higher sales in both the fire and ambulance groups. Increased fire group sales were primarily resulting in improved supply chain resulting from dual sourcing initiatives as well as improved overall component supply environment in addition to productivity initiatives aimed at increasing throughput.
Speaker 1: Increased ambulance group sales were delayed to improved chassis supply, labor market retention improvements mentioned earlier, and price realization.
Speaker 1: Record commercial segment sales benefit from an improved supply chain which enables completion of units previously trapped in work and product threats and price realization.
Speaker 1: Recreation net sales increased first a prior year as productivity initiatives took hold at our west coast total plant while segment pricing remained positive and added discounts.
Speaker 1: Consolidated adjusted EBITDA of $41.9 million increased $18.1 million or 76% versus the prior year with increased contribution from all segments.
Speaker 1: Higher contribution from the F&E segment includes improved results in both the fire and ambulance groups.
Speaker 1: Commercial Segment EBITDA was related to improved profitability in school bus and specialty businesses partially offset by declining municipal transit business.
Speaker 1: Recreation momentum continued within a quarter with increased volumes and price realization above discounting. The net result of greater profitability across all segments was a seven quarter high in adjusted EBITDA dollars and EBITDA margin.
Speaker 1: Please turn to page five of the slide deck as I move to review of our second quarter segment results. Fire and emergency second quarter segment sales were $283 million, an increase of 16% compared to the prior year. The increase in net sales was primarily due to increased shipments of fire apparatus and ambulance units.
Speaker 1: A favorable mix of higher content, ambulance units, and price realization partially offset by an unfavorable mix of lower content fire apparatus. Within the fire group throughput improves sequentially and year over year to reach a six quarter high in shipments and revenue. This includes improved performance at our two largest plants.
Speaker 1: as well as increased shipments from our hold-in facility that were up 70% year-over-year and 39% sequentially.
Speaker 1: With supply chain headwinds subsiding, all plants have had greater success filling production slots with a more robust clear build process. A milestone for recovery in the fire group will be reaching the revenue run rate achieved in the second and third quarter of fiscal 21 prior to supply chain and labor market challenges.
Speaker 1: Within the quarter alone, we recovered half of the deficit between that period and the low point of revenue experienced in the first quarter of this fiscal year. We are focused on maintaining a cadence of new starts that are required to close the gap and position the group for additional improvement. We are encouraged that within the quarter, fire group starts exceeding completions by six and five.
Speaker 1: 6%, demonstrating its momentum. As I mentioned earlier, ambulance group unit shipments reach a two-year high, up 6% year-on-year, with revenue reaching a three-year high. Higher revenue is primarily related to increased shipments, higher content vehicles, and price realization.itous buffering of cymbals.
Speaker 1: As we have noted on past calls, the recent inflationary environment has required disciplined forward pricing strategy across all businesses. Due to lower complexity and higher production volumes, the ambulance group started producing units that are in the early rounds of new price tiers that have acted over the past 18 months.
Speaker 1: We are encouraged by the throughput improvement we experience at all locations within the group and the momentum it will carry into the second half of the year.
Speaker 1: F&E segment adjusted EBITDA was 9.6 million in the second quarter of 2023 compared to an adjusted EBITDA loss of 2.2 million in the second quarter of 2022. The increase was primarily a result of higher volume, manufacturing efficiencies, and improved price realization partially offset by inflationary pressures.
Speaker 1: Prior group profitability improved 550 basis points for its prior year and 520 basis points sequentially. This was primarily due to higher sales line and manufacturing efficiencies related to an improved supply chain environment and initiatives enacted to improve productivity.
Speaker 1: Amblin's group profitability improved 450 basis points year over year and 300 basis points sequentially. This was primarily a result of higher sales volumes, favorable mix, price realization, and manufacturing efficiencies.
Speaker 1: Record F&E backlog was $2.9 billion, an increase of 60% year-over-year. The increase in backlog was the result of continued strength of unit orders in both the fire and ambulance groups and pricing actions over the past 12 months. The fire group experienced greater conversion of quotes to firm orders within the quarter year.
Speaker 1: why ambulance demand remains strong, resulting in an individual records for backlog in both the fire and ambulance groups.
Speaker 1: For the remainder of the year, we expect the F&E segment to post sequential revenue and margin improvement with approximately 75% of segment earnings generated in the second hand.
Speaker 1: expect the F&E segment to pull sequential revenue and margin improvement with approximately 75% of segment earnings generated in the second half. Turning to slide six. B
Speaker 1: Commercial segment sales of 142 million was an increase of 56% compared to the prior year. The increase was due to higher sales across all product categories and price realization.
Speaker 1: Improved material availability allowed completion of school buses, terminal trucks, and street sweepers that had been trapped in inventory.
Speaker 1: Dual sourcing and improved chassis supply have allowed unit shipments of school buses to reach a seven quarter high. Like Amberlynn, school buses have less complexity and a faster production cadence that allowed it to experience new pricing tiers more quickly than many other businesses.
Speaker 1: We have also started to ship more EV units which carry a higher average selling price.
Speaker 1: The combined result is a three and a half year high in school bus sales.
Speaker 1: Unit shipments of terminal trucks and street sweepers increased 28% and 50% respectively as the specialty group implemented productivity actions designed to increase throughput.
Speaker 1: Within the municipal transit business, we continue to experience shortages of wiring harnesses and other components creating line rate inefficiencies and a significant amount of out-of-station work and rework, which limited unit shipments within the second quarter and is expected to continue through the third quarter.
Speaker 1: Commercial segment adjusted EBITDA of $10.7 million increased 143% for its prior year.
Speaker 1: The increase in EBCA was primarily the result of higher shipments and improved profitability within the school bus, terminal truck, and street sweeper businesses partially offset by manufacturing inefficiencies within the transit bus business.
Speaker 1: Record profitability for school buses is primarily a result of higher shipments and efficiencies gained from greater material availability, including chassis and price realization, partially offset by inflationary pressures. Less outdoor, minimalist, dangerous treated terminal trucks and free sleepers and
Speaker 1: benefited from higher shipments related to actions implemented over the past year to improve throughput, receipt of key components that allow completion of WIP units, and price realization.
Speaker 1: Municipal transit bus completions continue to be limited by shortages of critical components that resulted fewer than expected completions and trapped labor that weighed on profitability.
Speaker 1: Commercial segment backlog was $501 million at the end of the second quarter, a decrease of 6% versus the prior year. The decrease in backlog is primarily the result of increased throughput and the normalization of orders for terminal trucks and street sweepers partially offset by record backlog for school buses.
Speaker 1: which includes strong second quarter orders as well as price actions enacted over the past 12 months. In the third quarter, we expect commercial segment sales and margins to be constrained by supply chain challenges that are limiting completion of municipal transit buses.
Speaker 1: The benefit we experience in this quarter by completing partially completed WIP units in the school bus and specially business will also diminish in the second half of the year. We expect lower segment sales in margin in third quarter with improved shipments and improved mix of municipal transit buses.
Speaker 1: that benefits the segments revenue and margin profile on the fourth quarter. This will likely result in checking half for just the EBDA being approximately the same as the first half of the fiscal year.
Speaker 1: As I mentioned earlier, we are encouraged by increased bidding for zero-emission school buses and transit buses and feel this provides opportunity in fiscal 2024 and beyond.
Speaker 1: Turning to slide 7.
Speaker 1: Recreation segment sales of $257 million were up 6% versus last year's quarter. Increased sales versus the prior year were primarily a result of increased shipments of Class A, Class C, FOVO and CAMPR units and pricing actions and added discounts in certain categories. We're significantly in the middle right-hand corner of the surveyed unit.
Speaker 1: Partially offsetting the increase were lower sales of Class B units related to supply chain and irregular dealer inventory related to the fourth quarter OEM recall that resulted in large number of industry shipments earlier in the year.
Speaker 1: Shipments of travel trailers and campers improve sequentially and units start to increase 35% throughout the quarter as a new local management team implemented productivity initiatives designed to increase throughput.
Speaker 1: As a result, unit shipments and net sales of non-motorized units increased 29% and 51% of labor for prior year.
Speaker 1: Recreation segment adjusted to EBITDA of $29.1 million was an increase of 1% for the prior year. The increase in EBITDA was primarily the result of price realization, net of discounting certain businesses, and volume leverage partially offset by material inflation and an unfavorable mix of gas units. The increase in EBITDA of $29.1 million was an increase of 1.5% for the prior year.
Speaker 1: and greater contribution from the non-motorized categories.
Speaker 1: While total units and campers are currently diluted to the segment margin, the business increased adjusted EVDA margin 690 basis points versus the prior year.
Speaker 1: Segment backlog of $495 million decreased 62% versus the prior year and 50% sequentially. This was anticipated in line with guidance provided during Les Earnest's call for segment backlog to normalize in the 4 to 6 month range.
Speaker 1: The decrease is primarily due to continued production against backlog and cancellation of age orders, primarily non-motorized and classmate categories.
Speaker 1: We expect a portion of these cancellations to be replaced with upcoming bylaw year orders.
Speaker 1: Class B and class C backlog remains in the 9 to 12 month range. The outlook for full year recreation segment revenue remains in the range of flat to down roll signal digits.zetil atmosphere.
Speaker 1: Margins have likely peaked in the second quarter with an expectation for lower production volume in certain categories and additional discounting in the second half. We are focused on flexing costs when necessary to protect profitability and will continue our work to claw back the portion of recent inflationary pressures.
Speaker 1: The full year segment adjusted EBITDA margin expectation remains in the high single digit to 10% range.
Speaker 1: The combined results of strong first-pass shipments, lower production rates, and potential discounting in the second half is expected to result in approximately 45% of fully-adjusted EBITDA being generated in the second half.
Speaker 1: The combined results of strong first-pass shipments, lower production rates, and potential discounting in the second half is expected to result in approximately 45% of fully-adjusted EBITDA being generated in the second half. Turning to slide 8.
Speaker 1: Year-to-date cash from operating activities totaled $8.2 million. Trade working capital on April 30, 2023 was $363.3 million, an increase of $15.5 million compared to $347.8 at the end of fiscal 2022.
Speaker 1: The increase was primarily the result of increased count receivables and inventories partially offset by an increase in counts payable and customer advances.
Speaker 1: Inventory increased 92 million versus the prior year period when it was more difficult to procure chassis, parts, and raw materials. Over the intermediate term, we believe there's an opportunity for meaningful inventory reduction as we gain confidence and stability in supply chain and chassis supply.
Speaker 1: We spent $6.8 million on capital expenditures within the second quarter, resulting in a free cash flow of $8.3 million. That debt as of April 30th was $221 million, including $9 million of cash on hand.
Speaker 1: We declared a quarterly test dividend of five cents per share payable July 14th to shareholders record on June 30th.
Speaker 1: The board approved a new share repurchase authorization of up to $175 million with flexibility to buy common stock in the open market at prevailing market prices or through block trades over the next two years. The board approved a new share repurchase authorization of up to $175 million with flexibility to buy common stock in the open market at prevailing market prices or through block trades over
Speaker 1: The new program replaces the prior 150 million authorization approved in September 2021, of which we purchased approximately 74 million rough common shares.
Speaker 1: At the end of the quarter, the company maintained ample liquidity with approximately $306 million available under the AVL revolving credit facility and our net debt to EBITDA leverage ratio is 1.8 times below our stated target range of 2 to 2.5 times.
Speaker 1: Turning to slide 9, today we are raising our full year outlook for net sales, adjusted EBITDA, adjusted net income, and free cash flow. The outlook for revenue is now in the range of $2.45 to $2.55 billion, an increase of $100 million at the midpoint. The range of adjusted EBITDA has been raised to $120 to $135 million.
Speaker 1: an increase of 7.5 million at the midpoint.
Speaker 1: Guidance for adjusted net income is now in the range of $48 to $62 million and we continue to expect cash conversion to be 90% or greater with free cash flow in the range of $43 to $56 million.
Speaker 1: Thank you again for joining us on today's call. Operator, we'd now like to open the call out for questions.
Speaker 2: We will now be conducting a question and answer session.
Speaker 2: If you'd like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue.
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Speaker 2: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
Speaker 2: It may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you.
Speaker 2: Thank you, and our first question is from the line of Jerry Revitch with Goldman Sachs. Please proceed with your questions. Hi, good morning everyone, and Mark, congratulations again. I wanted to see if we could just start the conversation in Fire and Emergency where the rising force might project itself to be on fire and engage with other amazing Negative BusinessinflammColumbtsky Foundation level tunnelup. I am going to repeat exactly what we said earlier.
Speaker 2: we saw in the second quarter.
Speaker 1: Yeah, as we actually, Q2, as I said in my prepared remarks, we're seeing good price realization within ambulance, given the fact that they're eating into the tiers quicker. Fire still has a significant, you know, longer backlog, so we're continuing to do that, but we are very biopic on knowing each vehicle.
Speaker 1: and what the price tier is that it is. So we do have a daily cadence where we look at price tiers and that full visibility to that. So we'd expect to see progression as we move through our backlog and are able to see that visibility. So we feel very encouraging when we look at the outlook. It's reflective of that vehicle by vehicle build up.
Speaker 1: for F&E with ambulance being ahead of the curve with the throughput improvements we've seen. And then fire just beginning as we talk about the throughput we saw in Q2 and then as we progress through May of the year, we'll start eating into more of those older units and getting into new criteria as we move along.
Speaker 2: Super. And then can we shift gears and talk about RV, really strong execution from the team in that part of the business? Can you talk about given the shifts in backlogs for the industry, how are you folks thinking about what production rates might look like a couple of quarters out? I know.
Speaker 1: Yeah, so we still feel good about where we're at from an overall recreation perspective, being at a high single digits to a 10% EVA DA margin. So Jerry, when you look at our mix, and obviously we've talked about this over the last year or so, two years, about our mix of...
Speaker 1: being heavily motorized and we consider contingency strength in the B and C categories. If you look at our inventory across the whole portfolio, we're still down 25 percent our dealer inventory from where we were pre-COVID. So we have not normalized even from inventory level. We're still seeing a significant amount of retail sold units.
Speaker 1: in that B and C category. So as our dealers, as you've heard from our competitors are dealing with, you know,
Speaker 1: challenge financing and the floor plans that they have available given the fact that they have a lot of total units on their lots. You know we're able to do a lot from a retail sold perspective where it's just a pass through that dealer and our units continue to sell through you know what we see quicker than the industry norm from the perspective. So we still believe we have the right products in place. We did
Speaker 1: Obviously, Class A never participated in the uptick that we saw, so we continue to see a mix shift there of more of a gas unit versus high-end diesel. So we are seeing a mixed impact, but from a productivity perspective, we are looking at managing the production flow there, but we still feel comfortable at 9-10%.
Speaker 2: range exiting the year. Super, thank you. Our next question is from the line of Mick Dobre with Baird. Please proceed with your questions.
Speaker 2: Hi, I want to follow up on Jerry's question, this last question here. If I look at your applied guidance for recreation in the back half here, you're still...
Speaker 1: You're still looking north of $220 million of quarterly revenue. And I'm curious if you are of the view that there is another sort of step down that we need to consider as we look into fiscal 24, or if you're comfortable with the notion that this revenue run rate is sustained.
Speaker 3: I ask obviously because the backlog is looking different than it did even a quarter ago and at least for me it's a little bit harder to pinpoint exactly what the underlying level of demand.
Speaker 1: currently is. Yeah we actually don't want to get into 2024 guidance at this point but we tried to include that in our prepared remarks when you look at our B and C businesses which are you know what we talked about our higher margin businesses we still have a six to nine month backlog in those businesses so we still have a strong
Speaker 1: backlog in those units. So we look at the back half of the year, we feel very comfortable in those categories. And then in our class A business, we still have in excess of six months, and we have the production, it's more about a mix where we're seeing the consumer,
Speaker 1: go down into more gas units versus the high-end diesels. And we're talking about gas, you know, those margins are 50% of what a high-end diesel would.
Speaker 1: would produce and obviously the hours from production perspective are less given the complexity is lower as well. So we are flexing our costs within that business and so we feel good that we're going to be able to flex with the with the units shift there, but of course we'll have to maintain different production cadence that we did at the beginning of the year.
Speaker 1: And then on the towable side, we're seeing what everyone else is seeing, but still, we still have not normalized our inventory in that Lance product, as you know, is more of a niche product within the whole towables business. So we still have quite a heavy following there. And we did introduce, as we've announced, our Enduro off-road product within the quarter, which was well received as well. So we're seeing some uptick from the acceptance of that product as well.
Speaker 2: Understood.
Speaker 3: Maybe going back to fire and emergency, maybe even more broadly onto your guidance, you raise your sales guidance by $100 million.
Speaker 3: I'm assuming it's primarily driven by fire and emergency, but I'd love some confirmation there.
Speaker 3: Okay, then the second question here would be very high level of backlog, right, almost 2.9 billion dollars.
Speaker 3: I'm sort of curious as to how you think about this backlog. Is this backlog stickier, for instance, than what we have seen in RV? What's the risk of cancellations? When you're talking to customers, what's the risk of cancellations?
Speaker 1: How are they dealing with what appears to be very, very extended lead times at this point? Yes, so I would say from a lead time perspective, we are quoting lead times at the same level or even within some of our competitors within the space. So we feel very good about the lead times, but it is important. I've had a lot of...
Speaker 1: calls and discussions and meetings with our customers. The most important thing that we have on our agenda right now is to increase throughput and get the units to our dealers as well as our customers. We understand that, especially in the F&E space and from a public providing these vehicles to the public.
Speaker 1: So, you know, from that side they are stickier. So when you, we've talked about this before, you know, these are in the majority of the fire business. We haven't experienced cancellations in the past because they are sticky when the municipalities get the budget and they go through the budgetary schedule and that.
Speaker 1: that money is earmarked and as you can see in our balance sheet we do get deposits on those units so that money is allocated to those units so we feel good about that and then ambulance we continue to see strong demand there and so we and those are sticky as well so we feel real good about that we would not have
Speaker 1: a retraction like we did in recreation which is more consumer based model versus municipality driven.
Speaker 3: segment, there's F&E. Understood. Then my final question, can you frame maybe where you are in terms of capacity in F&E? If the supply chain finally normalizes to call it pre-COVID levels, how much more capacity do you have to be able to get to F&E?
Speaker 3: Can you continue to grow or will you be contemplating some sort of capacity addition as you look maybe beyond just your guidance here at N24 and beyond? Thank you.
Speaker 1: Yeah, it's a really true problem and we've talked about this before. We do have inherent inefficiencies that we've talked about over the last two years and, you know, the productivity improvements in the cycle that we've been on gets us to where we feel comfortable and it's really by business unit by business unit perspective. So you'd have to go individually by those. We have some that are operating at 70%.
Speaker 1: versus some that are in the high 90s. So it's really, but you know, a lot of our factories run on a single shift, not a second shift, so we have inherently built in there if we have labor availability that we could actually double our capacity in our current footprint by just adding a second shift. We do supplement with Fridays and overtime. A lot of our shifts are four-tenths.
Speaker 1: So we have the ability even to flex up on a full Friday shift if we needed to. So we're really working first to improve our production capacity and our cadence before we start thinking about expanding that. But we have that available in our current footprint to more than double where we're at right now.
Speaker 4: Okay, very helpful. Thank you.
Speaker 2: Our next question is from the line of Jamie Cook with Credit3s. Please just hear a few questions.
Speaker 5: Hi, good morning and congrats Mark. I guess just you know longer term strategic question just you know as you're now officially the new CEO any observations you know thoughts on your 2021 analyst day and the financial targets that you laid out is that still the right way to think about things.
Speaker 5: and also the sort of the right portfolio that is in place for the company. And then follow-up, just the $175 million new share authorization, just thoughts on that sort of cadence, and maybe perhaps what you see versus what you think the market's missing. Thank you.
Speaker 1: Yeah, sure, so I think you know overall from a, you know, from overall long term or those are 2023 goals that we set out and we still feel comfortable in what we provide in 2021 and the strategic imperatives that are driving those margins. We have reached those in recreation this year so we feel good about the progress there.
Speaker 1: You know, F&E, we look at how we're going to exit the year and what we're feeling about there, the momentum and the pricing that we put into the market. We believe, like I talked about earlier in the earlier question, that we'll get to those long-term goals. So we feel very good about that and the cadence around purchasing and the overall initiatives around continuous improvement.
Speaker 1: you know, those are still tenants within the Red Drive prison system. So as I talked about last year, nothing has really changed from an overall long-term strategic imperative in what we're driving on a day-to-day basis to deliver on those. So I think those are well intact. Without the supply chain challenges that we had over the last 18 months, we probably would have been at those rates. So it's really a delay in achieving those. And when you look at the overall targets, we probably...
Speaker 1: put in more price than what we anticipated in those initial targets. So it gives us some optimism that those are very achievable targets that we set out.
Speaker 1: more price than what we anticipated in those initial targets. So it gives us some optimism that those are very achievable targets that we set out. From a portfolio perspective,
Speaker 1: Like I've always said, even in my CFO role, we always assess what businesses and will they deliver the return that we expect. Right now we are comfortable with what we have in our portfolio, but we're always open to looking at other things, either tangentially or within, you know, tuck ins. But right now our...
Speaker 1: our capital allocation as we talked about last period is just to drive down debt, you know, pay down the interest, the higher bearing interest that we're experiencing now and, you know, work that way with opportunistic. When we talked about the share we purchased that was going to expire here in September .
Speaker 1: just making sure that we have the flexibility before our next board call and able to do that. And you know obviously we believe that there's a lot of growth potential in our stock price so we do want to be opportunistic to use that with the free cash flow generation that we're doing here so the extent we're exceeding or seeing where we are from a cash flow we will be opportunistic and from a capital.
Speaker 6: So just.
Speaker 6: Maybe piggybacking on Jamie's question on capital allocation, I know there's you know this Class A chassis that's out there, I mean would that be at all towards the upper end of any priorities around inorganic additions or is there any kind of read-through in terms of like how you view that business as relates to you know not adding that asset.
Speaker 1: Yeah, no, not right now. I think we're comfortable with the partners we have. So, you know, and we've always said that this isn't going to be an internal, we're trying to pick the right partners to be our suppliers. So that's really a strategy we're continuing to do here from a chassis perspective. We're not looking at, you know, building our own chassis. We get that a lot.
Speaker 6: like most other industrial companies. You talk about supply chains getting better along with some kind of greater labor efficiencies, but have any supply related issues lately cropped up in the past few weeks? I ask this question because we've heard that some on-highway markets may have experienced recent issues.
Speaker 6: last day a few weeks I'm talking about like like two or three weeks in turn areas.
Speaker 1: Yeah, we do have those, so we are not immune to those being in the category on industrial sites, so we deal with those on a day-to-day basis. I can say that our supply chain team has done very well. And remember, we are in a unique situation where we said that we have been under... And if it reads me correctly, it's just a matter of who is moving on.
Speaker 1: performing in a perform from a purchasing perspective and we've done a lot of work from a dual sourcing perspective that would come to fruition here in the first calendar quarter 23 and those are now where we're well ahead where we thought we would be from a dual sourcing alternative sourcing space.
Speaker 1: So we are seeing some momentum just from improving our internal house here and expanding our supply base. But also as I said in my quoted remarks we are not...
Speaker 1: We're not waving the checkered flag here that we you know, we know that there's things that pop up from a day to day And we need to be nimble and be able to manage through those with our partners. So You know that that's why I would say there so there's always these one-offs that we have to deal with on a day to day basis Okay, got it and then maybe maybe one more
Speaker 6: been the reliability, how has that been, and kind of the capability on say real-world usage versus a test environment on these products.
Speaker 1: Yeah, again, we're starting to kick those off. So I would say real world, we obviously, there's people in the space right now that have vehicles out there that are touting the capabilities of these units. You know, first units at our E&T facility I quoted are just starting to be going down to production, but we have...
Speaker 1: And obviously demo units have been working, you know, several hundred thousands of miles. So we feel very comfortable in our solutions. And we're in the, like I said, my quota remarks, it's really going to be customer choice on do they go to a full battery electric or fuel cell. And we're just giving, we have the capability to provide both. So right now we're trying to be flexible.
Speaker 1: so we meet our customer needs. But I would say we still are seeing the early days of what the full take rate is going to be on a go-for basis. But we are seeing heightened bidding activity like we talked about. So the ability to have funding to pay for this finally has also helped us.
Speaker 1: we meet our customer needs. But I would say we still are seeing the early days of what the full take rate is going to be on a go-for basis. But we are seeing heightened bidding activity like we talked about. So the ability to have funding to pay for this finally has also helped us. Okay, excellent. Thank you so much for your time.
Speaker 2: Thank you. As a reminder, if you'd like to ask a question today, you may press star 1 from your telephone keypad. Our next question comes from the line of Mike Schleske with DA Davidson. Please receive your questions. Good morning, and thanks for taking my question. A little granular, but I wanted to ask about capacity and some of the the products there.
Speaker 2: Going electric in certain states like California. We're going to start to see a subsequent actually can't order a truck that's not electric in the capacities segments.
Speaker 2: So I'm curious if you could just tell us a little bit about whether you're prepared for a ramp-up in your facility to make more EVs starting in 2024.
Speaker 1: Yeah, sure, for sure Mike and I was just out there last month, Drew and I both were out there last month and you know at capacity we do have a dedicated facility there that is doing the development of both the hydrogen fuel cell and electric so we are conscious of that. We do have the Hype3L product that is starting to go into use case, maybe carrying on to John's...
Speaker 2: same sort of momentum there. So we have a very seasoned team and a team that's very capable with the throughput we've seen on the ice side that would carry over to the EV and hydrogen fuel cell side. So we feel very comfortable from that perspective. I'm curious just to follow up, Mark, on it's a somewhat fragmented market. I'm curious whether you could tell us whether there's some players in the market are not going to have hydrogen or battery options going forward.
Speaker 1: Is there a reasonable market share gain opportunity, call it 2024 or 2025 for that brand? For sure. Yeah, I think you'll see some substitutions at that point. Obviously I think it'll all carry on with, we will probably participate to be able to pick up market share, but at the same time, when you look at our ability to produce those EVs, I think it'll be there and it'll just be a matter of what the overall industry is from it.
Speaker 7: of tailwind.
Speaker 2: Would you give us just a little bit of thoughts going like the rest of this year in the first part of next fiscal year Whether content is going to be a tailwind for you or as you know as you as your new coo Kind of gets a better hold of the business whether you'll be taking content out trying to get more First product out the door the what's the content outlook I guess and the and the and
Speaker 1: How's that about a 30 month goal in the next 12 months or so? Yeah, maybe not touching on 24 right now, but when we look at the content, when we talk about content there, on the fire side, we're talking about higher complex aerial units versus a commercial pumpers. And so the hour differential is significant there. So our ability to deliver war units. And again, we're looking at a...
Speaker 1: a mix equation here. So when we're talking about fire, it's more around these commercial units versus a custom pumper or a aerial unit. So that's when we talk about low content for fire content. So if you look at Q2, we have more commercial type units going through. And then the ambulance side is really more of a reflection of the chassis mix we have now and our ability to produce more modular units, which we call them, versus...
Speaker 1: BANs was our built-in like on a transit ban unit. So we're able to have more high-contents modular units within ambulance. And we are able now in our chassis supply to mix in more units based on a mix that is more favorable to the production of our unit versus over the last year where we were just having to build on whatever chassis we received from the OEM. So we're not able to plan better, which is giving up an improved mix profile more what we could doorily.
Speaker 2: Seen and it benefiting now from the throughput initiatives that we put in place Very interesting, I appreciate that I'll pass it along. Thank you. Thank you Thank you at this time we've reached the end of the question and answer session and I'll turn the call back over to Mark Skanisky for closing remarks Thank you operator and again, I'd like to thank everyone again for joining us on
Speaker 1: I've been encouraged by the plant visits that I've conducted over the past four months and look forward to continuing to collaborate with the local teams as we build on the momentum created in the first half of the year. You know there's been notable progress and engagement at a local level toward the REV Drive initiative that we detailed at our investor day two years ago and one of our REV's key values to think like an owner and I've been challenging her.