Q2 2025 REV Group Inc Earnings Call
Greetings and welcome to Rev. Group's second quarter 2025 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Mind you This conference is being recorded.
Speaker Change: Now like to turn the conference over to your host Mr. Drew Konop, Vice President of Investor Relations. Thank you you may begin.
Drew Konop: Good morning, and thanks for joining US earlier today, we issued our second quarter fiscal 2025 results a copy of the release is available on our website at investors <unk> Rev Group Dotcom.
Speaker Change: Today's call is being webcast and a slide presentation as well as reconciliations from non-GAAP to GAAP financial measures.
[noise] available under the investors section of our website. Please refer now to slide two of that presentation.
Speaker Change: 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.
Speaker Change: Disclaim any obligation to update these forward looking statements, which may not be updated until our next quarterly earnings conference call if at all.
Speaker Change: References on this call to a quarter or year are fiscal quarter or fiscal year, unless otherwise stated.
Drew Konop: Joining me on the call today is our president and CEO, Mark can etch knee as well as our CFO Amy Campbell, Please turn to slide three and I'll turn the call over to Mark.
Mark Ketchie: Thank you drew and good morning to everyone joining us on today's call today I'll provide an overview of the operating commercial and financial highlights achieved within the quarter, then move to the quarter's consolidated financial performance.
Mark Kanechy: We are pleased to report strong second quarter performance that reflects the strength and resilience of our operations. The standout this quarter was the sustained year over year increase in manufacturing throughput at the majority of our fire plants, which played a pivotal role in driving our top line growth as many of you know the fire busy.
Drew Konop: This has been a central focus of our operational transformation efforts over the past several years.
Drew Konop: Throughout fiscal 2023, and 'twenty 'twenty, four we increased fire and emergency vehicle production by nearly 30% from their respective 2022 run rates.
Drew Konop: The specialty vehicles segment outlook provided in December for a low single digit volume growth, reflecting a more normalized production ramp environment as well as the heavier mix of more complex ambulance units that require more hours to complete.
Drew Konop: However, thanks to continued momentum in our manufacturing efficiency programs, ranging from equipment upgrades and process optimization to workforce training and lean initiatives. The fire group's second quarter shipments continued to accelerate.
Drew Konop: Over the past year I commented that the fire group had been catching up to the ambulance group in terms of productivity gains and plant efficiency and I'm proud to report that they achieved this alignment during the second quarter.
Drew Konop: The businesses have made great progress in that time and delivered impressive year over year performance.
Drew Konop: But then the ambulance group the mix shift from bands to higher content modular units also progressed more rapidly than anticipated utilization of lean principles for the daily management of operations drove higher efficiency and reduced production cycle times, ultimately, enabling us to deliver more quickly the.
Drew Konop: The improved throughput translated directly into higher volumes, which in turn contributed to meaningful earnings growth versus the prior year.
Drew Konop: Looking ahead, we believe the structural improvements we are making across the enterprise will continue to pay dividends not just in terms of output, but also in quality and cost discipline. The trajectory. We've established has provided us with a solid foundation for sustainable growth and we remain confident in our ability to continue.
Drew Konop: To scale efficiently and leverage centers of excellence across our diverse footprint as demand continues to evolve.
Drew Konop: We will continue to focus on investing in people and equipment operational excellence programs and product innovation across all our businesses to further the company's success.
Drew Konop: Now I would like to provide a further update on tariffs, which were initially announced just prior to our first quarter earnings call.
Drew Konop: In general and has been widely reported by other industrial companies the supply chain environment remains dynamic as companies deal with the uncertainty regarding the amount and duration of tariffs.
Drew Konop: Specific to Rev Group as we noted in our last earnings call. We had approximately 120 days of inventory on hand, entering our second quarter and as a result experienced minimal impacts related to tariff increases within the quarter.
Drew Konop: The remainder all of our manufacturing facilities are located in the United States. Most of our sales are in the U S and our raw materials and other inputs are large parts sourced in the U S. We therefore have limited direct import exposure.
Drew Konop: Throughout the quarter and the supply chain team worked diligently with our suppliers to gain a greater understanding of the indirect exposure to tariffs and the potential financial impact, we expect a $5 million impact within the recreational vehicle segment in the second half of the year related to class B luxury van chassis that are imported from.
Drew Konop: In Europe, the tariff impact is related to purchases and commitments already in place and is limited to a select number of units we have transitioned our future purchases. These chassis the U S domestic plants to mitigate exposure once all imported units have been consumed.
Drew Konop: In addition to this item we have estimated an embedded within today's updated guidance and approximately $10 million second half the impact of tariffs on our material spend largely within the specialty vehicle segment.
Drew Konop: We cannot predict what the tariff landscape will look like in the future, but close collaboration with vendors continued operational discipline and strategic sourcing position us well to navigate future uncertainty and deliver sustainable value to our shareholders.
Speaker Change: So the combined efforts of these actions we remain confident in our ability to contain the impacts from the tariffs that are currently in place and meet our updated full year financial guidance that Amy will be covering shortly.
Drew Konop: Moving on this year marked a significant milestone for the animals group as we celebrate 50 years of delivering industry, leading ambulance to first responders from our Orlando facility.
Drew Konop: Since being formed in downtown Orlando, a 1975 wheeled coach has remained committed to innovation quality and performance values that have defined the vehicles they bring to the market.
Drew Konop: The past five decades wheeled coach has grown from a team of five employees manufacturing mobility bands in type two ambulances into a nationally recognized leader known for setting new standards and safety durability and design.
Drew Konop: Today the company employs over 700 employees. It was built and delivered over 50000 animals due to large and small municipalities and commercial fleets across the globe. In addition to being an approved ambulance supplier for the U S General services administration or GSA.
Drew Konop: As an advocate of passenger and patient safety wheeled coach was the first thing the emergency vehicle industry to conduct I I H S side impact crash and rollover testing the first to engineer internal emergency door releases in the first to receive the ISO certified ambulance manufacturer accreditation. It also.
Drew Konop: There's a long history of production innovation pioneering CNC machine cut outdoors for repeatable accuracy as well as introducing the patented cool bar for improved airflow greater accessibility to compressor and enhance exterior lighting. This anniversary is not just a celebration of their history, but a testament to the trust.
Drew Konop: The customers dealers and employees have placed in them in a moment to look forward to even more dynamic future.
Speaker Change: As a leading fire apparatus manufacturer, we are proud to sponsor an exhibit FDIC international the premier event for fire and rescue professionals held annually in Indianapolis known for delivering World Class training Education innovation FDIC is more than just a trade show, it's a cornerstone of firefighter.
Speaker Change: <unk> and Emt preparedness and safety our presence at the conference underscores our long standing commitment to supporting the men and women, who work valeant lead to serve and protect our communities every day by showcasing several of our latest fire trucks, we aim to highlight cutting edge advancements in safety performance and quad.
Speaker Change: <unk> that continue to set our apparatus apart in the industry from a high performance bumpers, and aerials to specialized rescue vehicles, our display emphasize reliability ergonomic function and innovations that align directly with the real world demands that are first responders contend with in the field.
Speaker Change: Participating FDIC international is not only an opportunity to demonstrate leadership in rep FRS design, but also a chance to support the continued growth in safety and fire services overall, we remain committed to listening learning and evolving alongside the brave professionals, we serve by collaborating.
Speaker Change: The fire community at FDIC, we gained invaluable insights inform our future innovations and strengthen our role as a trusted partner and fire and rescue.
Speaker Change: As part of our ongoing portfolio review focused on scale and profitability. We have made the strategic decision to exit the non motorized travel trailer and truck camper product categories through a sale of the lands camper business.
Speaker Change: Exiting Lance camper aligns with our broader objective of concentrating on scalable operations with stronger competitive positioning and margin potential and we have begun active discussions with prospective buyers of the business.
Speaker Change: Despite efforts to improve operational efficiency. This business has underperformed our targets do is scale and various other factors there's.
Speaker Change: <unk> geographic distance between this operation located in southern California, and our core RV business units in Indiana, presenting logistical and operational challenges that impact our ability to effectively optimize and manage it within our overall RV portfolio.
Speaker Change: As our only non motorized business over time, it has become a less significant part of our overall strategic focus with scale that no longer aligns with the broader direction of our portfolio, we felt that maintaining a presence in these product categories and its manufacturing location with divert resources from higher performing assets and growth opportunities.
Speaker Change: <unk>.
Speaker Change: In addition to recreation portfolio optimization I am pleased to announce that Gary Gunther has been named President of the recreational vehicle segment area has been a member of the Rev Group team since 2011, when he joined US as Division controller and most recently served as the Vice President General manager of the Rev Recreation Group.
Speaker Change: Business encompassing Fleetwood RV alloy Rambler and American coach, Inc, and Goldshield fiberglass manufacturing facilities.
Speaker Change: He will work closely with Mike Clancy, Audi, who has announced his planned retirement later this year.
Speaker Change: Mike began his tenure with Rev Group in 2008, when he joined renegade RV over 13 years with the company. He played a pivotal role in transforming renegade into one of Rev. Group's top performing recreational vehicle brands, establishing its reputation as a best in class Super C manufacturer and a premier producer.
Speaker Change: Across the broader class C category in recognition of his leadership. He was promoted to president the RV segment in 2021, Mike will serve as executive advisor of the recreational vehicle segment, while they transition to his roles and responsibilities to Gary over the coming months I would like to extend our success. Thanks to Mike for his year.
Speaker Change: Ours of dedicated service to renegade RV and to all of the brands within our recreational vehicle segment.
Speaker Change: Next our cash flow profile historically been impacted by several seasonal factors, often resulting in limited cash generation or even the use of cash throughout the first half of our fiscal year.
Speaker Change: However, in the second quarter, we generated strong cash flow driven by our solid earnings performance disappoint in trade working capital management and customer advances tied to a higher than expected level of orders in the specialty vehicle segment.
Speaker Change: Significant year to date cash generation reflects consistent execution and financial discipline across the enterprise.
Speaker Change: The level of performance, we made the decision to repurchase approximately $2 9 million shares of our common stock for $88 million within the quarter under our $250 million share repurchase authorization.
Speaker Change: We hold a balanced and long term view toward capital allocation and viewed this as a compelling opportunity to return value to our shareholders, while continuing to invest in our businesses and maintain a strong balance sheet.
Speaker Change: We believe this was a sound use of capital in line with our strategy to create sustained shareholder value through thoughtful and opportunistic actions.
Speaker Change: Finally today, we are updating our fiscal 2025 guidance to reflect our strong year to date performance as well as well as our expectation that we will continue to manage the impact of tariffs throughout the remainder of the year Haynesville provide details shortly.
Speaker Change: We are also increasing our capital expenditure plan to reflect additional investments in our businesses over the past several years, we have invested in our businesses beyond our maintenance capex requirements to achieve improved throughput efficiency quality and safety.
Speaker Change: Today's top and Bottomline results reflects successful deployment of those investments by businesses having.
Speaker Change: Having demonstrated sustained production stability, we are confident that further investment will continue to drive increased production levels and product development.
Speaker Change: A prime example of organic investment, bringing market driven solutions to life is the development and expansion of the S. 180 program a modular pre engineered fire apparatus, which provides the feel and functionality are accustomed truck with the delivery time of under one year significantly lower than that a fully customized vehicle.
Speaker Change: <unk>.
Speaker Change: The recent extension of this program from its original Spartan brand.
Speaker Change: Other fire brands represents not only a major step forward in our product strategy, but also is a testament to the collaboration and execution of our teams across engineering operations marketing and sales what began with early adopters within Spartan dealer network is now expanding into a broader set of geographies and <unk>.
Speaker Change: Brands positive customer feedback on the units in service and the strong quoting activity underscores the products growing popularity and the value it delivers across diverse customer needs.
Speaker Change: Today's increase in our capital expenditure guidance will in part be directed toward a 20 million dollar investment at our Brandon South Dakota facility to expand production above the 180 and fully custom Spartan apparatus as well as the advancement of painting and fabrication processes across the campus orgs.
Speaker Change: Hannah can best where it remains our top capital allocation priority and all businesses are investing in people process and equipment to drive growth improve quality and deliver innovation.
Speaker Change: Turning to slide four.
Speaker Change: I will provide our consolidated second quarter financial results Consol.
Speaker Change: Consolidated net sales in the second quarter 2025.
Speaker Change: $629 1 million compared to $616 9 million in the second quarter of 2024.
Speaker Change: Net sales for the second quarter 2024 included $32 9 million attributable to the E&C Transit bus business that was exited within fiscal 'twenty 'twenty four excluding this impact net sales increased $45 1 million or seven 7% compared to the prior year quarter.
Speaker Change: The increase excluding the impact of the bus business was primarily due to higher net sales in the specialty vehicle segment, partially offset by lower net sales in the recreational vehicle segment.
Speaker Change: We are pleased that the second quarter's performance continue to build upon our recent achievements as I noted earlier the standout this quarter was a steady sustained year over year increase in manufacturing throughput within fire group. We've played a pivotal role in driving our top and bottom line growth.
Speaker Change: Consolidated adjusted EBITDA was $58 9 million compared to $37 5 million in the second quarter 2024, excluding the $1 $5 million impact of the E&C bus business. The prior year quarter, adjusted EBITDA increased $22 9 million or 63 six.
Speaker Change: Percent year over year.
Speaker Change: I am also pleased that the recreational vehicle segment continued to navigate and execute well within the backdrop of soft industry demand and maintain a six 2%.
Speaker Change: <unk> adjusted EBITDA margin.
Speaker Change: Please turn to slide five and I will now turn it over to Amy for the detailed segment financials.
Amy: Thank you Mark second.
Amy: Second quarter specialty vehicles segment sales were $453 $9 million, an increase of $16 $5 million compared to the prior year.
Amy: The prior year's quarter included $32 9 million net sales attributable to the municipal transit bus business that was divested within fiscal 'twenty 'twenty four.
Amy: Excluding the impact of the divested business segment net sales increased $49 4 million or 12, 2% compared to last year.
Amy: The increase in revenue was primarily due to the higher unit production of fire apparatus units.
Amy: A favorable mix of higher content ambulance units and price realization.
Amy: Partially offset by an unfavorable mix of fire apparatus in certain businesses.
Amy: The Spartan emergency response business continued to drive meaningful throughput gains and revenue growth within the second quarter setting new highs both in unit shipments and net sales since its acquisition in 2020.
Amy: Specialty vehicles, adjusted EBITDA of $56 $3 million increased by $22 $5 million.
Amy: The prior year's quarter included $1 $5 million of adjusted EBITDA attributable to the divested transit bus business.
Amy: Excluding the prior year contribution from bus specialty vehicles, adjusted EBITDA increased $24 million or 74, 3% versus the prior year.
Amy: Increase was primarily the result of increased sales drift.
Amy: Driven by initiatives to increase manufacturing efficiencies.
Amy: Investments to upgrade equipment and reduced downtime and investments in technical training for our team.
Amy: These in combination with favorable price realization drove higher sales and adjusted EBITDA in the quarter.
Amy: The increase in total units shipped across the fire business and improved efficiencies in the ambulance business, which allowed us to complete a more complex mix of modular units.
Amy: It's a direct reflection of the operational success, we are achieving by focusing on lean principles and driving efficiencies across the businesses.
Amy: Especially vehicles segment backlog exiting the quarter was $4 3 billion the increase versus last year was related to the continued strong demand for fire apparatus as well as pricing actions with a book to bill ratio of one one in the second quarter.
Amy: We continue to make steady progress on increasing production against the segment's backlog, but the goal of reducing the backlog duration and shortening delivery times.
Amy: Measured on a unit basis, we have been successful in drawing down our fire and emergency backlog year to date versus fiscal 2020 for year end.
Amy: Additional acceleration of shipments remains a primary focus for the teams as we continue to strive to reduce delivery times.
Amy: And the acceleration of shipments is the primary driver of the incremental capex spending, including the investment in our brand in south.
Amy: Dakota plant that we announced today.
Amy: The top line outlook for the specialty vehicle segment is for continued growth with sequential low single digit revenue increases in the third and fourth quarters.
Amy: Year over year. This is expected to result in mid teens revenue growth for the second half versus last year's pro forma base.
Amy: As a reminder, and for modeling purposes divested transit bus business contributed $54 million of revenue and $6 $3 million of adjusted EBITDA to the segment in the second half of fiscal 2024.
Amy: With approximately 80% of those net sales and substantially all of the earnings occurring within the third quarter.
Amy: As Mark mentioned, we now expect approximately $10 million and adjusted EBITDA impact primarily in specialty vehicles from non chassis related tariffs that have been enacted.
Amy: Results in the second half year over year revenue gains.
Amy: At a 20% to 25% incremental margin.
Amy: This is lower than the previous range of 30% to 40% and reflects the headwinds to margins from tariffs that are currently in place.
Amy: But it does not contemplate any additional changes to tariffs from those in effect as of today.
Amy: Turning to slide six recreational vehicles segment sales of $175 3 million decreased $4 4 million or two 4% versus last year's second quarter.
Amy: Lower sales were primarily the result of fewer unit shipments related to continued soft end market demand.
Amy: Decreased shipments in the class a class B and class C categories were partially offset by an improved mix within the class a and class C categories.
Amy: More diesel and higher content units.
Amy: Well the end market remains challenged our products continued to be well received and we are pleased that our brands have once again outperformed the broader industry.
Amy: With RAF brand retail sales down 10% year over year versus the industry's 13% decline over the trailing 12 month period ended March 31st. This is according to data from the Stat survey.
Amy: Recreation segment, adjusted EBITDA of $10 $9 million decreased $1 $2 million or nine 9% versus the prior year.
Amy: The decrease was primarily the result of lower unit volume increased.
Amy: Increased dealer assistance on certain models and inflationary pressures.
Amy: Partially offset by actions taken to better align fixed and variable cost with end market demand.
Amy: Under a challenging end market backdrop. This segment continues to execute well and maintained a six 2% adjusted EBITDA margin for the quarter.
Amy: As Mark noted, we made the strategic decision to exit our non motorized travel trailer and trunk.
Amy: Our manufacturing business, which encompasses lance camper.
Amy: Determine as of April 32025 at the assets and liabilities of Lance camper met the criteria to be classified as held for sale.
Amy: We also determined that the carrying value of the net assets held for held for sale was greater than their fair value less expected cost to sell.
Amy: <unk> and a noncash loss of $30 million, which was partially offset by a $16 $6 million income tax benefit.
Amy: The impact of this loss and resulting income tax benefit are included in our financial statements for the three and six months ended April 32025, as well as our updated guidance.
Amy: <unk> results were included as a part of the recreational vehicle segment operating results in the fiscal second quarter.
Amy: Segment backlog of $268 million declined 2% versus the prior year.
Amy: The decrease is primarily related to soft end market and dealer caution to replace retail sales with new orders.
Amy: While the industry is just destocking has created a headwind to new orders. We believe the overall dealer inventory profile is much healthier than it had been.
Amy: Specific to Rev brands as of March 31.
Amy: The number of units on dealers' lots decreased 13% versus the prior year.
Amy: We are pleased that 77% of the units remaining are for model years, 'twenty, five and 'twenty 'twenty six.
Amy: The second quarter's book to Bill of one times was also encouraging and supportive of our updated second half revenue guidance to be approximately flat year over year.
Amy: This is slightly lower than previous expectations for this segment and reflects potential consumer uncertainty that could weigh on demand.
Amy: In addition, the second half adjusted EBITDA and margin for the recreational vehicle segment.
Amy: As expected to be negatively impacted by an estimated $5 million tariff impact related to the import of luxury class B vans, which as Mark noted is limited in duration and will and once all important advance on order had been consumed.
Amy: With future purchases transitioning to U S domestic plants.
Amy: The combined result is an outlook for the full year recreational vehicles revenue to be in the range of $625 million to $650 million and adjusted EBITDA in the range of $30 million to $35 million.
Amy: That said, we will continue to focus on the things that we can control award winning product offerings cost management and dealer relationships.
Amy: Turning to slide seven trade working capital on April 32025 was $207 $3 million, a decrease of $40 $9 million compared to the $248 $2 million at the end of fiscal 2024.
Amy: The decrease was primarily related to lower inventory balances increased customer advances and the timing of accounts payable.
Amy: We offset by the timing of accounts receivable.
Amy: The reduction in inventory was a result of focused efforts.
Amy: Reduce the days on hand balances of chassis in raw materials across both segments along with the reduction of finished goods in the recreation segment.
Amy: Well, we are actively reviewing cost saving opportunities for selective pre buys in this dynamic environment, we remain confident that over the intermediate term inventory reduction opportunities remain on the balance sheet.
Amy: Cash from operating activities within the quarter was $117 million, we spent $11 $4 million on capital expenditures within the second quarter.
Amy: <unk> investments in machinery to improve efficiency and product quality.
Amy: Net debt as of April 30th was $101 $2 million, including $28 $8 million of cash on hand.
Amy: This includes $88 $4 million that used within the second quarter to repurchase $2 9 million common shares at an average price of $30.70.
Amy: In the quarter, we also paid cash dividends totaling $3 $1 million, bringing the total of cash returned to shareholders in the first quarter to $91 $5 million in.
Amy: In addition, we declared a quarterly cash dividend of six cents per common share payable on July 11th to shareholders of record on June 27th.
Amy: At quarter's end the company maintained ample liquidity for our strategic initiatives.
Amy: <unk> $263 $2 million available under our ABL revolving credit facility.
Amy: Turning to slide eight as previously mentioned today, we are updating our full year fiscal 2025 guidance.
Amy: Given the increase in throughput and net sales realized by the specialty vehicles segment through the first half. We now expect full year revenue growth in our specialty vehicle segment to be in the low double digits versus the 'twenty 'twenty four pro forma revenue base of $156 billion, which excludes <unk>.
Amy: From the divested bus businesses.
Amy: Adding the updated $625 million to $650 million revenue expectation for the recreational vehicle segment.
Amy: <unk> and consolidated topline guidance being raised $50 million from the prior outlook.
Amy: Range of 2.35 to 2.4 of $5 billion.
Amy: The updated consolidated midpoint of $2 $4 billion is an 8% increase versus fiscal 2020 fours $2 $2 billion of pro forma net sales.
Amy: Full year adjusted EBITDA guidance is also updated to a range of $200 million to $220 million from its previous range of $190 million to $220 million to reflect the solid performance delivered through the first half of the year and higher throughput in the specialty vehicle.
Amy: That is expected to largely offset tariff impacts in the second half.
Amy: At the raised midpoint of $210 million.
Amy: Adjusted EBITDA is expected to increase 45% versus fiscal 2020 forest pro forma of $145 $2 million.
Amy: Net income guidance has been updated to also include higher interest expense and a $30 million noncash loss on the Lance camper assets held for sale net of $16 6 million dollar related income tax benefit.
Amy: <unk> in a range of $88 million to $107 million versus the previous range of $98 million to $125 million.
Amy: Adjusted net income is updated to be in the range of $112 million to $130 million from the previous range of $116 million to $140 million.
Amy: Full year capital expenditure guidance has been raised to $45 million to $50 million from the previous range of $30 million to $35 million to reflect the incremental investments aimed at increasing throughput that we discussed earlier.
Amy: Interest expense has been raised to a range of $24 million to $26 million to reflect year to date share repurchase activity as well as a greater than expected customer advance balance.
Amy: With full year free cash flow in the range of 100 million to $120 million.
Amy: Lower than normal free cash conversion in the second half reflects our planned for higher capex spending as well as an expected headwind from the timing of accounts receivable and accounts payable activity that was a net benefit in the second quarter, but is expected to largely reverse within the third quarter of the fiscal year.
Amy: We are pleased with the performance demonstrated by the specialty vehicles segment and continued cost containment within the recreational vehicle segment and.
Amy: In the first half we capitalized on strong consolidated free cash flow by returning cash to shareholders and updating our capital plans with greater investments in our business we.
Amy: We look forward to continuing to pursue our strategic agenda from a position of strength with <unk> five times net debt to trailing 12 month, adjusted EBITDA leverage and over $260 million available on our ABL credit facility.
Amy: Strong execution in the first half of the fiscal year has provided a solid foundation for continued momentum and opportunity to materially offset the impacts of tariffs, which were not anticipated when we provided our initial 2025 guidance.
Amy: I would now like to turn it back to the operator to open up for questions.
Amy: Thank you at this time, we'll be conducting a question and answer session.
Speaker Change: If you'd like to ask a question. Please press star one on your telephone keypad.
Amy: Confirmation tone will indicate your line is in the question queue.
Amy: You May press star two if you'd like to remove your question from Mchugh.
Amy: All 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 Change: Our first question comes from Mike <unk> with D. A Davidson. Please proceed with your question.
Mike: Hi, good morning, Thanks for taking my questions here.
Speaker Change: I wanted to touch first on the headwinds you had mentioned from tariffs I think you said $5 million in the recreational and some cost impact and especially vehicle.
Speaker Change: Could you comment on the timeframe as to when some of these issues.
Speaker Change: Washed through the backlog and the output.
Speaker Change: Fiscal 2025, only issue or could we possibly see some impact from 2006 as well.
Speaker Change: Yeah. So I think the way to think about that Mike is to break them out and.
Speaker Change: Think about them separately.
Speaker Change: So for the RV tariff impact, we largely expect to pass through any cost increases with the exception.
Speaker Change: Of the $5 million.
Speaker Change: Tariffs expected on the class B luxury vans that are imported from Europe.
Speaker Change: I believe we can pass through those tariffs and so those are limited in nature, primarily will impact the back half of 2025, there could be you know just based on consumption of those units that are on order some of that.
Speaker Change: Could move into the early part of 2026, but that is contained and would not be ongoing.
Speaker Change: And then when you look at the specialty vehicles tariffs.
Speaker Change: You referenced what we expect to be approximately $10 million tariff impact in the back half of the year.
Speaker Change: And that we will largely offset.
Speaker Change: With increased throughput.
Speaker Change: I think the way to think about those tariffs is that is about a half a year and so when you look into 2026, you know that's a 2% to 2.5% increase and non chassis material costs from tariffs and so we would have a headwind of about that amount.
Speaker Change: In the first half of the year, and then that would roll off and there would not be a head wind and comps in the second half of the year.
Speaker Change: Got it.
Speaker Change: Thanks for that.
Speaker Change: And then.
Speaker Change: Just kind of curious.
Speaker Change: Hum.
Speaker Change: Investments in the sodium Brandon.
Speaker Change: It's just an interesting way to increase probably the harder or more important product categories and fire just to get more more throughput on the 180.
Speaker Change: Do you have any kind of sense of community.
Speaker Change: $20 million, what the approximate return might be hopefully EBITA for new pump out of that business. Thanks to that to that to that investment and that's a tough question, but any kind of reference you can.
Speaker Change: You gave us around the return on that would be appreciated.
Speaker Change: No I think the return on that you know certainly you know we've done those analysis and it is good the way to think about you know the investments not only in our Brandon South Dakota facility, but we're also making investments.
Speaker Change: And fabrication and paint and assembly across most of our fire and ambulance plants that are included in that Capex raise that we announced today for the second half of the year you know the primary primary driver of those Capex investments is to reduce lead times is to keep the S 180 lead time.
Speaker Change: Under a year, which is what we've talked about but also to reduce lead times across.
Speaker Change: All of our fire and ambulance plants.
Speaker Change: And with that it would drive incremental throughput.
Speaker Change: Throughput production and shipments.
Speaker Change: And what we provided in our intermediate targets that would allow us to offset any headwinds that.
Speaker Change: That we see coming.
Speaker Change: Okay got it.
Speaker Change: Maybe one one last one for me as you look at those.
Speaker Change: Post 2027 EBITDA goals.
Speaker Change: Doug Black have any major impact if and when you sell it.
Speaker Change: On that $310 million, a long term goal and can you also comment more broadly.
Speaker Change: Okay now do you still feel pretty confident that you're going to get there by 2007.
Speaker Change: If there is any kind of.
Speaker Change: Normalization in that recreational between now and then.
Speaker Change: So in answer to your first question you know I think we've been clear that the Atlanta is less than 10% of the total sales for recreation in the motorized units provide almost all of the EBITDA. So there is no material impact from the sale of land on our 2027 intermediate targets.
Speaker Change: You know I'm not we're not going provide updates today, but the you know the investments in capex the ability to reduce lead times and increase production if.
Speaker Change: They give us confidence that we can offset whatever headwinds are we have over the next couple of years.
Speaker Change: Awesome. Thanks for the color I'll pass it along.
Speaker Change: Thanks, Mike.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Mig <unk> with Baird. Please proceed with your question.
Speaker Change: Hey, Good morning, guys. This is Pete on for Mig. This morning. Thank you for taking my question. My first question is on Recreation, you mentioned higher dealer assistance. This quarter will those dealer incentives continued to move higher on a year over year basis in the second half or is that something that we could maybe see stabilize or be pulled back at some point.
Speaker Change: As inventories improve and then along these lines is there any update you can provide on dealer inventories and where those might stand by category.
Speaker Change: So in terms of a dealer assistance are moving into the second half we did pull down our second half guide for recreation are primarily driven by two factors.
Speaker Change: One being about $5 million of classic luxury van tariffs that we've talked about any other being yeah and expectation that as as he passed I think there's some consumer confidence risk in the back half of the year wearable interest rates be in that as we pass through price increases from <unk>.
Speaker Change: Tear ups, what does that also due to consumer demand and so I think without speaking specifically to dealer discounting and how that is year over year, we do expect.
Speaker Change: Soft or second half than we previously had expected and now expect that to be about flat versus last year in terms of sales.
Speaker Change: Great and then your second question was.
Speaker Change: Dealer inventory.
Speaker Change: Correct, just dealer inventories if theres any color by by category.
Speaker Change: Yeah, I think it's sort of prepare right, but what I would say I think dealer inventory is fairly healthy and class a and class B K.
Speaker Change: Categories class B is the area, where we have seen some incremental a dealer assistance.
Speaker Change: And would expect that to continue into the second half of the year, given where dealer inventory levels are in that class of RV.
Speaker Change: Harvey.
Speaker Change: But I think overall, if you look at the overall dealer inventory across all categories like Amy said in her prepared remarks, we feel very good and the positioning as we enter the 26 model year in the age of the inventory within our dealer base. So this destocking that we referenced being 13% down overall is really the fact that the older units.
Speaker Change: Ben.
Speaker Change: S counted and are leaving our dealer lots, so we feel really across the industry that the.
Speaker Change: The dealer inventories have improved from a health perspective.
Speaker Change: And aging perspective.
Speaker Change: Awesome. Thanks for that guys and my second question now moving to specialty specifically want to focus on the S. 182 part question. One is there any color you can provide on what you're seeing with orders for that is 280 program and then two is there any color on the margin impact tailwind from a heavier mix.
Speaker Change: Standardized units I guess, another way of asking the second part of that question is what the margin profile might be on an S 180, as compared to your average custom apparatus.
Speaker Change: Yeah. So on an orders I mean, we continue to see.
Speaker Change: You know demand for those S. One eighties and as we mentioned in the script, it's not just for the spark and we've also expanded that S. 180 program to include our Ferrara.
Speaker Change: In CAMI brands as well so and those products are built in that brand in South Dakota plant. So we continue to see demand increases there and without giving specifics on margins I would just say that those margins are comparative with other custom trucks.
Speaker Change: Got it thanks, Amy I guess sticking with specialty last question here is there any color you can provide on the fire and ambulance.
Speaker Change: <unk> demand cycles in terms of in terms of where we're at as an industry in the Rev. Specifically anything you could share on what the expectations might be for orders in the back half.
Speaker Change: Yeah. So when you look at where we've seen demand I would say it's transpire in as we had expected. It is starting to come back to long term trend levels Theyre, probably still slightly above those long term trend levels, but it has come off its peak.
Speaker Change: Yeah, and we expect I think orders to transition in the back half of the year at more normalized demand levels.
Speaker Change: That reflect let's say, a 10 year trend level.
Speaker Change: Awesome. Thank you guys.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Speaker Change: Our next question comes from Angel Castillo with Morgan Stanley. Please proceed with your question.
Speaker Change: Hi. Thank you this is brendan on for Angel.
Speaker Change: I was just curious, particularly within specialty if you could talk to what kind of pricing you've been getting on incremental orders. There and then just how we should be thinking about kind of some kind of built in inflation buffer off for those new waters. Thank you.
Speaker Change: Yeah, I think what I would say when it comes to pricing and Brendan is that one I want to clarify that we do not reprice any trucks that are in the backlog that any pricing actions that we would take would be prospective on future orders and so far this year, we have not taken a general pricing.
Speaker Change: Kris on either fire trucks or ambulances.
Speaker Change: Okay. Thank you and then.
Speaker Change: What's the latest on the U S Senate investigation into the Firetruck delays just at the industry level.
Speaker Change: And then do you foresee that you know really impacting your ability to raise pricing going forward in your opinion.
Speaker Change: Yeah, I would say at this point I have no nothing to add to that question Brendan.
Speaker Change: Okay, and then just last one for me.
Speaker Change: Within recreational vehicles, just any update on what you're seeing in terms of wholesale versus retail demand. I mean, obviously you made the inventory commentary earlier, but I was just curious you know more specifically wholesale versus retail. Thank you.
Speaker Change: Yeah, I mean, I think we talked about some some positive news in the retail environment for Recreation April was the first month and 28 months that saw a sequential increase in retail shipments are versus March. So that was the first time in 28 months, we saw a month over month increase in shipments.
Speaker Change: So retail has seen some early signs now I think you know there's certainly we certainly I'm concerned in the back half of the year as we've discussed and wholesale shipments we do believe dealers have.
Speaker Change: You know really are right now in a much healthier situation in terms of dealer inventory the dealer inventory that is on dealer hands.
Speaker Change: As more as newer modern model years, and what they had previously said so the overall dealer inventory, which should drive.
Speaker Change: Better wholesale orders I think also it looks positive.
Speaker Change: Great. Thank you.
Speaker Change: Our next question comes from Jerry Revich with Goldman Sachs. Please proceed with your question.
Jeff: Hi, Good morning, everyone. This is Jeff <unk> on behalf of China, which Uh huh.
Jeff: How would you characterize the M&A pipeline today, and what's your level of optimism on opportunities to Mako needle moving acquisition over the next 12 to 18 months.
Speaker Change: Yes, I think we always we always look for opportunities like we said, we will be opportunistic if the right opportunity comes up.
Jeff: As I said in my prepared remarks, we thought.
Jeff: Adding back shares was a great a return to shareholders from a value perspective. So we felt good there, but you know that's always something that we look at it from our existing portfolio and we look inwards and outwards. So if there are opportunities. We are definitely looking at those by the gun are forefront opportunity like I said in my prepared is to continue.
Jeff: Invest organically buy back shares and look at opportunistic.
Jeff: M&A as it comes up.
Jeff: Got it thank you so much.
Speaker Change: We have reached the end of the question and answer session and this concludes today's conference you may disconnect. Your lines at this time and we thank you for your participation.
Jeff: Yes.