REV Group, Inc. Q4 FY2023 earnings call

Management Statement and Operational Highlights

• Thanked employees for their hard work and dedication, noting year-over-year and sequential improvements leading to six-year high adjusted EBITDA. Municipal end markets robust with record $4.5 billion backlog driven by Fire & Emergency.
• Pricing actions across REV portfolio successful; Recreation and Commercial segments benefited from pricing tailwinds. Workforce investments included gain-sharing programs, pay scale adjustments, and headcount additions; voluntary turnover reduced 23% overall.
• Announced Steve Zamansky joined as Senior Vice President, General Counsel and Secretary. Highlighted Fire & Emergency segment achievements like 27th Annual Fire Truck Training Conference and ambulance group showcasing customized ambulances at EMS World.
• Discussed fourth quarter consolidated financial results, trade working capital, cash from operations, capital expenditures, and dividend declaration.

Segment Performance

• Fire & Emergency: Fourth quarter segment sales increased $86 million compared to the prior year. Adjusted EBITDA was $26.8 million in Q4 2023 compared to $1.9 million in Q4 2022. Backlog was a record $3.6 billion, up 41% year-over-year. Fiscal 2023 unit book-to-bill ratio was 1.5 times. Anticipates low-double digit revenue growth in 2024 with incremental margin in 35%-40% range on revenue increase.
• Commercial: Fourth quarter sales were $140 million, a 26% increase. Adjusted EBITDA was $16.5 million, up $13.2 million vs prior year. Backlog was $427 million, down 19% vs last year. Expect decline of ~$100 million in Commercial segment revenue in 2024 with cost actions to maintain decremental margin in 15% range.
• Recreation: Fourth quarter sales were $215 million, a 17% decrease. Adjusted EBITDA was $19 million, down $16.2 million vs prior year. Segment backlog was $385 million, down 66% vs prior year. Expected fiscal 2024 full year revenue down mid-single digits with high-single digit adjusted EBITDA margin.

Guidance

• Fiscal 2024 top line guidance $2.6 billion to $2.7 billion (approx. flat at midpoint). Adjusted EBITDA guidance $165 million to $185 million (12% increase at midpoint).
• First quarter expected to be trough of revenue-adjusted EBITDA margin with sequential improvement throughout the year. First half consolidated revenue ~45% of full year guidance, first half adjusted EBITDA ~35% of full year guidance.
• Adjusted net income expected $82 million to $99 million, net income $71 million to $90 million. Free cash flow expected $70 million to $85 million.
• Full year capital expenditures estimated $30 million to $35 million, maintenance CapEx $15 million to $20 million. Interest expense expected $26 million to $28 million (approx. flat year-over-year).

Risks

• Market uncertainties affecting segment performances. Supply chain issues impacting production, such as component shortages for municipal transit buses. Economic conditions potentially affecting demand for certain products like street sweepers and terminal trucks.

Question and Answer

Q: In Fire & Emergency, confirmed mid-single digit pricing expected in 2024 and asked about pricing acceleration in 2025.

A: Pricing mid-to high-single digits in 2024, with fire expected to realize similar increases as ambulance exiting 2024 into 2025.

Q: On capacity for Fire & Emergency, asked if further production volume increase possible without incremental investment.

A: Can increase production volume as existing facilities have capacity to flex beyond current levels.

Q: On incremental margins longer term, asked about 2025 and beyond.

A: Incrementals include operating improvements, with better view on 2025 after execution of 2024 backlog.

Q: On balance sheet and free cash flow deployment, asked about share buybacks or M&A.

A: Not actively pursuing M&A but always looking, and will consider share buybacks if beneficial for shareholders.

Q: On Recreation segment, asked about ending 2024 on positive note.

A: First half of 2024 may have tailwind from industry, with better view exiting Q1 after Tampa show.

Q: On street sweepers, asked about challenges.

A: Utilization issues with rental houses and operators, normalization expected coming off historic high in 2023.

Q: On Type A school buses EV products, asked about order intake.

A: Relatively low intake, not a main driver of school bus business results.