REV Group, Inc. Q2 FY2025 earnings call

• Fire plant manufacturing throughput sustained year-over-year increase. Ambulance group mix shift from vans to higher content modular units progressed faster than anticipated. - Exited non-motorized travel trailer and truck camper product categories by selling Lance Camper business. - Gary Gunther named President of the Vehicle segment. - Strong cash flow in second quarter driven by solid earnings, disciplined working capital, and customer advances. - Updated capital expenditure plan with $20 million investment in Brandon, South Dakota facility for S-180 and Spartan apparatus. - S-180 program expanded to other fire brands with positive customer feedback.

Specialty Vehicles segment: Second quarter sales were $453.9 million, an increase of $16.5 million compared to the prior year. Excluding the divested transit bus business impact, net sales increased $49.4 million or 12.2%. Adjusted EBITDA was $56.3 million, an increase of $22.5 million. Excluding the prior year contribution from the bus, adjusted EBITDA increased $24 million or 74.3%. Segment backlog exiting the quarter was $4.3 billion. Recreational Vehicle segment: Second quarter sales were $175.3 million, a decrease of $4.4 million versus last year. Adjusted EBITDA was $10.9 million, a decrease of $1.2 million or 9.9%. Segment backlog of $268 million declined 2% versus the prior year.

• Specialty vehicles segment full-year revenue growth expected in low double digits. - Consolidated top-line guidance raised to $2.35 billion to $2.45 billion. - Full-year adjusted EBITDA guidance updated to $200 million to $220 million. - Net income guidance range updated. - Capital expenditure guidance raised to $45 million to $50 million. - Recreational vehicle segment second-half revenue expected to be approximately flat year over year, negatively impacted by $5 million tariff impact on luxury Class B vans.

• Tariff impacts: $5 million impact in recreational segment related to imported Class B luxury van chassis, approximately $10 million second-half impact in specialty vehicles segment from tariffs on material spend. - Lance Camper business underperformed targets due to scale and logistical challenges, leading to decision to exit the business.

Q: Hi, good morning. Thanks for taking my questions here. I wanted to touch first on the headwinds you had mentioned from tariffs. I think it's just $5 million in the recreational and some cost impacts in specialty vehicles. Can you comment on the time frame as to when some of these issues might kind of wash through the backlog and the output? Is this a fiscal 2025-only issue, or could we possibly see some impacts in 2026 as well?

A: Yeah. So I think the way to think about that, Mike, is to break them out and think about them separately. So for the RV tariff impact, we largely expect to pass through any cost increases with the exception of the $5 million of tariffs expected on the Class B luxury vans that are imported from Europe. We do not believe we can pass through those tariffs. And so those are limited in nature and primarily will impact the back half of 2025. There could be, you know, just based on consumption of those units that are on orders, some of that could move into the early part of 2026. But that is contained and would not be ongoing. And then when you look at the specialty vehicles tariffs you know, we referenced what we expect to be approximately a $10 million tariff impact in the back half of the year, you know, that we will largely offset with increased throughput. But 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 in non-chassis material costs from tariffs. And so we would have a headwind of about that amount in the first half of the year, and then that would roll off and there would not be a headwind in comps in the second half of the year.

Q: Hey, good morning guys. This is Pete on for Mig this morning. Thank you for taking my questions. My first question is on recreation. You mentioned higher dealer assistance this quarter. Will those dealer incentives continue to move higher on a year-over-year basis in the second half? Or is that something we can maybe see stabilize or be pulled back at some point as inventories improve? Then along these lines, is there any update you can provide on dealer inventories and where those might stand by category?

A: So in terms of dealer assistance moving into the second half, you know, we did pull down our second half guide for recreation primarily driven by two factors. One being the $5 million of Class B luxury van tariffs that we talked about, and the other being, you know, an expectation that as we pass, I think there's some consumer confidence risk in the back half of the year. Where will interest rates be? And then as we pass through price increases from tariffs, what does that also do to consumer demand? And so I think without speaking specifically to dealer discounting and how that is year over year, we do expect a softer second half than we previously had expected, and now expect that to be about flat versus last year in terms of sales. Great. And then your second question was on dealer inventory?

Q: Correct. Just dealer inventories if there's any color, you know, by category.

A: Yeah. I think it's a pretty much. But what I would say is I think dealer inventory is fairly healthy in Class A and Class C categories. Class B is the area where we have seen some incremental dealer assistance and would expect that to continue into the second half of the year given where dealer inventory levels are in that class of RVs.

Q: Hi, thank you. This is Brendan on for Angel. 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 for those new orders? Thank you.

A: Yeah. I think what I would say when it comes to pricing, 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 price increase on either fire trucks or ambulances.

Q: How would you characterize the M&A pipeline today? And what's your level of optimism on opportunities to make a needle-moving acquisition over the next twelve to eighteen months?

A: Opportunities like we said, you know, we will be opportunistic if the right opportunity comes up. You know, as I said in my prepared remarks, we thought, you know, buying back shares was a great return to shareholders from a value perspective. So we felt good there. But, you know, that's always something that we look at. From our existing portfolio, and, you know, we look inwards and outwards. So if there are opportunities, we're definitely looking at those. But again, our forefront opportunity, like I said in my prepared remarks, is to continue to invest organically, buy back shares, and look at opportunistic M&A as it comes up.