REV Group(REVG) - 2023 Q4 - Annual Report

Cautionary Statement About Forward-Looking Statements Forward-looking statements are inherently uncertain, and actual results may differ materially due to various factors including interest rates, credit availability, consumer confidence, labor availability, material and component costs, supply chain issues, sales order cancellations, new product competition, global tensions, and M&A integration[10] Website and Social Media Disclosure The company uses its website and social media as routine channels for distributing company information and complying with SEC Regulation FD, with information not incorporated into the Annual Report on Form 10-K - The company utilizes its website (www.revgroup.com) and corporate social media accounts (X, LinkedIn, Facebook, YouTube, Instagram) as routine channels for distributing company information, including news releases, analyst presentations, and supplemental financial information, and for complying with SEC Regulation FD[12] - Information provided on the company's website or social media channels is not incorporated into, or deemed part of, this Annual Report on Form 10-K[13] PART I Business Overview REV Group, Inc. is a leading designer, manufacturer, and distributor of specialty vehicles and related aftermarket parts and services, primarily serving the United States and Canada through three segments: Fire & Emergency, Commercial, and Recreation. The company focuses on customized vehicle solutions for public services, commercial infrastructure, and consumer leisure, leveraging its scale, manufacturing best practices, and product innovation to maintain market leadership and drive growth Company Profile and Market Position REV Group designs, manufactures, and distributes specialty vehicles and aftermarket parts for public services, commercial infrastructure, and consumer leisure, operating 19 manufacturing facilities and focusing on profitable growth through its proprietary REV Drive Business System - REV Group designs, manufactures, and distributes specialty vehicles and aftermarket parts/services for public services (ambulances, fire apparatus, buses), commercial infrastructure (terminal trucks, sweepers), and consumer leisure (RVs)[16] - The top 10 customers represented approximately 19% of net sales in fiscal year 2023, with no single customer accounting for more than 4%[18] - The business model emphasizes profitable organic and acquisitive growth by delivering high-quality customized products, reducing costs, and shortening delivery lead times through the proprietary REV Drive Business System[19] - The company operates 19 primary manufacturing facilities, 4 Regional Technical Centers (RTCs), and 3 aftermarket parts warehouses[19] Products and Markets by Segment The company sells new specialty vehicles and aftermarket parts across Fire & Emergency, Commercial, and Recreation segments, with 95% of fiscal year 2023 net sales in the U.S. and Canada, driven by secular growth factors in government, consumer, and industrial markets - The company sells new specialty vehicles and offers aftermarket parts and services, with most new vehicle sales representing replacements for in-service vehicles[23] - Fire & Emergency (F&E) Segment: Sells fire apparatus (E-ONE, KME, Ferrara, Spartan ER) and ambulances (AEV, Horton, Leader, Road Rescue, Wheeled Coach). Believed to be the largest manufacturer by unit volume of fire and emergency vehicles in the U.S.[24] - Commercial Segment: Sells small Type A school buses (Collins Bus), transit buses (Magellan, ENC), terminal trucks (Capacity), and sweepers (LayMor)[31] - Recreation Segment: Serves the RV market with brands like American Coach, Fleetwood RV, Holiday Rambler, Renegade RV, Midwest Automotive Designs, and Lance Camper, offering various motorized and towable RV models[33] - For fiscal year 2023, 95% of overall net sales were to customers in the United States and Canada, with approximately $120 million (5%) from international markets[35] - End markets are driven by secular growth factors such as rising municipal spending, overall population growth, a growing aged population, increasing popularity of outdoor lifestyles, technological advances, and replacement of existing vehicles[18][47][48] - In fiscal year 2023, approximate direct or indirect net sales by end market were: 37% government, 32% consumer, 28% industrial/commercial, and 3% private contractor[45] Competitive Strengths REV Group leverages its market leadership, broad product portfolio, centralized sourcing, and unique scale across three segments to serve attractive, growing end markets, supported by a variable cost structure and a proven acquisition strategy - The company is a market leader across all segments (Fire & Emergency, Commercial, Recreation) with an estimated installed base of approximately 205,000 vehicles, valued at approximately $44.2 billion[49][50] - Possesses a broad product portfolio and well-recognized brands, many of which pioneered their market segments (e.g., Collins Bus for Type A school bus, Horton for Type I ambulance)[51] - Utilizes a centralized sourcing model to leverage scale for competitive pricing and ensure supply availability across a diverse supplier base[52] - Serves attractive, growing end markets supported by favorable long-term demographic, economic, and secular trends, including an aging population and increased interest in outdoor lifestyles[53] - Benefits from a unique scale and business model as the only manufacturer across all three product segments, enabling leverage in procurement, engineering, and operational efficiency[54] - The business model exhibits attractive financial characteristics, including a variable cost structure, low maintenance capital expenditures, and strong revenue visibility from long backlogs in certain product categories[55] - Experienced consolidator with a proven ability to identify, execute, and integrate acquisitions, leveraging its scale and network to drive value creation in a fragmented specialty vehicle market[56] Growth Strategies The company aims to expand margins through operational initiatives, develop innovative alternative energy vehicles, enhance its sales and distribution model, accelerate aftermarket growth, and pursue value-enhancing acquisitions - Focuses on driving margin expansion through controllable operational initiatives, continuous improvement, and sharing best practices across the organization[57] - Aims to develop innovative new customer offerings and expand its addressable market by introducing new features, designs, and alternative energy vehicles (e.g., electric fire apparatus, ambulances, buses, hydrogen fuel cell terminal trucks)[58] - Seeks to enhance its sales and distribution model by selectively adding dealers in new territories, strengthening existing networks, and expanding direct sales and service capabilities, with potential global expansion[59] - Plans to accelerate aftermarket growth by leveraging its large installed base of vehicles and e-commerce capabilities for parts sales[60] - Pursues value-enhancing acquisitions that strengthen existing market positions, facilitate entry into new product categories/markets, and provide strong synergies with existing businesses[61] Distribution Channels Distribution occurs through a direct sales force and a network of approximately 530 independent dealers, with specific methods varying by product line and customer base across Fire & Emergency, Commercial, and Recreation segments - Distribution is conducted through a direct sales force or a network of approximately 530 independent dealers, with the method varying by product line, customer base, and applicable regulations[63] - Fire & Emergency Segment: Partners with 86 North American dealers and 30 international dealers, also selling Spartan cab chassis to approximately 36 OEM manufacturers. Utilizes internal direct sales for key accounts[65][67] - Commercial Segment: Employs dealer distribution and direct sales to national accounts (e.g., transit agencies, school contractors, rental car companies). The Capacity brand uses direct sales, international agents, and dealers, while LayMor uses manufacturer's representatives and distributors[68][69][70] - Recreation Segment: Sells through a national independent dealer network, with internal sales personnel managing direct distribution engagement with these dealers[71] Manufacturing, R&D, and Supply Chain The company operates 19 manufacturing facilities and 4 RTCs, leveraging centralized sourcing and R&D for new product development and alternative energy solutions, with vehicle chassis representing approximately 28% of its $1.67 billion in fiscal year 2023 purchases - Operates 19 manufacturing facilities, 4 Regional Technical Centers (RTCs), and 3 aftermarket parts warehouses across the U.S., totaling approximately 5.1 million square feet of space[72] - Leverages a centralized sourcing model and common engineering/manufacturing processes, with a focus on continuous improvement through the proprietary REV Business System[72][73] - R&D capabilities are essential for competitiveness, focusing on new product development, enhancements, and testing, including cost-effective alternative energy solutions like electric fire apparatus, ambulances, buses, and hydrogen fuel cell terminal trucks[75][77] R&D Costs (Fiscal Years 2021-2023) | Fiscal Year | Amount (millions) | | :---------- | :---------------- | | 2023 | $4.7 | | 2022 | $4.2 | | 2021 | $4.4 | - In fiscal year 2023, the company purchased $1.67 billion of chassis, direct materials, and other components, with vehicle chassis (from major OEMs like Ford, Freightliner, GM, Mercedes) representing approximately 28% of total purchases[79] Intellectual Property The company owns a portfolio of approximately 54 patents, 7 pending applications, and 187 registered trademarks, with trade names considered its most valuable intellectual property - Owns a portfolio of intellectual property, including approximately 54 patents, 7 pending patent applications, and 187 registered trademarks (e.g., E-ONE, KME, Ferrara, Spartan, Wheeled Coach, American Coach, Fleetwood RV, Renegade, Lance)[84] - Trade names are considered the most valuable component of the company's intellectual property[84] Environmental, Health and Safety Operations are subject to extensive environmental, health, and safety laws, requiring permits and approvals, with non-compliance potentially leading to substantial liabilities, fines, and remediation costs - Operations are subject to a wide range of federal, state, local, and foreign environmental, health, and safety laws and regulations, requiring permits and approvals[86] - Non-compliance could result in substantial liabilities, civil or criminal fines, enforcement actions, and business disruptions[86] - The company may be responsible for investigation, remediation, and monitoring costs related to past or present releases of hazardous substances[87] Competition The company operates in highly competitive markets, competing on product quality, reliability, cost, breadth of offerings, and innovation against diversified companies and smaller firms, including new entrants in zero-emissions vehicles - Operates in highly competitive markets, competing with both divisions of large, diversified companies and smaller private/public companies[88] - Competition is based on product quality, reliability, total cost of ownership, breadth of offerings, manufacturing capability, customization, price, innovation, customer service, and delivery times[88] - Key competitors include Pierce Manufacturing, Rosenbauer International (Fire & Emergency); New Flyer Industries, Thomas Bus, Blue Bird Corporation (Commercial); and Thor Industries, Winnebago Industries, Forest River (Recreation)[89] Employees and Human Capital Management As of October 31, 2023, the company had 6,543 employees, with 75% in production roles, focusing on training, engagement, diversity, and safety, and no employees are currently unionized - As of October 31, 2023, the company had 6,724 employees, temporary workers, and contractors, with 6,543 employees (excluding temporary/contractors), approximately 75% of whom work in production roles[90][91] - No employees are currently represented by a labor union or collective bargaining agreement, and the company maintains generally favorable employee relations[90][92] - Key human capital management focus areas include training & development, employee engagement (structured Roundtable discussions), diversity & inclusion (21% women, 37% ethnic/racial minorities), and health & safety[92] Risk Factors The company faces a broad range of risks, including adverse economic conditions impacting demand, supply chain disruptions for critical components, intense competition, and volatility in commodity prices. Cybersecurity threats, reliance on dealer networks, and the ability to attract and retain qualified personnel also pose significant risks. Furthermore, product defects, changes in government spending, and compliance with extensive legal and regulatory frameworks, including environmental and safety laws, could materially affect business operations and financial results. Risks associated with acquisitions, divestitures, financial obligations, and the influence of the largest shareholder are also highlighted Risks Relating to Business Operations Business performance is vulnerable to U.S. economic factors, geopolitical instability, supply chain disruptions, intense competition, commodity price increases, cybersecurity failures, dealer network performance, and the ability to attract and retain skilled labor. Operational problems, customer order changes, government spending shifts, fuel price volatility, ESG scrutiny, market cyclicality, intellectual property issues, and evolving customer preferences also pose significant risks - Business performance is significantly affected by U.S. economic factors, including employment levels, consumer confidence, interest rates, and municipal spending, particularly impacting discretionary RV purchases and deferrable municipal vehicle purchases[95][96] - Increased economic and political instability, such as the Russia-Ukraine and Hamas-Israel conflicts, may indirectly impact operations through supply chain disruptions, inflation in costs, and adverse effects on financial markets[98][101] - A disruption, termination, or alteration in the supply of vehicle chassis or other critical components from third-party suppliers (e.g., due to production delays, quality changes, recalls, or labor disputes like UAW strikes) could materially adversely affect sales and manufacturing processes[102][104] - The company faces intense competition from both smaller, regionally focused companies and large, well-established companies, as well as potential new entrants developing zero-emissions specialty vehicles, which could harm financial performance[105][107] - Increases in commodity prices (e.g., aluminum, steel, plastics) due to worldwide supply/demand factors or tariffs could impact product costs and the ability to sustain and grow earnings[108] - A failure of key information technology systems or a breach of information security could disrupt business operations, lead to loss of sensitive data, reputational damage, and increased operating and capital costs[109][112][115] - Business performance is dependent on the performance of independent dealers, including the availability and terms of financing to dealers and retail purchasers, and disruptions within the dealer network could negatively affect sales[116][118] - The ability to execute strategy is dependent on attracting, training, and retaining qualified personnel, including senior management and skilled labor, and failure to do so could adversely affect business prospects[120][121] - Increases in the cost of labor, union organizing activity, or work stoppages at facilities could lead to significant operational disruptions and higher ongoing labor costs[122] - Discovery of defects in vehicles could result in delayed new model launches, recall campaigns, increased warranty costs, and potential liability or reputational damage[123] - Cancellations, reductions, or delays in customer orders, customer breaches of purchase agreements, or inability to meet delivery schedules may adversely affect results, especially given the long duration of some backlogs and potential underestimation of production costs[125][127][128] - Unforeseen or recurring operational problems at any facility, or a catastrophic loss of a key manufacturing facility, could cause significant lost production and adversely affect results of operations[129][130] - Changes in federal, state, and local government spending and priorities could materially and adversely affect future sales and limit growth prospects for Commercial and Fire & Emergency products[131][132] - Fuel shortages or high prices for fuel could negatively impact sales of most vehicles and increase demand for alternative fuel vehicles, which the company may not fully produce[134] - Increased public and shareholder attention to environmental, social, and governance (ESG) matters may expose the company to negative public perception, impose additional costs, or impact its stock price[135] - Cyclicality in certain markets (e.g., Recreation) and seasonality (historically higher sales in Q2, Q3, Q4, with Q1 being slowest) result in fluctuations in sales and operating results[136] - Intellectual property risks, including the inability to prevent unauthorized use of intellectual property or claims of infringement, could damage brand reputation and competitive advantage[137] - Changes in customer preferences for products or failure to gauge those preferences, especially regarding technological innovations and alternative fuel vehicles, could lead to reduced sales and additional costs[140][141][142] Risks Relating to Acquisitions and Divestitures The company faces risks from acquisitions, including integration challenges and failure to achieve expected benefits, and from divestitures, such as unfavorable sale terms, disputes, impairment charges, and retained liabilities - Inability to successfully identify and integrate acquisitions, or failure to generate expected financial benefits, could adversely affect results of operations[143][144] - Divestitures pose risks such as inability to sell on favorable terms, disputes with buyers, potential impairment charges, and retained liabilities from sold businesses[145] Risks Relating to Indebtedness, Liquidity and Financial Position The company's liquidity and financial position are exposed to working capital requirements, contingent obligations, restrictive debt covenants, potential goodwill impairment, and the discretion of the Board regarding future dividends - The business has meaningful working capital requirements, and a decline in operating results or access to financing could adversely impact its liquidity position and ability to fund needs[147][148] - Meaningful contingent obligations, including chassis converter pool agreements, repurchase agreements with lending institutions, and guarantees of others' indebtedness, could negatively impact results if realized[149] - Restrictive covenants in the 2021 ABL Facility and future indebtedness may impair the ability to access sufficient capital and operate the business, with non-compliance potentially leading to an event of default and acceleration of debt[150] - If required to write down goodwill or other intangible assets (totaling $157.3 million in goodwill and $115.7 million in net intangible assets as of October 31, 2023), the financial condition and operating results would be negatively affected[151][152][299] - The declaration of future dividends on common stock is at the sole discretion of the Board of Directors and may be reduced or discontinued entirely, impacting potential returns on investment[153][154] Risks Related to Legal, Regulatory and Compliance Matters The company is subject to extensive federal, state, and local regulations, environmental laws, and litigation risks, with non-compliance or adverse legal outcomes potentially leading to significant penalties, costs, and reputational damage. Changes in tax laws and ineffective internal controls also pose risks - The business is subject to numerous federal, state, and local regulations (e.g., NTMVSA, consumer protection, anti-corruption laws), with violations potentially leading to significant penalties, recalls, and reputational damage[155][157][158] - Operations are subject to environmental, health, and safety laws and regulations (e.g., Clean Air Act, CERCLA), and increasingly stringent standards could lead to significant costs or liabilities[159][161][162] - Litigation in the ordinary course of business, including product liability claims, could result in uninsured judgments, settlements, or a rise in insurance premiums, materially impacting operating results[163][164][165] - Changes to tax laws or exposure to additional tax liabilities from audits could negatively impact operating results and cash flows[167][168] - Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could adversely affect the business and stock price by undermining investor confidence[169][170] - Risk management policies and procedures may not be fully effective, potentially exposing the company to identified or unidentified risks, including employee or vendor misconduct[171] Risks Relating to Largest Shareholder American Industrial Partners (AIP) holds approximately 46.3% of voting shares, granting it significant influence over company decisions that may not always align with other equity investors' interests - American Industrial Partners (AIP) owns approximately 46.3% of the company's voting shares and has significant influence over decisions requiring stockholder approval, which may not always align with the interests of other equity investors[172][174] Unresolved Staff Comments The company has no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[175] Properties The company's corporate office is located in Brookfield, Wisconsin. It operates 19 manufacturing facilities, 4 Regional Technical Centers (RTCs), and 3 aftermarket parts warehouses across the United States, encompassing approximately 5.1 million square feet of manufacturing and service space. These facilities are considered suitable and adequately maintained for their intended purposes - The company's corporate office is located in Brookfield, Wisconsin[176] RTCs & Aftermarket Parts Warehouses (as of October 31, 2023) | Location | Approximate Square Feet | Segment | Owned or Leased | | :------------------------ | :---------------------- | :----------------------------------------- | :-------------- | | Ocala, Florida | 96,000 | Fire & Emergency Aftermarket Parts Warehouse | Leased | | Jefferson, North Carolina | 92,000 | Fire & Emergency Aftermarket Parts Warehouse | Owned | | Decatur, Indiana | 90,000 | Recreation Aftermarket Parts Warehouse | Owned | | Decatur, Indiana | 85,000 | Recreation | Owned | | Coburg, Oregon | 36,000 | Recreation | Leased | | Oakland Park, Florida | 8,000 | Fire & Emergency | Leased | | Tallahassee, Florida | 3,000 | Fire & Emergency | Leased | | Total | 410,000 | | | Manufacturing Facility Locations (as of October 31, 2023) | Location | Approximate Square Feet | Brand(s) Produced | Owned or Leased | | :------------------------ | :---------------------- | :---------------------------------------------- | :-------------- | | Decatur, Indiana | 745,000 | Fleetwood RV, American Coach, Holiday Rambler | Owned | | Ocala, Florida | 488,000 | E-ONE | Owned/Leased | | Snyder, Nebraska | 400,000 | Smeal | Owned | | Charlotte, Michigan | 283,000 | Spartan Emergency Response | Owned | | Elkhart, Indiana | 270,000 | Fleetwood RV, Midwest Automotive Design | Owned/Leased | | South Hutchinson, Kansas | 262,000 | Collins Bus | Owned | | Decatur, Indiana | 254,000 | Goldshield | Owned | | Grove City, Ohio | 240,000 | Horton Emergency Vehicles | Owned/Leased | | Holden, Louisiana | 232,000 | Ferrara Fire Apparatus, KME | Owned | | Riverside, California | 227,000 | ENC | Owned | | Jefferson, North Carolina | 225,000 | American Emergency Vehicles | Owned | | Winter Park, Florida | 223,000 | Wheeled Coach, Road Rescue | Owned | | Bristol, Indiana | 200,000 | Renegade RV | Leased | | Lancaster, California | 169,000 | Lance Camper, Avery Transportation | Leased | | Longview, Texas | 155,000 | Capacity of Texas, LayMor | Owned | | Ephrata, Pennsylvania | 119,000 | Ladder Tower | Leased | | Brandon, South Dakota | 96,000 | Spartan Emergency Response | Owned/Leased | | Hamburg, New York | 87,000 | E-ONE | Leased | | South El Monte, California| 34,000 | Leader Emergency Vehicles | Leased | | Total | 4,709,000 | | | Legal Proceedings The company is involved in various legal proceedings arising in the ordinary course of business. However, it believes that the ultimate liability from these proceedings, including asserted and known potential claims, will not be material to its business, financial condition, or results of operations, taking into account established accruals and third-party insurance coverage - The company is party to various legal proceedings in the ordinary course of business, but expects ultimate liability to be immaterial, considering established accruals for estimated liabilities and third-party insurance[178] Mine Safety Disclosures This item is not applicable to the company's operations - This item is not applicable[179] PART II Market for Common Equity, Stockholder Matters and Equity Purchases REV Group's common stock has been trading on the New York Stock Exchange under the symbol 'REVG' since January 27, 2017. As of December 7, 2023, there were approximately 94 holders of record. The company paid quarterly cash dividends of $0.05 per share in fiscal year 2023 and approved a new $175.0 million share repurchase program in June 2023, replacing a prior program, though no shares were repurchased in fiscal year 2023 - The company's common stock began trading on the New York Stock Exchange under the symbol 'REVG' on January 27, 2017[182] - As of December 7, 2023, there were approximately 94 holders of record of the company's common stock[183] Dividends Declared per Common Share (Fiscal Years 2021-2023) | Fiscal Year | Amount ($) | | :---------- | :--------- | | 2023 | 0.20 | | 2022 | 0.20 | | 2021 | 0.10 | - On June 1, 2023, the Board of Directors approved a new share repurchase program authorizing up to $175.0 million of common stock repurchases, replacing the prior 2021 program. No shares were repurchased under either program during fiscal year 2023[244] Share Repurchase Program Activity (Fiscal Years 2021-2023) | Fiscal Year | Shares Repurchased | Total Cost (millions) | Average Price ($) | | :---------- | :----------------- | :-------------------- | :---------------- | | 2023 | 0 | $0.0 | N/A | | 2022 | 5,803,483 | $70.0 | $12.03 | | 2021 | 250,000 | $3.9 | $15.45 | Reserved This item is reserved and contains no information - This item is reserved[187] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of REV Group's financial condition and results of operations for fiscal years 2023, 2022, and 2021. It highlights a consolidated net sales increase of $306.4 million in fiscal year 2023, driven by strong performance in the Fire & Emergency and Commercial segments, despite a decline in Recreation. Gross profit and net income also saw significant increases. The discussion covers key factors affecting performance, segment-specific financial results, backlog trends, liquidity and capital resources, and critical accounting policies and estimates Overview and Factors Affecting Performance REV Group's performance is influenced by general economic conditions, supply chain disruptions, raw material costs, and market seasonality, with acquisitions and divestitures being key growth strategy components - REV Group designs, manufactures, and distributes specialty vehicles and aftermarket parts/services across Fire & Emergency, Commercial, and Recreation segments, primarily in the U.S. and Canada[190] - Business performance is impacted by general economic conditions (employment levels, consumer confidence, interest rates, municipal spending), supply chain disruptions, and raw material costs[194][197] - RV purchases are discretionary and highly sensitive to factors like financing costs, consumer confidence, and disposable income[195] - Operating results are typically seasonal, with the first fiscal quarter historically being the slowest due to colder weather and vacation patterns, while the second, third, and fourth quarters (strongest) generally see higher sales[198] - Acquisitions and divestitures are significant components of growth strategy, often involving upfront integration costs and potential delayed financial benefits[199] Consolidated Results of Operations In fiscal year 2023, consolidated net sales increased by $306.4 million (13.1%), gross profit by $68.6 million (27.7%), net income by $30.1 million (198.0%), and Adjusted EBITDA by $51.5 million (49.0%), driven by Fire & Emergency and Commercial segments, despite Recreation's decline Consolidated Financial Highlights (Fiscal Years 2021-2023) | Metric (in millions, except per share) | Oct 31, 2023 | Oct 31, 2022 | Oct 31, 2021 | Change 2023 vs 2022 | Change 2022 vs 2021 | | :----------------------------------- | :----------- | :----------- | :----------- | :------------------ | :------------------ | | Net sales | $2,638.0 | $2,331.6 | $2,380.8 | +13.1% | -2.1% | | Gross profit | $316.1 | $247.5 | $291.0 | +27.7% | -14.9% | | Selling, general and administrative | $224.0 | $194.2 | $193.4 | +15.3% | +0.4% | | Restructuring | $— | $9.4 | $2.5 | -100.0% | +276.0% | | Provision for income taxes | $12.9 | $4.6 | $11.3 | +180.4% | -59.3% | | Net income | $45.3 | $15.2 | $44.4 | +198.0% | -65.8% | | Basic EPS | $0.77 | $0.25 | $0.70 | +208.0% | -64.3% | | Diluted EPS | $0.77 | $0.25 | $0.69 | +208.0% | -63.8% | | Dividends declared per common share | $0.20 | $0.20 | $0.10 | 0.0% | +100.0% | | Adjusted EBITDA | $156.6 | $105.1 | $141.5 | +49.0% | -25.7% | | Adjusted Net Income | $80.5 | $49.1 | $76.9 | +64.0% | -36.2% | - Consolidated net sales increased by $306.4 million (13.1%) in fiscal year 2023, primarily driven by increased shipments and price realization in the Fire & Emergency and Commercial segments, partially offset by lower unit shipments and increased discounting in the Recreation segment[201][205] - Consolidated gross profit increased by $68.6 million (27.7%) in fiscal year 2023, mainly due to higher net sales and gross margin in the F&E and Commercial segments, despite a decrease in the Recreation segment[203] - Consolidated net income increased by $30.1 million (198.0%) in fiscal year 2023, primarily due to the factors detailed above, partially offset by higher interest expense[212] - Consolidated Adjusted EBITDA increased by $51.5 million (49.0%) in fiscal year 2023, driven by increases in the F&E and Commercial segments, partially offset by a decrease in the Recreation segment[215] Segment Performance In fiscal year 2023, Fire & Emergency net sales increased by $209.0 million and Adjusted EBITDA by $50.0 million, Commercial net sales increased by $143.4 million and Adjusted EBITDA by $23.8 million, while Recreation net sales decreased by $45.5 million and Adjusted EBITDA by $19.9 million Fire & Emergency Segment Performance (Fiscal Years 2021-2023) | Metric (in millions) | Oct 31, 2023 | Oct 31, 2022 | Oct 31, 2021 | Change 2023 vs 2022 | Change 2022 vs 2021 | | :------------------- | :----------- | :----------- | :----------- | :------------------ | :------------------ | | Net sales | $1,174.4 | $965.4 | $1,135.1 | +21.6% | -15.0% | | Adjusted EBITDA | $52.5 | $2.5 | $57.7 | +2000.0% | -95.7% | | Adjusted EBITDA % | 4.5% | 0.3% | 5.1% | | | - F&E net sales increased by $209.0 million in fiscal year 2023, driven by increased shipments of fire apparatus and ambulance units, a favorable mix of ambulance units, and price realization[218] - F&E Adjusted EBITDA increased by $50.0 million in fiscal year 2023, primarily due to higher sales volume, a favorable mix of ambulance units, and price realization, partially offset by inflationary pressures[220] Commercial Segment Performance (Fiscal Years 2021-2023) | Metric (in millions) | Oct 31, 2023 | Oct 31, 2022 | Oct 31, 2021 | Change 2023 vs 2022 | Change 2022 vs 2021 | | :------------------- | :----------- | :----------- | :----------- | :------------------ | :------------------ | | Net sales | $553.6 | $410.2 | $387.3 | +35.0% | +5.9% | | Adjusted EBITDA | $46.1 | $22.3 | $31.0 | +106.7% | -28.1% | | Adjusted EBITDA % | 8.3% | 5.4% | 8.0% | | | - Commercial net sales increased by $143.4 million in fiscal year 2023, primarily due to increased shipments of school buses, terminal trucks, and street sweepers, and price realization, partially offset by an unfavorable mix of municipal transit buses[222] - Commercial Adjusted EBITDA increased by $23.8 million in fiscal year 2023, driven by increased shipments of school buses, terminal trucks, and street sweepers, a favorable mix of school buses, and price realization, partially offset by an unfavorable mix and supply chain challenges within municipal transit buses, and inflationary pressures[224] Recreation Segment Performance (Fiscal Years 2021-2023) | Metric (in millions) | Oct 31, 2023 | Oct 31, 2022 | Oct 31, 2021 | Change 2023 vs 2022 | Change 2022 vs 2021 | | :------------------- | :----------- | :----------- | :----------- | :------------------ | :------------------ | | Net sales | $912.3 | $957.8 | $858.5 | -4.8% | +11.6% | | Adjusted EBITDA | $91.0 | $110.9 | $86.0 | -17.9% | +29.0% | | Adjusted EBITDA % | 10.0% | 11.6% | 10.0% | | | - Recreation net sales decreased by $45.5 million in fiscal year 2023, primarily due to decreased unit shipments, an unfavorable mix of motorized units, and increased discounting, partially offset by price realization[226] - Recreation Adjusted EBITDA decreased by $19.9 million in fiscal year 2023, primarily due to lower unit shipments, an unfavorable mix of motorized units, increased discounting, and inflationary pressures, partially offset by price realization[228] Backlog Consolidated backlog increased by $227.1 million (5.4%) to $4,461.9 million in fiscal year 2023, primarily due to strong demand in Fire & Emergency, partially offset by decreases in Commercial and Recreation segments Backlog by Segment (as of October 31, 2023 and 2022) | ($ in millions) | Oct 31, 2023 | Oct 31, 2022 | Change ($) | Change (%) | | :----------------- | :----------- | :----------- | :--------- | :--------- | | Fire & Emergency | $3,649.8 | $2,589.4 | $1,060.4 | 41.0% | | Commercial | $426.9 | $525.6 | $(98.7) | (18.8)% | | Recreation | $385.2 | $1,119.8 | $(734.6) | (65.6)% | | Total Backlog | $4,461.9 | $4,234.8 | $227.1 | 5.4% | - Consolidated backlog increased by $227.1 million (5.4%) to $4,461.9 million at the end of fiscal year 2023, primarily driven by a significant increase in the Fire & Emergency segment[230][232] - The increase in F&E segment backlog was due to continued demand and strong order intake for fire apparatus and ambulance units, and pricing actions, partially offset by increased unit production and shipment activity[232] - The decrease in Commercial segment backlog was primarily due to increased unit production and shipment activity against backlog, and lower orders for municipal transit buses, terminal trucks, and street sweepers[232] - The decrease in Recreation segment backlog was mainly a result of production and shipment activity, decreased order intake, and cancellations in certain product categories[232] Liquidity and Capital Resources The company's liquidity is primarily met through operating activities and its ABL facility, with net cash from operations increasing to $126.5 million in fiscal year 2023, and $150.0 million outstanding on its $550.0 million ABL facility with $384.1 million availability - Primary liquidity and capital requirements include working capital, facility improvements, debt service payments, and general corporate needs, historically met through operating activities and borrowings under the ABL credit facility[233] Summary Cash Flows (Fiscal Years 2021-2023) | (in millions) | Oct 31, 2023 | Oct 31, 2022 | Oct 31, 2021 | | :---------------------------------- | :----------- | :----------- | :----------- | | Net cash provided by operating activities | $126.5 | $91.6 | $158.3 | | Net cash used in investing activities | $(29.9) | $(14.8) | $(10.2) | | Net cash used in financing activities | $(95.7) | $(69.7) | $(146.2) | | Net increase in cash and cash equivalents | $0.9 | $7.1 | $1.9 | - Net cash provided by operating activities increased to $126.5 million in fiscal year 2023 (from $91.6 million in 2022), primarily due to higher net income and more efficient use of inventory, partially offset by lower collections of customer advances[236] - Net cash used in investing activities increased to $29.9 million in fiscal year 2023 (from $14.8 million in 2022), mainly due to increased capital expenditures and a reduction of proceeds from asset sales[238] - Net cash used in financing activities increased to $95.7 million in fiscal year 2023 (from $69.7 million in 2022), primarily due to net repayments on the 2021 ABL facility, partially offset by a decrease in share repurchases[240] - As of October 31, 2023, the company had $150.0 million of principal outstanding under its $550.0 million 2021 ABL Facility (maturing April 13, 2026) at a weighted-average interest rate of 6.93%, with $384.1 million availability[245][247][249][355][358][361] Contractual Obligations (as of October 31, 2023) | (in millions) | 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | | :-------------------- | :---- | :---- | :---- | :--- | :--- | :--------- | :---- | | Debt | $— | $— | $150.0| $— | $— | $— | $150.0| | Interest | $10.5 | $10.5 | $5.3 | $— | $— | $— | $26.3 | | Operating leases | $9.6 | $8.1 | $7.4 | $6.8 | $3.8 | $9.5 | $45.2 | | Purchasing obligations| $25.6 | $4.8 | $0.3 | $0.3 | $0.3 | $— | $31.3 | | Total commitments | $45.7| $23.4| $163.0| $7.1| $4.1| $9.5| $252.8| Non-GAAP Financial Measures (Adjusted EBITDA and Adjusted Net Income) Adjusted EBITDA and Adjusted Net Income are non-GAAP measures used by management for performance evaluation and incentive compensation, excluding non-recurring items, but should not be considered substitutes for GAAP net income - Adjusted EBITDA and Adjusted Net Income are non-GAAP measures used by management and the Board for measuring financial performance and in incentive compensation, as they exclude items believed not to be indicative of ongoing operating performance[255][256] - These measures exclude non-cash depreciation and amortization, interest expense, loss on early extinguishment of debt, income taxes, stock-based compensation, sponsor expense reimbursement, restructuring costs, impairment charges, legal matters, and gains/losses on asset sales[257][260] - Adjusted EBITDA and Adjusted Net Income have limitations as analytical tools and should not be considered in isolation or as substitutes for GAAP net income[258][259] Critical Accounting Policies and Estimates Critical accounting estimates include the annual impairment testing of goodwill and indefinite-lived intangible assets, which involves significant judgments and assumptions, and provisions for estimated warranty costs based on historical experience - Critical accounting estimates include the valuation of goodwill and indefinite-lived intangible assets, which are tested annually for impairment using a combination of income and market approaches, involving significant judgments and assumptions (e.g., projected revenue, earnings, discount rates)[262][263][264][265][267] - No goodwill or indefinite-lived trade name impairments were identified during the annual tests in fiscal year 2023[268][269] - Provisions for estimated warranty and other related costs are recorded in cost of sales and are periodically adjusted based on historical experience, the number of units involved, and cost per claim[270] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rate fluctuations and commodity prices, with a 100-basis point increase in floating interest rates estimated to raise annual interest expense by $1.5 million, and generally offsets commodity price increases through product pricing - The company is exposed to market risk from fluctuations in interest rates (floating rate debt) and certain commodity market prices for key raw material inputs (e.g., aluminum, steel, fiberglass, copper)[273][275] - A 100-basis point increase in floating interest rates under the 2021 ABL Facility would have increased interest expense by $1.5 million on an annualized basis (based on $150.0 million outstanding as of October 31, 2023)[274] - The company generally buys commodities and components based on fixed market prices and rarely uses commodity financial instruments to hedge. It implements general price increases for products to offset commodity price increases[275] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements, including the Balance Sheets, Statements of Income and Comprehensive Income, Statements of Cash Flows, and Statement of Shareholders' Equity for the fiscal years ended October 31, 2023, 2022, and 2021, along with the accompanying notes. The independent registered public accounting firm issued an unqualified opinion on both the financial statements and the effectiveness of internal control over financial reporting Report of Independent Registered Public Accounting Firm RSM US LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting for fiscal year 2023, highlighting critical audit matters related to goodwill and indefinite-lived intangible asset valuations - RSM US LLP issued an unqualified opinion on the consolidated financial statements for the three years ended October 31, 2023, and on the effectiveness of the company's internal control over financial reporting as of October 31, 2023[279][280] - Critical audit matters included the valuation of reporting units for goodwill testing (management's assumptions related to projected revenue, earnings, and comparable market data) and the valuation of indefinite-lived intangible assets (management's assumptions related to projected revenue growth, royalty rates, and discount rates)[284][285][286][287] Consolidated Balance Sheets The Consolidated Balance Sheets present the company's financial position as of October 31, 2023 and 2022, detailing assets, liabilities, and shareholders' equity, with total assets increasing to $1,410.4 million in 2023 Consolidated Balance Sheets (as of October 31, 2023 and 2022) | ASSETS (in millions) | Oct 31, 2023 | Oct 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $21.3 | $20.4 | | Accounts receivable, net | $226.5 | $215.0 | | Inventories, net | $657.7 | $629.5 | | Other current assets | $27.7 | $23.5 | | Total current assets | $933.2 | $888.4 | | Property, plant and equipment, net| $159.5 | $148.9 | | Goodwill | $157.3 | $157.3 | | Intangible assets, net | $115.7 | $119.2 | | Right of use assets | $37.0 | $20.2 | | Other long-term assets | $7.7 | $10.6 | | Total assets | $1,410.4 | $1,344.6 | | LIABILITIES AND SHAREHOLDERS' EQUITY (in millions)| Oct 31, 2023 | Oct 31, 2022 | | Accounts payable | $208.3 | $163.9 | | Short-term customer advances | $214.5 | $258.0 | | Short-term accrued warranty | $23.4 | $18.9 | | Short-term lease obligations | $7.4 | $6.1 | | Other current liabilities | $103.6 | $80.5 | | Total current liabilities | $557.2 | $527.4 | | Long-term debt | $150.0 | $230.0 | | Long-term customer advances | $142.9 | $74.8 | | Deferred income taxes | $8.2 | $21.0 | | Long-term lease obligations | $30.0 | $14.2 | | Other long-term liabilities | $24.1 | $20.9 | | Total liabilities | $912.4 | $888.3 | | Total shareholders' equity | $498.0 | $456.3 | | Total liabilities and shareholders' equity | $1,410.4 | $1,344.6 | Consolidated Statements of Income and Comprehensive Income The Consolidated Statements of Income and Comprehensive Income detail the company's financial performance for fiscal years 2021-2023, showing net sales, gross profit, operating expenses, and net income, with net income reaching $45.3 million in 2023 Consolidated Statements of Income and Comprehensive Income (Fiscal Years 2021-2023) | (in millions, except per share) | Oct 31, 2023 | Oct 31, 2022 | Oct 31, 2021 | | :------------------------------ | :----------- | :----------- | :----------- | | Net sales | $2,638.0 | $2,331.6 | $2,380.8 | | Cost of sales | $2,321.9 | $2,084.1 | $2,089.8 | | Gross profit | $316.1 | $247.5 | $291.0 | | Operating expenses: | | | | | Selling, general and administrative | $224.0 | $194.2 | $193.4 | | Amortization of intangible assets | $3.5 | $7.1 | $9.8 | | Restructuring | $— | $9.4 | $2.5 | | Impairment charges | $— | $— | $1.5 | | Total operating expenses | $227.5 | $210.7 | $207.2 | | Operating income | $88.6 | $36.8 | $83.8 | | Interest expense, net | $28.6 | $16.9 | $17.3 | | Loss on early extinguishment of debt | $— | $— | $1.4 | | Loss on sale of business | $1.1 | $0.1 | $2.8 | | Loss on investment in China JV | $0.7 | $— | $6.2 | | Loss on acquisition of business | $— | $— | $0.4 | | Income before provision for income taxes | $58.2 | $19.8 | $55.7 | | Provision for income taxes | $12.9 | $4.6 | $11.3 | | Net income | $45.3 | $15.2 | $44.4 | | Other comprehensive (loss) income, net of tax | $(0.1) | $0.4 | $0.3 | | Comprehensive income | $45.2 | $15.6 | $44.7 | | Net income per common share: | | | | | Basic | $0.77 | $0.25 | $0.70 | | Diluted | $0.77 | $0.25 | $0.69 | | Dividends declared per common share | $0.20 | $0.20 | $0.10 | Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows present the company's cash inflows and outflows from operating, investing, and financing activities for fiscal years 2021-2023, with net cash provided by operating activities at $126.5 million in 2023 Consolidated Statements of Cash Flows (Fiscal Years 2021-2023) | (in millions) | Oct 31, 2023 | Oct 31, 2022 | Oct 31, 2021 | | :---------------------------------- | :----------- | :----------- | :----------- | | Net cash provided by operating activities | $126.5 | $91.6 | $158.3 | | Net cash used in investing activities | $(29.9) | $(14.8) | $(10.2) | | Net cash used in financing activities | $(95.7) | $(69.7) | $(146.2) | | Net increase in cash and cash equivalents | $0.9 | $7.1 | $1.9 | | Cash and cash equivalents, beginning of year | $20.4 | $13.3 | $11.4 | | Cash and cash equivalents, end of year | $21.3 | $20.4 | $13.3 | Supplemental Disclosures of Cash Flow Information (Fiscal Years 2021-2023) | (in millions) | Oct 31, 2023 | Oct 31, 2022 | Oct 31, 2021 | | :---------------------------- | :----------- | :----------- | :----------- | | Cash paid for interest | $24.2 | $12.0 | $14.8 | | Cash paid (refunded) for income taxes, net | $8.8 | $(12.8) | $3.8 | | Cash paid for operating lease liabilities | $11.0 | $10.4 | $9.8 | | Operating right-of-use assets obtained | $23.0 | $9.1 | $7.3 | Consolidated Statement of Shareholders' Equity The Consolidated Statement of Shareholders' Equity outlines changes in equity for fiscal years 2021-2023, reflecting net income, stock-based compensation, share repurchases, and dividends, with total shareholders' equity at $498.0 million in 2023 Consolidated Statement of Shareholders' Equity (Summary, Fiscal Years 2021-2023) | (in millions) | Oct 31, 2023 | Oct 31, 2022 | Oct 31, 2021 | | :------------------------ | :----------- | :----------- | :----------- | | Total shareholders' equity, beginning of year | $456.3 | $518.8 | $472.3 | | Net income | $45.3 | $15.2 | $44.4 | | Stock-based compensation expense | $14.4 | $8.7 | $7.8 | | Repurchase and retirement of common stock | $— | $(70.0) | $(3.9) | | Dividends declared on common stock | $(12.1) | $(12.4) | $(6.6) | | Total shareholders' equity, end of year | $498.0 | $456.3 | $518.8 | Notes to Consolidated Financial Statements These notes provide detailed disclosures on the company's operations, significant accounting policies, inventory, property, divestitures, restructuring, goodwill, debt, warranties, stock compensation, income taxes, commitments, contingencies, and subsequent events - Note 1. Nature of Operations, Equity Sponsor and Related Party Transactions: Details REV's three segments and brands, identifies American Industrial Partners (AIP) as the largest equity holder (~46.3% voting shares as of Oct 31, 2023), and notes expense reimbursements to AIP ($0.3 million in FY2023)[306][307][309] - Note 2. Basis of Presentation and Summary of Significant Accounting Policies: Outlines accounting principles including consolidation, fiscal year, use of estimates, cash equivalents, accounts receivable, inventories (FIFO/weighted-average), property/plant/equipment depreciation, goodwill/intangible asset impairment testing, self-insurance, advertising/R&D costs, revenue recognition (point-in-time), contract assets/liabilities, remaining performance obligations, warranty, fair value measurements, income taxes, stock-based compensation, and recent accounting pronouncements (ASU 2022-04 on supplier finance programs)[310][321][341] - Note 3. Inventories: Inventories, net of reserves, totaled $657.7 million as of October 31, 2023, an increase from $629.5 million in 2022, with chassis inventory increasing from $82.7 million to $122.2 million[342] - Note 5. Property, Plant and Equipment: Net property, plant and equipment was $159.5 million as of October 31, 2023, up from $148.9 million in 2022. Depreciation expense for fiscal year 2023 was $22.7 million[344] - Note 6. Divestitures: The company completed its exit from the China joint venture in fiscal year 2023, incurring an additional loss of $0.7 million, and divested its REV Brazil business in fiscal year 2021 with a $2.8 million loss[346][347][348] - Note 7. Restructuring and Other Related Charges: No restructuring charges were incurred in fiscal year 2023, but $3.8 million in other charges (primarily production inefficiencies) were recorded. Fiscal year 2022 included $9.4 million in restructuring charges and $12.0 million in additional charges related to the relocation of KME production facilities[350] - Note 8. Goodwill and Intangible Assets: Goodwill remained at $157.3 million and indefinite-lived trade names at $107.4 million as of October 31, 2023, with no impairments recorded in fiscal year 2023[352][353] - Note 10. Long-Term Debt: As of October 31, 2023, $150.0 million was outstanding under the 2021 ABL Facility, with a weighted-average interest rate of 6.93%[355][358] - Note 11. Warranties: Total warranty liability was $39.1 million as of October 31, 2023, an increase from $31.9 million in 2022. Warranty provisions for fiscal year 2023 were $33.3 million[365] - Note 15. Stock Compensation: Stock-based compensation expense was $14.4 million in fiscal year 2023, an increase from $8.7 million in fiscal year 2022[375] - Note 16. Income Taxes: The provision for income taxes was $12.9 million in fiscal year 2023 (**22.2% of pretax income