REV Group(US:REVG)2021-12-15 21:52Financial Data and Key Metrics Changes - Consolidated net sales for Q4 decreased by 4.3% year-over-year, primarily due to lower Fire & Emergency (F&E) sales related to chassis and supply chain constraints, partially offset by higher sales in Commercial and Recreation segments [37][62] - Adjusted EBITDA increased by $3.1 million or 80 basis points, driven by increased sales in the Recreation segment and lower corporate expenses, despite lower contributions from F&E and Commercial segments [37][62] - Year-over-year adjusted EBITDA margin improved by 290 basis points, with full year free cash flow conversion at 174%, allowing the company to pay down $129 million of net debt [24][70] Business Line Data and Key Metrics Changes - F&E segment sales were $277 million, a decrease of 16% compared to the prior year, primarily due to fewer shipments of fire apparatus and ambulance units [38][39] - Commercial segment sales increased by 3.8% to $95 million, driven by higher sales of municipal transit buses, terminal trucks, and street sweepers, despite lower school bus sales due to chassis availability issues [50][51] - Recreation segment sales rose by 12% to $218 million, attributed to increased unit shipments of Class B and Class C products and a higher mix of Class A units [57][62] Market Data and Key Metrics Changes - The total F&E backlog increased by 55% year-over-year to $1.5 billion, reflecting strong orders for both fire apparatus and ambulance units [49] - Commercial segment backlog reached $395 million, with strong orders for school buses, terminal trucks, and street sweepers [56] - Recreation segment backlog increased by 129% year-over-year to $1.2 billion, marking the sixth consecutive record [60] Company Strategy and Development Direction - The company introduced the REV Drive business system to enhance commercial, operational, and organizational capabilities, aiming for value creation for stakeholders [7][8] - The company is focusing on electrification and has expanded partnerships for electric vehicle development, including electric buses and ambulances [12][34] - The transition of KME fire apparatus production to other facilities is aimed at improving profitability and operational efficiency within the Fire Group [46][48] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about easing supply chain headwinds in the second half of fiscal 2022, which would allow increased throughput against record backlogs [80] - The company anticipates challenges from chassis availability and inflationary pressures in fiscal 2022, but expects to remain price/cost positive [74][75] - Management highlighted the importance of continuous operational improvement and sourcing capabilities in navigating the current challenging environment [93][94] Other Important Information - The company maintained total liquidity of $290 million under its ABL credit facility, providing flexibility for strategic initiatives [71] - A non-cash charge of $6 million was taken against net income for the planned exit of the investment in the China joint venture [69] - The company declared a cash dividend of $0.05 per share, payable on January 14 to shareholders of record on December 31 [70] Q&A Session Summary Question: Supply chain indicators and component shortages - Management noted that supply chain challenges remain similar to three months ago, with chassis planning visibility reduced to 30 days, complicating production planning [89][90] Question: Continuous operational improvement and procurement structuring - Management emphasized the importance of developed capabilities in managing supply issues and maintaining throughput despite challenges [93][94] Question: Long-term margin targets and rework reduction - Management indicated that achieving long-term margin targets will require significant reductions in rework and improved supply chain stability [96][97] Question: Price/cost dynamics and inflationary pressures - Management clarified that they have implemented price increases to offset inflationary pressures and maintain price/cost positivity across segments [108][110] Question: Electric vehicle product profitability - Management expressed that while initial margins on electric vehicles may be lower, they expect better long-term margins as the market stabilizes [115][116]