REV Group Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 5, 2024

There are 7 speakers on the call.

Operator

Greetings. Welcome to REV Group, Inc. Fiscal Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Operator

Please note this conference is being recorded. I will now turn the conference over to Drew Knopf, Vice President, Investor Relations. Thank you. You may begin.

Speaker 1

Good morning, and thanks for joining us. Earlier today, we issued our Q2 2024 results. A copy of the release is available on our website at investors. Revgroup.com. Today's call is being webcast and a slide presentation, which includes a reconciliation of non GAAP to GAAP financial measures, is available on our website.

Speaker 1

Please refer now to Slide 2 of that presentation. Our 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 ks filed today and other filings that we make with the SEC. We disclaim any obligation to update these forward looking statements, which may not be updated until our next quarterly earnings conference call, if at all. All references on this call to a quarter or year or to our fiscal quarter or fiscal year unless otherwise stated.

Speaker 1

Joining me on

Speaker 2

the call today is our President

Speaker 1

and CEO, Mark Skanechny as well as our CFO, A. B. Campbell. Please turn now to Slide 3, and I'll turn the call over to Mark.

Speaker 2

Thank you, Drew, and good morning to everyone joining us on today's call. Today, I will provide an overview of the commercial, operating and strategic highlights achieved within the quarter, then move to the quarter's financial performance. Before I begin, I am pleased to introduce Amy Campbell as CFO and welcome her to the REV team. As you know, this role remained unfilled for many months as we search for the right person that had the appropriate mix of financial and operational experience to lead the finance organization as well as contribute to the advancement of the operating agenda within the business. Amy is an experienced and highly effective finance executive.

Speaker 2

She had a 23 year tenure with Caterpillar, which included several divisional CFO roles, Vice President of Investor Relations and Chief Audit Officer. Prior to REV Group, she served as CFO of Solutions and CFO for Brand Safeway's Commercial Industrial Division. I am thrilled she's joining our leadership team and look forward to the positive impact that she will bring to REV. Now turning to the other highlights within the quarter. We are pleased to have delivered another strong quarter of operating results and remain focused on enacting initiatives that drive throughput and efficiency improvements across our manufacturing sites.

Speaker 2

I would like to thank all the dedicated employees that have worked to build operational momentum and improve the financial performance. Within the Q2, this was exemplified by the fire and emergency teams. With strong backlogs that extend up to 2.5 years, these businesses have the visibility and opportunity to drive significant shareholder value. Throughput initiatives put in place over the past 18 months are taking hold with increased line rates and improved labor efficiencies resulting in higher unit shipments and price realization as we work through our backlogs. The results of these efforts was a 5.5 year quarterly high and adjusted EBITDA margin in the legacy Fire and Emergency business.

Speaker 2

Margins improved 3 20 basis points versus the prior quarter and 4 80 basis points versus the prior year, demonstrating that each unit shipped today is worth more than the unit shipped previously. We exited the quarter with a robust $4,300,000,000 backlog. We continue to experience strong order intake for our fire apparatus and ambulance with a combined quarterly unit book to bill ratio of 1.1 times, slightly ahead of our full year expectation of a 1:one ratio. Price actions and a higher mix of buyer apparatus resulted in a revenue book to bill ratio of 1.6 times within the quarter. We attribute the sustained level of demand to the quality of our products, municipal budgets backed by increased tax receipts and federal stimulus, ongoing replacement demand and emergency infrastructure build out related to population growth and urban sprawl.

Speaker 2

To meet the unprecedented demand and maximize return on the backlog, we remain focused on increasing production, advancing the development of centers of excellence, optimizing our manufacturing footprint and product simplification. An example of our success is the integration of the Spartan businesses that were acquired in 2020. Over the past 4 years, the Spartan chassis plant has doubled its production to meet sister plants and other OEM demand. We have also expanded the Spartan S180 program which provides a fire apparatus that can be delivered in as little as 180 days. Today we offer this program across several brands providing more customers and dealers the opportunity to purchase a semi custom truck delivered within shortened lead time.

Speaker 2

Is a competitive advantage and supporting increased order intake for the RevFire brands. Within the recreational vehicle segment, overall industry demand for motorized RVs which accounts for more than 90% of our RV segment remains suppressed. Based on recent industry data, new motorized wholesale unit shipments calendar year to date through April were down 22% year over year. We believe that higher rates and negative equity trading values for units purchased during COVID continue to impact consumer buying decisions. However, industry retail sales of agent inventory and the destocking that has occurred over the past year indicates that the health inventory is improving heading into model year 'twenty five introduction.

Speaker 2

Specific to the products and channels in which we participate, year to date model year 'twenty five orders have been softer than we anticipated as dealers have been hesitant to place new orders given increased floorplan costs and market uncertainty. Despite the industry backdrop and reduced 25 mile a year orders, we exited the quarter with a healthy 5 to 6 month backlog at current production rates with our Class B and C businesses, while our Class A and Mobile businesses remain at post COVID low levels of backlog. As we enter the back half of our fiscal year, we remain confident in our ability to deliver on our existing Class B and C backlogs and maintain flexibility to manage costs across all product categories in response to market dynamics. We continue to simplify the operational footprint of our businesses focusing resources on core businesses. In support of this strategy, within the quarter, we exited our direct fire and ambulance sales and customer service operation in Florida with the sale of the Fire Regional Technical Center or RTC in Ocala.

Speaker 2

We selected an experienced partner that has represented RevPAR Brands for over a decade as the purchaser of the business and believe they will continue to capitalize on the significant opportunity presented within the Florida market. With the sale of the RTC, we have no remaining company owned dealerships within our fire business. In addition, the wind down of our E and C municipal transit bus business remains on track. I would like to acknowledge the efforts of the team at E and C as well as our suppliers and channel partners who have remained committed to completed units within our backlog on schedule. We expect to wind down substantially all manufacturing operations to be completed in the 4th fiscal quarter.

Speaker 2

Within the quarter, we returned a total of $308,500,000 to shareholders in the form of share and regular and special dividends. As a reminder, the Collins West transaction closed at the end of the Q1 providing cash proceeds of $308,000,000 a portion of which was used to pay down our ABL credit facility to 0 at the end of the Q1. In the Q2, we returned essentially all the proceeds to shareholders. Approximately $179,000,000 was used pay $3 special dividend in addition to our regularly quarterly dividend. The remainder of the proceeds from the sale of Collins was used to participate in a secondary offering of our then largest shareholder AIP by purchasing $8,000,000 of REV Group common shares for approximately $126,000,000 The secondary offering reduced the shareholders ownership interest to approximately 19%.

Speaker 2

In March, that shareholder proceeded with a subsequent underwritten secondary offering of 7,400,000 shares, reducing its ownership stake to approximately 3.4%, well below the 15% threshold that allowed it to designate board members. On March 15, the IEP designated directors stepped down from our board. We have been preparing for the potential exit of these board members over the past several quarters. While the timing was uncertain to us, we felt it was important to identify and recruit new Board candidates who could add value to the company and help guide us into the next chapter of our growth. In August 2023, we welcomed Maureen O'Connell to our Board, replacing a long term AIP designated Director.

Speaker 2

Then in January of this year, anticipation of the retirement of Board member at an annual shareholder meeting in February, Kathleen Steele was appointed to the Board. Finally, last week, Cindy Augustine was appointed to the Board. She currently serves as the Global Chief Talent Officer of CanW World Group and has extensive experience as an HR and operating executive at leading public and private companies. Rev will benefit from the wide ranging and diverse set of experiences provided by our refreshed board and we look forward to the contributions the board will offer as we continue to execute our strategic agenda. Turning to Slide 4, consolidated net sales of 6 $17,000,000 decreased $64,000,000 compared to the Q2 last year.

Speaker 2

In the prior year, reported net sales included $47,000,000 attributed to Collins Bus, which was divested in the Q1 of this year. Adjusting for the sales impact to Collins, net sales decreased $17,000,000 or 2.7 percent due to lower sales in the recreational vehicle segment that was in line with expectations and fewer sales of terminal trucks, partially offset by increased sales in the fire and emergency businesses. As I mentioned earlier, recreational vehicle segment sales reflected soft industry demand as well as increased discounting and a mix of lower priced units within certain businesses. Terminal truck sales were 59% lower than previous year, which was consistent with the expectation in 20 24 guidance we provided in December. Increased fire and emergency sales benefit from year over year unit and revenue increase at all ambulance and fire apparatus manufacturing locations.

Speaker 2

Consolidated adjusted EBITDA of $37,500,000 decreased $4,400,000 compared to the Q2 of last year. Included in the prior year reported adjusted EBITDA was $10,200,000 attributable to Collins Bus, resulting in an increase of 5 point $8,000,000 or 18.3 percent when adjusting for this divestiture. The increase was driven by the fire, emergency fire, emergency and municipal transit bus businesses, partially offset by lower earnings in the terminal trucks business and recreational vehicles segment. Fire and Emergency results benefited from higher volumes, the operational improvements mentioned earlier and increased price realization as we shipped more units that benefited from pricing actions enacted in 20222023. We remain encouraged by the efforts of the teams to offset costs through operational improvements, allowing businesses to maximize pricing opportunity within backlog.

Speaker 2

Please turn to slide 5 and I'll turn the call over to Amy for detailed segment financials.

Speaker 3

Thank you, Mark. Happy to be here. I know many of you on the call from my previous role at Caterpillar and look forward to working together at REV Group. This being my first call, I thought I'd give us a few opening comments. Considering joining Rev Group, I learned that the great work this company does in support of our nation's first responders and the communities in which we live.

Speaker 3

Over the past several weeks, I've traveled to many of our business units and spent time with local management teams as well as the corporate staff to gain insight into our products, channel partners and ability to increase profitability, generate cash and drive shareholder value. My interactions have validated what I saw from the outside. There is a significant value creation opportunity for our shareholders as we continue our journey of improved execution that has resulted in the company delivering top line and bottom line momentum over the past several quarters. I believe there is significant opportunity to continue this progress and build upon our 2021 Investor Day financial targets, which we plan to refresh before the end of the year. Now let's move to Page 5.

Speaker 3

For Specialty Vehicles 2nd quarter results, segment sales were $437,400,000 an increase of 2.9% compared to the prior year. As Mark mentioned, the prior year quarter included $47,000,000 of net sales attributed to Collins Bus, which was divested in the Q1 of this year. Adjusting for the sales impact of Collins, segment sales increased $59,000,000 or 16% year over year. The increase in net sales was primarily due to higher shipments of fire apparatus and ambulance units along with favorable price realization, partially offset by lower sales in the terminal trucks business. Shipments of legacy fire and emergency units increased 18% versus the prior year period, reflecting the success and continued momentum of the operational improvement initiatives that have been put in place and are delivering increased throughput.

Speaker 3

Combined net sales of fire apparatus and ambulances increased 33%, which included favorable product mix and price realization as we shipped a greater number of units benefiting from price actions taken in 20222023. The higher fire apparatus shipments were led by our largest plant in Ocala, Florida. This location is better described as a campus with 10 buildings over 4 square miles. The campus has benefited from a focus on simplification and reorganization to focus on manufacturing by value stream. These changes have led to better alignment across the local teams and resulted in improved efficiencies, quality and throughput along with better supply chain management.

Speaker 3

Their commitment to operational excellence contributed to them delivering the highest quarterly total of unit shipments since 2020. Within ambulance, higher unit volumes also demonstrate the continued success of that division and their local OpEx and lean teams that have delivered a cadence of measured production ramp rates throughout the past year. Specialty Vehicles segment adjusted EBITDA was $33,800,000 in the Q2 of 2024, an increase of $13,500,000 compared to $20,300,000 in the Q2 of 2023. Adjusting for 10 point $2,000,000 of adjusted EBITDA attributed to Collins Bus in the prior year, 2nd quarter earnings increased $23,700,000 year over year or 2 35 percent. The increase in adjusted EBITDA was primarily due to increased contributions from the fire, ambulance and municipal transit bus businesses, partially offset by lower earnings from the terminal trucks business.

Speaker 3

As Mark previously noted, legacy fire and emergency margins improved 480 basis points versus the prior year. The increased contribution was primarily related to price realizations, higher unit volume and favorable mix. Within the Ambulance Group, performance marked a 7 year high in quarterly profitability with all businesses delivering year over year and sequential margin improvements. Segment backlog of $4,100,000,000 increased $706,000,000 or 21%. Prior year backlog of $3,400,000,000 included $353,000,000 of backlog attributed to the bus businesses.

Speaker 3

Adjusting for the divestiture of Collins, backlog increased $898,000,000 or 28% versus the prior year quarter. The increase reflects strong orders for fire and ambulance units over the past year as well as the benefits of pricing actions, partially offset by lower demand for terminal trucks and a reduction in transit bus business backlog related to the business' wind down. Fidelity's update to the consolidated outlook anticipates continued fire and emergency earnings momentum, partially offset by continued end market softness in the terminal trucks business and the completion of the wind down of E and C municipal transit bus operations in the fiscal 4th quarter. Lower than expected terminal truck orders is now expected to result in $150,000,000 revenue headwind year over year versus $100,000,000 headwind in previous guidance. We continue to execute cost actions to manage to a 15% decremental margin.

Speaker 3

More than offsetting the revenue headwinds from transit bus and terminal truck businesses, we expect the Fire and Emergency Businesses to build upon the 2nd quarter outperformance, resulting in Specialty Vehicles segment revenue increasing by low single digits as compared to first half revenue. Improved profitability within the Fire and Emergency businesses is expected to result in legacy F and E adjusted EBITDA margins in the low double digits exiting the fiscal year. F and E performance is expected to more than offset softness in the terminal truck end market resulting in the Specialty Vehicles segment margin increasing sequentially in the 3rd and 4th quarters as we continue to focus on operational excellence and achieve improved pricing within the backlog, delivering total segment adjusted EBITDA margin in the high single digits exiting the 4th quarter. On Slide 6, Recreational Vehicle segment results were in line with expectations. Sales of $179,700,000 decreased $76,900,000 or 30% year over year.

Speaker 3

Lower segment sales versus the prior year were primarily the result of fewer unit shipments of Class A, Class B and Towable units along with increased discounting, which was partially offset by increased shipments of Class B units and price realization. In total, unit shipments declined 43% versus a year ago, driven by a 70% decline in Towable and Camper unit sales. Recreation segment adjusted EBITDA of $12,100,000 decreased $17,000,000 or 58 percent versus the prior year. The decrease in adjusted EBITDA was primarily the result of lower unit volume, inflationary pressures and increased discounting, partially offset by price realization, labor efficiencies, material savings and cost reduction actions that were executed in certain businesses to align production with the current level of demand. Recreation segment backlog of $275,000,000 atquarterend decreased $220,000,000 or 45 percent versus the prior year.

Speaker 3

The decrease is primarily due to production against backlog, lower order intake over the trailing 12 months and order cancellations. Backlog in the Class B and Class C categories remains in the range of 5 to 6 months and profitability of the combined Class B and C businesses is expected to remain in the low double digit range. Class A and total businesses are expected to produce at lower line rates aligned with end market demand. To the extent that the Class A and total market doesn't improve in the second half of the year, we will continue to execute cost actions aligned with demand. Our update to the consolidated outlook now anticipates the recreational vehicle segment revenue to be at the 2nd quarter run rate for the remainder of the year.

Speaker 3

We're down 20% to 25% year over year compared to down low double digits in our prior guidance. Lower discounting and the impact of cost actions is expected to improve the second half adjusted EBITDA margin approximately 100 basis points as compared to the Q2. Full year segment margin is expected to be in the 7% to 7.5% versus high single digits under prior guidance. Turning to Slide 7. Trade working capital on April 30, 2024 was $324,000,000 an increase of $5,500,000 compared to $319,000,000 at the end of fiscal 2023.

Speaker 3

Increase was primarily a result of lower accounts payable and customer advances, partially offset by a decrease in accounts receivable and inventory. Year to date cash used by operating activities was $29,600,000 Adjusted free cash flow within the quarter was $67,200,000 including $5,900,000 spent on capital expenditures. Net debt as of April 30 was $181,800,000 including $38,200,000 of cash on hand compared to net debt of $128,700,000 as of October 31, 2023. As Mark noted earlier, we returned essentially all of the $308,000,000 gross proceeds from the sale of Collins Bus to shareholders within the Q2. On February 16, we paid a special cash dividend of $3 per share of common stock, totaling $179,000,000 in addition to our regular quarterly dividend.

Speaker 3

Then on February 20, we repurchased 8,000,000 common shares for a total of 126,000,000 reducing total outstanding shares versus 2023 fiscal year end by 13%. In addition, we declared a regular quarterly cash dividend of $0.05 per share payable on July 12 to shareholders of record on June 28. At quarter's end, the company maintained ample liquidity for strategic initiatives to approximately $280,000,000 available under our ABL revolving credit facility. Turning to Slide 8, we provide our updated 2024 fiscal full year outlook, which builds upon the momentum within the Specialty Vehicles segment, partially offset by greater than expected end market weakness in the Recreational Vehicles segment. Today's update for top line guidance is a range of $2,400,000,000 to 2,500,000,000 dollars and adjusted EBITDA guidance of $151,000,000 to $165,000,000 or $158,000,000 at the midpoint, which reflects an improvement of $6,000,000 at the low end of the range to account for the 2nd quarter performance.

Speaker 3

Updated guidance today includes an approximate $150,000,000 total revenue reduction within the cyclical terminal truck and RV businesses and its resulting earnings impact as we managed to a 15% decremental margin. However, we expect that the performance of the Fire and Emergency businesses will more than offset these headwinds, which provides the confidence to raise the midpoint of our full year consolidated earnings outlook. Adjusted net income is expected to be in the range of 76,000,000 dollars to $90,000,000 and net income in the range of $230,000,000 to $245,000,000 dollars Adjusted free cash flow is expected to be in the range of $61,000,000 to $72,000,000 Note that the adjusted free cash flow excludes approximately $71,000,000 of tax and transaction costs related to divestiture activities that are presented within the cash from operations, but offset by gross cash proceeds included in the investing section of the statement of cash flow. Expected full year capital expenditures remain in the range of $30,000,000 to $35,000,000 and interest expense is expected to be $26,000,000 dollars to $28,000,000 Thank you again for joining us today on the call. Operator, we would now like to open the call up for questions.

Operator

Thank Our first question is from Jerry Revich with Goldman Sachs. Please proceed.

Speaker 4

Hi, this is Clay Williams on for Jerry. In Fire and Emergency, how much was pricing up in the quarter? And then how much higher is pricing on what you're booking today versus what you're booking today compared to what you're delivering? Thanks.

Speaker 3

Yes. Thanks, Clay. So I think one way to think about that, if you look at Fire and Emergency sales, total sales were up 33% and units were up 18%. And I would say the delta of that is pretty evenly split between price and favorable mix in the quarter. And then if you think about how the units we're shipping today are versus what the price today, I think you have to step back and look at the pricing increases we've taken over the last couple of years.

Speaker 3

Over the last few years, we've got a combined pricing increases of 40% through about mid year 2023 when we started to take more normalized annual increases of 3% to 4%. In Fire, we're about in the 3rd to 4th inning working through those price increases. And in Ambulance, we're about in the 5th or 6th inning as we work through those price increases.

Speaker 4

Great. Super helpful. And then lastly, looking at the midpoint of the outlook on EBITDA margins, it seems to imply weaker margins than normal seasonality in the back half. Just curious if there's any specific drivers there or just double checking our math. Thanks.

Speaker 3

Yes. I think to double check the math, as you look sequentially from the Q2 to the are you speaking just for Specialty Vehicles margins, Clay?

Speaker 4

Just for the company as a whole, for second half margins, just normal seasonality on a sequential basis?

Speaker 3

Yes. Starting with Specialty Vehicle Margins, we expect 3rd quarter EBITDA margins to increase 50 to 100 basis points from the 2nd quarter to the 3rd quarter and then about another 100 bps from the 3rd quarter to the 4th quarter. And Recreation EBITDA margin should be fairly consistent 7% to 7.5% for the full year.

Speaker 2

So I think just check your math, Frank, because I think sequentially, we're actually up as well

Speaker 3

as sequentially. Yes, sequentially, yes.

Speaker 4

Thanks. I'll pass it on.

Speaker 1

Thank you.

Operator

Our next question is from Mike Stifzczy with D. A. Davidson. Please proceed.

Speaker 5

Yes. Hello. Good morning and thanks for taking my question. And Amy, it's great to hear your voice again. Yes.

Speaker 5

So maybe just a quick question first on Recreation. Can you give us some thoughts on the might make next year an up year for the Recreation margin outlook?

Speaker 2

Yes. I think Mike as we've talked about previously, we're not going to provide 25. And again, the market is still choppy now. So we have to see what's going to happen in the back half of the year, which I think everyone's talking from industry perspective. So I think to give anything from a 25 until we see what happens in the back half of the year wouldn't be appropriate at this time.

Speaker 5

Okay. No problem. Perhaps the exit change over to fire and emergency. You had mentioned some interest in the Spartan S-one hundred and eighty. At this point, how successful have you been with delivering that product in 180 days every time?

Speaker 5

And can customers now under the business with the supply chain over the last couple of quarters, Are you at the point now where you can say it, put the 180 in the actual name and deliver within 6 months?

Speaker 2

Yes, for sure. And the way we've done that, we've actually we have a dedicated line in one of our facilities, Mike, that is doing that. So we've invested in that product line as well as having a dedicated line within one of our facilities. So that is within the we are meeting those lead times.

Speaker 5

Okay. And then perhaps outside of that in fire, the other models, are you past any major supply chain issues? And I'm just trying to figure out how much faster you can make the run rate from here. Perhaps maybe you had mentioned you had seen the best run rate since pre pandemic, but what was the prior peak? How far off are you from prior peak run rates there?

Speaker 2

Yes. We are not that far off. But again, like we talked about, fire is still 6 to 9 months behind where ambulance is and we expect in the back half. A lot of the guidance that we're talking about today is still the continued momentum in fire and catching up to the ambulance throughput improvement. So I would just say from that perspective, it's again how we're going to demonstrate that in the back half of the year.

Speaker 2

But we feel good about our momentum and where we're at. And we've quoted obviously pre COVID, we've doubled our throughput at the Spartan. So when you look at our overall, we're up actually in the pre COVID levels when you can include the Spartan facilities and what they've been able to do.

Speaker 3

And I would just add Mike that the guide for that facility in Ocala, Florida, the guide would suggest that the 3rd and 4th quarters would both be record quarters of shipments for that plant.

Speaker 5

Yes, perfect. I appreciate the color everybody. I'll pass it

Speaker 1

along. Thanks Mike.

Operator

Our next question is from Mig Dobre with Baird. Please proceed.

Speaker 6

Good morning, Amy. I look forward to working with you again. So that's great. I guess what I'm trying to make clear for myself here is are the moving pieces to your guidance because your commentary contains kind of a lot of moving pieces here. So can we put a finer point on a revenue in terms of what's moving here?

Speaker 6

It sounds like terminal truck is lower, RV is lower, There is a fire and emergency partial offset. You also divested that dealership in fire. I don't know how much of an impact that was, but can we kind of parse out all these factors, please?

Speaker 3

Yes, sure, Mig. So I think a way to think about it, we guided recreation about $100,000,000 lower, how that math works out, dollars 90,000,000 to $100,000,000 lower. And our terminal trucks business down an additional $50,000,000 And we took the midpoint of the guide down $50,000,000 And so the offset to that is the 2nd quarter beat in the Specialty Vehicles business and then about a $70,000,000 to $80,000,000 increase in F and E in the back half of the year.

Speaker 6

That's helpful. Thank you. In F and E, it sounds like you're making good strides in being able to increase throughput. And Mark, we were talking just a couple of months ago about where you are relative to normal. And at the time, your throughput was still quite a bit below what you consider to be normal.

Speaker 6

So I'm kind of curious what this throughput is going to be exiting fiscal 2024 based on kind of what you know today?

Speaker 2

Yes. Like I said, I think we've been talking about where ambulance is and we know that's in 70% to 80 percent where we want to be. So when we talk about where fire is, like Amy talked about, we are expecting fire to catch up to that side. So we still got room to go across the legacy F and E business, but we would expect fire to be more in line with animals that exiting there. So we're slowly catching up.

Speaker 2

And as Amy said, in Ocala, we definitely are expecting a nice second half to build here. So I expect exiting at that low double digit margin that we're talking about that we're more aligned both business are aligned and then we have opportunity beyond that as we exit 24%. But we're fully not there back to 85% to 90% efficiency.

Speaker 6

Yes, because that's what I was trying to get at. When we're thinking about 25, in your existing footprint today in F and E, is there potential for you to further increase production volume? Or do we start to run into capacity issue where you kind of need to add additional CapEx or whatnot?

Speaker 2

No, no. There is nothing from that perspective. And as you know, Mig, we in the majority of our plants, we run 4 tens, right? So we have theoretical capacity of a minimum of double, right, if we were to enter a second shift. As we ramp in some of our businesses, we've actually added 2nd shifts in, say, welding or paint and fabrication, not on the assembly side, but there is opportunity to increase from that perspective.

Speaker 2

So again, what I want to do in the back half, as we talked about previously, is stabilize fire to the current rates and meet the expectations of the increase and then go from there heading into 'twenty five, right, and building off of that. So we need to get stable at the rates we're at and then we can look at do we want to look at opportunities to increase our mine rates and our shifts at those facilities as we move forward.

Speaker 6

Okay. And then maybe pivoting to recreation, I guess I'm going to try to ask Mike's question a little bit differently. Backlog continues to come down here and you revised your outlook lower by $100,000,000 on a revenue side for this year. But obviously, in what's embedded in here, it seems like your revenues, your shipments continue to exceed your incoming order intake. And I'm wondering what the implications are here.

Speaker 6

I mean, it's difficult for me to see how 2025 is not going to be down again just based on the fact that your backlog is contracting. Do you think differently? Should we think differently based on what you see today?

Speaker 2

Yes. And again, it's a wait and see on the back half of this year, Mig. And unfortunately, we don't have a crystal ball from that perspective. But from a 5 to 6 month backlog, you're exactly right. In the Bs and Cs, we feel like they're entering the back half.

Speaker 2

And it's really a discussion on the As and Towables, which have just not come back. RVI is quoting the A business being an 8,000 unit market now versus 10,000 unit market. So we've seen a retraction there. And we talked about that in Q1. Those are operating at a low backlog in our towboats businesses, less than a 1 month backlog, right?

Speaker 2

So we continue if you look at the back half, it's really a reflection of the A's in towables not coming back. And to the extent, we have to build our backlog. But again, when you look at the margin, we are generating really managing the cost within that A and Towable business in the back half until we see what the order rates are coming into Q3 and Q4. So unfortunately we need to see what the order rates are going to be really on A and Towables. We feel good about our market position where we're at in the Bs and Cs and our ability to build that backlog entering 'twenty five.

Speaker 2

It's more around the As and Towables still. It's really against Towables business and I know Thor came out their earnings this morning as well. We're seeing the same thing that people are the tolls are picking up, but they're more in the shorter, need to stick in 10 sort of trailers, the lower end trailers at a lengths as well. And as you know we're a premium provider within that space. So we just haven't seen the uptick in the premium side of that business yet as an industry.

Speaker 6

Understood. Final question on margins in Recreation. Considering the challenges that you're having with both Towables, but especially with Class A, 7%, 7.5% margin is not too bad. I guess that implies that in this Class A and Towables, you're still above breakeven. That's kind of how I'm interpolating here.

Speaker 6

Correct me if I'm wrong. What exactly are you doing on a go forward basis to manage the cost structure here? Can we get a little more context? And maybe what could carry into 2025 relative to 2024 based on your restructuring actions in the second half? Thank you.

Speaker 2

Yes. And again, we continue to flex as we've talked about. We've taken significant amount of people out, but we've also looked at our cost structure across that, our fixed cost as well and addressing those. So we've just been very proactive. And as our backlog would come down, we've taken the appropriate, not only direct labor, but indirect and SG and A cost out of the business to get more of a normalized what a breakeven view of those businesses are managing to that.

Speaker 2

So we've gotten ahead of it to make sure and so we've anticipated a bigger drop or challenge ourselves and say, let's run to the bottom and then work our way up as the volume comes back, which has really played to our advantage here to your point that we haven't incurred losses like we previously had when you look at those businesses collectively. So I think that's really been the strategic piece of that is that we saw the market coming down. We challenged our companies to run to the bottom and then work our way up. And unfortunately we just haven't seen the uptick that is there which with the new cost structure we'll see upside from a margin perspective as we go forward with the new cost structure these businesses are operating

Speaker 6

at. Okay. Thank you.

Speaker 1

Thanks,

Operator

And with no further questions, we will conclude today's conference. Thank you for your participation. You may now disconnect.

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