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Edited Transcript of REVG.N earnings conference call or presentation 5-Sep-19 3:00pm GMT

Q3 2019 REV Group Inc Earnings Call

MILWAUKEE Sep 10, 2019 (Thomson StreetEvents) -- Edited Transcript of REV Group Inc earnings conference call or presentation Thursday, September 5, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dean J. Nolden

REV Group, Inc. - CFO

* Drew Konop

REV Group, Inc. - IR Executive

* Ian K. Walsh

REV Group, Inc. - COO

* Timothy William Sullivan

REV Group, Inc. - CEO & Director

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Conference Call Participants

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* Andrew Millard Casey

Wells Fargo Securities, LLC, Research Division - Senior Machinery Analyst

* Chad Dillard

Deutsche Bank AG, Research Division - Research Associate

* Courtney Yakavonis

Morgan Stanley, Research Division - Research Associate

* Jerry David Revich

Goldman Sachs Group Inc., Research Division - VP

* Joel Gifford Tiss

BMO Capital Markets Equity Research - MD & Senior Research Analyst

* Mircea Dobre

Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst

* Stephen Edward Volkmann

Jefferies LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the REV Group Inc Third Quarter 20 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

And it's now my pleasure to introduce your host, Mr. Drew Konop, Vice President of Investor Relations.

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Drew Konop, REV Group, Inc. - IR Executive [2]

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Thank you, Michelle. Good morning and thank you for joining us. Last night, we issued our third quarter 2019 results. A copy of the release is available on our website at investors.revgroup.com.

Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of non-GAAP again -- to GAAP financial measures that we will use during this call. It is also available on our website.

Please refer now to Slide 2 of that presentation. Our remarks and answers will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed or implied by such forward-looking statement. These risks include, among others, matters that we have described in our Form 8-K filed with the SEC last night, and other filings 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 fiscal quarter or fiscal year unless otherwise stated. Joining me on the call today are our President and CEO, Tim Sullivan and CFO, Dean Nolden.

Please turn to Slide 3. I'll now turn the call over to Tim.

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [3]

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Thanks, Drew. Good morning, everyone and thank you for joining us to discuss REV Group's third quarter results. So what happened in the past 3 months that caused us to fall short of our goals in the third quarter and reduce our full year earnings guidance by approximately 30%. A large portion of change can be defined in 1 word, labor. Strategic decisions we made pertaining to labor during this fiscal year cannot be blamed entirely on our current situation with the tariffs. But there were -- they were a significant contributor. I'll provide some commentary on what is transpired, and then Dean will follow with details our Q3 financial performance as well as the detailed financial analysis of our revised guidance.

First and foremost, we believe the fundamentals that drive our business remain strong with the exception of softness in the RV market. Notwithstanding the overall strength of our markets and backlog, third quarter performance was well below our expectation, and we now know that what occurred in the third quarter will flow into our fourth quarter.

Slide 3 identifies 3 primary drivers of underperformance as well as some positives within the quarter, including the actions we are taking to improve our financial results and drive shareholder value. I'll walk you through the challenges we faced in the quarter in order of the impact it had on our third quarter and full year guidance. Consolidated results were primarily driven by underperformance at our 3 largest businesses.

First, the production ramp and plant expansion at one of our primary fire facilities have progressed slower than we anticipated. As a reminder, we had been ramping at this facility to expand capacity in order to service increasing customer demand. To fully understand our current situation, I must first offer some historical perspective. When this business was purchased out of bankruptcy in 2006, there was a major reduction in the physical footprint of the plant as well as a reduction in the workforce of over 800 people.

As our brand and market presence has recovered in the recent years, we have been meeting our shipping requirements by engaging in an inordinate amount of overtime. This large amount of over time was no longer sustainable at our current manufacturing labor market. In other words, turnover became a major deterrent to continue to rely on over time to meet our production needs. Manufacturing labor is in high demand and people have many choices where they work.

In Q1, we embarked on a 36% expansion of our manufacturing footprint, which constituted expanding into 3 new buildings in close proximity to our current plant. This expansion also required a 38% increase in labor. Those of you who had appreciate manufacturing understand that this level of expansion is arduous in normal times let alone in a very tight label market. Our challenge has been an overcoming bottlenecks as we balance our new plant flow and higher labor costs as we onboard and train new employees to fulfill our goal of doubling our plant capacity from 200 -- 2017 levels. Basically, we are carrying excess labor as we expand and balance the expanded plants.

As we train and position this new labor, they are inefficient and unproductive, thus significantly deteriorating our earnings. We expect these conditions to alleviate in the fourth quarter. But we do not expect to hit our originally planned run rate until the

first half of fiscal 2020. It is important to note that through these challenges we have worked with our customers to continue to deliver quality fire trucks. We have not experienced any order cancellations.

Additionally, as part of our expansion, we are implementing our proprietary REV Production Systems or RPS, which has added to the accountability, predictability and stability of our operations. RPS has already allowed us to reap additional operational benefits in our Commercial segment, which is performing at very high levels.

Second, we have 2 situations in our ambulance business that created a slow start to our year. Similar to our Commercial division last year, we experienced delays in large orders from some of our normal municipal accounts. In particular, a delay in 1 large order reduced our normal booking levels earlier in the year by approximately 40%. We have now received that order, and we will finish the year with a strong backlog for fiscal year 2020, although none of this particular large order was shipped in fiscal 2019.

Additionally, we experienced an unusual amount of remount activity in markets this year. Although, remounts have been an alternative solution to purchasing new units for some time. They have become more popular recently delaying replacement of new units for 2 to 3 years. Remounts are approximately half the margin opportunity of a new unit sale.

Notwithstanding the initial lack of booking activity, we decided to maintain a full workforce in anticipation of delivering against the delayed municipal orders. Quite frankly, this is a new normal in manufacturing in the area of tariffs, unlike the past, if you have labor, you retain it.

Again, we made a strategic decision at during unusual times like this, scarcity of manufacturing labor means you'd carry the labor you have during times of temporary booking shortfalls. We believe that we could carry the additional labor cost in the first 2 quarters, and of course, approach more normal levels of absorption in the last 2 quarters. We have been unable to adequately absorb these cost in the back half of the year, and they have negatively impacted our earnings guidance for year-end. We do believe that now with the well-defined backlog that this excessive labor cost will be absorbed by higher expected production rates as our new backlog begins production towards the end of Q4.

On a positive note, targeted inventory that was left over from the 2018 supply chain disruption has largely been liquidated, and our new General Manager at our largest ambulance business is making strides with production process improvements and level loading the production line.

Third, the RV market, in particular, Class A campers experienced a greater-than-anticipated slowdown of wholesale shipments within the quarter. Although we ended the year expecting a 20% decline within the Class A market, certain product types experienced a more severe slowdown in dealer orders in wholesale shipments legged our retail sales. As a result, we have taken measures to reduce costs at our Class A business by consolidating plans from 2:1 and shut down 1 extra week during the July 4th holiday. We have already reduced the share of Class A motorhomes in this segment mix from roughly 60% to closer to 45%, and we continue to shift our production mix to our stronger performing lines during demand reduction in the Class A market.

As we approach the September Open House, we are excited about the 2020 lineup of vehicles that we will be showcasing, and we feel that dealer inventories for our products will respond quickly to any upturn in the overall market should it occur this year.

Finally, you'll recall that at the end of Q2, we recorded that we have begun to experience more normal material lead times as our suppliers continue to adjust to the tariffs. While this remains the case, we did experience some critical material supply issues during the quarter, which negatively impacted our ability to ship products. Until such time that the tariffs are removed, we expect to continue to manage through some inconsistencies in our material supply. Despite the inter-performance, I'd like the highlight 3 key positives in the quarter that set Rev up for our intermediate and long-term production and financial improvements.

First, net cash provided by operating activities in the third quarter was $61 million compared to a $13 million use in the third quarter last year. The significant year-over-year increase was a result of our focus on efficient management of networking capital, and specifically, the sale of targeted excess inventory. While we have reduced our full year cash flow guidance due to lower earnings, we anticipate paying down additional debt in the fourth quarter, and we continue to target a normalized debt level of 2x, which would allow REV to once again consider strategic capital allocation deployment within our key end markets.

Second, we also added key personnel within the Commercial segment and ambulance divisions. Brian Perry joined us as the President of the Commercial segment in July. Brian brings wide operational experience, previously managing 21 facilities, and as addition, will continue upon the solid execution momentum we've built in the Commercial segment. Within the ambulance division, we are pleased to announce addition of Anoop Prakash as the new President whom we hired subsequent to the close of fiscal third quarter. Anoop led the startup at Harley-Davidson's commercial operations in India, Harley-Davidson's direct selling in Canada and realignment of its U.S. dealer network. We look forward to the positive contribution these gentlemen will bring to their respective positions. Finally, we are formally introducing the REV Production Systems. Our RPS team has leveraged sustainable processes to enhance operational efficiencies. This involves closely -- working closely with the individual businesses to enhance, install and measure processes, which have contributed to this year's stability and growth within our commercial segment.

The RPS team has now been dispatched to our Fire & Emergency segment to assist driving higher accountability, output and profitability improvements. We're optimistic that they can leverage the local teams in their experience to get our F&E segment headed in the right direction.

Let's shift to our outlook for the fourth quarter in fiscal 2020 as we begin our planning process for next year. Again, first and foremost, we believe fundamental demand across the majority of our end markets remain solid, and we have continued to deliver high-quality products against our roughly $1.3 billion backlog. Fire & Emergency backlog is up 28% year-over-year, which has been the result of an increase of orders across our fire trucks and certain ambulance brand categories. We believe addressing the performance issues in the 2 Fire & Emergency businesses are 2 largest by far, we have mentioned is fully within our control as we leverage the key personnel additions and continue to improve and measure the processes at these locations. While the production cadence within Fire has not increased as rapidly as anticipated and our unit sales are essentially flat sequentially, the primary cause of underperformance, year-to-date, has been a lower absorption of increased labor.

Our full year guidance now embeds a slight increase to Fire's third quarter production exit rate. Along with a small amount of margin improvement as we begin to normalize operations from the disruption of trainee workers, reconfiguring the flat -- the factory footprint and realigning sales in the production lines. We fully expect that the new plant layout and staff return the fire divisions to its historical profitability and higher production rates over time. However, this guidance reset, reflects the current situation within the business.

Our largest ambulance facility, we liquidated much of the targeted inventory that resulted from the chassis disruption late last year, albeit at lower margins due to a higher labor content. We believe for some time that they have become more popular recently. Ambulance remounts at dealers and contractors have increased throughout the year leading to irregular order timing within the industry and some near-term booking headwinds. As I mentioned, we retained current staffing levels rather than downsizing and flexing up to produce some of the large municipal orders that are now in our backlog.

Looking towards the end of the fiscal year and towards next fiscal year, we anticipate unit production at that plant to increase sequentially, which should alleviate the margin pressure we experienced within the business. Recreation end markets have continued to decline in our largest Class A category. Class A has been a primary driver of recent underperformance. Through this downturn, we have focused on what we can control. Within the quarter, we took cost up by rationalizing facilities from 2:1 and reduced production at our Class A Decatur business. We have a solid line of price that we're to do at the September Open House, and we remain confident that these will be well received. This trade shows serves as a significant venue for a wholesale ordering. Dealer inventories are parked at a very low level as retail sales have outpaced replenishment orders.

Our current factory footprint would support dealer restock should it occur. However, our current full year guidance does not rely on this happening. Outside of Class A, we have continued to deliver against the solid backlog in Class B and Super C products, but again our revised guidance takes a more cautious view of those markets as well on a reduced outlook for Towables.

In Commercial, the segment has benefited from improved mix to date versus 2018, and I would like to reiterate that all businesses in this segment have met or beat expectations this quarter. This group is doing a great job of executing on their backlog, and they have embraced the model of continuous improvement and defined processes that we are deploying. Across these businesses, we are seeing examples of improvement in throughput, lower cost of quality and higher overall profitability versus 2018. While we expect typical seasonality result in lower sales and EBITDA sequentially, the businesses are expected to continue on the path of improved year-over-year performance this quarter and into 2020.

I will now turn the call over to Dean to go through the financials.

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Dean J. Nolden, REV Group, Inc. - CFO [4]

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Thank you, Tim, and good morning. I will start on Slide 4. As Tim discussed, the performance at our 3 largest businesses was lower than expected in the quarter on a top line and bottom line basis, and the impact of those mixes is evident on a consolidated adjusted EBITDA and adjusted EBITDA margin graphs on this page as well as the update to fiscal 2019 guidance we have provided. While net sales have increased slightly for REV as a whole, the poor margin performance at these 3 specific business units make up nearly the entirety of our mix versus our expectations.

Total net sales for the third quarter were $617 million, up 3.2% compared to the third quarter of last year. The increase in consolidated net sales was primarily due to an increase in net sales in the Commercial, in Fire & Emergency segments, offset by a decrease in net sales in the Recreation segment.

Net income for the quarter decreased by 69% to $5.6 million or $0.09 per diluted share. Adjusted net income decreased by 45% to $13.6 million or $0.21 per diluted share. The decrease in the third quarter 2019 net income and adjusted net income was primarily the result of a decrease in gross profit in Fire & Emergency and Recreation segments partially offset by an increase in the Commercial segment. Adjusted EBITDA for the third quarter was $33.5 million versus $47.6 million in the year ago period. The decrease in third quarter was primarily due to lower gross margin at our largest Fire, largest Ambulance and largest Recreation business units partially offset by strong earnings in our Commercial businesses as well as continued strong performance in Recreation by our Class B, Super C and Towables businesses.

Please now turn to Slide 5 to discuss the performance of our segments individually. Fire & Emergency segment sales increased by 3.7% to $248 million for the third quarter 2019 versus the year ago period. The primary drivers of this result were improved pricing and mix of fire trucks and ambulances, slightly offset by a decrease in volume of ambulance shipments. F&E adjusted EBITDA for the quarter declined to 52% to $12.1 million, due primarily to 2 drivers that Tim referred to earlier. One, higher labor costs associated with the process to increase the output of fire trucks at our largest fire facility. This labor is currently less productive than needed to achieve our targeted line rates. And second, maintaining staffing levels at 1 ambulance facility during a period of softness of incoming orders and buildable backlogs.

Total F&E backlog remains healthy and was up 28% year-over-year to $776 million to both the fire trucks and ambulances. As Tim mentioned, we now expect the production ramp at our largest fire facility to be delayed into the first half of fiscal 2020. While our operation excellence team continues to implement defined, measurable continuous improvement processes to assist the movement of chassis, cabs and trucks to production in final assembly. In our largest ambulance business, incoming orders, production levels and staffing levels will start to come into balance at the end of the fourth quarter. These 2 factors give us confidence that profitability should improve from here, albeit at a slower rate than expected because we won't start delivering on a recently awarded large municipal contract this year. Well, we believe that this sets us up for better position in fiscal 2020. In addition, our new General Manager are our largest ambulance business is hitting stride with improvements to operational efficiency, commercial strategies and adoption of the REV Production Systems.

We'll move next to the Commercial segment on Slide 6. Quarterly sales are up 29% compared to the prior year period driven by an increase in the volume of transit and school bus shipments, improved pricing and increased sales of shuttle bus and terminal trucks. Commercial backlog at the end of third quarter was down 6% to $395 million compared to the third quarter 2018 resulting from the continued delivery of transit buses to a large municipal customer in the quarter.

Commercial adjusted EBITDA of $19.4 million was up 64% compared to the third quarter of last year. The increase -- this increase was due to increased sales of higher margin schools and transit buses, terminal trucks and improved efficiencies driven by the implementation of our REV Production System which started in late fiscal 2018. Adjusted EBITDA margin increased 200 basis points year-over-year to 9.5% in the third quarter. The results in this segment are evidence of the strength of our products and market position. The capability of our production and management teams and the benefits of deployment of our RPS, op ex tools.

Turning to Slide 7. Quarterly sales in the Recreation segment declined 16% over the year ago period to $167 million. The decrease in net sales compared to the prior year period was primarily due to a decrease in the shipment volume of Class A motorhomes and higher discounting levels as dealers continue to reduce inventory in connect -- connection with soft RV end markets. Net sales of truck campers also decreased slightly, while net sales of our Class B and Super C increased. Recreation adjusted EBITDA decreased 29% compared to the third quarter of last year to $12.8 million. The decrease in adjusted EBITDA compared to the prior year period was primarily due to the lower Class A volumes and competitive discounting. Tim mentioned actions we have taken to reduce Class A production volumes and costs. It is important to note that while we have downsized our footprint and cost structure within the current Class A environment. We have retained manufacturing floor space that could be ramped in the event that a more robust future dealer restock within this category should happen.

On Slide 8, we provided an update to our full year outlook, which reflects the lower year-to-date performance as well as the expectation for continued slower pace of production within Fire while we train and integrate the additional workforce. At Ambulance, due to the timing of our recently awarded larger municipal contract. And in Recreation, anticipation for continued softness in the Class A RV market at least through this fall's Open House event. While both the Fire production ramp and the trajectory of the RV market were identified during our last conference call as key challenges in the second half of fiscal 2019. We did not anticipate the magnitude of unit outcome. At the time we announced our second quarter results, we had seen progress in the planning for a production ramp-up within Fire and fully expected that the project plan to our target cadence by year-end was underway.

Unfortunately, we reached limits within the fact -- the facility footprint in the third quarter given the new labor in production volume that was introduced to the shop floor. This created bottlenecks which have been challenging to resolve. Considering the higher number of new employees who are currently underproductive, our adjusted EBITDA margin dropped 128 -- 120 basis points sequentially on approximately flat sales. This was exacerbated within the F&E segment by retaining our staffing levels in the ambulance business despite the late award of that large municipal contract. We believe both decisions: first, to hire and train labor within Fire; and 2, to retain labor in ambulance will benefit our customers and investors over the long term. Deploying our RPS teams to F&E has identified several opportunities to adjust our production plans and processes for improvement across the segment and will add to the stability of continuous improvement as we move into fiscal 2020.

For fiscal 2019, we now expect net sales to be in the range of $2.35 billion to $2.45 billion and adjusted EBITDA in the range of $100 million to $110 million. Net income is forecasted to be in the range of a loss of $8 million to positive income of $5 million, and adjusted net income is expected to be in the range of $28 million to $41 million. You will note the decrease in adjusted EBITDA is much greater than the reduction in sales, reflecting primarily the additional labor that we carried in the third quarter and no longer anticipate will be fully efficient in the fourth quarter.

However, we believe the path to greater profitability is within our control, and we will realize healthy incremental margins as we absorb this labor, implement RPS throughout the organization and further execute on our backlog within F&E.

Please turn to Slide 9. It is important at this point to provide a reconciliation of where we stood with regard to our full year outlook when we spoke to you last in early June for our second quarter results and our current guidance. After the end of the second quarter, we had line of sight to achieving the full -- to achieving the range of full year adjusted EBITDA guidance. As we disclosed in connection with our mid-year results, the biggest risks to achievement of our full year guidance were the successful execution of our ramp-up in the Fire division and the progression of the RV markets during the seasonally strong summer months.

As our third quarter progressed, our largest Fire business unit progress stalled despite the investment in the large number of new production employees, support staff, additional factory space and related cost.

We made the conscious efforts to maintain employment and barrel through the ramp-up with the assistance of our op-ex teams and certain external expert resources. In this tight labor market, we also made the decision to retain our complement of skilled manufacturing employees in 1 Ambulance business unit despite the late award of the municipal contract. When these contracts are awarded, we don't include the opportunity in backlog or our production schedules until formal purchase orders are issued against the contract. In this case, POs not -- POs under this contract were not provided in time, and we are now not physically capable of manufacturing and delivering on any of these trucks under this contract until fiscal 2020.

Lastly, as the summer months progressed, the RV market remain softer than anticipated and further worsened as wholesale shipments slowed faster than retail sales. Dealers remain cautious about the overall trajectory of demand and continue to manage their own balance sheets from minimum leverage and risk. Dealer inventories are now at lower levels compared to history as a result. All of these 3 items together resulted in approximately $26 million of EBITDA leakage during the third quarter from our previous forecast. The magnitude of this impact is consistent with the relative size and profitability of the businesses that were impacted.

As we look into the fourth quarter and towards updating our full year guidance, this $26 million shortfall primarily from 3 business units is not recoverable as it relates to period costs and at the end of -- and we are at the end of summer peak season for RV and for our model year 2020 coaches. Given the nature of these issues and our realistic look at the remainder of our fiscal year, we do not expect meaningful production output increases and efficiencies in our fire businesses, nor delivering against the large municipal ambulance contract order within this fiscal year. And it is not reasonable to anticipate a meaningful rebound in the RV end market at this point in the RV season.

Although the fourth quarter impact of these items on our full year outlook is not as significant as it was in the third quarter in proportion to the size of the quarter up in our fiscal year due to some improvement and benefit of certain cost reductions, the reasonable expectations for their impact in the fourth quarter is another approximately $26 million. The combination of our third quarter adjusted EBITDA mix plus the anticipated mix from these same issues in the fourth quarter totals approximately $50 million of second half impact, resulting in our updated guidance range of $100 million to $110 million. On a positive note, approximately 2/3 of this adjusted EBITDA reduction is unrelated to end market demand, and we believe our return to prior profitability levels for these F&E businesses is within our control.

Turning to the balance sheet and cash flow results for the quarter, which is a significant positive. Net cash provided by operating activities in the third quarter 2019 was positive $61 million compared to our use of cash of negative $13 million in the third quarter of 2018. This significant $74 million increase in cash from operating activities over the prior year quarter was due to the company's ongoing focus on efficient management of net working capital in addition to the sale of targeted excess inventory, which included completed inventory, some of which was left over from a supply chain disruptions in late 2018. Our net increase of inventory within the third quarter includes an increase of working process against our backlog in these -- in the large municipal orders. Net debt at July 31, 2019, was $399 million. And our net leverage ratio was 3.3x reflecting over $50 million of net debt reduction within the quarter. We now expect $70 million to $80 million of cash from operations and over $25 million of cash flow for the full year from other initiatives. Due purely to the lower EBITDA forecast over the near term, not any liquidity or interest coverage issues, we now expect our year-end net debt to EBITDA ratio to end in a low 3x range, which is still below our covenant maximum. Having said that, we believe we have strong partnerships with our lender group. We will be proactive managing the situation as appropriate, and our long-term net debt to EBITDA target remains at 2x or less, and we plan to continue to pay down debt as we strive to improve EBITDA through the fourth quarter and into fiscal 2020.

With that, I'll turn the call back to Tim for some closing comments.

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [5]

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Thanks, Dean. Maybe to help with understanding the magnitude of the dollars involved, it's good to know that approximately 25% of our 8,000 employees work in these 2 facilities, so clearly these are the 2 largest facilities in our entire portfolio, and they happen to create these issues at the identical time. Once again though with the exception of RV, we believe we have strong tax base markets. The good news is that we are ramping our manufacturing capability to deal with record backlogs. Most people will say that, that is a good problem to have. True. However, we need to be better with our execution in meeting that demand. This has been particularly exacerbating the current markets in the challenges presented by the tariffs, but we still need to manage through it better as we have in the recent past.

We have mentioned many times that 10% EBITDA margin is the target for individual businesses and REV as a whole. And it's been almost 3 years since our IPO, we're behind at this goal on a consolidated basis. Many of our businesses are performing above that level, and I would like to recognize them for the good work that they're doing. Nevertheless, it is time to take another look at those businesses where a near term path of this target is not yet apparent.

With that, operator, I'd like to open up the line to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Jerry Revich with Goldman Sachs.

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Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [2]

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Tim, I want to just continue the discussion along the last comment that you made. The areas that you folks are working hard on seem to be core parts of the portfolio in terms of businesses that aren't performing well now. So how big is the part of the portfolio that you're evaluating whether it's a strategic fit? It doesn't sound like it's the businesses that we're working through now based on the fit within the business model. But I just want to get your comments on that to make sure we're thinking about it the right way and understand what's the magnitude of portfolio that you are looking at for potential divesture?

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [3]

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It's really 2 areas. They are pretty clear. We have a type A RV that is not at the 10% level, and with our other segments performing at that level and it is shuttle bus. Those are the 2 specific areas that right now are lagging to our goal.

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Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [4]

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Okay. And then on the fire truck side at KME, can you talk about, as you're making that transition to go bigger manufacturing footprint, what are you finding as you make that transition on the product development side. I guess when we've seen plant consolidation and plant moves in this -- in the fire truck industry in the past. It's been tougher to get institutional knowledge on the floor in terms of all the custom made components and how they fit together?

I'm wondering if you can comment on how that part of the transition is playing out. And whether that's impacting the cost structure that we're seeing this quarter and into next quarter?

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [5]

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You hit nail on the head. We're really talking about the E-ONE facility in Ocala, Florida which is, by far, our largest fire apparatus plant. That's exactly the issue, Jerry, we're trying to bring in a lot of new people, and it's very difficult to have them ramped to the expertise, the level of expertise, we need them to be productive. Having said that, we've been at this now for a few months, and we are starting to see some light at the end of the tunnel. But you hit the nail on the head, that's exactly what the issues are.

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Dean J. Nolden, REV Group, Inc. - CFO [6]

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And Jerry, may be to put that in a little bit of context. It's a couple hundred additional employees over previous levels on a base of approximately 700 direct labor employees in that facility, so it's a pretty large magnitude.

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Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [7]

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And you know the way we've seen this issue addressed in the past or most recently that a competitor of yours has been to really reduce all production rates lock in the process and then ramp back up. Is that part of the thinking here? Or the customer delivery requirements making it tough to take that path to write the ship here?

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [8]

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Yes. It's -- the good news is, the customers that expect our product, and they've been instantly really patient with us. Obviously, it's not easy for them because when they get the money need to spend it. But I think the other thing that they appreciate to a high level is the fact that we will not ship an inferior-quality product, and I think they're willing to wait. I've met with a couple of customers here just recently. They were not happy that we were late, and in one instance is where we were 2 months late. But he complemented me on the level of quality that we're producing, he says, never been any better. So they've been patient. We got to pick it up though. I mean where -- our backlog is now approaching 16 months, which is way too long.

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Operator [9]

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Our next question comes from the line of Stephen Volkmann with Jefferies.

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Stephen Edward Volkmann, Jefferies LLC, Research Division - Equity Analyst [10]

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I guess I wanted to just try to step back here a little bit and try to understand what's going on in the sense that, obviously, companies have issues here and there. And they sort of address them, and it sounds like you are doing that in some cases.

But they just keep coming up. And Tim, it just feels like you don't have the reporting processes in place or maybe the people. And how does this stuff just keeps coming up? I mean 90 days ago, we had a very different message from you guys, and obviously, things have really gone off the rails during the quarter. And I'm just -- I don't understand how that can change that quickly, and that it seems like you guys just don't have the sort of feedback you need to stay on top of this stuff. I don't know if you can address that. But…

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [11]

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Steve, it's a fair comment, obviously. When we were sitting here on the first week in June, we were laser focused on material demand and material lead time, not believing that the ramping up at E-ONE and sustaining the labor at REV will -- would not write itself during the third quarter, let alone the fourth quarter. It's a fair comment. I mean we got to get better at execution, we got to get better at looking in to see what's coming at us. I think in matter of respect, we thought we had some light at the end of the tunnel with E-ONE.

We have been at it for 6 months, and we were making progress. I don't think there's a person in this company that really fully appreciated the fact that we were not going to get through the production levels in the third and fourth quarter because we've always got there before. The problem is that this was a massive increase in capacity. And I mentioned in my remarks, this is something difficult in normal times, let alone times that we're in right now.

We're battling 30% labor turnover on average in our plants right now, and that's not normal. And that really has to do with the fact that labor market's incredibly tight. So every time you train somebody and they're there for a couple of weeks, now they are gone, and as you try to ramp your production, you're bringing people that don't know anything about the work you are doing so you starting from scratch. It's just a tough situation. Your point's well taken. I mean you get to the point where you say, when you guys going to get on your game?

We've had 2 years in a row now. Last year, with -- where we looked at the material side of the tariffs. This year the labor side and just other delays. We got to get on top of it, and we're dedicated to get that done.

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Stephen Edward Volkmann, Jefferies LLC, Research Division - Equity Analyst [12]

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So I guess -- I mean you talked about things may be starting to improve through the fourth quarter and getting better in 2020. But how do you have any confidence in that?

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [13]

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Well. We talked about RPS, right? And that's a fairly new phenomenon for us that started -- Ian Walsh and his team attacked the Commercial segment last year.

Last year about this time they started the process. And you can see how that has stabilized and done extremely well. We believe in the process. We think it's going to have a very positive effect on not only commercial going forward but obviously, Fire & Emergency. And it starts to address your concerns or the things that you've raised. We need to know daily what's happening on their production floor, and these people have to have goals set and hit targets. And those disciplines have really not been in these businesses that we bought, especially vehicle businesses they're not -- as we talked, they're not very sophisticated. We got to get them a lot more sophisticated, and we're very encouraged by the results of RPS in Commercial. It's done really well in a fairly short period of time.

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Stephen Edward Volkmann, Jefferies LLC, Research Division - Equity Analyst [14]

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Okay. And have you changed any of the incentives programs around how people get paid? Or the other opportunity for job security, I guess, relative to hitting these targets?

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [15]

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Yes. We actually broke it down into finer detail. We used to have -- when we first started 3 years ago -- I guess it will be 4 years in November as being REV, it was a pretty broad incentive plan where we had to hit certain global targets for the company. This thing is now being broken down, and it's been broken down into quarters, months and weeks. So these guys have week -- weekly targets that they need to hit. We can see what's happening. The problem is it's very exasperating to attack them when it gets down to labor situation. Material, as crazy as it was last year, the chassis and material lead times, that sort of thing, you can kind of -- you can see that coming, you can kind of, muscle through it. Labor is like mercury. I mean you got -- they're today, they are gone a mile. You got 10 under training as welders, and by the end of next week you got 2 left. We will get that stabilized, and we're looking at different ways to incent retention, just because the market we're in right now, we've never had to do that before. We had very experienced workforces. And as we ramp and increase our production capability, we have to figure out how to retain some of these new employees.

The good news is the longer serving employees, the more experienced employees, they're sticking with us. Those aren't the people that we're having a problem with. The problem is when your increase in your labor in 1 plant by 38%, and you are fighting a 30% of retention issue, that's a tall order. I will get there.

I mean we're absolutely convinced that we will get there. But we got to prove it. We haven't -- that the last 2 years -- and I don't want to use the tariffs as an excuse. But it's been hard enough to, kind of, grow this business and manage it as an operating company as REV without having that anchor around our neck as well trying to reach our goals. It's not an excuse. We will get there.

I think with RPS, we will get there with some new incentive programs that we're going to introduce here in about 6 weeks for the new fiscal year, and after demonstrate it.

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Operator [16]

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Our next question comes from the line of Mig Dobre with Robert W. Baird & Co.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [17]

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Just to sort of follow up on the questions already asked. I'm just trying to understand, kind of, what's going on in Fire & Emergency. If I look at your implied revenue guidance, you haven't adjusted that a whole lot. So the way I'm, kind of, interpreting it is the shipments that are coming out of this segment, well seem to be, kind of, materially different than what you were thinking, but obviously, the costs are.

I understand that you're talking about labor as being an issue. The part that I'm not quite clear on is are you essentially seeing a lot of labor turnover, and if so does that mean that these newer employees are coming on board, and they are not as efficient, shouldn't that result in lower production schedules as well? Or is it that it simply takes more man hours just to get the product done? I'm not quite clear as to exactly what's happening here? And maybe to Jerry's or rather Steve's question, how do you gain the comfort that you can resolve this problem within follow the next 3 months or so?

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [18]

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There are 2 different issues. They are both labor related. In the instance of the ambulance, we basically started the new year with a very meager, small backlog. And we decided to hold that labor, retain it to the full extent possible, just for the fact that we had to retain we felt our more experienced workers because we felt -- because we are in municipal tax based revenue. We would eventually get that backlog.

We did get that backlog, and now as we go into 2020 our ambulance business in Orlando has got a nice backlog. We retained the labor, and that will self-heal itself as we move into the new fiscal year. The orders that we got were just too late to really affect the fourth quarter, actually half the third quarter, the fourth quarter. So that was carrying in a higher expense than we really thought we were going to when we give the guidance back the first week of June.

E-ONE is a whole different situation. We're approaching a 16-month backlog. We're trying to significantly ramp the capability of that plant, and that is really the inefficiencies of the workforce. So it's not holding and retaining people waiting for new business to come, which was the situation in ambulance. This is a much more complicated problem. We're teaching people how to build fire trucks, and these are people who have never done it before. They'll be good employees over time. We'll hit our marks over time. But if you ask me my confidence and give you a date when Ambulance is going to turn around, I can tell you. We're not starting to hit the stride immediately as we move into fiscal 2020. It's going to be a ramping-up effect, Ocala, just for the fact that we got to retain these people, train them and make them productive.

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Dean J. Nolden, REV Group, Inc. - CFO [19]

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And maybe I can also provide a little bit of context on the bridge that we provided on Slide 9 where we talk about $12 million of the third quarter being Fire related, about half of that is volume and about half of that is labor.

So even though, we're producing and shipping units sequentially and year-over-year they are pretty consistent. We did have goals and targets at a higher level to start to bring our backlog into a shorter time frame. So -- and we're short by about 15% or 40 units versus where we thought we'd be year-to-date on the third quarter -- sorry, third quarter in Fire. And that provides about half of the mix from the standpoint of the EBITDA. The other piece -- the other half is labor, and if you think about the couple hundred employees that we had, and they are not efficient and over $30 per hour, kind of, fully burn rate and then the remaining employees being almost 20% inefficient as they help to integrate and train the new employees, the numbers, kind of, climb pretty quickly. And that's the other half of that $12 million.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [20]

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And then you mentioned Ian Walsh earlier, Tim, he has been on the job now about a year as Chief Operating Officer. I guess I'm wondering 2 things. 1, what kind of work is he doing? Or what is his view as an operating officer of this feedback loop as it's been described in the -- for previous question and the improvements that you need to be potentially making there to have better control on the business.

And then second, how are you approaching his deployment in terms of next things to tackle because clearly your biggest businesses are the ones that are currently hurting. And it seems to me like there's a lot of meat on this bone rather than commercial at this point.

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [21]

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Well. He's sitting right next to me so I'll let him answer for himself.

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Ian K. Walsh, REV Group, Inc. - COO [22]

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Good morning. I think it's the right question. And as Tim described, the focus of main effort started with commercial, was our worst performing segment last year. There was a lot of opportunity that we went after, and we talked and architected what Tim described as our new RPS, and I'm happy to talk a little bit about what the components are of that. But I think to your point, the focus right now is shifting pretty dramatically over to Fire & Emergency.

We didn't anticipate, I think, the timing issues that are plaguing them today, my team, myself. I'm spending literally all of my time with those teams and bring together the plans that we need to have execute against not just the remainder of the quarter. But more importantly, serving themselves us for success in 2020.

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Operator [23]

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Our next question comes from the line of Chad Dillard with Deutsche Bank.

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Chad Dillard, Deutsche Bank AG, Research Division - Research Associate [24]

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So just trying to understand lots of puts and takes on F&E side. Most importantly just -- I guess your view on how the piece of margins improvement progresses over, let's says, the next 3 to 9 months. It sounds like a lot of it has to do with E-ONE facility and the labor issues. So I just want to understand from your perspective how long does it take for labor to ramp up to like optimal productivity?

And how far away are we from that baseline?

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [25]

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Yes. Well. Dean is going to answer financially with some numbers here. But we clearly think that we will be hitting stride as we approach the second quarter of 2020.

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Dean J. Nolden, REV Group, Inc. - CFO [26]

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And I would say that from the standpoint of Fire & Emergency and profitability and volumes implied in our guidance for the fourth quarter, it's, kind of, a sequential flat quarter in F&E. Although, we're going to strive to beat that, we don't want to assume that's going to happen at this point given where we are in a year. And -- so therefore from a margin and a -- in a revenue perspective, new year probably is pretty flat, fourth quarter compared to the third quarter with opportunity and goals to beat that. But we're at this point not projecting that until early fiscal 2020, and as Tim talked about we've seen in the ambulance business, particularly, larger units that we talked about, we do have that contract. We are starting to see the purchase orders. Those will go on our backlog, and then will start to help us absorb that labor in that ambulance business, starting immediately next year as we deliver those products. So we'll see a ramp-up in margins in Ambulance much quicker than Fire because of the proximity of that order. And if you remember, Fire & Ambulance are roughly 50-50 in terms of our total segment.

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Chad Dillard, Deutsche Bank AG, Research Division - Research Associate [27]

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That's helpful. And then on the REV Production Systems opportunity. I know you've gotten some good improvement on the commercial side. So maybe could perhaps just quantify how much that was? What sort of overlaps in terms of -- or come in terms of the problems are you seeing vis-à-vis the Fire & Emergency group? And how big of an opportunity you see for margin improvement and over what time frame?

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [28]

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Maybe I can start from the standpoint of what we're seeing in commercial, and I'll let Ian follow up on that in the benefits of RPS. I think, first of all, we don't want to say that that is the all end of the results we've seen because obviously there's a lot of good product, people and processes currently in place and the mix has helped us. But the RPS has provided the stability and the predictability on the plans and the accountability that it takes or took to increase the production at 2 of our largest facilities. Our transit bus and our most -- more profitable as well as transit bus facility and our school bus facility that have approximately doubled or more than doubled their output since 2018.

Now you can say that, that was kind of a mix benefit. But in comparison to Fire who's also trying to increase their output, we had relatively fewer hiccups. There are a lot of things going on, a lot of things to manage, but you can see that the benefits of just that predictability and the tools and processes that are put in place to make sure that happened in the due course as we expected. That was the benefit of RPS in Commercial this year-to-date so far. Anything else?

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Operator [29]

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Our next question comes from the line of Andrew Casey with Wells Fargo Securities.

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Andrew Millard Casey, Wells Fargo Securities, LLC, Research Division - Senior Machinery Analyst [30]

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A few questions on the cash flow guide. First, we expect all of that other $25 million, the cash generated from other sources outside of operating cash to occur in the fourth quarter. If so, it kind of looks like the Q4 debt reduction should be about $50 million to $60 million to get to that low 3x leverage range. Are those correct assumptions?

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Dean J. Nolden, REV Group, Inc. - CFO [31]

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Yes. You are correct. Year-to-date on our opportunities for cash reductions outside of regular cash flow were right on pace. We've got most of it in through the third quarter. So there's a bit left to go in the fourth quarter that will help us. But your estimates are pretty accurate.

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Andrew Millard Casey, Wells Fargo Securities, LLC, Research Division - Senior Machinery Analyst [32]

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Okay. And then separately, the guide -- again, the cash flow guide, it seems to imply Q4 working capital benefit is going to be about half of the Q3 benefit? I'm just wondering, what's driving that. And does it impact any of the normal seasonality as we look into next year?

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Dean J. Nolden, REV Group, Inc. - CFO [33]

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This will be -- you're correct in that, and typically at the end of the fourth quarter or in the past, there has been a much bigger reduction in inventory and working capital. Given the status of our backlog, especially in F&E, the opportunities that are in front of us, starting in fiscal 2020, to increase our throughput to required levels in Fire and to start delivering on those larger contracts in ambulances. We have our little bit higher inventory at the end of this year than we would in a typically year-end. So it would be something that's setting us up for continual year-over-year seasonality difference and change on a permanent basis. I think the circumstances today, we'll have a little bit more in inventory at the end of the year. But still projecting a positive cash from working capital in the fourth quarter.

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Andrew Millard Casey, Wells Fargo Securities, LLC, Research Division - Senior Machinery Analyst [34]

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Okay. And then lastly, there's been a lot of discussion on F&E. So I wanted to ask about the Commercial margin. The improvement year-over-year was good. But I'm wondering, how should we look at potential upside from a 9% that you did this quarter. Because if I look at it a little differently, the incremental adjusted EBITDA margin seems to moderate to 16 in change versus last quarter of about 43%. I'm just wondering, are we seeing the best that Commercial can deliver at this point? Or was there something in the quarter that impacted that incremental margin?

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [35]

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We are not seeing the best that Commercial can do because we get 2 businesses that are dragging us down, and that's the 2 shuttle bus businesses.

Those or the one that on our watch. The rest of them are all performing at very good levels, above the 10% EBITDA levels. So more improvement to come in Commercial. We're just getting started.

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Operator [36]

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Our next question comes from the line of Courtney Yakavonis with Morgan Stanley.

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Courtney Yakavonis, Morgan Stanley, Research Division - Research Associate [37]

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I just wanted to understand back on the F&E labor point. I felt that most of your hiring was done as of the second quarter, obviously, referenced to 30% churn rate. So is it fair to say that you guys are continuing to hire this quarter and into the fourth quarter? Or is this all done and it is just about training? And then secondly, on the capacity side. You mentioned the new facilities. Are those ready to go right now? And it's literally just training or is there still someone going there. And then I think also you've referenced increasing production from I think 7 trucks a week to 14. I think the target was supposed to be 10 by the end of this year. So kind of how should we be thinking about that weekly production rate in the first half of 2020?

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [38]

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Yes. Let me take one at a time here. I'll give you an example. In the third quarter, we hired 225 new people in Ocala to get 95. And those 95 are fingers crossed that we're going to retain them so the churn is really tough. It's -- you're going from a very stable workforce to 38% more bodies in those -- in that plant that have never touched the fire truck in their lives. So it's a big challenge.

As far as the footprint, we're in all 3 facilities up and running. I think our biggest challenge right now besides the labor side is making sure we smooth out the flow. We are debottlenecking some areas in the flow. Obviously, we got new footprint to overcome that. And having said all that, it sounds dire, but we actually really think there's some really good light at the end of the tunnel. I think Ian's team has been on the ground now for about 3 months, actually 3.5 months. And we're really making good progress. I think the good news about that too is some of the new players that are coming into play, they're embracing some of the new RPS practices. They actually like them, I think. And they like -- people like to know the right way to do things.

So as bad as it's been and as bad as it's going to be as we move through the fourth quarter here and burn through more dollars, I think we're positioned well. I think we will have some good positive news as we get into 2020.

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Courtney Yakavonis, Morgan Stanley, Research Division - Research Associate [39]

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Okay. Got you. And then on the recreational side, I think that's where you guys have actually decreased your outlook, not just for the As, but it sounds like also for some of the Towables and the Bs and the Cs.

So is it fair to say that in that segment you are adjusting your labor? Or are we going to see the same thing that you guys mentioned in Ambulance, kind of, retaining the labor since it's been trained.

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [40]

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Yes. No, I think, that's a great question because we have not in RV, just for the fact that we don't have good visibility into their market. It's one of the markets that's not as predictable as our other businesses which are tax base. We can see the business, it's in advance of us. We can see it coming, and we know which ones we're kind of going to get. We don't have that visibility in RV, so we have not retained labor to the extent that we have in our other businesses.

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Courtney Yakavonis, Morgan Stanley, Research Division - Research Associate [41]

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Okay. So the view is that this will be a more trend down turn on the recreation side?

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [42]

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Well. We're prepared for it. I mean it's been down all year, and quite frankly, the predictions for 2020 from RVIA are not very encouraging. So we think we have got everything right sized right now. We can react. We haven't cut so deep that we can't react to good business that might come up with this month at Open House. But we're low. We're quite a bit lower than what we were just even 3 months ago. So we're trying to find that right spot that we don't cut so deep that we can't react. If this thing looks like that it's going to be more protracted, we'll do some more trimming if we have to.

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Courtney Yakavonis, Morgan Stanley, Research Division - Research Associate [43]

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Okay. And then just lastly on Commercial, obviously, we saw some pretty decent sales growth there. But this was the first time that we had seen the backlog down year-over-year in a while. Just curious if you have any comment on that?

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Dean J. Nolden, REV Group, Inc. - CFO [44]

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On the backlog, we are aggressively and appropriately delivering on our larger LA County contract buses through the end of this fiscal year and into the first quarter next year. So that's the big focus for us, and that's been a big benefit for us, and hopefully, our customer as well. But we have good line of sight on transit bus market and projects. And believe that, that's just something we'll be filling up again fairly shortly with additional, kind of, base level business, large municipal contracts that are multiyear, so that's not an issue.

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [45]

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Yes. I think the -- again, stay tuned for news. We're at that point right now where we should be hearing on follow-on business from both Chicago and LA, and so it just, kind of, a timing thing. We don't announce, and we don't put them in backlog until we get firm, uncancelable business. So stay tuned. We're -- and watch that backlog number.

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Courtney Yakavonis, Morgan Stanley, Research Division - Research Associate [46]

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Okay. Got you. And then just lastly, you mentioned you did a critical supplier issues during the quarter. I don't think, Dean, that you called it out in the bridge. But just if you can quantify that? And which side has impacted the most?

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Dean J. Nolden, REV Group, Inc. - CFO [47]

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Yes. That is in the bridge. That's, kind of, in that other. It's not huge, but it was enough to, kind of, move the needle slightly. It was in some areas in the shuttle bus business. Some of them were in our control, some of them were not. But again we don't want to overemphasize. It's not huge but it does -- did provide some disruption.

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [48]

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And the shout out through our source in people. They've been unbelievable for last 12 months, and they mitigated that the full extent they could in the quarter. And I think we'll be better off here in the fourth quarter. I guess the point we just wanted to make is we're not over it. And just what do you think it's good to come out from the bunker, there's more tariffs thrown out into the marketplace. And the new way will affect us to some extent probably not as much as last year. But our sourcing team are standing on top of it, but you know what, when I look at the U.S. market and the fact that it only took the material suppliers 12 months to get their lead times back into line, that's pretty amazing. They're doing the best they can. It's just -- it's challenging.

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Operator [49]

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Our final question from the line of Joel Tiss with BMO Capital Markets.

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Joel Gifford Tiss, BMO Capital Markets Equity Research - MD & Senior Research Analyst [50]

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So just -- I mean I think a lot has been asked and answered. And can you update us on your parts initiative? I guess you got to put that on hold a little bit while you got all these other issues to work through?

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [51]

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No. We should put that as a positive, Joel. We're up, again, year-over-year 10%. And we're not setting the world on the fire, obviously, but we'll take it. And I think the team's doing a really nice job. We have some real pockets of excellence there where it's above the 10%, but the average is 10%. We did as much as 18% in some of the segments. So the initiatives are not on hold. They are full speed ahead, and we're making good progress.

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Operator [52]

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Thank you. There are no further question at this time. I would like to turn the call back over to Mr. Sullivan for closing remarks.

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Timothy William Sullivan, REV Group, Inc. - CEO & Director [53]

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Well, thanks, again, everyone for joining us today. Obviously, this is another year, another tough years for us. This is not usual for anyone of us. We're all experienced. We've been in this business of manufacturing things for a long time. We really felt, obviously, with the comments we made in the second quarter that we were through a lot of the worse situations that we could face with the tariff situations.

It's just you can't ramp easily in this environment right now. It's hard enough just to retain, let alone ramp. And we -- and the question earlier, why didn't we see it coming? Maybe we should have. We're dealing with it. It's something we use to ask your patience as we ask our customers to be patient. We'll get there. We know we can, and we will. I think that a lot of the things that we're dealing on the RPS side of the business are going to bring some tremendous benefits as we go into 2020.

Again, thanks for joining us today. Keep the faith, and we'll talk to you again in December.

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Operator [54]

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Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.