Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Specialty Vehicles segment achieved an adjusted EBITDA margin of 10.3% in the third quarter.
- Ambulance business continued to benefit from increased line rates and improved efficiencies.
- Fire group saw operational improvements and increased throughput, contributing to higher profitability.
- Consolidated backlog of $4.4 billion, led by strong inbound orders for fire and emergency vehicles.
- Net debt to trailing 12-month adjusted EBITDA ratio was just below 1x leverage, indicating a strong financial position.
Negative Points
- Consolidated net sales decreased by $101 million compared to the third quarter of last year.
- Recreational vehicle segment faced a 31% year-over-year decline in net sales due to lower unit shipments and increased discounting.
- Terminal truck sales were lower than the previous year, contributing to a drag on overall performance.
- Dealer reluctance to replenish inventory in the RV segment led to deferred deliveries and lower sales.
- Ongoing challenges in the recreational vehicle end market due to discretionary purchase delays by consumers.
Q & A Highlights
Q: Nice performance in specialty vehicles. Amy, can you unpack the fire and emergency portion of the performance? What was the bridge for the year-over-year margin improvement? How much was pricing, inflation, and productivity?
A: If you look at legacy F&E specifically, revenue grew mid-teens, with about 60% of that growth from price mix and 40% from volumes. We largely offset inflationary costs and saw significant year-over-year EBITDA margin growth in the legacy F&E business, with over 100 basis points in EBITDA margin growth from the second to the third quarter.
Q: Regarding the book-to-bill on units versus revenue, can you break down the 30% difference between content and pure price?
A: While we have a lot of custom units, we are also introducing semi-custom units like the S-180. I don't have the exact breakout, but the 1.3x book-to-bill in F&E is a mix of content and price.
Q: Can you give an update on RV dealer inventories versus prior peaks and troughs?
A: Dealer inventory is down 20% from the calendar year, approaching pre-COVID levels. Retail sales are outpacing wholesales, but dealers have been reluctant to place new orders. We are managing costs and production schedules to align with demand.
Q: Can you expand on the margin conversation, particularly within specialty vehicles? What is the expected margin expansion for the next few quarters?
A: We expect low single-digit growth in EBITDA dollars and slightly higher EBITDA margin percentages from the third to fourth quarter. We aim to maintain double-digit margins in specialty vehicles into 2025, with mid-single-digit pricing increases to offset inflationary headwinds.
Q: On the RV side, can you discuss discounting and competitive dynamics?
A: We are participating in discounting, which has driven revenue drops. However, as dealer inventory health improves, discounting on new units has reduced. We continue to manage costs and production schedules to align with demand.
Q: Can you remind us where we are in the process of winding down ENC and its impact on revenue and EBITDA?
A: ENC contributed around $40 million in the quarter. We are ahead of schedule and expect to complete the wind down early in Q4. ENC was accretive to overall EBITDA margins in the quarter.
Q: What is the outlook for terminal trucks beyond fiscal '24? Are we at a trough, and what are the current margin levels?
A: We are at a normal trough in the cycle, especially coming into an election year. Terminal trucks are a mid-single-digit margin business going forward.
Q: In recreation, can the $150 million revenue be sustained, or should we expect production cuts in fiscal '25?
A: It's hard to call, but we are flexing costs and production schedules to align with demand. We will adjust as needed based on orders and market conditions.
Q: What inning are you in regarding production rates and efficiency improvements in F&E?
A: Ambulance production is at or above pre-COVID rates. Fire is catching up, with more focus on efficiency rather than capacity. We exited Q3 with double-digit margins and expect to maintain that in Q4.
Q: Is there a significant margin difference between custom and standardized trucks?
A: There is no material margin difference between custom and semi-custom trucks like the S-180. Both types are performing well in the market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
