REV Group Inc Q4 2024 Earnings Call and Investor Day Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Mircea Dobre - Baird - Analyst : Mark and Amy, congratulations to you and the REV Group team. I guess, where I would like to start, Mark, is to get some of your thoughts on where the company is from an operating standpoint. I remember when we were having a similar conversation three years ago, you really talked a lot about simplification, you talked a lot about some of the in-plant operating improvements and the heavy lifting that sort of had to be done. The way I interpret your presentation today is you're essentially saying that what had to be done, the heavy lifting is basically behind you and now you're switching to a more normalized operating environment. If I'm wrong about that, please correct me, tell us what's still left to be done. And the follow-up to this is if you're now in a more normalized kind of operating mode, is it fair to say that you are to the point that you can pivot towards M&A a little more aggressively than we've been able to do in the past? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 11, 2024 / 3:00PM, REVG.N - Q4 2024 REV Group Inc Earnings Call and Investor Day

Question: Mircea Dobre - Baird - Analyst : And on the bandwidth question for M&A, is this something that you're contemplating still one to two years down the line? Or is this something that in your mind can be a little more imminent than that?

Question: Mircea Dobre - Baird - Analyst : Yeah, that part is understood. What does the right opportunity look like? And I'm not just talking about the financial profile here, although maybe it would be helpful to understand how you think about that. I'm thinking more in terms of fit because when I'm looking at ambulance, when I'm looking at fire, it seems like from what I can tell, the opportunity there is pretty limited given the concentration in the industry at this point. So what would you be considering potentially adding to the portfolio?

Question: Mircea Dobre - Baird - Analyst : That's helpful. And maybe last question, and I'll get back in the queue. When you look at your existing portfolio, you've obviously done quite a bit of surgery in '24, do you see additional room to adjust to divest or do anything else there?

Question: Michael Shlisky - D.A. Davidson Companies - Analyst : The very strong book-to-bill recreation certainly looked good in the quarter, and it sounds like the additions there may be kind of hitting the bottom. But with order trends, like you noted, it's a little bit surprising that you're assuming a flat year and not at least a little bit of growth here in '25 in the recreation business. Can you give us a couple of just kind of puts and takes as to kind of what you're seeing in that business for '25 given. The orders that you've already seen so far, why we would not see growth there? Or maybe it's just that December is the wrong time to start talking about growth, and we'll see how it goes in the spring --

Question: Michael Shlisky - D.A. Davidson Companies - Analyst : Okay. Super. And also, look, the other things you've outlined here looks very solid here. Can you comment on some of the risks that you're just keeping in mind as you go forward over the next couple of years. One that came into my mind was the impact of tariffs. I wasn't sure if fire vehicles were exempt from tariff impacts or are less impacted than, let's say, automobiles or other kinds of trucks. Just some thoughts though about what you are watching to make sure that you can follow through on all these projections here. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 11, 2024 / 3:00PM, REVG.N - Q4 2024 REV Group Inc Earnings Call and Investor Day

Question: Michael Shlisky - D.A. Davidson Companies - Analyst : Okay. Great. I wanted to follow up also on one of the mixed questions. If I got your comments right, Mark, are you trying to express when you talk about M&A candidates and what your plan is for M&A, that's the business system that you've kind of implemented over the last year or two at REV Group is one that you could maybe find an outside company and implement the same business system and improve a more challenged candidate? Or are you trying to buy someone that's kind of already an up and running smoothly and doesn't need to kind of help? I guess I kind of get a sense for how confident you are in your given business plan and what that might mean for an acquired company? Or is it just not going to be necessary?

Question: Michael Shlisky - D.A. Davidson Companies - Analyst : Okay. Okay. Maybe one last quick one for me. I'll pass it along. During the quarter, did your facilities in Northern Florida experience any hurricane impacts or other issues from weather? Or was that not a factor?

Question: Angel Castillo - Morgan Stanley - Analyst : Just wanted to start out maybe on the free cash flow front, the guidance, and I understand that it's greater than $350 million. But I guess when you compare that to what's kind of implied on an EBITDA basis, it seems to show kind of conversion that's below, what I guess, I would have expected or what you've kind of done historically. So can you just talk about maybe as you think about EBITDA and margins continue to expand, why your free cash flow wouldn't expand at a similar clip? And maybe what the kind of puts and takes and bridge there would be?

Question: Angel Castillo - Morgan Stanley - Analyst : Got it. So that 50% is kind of what you'd view as normalized once we get past this period.

Question: Angel Castillo - Morgan Stanley - Analyst : Okay. Okay. Perfect. That's helpful. And then maybe just to kind of build off of that, and I apologize. You've just given us fiscal year '25 through '27 targets, but I was hoping to talk a little bit longer term. You noted that we're seeing clearly a lot of benefit right now to F&E side and the specialty front from whether it's [IJ] or a number of other kind of government stimulus plus replacement cycles. So as you get to the normalization of your backlog and, call it, fiscal year 2028 and beyond, can you just remind us from a historical standpoint, what does that look like once the replacement cycle is over? Is there typically a bit of a lull, you would kind of expect to pause? Or it sounds like from your slides, you'd expect maybe a continued steady growth from there. But just given the strong clip and the strong kind of orders that we've seen, would there be an anticipation of a bit of a slowdown before we get to kind of a normalized type of volumes, margins? Like what is kind of (technical difficulty) what's the mid-cycle for specialty?

Question: Angel Castillo - Morgan Stanley - Analyst : And maybe just to kind of fine-tune that, I guess, is that what you've seen historically? Or as you think about kind of the -- that normalization, again, just kind of from a GDP plus, just given the replacement cycle being so long in nature, [pumpers] kind of 14, 16 years. I just want to understand like, is that then what the age of vehicles and historically, what you've seen in terms of normalizing to that kind of GDP plus?

Question: Angel Castillo - Morgan Stanley - Analyst : Got it. And then maybe just one last one for me. The fiscal year '25 EBITDA range, it seems to be wider than normal, the $190 million to $220 million. Can you just help us understand the two bookends like what is kind of contemplated at the $190 million level versus the $220 million across two segments?

Question: Mircea Dobre - Baird - Analyst : Just two quick ones for me. On the specialty vehicles margin bridge that you've given us on Slide 13, the 300 to 400 basis points of price cost, do you view that as permanent. So the 14% to 16% margin in fiscal '27 is that a structurally higher margin? And I guess the way I'd like to ask the question, the 300 to 400 bps of price cost, is that just a function of kind of a onetime benefit that you currently have in the backlog just because of how unusual maybe like the pricing environment has been over the past couple of years? Or do you think that's structurally sustainable longer term?

Question: Mircea Dobre - Baird - Analyst : Helpful. And lastly, on the buyback authorization, how do you -- or rather, what's the approach here in terms of how you deploy this capital? Are you sort of being programmatic just kind of being consistently in the market? Or is this more of a function of being opportunistic depending on what the stock does and so on.