REV Group, Inc. Reports Fiscal 2019 Second Quarter Results

Company achieves growth in organic net sales and backlog

  • Net sales of $615.0 million grew one percent compared to the prior
    year quarter
  • Net income of $5.6 million was lower than the prior year quarter due
    primarily to higher interest expense, and adjusted net income1
    of $15.2 million was flat compared to the prior year quarter
  • Adjusted EBITDA1 of $36.1 million increased 6.2% compared
    to the prior year quarter
  • Year-to-date net cash used in operating activities was $39.2 million
    compared to $43.8 million in the prior year period, a 10.5 percent
    improvement
  • Total backlog of $1.4 billion as of April 30, 2019 is up 9.5 percent
    year-over-year and slightly higher sequentially versus first quarter,
    2019
  • Subsequent to quarter end announced a new contract with Fire
    Department of New York (FDNY) to provide approximately 400 ambulance
    units over 5 years and an approximate contract value of $160 million
  • Repurchased 495,475 shares under the Company’s share repurchase
    authorization during the second quarter for total consideration of
    $5.3 million
  • Company adjusts fiscal year 2019 expectations for net income but
    reiterates its expectations for net sales, adjusted net income,
    adjusted EBITDA, and net cash provided by operating activities

MILWAUKEE–(BUSINESS WIRE)–REV Group, Inc. (NYSE: REVG), a manufacturer of industry-leading
specialty vehicle brands, today reported results for the three months
ended April 30, 2019 (“second quarter 2019”). Consolidated net sales in
the second quarter 2019 were $615.0 million, an increase of 1.0 percent
compared to $608.9 million over the three months ended April 30, 2018
(“second quarter 2018”). The increase in consolidated net sales was
driven by continued sales growth in both the Commercial and Recreation
segments, which was partially offset by lower net sales in the Fire &
Emergency (“F&E”) segment.

“Our results through the first half of fiscal 2019 were generally
in-line with our expectations. The actions we took over the last several
quarters to improve our focus on organic growth and profitability are
contributing to better results in most of our businesses,” said Tim
Sullivan, CEO REV Group, Inc. “We continued to experience order growth
across most of our product categories, which resulted in continued
strong backlog levels in both our F&E and Commercial segments and
positions us well for the remainder of the year. We believe the material
and chassis supply disruptions experienced in fiscal year 2018 and
through the beginning of the most recent quarter are now behind us. Lead
times have improved, with some returning to historical levels, which has
allowed our supply chain to stabilize. In addition, our continued focus
on improving working capital efficiency and debt reduction resulted in
improved, year-to-date cash used in operating activities and free cash
flow was significantly better than the prior year. We remain on track to
meet our full fiscal year 2019 objectives.”

The Company’s second quarter 2019 net income was $5.6 million, or $0.09
per diluted share, compared to net income of $7.4 million, or $0.11 per
diluted share, in the second quarter 2018. The decline in net income was
primarily due to higher interest expense. Adjusted net income for the
second quarter 2019 was $15.2 million, or $0.24 per diluted share,
compared to adjusted net income of $15.5 million, or $0.24 per diluted
share, in the second quarter 2018. Adjusted EBITDA in the second quarter
2019 was $36.1 million, compared to $34.0 million in the second quarter
2018. The increase in consolidated adjusted EBITDA was primarily due to
improved earnings in the Commercial and Recreation segments offset by a
decrease in the Fire & Emergency segment.

REV Group Second Quarter Segment Highlights

Fire & Emergency Segment

Fire & Emergency (“F&E”) segment net sales were $247.1 million for the
second quarter 2019, a decrease of $4.9 million, or 1.9 percent,
compared to $252.0 million for the second quarter 2018. The decrease in
net sales was primarily due to delayed shipments of fire trucks, which
were associated with inefficiencies related to the Company’s actions to
increase capacity at two of the Company’s production facilities. Net
sales of ambulances were roughly flat compared to the same period last
year. F&E backlog at the end of the second quarter 2019 was up 11.2
percent to $786.5 million compared to $707.5 million at the end of
fiscal year 2018 and was up 6.5 percent sequentially compared to the
first quarter of 2019. The FDNY contract was awarded post second quarter
2019 and is additive to the backlog.

Second quarter 2019 F&E segment adjusted EBITDA declined to $15.1
million, compared to $21.8 million in the second quarter 2018. Second
quarter 2019 F&E segment adjusted EBITDA margin was 6.1 percent of net
sales, compared to 8.7 percent in the second quarter 2018. This decrease
in F&E segment adjusted EBITDA was primarily due to the lower sales as
well as inefficiencies caused by the ramp up of fire truck capacity and
residual impact of material and supply chain issues on one ambulance
facility. However, while disruptive in the quarter, we believe our
capacity expansion positions the segment to capitalize on an expanding
backlog throughout the remainder of fiscal year 2019 and beyond.

“F&E results were below our expectations as our efforts to increase
capacity and ramp up production of fire trucks have taken longer to
implement than we anticipated. However, we made incremental progress
during each month of the quarter and believe we are now well positioned
to increase our production of fire trucks to capitalize on strong demand
and market conditions,” remarked Mr. Sullivan. “Additionally, our F&E
backlog continues to grow, which shows our strong competitive position
in these markets, and we look forward to seeing improvement in this
segment’s performance as the year progresses.”

Commercial Segment

Commercial segment net sales were $170.0 million for the second quarter
2019, an increase of $12.0 million, or 7.6 percent, compared to $158.0
million for the second quarter 2018. The increase in net sales was
primarily due to an increase in sales of school and transit buses, as
well as terminal trucks, partially offset by a decrease in shipments of
shuttle buses and the impact of the sale of our mobility van business in
the first quarter of fiscal 2019. Transit bus shipments relating to the
Company’s Los Angeles County contract began to ship in the second
quarter 2019. Commercial backlog at the end of the second quarter 2019
was $435.9 million, an increase of 14.3 percent compared to $381.4
million at the end of fiscal year 2018 and was up 2.0 percent
sequentially compared to the first quarter of 2019.

Second quarter 2019 Commercial segment adjusted EBITDA increased 54.7
percent to $14.7 million, compared to $9.5 million in the second quarter
2018. The increase in Commercial segment adjusted EBITDA compared to the
prior year period was primarily due to increased volumes of certain
higher margin buses, terminal trucks and the disposition of the
underperforming mobility van business. Second quarter 2019 Commercial
segment adjusted EBITDA margin was 8.6 percent of net sales compared to
6.0 percent in the second quarter 2018.

Mr. Sullivan commented, “The Commercial segment continues to perform in
line with our expectations and deliver improving results, as evidenced
by growing sales and profitability levels compared to last year. The
rebound of the segment’s sales mix back toward school and transit buses
as well as operational improvements across all our Commercial segment
businesses are helping us drive solid growth and improved profits. Both
school and transit bus operations have ramped up to meet increased
demand, and the performance of those business lines remains encouraging.
We also continue to observe strong demand across nearly all of the
segment’s product categories evidenced by the segment’s backlog growth.”

Recreation Segment

Recreation segment net sales were $199.7 million for the second quarter
2019, an increase of $0.9 million, or 0.5 percent, compared to $198.8
million for the second quarter 2018. The increase in net sales was
primarily due to increases in sales across the majority of the Company’s
RV brand lineup, partially offset by a decrease in sales of Class A
motorhomes. Recreation segment backlog at the end of the second quarter
2019 was $169.0 million, which was down 41.9 percent from $290.7 million
at the end of fiscal year 2018 and was down 25.0 percent sequentially
compared to the first quarter of 2019. The decrease in Recreation
backlog was primarily reflective of the softer Class A RV market.

Second quarter 2019 Recreation segment adjusted EBITDA increased 36.2
percent to $17.3 million, compared to $12.7 million for the second
quarter 2018. Second quarter 2019 Recreation segment adjusted EBITDA
margin grew 230 basis points to 8.7 percent of net sales compared to 6.4
percent in the second quarter 2018. The expansion in profitability was
attributable to higher volumes and improved profitability in the Class B
and Super C product categories as well as improved profitability in the
Company’s towables product line.

Mr. Sullivan commented, “While the broader RV market continues to show
softening, particularly at the wholesale level, demand for our Class B,
Super C, and towable brands remains in-line with the outlook we provided
earlier in the year. We continue to adapt to the changes in this market
and shifting our mix has helped to drive significant year-over-year
adjusted EBITDA improvement in the segment this quarter. We believe we
are well positioned in the market as the industry continues to adjust to
current demand levels and that our first-class brands and ongoing
performance improvements in this segment will support continued growth
in profitability.”

Net Working Capital, Liquidity and Cash Flow

Net working capital2 for the Company as of April 30, 2019 was
$459.6 million compared to $450.3 million at the end of the first
quarter and $415.3 million as of October 31, 2018. The increase in
working capital versus the prior year-end was primarily due to the
normal seasonal increase in inventory. Net working capital was
relatively flat sequentially as the Company continues its focus on
improvement in working capital efficiency.

Capital expenditures in the second quarter 2019 were $3.1 million
compared to $10.0 million in the second quarter 2018. This decline in
capital expenditures versus the prior year quarter was consistent with
the Company’s annual capital expenditure investment plan and reflects
lower capital spending in the current quarter on various information
technology systems.

Net cash used in operating activities in the second quarter 2019 was
$39.2 million, compared to $43.8 million in the second quarter 2018. The
reduction in cash used in operating activities over the prior year
quarter was related to the Company’s focus on efficient management of
net working capital. Although inventory was up over prior quarter, the
magnitude of the normal seasonal build was smaller than the comparable
period in the prior year.

Cash and equivalents totaled $6.5 million at April 30, 2019. Total debt
at April 30, 2019 was $461.8 million (net of deferred financing costs).
During the second quarter 2019 the Company exercised a $50.0 million
incremental commitment option under its term loan agreement, which
increased total borrowing under the facility from $125.0 million to
$175.0 million. Proceeds from the incremental commitment were used to
repay a portion of the outstanding borrowings under the Company’s ABL
Facility.

Fiscal 2019 Full Year Outlook

Mr. Sullivan concluded, “Our view of end market demand and macro
conditions remain generally favorable to our business. We are committed
to restoring operating efficiency across our business and believe we
will see continued improvement of results in the second half of the
year. We believe our current challenges relate to efficiently increasing
our capacity to address the strong demand in Fire and to navigate the
soft RV end market. Also, the new tariff announcements are generally
outside of our business, but given our experience over the last 12
months we have been staying ahead of possible raw material price
increases and believe we are well positioned to manage the potential
impact. As global supply chains have adjusted to the current tariff
environment and noise, we don’t expect a repeat of the material and
chassis hoarding that went on last year which was a large contributor to
our supply disruptions. With all these internal and external forces in
mind, we are reaffirming our full year guidance for fiscal year 2019
revenues of $2.4 to $2.6 billion, adjusted net income of $66 to $84
million, adjusted EBITDA of $150 to $170 million, net cash provided by
operating activities of $110 to $130 million, and capital expenditures
of $25 to $30 million. Based on actual results through the first half of
fiscal 2019, we are adjusting our guidance for net income to be in the
range of $31 to $51 million.”

Stock Repurchase Program

During the quarter ended April 30, 2019, the Company repurchased 495,475
shares under its repurchase program at a total cost of $5.3 million at
an average price per share of $10.77. As of April 30, 2019, the Company
had $41.3 million of authorization remaining under the program.

Quarterly Dividend

Our board of directors declared the regular quarterly dividend for our
second quarter 2019, payable on August 30, 2019, to holders of record as
of July 30, 2019, in the amount of $0.05 per share of common stock,
which equates to a rate of $0.20 per share of common stock on an
annualized basis.

Conference Call

REV Group, Inc. will host a conference call to discuss its second
quarter 2019 results and outlook on June 6th at 11:00 a.m. EDT. A
supplemental earnings slide deck will be available tomorrow morning on
the REV Group, Inc. investor relations website prior to the call. The
call will be webcast simultaneously over the Internet. To access the
webcast, listeners can go to http://investors.revgroup.com/investor-events-and-presentations/events
at least 15 minutes prior to the event and follow instructions for
listening to the webcast. An audio replay of the call and related
question and answer session will be available for 12 months at this
website.

About REV Group

REV Group, Inc. (NYSE: REVG) is a leading designer, manufacturer and
distributor of specialty vehicles and related aftermarket parts and
services. We serve a diversified customer base primarily in the United
States through three segments: Fire & Emergency, Commercial and
Recreation. We provide customized vehicle solutions for applications
including: essential needs (ambulances, fire apparatus, school buses and
municipal transit buses), industrial and commercial (terminal trucks,
cut-away buses and street sweepers) and consumer leisure (recreational
vehicles (“RVs”), travel trailers and luxury buses). Our brand portfolio
consists of 29 well-established principal vehicle brands including many
of the most recognizable names within our served markets. Several of our
brands pioneered their specialty vehicle product categories and date
back more than 50 years.

Note Regarding Non-GAAP Measures

REV Group reports its financial results in accordance with U.S.
generally accepted accounting principles (“GAAP”). However, management
believes that the evaluation of REV Group’s ongoing operating results
may be enhanced by a presentation of adjusted EBITDA and adjusted net
income, which are non-GAAP financial measures. Adjusted EBITDA
represents net income before interest expense, income taxes,
depreciation and amortization as adjusted for certain non-recurring,
one-time and other adjustments which REV Group believes are not
indicative of its underlying operating performance. Adjusted net income
represents net income, as adjusted for certain items described below
that we believe are not indicative of our ongoing operating performance.

REV Group believes that the use of adjusted EBITDA and adjusted net
income provides additional meaningful methods of evaluating certain
aspects of its operating performance from period to period on a basis
that may not be otherwise apparent under GAAP when used in addition to,
and not in lieu of, GAAP measures. See the Appendix to this news release
(and our other filings with the SEC) for reconciliations of adjusted
EBITDA and adjusted net income to the most closely comparable financial
measures calculated in accordance with GAAP.

Forward Looking Statements

This news release contains statements that the Company believes to be
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. This news release includes
statements that express our opinions, expectations, beliefs, plans,
objectives, assumptions or projections regarding future events or future
results and therefore are, or may be deemed to be, “forward-looking
statements.” These forward-looking statements can generally be
identified by the use of forward-looking terminology, including the
terms “believes,” “estimates,” “anticipates,” “expects,” “strives,”
“goal,” “seeks,” “projects,” “intends,” “forecasts,” “plans,” “may,”
“will” or “should” or, in each case, their negative or other variations
or comparable terminology. They appear in a number of places throughout
this news release and include statements regarding our intentions,
beliefs, goals or current expectations concerning, among other things,
our results of operations, financial condition, liquidity, prospects,
growth, strategies and the industries in which we operate.

Our forward-looking statements are subject to risks and uncertainties,
including those highlighted under “Risk Factors” and “Cautionary
Statement on Forward-Looking Statements” in the Company’s annual report
on Form 10-K, and in the Company’s subsequent quarterly reports on Form
10-Q, together with the Company’s other filings with the SEC, which
risks and uncertainties may cause actual results to differ materially
from those projected or implied by the forward-looking statement.
Forward-looking statements are based on current expectations and
assumptions and currently available data and are neither predictions nor
guarantees of future events or performance. You should not place undue
reliance on forward-looking statements, which only speak as of the date
hereof. The Company does not undertake to update or revise any
forward-looking statements after they are made, whether as a result of
new information, future events, or otherwise, expect as required by
applicable law.

Investors-REVG

1 REV Group, Inc. adjusted net income and adjusted EBITDA are
non-GAAP measures that are reconciled to their nearest GAAP measure
later in this release.

2 Net Working capital is defined as current assets (excluding
cash) less current liabilities (excluding current portion of long-term
debt).

REV GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
  (Unaudited)  
April 30, October 31,
2019 2018
ASSETS
Current assets:
Cash and cash equivalents $ 6.5 $ 11.9
Accounts receivable, net 281.5 266.9
Inventories, net 536.3 514.0
Other current assets   40.3   50.3
Total current assets 864.6 843.1
 
Property, plant and equipment, net 206.5 214.3
Goodwill 159.8 161.8
Intangibles assets, net 167.7 174.6
Other long-term assets   14.7   14.3
Total assets $ 1,413.3 $ 1,408.1
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt $ 1.8 $ 1.3
Accounts payable 196.5 218.1
Customer advances 123.8 117.8
Other current liabilities   78.2   80.0
Total current liabilities 400.3 417.2
 
Long-term debt, less current maturities 460.0 420.6
Deferred income taxes 23.2 19.9
Other long-term liabilities   13.5   18.0
Total liabilities 897.0 875.7
 
Commitments and contingencies
Shareholders’ equity   516.3   532.4
Total liabilities and shareholders’ equity $ 1,413.3 $ 1,408.1
REV GROUP, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except shares and per share amounts)
         
Three Months Ended Six Months Ended
April 30, April 30, April 30, April 30,
2019 2018 2019 2018
 
Net sales $ 615.0 $ 608.9 $ 1,133.7 $ 1,123.8
 
Cost of sales   542.6   536.0   1,015.0   998.4
 
Gross profit 72.4 72.9 118.7 125.4
 
Operating expenses:
Selling, general and administrative 48.6 48.8 96.3 89.7
Research and development costs 1.2 1.5 2.5 3.2
Amortization of intangible assets 4.6 4.3 9.3 9.1
Restructuring 1.8 1.9 2.9 6.0
Impairment charges   0.1     2.8  
 
Total operating expenses   56.3   56.5   113.8   108.0
 
Operating income 16.1 16.4 4.9 17.4
 
Interest expense, net   8.0   6.1   15.8   11.5
 
Income (loss) before provision (benefit) for income taxes 8.1 10.3 (10.9) 5.9
 
Provision (benefit) for income taxes   2.5   2.9   (1.9)   (11.0)
 
Net income (loss) $ 5.6 $ 7.4 $ (9.0) $ 16.9
 
Income (loss) per common share:
Basic $ 0.09 $ 0.12 $ (0.14) $ 0.26
Diluted $ 0.09 $ 0.11 $ (0.14) $ 0.25
 
Dividends declared per common share $ 0.05 $ 0.05 $ 0.10 $ 0.10
 
Adjusted income per common share:
Basic $ 0.24 $ 0.24 $ 0.20 $ 0.39
Diluted $ 0.24 $ 0.24 $ 0.20 $ 0.38
 
Weighted Average Shares Outstanding:
Basic 62,957,854 64,577,469 62,994,738 64,429,854
Diluted 63,347,614 66,267,594 62,994,738 66,388,767
REV GROUP, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
     
Six Months Ended
April 30, April 30,
2019 2018
 
Cash flows from operating activities:
Net (loss) income $ (9.0) $ 16.9
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization 23.8 22.1
Amortization of debt issuance costs 1.0 0.9
Stock-based compensation expense 4.8 3.7
Deferred income taxes 3.3 (10.4)
Gain on disposal of property, plant and equipment (1.4) (2.0)
Impairment charges 2.8
Changes in operating assets and liabilities, net of effects of
business acquisitions
  (64.5)   (75.0)
 
Net cash used in operating activities (39.2) (43.8)
 
Cash flows from investing activities:
Purchase of property, plant and equipment (9.4) (23.6)
Purchase of rental fleet vehicles (3.0) (14.2)
Proceeds from sale of property, plant and equipment 17.1 5.8
Acquisition of businesses, net of cash acquired     (57.2)
 
Net cash provided by (used in) investing activities 4.7 (89.2)
 
Cash flows from financing activities:
Net (repayments) proceeds from borrowings under revolving credit
facility
(9.0) 139.6
Net proceeds from borrowings of Term Loan 49.2
Payment of dividends (6.3) (6.4)
Repurchase and retirement of common stock (5.3) (4.8)
Other financing activities   0.5  
 
Net cash provided by financing activities   29.1   128.4
 
Net decrease in cash and cash equivalents (5.4) (4.6)
Cash and cash equivalents, beginning of period   11.9   17.8
 
Cash and cash equivalents, end of period $ 6.5 $ 13.2
REV GROUP, INC.
SEGMENT INFORMATION
(Unaudited; in millions)
       
Three Months Ended Six Months Ended
April 30, April 30, April 30, April 30,
2019 2018 2019 2018

Net Sales:

Fire & Emergency $ 247.1 $ 252.0 $ 451.2 $ 467.3
Commercial 170.0 158.0 310.6 290.2
Recreation 199.7 198.8 375.9 366.0
Corporate & Other   (1.8)   0.1   (4.0)   0.3
Total Company Net Sales $ 615.0 $ 608.9 $ 1,133.7 $ 1,123.8
 

Adjusted EBITDA:

Fire & Emergency $ 15.1 $ 21.8 $ 23.4 $ 39.9
Commercial 14.7 9.5 19.7 13.9
Recreation 17.3 12.7 26.5 20.8
Corporate & Other   (11.0)   (10.0)   (21.2)   (19.2)
Total Company Adjusted EBITDA $ 36.1 $ 34.0 $ 48.4 $ 55.4
 

Adjusted EBITDA Margin:

Fire & Emergency 6.1% 8.7% 5.2% 8.5%
Commercial 8.6% 6.0% 6.3% 4.8%
Recreation 8.7% 6.4% 7.0% 5.7%
Corporate & Other n/m n/m n/m n/m
Total Company Adjusted EBITDA Margin 5.9% 5.6% 4.3% 4.9%
 
 

Period-End Backlog:

April 30, January 31, October 31, April 30,
2019 2019 2018 2018
Fire & Emergency $ 786.5 $ 738.2 $ 707.5 $ 633.8
Commercial 435.9 427.5 381.4 397.2
Recreation   169.0   225.2   290.7   239.5
Total Company Backlog $ 1,391.4 $ 1,390.9 $ 1,379.6 $ 1,270.5

Contacts

Drew Konop
Investor Relations
Email: [email protected]
Phone:
1-888-738-4037 (1-888-REVG-037)

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