REVG - NYSE

Greetings. Welcome to REV Group Inc.'s Fiscal Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Drew Konop, Vice President, Investor Relations. Thank you. You may begin.

Good morning, and thanks for joining us. Earlier today, we issued our second quarter fiscal 2024 results. A copy of the release is available on our website at investors.revgroup.com. Today's call is being webcast, and a slide presentation, which includes a reconciliation of non-GAAP to GAAP financial measures, is available on our website. Please refer now to slide two of that presentation. Our remarks and answers will include forward-looking statements, which are subject to risk, that could cause actual results to differ from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we've described in our Form 8-K filed today and other filings that we make with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. All references on this call to a quarter or year, or to our fiscal quarter or fiscal year, unless otherwise stated. Joining me on the call today is our President and CEO, Mark Skonieczny, as well as our CFO, Amy Campbell. Please turn now to slide three, and I'll turn the call over to Mark.

Thank you, Drew, and good morning to everyone joining us on today's call. Today, I'll provide an overview of the commercial, operating, and strategic highlights achieved within the quarter, then move to the quarter's financial performance. Before I begin, I am pleased to introduce Amy Campbell as CFO and welcome her to the REV team. As you know, this role remained unfilled for many months as we searched for the right person that had the appropriate mix of financial and operational experience to lead the finance organization, as well as contribute to the advancement of the operating agenda within the business. Amy is an experienced but highly effective finance executive. She had a 23-year tenure with Caterpillar, which included several divisional CFO roles, Vice President of Investor Relations, and Chief Audit Officer. Prior to REV Group, she served as CFO of ASC Engineering Solutions and CFO for BrandSafway Commercial Industrial Division. I am thrilled she's joining our leadership team and look forward to the positive impact that she'll bring to REV. Now turning to the other highlights within the quarter, we are pleased to have delivered another strong quarter of operating results and remain focused on enacting initiatives that drive throughput and efficiency improvements across our manufacturing sites. I would like to thank all the dedicated employees that have worked to build operational momentum and improve its financial performance. Within the second quarter, this was exemplified by the fire and emergency teams. With strong backlogs that extend up to two and a half years, these businesses have the visibility and opportunity to drive significant shareholder value. Throughput initiatives put in place over the past 18 months are taking hold with increased line rates and improved labor efficiencies, resulting in higher unit shipments and price realization as we work through our backlogs. The result of these efforts was a five and a half year quarterly high in adjusted EBITDA margin in the legacy fire and emergency business. Margins improved 320 basis points versus the prior quarter and 480 basis points versus the prior year, demonstrating that each unit shipped today is worth more than the unit shipped previously. We exited the quarter with a robust $4.3 billion backlog. We continue to experience strong order intake for our fire apparatus and ambulance with a combined quarterly unit book-to-bill ratio of 1.1x, slightly ahead of our full year expectation of a one-to-one ratio. Price actions and a higher mix of fire apparatus resulted in a revenue book-to-bill ratio of 1.6x within the quarter. We attribute the sustained level of demand to the quality of our products, municipal budgets backed by increased tax receipts and federal stimulus, ongoing replacement demand, and emergency infrastructure build-out related to population growth and urban sprawl. To meet the unprecedented demand and maximize return on the backlog, we remain focused on increasing production, advancing the development of centers of excellence, optimizing our manufacturing footprint, and product simplification. An example of our success is the integration of Spartan businesses that were acquired in 2020. Over the past four years, the Spartan chassis plant has doubled its production to meet sister plant and other OEM demands. We have also expanded the Spartan S-180 program, which provides a fire apparatus that can be delivered in as little as 180 days. Today, we offer this program across several brands, providing more customers and dealers the opportunity to purchase a semi-custom truck delivered within shortened lead time. This is a competitive advantage and supporting increased order intake for the REV fire brands. Within the recreational vehicle segment, overall industry demand for motorized RVs, which accounts for more than 90% of our RV segment, remains depressed. Based on recent industry data, new motorized wholesale unit shipments calendar year-to-date through April were down 22 percent year-over-year. We believe that higher interest rates and negative equity trade-in values for units purchased during COVID continue to impact consumer buying decisions. However, industry retail sales of agent inventory and the de-stocking that has occurred over the past year indicate that the health of dealer inventory is improving heading into model year 25 introduction. Specific to the products and channels in which we participate, year-to-date model year 25 orders have been softer than we anticipated as dealers have been hesitant to place new orders given increased floor plan costs and market uncertainty. Despite the industry backdrop and reduced 25 model year orders, we exited the quarter with a healthy five-to-six-month backlog at current production rates with our Class B and C businesses, while our Class A and global businesses remain at post-COVID low levels of backlog. As we enter the back half of our fiscal year, we remain confident in our ability to deliver on our existing Class B and C backlogs and maintain flexibility to manage costs across all product categories in response to market dynamics. We continue to simplify the operational footprint of our businesses, focusing resources on core businesses. In support of this strategy, within the quarter we exited our direct fire and ambulance sales and customer service operation in Florida with the sale of the fire regional technical center or RTC in Ocala. We selected an experienced partner that has represented REV Fire Brands for over a decade as a purchaser of the business and believe they will continue to capitalize on the significant opportunity presented within the fire Florida market. With the sale of the RTC, we have no remaining company-owned dealerships within our fire business. In addition, the wind down of our E&C municipal transit bus business remains on track. I would like to acknowledge the efforts of the team at E&C as well as our suppliers and channel partners who have remained committed to completed units within our backlog on schedule. We expect to wind down substantially all manufacturing operations to be completed in the fourth fiscal quarter. Within the quarter, we returned a total of $308.5 million to shareholders in the form of share repurchases and regular and special dividends. As a reminder, the Collins bus transaction closed at the end of the first quarter providing cash proceeds of $308 million, a portion of which was used to pay down our ADL credit facility to zero at the end of the first quarter. In the second quarter, we returned essentially all the proceeds to shareholders. Approximately $179 million was used to pay a $3 special dividend in addition to our regular quarterly dividends. The remainder of the proceeds from the sale of Collins was used to participate in a secondary offering of our then largest shareholder, AIP, by purchasing $8 million of REV Group common shares for approximately $126 million. The secondary offering reduced the shareholder's ownership interest to approximately 19%. In March, that shareholder proceeded with a subsequent underwritten secondary offering of 7.4 million shares, reducing its ownership stake to approximately 3.4%, well below the 15% threshold that allowed it to designate board members. On March 15th, the AIP designated directors stepped down from our board. We had been preparing for the potential exit of these board members over the past several quarters. While the timing was uncertain to us, we felt it was important to identify and recruit new board candidates who could add value to the company and help guide us into the next chapter of our growth. In August 2023, we welcomed Maureen O'Connell to our board, replacing a long-term AIP designated director. Then in January of this year, in anticipation of the retirement of board member at an annual shareholder meeting in February, Kathleen Steele was appointed to the board. Finally, last week, Cynthia Augustine was appointed to the board. She currently serves as the global Chief Talent Officer at McCann World Group and has extensive experience as an HR and operating executive at leading public and private companies. REV will benefit from the wide-ranging and diverse set of experiences provided by our refreshed board, and we look forward to the contributions the board will offer as we continue to execute our strategic agenda. Turning to Slide four, consolidated net sales of $617 million decreased $64 million compared to the second quarter last year. In the prior year, reported net sales included $47 million attributed to Collins Bus, which was divested in the first quarter of this year. Adjusting for the sales impact of Collins, net sales decreased $17 million or 2.7% due to lower sales in the recreational vehicle segment that was in line with expectations and fewer sales of terminal trucks, partially offset by increased sales in the fire and emergency businesses. As I mentioned earlier, recreational vehicle segment sales reflected soft industry demand as well as increased discounting and a mix of lower price units within certain businesses. Terminal truck sales were 59% lower than previous year, which was consistent with the expectation in the 2024 guidance we provided in December. Increased fire and emergency sales benefit from year-over-year units and revenue increase at all ambulance and fire apparatus manufacturing locations. Consolidated adjusted EBITDA of $37.5 million decreased $4.4 million compared to the second quarter last year. Included in the prior year reported adjusted EBITDA was $10.2 million attributed to Collins Bus, resulting in an increase of $5.8 million or 18.3% when adjusting for this divestiture. The increase was driven by the fire, emergency, and municipal transit bus businesses, partially offset by lower earnings in the terminal trucks business and recreational vehicle segment. Fire and emergency results benefited from higher volumes, the operational improvements mentioned earlier, and increased price realization as we shipped more units that benefited from pricing actions enacted in '22 and '23. We remain encouraged by the efforts of the teams to offset costs through operational improvements, allowing businesses to maximize pricing opportunity within backlog. Please turn to Slide five and I'll turn the call over to Amy for detailed segment financials.

Thank you, Mark. Happy to be here. I know many of you on the call are from my previous role at Caterpillar and look forward to working together at REV Group. This being my first call, I thought I'd begin with a few opening comments. Considering joining REV Group, I learned of the great work this company does in support of our nation's first responders and the communities in which we live. Over the past several weeks, I've traveled to many of our business units and spent time with local management teams, as well as the corporate staff, to gain insight into our products, channel partners, and ability to increase profitability, generate cash, and drive shareholder value. My interactions have validated what I saw from the outside. There is a significant value creation opportunity for our shareholders as we continue our journey of improved execution that has resulted in the company delivering top line and bottom-line momentum over the past several quarters. I believe there is significant opportunity to continue this progress and build upon our 2021 Investor Day financial targets, which we plan to refresh before the end of the year. Now let's move to Page five. With Specialty Vehicles' second quarter results, segment sales were $437.4 million, an increase of 2.9% compared to the prior year. As Mark mentioned, the prior year quarter included $47 million of net sales attributed to Collins Bus, which was divested in the first quarter of this year. Adjusting for the sales impact of Collins, segment sales increased $59 million, or 16% year-over-year. The increase in net sales was primarily due to higher shipments of fire apparatus and ambulance units, along with favorable price realization, partially offset by lower sales in the terminal trucks business. Shipments of legacy fire and emergency units increased 18% versus the prior year period, reflecting the success and continued momentum of the operational improvement initiatives that have been put in place and are delivering increased throughput. Combined net sales of fire apparatus and ambulances increased 33%, which included favorable product mix and price realization, as we shipped a greater number of units benefiting from price actions taken in 2022 and 2023. The higher fire apparatus shipments were led by our largest plant in Ocala, Florida. This location is better described as a campus with 10 buildings over four square miles. The campus has benefited from a focus on simplification and reorganization to focus on manufacturing by value stream. These changes have led to better alignment across the local teams and resulted in improved efficiencies, quality, and throughput, along with better supply chain management. Their commitment to operational excellence contributed to them delivering the highest quarterly total of unit shipments since 2020. Within ambulance, higher unit volumes also demonstrate the continued success of that division and their local OpEx and Lean teams that have delivered a cadence of measured production ramp rates throughout the past year. Specialty vehicles segment adjusted EBITDA was $33.8 million in the second quarter of 2024, an increase of $13.5 million compared to $20.3 million in the second quarter of 2023. Adjusting for $10.2 million of adjusted EBITDA attributed to Collins Bus in the prior year, second quarter earnings increased $23.7 million year-over-year, or 235%. The increase in adjusted EBITDA was primarily due to increased contributions from the fire, ambulance, and municipal transit bus businesses, partially offset by lower earnings from the terminal trucks business. As Mark previously noted, legacy fire and emergency margins improved 480 basis points versus the prior year. The increased contribution was primarily related to price realization, higher unit volume, and favorable mix. Within the ambulance group, performance marks a seven-year high in quarterly profitability with all businesses delivering year-over-year and sequential margin improvements. Segment backlog of $4.1 billion increased $706 million, or 21%. Prior year backlog of $3.4 billion included $353 million of backlog attributed to the bus businesses. Adjusting for the divestiture of Collins, backlog increased $898 million, or 28%, versus the prior year quarter. The increase reflects strong orders for fire and ambulance units over the past year, as well as the benefits of pricing actions, partially offset by lower demand for terminal trucks, and a reduction in transit bus business backlog related to the businesses wind down. Today's update to the consolidated outlook anticipates continued fire and emergency earnings momentum, partially offset by continued in-market softness in the terminal trucks business and the completion of the wind down of E&C municipal transit bus operations in the fiscal fourth quarter. Lower than expected terminal truck orders is now expected to result in $150 million revenue headwind year-over-year versus $100 million headwind in previous guidance. We continue to execute cost actions to manage to a 15% decremental margin. More than offsetting the revenue headwinds from transit bus and terminal truck businesses, we expect the fire and emergency businesses to build upon the second quarter outperformance, resulting in specialty vehicle segment revenue increasing by low single digits as compared to first half revenue. Improved profitability within fire and emergency businesses is expected to result in legacy F&E adjusted EBITDA margins in the low double digits exiting the fiscal year. F&E performance is expected to more than offset softness in the terminal truck end market, resulting in the specialty vehicle segment margin increasing sequentially in the third and fourth quarters as we continue to focus on operational excellence and achieve improved pricing within the backlog, delivering total segment adjusted EBITDA margin in the high single digits exiting the fourth quarter. On Slide six, recreational vehicle segment results were in line with expectations. Sales of $179.7 million decreased $76.9 million for 30% year-over-year. Lower segment sales versus the prior year were primarily the result of fewer unit shipments of Class A, Class B, and towable units along with increased discounting, which is partially offset by increased shipments of Class C units and price realization. In total, unit shipments declined 43% versus a year ago, driven by a 70% decline in towable and camper unit sales. Recreation segment adjusted EBITDA of $12.1 million decreased $17 million or 58% versus the prior year. The decrease in adjusted EBITDA was primarily the result of lower unit volume, inflationary pressures, and increased discounting, partially offset by price realization, labor efficiencies, material savings, and cost reduction actions that were executed in certain businesses to align production with the current level of demand. Recreation segment backlog of $275 million at quarter end decreased $220 million or 45% versus the prior year. The decrease is primarily due to production against backlog, lower order intake over the trailing 12 months, and order cancellations. Backlog in the Class B and Class C categories remains in the range of five to six months, and profitability of the combined Class B and C businesses is expected to remain in the low double-digit range. Class A and towable businesses are expected to produce at lower line rates aligned with in-market demand. To the extent that the Class A and towable market doesn't improve in the second half of the year, we will continue to execute cost actions aligned with demand. Our update for the consolidated outlook now anticipates the recreational vehicle segment revenue to be at the second quarter run rate for the remainder of the year. We're down 20% to 25% year-over-year compared to down low double digits in our prior guidance. Lower discounting and the impact of cost action is expected to improve the second half adjusted EBITDA margin approximately 100 basis points as compared to the second quarter. Full year segment margin is expected to be in the 7 to 7.5% versus high single digits under prior guidance. Turning to Slide seven, trade working capital on April 30, 2024 was $324 million, an increase of $5.5 million compared to $319 million at the end of fiscal 2023. Increase was primarily a result of lower accounts payable and customer advances, partially offset by a decrease in accounts receivable and inventory. Year-to-date cash used by operating activities was $29.6 million. Adjusted free cash flow within the quarter was $67.2 million, including $5.9 million spent on capital expenditures. Net debt as of April 30 was $181.8 million, including $38.2 million of cash on hand compared to net debt of $128.7 million as of October 31, 2023. As Mark noted earlier, we returned essentially all of the $308 million gross proceeds from the sale of Collins Bus to shareholders within the second quarter. On February 16, we paid a special cash dividend of $3 per share of common stock, totaling $179 million in addition to our regular quarterly dividend. Then on February 20, we repurchased $8 million common shares for a total of $126 million reducing total outstanding shares versus 2023 fiscal year end by 13%. In addition, we declared a regular quarterly cash dividend of $0.05 per share payable on July 12 to shareholders of record on June 28. By quarter's end, the company maintained ample liquidity for strategic initiatives with approximately $280 million available under our ADL revolving credit facility. Turning to Slide eight, we provide our updated 2024 fiscal full year outlook, which builds upon the momentum within the specialty vehicle segment, partially offset by greater than expected end market weakness in the recreational vehicle segment. Today's update for top-line guidance is a range of $2.4 billion to $2.5 billion, an adjusted EBITDA guidance of $151 million to $165 million, or $158 million at the midpoint, which reflects an improvement of $6 million at the low end of the range to account for the second quarter performance. The updated guidance today includes an approximate $150 million total revenue reduction within the cyclical terminal truck and RV businesses, and its resulting earnings impact to be managed to a 15% decremental margin. However, we expect that the performance of the fire and emergency businesses will more than offset these headwinds, which provides the confidence to raise the midpoint of our full year consolidated earnings outlook. Adjusted net income is expected to be in the range of $76 million to $90 million, and net income in the range of $230 million to $245 million. Adjusted free cash flow is expected to be in the range of $61 million to $72 million. Note that the adjusted free cash flow excludes approximately $71 million of tax and transaction costs related to divestiture activities that are presented within the cash from operations but offset by gross cash proceeds included in the investing section of the statement of cash flow. Expected full year capital expenditures remain in the range of $30 million to $35 million, and interest expense is expected to be $26 million to $28 million. Thank you again for joining us today on the call. Operator, we would now like to open the call up for questions.

Thank you. [Operator Instructions] Our first question is from Jerry Revich with Goldman Sachs. Please proceed.

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

Yes. Thanks, Clay. So, I think one way to think about that, if you look at fire and emergency sales, total sales were up 33%, and units were up 18%. And I would say the delta of that is pretty evenly split between price and favorable mix in the quarter. And then if you think about how the units we're shipping today are versus the price today, I think you have to step back and look at the price increases we've taken over the last couple of years. Over the last few years, we've got a combined pricing increases of 40% through about mid-year 2023 when we started to take more normalized annual increases of 3% to 4%. And fire, we're about in the third to fourth inning working through those price increases. And in ambulance, we're about in the fifth or sixth inning as we work through those price increases.

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

Yes. I think to double check the math, as you look sequentially from the second quarter to the -- are you speaking just for specialty vehicles margins, Clay?

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

Yes. Starting with specialty vehicle margins, we expect third quarter EBITDA margins to increase 50 to 100 basis points from the second quarter to the third quarter, and then about another 100 bps from the third quarter to the fourth quarter. And recreation EBITDA margins should be fairly consistent, 7% to 7.5% for the full year.

Yes. So, I think just check your math, Clay, because I think sequentially we're actually up as well compared.

Yes, sequentially. Yes.

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

And, Amy, it's great to hear your voice again.

Thanks.

Yes. So, maybe just a quick question first on recreation. Can you give us some thoughts on the margin potential there in 2025 if the orders have started out a bit soft? Are there things you can do on the cost side or mix side that might make next year an up year for the recreation margin outlook?

Yes. I think, Mike, as we've talked about previously, we're not going to provide 2025. And, again, the market's still choppy now, so we have to see what's going to happen in the back half of the year, which I think everyone's talking from an industry perspective. So, I think to give anything from a 2025 until we see what happens in the back half of the year wouldn't be appropriate at this time.

Okay. No problem. Perhaps I'll just change over to fire and emergency. You had mentioned some interest in the Spartan S-180. At this point, how successful have you been with delivering that product in 180 days every time? And can customers now, I know there's been some submissions with the supply chain over the last couple quarters. Are you at the point now where you can say it, put the 180 in the actual name, and deliver within six months?

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

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

Yes, we're not that far off. But again, like we talked about, fire is still six to nine months behind where ambulance is. And we expect in the back half, a lot of the guidance that we're talking about today is still the continued momentum in fire and catching up to the ambulance throughput improvement. So, I would just say from that perspective, it's again how we're going to demonstrate that in the back half of the year. But we feel good about our momentum and where we're at. And we've quoted, obviously, from pre-COVID, we've doubled our throughput at the Spartan. So, when you look at our overall, we're up actually the pre-COVID levels when you can include the Spartan facilities and what they've been able to do.

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

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

Good morning, Amy. I look forward to working with you again. So, that's great. I guess what I'm trying to make clear for myself here is, are the moving pieces to your guidance because your commentary contains kind of a lot of moving pieces here. So, can we put a finer point on the revenue in terms of what's moving here? It sounds like terminal truck is lower, RV is lower. There's a fire and emergency partial offset. You also divested that dealership in fire. I don't know how much of an impact that was. But can we kind of parse out all these factors, please?

Yes. Sure, Mircea. So, I think a way to think about it, we guided recreation about $100 million lower. That's how that math works out, $90 million to $100 million lower. And our terminal trucks business down an additional $50 million. And we took the midpoint of the guide down $50 million. And so, the offset to that is the second quarter beat in the specialty vehicles business and then about a $70 million to $80 million increase in F&E in the back half of the year.

That's helpful. Thank you. In F&E, it sounds like you're making good strides and being able to increase throughput. And Mark, we were talking just a couple months ago about where you are relative to normal. And at the time, your throughput was still quite a bit below what you consider to be normal. So, I'm kind of curious what this throughput is going to be exiting fiscal '24 based on kind of what you know today.

Yes. Like I said, I think we've been talking about where Ambulance is and, that's in, 60% -- 70%, 80% where we want to be. So when we talk about where fire is, like Amy talked about, we're expecting fire to catch up to that side. So, we still got room to go across the legacy F&E business, but we'd expect fire to be more in line with Ambulance at the exiting there. So, we're slowly catching up. And as Amy said, in Ocala, we definitely are expecting a nice second half to the build here. So, I expect exiting at that low double-digit margin that we're talking about that we're more aligned, both businesses are aligned, and that we have opportunity beyond that as we exit '24. But we're fully not there back to 85% to 90% efficiency.

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

No, no, there's nothing from that perspective. And as you know, Mirc, in the majority of our plants, we run [4 to 4.10s] [ph], right? So, we have theoretical capacity of a minimum of double, right, if we were into a second shift. As we've ramped in some of our businesses, we've actually added second shifts in, say, welding or paint and fabrication, not on the assembly side, but there is opportunity to increase from that perspective. So, again, what I want to do in the back half, as we've talked about previously, is stabilize fire to the current rates and meet the expectations of the increase, and then go from there heading into 25, right, and building off of that. So, we need to get stable at the rates we're at, and then we can look at, do we want to look at opportunities to increase our line rates and our shifts at those facilities as we move forward.

Okay. And then maybe pivoting to recreation, I guess I'm going to try to ask Mike's question a little bit differently. Backlog continues to come down here, and you revised your outlook lower by $100 million on a revenue side for this year. But obviously, in what's embedded in here, it seems like your revenues, your shipments continue to exceed your incoming order intake. And I'm wondering what the implications are here. I mean, it's difficult for me to see how 2025 is not going to be down again just based on the fact that your backlog is contracting. Do you think differently? Should we think differently based on what you see today?

Yes. And again, it's a wait and see on the back half of this year, Mirc. And unfortunately, we don't have a crystal ball from that perspective. But from a five-to-six month backlog, you're exactly right. In the Bs and Cs, we feel like, they're entering the back half, and it's really a discussion on the As and towables, which have just not come back. RVIA is quoting the A business being an 8,000-unit market now versus a 10,000 unit market. So we've seen a retraction there. And we've talked about that in Q1. Those are operating at a low backlog, and our towable business is less than a one-month backlog, right? So we continue. If you look at the back half, it's really a reflection of the As and towables not coming back. And to the extent we have to build our backlog, but again, when you look at the margin we're generating, it's really managing the cost within that A and towable business in the back half until we see what the order rates are coming into Q3 and Q4. So unfortunately, the wait and see to see what the order rates are going to be really on the As and towables. We feel good about our market position where we're at in the Bs and Cs and our ability to build that backlog entering '25. It's more around the As and towables still. If you look at the towables business, and I know Thor came out with earnings this morning as well, we're seeing the same thing that people are, towables are picking up, but they're more in the shorter, the thick and thin sort of trailers, the lower end trailers at a shorter length as well. And as you know, we're a premium provider within that space, so we just haven't seen the uptick in the premium side of that business yet as an industry.

Understood. Final question on margins in recreation. Considering the challenges that you're having with both towables, but especially with Class A, 7%, 7.5% margin is not too bad. I guess that implies that in this Class A and towables, you're still above breakeven. That's kind of how I'm interpolating here. Correct me if I'm wrong. What exactly are you doing on a go-forward basis to manage the cost structure here? Can we get a little more context and maybe what could carry into '25 relative to '24 based on your restructuring actions in the second half? Thank you.

Yes. And again, we continue to flex as we've talked about. We've taken a significant amount of people out, but we've also looked at our cost structure across that, our fixed costs as well and addressing those. So we've just been very proactive and as our backlogs have come down, we've taken the appropriate, not only direct labor, but indirect and SG&A costs out of the business to get more of a normalized, what a breakeven view of those businesses are and managing to that. So we've gotten ahead of it to make sure and so we've anticipated a bigger drop or challenge ourselves and say, let's run to the bottom and then work our way up as the volume comes back, which has really played to our advantage here to your point that we haven't incurred losses like we previously had when you look at those businesses collectively. So I think that's really been the strategic piece of that is that we saw the market coming down. We challenged our companies to run to the bottom and then work our way up and unfortunately, we just haven't seen the uptick that is there, which with the new cost structure, we'll see upside from a margin perspective as we go forward with the new cost structures these businesses are operating at.