Greetings, and welcome to the REV Group Inc Third Quarter 2020 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] As a reminder, this conference is being recorded.

It is now my pleasure to turn the floor over to Drew Konop, Vice President, Investor Relations and Corporate Development. Thank you. Mr. Konop, you may begin..

All right. Thanks, Doug. Good morning, and thanks for joining us. This morning, we issued our third quarter fiscal 2020 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 also available on our website. Please refer now to Slide 2 of that presentation.

Our remarks and answers will include forward-looking statements, which are subject to risks that could cause actual results to differ from those expressed or implied by such forward-looking statements. These include, among others, matters that we have described in our Form 8-K filed with the SEC this morning 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 to a year are to our fiscal quarter and our fiscal year, unless otherwise stated.

Joining me on the call today are our President and CEO, Rod Rushing; as well as our CFO, Mark Skonieczny. Please turn now to Slide 3, and I'll turn the call over to Rod..

Thank you, Drew, and good morning, everyone, and thank you for taking the time to join our call today. I'm going to begin with some initial comments around our operating conditions over the past several months, and then we'll move to an overview of our third quarter results.

Reflecting on our second quarter, we faced the initial impacts of the COVID-19 created a lot of uncertainty across our enterprise. We experienced supply chain shortages, increased absenteeism. We had interruptions to our demand. The challenge presented by the pandemic required us to really think -- rethink about how we run our operations.

We took a lot of safeguards to protect our employees, including mask requirements, spacing protocols. We had some temporary shutdowns. We were clean throughout the day, and we applied facility wide testing as necessary. It also includes a suspension of our normal production activities within our recreation segment during the months of April and May.

The day-to-day, it was really, really difficult on our employees. And I really want to thank them for their commitment to our customers and our shareholders, but also for the safekeeping of one another during the difficult time that we journeyed through.

Our fiscal third quarter, our manufacturing operations began to normalize, at least in the new COVID environment.

We saw our demand stabilize in certain segments, but there were still quite a bit of uncertainty related to school attendance and working-from-home policies as well as pressures on municipal budgets, and we still saw some intermittent supply chain challenges. We did see great increase in demand in our RV segment.

And we're able to ramp up our recreation production during that time. During the month of June, we conducted our strategic business reviews with each of our business units. These business reviews focus on our three-year market product and commercial strategies.

It provides us with a clear understanding of some of the challenges we'll face near-term related to the pressures we've already talked about. But most importantly, they gave us a three-year view to our commercial strategy for our secured business that we'll look to continue to replenish our current healthy backlogs.

Now the process, the SBR process, the strategic business review process is a new process to us that's ongoing, but exiting those discussions it was at a great deal of confidence with the path to deliver growth above the end markets that we -- growth that we're in. And this will be a source of improved profitability for the business.

Within the quarter, we continued our journey of improving and building our operational capabilities. Several of our businesses had a strong history of performance and lean and other manufacturing excellence elements. While other businesses that we've discussed in the past present a great opportunity for improvement.

We are focused on developing our people and our capabilities and processes to improve these results. While there's inefficiencies that exist in our current operations that are manifested in our financial results, there remains much opportunity inside the business to create value.

We will continue to address these inefficiencies over the next several quarters while building our internal bench of talent and capabilities toward improving execution to get at this value that's inside our business. I'm going to now move to a summary of our consolidated third quarter results.

Although we are still experiencing the lingering impacts of the pandemic, our results for the third quarter were generally in line with our expectation. Net sales of $582 million decreased 5.6% compared to our prior year.

Excluding recent M&A activity, organic sales decreased by 10% year-over-year, reflecting year-end lingering end market disruptions from the COVID impacts, primarily through our F&E segment and commercial segments, but these were offset by an increase in our recreational vehicle demand.

Adjusted EBITDA of $21.4 million was down 36% versus prior year, and adjusted EBITDA margin of 3.7% is a decrease of 170 basis points versus prior year. However, these results do reflect sequential operational improvement in several businesses plus necessary flexing down of cost at the businesses that were impacted by soft demand.

Much has been done since our last call to address core issues that in our most challenging businesses, while taking steps at the enterprise toward building a performance culture, focused on safety and the voice of customer and obviously, cost management, all focused on delivering improved bottom line performance.

I'm going to now turn it over to Mark for the details of our third quarter financial performance..

Okay. Thanks, Rod, and good morning, everyone. Please turn to Page 4 of the Slide deck as I review our segment level performance. Fire & Emergency third quarter segment sales increased by 24% compared to last year to $307 million.

This includes approximately $75 million of sales attributable to our acquisition of Spartan ER that occurred earlier in the year.

Excluding Spartan, organic segment sales decreased 6% as we shipped fewer ambulance units and to a lesser extent fire trucks from one plant due to continued COVID-19 disruptions related to absenteeism, inspections and delivery timing.

Within the Fire division, our Ocala, Florida plant benefited from increased throughput due to a manufacturing realignment, personnel changes and a focus on lean manufacturing practices.

After several quarters of struggling to consistently increase throughput, we have once again experienced sequential improvement which led to announcement of lower delivery times on new orders from this plant. Net sales of North American ambulances were down approximately 20% year-over-year.

Due to shelter-at-home orders, the number of emergency medical service events, which reflects ambulance calls to our commercial customer base were down 4% in our fiscal second quarter, which resulted in temporary order delays from non-municipal customers.

The fiscal third quarter production decline was further impacted by limited availability of chassis from OE manufacturers that made production slotting more challenging. As we exited the third quarter, EMS events have increased and are down just 15% year-over-year and availability of chassis has improved.

As a result, we expect a number of units and profitability of the ambulance division to improve sequentially as we move forward. F&E segment adjusted EBITDA was $12.9 million in the third quarter of 2020 compared to $12.1 million in the third quarter 2019.

The increase was primarily due to Spartan ER and increased throughput at Ocala, partially offset by a decrease of profitability in the ambulance division due to the sales reduction previously noted. Spartan contributed $5 million EBITDA to the F&E segment within the quarter, which exceeded our expectations.

This was a result of favorable mix within the quarter and greater-than-expected profitability as we were able to accelerate cost reductions and improved throughput sooner than originally planned. Total F&E backlog was $1 billion, up 34% year-over-year.

This includes backlog acquired from Spartan and reflects strong ambulance order intake over the trailing 12 months, including a large municipal order that will be produced throughout fiscal 2021.

A decline in legacy fire truck backlog is largely the result of increased throughput at Ocala, which has lowered the backlog duration and allowed us to announce shorter delivery times for new orders. We will continue to work toward what we feel is a normalized 9 to 12 month backlog duration within the Fire division.

We currently expect sequential margin improvement within the F&E segment, reflecting improvement in both the Fire and Ambulance divisions. Within Fire strong third quarter performance at Spartan is not expected to repeat in the fourth quarter due to mix.

However, we do expect operational improvements to drive greater EBITDA contribution from all other businesses. Our Ambulance businesses are expected to improve from the third quarter's inefficiencies relating to lingering COVID impacts but are still subject to potential risks surrounding chassis supply from our OE partners. Turning to Slide 5.

Commercial segment quarterly sales of $92 million were down 55% compared to the prior year period. Prior year reported commercial segment revenue includes approximately $55 million from the shuttle buses divested within the quarter. The remaining decline in sales related to lower sales at all businesses within the segment.

School bus unit sales were down 33% year-over-year as orders for the fall semester were delayed due to school attendance uncertainty. The municipal transit sales also decreased versus prior year as delivery timing was adjusted to accommodate customers that shifted budgets from capital investment to operating budgets.

Transit orders were not lost, but were slightly -- shifted slightly to the right, and we fully expect to capture these sales over the next five quarters. Specialty markets remain depressed with sales down nearly 50% versus last year.

At the end of the third quarter, we did receive restocking orders for terminal trucks, however, pricing has been competitive in this environment. Commercial segment adjusted EBITDA of $10.3 million was down 47% versus the prior year period, which included $1 million of EBITDA related to divested shuttle bus businesses.

The decline in EBITDA was primarily the result of lower sales partially offset by aggressive cost-out actions in all businesses that limited the decremental margin for the segment.

These have been some of our best businesses reflecting cost to match demand and the double-digit margin delivered against steep revenue declines within the quarter reflect that. This is the type of performance culture that Rod has discussed and what we are building towards, and we'll expect that of all our businesses.

Commercial segment backlog at the end of the third quarter was $300 million, down 24% versus the prior year quarter, which contained $87 million of shuttle bus backlog.

And organic backlog decline of 3% was a result of a decreased school bus and specialty division orders, offset by an increase in municipal transit backlog, which we expect to build again into fiscal 2022.

The outlook for the commercial segment will be impacted by municipal budgets, school attendance in both undergraduate and graduate institutions, consumers' willingness to travel and capital expenditure programs at our rental company and logistics customers.

We are closely monitoring state, local and school district health and safety practices such as this passenger spacing requirements or staggering routes that have been implemented to a limited number of riders in various municipalities.

And we are proactively working on solutions to assist public safety and adapt to our customers' needs as we enter new buying cycles. However, we currently expect all commercial end markets remain depressed within our fiscal fourth quarter, and we'll continue to flex our cost structure to reflect the ongoing level of demand. Turning to Slide 6.

Recreation segment sales of $183 million were up 10% versus last year, reflecting strong wholesale shipments and retail demand for all motorized categories. In the towable business, which is located in California, production of trailers and campers remained suspended during the early weeks of the quarter due to COVID related work restrictions.

Segment sales were also limited by industry-wide supply chain disruptions, particularly Class A gas chassis, furniture, appliances and certain electronic items. Recreation segment adjusted EBITDA was $12.1 million for the third quarter, down 5.5% versus the prior year.

The decline in EBITDA, despite an increase in revenue was primarily a result of decrease in sales and resulting profitability in our towable business due to lingering production shutdown within the quarter partially offset by an increase in sales and profitability within the Class A business late in the quarter due to higher volumes and cost-out actions taken.

Segment backlog increased to 153% year-over-year to $328 million. The increase is a result of strong order intake across all RV categories over the past three months. As we regain the momentum of dealer signings and product introductions that we had carried into the COVID shutdowns.

Within the quarter, we gained retail share in Class A, Class B and campers and remain approximately flat in Class C and trailers. Retail sales continue to outpace wholesale shipments and dealer inventories are down an average of 33% year-over-year with many brands near historic lows.

We are working through our supply chain constraints and will adapt our production line rates to reflect product availability as we work against the record backlog. We expect to navigate supply chain uncertainty and participate in the current recreation market rebound while continuing to take share in certain categories.

Increased chassis availability and production volumes expect to improve profitability at our Class A business and benefit overall segment profitability in the fourth quarter. Turning to Slide 7. Year-to-date, net cash provided by operating activities was $25 million compared to $22 million of net cash provided in the prior year period.

Cash generated was related to improved net working capital efficiency, specifically related to inventory management.

We will continue to optimize our use of net working capital in our businesses as we focus on a cash return on investment framework that measures overall asset intensity, including net working capital against the returns on those assets. We will also identify and liquidate unproductive assets.

The operating inefficiencies the company has experienced over the past several quarters has also led to inefficiencies on the balance sheet. Within the quarter, we exited the rental operations within our REV finance operations and incurred a $3.7 million noncash impairment for the anticipated sale of all rental vehicles.

We are also continuing to pursue the sale of land and other assets with expected proceeds of approximately $10 million and are still awaiting a CARES Act cash refund, which is now expected to be received within our fiscal fourth quarter.

On May 8, we divested two shuttle bus businesses, generating $49 million of cash at closing, which was used to pay down debt within the third quarter. Net debt as of July 31 was $373 million, including $17 million of cash on hand versus $377 million at the end of fiscal 2019.

Additional cash from operations, the sale of balance sheet assets, anticipated CARES Act cash refund will primarily be used to pay down debt as we work to reduce the total amount of debt in our fourth quarter. At quarter end, the company maintained ample liquidity with $221 million available under our ABL revolving credit facility.

From a net working capital perspective, on July 31, 2020, was $402 million compared to $429 million at the end of the second quarter. This change reflects the divestiture of shuttle bus businesses as well as improved inventory management, partially offset by timing of payments within the quarter.

As you saw earlier today, we reassumed full year fiscal 2020 guidance, with sales expected to be in the range of $2.25 billion to $2.3 billion and adjusted EBITDA in the range of $64 million to $68 million. This guidance reflects our current visibility on supply chain availability, absentee rates and government policy surrounding COVID-19.

And adjusted EBITDA outlook reconciliation as well as net income reconciliation are provided in today's press release and in the appendix of our slide deck. With that, I'll turn it back to Rod for closing comments..

Thanks, Mark. In closing, just a few closing comments before we head into questions. I would like to once again thank the dedication of our employees throughout these unprecedented events over the last six months.

They've demonstrated engineering resilience and the adaptability to change that have impacted work conditions here at REV, but also, frankly, their lives. Together, we've navigated uncertainly related to supply chain and disruptions in demand.

We faced the challenges of the past two quarters and thinking about the road ahead, and we certainly are excited about what we can see in terms of operational opportunity ahead of us.

I'm very pleased with notable change in collaboration at all levels from the value stream mapping that we see on our production floor to the tighter alignment between division and corporate leadership. We're taking important steps towards realizing the full benefits of becoming an operating company.

We're in fiscal year FY '21 annual planning process with great enthusiasm to continue the momentum that we're building as a foundation with much excitement for the work that lays ahead of us. So I can't tell you how grateful I am to the team for the hard work that they've done, and how excited about the future and the things that we're doing.

And with that, I'd like to hand over the operator and we can take a few questions here this morning..

[Operator Instructions] Our first question comes from the line of Courtney Yakavonis with Morgan Stanley. Please proceed with your question..

I'm wondering if you can just comment a little bit on the margin trajectory for commercial, given that you kind of see sales to be depressed through the fourth quarter. But obviously, you've been taking a lot of cost out, had very impressive margins in the quarter.

So can you just help us think about -- how to think about margins in the commercial business, especially given these depressed sales? And then also, I think you said you expect to recapture the sales over the next five quarters.

Do you have any sense of the cadence of when that will come in? Will it be very heavily back-end loaded, maybe not until next year?.

Courtney, this is Mark. I would say from -- yes, from the transit side, that was a shift, and that's the order that we're building against as I noted in my comments, through '21. So that was really just a shift out of the year into -- further into, I would say, probably sequentially over the multiple quarters, Q1, Q2, Q3.

I wouldn't say it's all back end loaded from that perspective. And then the cadence as you asked on the bus side, that's really maintaining that margin and is going to be key from the perspective of there we see volume coming back up, but still depressed. But as far as our line rates, we'll be looking at extended line rates there.

So we won't get the pure efficiencies that we had in Q3 that we're building off a larger backlog there. So as the backlog came down, some of our build schedule would be stretched out, and we'll maintain the workforce, but we'll still drive some efficiencies, but I would not expect the margin to maintain at that percent that we had in Q3..

Okay. That's helpful. And then I guess maybe just on the strength that you're seeing in recreation.

You obviously mentioned you're seeing strong order intake across all the categories, but any sense of the cadence of that to the exit rate of orders is that as strong as it was kind of earlier in the summer? And I think you mentioned that the production was suspended for the trailers and campers.

Where are we on that? Are there any kind of constraints on the production side? Or how has production been ramping?.

This is Rod. There's a bit of variability for business to business. The constraints we see on the production side are still related to supply chain constraints around certain materials and then some absenteeism that's somewhat localized in the businesses.

But we look at the order rates of working on retail versus wholesale, and the retails continue to outpace wholesale. So we continue to see good movement of product in terms of how it's moving through the channel and then -- but we're also mindful that, that's a cyclical business and that it's subject to change based on the COVID. So we're optimistic.

We've got great backlogs. We're going to continue to convert those. But we're also very -- got our ear to the market to make sure we're understanding how the market proceeds through as we hopefully solve this COVID challenge that we're facing..

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

So Rod, I guess a couple of things, big picture and then a quick follow-up for Mark, if I could. You've been there a couple of quarters now. You've obviously started to move the needle, I think, with respect to sort of productivity initiatives, et cetera.

Do you have enough kind of under your belt now to have a view as to what level of margins are kind of attainable over a two to three-year period, I don't know, call it, maybe at a mid-cycle level volume? Just kind of what can this business do now that you've kind of got your arms around the issues?.

Well, I think that business unit by business unit, there's some variation. But our belief is that this portfolio of businesses should yield double digit earnings. And that's what we said in the first call, I think it's just given the operational capabilities built and the disciplines built to deliver that.

And it's not wholly dependent on a lot of volume leverage to get you there. I think we just got to continue to work our cost of goods sold and our structural costs, obviously maintain throughput, and there's a path to get there. So I'm a big believer that this is a double-digit earnings business as a portfolio and that's where we're going to get it..

And that would be EBITDA earnings?.

Yes..

Right. Okay. And then, Mark, you mentioned a number of things that should be beneficial to cash flow in the fourth quarter.

Any way to sort of put bookends around the numbers there? I mean, what do you think we could do in the fourth quarter for cash flow?.

Yes. We have ins and outs, like you said, so I don't want to give for guidance on the cash flow but there are -- as we pointed out, we're still pursuing the land, which I think the previous management also said as well as our CARES Act, which we had quantified of $10 million.

But as we continue to work through, Steve, as I mentioned, the inefficiencies on our balance sheet, we have now actually put in a process that we can look at our optimized position by business unit for inventory, and we continue to work that as the inefficiencies come out.

But we will be positive cash flow for the quarter as we're predicting, but book and they're probably not at this point with some of the larger items that we have that we're counting on to come through there..

Okay.

Is working capital a source or a use in the fourth quarter?.

Yes, it will be a source..

Our next question comes from the line of Mig Dobre with Robert W. Baird. Please proceed with your question..

I just kind of wanted to follow-up on Steve's question there. Maybe ask it a little bit different, Rod.

Where would you say you are in terms of assembling your -- the broader team that you want at REV Group at this point? And where are you on outlining the broader vision for the company? Because I can appreciate your comment that you believe this business should be able to do double-digit EBITDA margin.

But I think it's not entirely clear as to how we're going to get there. And the things that you're effectively going to have to do to sort of build that momentum. So I'm kind of curious as to where we are in the process and maybe some of the things that you can give us to kind of help us along here..

Yes. We spent -- it's a great question. We spent a lot of time as a leadership team, and I'll get to the first part of your question at the back end in terms of the structure of the team and where we're at in that journey.

But we spent a lot of time as a team working on a right to learn process of understanding what could this business yield and then where is that opportunity trap inside the business.

And you look at your -- your structural cost and your footprint, you look at those elements, but a lot of this value is trapped in what I believe is purchasing upside, conversion costs and opportunity in design cost.

And so building the capabilities to get at that internally on how you think about what kind of process and talent do you need to go get it, lean activities that drive conversion cost improvement, purchasing cost opportunity that you can get out that I think still, while we've done some good things there, I still think there's much opportunity in our material spend.

And then obviously, getting design costs as you think about platforming products, a lot of those things are tied -- those things are tied to building capabilities and inside the business and then rigor around tracking pipelines to go get at that.

We have -- in the short term, we've supplemented our team by bringing in into specific businesses to get at some of the near-term opportunity, just really when you think about lean implementation and value streaming in these plants and the short list of plants.

We kind of accelerated that by bringing folks in to help us while we're building the capabilities. But it's really traditional. The opportunity is to get the margin expansion really pro typical things that you would see in any industrial manufacturing business.

How do you look at your cost and we do have aspirations to grow with the market, a little bit above the market, but we're trying to identify the path to 10% of what we've done, the work we've done, right, which I refer to as right to left, which gets us there is really a journey across time to get these operational cost savings.

With respect to the talent, when you look at the top, call it, 30 leaders in the company, in the six months that we've been here, we changed about 40% of those people. So we've done a lot of transitional leadership. I think the journey around leadership is never done.

I think you're always looking at where you're at and adding talent or upgrading talent. But I do believe we've made a lot of progress there. And I think it's -- we're starting to see evidence that in some of the -- in the results in the business as well. We're early in the process.

It's not a long journey, but it's a journey and you got to build these capabilities, you got the talent to do that and we're moving at a quick pace to do that.

But we're also, as I mentioned before, bringing in folks to help supplement to accelerate the changes that we need in some of these businesses that are more acutely underperforming in the portfolio..

Sure. I guess, as I am looking at the Fire & Emergency business, right, this is at least in my mind, one of the key levers that you have in driving value inside the company. I mean this is a business that if I look back, gosh, call it, three years ago, was definitely earning double-digit EBITDA margin.

And the volumes haven't really changed all that much over the past three years. So we're not talking about significant volume compression yet the margins obviously are materially lower. You talked about some of the changes in purchasing and some of the changes in design. I certainly understand how that would generate some savings.

But unless I'm missing something here, that's not really what created this margin compression within this business.

So what needs to happen here specifically for things to get better from a profitability standpoint? And I'm wondering if there are some things that you can do here on a more sort of accelerated time line in order to get sort of the cost structure rightsized and efficiencies out of your operations to get margins where they kind of need to be?.

Yes, that's specific to the question you asked specifically what I tried to share, I didn't share, is that apparently was that it's around leading activities. The margin compression was a lot around the top line staying flat and a lot of bodies being added to the business that didn't increase throughput.

So you've got a lot of unobserved costs and additional people in these businesses over the last three years that eroded margins.

So the idea is as you go like what the work we're doing at E1 is the value stream to get the throughput up, but also to get the processes to where you need less people with the same throughput or less people with more throughput.

And that's one of the businesses where we have the greatest compression of margins over the last three years, where we have the team on the ground right now, we brought in support to work that process. And when we talked about lead time reduction and then we talked about improving the businesses.

That's one of the businesses that we are seeing the improvement that we'll need to get to double-digit to get back to restore the margins to where they were. So there is short-term things. There are structural cost things that we're doing.

But there's also just block and tackle, how do you look at the flow of the work through the plant, improve that flow and ultimately have less people to get the throughput and that's the process. And that's not -- it's an ongoing process, but it's something that we're already seeing benefit in the businesses that we're taking action in.

So we're working that very hard..

Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question..

I'm wondering, if we could just talk about the progress that you folks had made at Ocala. Can you talk about what's driven the ability to drive higher line production rates and in terms of the product simplification opportunity set in the longer term.

Can you just talk about your approach to that element of the cost improvement and productivity story?.

Yes. I think that Ocala, which is the E1 business. We -- that -- we brought folks in to look at how we separate lines to value streams so we can get our line rates up by platform. So right now, part of the work that's being done is on aerials. We had an aspiration to get that liner up to three a week.

And the process is, one, is getting clean around the throughput on aerials, but a lot of it's around how we manage complexity in the business.

There's the growth, the building of backlog over the past three years, a lot of it's been built around custom units that -- and getting our costs right upfront, understanding what the market price of these are and getting engineering documentation, right? So there's work done on the upfront around process flow to -- from sales to engineering and from engineering to ops to help that, but it's part of the value stream.

But also separating that line so we can guarantee a throughput versus a mixed use line where you're -- you don't have the transparency. That's a big part, a big part of it.

And then the other piece that I'm very encouraged about is the work that's being done on our channels to be more active and engaging with our channels and development opportunities and improving our performance of our channels to help us not only get better quality of orders, but also to get the error rates and the defects in orders done so you can get to the build quicker with a better design upfront.

So the work that's being done there is really the full value stream from initial how we do deal development in the field to how that converts into engineering to the manufacturing floor. And then once you get on the manufacturing floor, how do we make sure we have line of sight across the value stream of that business to get the throughput we need.

And obviously, part of that how streaming is looking at your labor costs and figuring how do you lean down your operation to get as good or better throughput with less labor content. And we brought in program management expertise to supplement the workforce, and we brought in lean expertise as well.

We have a weekly cadence, where that I'm part of and the President of the business, Kent Tyler is part of, where we inspect the progress against committed timelines, and we're on top of that. It was one of the first plants I walked when I came here. I was there last week again.

And while we still have work to do, there's been remarkable work done in getting that business streamlined to get us to a spot where we can get to the profitability that we deserve. So that's probably all the businesses that we've got.

One of the ones, I think, we've seen the most advancement in at least in the six months or five months I've been here..

And am I correct in thinking about the longer-term opportunity here, meaningful reduction in product variability and more -- through more rigorous order management system in terms of the level of customization.

Is that opportunity that's in front of us? And if so, what's the time frame?.

Yes. I think that there's -- when you think about the optimization of the Fire business as a network, you have multiple businesses that today operate largely independently of one another in terms of how they do demand creation and demand and fulfillment. And certainly, the product designs and the engineering are also separate.

When you think about a longer view and you think about this over probably a two to three-year time horizon, there's looking at how you product platform across your entire business that you make sure that you keep the differentiation and the identity of the brand.

So the channels have an ability to sell the value but also spec the value that creates that. But you also have an opportunity to take optimistic complexity. And you also have an opportunity to look at your footprint that when you think about optimization of your footprint, what you do where and where your centers of excellence might be.

So those are all part of that same kind of philosophy around how do we think about being in a Fire business versus being in fire part business, but also maintaining the strength of these brands because this is a brand driven business when you get down to the local markets.

The last piece of that, it's obvious is if you think about engineering on a platform basis and commonality it should also present purchasing leverage opportunity for us and to improve purchasing leverage opportunity for us.

As you look at commonizing a percentage of your design as much as you can, while again, maintaining that end market differentiation that you got to have for brands.

So we're looking at that very -- obviously, right now, we're keenly focused on improving the performance of each business through simple lean implementation and some short-term activities.

But the longer view, which was part of the strategic business reviews that we talked about is how do we think about taking complexity out of the Fire business and leveraging the strength we have in that business as we think about what we do well and where we do things well to be more efficient. So a big part of the future..

And then just a shorter-term question. So in the last -- in the great recession, your fire truck demand peak to trough was down somewhere in the 30%, 35% range.

Can you just talk about how the landscape compares today compared to what we saw in the last cycle? Is that the base case for the industry in your mind?.

Yes. There's still a question that we're seeing some things push right in our book-to-bill. When you think about recreating that peak to trough this is just my personal opinion, the fundamentals around this economic situation we find ourselves in today is very, very different than that period of time.

And whether we're going to -- I don't see evidence in our channel discussions and our order rates is going to necessarily say we're going to have that kind of peak to trough again. So maybe I'm a bit more optimistic than that we're not going to recreate that situation.

But the underlying fundamentals of the economy, I think, are different now than they were at that time, even though there are pressures on municipal budgets, there's also -- we're not seeing that materialize to that extent right now.

And Drew, do you have any comments on that or thoughts on that?.

Well, clearly, we'll be watching the first I think pass that Q2 municipal tax receipts we took a look at and on the same list that didn't show a decline yet in municipal budgets and any -- there was a slight decline, it was more than made up by federal stimulus.

And I think maybe the conditions and appetite for federal backing of those funds might be a little different this time. But certainly, right now, we have -- we have an eye on it, and we just haven't seen anything initially to give us concern. And as Rod mentioned, the backlogs are currently very strong..

[Operator Instructions] Our next question comes from the line of Andy Casey with Wells Fargo Securities. Please proceed with your question..

Question on portfolio review portion of the goal to improve overall EBITDA margin to double digits a few years out.

I'm trying to gauge what the top line may look like outside of market shift? Specifically, I was asked on the last call, but wanted to get a refresh on how you're viewing the Class A part of recreation against the work that's been done to improve returns there and the cyclical wave it's riding.

And then also, are you looking at other meaningful parts of the overall REV portfolio for potential removal?.

Yes, I'll make a comment and I'll offer it to Drew or Mark as well. I think that we're always going to look at our portfolio for opportunities to understand what's a good fit, what is core.

We talked about a path to -- it has to have a path to double-digit earnings so I think that that's an element of that will always be in a process of understanding because we are -- at this point, a portfolio of companies, and it lends itself well to be able to kind of examine where you are on specifics, probably won't get into specifics, but I think the -- anything -- I think the overall long term, what I would say is that if we were to divest something, it would be complemented with a thought of how do we replace that revenue and do better on those earnings.

So our overall pipeline goal is not to shrink. There'll always be timing elements of divestiture acquisition.

If you were to do something that it's not reasonable to time everything perfectly, but we certainly believe that being in a $2.5 billion to $3.5 billion range or more is where we want to be as we go through the journey of divestiture and acquisitions.

We want to hold the top line and improve the earnings and then obviously move to what I would say is more of a core position, but we're still working on defining that core right now as a team and what we think that should be. I don't know Drew or Mark, if you have anything..

Okay. And then you kind of touched on already, but I just wanted to ask it specifically that improved fire apparatus plant throughput. Should we view that as a signal that the inefficiencies that have been plaguing that part of the business are more or less behind the company.

And you can -- as you've been talking about through some of the questions, really get to work on return improvement as opposed to trying to make up for some issues in the past..

No. I'd say we're on a path of improvement, but we're certainly not finished with that improvement. There's great progress being made. But I believe that when you look at it on a one, two, three or four, that process if it's done right never ends.

And the process of relentlessly foreseeing cost out and efficiency and waste and complexity reduction, that's always going to go. I think we're well on the way. I think we've made big steps. But we're -- you can look at these businesses individually and still see tremendous opportunities for improvement.

It just takes time and talent to get and rigor, and again, operationally capable people to do it. We're working. The problem is just there's opportunities there that still remain in front of us. So which speaks to, I think, the right kind of things we want to see in terms of margin opportunity in the businesses.

So if we're going to get to double-digit earnings, a lot of that's going to be coming through our Fire business getting there. And we're working at right now to get that on the glide path. But it's not a do it and done. It's a continuous process of improvement.

We're talking a lot about throughput and lean, but the larger design opportunities, design cost and purchasing are still opportunities as well that we haven't probably lean into as much -- I don't know if we generally gotten into as much at this point just because we're focused on the throughput side of it right now..

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks..

So again, I appreciate it. I think from a -- where we expected the quarter to be and what -- I think we have made solid progress. I think that we continue to see momentum in the business. We still see a lot of work that we have in front of us. But again, we're very optimistic on the progress that we've made and what we see in front of us.

I do want to thank the team again. I think that we've pushed hard to change and to do things differently. And I can tell you, I'm really pleased with the way the team has responded to those requests. We have a lot of work to do. But again, I think that the road ahead is going to be quite positive.

We guys got to keep the fight and get to the situation that we're dealing with COVID and I think we'll see good days ahead of us. So I appreciate the questions, and we look forward to talking to you again next quarter..

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day..