Greetings. Welcome to the REV Group Incorporated Third Quarter 2021 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 of Investor Relations and Corporate Development. Thank you. You may begin..

Thank you, Sherry. Good morning, and thanks for joining us. Earlier today, we issued our third quarter fiscal 2021 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 the 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 risks include, among others matters that we have described in our Form 8-K filed with the SEC earlier today 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 call, if at all.

All references on this call to a quarter or a year are our fiscal quarter or 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, to everyone joining us on today's call. I'd like to begin with a brief comment regarding our situation resulting from the Hurricane Ida. As you may know, our Ferrara Fire business is in Holden, Louisiana, which effectively was right on the path of Hurricane Ida.

We are thankful that we have not had any report of injury to our employees at this time. Many of our suppliers and our own efforts have provided essentials, during this difficult time as they endeavor to recover from this storm’s aftermath.

The Vice President of Ferrara, Bert McCutcheon, has cooked meals for many employees, and I would simply like to thank all involved that have helped to our team members. Our facility has been impacted and Mark will speak to that momentarily.

Also, we would like to thank the first responders that put themselves online - on the line in support of the efforts in the recovery – help recover from the storm.

This morning, I will provide an overview of the quarter's consolidated performance and then move to commercial, financial, and operating highlights achieved within the quarter before turning it over to Mark for detailed financial segments.

We are pleased to report another strong quarter that nearly doubled our adjusted EBITDA performance versus last year, despite top-line implications tied to increasing supply chain challenges and labor challenges.

We continue to experience headwinds with staffing, workers, and absenteeism, as well as shortages in raw materials and components, such as semiconductors, furniture, wiring harnesses, pumps, axels and chassis.

Throughout this fiscal year, our procurement team has engaged with our supplier partners and has generally been able to source to allow continued production. This has often led to inefficiencies, time and rework that we have been able to achieve our throughput targets.

However, as we move through the quarter, these labor material shortages became more difficult to offset and we were unable to meet our production targets. As a result, approximately $65 million of revenues slipped out of the quarter as our deliveries were delayed. Third quarter net sales of $593 million increased 1.9% over last year's quarter.

We estimate that roughly $50 million of vehicle starts were missed within the quarter due to the previously discussed challenges, which will have a follow impact through - impact in the fourth quarter of our consolidated top-line. This resulted in the full year revenue guidance adjustment that we announced today.

I would like to be clear though that these are delayed deliveries due to timing of materials, components and chassis, but they are not lost sales. Third quarter sales increase was driven by Commercial and Recreation segments.

Commercial segment sales reflect improved end-market conditions and share gains within our specialty group, as well as increased sales in our municipal transit bus versus prior year. In the Recreation segment demand for all categories continued to be strong with retail sales matching or exceeding wholesale shipments.

Delivery inventories are still 60% to 70% below historic norms across all of our brands and inbound orders remain robust. We have not yet experienced a notable restock of any of our RV categories and most wholesale shipments are still selling through to retail buyers. In Fire & Emergency, revenue declined year-over-year, as well as sequentially.

This segment was the most impacted by the current supply chain and labor constraints. Despite headwinds on the top-line, our businesses have continued to improve operationally and delivered solid bottom-line results. Third quarter adjusted EBITDA was $41.6 million, with an adjusted EBITDA margin of 7% increasing 330 basis points over last year.

Sequentially, margins declined just 10 basis points on $50 million less revenue, demonstrating our improved operational performance. Over the past 15 months, our businesses have adapted under difficult conditions to deliver results.

We continue to flex labor, adjust line rates and production mix to accommodate available build and maximize profitability. Commercially, the teams have done an excellent job in mitigating today's inflationary environment. We have been able to achieve positive price cost and realize the price that is within our backlog.

Turning to slide 4, we have several accomplishments within the third quarter that I would like to highlight. First, our new order performance continues to gain momentum and we closed the third quarter with our seventh consecutive record backlog.

Each of our segments had strong order intake within the quarter, and we achieved a consolidated book-to-book [Ph] ratio of 1.3 times our fiscal 2020 third quarter results. Our consolidated book-to-bill was 1.4 times resulting in a total backlog of $2.7 billion.

This positions us well for growth as we ended the fourth quarter and work our business planning for FY 2022. In Q1 of this fiscal year, we announced that we will be investing in developing our operational excellence capabilities at our Investor Day in April. We provided an update on the work, the early work that the team had accomplished.

At that time, we reported that we had certified 300 Browns, 150 Green and 35 Black Belt trainees and we had a pipeline of 385 projects they were all aimed at delivering ongoing cost savings.

In the five months since that, we now have 515 Browns, 155 Green and 84 Black Belt certifications and our operations savings top-line has nearly doubled to an active 738 total active projects.

The team is fully integrated as we have software tools, including Power BI and Lean DNA that allow us to daily updates and automated tracking reported to our OpEx results. One result of these operational excellence efforts is the improved profitability with our year-over-year increase in EBITDA and net income over the past four quarters.

This improvement has increased the baseline for a year-to-date cash generations. The third quarter marked another quarter of strong cash conversion and free cash flow. We’ve remained focused on net working capital efficiency with improved accounts receivable collection within the quarter.

Our business also - our businesses are also working on their - with their customers to expand our deposit program, which increased our advances of over $5 million compared to the second quarter. Improved cash from operations combined with our typically low level of capital requirements to draw the cash to reduce our net debt by $57.5 million.

Over the past year, both the numerator and denominator of the net debt-to-EBITDA equation has improved significantly. We exited the quarter with 1.7 times leverage, well below our stated target of 2 times to 2.5 times.

This level of debt and earnings performance positions us with the capacity to pursue our strategic growth initiatives and return capital to our shareholders. Today, we announced that the Board of Directors has authorized a new $150 million share repurchase program.

We are pleased with that our financial performance has put us – put the company in a position to follow last quarter's reinstatement of our annual dividend with a buyback authorization this quarter; reflects an ongoing commitment to our capital allocation strategy of investing in our business; maintain strong liquidity; and appropriate leverage, while returning cash to our shareholders.

We strive for disciplined use of capital that maximizes the company's value and shareholder value. The authorization allows maximum flexibility to achieve our goals. Earlier I mentioned the strength of our current record $2.7 billion backlog.

The backlog growth to-date is a result from solid year-over-year bookings growth from our improved commercial performance, simplification of our brand and dealer network are delivering share gains, as well as the delayed throughput resulting from the external headwinds.

We believe that there will be additional growth opportunities stemming from the combination of the recently passed Senate Bipartisan and Infrastructure Bill and the recently passed House $3.5 trillion budget resolution.

These two bills contain an additional $5 billion for electric vehicle and buses, $30 billion for modernizing public transportation, and $80 billion to upgrade the power grid and install EV charging infrastructure.

The final version of these two bills is yet - still yet to be determined that when passed, we expect they will provide additional funding to municipalities to improve their municipal transportation and first responder assets. Our commercial teams have been working to identify and streamline the process of stimulus dollars reaching our customers.

We view both the infrastructure bill and the budget resolution has provided incremental opportunities to the level of demand we are experiencing today. We have had a focused effort over the past year to advance the electrification of our platforms with recent product announcements demonstrating our progress.

Last week, we had milestone announcements from both our fire group and our school bus business.

First, we announced the fire group will introduce its fully - its first fully electric North American style fire apparatus across all the REV brands developed with partner emergency One group, the maker of the World's first EV fire truck, this new electric fire truck will deliver the longest electric pumping duration in the industry.

It enables departments to drive and pump on electric power only, a key differentiator in the industry. Its range extender diesel engine is used for backup when pumping beyond three or four hours on the hydrant or for extended operation in a blackout out or natural disaster.

It is built for strength durability and specifically for the fire service location. We announced that we are taking pre-orders through our dealers and it will be available for delivery in 2022. Adding to our ambulance partnership, we expanded our relationship with Lightning eMotors to include our Type A school bus business, Collins Bus.

Under this multiyear year agreement, we expect to deliver more than 100 all-electric buses across the U.S. and Canada over the next several years. The buses will support both AC - Level 2 AC charging and Level 3 DC fast charging with integrated vehicle to grid capabilities.

Other features will include a modern digital-dash display, hill-hold functionality for safety, advanced telematics, and, analytics, a mobile App for drivers and fleet managers.

The first orders for this all-electric Type A bus utilizing eLightning’s EV technology are already in production with delivery to dealers and school districts expected this fall.

Finally our Capacity business, displayed its Hydrogen Fuel Hybrid Electric Terminal Truck at this year's Advanced Cleaning Transportation Conference in Long Beach California. Two of these trucks are currently in operation at the Port of Long Beach and they have made – and then they’ve made available for ride and test drive.

The trucks maximize up time by providing hydrogen power backup when the electric battery requires recharging. This hybrid technology is designed for operation to intermodal, port and warehousing or distribution applications. We are pleased to say that this product has received excellent feedback and recognition at the Clean Transportation Conference.

It’s an exciting time to be at REV when electrification, especially vehicle fleet is just beginning in most of our markets while accelerating in others. There is a significant opportunity to be market leaders in this space and outpace our competition.

We will continue to work our strategy of co-development and partnerships with technology leaders who will put us in a position to win. Today, we shared a few examples, but we expect additional news surrounding EV platforms to be forthcoming. I will now turn it over to Mark for details of our third quarter financial performance.

Mark?.

Thanks, Rod, and good morning, everyone.

Before I begin, I'd like to recognize our team for the solid performance during the quarter with such uncertainty, entering our fiscal third quarter, industry research forecast that we are approaching a trough of semiconductor shortages yet within the third quarter and entering our fiscal fourth quarter, shortages have increased and forecasts of global vehicle production continued to decline.

In addition, our component suppliers continue to have challenges meeting demand as they deal with their own external headwinds, exacerbating the situation, cases of the Delta variant and quarantined workforces began to rise rapidly within our fiscal third quarter.

These are external forces that we cannot control, but our teams were able to manage them effectively in the third quarter. As Rob mentioned, our top-line revenue impact from these headwinds was roughly $65 million in the quarter, yet we maintained a decremental margin of 6% in operations.

We expect the challenges we experienced exiting the third quarter to remain throughout our fiscal fourth quarter. We will continue to adjust operations in response to material, labor availability to optimize our decremental performance. Now please turn to Page 5 of the slide deck as I move to review of our segment level performance.

Fire & Emergency, third quarter segment sales were $270 million, a decrease of 12% compared to the prior year. The decrease in net sales was primarily the result of fewer shipments of fire apparatus in ambulance units versus the prior year, partially offset by price realization of trucks that were in backlog.

As you have likely heard through industry data, media and earnings reports, key suppliers have needed to in place their customers and allocation or have chosen not to restart production at certain facilities as they manage their own supply disruptions.

This has resulted in limited availability of chassis, axels, and other components critical for completions and starts. Exiting the quarter, we had over 100 vehicles that did not have all of the parts required to be completed. As a result, these units remained in with, rather than being delivered and revenued.

In addition to the supply chain disruptions, labor availability was challenging in the quarter, particularly in our two largest F&E facilities in Florida due to the escalation of COVID variants. In order to maintain some measure of consistent flows through the plants, we have been proactive and limiting or altering our production schedules.

For example, lack of van-based chassis supply to our ambulance division resulted in a production shift to modular units that are higher content. Due to the increased content and complexity, these units require more time on the production lines with float velocity and contributed to lower than expected sales within the quarter.

F&E segment adjusted EBITDA was $15.8 million in the third quarter of 2021, compared to $12.9 million in the third quarter of 2020. Adjusted EBITDA margin of 5.8% improved 170 basis points, compared to last year.

The increase was primarily a result of price realization within our backlog, favorable mix of the high content ambulance units mentioned earlier and lower operating costs, partially offset by supply chain disruption and labor constraint inefficiencies.

The segment once again mitigated the impacts of inflation in the third quarter, despite these being relatively long cycle businesses. Total F&E backlog was $1.2 billion, an increase of 18% year-over-year. The increase in backlog was a result of strong orders to fire apparatus and ambulance units over the past year.

Fire orders increased 78% versus last year's quarter, while orders for ambulances increased 88%, setting another record for inbound ambulance unit orders. The quarter also marked the seventh consecutive record of ambulance group backlog, which has continued to grow since the onset of the pandemic in the second quarter of 2020.

We expect the remainder of the fiscal year for the F&E segment will continue to be impacted by supply chain and labor market disruptions. We have worked closely with our OEM partners that communicate our demand needs and steer the chassis needed to fulfill our fourth quarter production plans within the ambulance group.

As Rod mentioned, Hurricane Ida has impacted our Ferrara Fire plant in Louisiana. There is limited damage to the facility, our production has not resumed as of today although we expect they could return as early as this week.

We are working with our local supplier based in Louisiana to determine what damage they have experienced and the impact of future component supply. As we ramp the facility back up, it may also be challenging for on-site vehicle inspections and deliveries.

This is due to a lack of hotel rooms being occupied with contractors visiting to assist recovery efforts. Considering these impacts, current chassis supply and line rate adjustments, we expect segment performance to be in line with the third quarter runrate.

Turning to Slide 6, Commercial segment sales of $111 million was an increase of 21%, compared to the prior year period. The increase was primarily related to increased specialty group sales and increased sales in municipal transit buses, partially offset by lower sales of school buses.

Momentum in our specialty businesses continued with the earlier year sales increases of 126% and 245% for terminal trucks and street sweepers respectively.

Municipal transit bus shipments returned to a more normalized level, compared to the last year's reduced deliveries, which have been adjusted to accommodate the request of a large municipal transit customer due to COVID-19. Commercial segment adjusted EBITDA of $9.7 million decreased 6% versus the prior year.

The decrease in EBITDA was primarily result of an unfavorable mix of school buses and municipal transit buses, both bus types had less content which resulted in less EBITDA within the quarter versus the prior year period.

The specialties group has done an excellent job winning new contract awards and leverage of increased sales volumes in the quarter. The business has been an early adopter of a number of OpEx initiatives and has improved manufacturing profitability by over 600 basis points, compared to the prior year.

However, the group’s adjusted EBITDA margin is still trailing the segment’s consolidated rate of 8.7%. Therefore, the third quarter’s segment mix was sales containing greater contribution from our specialty group with margins dilutive.

We believe specialties continued offers and deployments of the REV’s drive business system will position them to return to double-digit margins.

Commercial segment backlog at the end of the third quarter was $312 million, which reflects strong orders for terminal trucks, street sweepers and a return to normal ordering patterns for school buses, Specialty group backlog increased 618% year-over-year and achieved its second consecutive record level.

Our Capacity Terminal Truck business is seeing demand from the warehouse and distribution segment and won two large national account orders, which led to market share gains. Street sweeper demand remained strong with our rental house customers expecting these trends to continue into 2022 given the prospect of a new infrastructure bill.

Within the municipal transit markets, we have had greater quoting activity from airports due to increased passenger activity. Universities have been slowest to recover and ordering was muted, but we expect this end-market to improve as soon as return to campus in the fall.

The transit industry has been the quickest to adopt zero emission buses and within the quarter, we partnered with the Stark Area Regional Transit Authority to showcase our hydrogen fuel cell bus in tours to California and Canada.

This Borrow a Bus program was created to raise awareness about innovative technologies and mark the first time the bus was displayed and operated in Canada, whose government has pledged to help purchase 5,000 zero emission buses over the next five years.

Our update to consolidated revenue guidance reflects our expectation that the specialty and municipal transit business performance will be similar to third quarter. However, our Collins school bus business suspended production during the month of August due to lack of chassis supply.

We have updated our fourth quarter production planning to align with our OEMs partners updated delivery schedule. With this information, the top-line impact due the school bus production shutdown is expected be in the range of $25 million to $30 million versus the third quarter Commercial segment revenue run rate.

As I mentioned earlier, our businesses have limited the impacts of lost revenue and we expect a 15% incremental EBITDA margin.

Turning to Slide 7, Recreation segment sales of $213 million were up 16% versus last year's quarter, increased sales versus prior year were primarily a result of increased unit shipments of Class B, Class C and towable products, plus more discounts and allowances across all our segment categories, partially offsetting the increase of lower sales of Class A units related to supply chain and labor shortages which was a headwind throughout the quarter.

The industry remains challenged with material shortages of furniture, awnings, generators and other small ticket items need to clean chip units. In some instances our relatively small-scale has been advantage and we've been able to find alternative sources for product.

The limited availability of gas, chassis for Class A motorhomes resulted in a greater mix of diesel and overall line - lower line rate for that business. Recreation segment adjusted EBITDA was $24.1 million, up $12 million versus the prior year. Adjusted EBITDA margin 11.3% is a record for the segment.

The increase in EBITDA was primarily the result of stronger price realization relating to price increase and lower discounts, volume leverage and lower operating expenses, partially offset by material inflation and increased freight surcharges.

Even with the line rate challenges presented by labor and chassis shortages, our Class A businesses – in our Class A business, margins were nearly 600 basis points greater than the prior year.

The business is making good progress against our stated goal of raising its peak to trough margin profile to the levels that meet or beat industry peers and lowering its unit breakeven point. Our Class B and C businesses continued to perform above industry averages with market share gains in their respective categories at mid-teens EBITDA margins.

Segment backlog of nearly $1.2 billion increased 250% versus the prior year and 23% sequentially. It is the fifth consecutive quarterly record and a result of continued strong order intake across all of our RV categories.

End-market conditions remains strong with retail sales exceeding wholesale shipments and dealer inventories that remain down an average of 60% to 7% compared to historical levels.

Introduction of 2023 model year was successfully launched across our motorized brands and we are looking forward to the wide releases at the upcoming retail show in Hershey and Dealer Open House in Elkhart later this month.

Industry demand remains elevated and we believe we are positioned for growth above market with continued tier gains entering into new markets and portfolio alignment of faster growing categories.

Turning to slide 8, net debt of 31 - as of July 31 was $240.8 million including $9.2 million of cash on hand versus $330 million net debt at the end of fiscal 2020. At quarter end, the company maintained ample liquidity with approximately $277 million available under the ABL revolving credit facility.

We believe our leverage ratio combined with this liquidity and strong cash generation positions us well to opportunistically buy back shares and deploy capital in a value accretive manner.

We declared a quarterly cash dividend of %0.05 a share payable October 15 to shareholder of record on September 30 and Rod discussed the announced share repurchase authorization of $150 million. Trade working capital on July 31, 2021 was $405.5 million, compared to $427 million at the end of fiscal 2020.

Year-to-date net cash provided by operating activities was $100.6 million, compared to $25 million in the prior year period.

Improvement in year-to-date cash from operating activities was primarily related to higher net income in trade capital management, including a decrease in accounts receivable and inventory, partially offset by decreased payables.

We have spent $13.9 million on capital expenditures for the third quarter and expect to spend $8 million to $10 million more in the fourth quarter. This results in year-to-date free cash flow conversion of 147% and the midpoint of our updated guidance at 121%. Turning to Slide 9.

Today, we are updating full year fiscal 2021 guidance to reflect the challenges that have impacted our top-line. We now expect fourth quarter sales to be in line with the third quarter runrate reflecting the growing impact of supply chain and labor constraints.

On Monday, there were reports that third quarter light vehicle production will be worse than second quarter and up to 3.8 million vehicles. In addition, productivity declines related to COVID variants have increased which was not anticipated when we provided guidance in June.

As a result, we have lowered our full year revenue guidance by $150 million at the midpoint to a range of $2.3 billion to $2.45 billion. This approximately 4% growth year-over-year, compare to the prior midpoint 11%.

We have lowered the range of adjusted EBITDA guidance to $140 million to $150 million from $145 million to $160 million, a reduction of $7.5 million at the midpoint. We are narrowing net income guidance to range of $54 million to $64 million from $52 million to $68 million previously.

We also tightened the adjusted net income range to $74 million to $83 million, from $73 million to $88 million and free cash flow is now expected to be between $90 million and $100 million, an increase of $19 million at the midpoint. With that, I'll turn it back to Rod for closing comments. .

Thanks, Mark. We discussed today that there remain many challenges in the operating environment that we are managing with the resurgence of COVID and the lingering labor and supply chain’s impacts related to this.

Yet we are also operating where end-market demand for our vehicles is very strong, providing record backlog and pending fiscal stimulus that enable and accelerate demand and the adoption of new technologies for us to capitalize on.

While the pandemic has not left us, we do see that people have begun to return to schools, universities and airports and are traveling more frequently. Demand for recreational vehicles has not reverted and the market survey suggests that new interest in demographics have entered the lifestyle.

While shortages limit that our line rates and top-line, we have managed cost effectively and maintained positive price cost year-to-date. I am pleased with the work that our team has done in advancing the REV Drive business system. This has been fundamental to our ability to improve results under these difficult conditions.

We have much work to do, but we are excited to exit the quarter with a strong financial position, provides flexibility to pursue our strategic growth initiatives, as well as return cash to our shareholders.

In closing, I would like to once again thank our dedicated employees for their continued efforts and working through these challenging times and continuing to provide our – and continuing to provide our customers with innovative, high-quality of products that truly make a difference in people's lives. Thank you for joining today's call.

And operator, we'll take – now take open questions. Thank you. .

[Operator Instructions] Our first question is from Mig Dobre with Baird. Please proceed. .

Thank you. And good morning, everyone. I guess, I am just sort of looking to clarify make that I heard this right.

When you're contemplating the fourth quarter sales, are you - did you mention that you expect that fourth quarter sales to be pretty close to what you've done in the third quarter? Because obviously, I mean, the range that you provided in your guidance is extremely wide. That's why I am looking and kind to clarify this. .

Yes. Yes. That's correct, Mig.

With - obviously, we'll have some inline on the F&E side and maybe a little uptick in recreation, but the impact that we're having because of Collins of $25 million to $30 million with that plant being shut down will more or less normalize the normal $20 million to $30 million uptick we've seen historically from quarter-to-quarter. .

Okay. Okay. That makes sense. And then, in Fire & Emergency, I guess, I am trying to get a better sense here for how you're kind of thinking about the runrate for this business as we start to contemplate fiscal 2022 here. There is a lot of backlog that you have in a business.

At one point in time, do you think you're going to be able to have, sort of better conversion here? What you have in the backlog right now, is that all slated for fourth quarter and fiscal 2022 deliveries? Or is a portion of this backlog anticipated to stretch out into fiscal 2023? And then, related to this from a profitability standpoint, how is this backlog price? Are you in a position where you can offset these incremental headwinds? Or should we be extrapolating the fourth quarter as we think about fiscal 2022?.

Yes. I guess, Mig, obviously we're not going to comment on 2022. I would say though in Q3, we demonstrated that we're able to offset. So we even had orders that were pre the inflationary period and the work that we've talked previously about our purchasing group is doing to drive savings to offset inflation.

And then, we have come out with price increases and specifically in F&E with price increase and then on the ambulance side with surcharges to offset those costs that will become – that have hit the market.

So the sales that we see, we feel confident that we'll still have a positive price cost equation with what we - how we price the product, but also the savings initiatives that Rob Vislosky and the procurement team has driven. So we don't see a margin degradation related to price cost in that business going forward. .

And in terms of how deliveries are slated out of this backlog, is it all fiscal 20212 business and some in 2021? Or is there a component that stretches into 2023 at this point?.

Right now, it doesn't expand out to 2023. So we're still in the 2022 period. Obviously, you are looking at and - how we forecasted our Q4 in 2021 and then exiting into 2022, it's pretty close to a full year of backlog that we have in that business. .

Okay. All right. Thanks for the color. Appreciate it. .

Yes. .

From Courtney Yakavonis with Morgan Stanley. Please proceed. .

Hey, Courtney. .

Charts that are being pushed to the right and….

Sorry, we had a delay there, Courtney. Could you restart the question? We got you missed. .

Just on your comments that some of the starts are being pushed to the right, just your conviction that those are not going to be canceled or moved to another provider given some of these issues.

And then, also, if you can – appreciate that you're not giving 2022 guidance at this point, but if you can help us think about segment level margin targets, given where you're going to fall this year.

Obviously, not necessarily going to according to plan in the fourth quarter, which you can just help us think about your targets for 2022 segment up to those margins?.

Yes, Courtney, this is Rod. I'll take the flowthrough question and starts question. I think that the impacts we've had related to starts is really a velocity. It's completely something that the industry is experiencing.

So, the starts that we miss related to the line not – not moving attack and was it's not delivering the revenue, which was obviously something we talked about today. And it's related directly back to a process of being ready to build, as you have the materials and having the slots open up, as you move things to the line.

So it's all related to velocity and the fact that the materials. As far as orders being canceled, we have not seen any of that or any suggestion of that. And honestly with the fact that these are like REV production issues that are moving your orders somewhere else is not going to solve that. You're going to get in line somewhere else.

If you were to think about that because the material shortages are in an industry phenomenon, fortunately not a revenue phenomenon or problem. So, I think that we're in a good spot there. Even I made a specific comment that the delays - these are delays and not lost sales and we feel strongly that that's the case.

So we're working hard to get these deliveries from our suppliers. So we can get back to attack and devote revenue though.

Mark, and if you want to take the second question?.

Yes, I would say, Courtney, on the margin profile, I would just say, we're not going to provide guidance right now.

But as we look out into what we have provided for 2023, I think we're still on path or ahead of the Investor Day 2023 target that we had provided and some of the challenge we have here is obviously is what kind of throughput we will get entering into 2022 as we exit Q4 runrate here.

So, we're still open to that and obviously we are providing guidance in the December timeframe when we present our Q4 results. I'd really want to hold off given that fact that we have a lot of challenges and headwinds ahead of us here to manage through before we give a full year look for 2022 and what our expectations were.

But nothing has come off for what we have presented previously around our 2023 targets in the past to get there. .

Okay, great. Thanks. .

Hey, Terry, this is Drew. We're I think a little bit delayed when we're passing off questions. I think those in the queue if you started, we haven't heard yet. .

Yes, I didn't start yet. But I can hear you guys.

Is it coming through? Okay?.

Yes. .

Yes..

Okay. Hi. I just wondered, maybe more like - I don't know, a structural question. Anything that you guys can do to solve this chassis issue? It seems like it's been something that's ongoing for a couple of years and I know you have great relationships with your suppliers and all that kind of stuff.

And I don't know is there any way around this as a recurring issue?.

Yes, well, I can’t - I don't know. The issue we’ve had is really something that kind of created from the pandemic and the semiconductors and it's very well reported throughout the industry in terms of lead times on automotive and the pooling that some of the OEMs are having. We're waiting parts and finishes.

And I can assure you there is not as stone on turn with between us and the OEM is around trying to figure out how to solve this. We have daily and weekly calls to understand production rates and delays and postponements and you guys all see the announcements of delays and openings and shutdowns that they are going OEM-by-OEM right now.

So, we're caught in that cycle like everybody else buying from this including if you go to any – it’s a different build.

Obviously, if you got any dealer lot on a consumer side, you'll see a shortage of inventory as well So it's a massive impact that we're working day-to-day with these OEMs to try to address their build to make sure that they're allocating to these critical areas of infrastructure that support our communities.

So, we haven't - we couldn't have more dialogue than we're having with them. But the quality of information relating to this being resolved is not something we're getting a real quick turnaround on.

So, it's going to - I would say, I think we’ve got some challenges here - like it's been reported in public that there is emphasis in the industry around the shift choice and the forward effects of that on demand. .

Okay.

Is there any way that you can give us a sense of how your transformation of the productivity and your operational efficiencies and all that kind of stuff is working? Or is there is just too much noise right now with labor shortages and supply chain and all that to really have any sense of if all your changes or like what kind of impact, all the changes you've been making are having on the operations?.

It's hard to - this is Rod again. I mean, that's a great question. It's hard to give the analytics to validate what it is, because it's such an unstable environment right now.

But we can look at the disciplines we put in place around purchasing, to drive down cost, to offset inflation, the pricing disciplines we've put in place that's given us a positive price cost.

We can look at what we've seen is significant upticks in absenteeism and the issues related to productivity like missing parts and happen to put something in a parking lot and go do rework on that we would not have done historically and we're still seeing labor efficiency improvements and you can see that through our margins.

So, it's hard to when you got such an unstable environment to kind of understand just how big the impact is, but the best way to look at it is, despite all these inefficiencies and headwinds and the shortages of revenue we've had, we're still getting solid contribution margin.

We're still getting good discipline in drop throughs in our margin expansion and it's real earnings because you see it converting to cash. So, it's a positive operational story that we just wish we had a positive revenue story to tell with that as well. But we're battling that every day and we're making good progress. So, that's how to answer it.

I don’t know if you have any other questions on that. .

No, it's good. Thank you very much. I appreciate it. .

Our next question is from Jamie Cook with Credit Suisse. Please proceed. .

Okay. I guess my question you commented on sort of margin, your margin targets for 2023, you're still sort of comfortable with that. At your Analyst Day you also gave sort of revenue growth targets I think of 1.5% to sort of 2% by 2023.

Just wondering how you're thinking about that given the backlog and then some of the stimulus and infrastructure bill that we could have and that how that impacts margins. Could there be potential upside to margins because of that? Thank you. .

Yes, Jamie, I think as we build up 2022 heading into 2023, that's a discussion we're having with the backlog and that the challenges here as Rod mentioned it's not the fact that we don't have backlog. We have to drive the throughput, right? So it's really a throughput discussion here in the component supply.

So, as we demonstrated in the second quarter when we had the inventory, we’re able to drive throughput as we had discussed in our previous earnings call. So I think it comes down to what our visibility is to supply chain.

Do we have chassis availability in our ability to accelerate that throughput? Because as Rod mentioned, I do think we have implemented several programs that have driven throughput improvements, but right now they are being offset by the amount of rework and the off seat wins building that we're doing.

So, I think from that perspective, we'll be recasting as we look into 2022 with the entering backlog as someone previously said will be very strong. So it's all around our throughput and our capabilities to have people and supply to execute against that.

But I do think there is opportunity there to deliver on that, especially with the reduction that we've just announced here exiting 2021. .

Okay. Thank you very much. .

Yes. Thank you. .

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Rod for closing comments. .

Yes. Thank you. Again, I want to thank everybody for joining today. Obviously, we probably talked it together around the challenges that is facing the broader industry and we're dealing with. But I do think that the bright star is our customers continuing to deliver orders to us. We're seeing great growth.

We're seeing markets that are very receptive to the new offerings that we're bringing forward.

And from a fundamentals basis going back to the second last question, we got asked, when you look at the execution of the business and that with all the headwinds we are facing and the margin expansions and what we are able – we’ll be able to accomplish in the last year, I am pretty proud of what this team has done and I am confident in the direction that we're going.

We just got to get some of these external challenges behind us, and that's what we're working hard with our supply base as you can imagine. But our focus is always on delivering its commitments and improving our performance and I think we've got to begin to build up track record on that.

The work is not finished, but we're very excited about continuing to drive improvement through the REV Drive business system that we put in place and meeting the commitments we’ve put in place. So, again, appreciate the call, and I look forward to talking to you guys in the one-on-ones. Have a good day. .

Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation..