REV GROUP, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)
This management's discussion and analysis should be read in conjunction with the Condensed Unaudited Consolidated Financial Statements and risk factors contained in this Form 10-Q as well as the Management's Discussion and Analysis and Risk Factors and audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K filed onDecember 15, 2021 .
Overview
REV Group companies are leading designers, manufacturers and distributors of specialty vehicles and related aftermarket parts and services. We serve a diversified customer base, primarily inthe United States , through three segments: Fire and Emergency ("F&E"), Commercial, and Recreation. We provide customized vehicle solutions for applications, including essential needs for public services (ambulances, fire apparatus, school buses, and transit buses), commercial infrastructure (terminal trucks and industrial sweepers) and consumer leisure (recreational vehicles). Our diverse portfolio is made up of well-established principal vehicle brands, including many of the most recognizable names within their industry. Several of our brands pioneered their specialty vehicle product categories and date back more than 50 years. We believe that we hold the first, second and third market share positions, and approximately 89% of our net sales during the second quarter of fiscal year 2022 came from products where we believe we hold such share position.
Segments
We serve a diversified customer base primarily in
through the following segments:
Fire & Emergency - The F&E segment sells and distributes fire apparatus equipment under the Emergency One ("E-ONE"),Kovatch Mobile Equipment ("KME"), Ferrara, and Spartan Emergency Response ("Spartan ER"), which consists of Spartan Emergency Response, Smeal, and Ladder Tower brands, and ambulances under the American Emergency Vehicles ("AEV"), Horton Emergency Vehicles ("Horton"), Leader Emergency Vehicles ("Leader"), Road Rescue and Wheeled Coach brands. We believe we are the largest manufacturer by unit volume of fire and emergency vehicles inthe United States and have one of the industry's broadest portfolios of products including Type I ambulances (aluminum body mounted on a heavy truck-style chassis), Type II ambulances (van conversion ambulance), Type III ambulances (aluminum body mounted on a van-style chassis), pumpers (fire apparatus on a custom or commercial chassis with a water pump and water tank to extinguish fires), ladder trucks (fire apparatus with stainless steel or aluminum ladders), tanker trucks and rescue, aircraft rescue firefighting ("ARFF"), custom cabs & chassis and other vehicles. Each of our individual brands is distinctly positioned and targets certain price and feature points in the market such that dealers often carry, and customers often buy more than one REV F&E product line. Commercial - Our Commercial segment serves the bus market through the Collins Bus and ENC brands. We serve the terminal truck market through the Capacity brand and the sweeper market through the Lay-Mor brand. Our products in the Commercial segment include transit buses (large municipal buses where we build our own chassis and body), Type A school buses (small school bus built on commercial chassis), sweepers (three- and four-wheel versions used in road construction activities), and terminal trucks (specialized vehicles which move freight in warehouses, intermodal yards, distribution and fulfillment centers and ports). Within each market, we produce many customized configurations to address the diverse needs of our customers. Recreation - Our Recreation segment serves the RV market through the following principal brands: American Coach, Fleetwood RV, Holiday Rambler, Renegade, Midwest and Lance. We believe our brand portfolio contains some of the longest standing, most recognized brands in the RV industry. Under these brands, REV provides a variety of highly recognized motorized and towable RV models such as: American Eagle, Bounder,Pace Arrow , Discovery LXE, Verona, Weekender and Lance, among others. Our products in the Recreation segment include Class A motorized RVs (motorhomes built on a heavy-duty chassis with either diesel or gas engine configurations), Class C and "Super C" motorized RVs (motorhomes built on a commercial truck or van chassis), ClassB RVs (motorhomes built out within a van chassis and high-end luxury van conversions), and towable travel trailers and truck campers. The Recreation segment also includes Goldshield Fiberglass, which produces a wide range of custom molded fiberglass products for the heavy-duty truck, RV and broader industrial markets. 19 --------------------------------------------------------------------------------
Factors Affecting Our Performance
The primary factors affecting our results of operations include:
General Economic Conditions
Our business is impacted by theU.S. economic environment, employment levels, consumer confidence, municipal spending, municipal tax receipts, changes in interest rates and instability in securities markets around the world, among other factors. In particular, changes in theU.S. economic climate can impact demand in key end markets. In addition, we are susceptible to supply chain disruptions resulting from the impact of tariffs and global macro-economic factors (refer to "Impact of COVID-19" section below), which can have a dramatic effect, either directly or indirectly, on the availability, lead-times and costs associated with raw materials and parts. RV purchases are discretionary in nature and therefore sensitive to the availability of financing, consumer confidence, unemployment levels, levels of disposable income and changing levels of consumer home equity, among other factors. RV markets are affected by generalU.S. and global economic conditions, which create risks that future economic downturns will further reduce consumer demand and negatively impact our sales. While less economically sensitive than the Recreation segment, the F&E segment and the Commercial segment are also impacted by the overall economic environment. Local tax revenues are an important source of funding for fire and emergency response departments. Fire and emergency products and buses are typically a larger cost item for municipalities and their service life is relatively long, making the purchase more deferrable, which can result in reduced demand for our products. In addition to commercial demand, local, state and federal tax revenues can be an important source of funding for many of our bus products including Type A school buses and transit buses. Volatility in tax revenues or availability of funds via budgetary appropriation can have a negative impact on the demand for these products. A decrease in employment levels, consumer confidence or the availability of financing, or other adverse economic events, or the failure of actual demand for our products to meet our estimates, could negatively affect the demand for our products. Any decline in overall customer demand in markets in which we operate could have a material adverse effect on our operating performance.
Seasonality
In a typical year, our operating results are impacted by seasonality. Historically, the slowest sales volume quarter has been the first fiscal quarter when the purchasing seasons and production days for vehicles, such as school buses, RVs and sweepers are the lowest due to the colder weather and the relatively long time until the summer vacation season. Additionally, the school year is underway with municipalities and school bus contractors utilizing their existing fleets to transport student populations and the holiday plant shutdowns. Sales of our products have typically been higher in the second, third and fourth fiscal quarters (with the fourth fiscal quarter typically being the strongest) due to better weather, the vacation season, buying habits of RV dealers and end-users, timing of government/municipal customer fiscal years, and the beginning of a new school year. Our quarterly results of operations, cash flows, and liquidity are likely to be impacted by these seasonal patterns. Sales and earnings for other vehicles that we produce, such as essential emergency vehicles and commercial bus fleets, are less seasonal, but fluctuations in sales of these vehicles can also be impacted by timing surrounding the fiscal years of municipalities and commercial customers, as well as the timing and amounts of multi-unit orders. Impact of Acquisitions We actively evaluate opportunities to improve and expand our business through targeted acquisitions that are consistent with our strategy. We also may dispose of certain components of our business that no longer fit within our overall strategy. Historically, a significant component of our growth has been through acquisitions of businesses. We typically incur upfront costs as we integrate acquired businesses and implement our operating philosophy at newly acquired companies, including consolidation of supplies and materials, purchases, improvements to production processes, and other restructuring initiatives. The benefits of these integration efforts and divestiture activities may not positively impact our financial results until subsequent periods. We recognize acquired assets and liabilities at fair value. This includes the recognition of identified intangible assets and goodwill which, in the case of definite-life intangible assets, are then amortized over their expected useful lives, which typically results in an increase in amortization expense. In addition, assets acquired and liabilities assumed generally include tangible assets as well as contingent assets and liabilities. 20 --------------------------------------------------------------------------------
Impact of COVID-19
During our second quarter of fiscal year 2020, the novel coronavirus known as "COVID-19" spread throughout the world creating a global pandemic. The pandemic triggered a significant downturn in global commerce and these challenging market conditions may continue for an extended period of time. As a result of the spread of COVID-19, we have also experienced disruption and delays in our supply chain, availability of labor, customer demand changes, and logistics challenges, including our customers' ability to inspect and take delivery of vehicles. As the global economy continues to recover from COVID-19 related disruption, labor and significant supply chain challenges, such as shortages in semiconductors, subcomponents and increased prices of raw materials, such as steel and aluminum, have impacted operations of companies on a global scale. Such supply chain disruptions during the first and second quarters of fiscal year 2022 impacted our ability to obtain certain raw materials and purchased components that are necessary to our production processes, including the ability to obtain chassis from third party suppliers. We continue to monitor these disruptions and take measures to mitigate the associated risks. In certain geographies there has been a resurgence of COVID-19 variant cases and governmental authorities continue to implement numerous measures in an attempt to contain and mitigate the spread of COVID-19 and its variants. While the global market impacts, closures and limitations on movement are expected to be temporary, the duration of any demand changes, production and supply chain disruptions, and related financial impacts, cannot be reliably estimated at this time. Russia-Ukraine War In lateFebruary 2022 ,Russia invadedUkraine . As military activity proceeds and sanctions, export controls and other measures are imposed againstRussia ,Belarus and specific areas ofUkraine , the war is increasingly affecting the global economy and financial markets, as well as exacerbating ongoing economic challenges, including rising inflation and global supply-chain disruption. Although we do not have direct suppliers based inRussia orUkraine , additional supply delays and possible shortages of critical components may arise as the conflict progresses and if certain suppliers' operations and/or subcomponent supply from affected countries are disrupted further. We will continue to monitor and assess the impacts of theRussia -Ukraine war on macroeconomic conditions, our suppliers' ability to deliver products and cybersecurity risks. See "Risk Factors" below. Results of Operations Three Months Ended Six Months Ended April 30, April 30, ($ in millions) 2022 2021 2022 2021 Net sales$ 576.3 $ 643.6 $ 1,113.3 $ 1,197.6 Gross profit 57.1 87.4 112.9 149.1 Selling, general and administrative 50.5 48.7 98.1 95.8 Restructuring 2.9 - 6.6 1.0 Loss on early extinguishment of debt - 1.4 - 1.4 Loss on sale of business or business held for sale 0.1 - 0.1 3.8 Loss on acquisition of business - - - 0.4 (Benefit) provision for income taxes (0.4 ) 7.2 (2.2 ) 7.2 Net (loss) income (2.3 ) 20.6 (3.0 ) 20.6 Net (loss) income per common share Basic$ (0.04 ) $ 0.32 $ (0.05 ) $ 0.32 Diluted$ (0.04 ) $ 0.31 $ (0.05 ) $ 0.32 Dividends declared per common share$ 0.05 $ -$ 0.10 $ - Adjusted EBITDA$ 23.8 $ 45.5 $ 42.1 $ 68.9 Adjusted Net Income$ 10.6 $ 25.7 $ 18.6 $ 34.6 21
-------------------------------------------------------------------------------- Net Sales Three Months Ended Six Months Ended April 30, April 30, April 30, April 30, ($ in millions) 2022 Change 2021 2022 Change 2021 Net sales$ 576.3 -10.5 %$ 643.6 $ 1,113.3 -7.0 %$ 1,197.6 Net Sales : Consolidated net sales decreased$67.3 million for the three months endedApril 30, 2022 compared to the prior year quarter, primarily due to a decrease in net sales within the F&E and Commercial segments, partially offset by an increase in net sales within the Recreation segment. The decrease in net sales in the F&E segment was primarily due to decreased unit shipments of fire apparatus and ambulance units resulting from supply chain constraints and an unfavorable mix of fire apparatus, partially offset by price realization. The decrease in net sales in the Commercial segment was primarily due to decreased shipments of municipal transit buses, partially offset by increased shipments of terminal trucks and street sweepers, and price realization. The increase in net sales in the Recreation segment was primarily the result of price realization and favorable mix, partially offset by lower line rates and decreased unit shipments related to supply chain disruption and labor constraints in certain businesses. Consolidated net sales decreased$84.3 million for the six months endedApril 30, 2022 compared to the prior year period, primarily due to a decrease in net sales within the F&E segment, partially offset by an increase in net sales within theCommercial and Recreation segments. The decrease in sales in the F&E segment was primarily due to decreased unit shipments of fire apparatus and ambulance units resulting from supply chain and labor constraints, and an unfavorable mix of fire apparatus, partially offset by price realization. The increase in the Commercial segment net sales compared to the prior year period was primarily due to increased shipments of school buses, terminal trucks and street sweepers, and price realization, partially offset by decreased shipments of municipal transit buses. The increase in Recreation segment net sales was primarily the result of price realization and favorable mix, partially offset by lower line rates and decreased unit shipments related to supply chain disruption and labor constraints in certain businesses. Gross Profit Three Months Ended
Six Months Ended
April 30, April 30, April 30, April 30, ($ in millions) 2022 Change 2021 2022 Change 2021 Gross profit$ 57.1 -34.7 %$ 87.4 $ 112.9 -24.3 %$ 149.1 % of net sales 9.9 % 13.6 % 10.1 % 12.4 % Gross Profit: Consolidated gross profit decreased$30.3 million for the three months endedApril 30, 2022 compared to the prior year quarter. The decrease in gross profit was primarily attributable to lower net sales, inefficiencies related to supply chain constraints and costs associated with relocating production of KME branded fire apparatus to other F&E segment facilities within the F&E segment, inflationary pressures, and an unfavorable mix within the F&E and Commercial segments, partially offset by price realization and a favorable mix in the Recreation segment. Consolidated gross profit decreased$36.2 million for the six months endedApril 30, 2022 compared to the prior year period. The decrease in gross profit was primarily attributable to lower net sales within the F&E segment, inefficiencies related to supply chain, labor constraints, and relocating production of KME branded fire apparatus to other F&E segment facilities within the F&E segment, inflationary pressures, and unfavorable mix within the F&E and Commercial segments, partially offset by price realization and a favorable mix in the Recreation segment. Selling, General and Administrative Three Months Ended Six Months Ended April 30, April 30, April 30, April 30, ($ in millions) 2022 Change 2021
2022 Change 2021
Selling, general and administrative
Selling, General and Administrative: Consolidated selling, general and administrative ("SG&A") costs increased$1.8 million for the three months endedApril 30, 2022 compared to the prior year quarter. The increase in SG&A costs for the three months endedApril 30, 2022 was primarily due to an increase in travel and legal settlement costs. Consolidated SG&A costs increased$2.3 million for the six months endedApril 30, 2022 compared to the prior year period. The increase in SG&A costs for the six months endedApril 30, 2022 , was primarily due to an increase in travel and legal settlement costs. 22
-------------------------------------------------------------------------------- Restructuring Three Months Ended Six Months Ended April 30, April 30, April 30, April 30, ($ in millions) 2022 Change 2021 2022 Change 2021 Restructuring$ 2.9 n/m $ -$ 6.6 560.0 %$ 1.0 Restructuring: Consolidated restructuring costs increased$2.9 million for the three months endedApril 30, 2022 compared to the prior year quarter. Restructuring costs for the three months endedApril 30, 2022 were related to the transition of KME branded fire apparatus production to other REV fire group facilities within the F&E segment. Refer to Note 8, Restructuring and Other Related Charges, of the Notes to Condensed Unaudited Consolidated Financial Statements. Consolidated restructuring costs increased$5.6 million for the six months endedApril 30, 2022 compared to the prior year. Restructuring costs for the six months endedApril 30, 2022 were related to the transition of KME branded fire apparatus production to other REV fire group facilities within the F&E segment. Refer to Note 8, Restructuring and Other Related Charges, of the Notes to Condensed Unaudited Consolidated Financial Statements. Loss on Early Extinguishment of Debt Three Months Ended Six Months Ended April 30, April 30, April 30, April 30, ($ in millions) 2022 Change 2021 2022 Change 2021 Loss on early extinguishment of debt $ - -100.0 %$ 1.4
$ – -100.0 %
Loss on Early Extinguishment of Debt: Reflects losses recognized upon
extinguishment of our 2017 ABL Facility and Term Loan. The loss is entirely
comprised of unamortized debt issuance costs that were written off in connection
with this extinguishment.
Loss on Sale of Business or Business Held for Sale Three Months Ended Six Months Ended April 30, April 30, April 30, April 30, ($ in millions) 2022 Change 2021 2022 Change 2021 Loss on sale of business or business held for sale$ 0.1 n/m $ -$ 0.1 -97.4 %$ 3.8 Loss on Sale of Business or Business Held for Sale: Consolidated losses on sale of business or business held for sale increased by$0.1 million for the three months endedApril 30, 2022 compared to the prior year quarter. This was related to the restructuring activities noted within Note 8, Restructuring and Other Related Charges. Consolidated losses on sale of business or business held for sale decreased by$3.7 million for the six months endedApril 30, 2022 compared to the prior year period. In the first quarter of fiscal year 2021, in connection with a strategic review of the product portfolio, we made the decision to divest our REV Brazil business. As a result, a loss of$3.8 million was recorded during the six months endedApril 30, 2021 . Refer to Note 7, Divestiture Activities, of the Notes to Condensed Unaudited Consolidated Financial Statements for further details. Loss on Acquisition of Business Three Months Ended Six Months Ended April 30, April 30, April 30, April 30, ($ in millions) 2022 Change 2021 2022 Change 2021 Loss on acquisition of business $ - n/m $ -
$ – -100.0 %
Loss on Acquisition of Business: During the first quarter of fiscal year 2021,
the preliminary purchase price allocation of the Spartan ER acquisition was
updated to reflect immaterial measurement period adjustments made to
inventories, warranty, and certain other assets acquired and liabilities
assumed. These updates resulted in a decrease to the cumulative gain on
acquisition of
(Benefit) Provision for Income Taxes Three Months Ended Six Months Ended April 30, April 30, April 30, April 30, ($ in millions) 2022 Change 2021 2022 Change 2021
(Benefit) provision for income taxes
(Benefit) Provision for Income Taxes: Consolidated income tax benefit was$0.4 million for the three months endedApril 30, 2022 , or 14.8% of pre-tax loss, compared to$7.2 million of expense, or 25.8% of pretax income, for the three months endedApril 30, 2021 . Results for the three months endedApril 30, 2022 were unfavorably impacted by$0.3 million of net discrete tax expense related to the loss of a tax attribute. Results for the three months endedApril 30, 2021 were favorably impacted by$0.1 million of net discrete tax benefit primarily related to stock-based compensation tax deductions. 23 -------------------------------------------------------------------------------- Consolidated income tax benefit was$2.2 million for the six months endedApril 30, 2022 , or 42.3% of pre-tax loss, compared to$7.2 million of expense, or 25.9% of pretax income, for the six months endedApril 30, 2021 . Results for the six months endedApril 30, 2022 were favorably impacted by$0.9 million of net discrete tax benefit primarily related to stock-based compensation tax deductions. Results for the six months endedApril 30, 2021 were favorably impacted by$1.2 million of net discrete tax benefit related primarily to the recognition of deferred taxes on assets classified as held for sale and stock-based compensation tax deductions. Net (loss) income Three Months Ended Six Months Ended April 30, April 30, April 30, April 30, ($ in millions) 2022 Change 2021 2022 Change 2021 Net (loss) income$ (2.3 ) -111.2 %$ 20.6 $ (3.0 ) -114.6 %$ 20.6
Net (Loss) Income: Consolidated net (loss) income decreased
the three months ended
primarily due to the factors detailed above.
Consolidated net (loss) income decreased$23.6 million for the six months endedApril 30, 2022 compared to the prior year period primarily due to the factors detailed above. Adjusted EBITDA Three Months Ended Six Months Ended April 30, April 30, April 30, April 30, ($ in millions) 2022 Change 2021 2022 Change 2021 Adjusted EBITDA$ 23.8 -47.7 %$ 45.5 $ 42.1 -38.9 %$ 68.9 Consolidated Adjusted EBITDA decreased$21.7 million for the three months endedApril 30, 2022 compared to the prior year quarter, primarily due to a decrease in Adjusted EBITDA in the F&E and Commercial segments, partially offset by higher Adjusted EBITDA in the Recreation segment. Consolidated Adjusted EBITDA decreased$26.8 million for the six months endedApril 30, 2022 compared to the prior year period, due to a decrease in Adjusted EBITDA in the F&E and Commercial segments, partially offset by higher Adjusted EBITDA in the Recreation segment.
Refer to Adjusted EBITDA and Adjusted Net Income section of “Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of this Quarterly Report on Form 10-Q for a reconciliation of (Loss)
Income to Adjusted EBITDA and Adjusted Net Incomes tables and related footnotes.
Adjusted Net Income Three Months Ended Six Months Ended April 30, April 30, April 30, April 30, ($ in millions) 2022 Change 2021 2022 Change 2021 Adjusted Net Income$ 10.6 -58.8 %$ 25.7
Refer to Adjusted EBITDA and Adjusted Net Income section of "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Quarterly Report on Form 10-Q for a reconciliation of Net (Loss) Income to Adjusted EBITDA and Adjusted Net Incomes tables and related footnotes. Fire & Emergency Segment Three Months Ended Six Months Ended April 30, April 30, April 30, April 30, ($ in millions) 2022 Change 2021 2022 Change 2021 Net sales$ 245.0 -20.4 %$ 307.6 $ 482.4 -18.0 %$ 588.2 Adjusted EBITDA (2.2 ) -110.1 % 21.7 (0.4 ) -101.3 % 31.9 Adjusted EBITDA % of net sales -0.9 % 7.1 % -0.1 % 5.4 %
F&E segment net sales decreased
30, 2022
primarily due to decreased shipments of fire apparatus and ambulance units
resulting from supply chain disruptions and an unfavorable mix of fire
apparatus, partially offset by price realization.
24 -------------------------------------------------------------------------------- F&E segment net sales decreased$105.8 million for the six months endedApril 30, 2022 compared to the prior year period. The decrease in net sales was primarily due to decreased shipments of fire apparatus and ambulance units resulting from supply chain disruption and labor constraints and an unfavorable mix of fire apparatus, partially offset by price realization. F&E segment Adjusted EBITDA decreased$23.9 million for the three months endedApril 30, 2022 compared to the prior year quarter. The decrease was primarily due to lower sales volume, an unfavorable mix of fire apparatus, inefficiencies related to supply chain disruptions, and inflationary pressures, partially offset by price realization. F&E segment Adjusted EBITDA decreased$32.3 million for the six months endedApril 30, 2022 compared to the prior year period. The decrease was primarily due to lower sales volume, and inefficiencies related to supply chain disruption and labor constraints, partially offset by price realization.
Commercial Segment
Three Months Ended Six Months Ended April 30, April 30, April 30, April 30, ($ in millions) 2022 Change 2021 2022 Change 2021 Net sales$ 90.7 -7.8 %$ 98.4 $ 188.3 3.7 %$ 181.5 Adjusted EBITDA 4.4 -47.0 % 8.3 12.2 -21.3 % 15.5 Adjusted EBITDA % of net sales 4.9 % 8.4 % 6.5 % 8.5 % Commercial segment net sales decreased$7.7 million for the three months endedApril 30, 2022 compared to the prior year quarter. The decrease in net sales was primarily due to decreased shipments of municipal transit buses, partially offset by increased shipments of terminal trucks and street sweepers, and price realization. Commercial segment net sales increased$6.8 million for the six months endedApril 30, 2022 compared to the prior year period. The increase in net sales was primarily due to increased shipments of school buses, terminal trucks and street sweepers, and price realization, partially offset by decreased shipments of municipal transit buses. Commercial segment Adjusted EBITDA decreased$3.9 million for the three months endedApril 30, 2022 compared to the prior year quarter. The decrease was primarily due to an unfavorable mix of school buses, lower shipments and an unfavorable mix of municipal transit buses, inefficiencies related to supply chain disruptions, and inflationary pressures, partially offset by increased shipments and improved profitability of terminal trucks and price realization. Commercial segment Adjusted EBITDA decreased$3.3 million for the six months endedApril 30, 2022 compared to the prior year period. The decrease was primarily due to an unfavorable mix of school buses, lower shipments and an unfavorable mix of municipal transit buses, inefficiencies related to supply chain disruptions, and inflationary pressures, partially offset by increased shipments of street sweepers, increased shipments and improved profitability of terminal trucks, and price realization.
Recreation Segment
Three Months Ended Six Months Ended April 30, April 30, April 30, April 30, ($ in millions) 2022 Change 2021 2022 Change 2021 Net sales$ 241.0 1.3 %$ 237.9 $ 443.6 3.6 %$ 428.0 Adjusted EBITDA 28.7 14.3 % 25.1 45.8 13.9 % 40.2 Adjusted EBITDA % of net sales 11.9 % 10.6 % 10.3 % 9.4 % Recreation segment net sales increased$3.1 million for the three months endedApril 30, 2022 compared to the prior year quarter. The increase was primarily due to strong price realization and favorable mix, partially offset by lower line rates and unit shipments related to supply chain disruption and labor constraints in certain businesses. Recreation segment net sales increased$15.6 million for the six months endedApril 30, 2022 compared to the prior year period. The increase was primarily due to strong price realization and favorable mix, partially offset by lower line rates and unit shipments related to supply chain disruption and labor constraints in certain businesses. 25 -------------------------------------------------------------------------------- Recreation segment Adjusted EBITDA increased$3.6 million for the three months endedApril 30, 2022 compared to the prior year quarter. The increase was primarily due to strong price realization and favorable mix, partially offset by inefficiencies resulting from supply chain disruption and labor constraints in certain businesses, and inflationary pressures. Recreation segment Adjusted EBITDA increased$5.6 million for the six months endedApril 30, 2022 compared to the prior year period. The increase was primarily due to strong price realization and favorable mix, partially offset by inefficiencies resulting from supply chain disruption and labor constraints in certain businesses, and inflationary pressures.
Backlog
Backlog represents firm orders received from dealers or directly from end
customers. The following table presents a summary of our backlog by segment:
April 30, January 31, April 30,
($ in millions) 2022 2022 2021 Fire & Emergency$ 1,788.3 $ 1,655.1 $ 1,099.0 Commercial 531.1 459.8 303.1 Recreation 1,302.7 1,282.6 940.5 Total Backlog$ 3,622.1 $ 3,397.5 $ 2,342.6
Each of our three segments has a backlog of new vehicle orders that generally
extends out from nine to eighteen months in duration.
Orders from our dealers and end customers are evidenced by a contract, firm purchase order or reserved production slot for delivery of one or many vehicles. These orders are reported in our backlog at the aggregate selling prices, net of discounts or allowances. As ofApril 30, 2022 , our backlog was$3,622.1 million compared to$2,342.6 million as ofApril 30, 2021 . The increase in consolidated backlog was primarily due to strong order intake within the segments, and lower throughput related to supply chain and labor constraints in certain businesses. The increase in F&E segment backlog was primarily the result of strong orders for fire apparatus and ambulance units. The increase in Commercial segment backlog was primarily the result of increased orders for school buses, municipal transit buses, terminal trucks and street sweepers, partially offset by a decline in orders for municipal transit buses. The increase in Recreation segment backlog was primarily the result of strong order intake in several product categories and pricing actions.
Liquidity and Capital Resources
General
Our primary requirements for liquidity and capital are working capital, the improvement and expansion of existing manufacturing facilities, debt service payments and general corporate needs. Historically, these cash requirements have been met through cash provided by operating activities, cash and cash equivalents and borrowings under our ABL credit facility. We believe that our sources of liquidity and capital will be sufficient to finance our continued operations, including working capital requirements, dividends, share repurchases and growth strategy for at least twelve months. However, we cannot assure you that cash provided by operating activities and borrowings under the current ABL facility will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future, and if availability under the current ABL facility is not sufficient due to the size of our borrowing base or other external factors, we may have to obtain additional financing. If additional capital is obtained by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain financial and other covenants that may significantly restrict our operations or may involve higher overall interest rates. 26 --------------------------------------------------------------------------------
Cash Flow
The following table shows summary cash flows for the six months endedApril 30, 2022 andApril 30, 2021 : Six Months Ended April 30, ($ in millions) 2022 2021 Net cash provided by operating activities$ 27.4 $ 37.1
Net cash (used in) provided by investing activities (5.9 ) 3.3
Net cash used in financing activities
(28.9 ) (44.1 ) Net decrease in cash and cash equivalents$ (7.4 ) $ (3.7 ) 27
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Net Cash Provided by Operating Activities
Net cash provided by operating activities for the six months endedApril 30, 2022 was$27.4 million and was primarily related to the increase of customer advances and timing of payable payments, partially offset by a decrease in accounts receivable receipts, an increase in inventory, and a net loss recognized during the period. The generation of positive cash from operating activities for the six months endedApril 30, 2021 , was related to higher net income and a receipt of a tax refund related to the CARES Act, partially offset by decreases from the timing of payables.
Net cash used in investing activities for the six months endedApril 30, 2022 was$5.9 million and was related to the cash paid for capital expenditures, partially offset by cash received in connection with the sales of certain assets. Net cash provided by investing activities for the six months endedApril 30, 2021 was$3.3 million and was primarily related to the proceeds from the sale of land for$8.7 million and other assets, partially offset by cash paid for capital expenditures.
Net cash used in financing activities for the six months endedApril 30, 2022 was$28.9 million , which primarily consisted of share repurchases of$45.9 million , dividends paid of$6.4 million and the payment of taxes on vested share based payment awards and other financing activities of$4.6 million , partially offset by net proceeds from our 2021 ABL Facility for$28.0 million . Net cash used in financing activities for the six months endedApril 30, 2021 was$44.1 million , which primarily consisted of net proceeds from our 2021 ABL Facility offset by the use of those proceeds to repay the 2017 ABL Facility and Term Loan, and payments for debt issuance costs.
Dividends
Subject to legally available funds and the discretion of our board of directors, we expect to pay a quarterly cash dividend at the rate of$0.05 per share on our common stock. Our dividend policy has certain risks and limitations, particularly with respect to liquidity, and we may not pay dividends according to our policy, or at all. We cannot assure you that we will declare dividends or have sufficient funds to pay dividends on our common stock in the future. A quarterly cash dividend was declared in the amount of$.05 per share of common stock payable onJuly 15, 2022 , to shareholders of record onJune 30, 2022 . During the second quarter of fiscal year 2022, we paid cash dividends of$3.1 million . To date during fiscal year 2022, we have paid cash dividends of$6.4 million . 2021 ABL Facility OnApril 13, 2021 , the Company entered into a$550.0 million revolving credit agreement (the "2021 ABL Facility" or "2021 ABL Agreement") with a syndicate of lenders. The 2021 ABL Facility provides for revolving loans and letters of credit in an aggregate amount of up to$550.0 million . The total credit facility is subject to a$30.0 million sublimit for swing line loans and a$35.0 million sublimit for letters of credit (plus up to an additional$20.0 million of letters of credit at issuing bank's discretion), along with certain borrowing base and other customary restrictions as defined in the 2021 ABL Agreement. The 2021 ABL Agreement allows for incremental facilities in an aggregate amount of up to$100.0 million , plus the excess, if any, of the borrowing base then in effect over total commitments then in effect. Any such incremental facilities are subject to receiving additional commitments from lenders and certain other customary conditions.
The 2021 ABL Facility matures on
whole or in part, at any time without penalty.
We were in compliance with all financial covenants under the 2021 ABL Agreement as ofApril 30, 2022 . As ofApril 30, 2022 , the Company's availability under the 2021 ABL Facility was$293.6 million .
Refer to Note 9, Long-Term Debt, of the Notes to Condensed Unaudited
Consolidated Financial Statements for further details.
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Adjusted EBITDA and Adjusted Net Income
In considering the financial performance of the business, management analyzes the primary financial performance measures of Adjusted EBITDA and Adjusted Net Income. Adjusted EBITDA is defined as Net Income (Loss) for the relevant period before depreciation and amortization, interest expense, income taxes and loss on early extinguishment of debt, as adjusted for certain items described below that we believe are not indicative of our ongoing operating performance. Adjusted Net Income is defined as Net Income (Loss), as adjusted for certain items described below that we believe are not indicative of our ongoing operating performance. We believe Adjusted EBITDA and Adjusted Net Income are useful to investors because these performance measures are used by our management and our Board of Directors for measuring and reporting our financial performance and as a measurement in incentive compensation for management. These measures exclude the impact of certain items which we believe have less bearing on our core operating performance because they are items that are not needed or available to our managers in the daily activities of their businesses. We believe that the core operations of our business are those which can be affected by our management in a particular period through their resource allocation decisions that affect the underlying performance of our operations conducted during that period. We also believe that decisions utilizing Adjusted EBITDA and Adjusted Net Income allow for a more meaningful comparison of operating fundamentals between companies within our markets by eliminating the impact of capital structure and taxation differences between the companies. To determine Adjusted EBITDA, we adjust Net Income (Loss) for the following items: non-cash depreciation and amortization, interest expense, income taxes, loss on early extinguishment of debt and other items as described below. Stock-based compensation expense and sponsor expense reimbursement is excluded from both Adjusted Net Income and Adjusted EBITDA because it is an expense, which cannot be impacted by our business managers. Stock-based compensation expense also reflects a cost which may obscure trends in our underlying vehicle businesses for a given period, due to the timing and nature of the equity awards. We also adjust for exceptional items, which are determined to be those that in management's judgment are not indicative of our ongoing operating performance and need to be disclosed by virtue of their size, nature or incidence, and include non-cash items and items settled in cash. In determining whether an event or transaction is exceptional, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence. Adjusted EBITDA and Adjusted Net Income (Loss) have limitations as analytical tools. These are not presentations made in accordance withU.S. GAAP, are not measures of financial condition and should not be considered as an alternative to net income or net loss for the period determined in accordance withU.S. GAAP. The most directly comparableU.S. GAAP measure to Adjusted EBITDA and Adjusted Net Income is Net Income for the relevant period. Adjusted EBITDA and Adjusted Net Income are not necessarily comparable to similarly titled measures used by other companies. As a result, you should not consider this performance measure in isolation from, or as a substitute analysis for, our results of operations as determined in accordance withU.S. GAAP. Moreover, such measures do not reflect:
•
our cash expenditures, or future requirements for capital expenditures or
contractual commitments;
•
changes in, or cash requirements for, our working capital needs;
•
the cash requirements necessary to service interest or principal payments on our
debt;
•
the cash requirements to pay our taxes.
29 -------------------------------------------------------------------------------- The following table reconciles Net (Loss) Income to Adjusted EBITDA for the periods presented: Three Months Ended Six Months Ended April 30, April 30, ($ in millions) 2022 2021 2022 2021 Net (loss) income$ (2.3 ) $ 20.6 $ (3.0 ) $ 20.6 Depreciation and amortization 8.7 8.0 18.3 16.7 Interest expense, net 3.5 5.5 6.9 11.0 Loss on early extinguishment of debt - 1.4 - 1.4 (Benefit) provision for income taxes (0.4 ) 7.2 (2.2 ) 7.2 EBITDA 9.5 42.7 20.0 56.9 Transaction expenses(a) 0.3 0.3 0.5 2.7 Sponsor expense reimbursement(b) - - 0.1 0.2 Restructuring costs(c) 2.9 - 6.6 1.0 Restructuring related charges(d) 4.4 0.3 5.1 0.3 Stock-based compensation expense(e) 2.2 1.7 4.5 3.6 Legal matters(f) 4.4 - 5.2 0.4 Net loss on sale of assets and business held for sale(g) 0.1 - 0.1 2.7 Loss on acquisition of business(h) - - - 0.4 Losses attributable to assets held for sale(i) - 0.5 - 0.7 Adjusted EBITDA$ 23.8 $ 45.5 $ 42.1 $ 68.9 The following table reconciles Net (Loss) Income to Adjusted Net Income for the periods presented: Three Months Ended Six Months Ended April 30, April 30, ($ in millions) 2022 2021 2022 2021 Net (loss) income$ (2.3 ) $ 20.6 $ (3.0 ) $ 20.6 Amortization of intangible assets 2.0 2.5 4.4 5.1 Transaction expenses(a) 0.3 0.3 0.5 2.7 Sponsor expense reimbursement(b) - - 0.1 0.2 Restructuring costs(c) 2.9 - 6.6 1.0 Restructuring related charges(d) 4.4 0.3 5.1 0.3 Stock-based compensation expense(e) 2.2 1.7 4.5 3.6 Legal matters(f) 4.4 - 5.2 0.4 Net loss on sale of assets and business held for sale(g) 0.1 - 0.1 2.7 Loss on acquisition of business(h) - - - 0.4 Losses attributable to assets held for sale(i) - 0.5 - 0.7 Loss on early extinguishment of debt(j) - 1.4 - 1.4 Accelerated depreciation on certain property, plant, and equipment (k) 0.9 - 2.3 - Income tax effect of adjustments(l) (4.3 ) (1.6 ) (7.2 ) (4.5 ) Adjusted Net Income$ 10.6 $ 25.7 $ 18.6 $ 34.6 30
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(a)
Reflects costs incurred in connection with business acquisitions, dispositions,
and capital market transactions. These expenses consist primarily of legal,
accounting and due diligence expenses.
(b)
Reflects the reimbursement of expenses to our primary equity holder.
(c)
Restructuring costs in the current fiscal year incurred in connection with the
announced closure of certain facilities within the F&E segment.
Restructuring expenses in the prior fiscal year consisted of personnel costs, including severance, vacation and other employee benefit payments associated with headcount reductions in Corporate.
(d)
Reflects costs that are directly attributable to restructuring activities, but
do not meet the definition of restructuring under ASC 420.
(e)
Reflects expenses associated with the vesting of equity awards including
employer payroll taxes.
(f)
Reflects legal fees and costs incurred to litigate and settle legal claims against us which are outside the normal course of business. Costs include payments: (i) for fees and costs to litigate and settle non-ordinary course intellectual property and dealer disputes, (ii) for fees and costs to litigate the putative securities class actions and derivative action pending against us and certain of our directors and officers (iii) for fees to settle certain claims arising from a putative class action in the state ofCalifornia (iv) fees and costs to settle indemnification liabilities and other claims arising of previously disposed of businesses.
(g)
The current fiscal year reflects a loss on the sale of a business within the F&E segment as part of the restructuring activities during the second quarter of fiscal year 2022. In the first quarter of fiscal year 2021, in connection with a strategic review of the product portfolio, we made the decision to divest our REV Brazil business. As a result, a loss of$3.8 million was recorded during the six months endedApril 30, 2021 . We also recorded$1.1 million gain related to the sale of land previously included within the F&E segment.
(h)
Reflects the initial gain and subsequent adjustments on the acquisition of
Spartan ER, which was completed on
(i)
Adjusted EBITDA attributable to businesses that are or were classified as held for sale, which represents REV Brazil during the first and second quarters of fiscal year 2021.
(j)
Reflects losses recognized upon extinguishment of our 2017 ABL Facility and Term Loan. The loss is entirely comprised of unamortized debt issuance costs that were written off in connection with this extinguishment.
(k)
Reflects accelerated deprecation that was incurred in connection with the
announced closure of certain facilities within the F&E segment.
(l)
Income tax effect of adjustments using a 26.5% effective income tax rate for the three and six months endedApril 30, 2022 andApril 30, 2021 , except for certain transaction expenses and losses attributable to assets held for sale.
Off-Balance Sheet Arrangements
We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating our business. We do not have any off-balance sheet arrangements or relationships with entities that are not consolidated into or disclosed in our consolidated financial statements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures and capital resources. In addition, we do not engage in trading activities involving non-exchange traded contracts. Refer to Note 13, Commitments and Contingencies, of the Notes to Condensed Unaudited Consolidated Financial Statements for additional discussion.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates, assumptions and judgments that affect amounts reported in the consolidated financial statements and accompanying notes. Our disclosures of critical accounting policies are reported in our Annual Report on Form 10-K for the fiscal year endedOctober 31, 2021 . In the first quarter of fiscal year 2022, we adopted ASU 2019-12 relating to Simplifying the Accounting for Income Taxes, as discussed in Note 1 of the Notes to Condensed Unaudited Consolidated Financial Statements.
Recent Accounting Pronouncements
Refer to Note 1 of the Notes to Condensed Unaudited Consolidated Financial
Statements for a discussion of the impact on our financial statements of new
accounting standards.
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