REV Group, Inc., a manufacturer of industry-leading specialty vehicles, today reported results for the three months ended April 30, 2020 (“second quarter 2020”).
“Our fiscal quarter results reflect operational challenges, including production suspensions and slowdowns caused by COVID-19. However, the pandemic impacts are not unique to us and our execution did not meet our expectations,” REV Group Inc. President and CEO Rod Rushing said.
Consolidated net sales in the second quarter 2020 were $547.0 million, representing a decrease of 11.1 percent compared to $615.0 million for the three months ended April 30, 2019 (“second quarter 2019”). The decrease in net sales was primarily the result of lower Recreation and Commercial segment net sales, partially offset by an increase in net sales in the Fire & Emergency (“F&E”) segment.
“The potential within this business is significant, and I am encouraged and excited about the opportunity to lead this team with these iconic brands,” Rushing said.
The Company’s second quarter 2020 net loss was $7.6 million, or $0.12 per diluted share, compared to net income of $5.6 million, or $0.09 per diluted share, in the second quarter 2019. Adjusted Net Loss for the second quarter 2020 was $5.8 million, or $0.09 per diluted share, compared to Adjusted Net Income of $15.2 million, or $0.24 per diluted share, in the second quarter 2019. Adjusted EBITDA in the second quarter 2020 was $7.6 million, compared to $36.1 million in the second quarter 2019. The decrease in Adjusted EBITDA during the quarter was driven by lower profitability in all segments partially offset by lower corporate expense.
“We will increase our sense of urgency and improve accountability to drive better performance in this organization, Rushing said. “Our immediate priorities are to take action to build positive operating momentum within our businesses. We have established near-term actions and enabled operational excellence capabilities to address performance and complexity, while looking at our operating model and structure to take better advantage of our scale.”
Fire & Emergency Segment
F&E segment net sales were $289.3 million in the second quarter 2020, an increase of $42.2 million, or 17.1 percent, from $247.1 million in the second quarter 2019. The increase was driven primarily by the acquisition of Spartan Emergency Response (“Spartan ER”) within the second quarter 2020, partially offset by lower shipments of fire apparatus from legacy fire businesses. F&E backlog at the end of the second quarter 2020 was $1,111.7 million, up 41.3 percent, compared to $786.5 million in the second quarter 2019, reflecting backlog acquired in the Spartan ER transaction as well as strong order intake within the Ambulance division.
F&E segment Adjusted EBITDA was $10.2 million in the second quarter 2020, compared to $15.1 million in the second quarter 2019. The decrease in Adjusted EBITDA was primarily due to operating inefficiencies related to absenteeism and final inspection delays caused by the COVID-19 pandemic resulting in delayed shipments, partially offset by the acquisition of Spartan ER. Second quarter 2020 F&E segment Adjusted EBITDA margin was 3.5 percent of net sales, compared to 6.1 percent in the second quarter 2019.
Commercial Segment
Commercial segment net sales were $143.2 million in the second quarter 2020, a decrease of $26.8 million, or 15.8 percent, from $170.0 million in the second quarter 2019. The decrease in net sales was primarily the result of lower sales of school buses, shuttle buses and lower sales within the Specialty division, partially offset by higher transit bus units sold compared to the prior year. Commercial backlog at the end of the second quarter 2020 was $413.2 million, a decrease of 5.2 percent compared to $435.9 million at the end of the second quarter 2019, primarily due to the result of a decrease in Specialty division backlog.
Commercial segment Adjusted EBITDA was $8.0 million in the second quarter 2020, compared to $14.7 million in the second quarter 2019. This decrease was primarily due to a decrease in sales of school buses, shuttle buses, terminal trucks and street sweepers as compared to the prior year, and operating inefficiencies related to supply chain disruptions, temporary production rate decreases and absenteeism caused by the COVID-19 pandemic. Second quarter 2020 Adjusted EBITDA margin was 5.6 percent of net sales, compared to 8.6 percent in the second quarter 2019.
Recreation Segment
Recreation segment net sales were $114.0 million in the second quarter 2020, a decrease of $85.7 million, or 42.9 percent, from $199.7 million in the second quarter 2019. The decrease in net sales was primarily due to a previously disclosed shutdown of normal production activities related to COVID-19 at all Recreation businesses within the quarter. Recreation segment backlog at the end of the second quarter 2020 was $122.9 million, down 27.3 percent from $169.0 million at the end of the second quarter 2019.
Recreation segment Adjusted EBITDA loss was $1.1 million in the second quarter 2020, compared to Adjusted EBITDA of $17.3 million in the second quarter 2019. The decrease in Adjusted EBITDA was due to decreased sales and profitability in all RV product categories resulting from temporary suspension of production and lower wholesale shipments. Second quarter 2020 Adjusted EBITDA margin was negative 1.0 percent of net sales, compared to 8.7 percent in the second quarter 2019.
Working Capital, Liquidity, and Capital Allocation
Subsequent to the second quarter 2020, the Company completed the sale of its two shuttle bus businesses for gross proceeds of approximately $49.0 million, plus items that are expected to result in $5.0 million additional cash at a later date. Net proceeds from the transaction were used to pay down outstanding borrowings. Cash and cash equivalents totaled $21.5 million as of April 30, 2020. Net debt2 was $421.0 million, and the Company had $214.6 million available under its ABL revolving credit facility as of April 30, 2020.
Year-to-date net cash provided by operating activities was $22.0 million compared to net cash used of $39.2 million in the prior year period, resulting from efficient use of capital during the operational slowdowns caused by the COVID-19 pandemic. Net working capital3 for the Company as of April 30, 2020 was $428.8 million compared to $459.6 million as of April 30, 2019. The decrease was primarily due to the reclassification of shuttle bus businesses to held for sale and efficient cash management, partially offset by the acquisition of Spartan ER. Capital expenditures in the second quarter 2020 were $4.5 million compared to $3.1 million in the prior year quarter.
